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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 quarter ended:		September 30, 2011

or

 

¨	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:		000-53816

KMP FUTURES FUND I LLC

 

(Exact name of registrant as specified in its charter)

 

Delaware		20-5914530
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

900 King Street, Suite 100, Rye Brook, New York		10573
(Address of principal executive offices)		(Zip Code)

(914) 307-7000

 

(Registrant’s telephone number, including area code)

N/A

 

(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  ¨

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  ¨

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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 definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨		Accelerated filer  ¨
Non-accelerated filer  x		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  ¨    No  x

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KMP FUTURES FUND I LLC

INDEX TO QUARTERLY REPORT ON FORM 10-Q

SEPTEMBER 30, 2011

 

				Page
PART I – FINANCIAL INFORMATION					4
Item 1.		Financial Statements			4
		KMP Futures Fund I LLC
		Condensed Statements of Financial Condition as of September 30, 2011 (Unaudited) and December 31, 2010			6
		Condensed Schedules of Investments as of September 30, 2011 (Unaudited) and December 31, 2010			7
		Condensed Statements of Operations (Unaudited) for the Three Months and Nine Months Ended September 30, 2011 and 2010			8
		Condensed Statements of Changes in Members’ Capital (Unaudited) for the Nine Months Ended September 30, 2011 and 2010			9
		Notes to Condensed Financial Statements (Unaudited)			10
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			44
Item 4.		Controls and Procedures			46
PART II – OTHER INFORMATION					47
Item 1.		Legal Proceedings			47
Item 1.A.		Risk Factors			47
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 3.		Defaults Upon Senior Securities			47
Item 5.		Other Information			47
Item 6.		Exhibits:			47

 

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PART I – FINANCIAL INFORMATION

 

Item 1.

Financial Statements

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;

FINANCIAL STATEMENTS TO FOLLOW]

 

 

 

 

 

 

 

 

 

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KMP FUTURES FUND I LLC

CONDENSED FINANCIAL STATEMENTS

September 30, 2011

 

 

 

 

 

 

 

 

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KMP FUTURES FUND I LLC

CONDENSED STATEMENTS OF FINANCIAL CONDITION

September 30, 2011 (Unaudited) and December 31, 2010

 

 

 

		September 30, 2011				December 31, 2010
ASSETS
Cash and cash equivalents (See Note 2)		$	29,807,417			$	10,805,698
Investments in securities, at fair value (cost $0 and $22,835,698 at September 30, 2011 and December 31, 2010, respectively)			0				22,397,484
Commodity options owned, at fair value (premiums paid $305 and $175 at September 30, 2011 and December 31, 2010, respectively)			775				105
Net unrealized gain on open forward contracts			0				209,174
Net unrealized gain on open futures contracts			205,772				697,722
Receivable from Kenmar Global Trust			0				4,263,567
Total assets		$	30,013,964			$	38,373,750
LIABILITIES
Commodity options written, at fair value (premiums received $605 and $325 at September 30, 2011 and December 31, 2010, respectively)		$	1,560			$	230
Net unrealized loss on open forward contracts			106,372				0
Management fees payable to Managing Member			30,979				0
Accrued expenses payable			87,572				178,201
Service fees payable			86,196				0
Redemptions payable (December 31, 2010 includes $4,412,339 to be converted to individual memberships)			323,486				4,880,319
Trading Advisors’ management fees payable			43,190				55,943
Trading Advisors’ incentive fees payable			51,407				1,986
Total liabilities			730,762				5,116,679
MEMBERS’ CAPITAL (Net Asset Value)			29,283,202				33,257,071
Total liabilities and members’ capital		$	30,013,964			$	38,373,750

See accompanying notes.

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KMP FUTURES FUND I LLC

CONDENSED SCHEDULES OF INVESTMENTS

September 30, 2011 (Unaudited) and December 31, 2010

 

 

 

		September 30, 2011								December 31, 2010
		Net Unrealized Gain (Loss) as a % of Members’ Capital				Net Unrealized Gain (Loss)				Net Unrealized Gain (Loss) as a % of Members’ Capital				Net Unrealized Gain (Loss)
Futures and Forward Contracts
Futures contracts purchased:
Commodities			(0.68	)%		$	(198,496	)			1.92	%		$	640,908
Currencies			(0.19	)%			(53,782	)			0.75	%			250,520
Energies			(0.49	)%			(143,272	)			0.23	%			75,881
Interest rates			0.19	%			55,760				0.08	%			27,956
Stock indices			(0.19	)%			(56,721	)			(0.12	)%			(40,647	)
Net unrealized gain (loss) on futures contracts purchased			(1.36	)%			(396,511	)			2.86	%			954,618
Futures contracts sold:
Commodities			1.26	%			367,654				(0.32	)%			(108,093	)
Currencies			0.17	%			49,845				(0.05	)%			(16,698	)
Energies			0.67	%			194,815				(0.06	)%			(20,310	)
Interest rates			(0.03	)%			(8,211	)			(0.34	)%			(113,137	)
Stock indices			(0.01	)%			(1,820	)			0.00	%			1,342
Net unrealized gain (loss) on futures contracts sold			2.06	%			602,283				(0.77	)%			(256,896	)
Net unrealized gain on open futures contracts			0.70	%		$	205,772				2.09	%		$	697,722
Forward currency contracts purchased:
Net unrealized gain (loss) on forward contracts purchased			3.43	%		$	1,004,447				(0.84	)%		$	(282,708	)
Forward currency contracts sold:
Net unrealized gain (loss) on forward contracts sold			(3.79	)%			(1,110,819	)			1.47	%			491,882
Net unrealized gain (loss) on forward contracts			(0.36	)%		$	(106,372	)			0.63	%		$	209,174
		Net Unrealized Gain (Loss) as a % of Members’ Capital				Net Unrealized Gain (Loss)				Net Unrealized Gain (Loss) as a % of Members’ Capital				Net Unrealized Gain (Loss)
Purchased Options on Futures Contracts:
Fair value of options purchased:			0.00	%		$	775				0.00	%		$	105
Commodity options owned, at fair value (premiums paid $305 and $175 at September 30, 2011 and December 31, 2010, respectively)			0.00	%		$	775				0.00	%		$	105
Written Options on Futures Contracts:
Fair value of options written:			(0.00	)%		$	(1,560	)			0.00	%		$	(230	)
Commodity options written, at fair value (premiums received $605 and $325 at September 30, 2011 and December 31, 2010, respectively)			(0.00	)%		$	(1,560	)			0.00	%		$	(230	)
		Fair Value as a % of Members’ Capital				Fair Value				Fair Value as a % of Members’ Capital				Fair Value
Investments in Securities:
Mutual Funds
JP Morgan Short Duration Bond (shares 0.000 and 1,022,457.490 at September 30, 2011 and December 31, 2010, respectively)			0.00	%		$	0				33.58	%		$	11,216,358
PIMCO Low Duration Fund (shares 0.000 and 1,076,143.010 at September 30, 2011 and December 31, 2010, respectively)			0.00	%			0				33.47	%			11,181,126
Total Mutual Funds			0.00	%			0				67.05	%		$	22,397,484
Total investments in Securities (cost $0 and $22,835,698 at September 30, 2011 and December 31, 2010, respectively)			0.00	%		$	0				67.05	%		$	22,397,484

See accompanying notes.

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KMP FUTURES FUND I LLC

CONDENSED STATEMENTS OF OPERATIONS

For the Three Months and Nine Months Ended September 30, 2011 and 2010

(Unaudited)

 

 

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
REVENUES
Realized		$	(141,779	)		$	147,630			$	345,472			$	1,679,542
Change in unrealized			451,225				971,525				(369,792	)			1,132,191
Dividend income			46,072				0				320,242				0
Interest income			1,498				4,408				1,498				8,038
Total revenues			357,016				1,123,563				297,420				2,819,771
EXPENSES
Interest expense			238				0				3,514				0
Brokerage commissions			41,480				22,922				152,849				40,925
Management fees			200,315				322,793				655,281				994,843
ClariTy Managed Account fees			19,443				0				63,374				0
Managing Member interest earned on investment funds			13,037				0				87,264				0
Service fees (See Note 6)			266,323				0				865,705				0
Trading Advisors’ management fees			135,377				168,062				438,361				394,110
Trading Advisors’ incentive fees			51,407				0				59,880				0
Operating expenses			60,606				87,675				246,024				294,967
Total expenses			788,226				601,452				2,572,252				1,724,845
General and administrative expenses refunded to the Managing Member and affiliates			0				57,279				0				0
Net expenses			788,226				658,731				2,572,252				1,724,845
NET INCOME (LOSS)		$	(431,210	)		$	464,832			$	(2,274,832	)		$	1,094,926

See accompanying notes.

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KMP FUTURES FUND I LLC

CONDENSED STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL (NET ASSET VALUE)

For the Nine Months Ended September 30, 2011 and 2010

(Unaudited)

 

 

 

		Members’ Capital
Nine months ended September 30, 2011
Members’ capital at December 31, 2010		$	33,257,071
Subscriptions			4,412,339
Redemptions			(6,111,376	)
Net loss for the nine months ended September 30, 2011			(2,274,832	)
Members’ capital at September 30, 2011		$	29,283,202
		Individuals’ Capital				Series E				Total
Nine months ended September 30, 2010
Members’ capital at December 31, 2009		$	0			$	0			$	0
Subscriptions			23,047,803				12,170,845				35,218,648
Redemptions			(2,335,465	)			(12,479,564	)			(14,815,029	)
Net income for the nine months ended September 30, 2010			786,207				308,719				1,094,926
Members’ capital at September 30, 2010		$	21,498,545			$	0			$	21,498,545

See accompanying notes.

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

Note 1.

ORGANIZATION

 

A.

General Description of the Company

KMP Futures Fund I LLC (the “Company”) is a limited liability company organized under the laws of Delaware on November 20, 2006 which commenced operations on January 1, 2007. The Company will terminate on December 31, 2056 unless terminated sooner under the provisions of the limited liability company agreement of the Company (the “Operating Agreement”). The Company was formed to engage in the speculative trading of a diversified portfolio of futures contracts, options on futures contracts and forward currency contracts and may, from time to time, engage in cash and spot transactions. The fiscal year end of the Company is December 31.

Kenmar Preferred Investments Corp. (“Kenmar Preferred” or “Managing Member”) is the managing owner of each of the Company’s fund members (through their dissolution), is the Managing Member of the Company, and has been delegated administrative authority over the operations of the Company.

As of January 1, 2009, the Company had three members: Diversified Futures Trust I (“Member DFT I”) Futures Strategic Trust (“Member FST”), and Kenmar Global Trust (“Member KGT”). On April 1, 2009 World Monitor Trust II Series D (“Member Series D”) and World Monitor Trust II Series F (“Member Series F”) received a voting membership interest in the Company. Member DFT I, Member FST, Member KGT, Member Series D, Member Series F, Series E and subsequent to the dissolution of each of the fund members, the investors holding interests in the Company are collectively (the “Members”). Effective September 30, 2009, Member KGT fully redeemed from the Company.

On November 2, 2009, pursuant to each Member’s Trust Agreement, the managing owner of the Members determined to dissolve Member DFT I, Member FST, Member Series D and Member Series F effective close of business on December 31, 2009. Kenmar Preferred also converted the Company from an aggregated trading vehicle to a direct investment vehicle and filed with the Securities Exchange Commission (“SEC”) to register the Company. Investors in the Members who elected not to redeem their Interest at December 31, 2009 received a pro rata distribution of their Interest in the Company on December 31, 2009 and replaced it with a direct ownership Interest in the Company beginning January 1, 2010.

Member DFT I, Member FST, Member Series D, and Member Series F filed with the SEC on January 5, 2010 to de-register their respective interests under Section 12(g) of the Securities Exchange Act of 1934. Member DFT I, Member FST, Member Series D, and Member Series F are no longer subject to the reporting requirements of the SEC and Commodity Futures Trading Commission (“CFTC”) upon their dissolution on December 31, 2009.

Effective November 12, 2009, the Company became a reporting company pursuant to the Securities Exchange Act of 1934. Moreover, as a commodity pool, the Company became subject to the record keeping and reporting requirements of the CFTC and the National Futures Association (“NFA”).

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 1.

ORGANIZATION (CONTINUED)

 

A.

General Description of the Company (Continued)

 

On July 1, 2010, World Monitor Trust II-Series E (“Series E”) contributed all of its assets into the Company and received a voting membership interest.

On July 30, 2010, pursuant to Section 13.1(h) of the Trust Agreement of World Monitor Trust II, the Board of Directors of Kenmar Preferred, in its capacity as managing owner of Series E, determined to dissolve Series E effective as of the close of business on September 30, 2010 (date of termination). Investors in Series E who elected not to redeem as of September 30, 2010 (date of termination) received a pro rata distribution of their interest in Series E on September 30, 2010 (date of termination) and replaced it with a direct ownership interest in the Company on October 1, 2010.

On December 1, 2010, Member KGT became a member of the Company and received a voting membership interest in the Company. On December 10, 2010, pursuant to Member KGT’s Fifth Amended and Restated Declaration of Trust and Trust Agreement, the Board of Directors of Kenmar Preferred, in its capacity as managing owner of Member KGT, determined to dissolve Member KGT effective as of the close of business on December 31, 2010 (date of termination).

Investors in Member KGT who elected not to redeem as of December 31, 2010 (date of termination) received a pro rata distribution of their interest in Member KGT on December 31, 2010 (date of termination) and replaced it with a direct ownership interest in the Company on January 1, 2011. Subsequent to the liquidation of Member KGT on December 31, 2010 (date of termination), the payables to and receivables from KGT were amalgamated. Final liquidation payments were made to Member KGT in February 2011.

Series E and Member KGT, filed with the SEC on October 5, 2010 and January 6, 2011, respectively, to de-register their respective interests under Section 12(g) of the Securities Exchange Act of 1934. Series E and Member KGT are no longer subject to the reporting requirements of the SEC and the CFTC upon their dissolution on September 30, 2010 and December 31, 2010, respectively.

 

B.

The Trading Advisors

Pursuant to the Company’s Trading Advisory Agreement with Winton Capital Management Limited (“Winton”), Winton invests the Company’s assets pursuant to Winton’s Diversified Program. Beginning July 1, 2010, the Company entered into a second Trading Advisory Agreement with Graham Capital Management, L.P. (“Graham”), under which Graham will invest a portion of the Company’s assets pursuant to Graham’s K4D-15V Program (collectively, Winton and Graham are referred to as the “Trading Advisors”). Beginning July 1, 2010, the Company allocated approximately one-half of its net assets to each Trading Advisor’s managed account (collectively, the “Managed Accounts”) with such allocations to be re-balanced quarterly.

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A.

Basis of Accounting

The condensed statements of financial condition, including the condensed schedule of investments, as of September 30, 2011, the condensed statements of operations for the three months ended September 30, 2011 (“Third Quarter 2011”) and for the nine months ended September 30, 2011 (“Year-To-Date 2011”) and for the three months ended September 30, 2010 (“Third Quarter 2010”) and for the nine months ended September 30, 2010 (“Year-To-Date 2010”), and the condensed statements of changes in members’ capital for the Year-To-Date 2011 and Year-To-Date 2010, are unaudited. In the opinion of the Managing Member, the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial position of KMP Futures Fund I LLC as of September 30, 2011 and the results of its operations for the Third Quarter 2011, Third Quarter 2010, Year-To-Date 2011 and Year-To-Date 2010. The operating results for these interim periods may not be indicative of the results expected for a full year.

The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Such principles require the Managing Member to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with a U.S. GAAP have been omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K filed with the SEC for the year ended December 31, 2010.

Commodity futures and foreign exchange transactions are reflected in the accompanying condensed statements of financial condition on the trade date. Net unrealized gain or loss on open contracts (the difference between contract trade price and market price) are offset when reflected in the financial statements since the contracts are executed with the same counterparty under a master netting arrangement. The market value of futures (exchange-traded) contracts is based upon the closing quotation on the various futures exchanges on which the contract is traded. The values which will be used by the Company for open forward and option positions will be provided by its administrator, who obtains market quotes from independent data vendors and third parties. Any change in net unrealized gain or loss during the current period is reported in the statements of operations. Realized gains and losses on transactions are recognized in the period in which the contracts are closed. Brokerage commissions include other trading fees and are charged to expense when incurred.

Investments in investment funds consist of publicly traded mutual funds. Publicly traded mutual funds are valued using the net asset value on the last day of the period provided by a third party pricing service. Realized gains and losses from investment funds are determined using the identified cost method. Any change in net unrealized gain or loss from the preceding period is reported in the condensed statements of operations.

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

A.

Basis of Accounting (Continued)

 

The Company has elected not to provide a statement of cash flows since substantially all of the Company’s investments are highly liquid and carried at fair value, the Company has little or no debt and a condensed statements of changes in members’ capital (net asset value) is provided.

Consistent with standard business practices in the normal course of business, the Company has provided general indemnifications to Kenmar Preferred, its Trading Advisors and others when they act, in good faith, in the best interests of the Company. The Company is unable to develop an estimate of the maximum potential amount of future payments that could potentially result from any hypothetical future claim, but expects the risk of having to make any payments under these general business indemnifications to be remote.

The Company accounts for financial assets and liabilities using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels: quoted market prices in active markets for identical assets and liabilities (Level 1), inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly (Level 2), and unobservable inputs for the asset or liability (Level 3).

The Company considers its investments in public mutual funds, prices for exchange traded commodity futures and options contracts to be based on quoted prices in active markets for identical assets (Level 1) and reflects the settlement price for each contract as of the close on the last business day of the reporting period. The values of forwards, swaps and certain options contracts for which market quotations are not readily available are priced by independent third-party data providers such as Bloomberg, Reuters, and or Super Derivatives, who derive fair values for those assets from models with observable inputs (Level 2).

The market values of forward currency (non-exchange traded) contracts (Level 2) was extrapolated on a forward basis from the spot prices quoted as of 4:00 P.M. (EST) on the last business day of the reporting period from third party data providers, i.e. Bloomberg, Reuters and Interactive Data Corporation (Level 2).

The market value of option (non-exchange traded) (Level 2) contracts is calculated by applying an industry-standard adaptation of the Black-Scholes options valuation model to foreign currency options, using as input, the spot prices, interest rates and option implied volatilities quoted as of 4:00 P.M. (EST) on the last business day of the reporting period from its independent third-party data provider, Super Derivatives. Any change in net unrealized gain or loss from the preceding period is reported in the statements of operations. When the Company writes an option, an amount equal to the premium received by the Company is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of option written.

There are no Level 3 investments on September 30, 2011 or December 31, 2010.

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

A.

Basis of Accounting (Continued)

 

The following table summarizes the assets and liabilities measured at fair value using the fair value hierarchy:

 

 

B.

Recent Accounting Pronouncement

In May 2011, the FASB issued Accounting Standards Update No. 2011-04 (“ASU 2011-04”) to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. It does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amended guidance is effective for financial statements for fiscal years and interim periods beginning after December 15, 2011. The impact of this guidance on the Company’s financial statements and disclosures, if any, is currently being assessed.

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

C.

Cash and Cash Equivalents

Cash and cash equivalents represent amounts deposited with a bank and clearing broker, a portion of which is restricted for purposes of meeting margin requirements, which typically range from 0% to 35% of the notional amounts of the derivatives traded. A portion of the cash deposited with a bank is deposited in an off-shore sweep account facility daily. As of September 30, 2011 and December 31, 2010, margin requirements totaled $1,574,599 and $2,801,878, respectively. The Company receives interest at prevailing interest rates on all cash balances held by the clearing broker and bank. As of September 30, 2011 and December 31, 2010, $388,788 and $366,163 are held in various foreign currencies, which are subject to fluctuations based on changes in the foreign exchange rates as compared to the Company’s functional currency.

 

D.

Income Taxes

The Company is treated as a partnership for U.S. federal income tax purposes. As such, the Company is not required to provide for, or pay, any U.S. federal or state income taxes. Income tax attributes that arise from its operations are passed directly to the Members. The Company may be subject to other state and local taxes in jurisdictions in which it operates.

The Company recognizes tax benefits or expenses of uncertain tax positions in the year such determination is made when the positions are “more likely than not” to be sustained assuming examination by tax authorities. The Managing Member has reviewed the Company’s tax positions for all open years (after December 31, 2007) and concluded that no provision for unrecognized tax benefits or expense is required in these financial statements. The Company has elected an accounting policy to classify interest and penalties related to unrecognized tax benefits as interest or other expense. The 2008 through 2010 tax years generally remain subject to examination by U.S. federal and most state tax authorities.

There have been no differences between the tax basis and book basis of assets, liabilities or members’ capital since inception of the Company.

 

E.

Capital Accounts

The Company accounts for subscriptions, allocations and redemptions on a per Member capital account basis.

The Company allocates profits and losses, prior to calculation of the incentive fee, for both financial and tax reporting purposes to its Members monthly on a pro rata basis based on each Member’s pro rata capital in the Company during the month. Each Member is then charged with the applicable incentive fee. Distributions (other than redemptions of capital) may be made at the sole discretion of the Managing Member on a pro rata basis in accordance with the Members’ respective capital balances. The Managing Member has not and does not presently intend to make any distributions.

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

F.

Foreign Currency Transactions

The Company’s functional currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the condensed statements of financial condition. Income and expense items denominated in currencies other than U.S. dollars are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in the condensed statements of operations under the caption realized.

 

G.

Interest and Dividends

Interest is recorded on an accrual basis. Dividends are recorded on the ex-dividend date.

 

H.

Redemptions Payable

For purposes of both financial reporting and calculation of redemption value, net asset value is calculated per each Member’s capital account balance after allocations of net income (loss) to such Member’s account.

 

Note 3.

FEES

 

A.

Operating Expenses

Operating expenses of the Company are paid for by the Company, subject to an operating expense cap of 1.5% of the Company’s net asset value per annum. Operating expenses include legal, accounting, registrar, transfer and assignment functions, investor communications, printing, and other administrative services.

 

B.

Management and Incentive Fees

The Company pays Winton and Graham monthly management fees at an annual rate of 1.5% (2% prior to 10/1/10) and 2% respectively, of their Managed Accounts’ allocated assets as defined in their respective Trading Advisory Agreements. Additionally, the Company pays Winton and Graham an incentive fee accrued monthly and paid quarterly of 20% and 22%, respectively, for achieving “New High Net Trading Profits” in their specific Managed Accounts as defined in their respective Trading Advisory Agreements. For the Third Quarter 2011 and the Third Quarter 2010, incentive fees earned totaled $51,407 and $0, respectively, of which $51,407 remains payable by the Company at September 30, 2011.

 

C.

Commissions

The Company is obligated to pay all floor brokerage expenses, give-up charges and NFA clearing and exchange fees incurred in connection with the Company’s commodity trading activities.

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 4.

MANAGING MEMBER AND AFFILIATES

Effective January 1, 2010, the Company’s management fees to Kenmar Preferred (previously administrative services fees paid by the Members at the Member level) and operating expense cap are both calculated on the net assets of the Company at rates of 6.00% and 1.50% per annum, respectively, with the management fee being waived for Series E and Member KGT from July 1 to September 30, 2010 and December 1 to December 31, 2010, respectively. In addition, the Service Fees, which are paid by the Company, are deducted from the management fee to be paid by the Company to the Managing Member.

The Managing Member has determined that it is in the best interest of the Company to invest a portion of non-margin assets, either directly or indirectly through certain investment funds, in (i) U.S. government securities (which include any security issued or guaranteed as to principal or interest by the United States), (ii) any certificate of deposit for any of the foregoing, including U.S. treasury bonds, U.S. treasury bills and issues of agencies of the United States government, (iii) corporate bonds or notes, or (iv) other instruments permitted by applicable rule and regulations. Effective January 1, 2011, the Managing Member is paid monthly 1/12 of 50% of the first 1% of the returns earned on its investment of non-margin assets. The Company will be credited with all additional returns earned on the Company’s investment of non-margin assets. For the Third Quarter 2011, Managing Member interest on investment funds amounted to $13,037.

Effective January 1, 2011, the Company pays a monthly fee in the amount of 1/12 of 0.25% of the Company’s beginning net asset value to ClariTy Managed Account & Analytics Platform LLC, an affiliate of the Managing Member, for risk management and related services with respect to monitoring the Trading Advisors.

 

Note 5.

ADMINISTRATOR

Spectrum Global Fund Administration, L.L.C. (“Spectrum” or the “Administrator”), a Delaware limited liability company located at 33 West Monroe – Suite 1000, Chicago, IL, USA, 60603, and 8415 Pulsar Place Suite 400, Columbus, Ohio 43240., was the administrator of the Company and provided certain administration and accounting services pursuant to the terms of a Services Agreement with the Company dated as of May 23, 2007. On December 10, 2010, AlphaMetrix360, LLC purchased the assets of Spectrum.

Effective May 31, 2011, the Company replaced AlphaMetrix 360, LLC with GlobeOp Financial Services LLC (“GlobeOp” or the “Administrator”), a Delaware limited liability company located at 1 South Road, Harrison, NY, USA, 10528 as administrator and AlphaMetrix 360, LLC Services Agreement with the Company was terminated effective close of business on May 31, 2011.

The Administrator performs or supervises the performance of services necessary for the operation and administration of the Company (other than making investment decisions), including administrative and accounting services. The Administrator also calculates the Company’s Net Asset Value. In addition, the Administrator maintains certain books and records of the Company, including certain books and records required by CFTC Rule 4.23(a), at its offices located as specified above. “Administrator” refers to Spectrum, AlphaMetrix 360, LLC, or GlobeOp depending on the applicable period discussed.

For the Third Quarter 2011 and the Third Quarter 2010, the Company paid administration fees $12,686 and $10,055, respectively, of which $11,089 remains payable by the Company at September 30, 2011.

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 6.

SERVICE FEES

Starting January 1, 2011, the service fee disclosed on the condensed statements of operations represents the monthly on-going trailing compensation paid to the service providers. With respect to investors in the Company that were formerly investors in Member KGT, a monthly fee in the amount of 1/12 of 3.5% (3.5% per annum) of the beginning of the month net asset value of such outstanding Interests serviced by the service provider. With respect to investors in the Company that were formerly investors in Series E, Member DFT I, Member FST, Member D and Member F, a monthly fee in the amount of 1/12^th of 4.0% (4.0% per annum) of the beginning of month net asset value of such outstanding Interests serviced by the service provider. The Services Fees are paid by the Company and are deducted from the management fee to be paid by the Company to the Managing Member.

 

Note 7.

DEPOSITS WITH COMMODITY BROKER AND PRIME BROKER

The Company deposits funds with a commodity broker subject to CFTC regulations and various exchange and commodity broker requirements. Margin requirements are satisfied by the deposit of cash with such commodity broker.

The Company also deposits funds with a prime broker. Margin requirements are satisfied by the deposit of cash with such prime broker.

 

Note 8.

RELATED PARTIES

The Company reimburses Kenmar Preferred and its affiliates for services it performs for the Company, which include, but are not limited to: management, legal, accounting, registrar, transfer and assignment functions, investor communications, printing, and other administrative services.

The expenses incurred by the Company for services performed by Kenmar Preferred and its affiliates for the Company were:

 

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 8.

RELATED PARTIES (CONTINUED)

 

Expenses payable to Kenmar Preferred and its affiliates ($30,979 and $14,332 of which are included in accrued expenses payable on the condensed statements of financial condition) as of September 30, 2011 and December 31, 2010 were $45,312 and $63,821, respectively.

 

Note 9.

SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS

Investments in the Company are made subject to the terms of the Operating Agreement.

A Member is able to request and receive redemption of capital, subject to the terms in the Operating Agreement.

 

Note 10.

DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS

The fair value of the Company’s derivatives by instrument type, as well as the location of those instruments on the condensed statements of financial condition as of September 30, 2011 and December 31, 2010 are included in the condensed schedules of investments, all of which are deemed derivatives not designated as hedging instruments.

The following presents the fair value of derivative contracts at September 30, 2011 and December 31, 2010. The fair value of derivative contracts is presented as an asset if in a gain position and a liability if in a loss position. Fair value is presented on a gross basis in the table below even though the derivative contracts qualify for net presentation in the statement of financial condition.

 

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 10.

DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)

 

The trading revenue of the Company’s derivatives by instrument type, as well as the location of those gains and losses on the condensed statements of operations, for the Third Quarter 2011 and 2010 and Year-To-Date 2011 and 2010 is as follows:

 

 

*

Excludes income from investments in securities.

For the Third Quarter and Year-To-Date 2011, the total number of closed futures contracts was approximately 8,444 and 30,303, respectively, the total number of closed option contracts was 6 and 20, respectively, and the average monthly notional value of forwards contracts closed was approximately $602,941,342 and $593,913,270, respectively.

For the Third Quarter and Year-To-Date 2010, the total number of closed futures contracts was approximately 7,105 and 10,284, respectively; the total number of closed option contracts was 6 and 28, respectively, and the average monthly notional value of forwards contracts closed was approximately $286,724,221 and $95,574,740, respectively.

The average monthly notional value of contracts closed represents the average monthly U.S. dollar notional value of futures, options and forward contracts closed and settled in cash during the Third Quarter 2011 and 2010 and Year-To-Date 2011 and 2010.

The Company has cash on deposit with financial institutions. In the event of a financial institution’s insolvency, recovery of cash on deposit may be limited to account insurance or other protections afforded such deposits.

The Company is exposed to various types of risks associated with derivative instruments and related markets in which it invests. These risks include, but are not limited to, risk of loss from fluctuations in the value of derivative instruments held (market risk) and the inability of counterparties to perform under the terms of the Company’s investment activities (credit risk).

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 10.

DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)

 

Market Risk

Trading in futures and forward contracts (including foreign exchange) involves entering into contractual commitments to purchase or sell a particular commodity at a specified date and price. The gross or face amount of the contracts, which is typically many times that of the Company’s net assets being traded, significantly exceeds the Company’s future cash requirements since the Company intends to close out its open positions prior to settlement. As a result, the Company is generally subject only to the risk of loss arising from the change in the value of the contracts. As such, the Company considers the “fair value” of its derivative instruments to be the net unrealized gain or loss on the contracts. Market risk is influenced by a wide variety of factors, including government programs and policies, political and economic events, the level and volatility of interest rates, foreign currency exchange rates, the diversification effect among the derivative instruments the Company holds and the liquidity and inherent volatility of the markets in which the Company trades.

Credit Risk

When entering into futures, forward and option contracts, the Company is exposed to credit risk that the counterparty to the contract will not meet its obligations. The counterparty for futures contracts traded on United States and most foreign futures exchanges is the clearinghouse associated with the particular exchange. In general, clearinghouses are backed by its corporate members who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearinghouse is not backed by the clearing members (i.e., some foreign exchanges), it is normally backed by a consortium of banks or other financial institutions. On the other hand, there is concentration risk on forward transactions entered into by the Company, as the Company’s forward broker is the sole counterparty. The Company has entered into a master netting agreement with its forward broker and, as a result, when applicable, presents unrealized gains and losses on open forward positions as a net amount in the condensed statements of financial condition. The amount at risk associated with counterparty non-performance of all of the Company’s contracts is the net unrealized gain or loss included in the condensed statements of financial condition; however, counterparty non-performance on only certain of the Company’s contracts may result in greater loss than non-performance on all of the Company’s contracts. There can be no assurance that any counterparty, clearing member or clearinghouse, will meet its obligations to the Company.

Kenmar Preferred attempts to minimize both credit and market risks by requiring the Company and its Trading Advisors to abide by various trading limitations and policies. Kenmar Preferred monitors compliance with these trading limitations and policies, which include, but are not limited to, executing and clearing all trades with creditworthy counterparties; limiting the amount of margin or premium required for any one commodity or all commodities combined; and generally limiting transactions to contracts which are traded in sufficient volume to permit the taking and liquidating of positions.

Additionally, pursuant to the Trading Advisory Agreement between the Company, Kenmar Preferred and the Trading Advisors, the Company shall automatically terminate the Trading Advisory Agreement if the net asset value allocated to the Trading Advisors declines by 40% from the value at the beginning of any year or since the effective date of the Trading Advisory Agreement. The decline in net asset value is after giving effect for distributions, subscriptions and redemptions.

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 10.

DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)

Credit Risk (Continued)

 

The Company’s futures commission merchant, in accepting orders for the purchase or sale of domestic futures contracts, is required by CFTC regulations to separately account for and segregate as belonging to the Company all assets of the Company relating to domestic futures trading and is not allowed to commingle such assets with its other assets. At September 30, 2011 and December 31, 2010, such segregated assets totaled $3,607,740 and $4,194,353, respectively, which are included in cash and cash equivalents on the condensed statements of financial condition. Part 30.7 of the CFTC regulations also requires the Company’s futures commission merchant to secure assets of the Company related to foreign futures trading which totaled $108,856 and $(12,380) at September 30, 2011 and December 31, 2010, respectively. There are no segregation requirements for assets related to forward trading.

As of September 30, 2011, all open futures contracts mature within fifty-one months.

 

 

 

 

 

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KMP FUTURES FUND I LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 11.

FINANCIAL HIGHLIGHTS

The following information presents the financial highlights of the Company for the three months and nine months ended September 30, 2011 and 2010. This information has been derived from information presented in the financial statements.

 

 

Total returns are calculated based on the change in value of Members’ capital during the period. An individual Member’s total returns and ratios may vary from the above total returns and ratios based on the timing of subscriptions and redemptions.

 

 

(1)

Not annualized.

(2)

Annualized.

(3)

Represents interest income less total expenses (exclusive of incentive fee).

(4)

Includes realized and unrealized gains (losses) on securities transactions.

(5)

Series E contributed its net assets to the Company effective July 1, 2010.

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NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

 

 

 

Note 12.

SUBSEQUENT EVENTS

From October 1, 2011 through November 10, 2011, there were estimated redemptions of $502,926; effective October 31, 2011.

 

 

 

 

 

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Item 2.

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

This report on Form 10-Q (the “Report”) for the quarter ending September 30, 2011 (“Third Quarter 2011”) includes forward-looking statements that reflect the current expectation of Kenmar Preferred Investments Corp., the managing member of KMP Futures Fund I LLC, about the future results, performance, prospects and opportunities of the Registrant. The managing member has tried to identify these forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “should,” “estimate” or the negative of those terms or similar expressions. These forward-looking statements are based on information currently available to the managing member and are subject to a number of risks, uncertainties and other factors, both known, such as those described in this Report, and unknown, that could cause Registrant’s actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.

You should not place undue reliance on any forward-looking statements. Except as expressly required by the Federal securities laws, the managing member undertakes no obligation to publicly update or revise any forward-looking statements or the risks, uncertainties or other factors described in this Report, as a result of new information, future events or changed circumstances or for any other reason after the date of this Report.

Introduction

General

KMP Futures Fund I LLC (the “Registrant”) is a limited liability company organized under the laws of Delaware on November 20, 2006 which commenced operations on January 1, 2007. The Registrant will terminate on December 31, 2056 unless terminated sooner under the provisions of the limited liability company agreement of the Registrant (the “Operating Agreement”). The Registrant was formed to engage in the speculative trading of a diversified portfolio of futures contracts, options on futures contracts and forward currency contracts and may, from time to time, engage in cash and spot transactions. The fiscal year end of the Registrant is December 31.

Kenmar Preferred Investments Corp. (“Kenmar Preferred” or “Managing Member”) is the managing owner of each of the Registrant’s members, is the Managing Member of the Registrant, and has been delegated administrative authority over the operations of the Registrant.

As of January 1, 2009, the Registrant had three members: Diversified Futures Trust I (“Member DFT I”) Futures Strategic Trust (“Member FST”), and Kenmar Global Trust (“Member KGT”). On April 1, 2009 World Monitor Trust II Series D (“Member Series D”) and World Monitor Trust II Series F (“Member Series F”) received a voting membership interest in the Registrant. Member DFT I, Member FST, Member KGT, Member Series D, Member Series F, are collectively (the “Members”). Effective September 30, 2009, Member KGT fully redeemed from the Registrant.

On November 2, 2009, pursuant to each Member’s Trust Agreement, the managing owner of the Members determined to dissolve Member DFT I, Member FST, Member Series D and Member Series F effective close of business on December 31, 2009. Kenmar Preferred also converted the Registrant from an aggregated trading vehicle to a direct investment vehicle and filed with the Securities Exchange Commission (“SEC”) to register the Registrant. Investors in the Members who elected not to redeem their Interest at December 31, 2009 received a pro rata distribution of their Interest in the Registrant on December 31, 2009 and replaced it with a direct ownership Interest in the Registrant beginning January 1, 2010.

Member DFT I, Member FST, Member Series D, and Member Series F filed with the SEC on January 5, 2010 to de-register their respective interests under Section 12(g) of the Securities Exchange Act of 1934. Member DFT I, Member FST, Member Series D, and Member Series F are no longer subject to the reporting requirements of the SEC and Commodity Futures Trading Commission (“CFTC”) upon their dissolution on December 31, 2009.

Effective November 12, 2009, the Registrant became a reporting company pursuant to the Securities Exchange Act of 1934. Moreover, as a commodity pool, the Registrant became subject to the record keeping and reporting requirements of the CFTC and the National Futures Association (“NFA”).

On July 1, 2010, World Monitor Trust II-Series E (“Series E”) contributed all of its assets into the Registrant and received a voting membership interest.

 

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On July 30, 2010, pursuant to Section 13.1(h) of the Trust Agreement of World Monitor Trust II, the Board of Directors of Kenmar Preferred, in its capacity as managing owner of Series E, determined to dissolve Series E effective as of the close of business on September 30, 2010 (date of termination). Investors in Series E who elected not to redeem as of September 30, 2010 (date of termination) received a pro rata distribution of their interest in Series E on September 30, 2010 (date of termination) and replaced it with a direct ownership interest in the Registrant on October 1, 2010.

On December 1, 2010, Member KGT became a member of the Registrant and received a voting membership interest in the Registrant. On December 10, 2010, pursuant to Member KGT’s Fifth Amended and Restated Declaration of Trust and Trust Agreement, the Board of Directors of Kenmar Preferred, in its capacity as managing owner of Member KGT, determined to dissolve Member KGT effective as of the close of business on December 31, 2010 (date of termination).

Investors in Member KGT who elected not to redeem as of December 31, 2010 (date of termination) received a pro rata distribution of their interest in Member KGT on December 31, 2010 (date of termination) and replaced it with a direct ownership interest in the Registrant on January 1, 2011. Subsequent to the liquidation of Member KGT on December 31, 2010 (date of termination), the payables to and receivables from KGT were amalgamated. Final liquidation payments were made to Member KGT in February 2011.

Series E and Member KGT, filed with the SEC on October 5, 2010 and January 6, 2011, respectively, to de-register their respective interests under Section 12(g) of the Securities Exchange Act of 1934. Series E and Member KGT are no longer subject to the reporting requirements of the SEC and the CFTC upon their dissolution on September 30, 2010 and December 31, 2010, respectively.

The Registrant is a reporting company pursuant to the Exchange Act. Moreover, as a commodity pool, The Registrant is subject to the record keeping and reporting requirements of the CFTC and the NFA.

Registrant’s Objectives

Registrant’s objectives are:

 

•

Significant profits over time;

 

•

Performance volatility commensurate with profit potential;

 

•

Controlled risk of loss; and

 

•

Diversification within a traditional portfolio, typically consisting entirely of “long” equity and debt positions and reduced dependence on a single nation’s economy, by accessing global financial, commodity and other non-financial futures markets.

The Registrant’s potential for aggressive capital growth arises from the profit possibilities offered by the global futures, forward and options markets and the skills of the professional trading organization(s) selected to manage the assets of the Registrant. The fact that the Registrant can profit from both rising and falling markets adds an element of profit potential that is not present in long-only strategies. However, the Registrant can also incur losses from both rising and falling markets that adds to the risk of loss. In addition to its profit potential and risk of loss, the Registrant also could help reduce the overall volatility, or risk, of a portfolio. By investing in markets that operate independently from U.S. stock and bond markets (and therefore, may be considered as non-correlated), the Registrant may provide positive returns even when U.S. stock and bond markets are experiencing flat to negative performance and may provide negative returns even when U.S. stock and bond markets are experiencing flat to positive performance. Non-correlation should not be confused with negative correlation, where the performance would be exactly opposite between the Registrant and U.S. stock and bond markets.

The managing member makes no guarantee that the investment objectives for the Registrant will be achieved.

Past performance is not necessarily indicative of future results.

Managing Member and its Affiliates

The Managing Member’s predecessor and affiliates have been sponsoring and managing single and multi-advisor funds for over two decades. The principal office of the Registrant is c/o Kenmar Preferred Investments Corp., 900 King Street, Suite 100, Rye Brook, New York 10573. The telephone number of the Registrant and the Managing Member is (914) 307-7000.

 

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The Managing Member has substantial experience in selecting and monitoring trading advisors, asset allocation and overall portfolio design using quantitative and qualitative methods.

The Managing Member monitors the trading activity and performance of the trading advisors and adjusts the overall leverage at which the Registrant trades. The commitment of the Registrant to the trading advisors may exceed 100% of the Registrant’s total equity if the Managing Member decides to strategically allocate notional equity to such trading advisors. This may result in increased profits or larger losses than would otherwise result. There likely will be periods in the markets during which it is unlikely that the trading advisors will be profitable. By having the ability to leverage the Registrant’s market commitment to below its actual equity during such periods, the Managing Member could help preserve capital while awaiting more favorable market cycles. The Managing Member currently does not intend to use notional equity.

The Managing Member also performs ongoing due diligence with respect to the trading advisors. If the Managing Member determines that the trading advisors have departed from its program or stated trading methodology or has exceeded its stated risk parameters, the Managing Member, on behalf of the Registrant, will take such actions as it deems appropriate, which may include terminating the trading advisors. Similarly, if the Managing Member’s ongoing due diligence leads the Managing Member to determine that it is in the best interests of the Registrant to add an additional trading advisor; it will do so in its sole discretion. If the Managing Member concludes, based upon its perception of market or economic conditions, that it is appropriate to allocate assets of the Registrant to a different trading program run by the trading advisors, it will do so. The Managing Member may select a replacement if any of the trading advisors resign or are terminated, or may select additional advisors at its discretion.

The Trading Advisors

Trading for the Registrant is directed by Winton Capital Management Limited (“Winton”) pursuant to its Diversified Program and Graham Capital Management, L.P. (“Graham”) pursuant to its K4D-15V Program (collectively Winton and Graham are referred to as the ‘Trading Advisors”).

Background of Winton and its Trading and Operational Principals

Winton, a limited liability company registered in England and Wales, became registered with the CFTC as a commodity trading advisor (“CTA”), in January 1998 and as a commodity pool operator in December 1998. It is also a member of the NFA and is authorized and regulated by the Financial Services Authority in the United Kingdom (the “FSA”).

Winton has its principal office and maintains all books and records at 1-5 St. Mary Abbot’s Place, London W8 6LS, United Kingdom. Its telephone number is 011-44-20-7610-5350 and its fax number is 011-44-20-7610-5301.

Winton’s principals are David W. Harding, Martin J. Hunt, Anthony H. Daniell, Matthew Beddall, Rajeev Patel, Andrew Bastow, Osman Murgian and two of his family-owned companies, Amur (Jersey) Limited and Samur (Jersey) Limited.

On July 31, 2007, a company affiliated with Goldman Sachs International purchased a 9.99 per cent shareholding interest in Winton. This shareholding is currently held by Goldman Sachs Petershill Non-U.S. Master Fund, L.P. (the “GS Shareholder”), a fund managed by Goldman Sachs Asset Management International. The GS Shareholder is not involved in the day-to-day management of Winton but, pursuant to a shareholders’ agreement, has the right to approve certain limited matters relating to Winton’s operations.

The biographies of its principals follow:

David Winton Harding, Founder and Chairman. Winton was founded by David Winton Harding, Martin Hunt and Osman Murgian and started trading in October 1997. Mr. Harding is one of the pioneers of trend-following systematic trading in Europe. Whilst at Winton, Mr. Harding has been registered with the National Futures Association as an Associated Person, Associate Member and Principal of Winton from January 1998.

Mr. Harding was born in Oxford in 1961 and graduated from Cambridge University with a First Class Honours degree in Natural Sciences specializing in Theoretical Physics. In September 1982, he joined stockbroker Wood MacKenzie as a graduate trainee and became involved with futures trading just as the London International Financial Futures Exchange (“LIFFE”), opened. A year later, in September 1983, he left Wood MacKenzie and moved to Johnson Matthey & Wallace, a commodity futures broker, where he was involved in gilt trading and sales. When that company closed due to the failure of its parent company, in November 1984 Mr. Harding left it and joined Sabre Fund Management, one of the UK’s first CTAs where he was registered with the NFA as an Associate Member from April 1986 until July 1988 and as an Associated Person from May 1986 until July 1988. In his new position, for the first time, Mr. Harding was able to apply his scientific training to develop techniques for trading a wide variety of futures markets.

 

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In November 1986, Mr. Harding left Sabre Fund Management and joined Brockham Securities, the Adam Family sugar trading company, where he assisted in development and marketing of futures fund management services. In February 1987 he left to form Adam, Harding and Lueck Ltd (“AHL”). AHL brought together the programming and system development abilities of Michael Adam and Martin Lueck with Mr. Harding’s research and marketing skills. AHL rapidly became the UK’s most successful CTA and in 1989, The Man Group PLC (formerly ED&F Man PLC) acquired a 51% stake and began distributing AHL’s products globally. Over the next five years, the three principals built a firm with assets under management of $300 million and a staff of nearly 100, including research teams developing mathematical and statistical trading strategies. AHL is still the flagship fund of The Man Group which is a FTSE 100 Company. Mr. Harding was registered with the National Futures Association as an Associate Member and Associated Person of Man AHL USA Corp from July 1988 until January 1996. He was also registered as a Principal of Man AHL USA Corp from July 1988 until February 1995.

In 1993, David Harding was invited to present a paper to a special symposium of London’s prestigious Royal Society, on the subject “Making Money from Mathematical Models.” This paper was subsequently incorporated into two books.

In 1994, ED&F Man Group floated on the London Stock Exchange and acquired the remaining 49% of AHL. Mr. Harding then formed and ran Man Quantitative Research, an in-house advanced statistical research team until August 1996.

In August 1996 Mr. Harding left ED&F Man Group and took leave until February 1997. In February 1997, he co-founded Winton with Martin Hunt and Osman Murgian, one of AHL’s early shareholders. Mr. Harding continues to lead Winton’s research efforts.

Mr. Harding is also a trustee of the Winton Charitable Foundation, which in 2007 endowed the Winton Professorship of the Public Understanding of Risk in the Department of Pure Mathematics and Mathematical Statistics at Cambridge University. Similarly, in 2008, the David Harding Foundation endowed the David Harding Centre for Risk Literacy at the Max Planck Institute in Berlin, Germany.

Osman Murgian, Director. Mr. Murgian, born in 1934, is a founding director of Winton. Educated at Brighton College in England, Mr. Murgian was also one of the original shareholders and directors of AHL. Mr. Murgian lives in Nairobi, Kenya, and is the owner of or an investor in a number of international businesses ranging from real estate to transportation. Mr. Murgian has a beneficial interest of more than 10% of Winton’s share capital. This interest is held by Samur (Jersey) Ltd and Amur (Jersey) Ltd, both of which are investment holding companies ultimately owned by Mr. Murgian’s family foundation.

Martin John Hunt, Director. Mr. Hunt, born in 1962, first became involved in managed futures in October 1983, at which time he was employed as a trainee trader for a CTA called Futures Fund Management Ltd. In December 1985, Mr. Hunt left Futures Fund Management and in January 1986, he moved to Sabre Fund Management, a UK-based CTA, as operations manager. In February 1988, he left Sabre and joined AHL and from this time until 1991 he was responsible for managing their trading operations and establishing a trading facility in Switzerland. In July 1991 Mr. Hunt left AHL.

In August 1991, Mr. Hunt assumed responsibility for marketing and back office operations at Royston Investments Ltd, which at the time was a CFTC-registered CTA. Whilst at Royston Investments Limited, Mr. Hunt was registered with the National Futures Association as an Associated Person and Associate Member from October 1991. In March 1994, he left Royston and his status as an Associate Member and Associated Person was subsequently terminated in January 1996. In March 1994 Mr. Hunt established himself as an independent marketing and compliance consultant to firms in the UK managed futures industry before working at Palatinate Investment Management Limited, a London-based CTA, from August 1994 until January 1997 as Director of Marketing, Operations and Compliance.

In January 1997, David Harding recruited Mr. Hunt to handle the formation, structuring and subsequent day-to-day running of Winton. At Winton, Mr. Hunt supervised the company’s operations as well as being directly responsible for the firm’s regulatory compliance and finance divisions until October 2010. Whilst at Winton, Mr. Hunt has been registered with the National Futures Association as an Associated Person, Associate Member and Principal of Winton from January 1998.

Anthony Hamilton Daniell, Director and Chief Executive Officer. Mr. Daniell, born in 1954, spent ten years in the British Army during which time he achieved a civil engineering degree from Bristol University. In March 1983, Mr. Daniell began his career in the financial sector at David Allsopp and Partners, a UK stockbroker, as an equity analyst following U.S. defense companies. He moved to Rowe and Pitman, also a UK stockbroker, in April 1986, where he became Co-Head of U.S. Equity Sales.

From March 1994 to December 2001, Mr. Daniell was Co-Head of Emerging Markets and then Head of Latin American Equities. During this time, Mr. Daniell was responsible for cash and derivative sales, trading and research. He was promoted to Managing Director in January 1999. During the period April 1986 to December 2001, as a result of a series of mergers and acquisitions Rowe and Pitman changed its name several times and ultimately became part of UBS Warburg. Mr. Daniell left UBS Warburg in December 2001.

 

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In January 2002, he started at Eday Ltd, an FSA-registered private limited company which marketed absolute return funds. In 2003, Winton engaged Eday Ltd and Mr. Daniell to market its products. In October 2004, Mr. Daniell joined Winton as Head of Global Marketing and Sales and became a director in October 2006 and Chief Executive Officer in October 2010.

Mr. Daniell has been registered with the National Futures Association as an Associated Person of Winton since April 2005 and a Principal of Winton since October 2006.

Matthew Beddall, Director and Chief Investment Officer. Mr. Beddall is the Chief Investment Officer of the Trading Advisor. He graduated from the University of Southampton with a first class honors degree in Mathematics and Computer Science in 2001. He initially joined Winton in 2000 as a summer intern, returning after graduation from university as a full time researcher in July 2001. Throughout his employment with Winton, Mr. Beddall has been extensively involved in the research process and has lead the development of much of the software that underlies the design and running of Investment Advisor’s trading strategy. Mr. Beddall was appointed as CIO in 2008 and his responsibilities are now principally focused on managing the investment process behind the Fund and the oversight of a large part of the Investment Advisor’s research department. Mr. Beddall also holds an MSc in Applied Statistics from Birkbeck College University of London which he was awarded in 2003. Mr. Beddall became registered with the National Futures Association as a Principal of Winton on 28 January 2009 and an Associated Person of Winton on 12 February 2009.

Rajeev Patel, Director and Chief Operating Officer. Rajeev Patel graduated from Trinity and All Saints College, Leeds with a degree in Economics and Business Administration. Mr. Patel joined Winton in April 1997. Initially working as an execution trader and settlements analyst, over the last 12 years Mr. Patel has been centrally involved in Winton’s trading and operations functions. He has overseen the development and implementation of a number of automated accounting and reconciliation processes at Winton as it has moved from external to proprietary systems. He is currently responsible for the Operations department covering operations IT, fund accounting and settlements. Mr. Patel was originally registered with the SFA and was “grandfathered” into the new regime as an FSA Approved Person in December 2001. He has been an NFA Associated Person since May 1998 and was appointed Associate Director at Winton in April 2007 and Chief Operating Officer in October 2010. Mr. Patel became registered with the NFA as a principal of Winton on 9^th June 2009.

Andrew Bastow, Director and General Counsel. Andrew Bastow was appointed as a Director in October 2010. Mr. Bastow has been Winton Capital’s General Counsel since October 2005 and is responsible for spearheading Winton’s increasing engagement with regulatory bodies and lawmakers in Europe, the USA and the Far East. He was elected to the General Council of the Alternative Investment Management Association in September 2010 and is a member of the Hedge Fund Lawyers Association.

Mr. Bastow is a solicitor of England and Wales and is also admitted as a Barrister and Solicitor of the Supreme Court of Western Australia. Prior to joining Winton he was employed by the Treasury Solicitor’s Department of the Government of the United Kingdom from March 2005 through October 2005 and, from February 2001 through December 2004, with the State Solicitor’s Office in Western Australia where he was engaged in a wide range of practice areas including public law, employment, regulation, prosecution and enforcement. He is a British Chevening Scholar and holds a First Class Master of Laws degree from the London School of Economics and Political Science as well as degrees in Law, Arts and Economics obtained in Australia.

Overview of the Winton Diversified Trading Program

Winton’s investment process is probably best understood by starting with the founding principle and philosophy of Winton laid down by its founder David Harding. This is the belief that robust statistical and other mathematical research provides the richest and most reliable source of information on market behavior. David Harding has spent the past 25+ years leading research into market behavior and built an investment process that seeks to identify trends and patterns.

In short, the investment process is best described as quantitative, systematic and research-driven, which seeks to identify explanatory variables that have some predictive power over future returns in markets within a carefully developed risk driven process.

The investment objective is to achieve long-term capital appreciation through compound growth. This goal is achieved by pursuing a diversified trading scheme that does not rely upon favorable conditions in any particular market, nor on market direction.

The Diversified Trading Program (the “Diversified Program”) seeks to combine liquid Financial Instruments offering positive but low Sharpe ratios (meaning that profits have been achieved with a certain level of risk) and generally low correlations over the long term to other markets such as equities and fixed income*. The Diversified Program employs what is traditionally known as a “systematic” approach to trading Financial Instruments. In this context, the term “systematic”

 

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implies that the vast majority of the trading decisions are executed, without discretion, either electronically or by a team responsible for the placement of orders (the “Trading Team”), based upon the instructions generated by the Winton Computer Trading System (the “Trading System”). The Diversified Program blends short-term trading with long-term trend following, using multiple time frames in addition to multiple models. [*Please note that although the Diversified Program’s historic correlations have been low in relation to major asset classes over the long-term, over shorter timeframes the Diversified Program can be significantly correlated.]

Background of Graham and its Trading and Operational Principals

Graham was organized as a Delaware limited partnership in May 1994. The general partner of Graham is KGT, Inc., a Delaware corporation of which Kenneth G. Tropin is the President and sole shareholder. The limited partner of Graham is KGT Investment Partners, L.P., a Delaware limited partnership of which KGT, Inc. is also a general partner and in which Mr. Tropin is the principal investor. Graham became registered as a commodity pool operator and commodity trading advisor with the CFTC under the CEA and a member of the NFA on July 27, 1994.

Since December 2005, Graham has traded its Global Diversified Program at 150% Leverage for the Fund. As of January 2009, this program has been renamed the K4D-15V Program.

Graham is an investment manager that actively trades worldwide on a 24-hour basis in the equity, fixed income, currency and commodity markets utilizing securities, futures, forwards and other financial instruments. On behalf of the Fund, Graham offers a quantitative global macro trading program that trades in one or more of those markets. Graham’s quantitative trading programs or models produce trading signals on a largely automated basis when applied to market data. Graham’s investment objective is to provide clients with significant potential for capital appreciation in both rising and falling markets during expanding and recessionary economic cycles.

Principals

Kenneth G. Tropin is the Chairman and the founder of Graham. In May 1994, he founded Graham and became registered as an associated person and listed as a principal effective July 27, 1994. Mr. Tropin has developed the majority of the firm’s core trading programs and he is responsible for the overall management of the organization, including the investment of its proprietary trading capital.

Paul Sedlack is Chief Executive Officer and the General Counsel of Graham. He joined Graham in June 1998 and became registered as an associated person of Graham effective November 20, 1998 and listed as a principal on August 21, 1998. He oversees the operation of the finance and administration departments and is also responsible for all legal and compliance matters. Mr. Sedlack received a J.D. from Cornell Law School in 1986 and an M.B.A. in Finance in 1983 and B.S. in Engineering in 1982 from State University of New York at Buffalo.

Robert E. Murray is the Chief Operating Officer of Graham and is responsible for the management and oversight of client services, quantitative trading, technology and risk management at Graham. He joined Graham in June 2003 and became registered as an associated person and listed as a principal of Graham effective June 27, 2003. Mr. Murray received a Bachelor’s Degree in Finance from Geneseo State University in 1983.

Pablo Calderini is the Chief Investment Officer of Graham and is responsible for the management and oversight of the discretionary trading business at Graham. He joined Graham in August 2010 and became registered as an associated person and listed as a principal of Graham effective August 13, 2010. Prior to joining Graham, Mr. Calderini worked at Deutsche Bank from June 1997 to July 2010 where he held positions of increasing responsibility, most recently the Global Head of Equity Proprietary Trading. Mr. Calderini commenced his career at Deutsche Bank as Global Head of Emerging Markets. During his tenure at Deutsche Bank, Mr. Calderini also helped manage several groups across the fixed income and equity platforms, including the Global Credit Derivatives Team. Mr. Calderini received a B.A. in Economics from Universidad Nacional de Rosario in 1987 and a Masters in Economics from Universidad del Cema in 1988, each in Argentina.

Thomas P. Schneider is an Executive Vice President, and the Chief Trader of Graham. He joined Graham in June 1994 and became registered as an associated person of Graham effective September 12, 1994 and listed as a principal on November 30, 1995. He is responsible for managing Graham’s quantitative futures and foreign exchange trade execution, including all of its core and short term quantitative trading strategies, and developing and maintaining relationships with independent executing brokers and futures commission merchants (“FCMs”). Mr. Schneider graduated from the University of Notre Dame in 1983 with a B.B.A. in Finance and received his Executive M.B.A. from the University of Texas at Austin in 1997.

 

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Jeff Baisley, C.P.A., is the Chief Financial Officer of Graham. In March 2004 he joined Graham as Manager of Financial Reporting and became registered as an associated person effective March 17, 2008 and listed as a principal on April 8, 2008. He received his B.S. in accounting from Fordham University in 1991.

Fred J. Levin is the Chief Economist and a Senior Discretionary Trader of Graham specializing in fixed income markets with particular emphasis on short-term interest rates. He joined Graham in March 1999 and became registered as an associated person of Graham effective December 8, 1999 and listed as a principal on March 11, 2000. Mr. Levin received an M.A. in economics from the University of Chicago in 1968 and a B.S. from the University of Pennsylvania, Wharton School in 1964.

William Pertusi is the Chief Risk Officer of Graham, responsible for identifying, monitoring and acting upon financial risks relative to financial returns in Graham’s diverse trading strategies. He became registered as an associated person of Graham effective July 24, 2006 and listed as a principal on November 28, 2006. Prior to joining Graham in April 2006, Mr. Pertusi held the positions of Director and Risk Manager at SAC Capital Advisors LLC, an investment management firm, from July 2004 to April 2006. From July 2002 to July 2004, he was employed as a Portfolio Manager at SAC specializing in Mortgage Backed Securities. Mr. Pertusi was an associated person of SAC from June 2003 to June 2006 and a principal from June 2003 to May 2005. Mr. Pertusi received a B.S. in Electrical Engineering from Lehigh University in 1983, an M.B.A. from Harvard in 1987, and an M.S. in Mathematics from Fairfield University in 2006.

Barry S. Fox is Director of Research of Graham. He became registered as an associated person of Graham effective November 10, 2000 and listed as a principal on November 15, 2007. Mr. Fox joined Graham in August 2000 as a portfolio manager and developed several quantitative trading programs. In May 2005, he joined Graham’s Research Department, and in October 2005 was appointed Co-Associate Director of Research. Mr. Fox was appointed Director of Research in April 2007. Mr. Fox received a B.S. in Business Administration from State University of New York at Buffalo in 1986.

Isaac Finkle is Chief Legal Officer of Graham. He joined the Manager in May 2003 and became registered as an associated person of Graham effective April 16, 2004 and listed as a principal on June 5, 2007. As Chief Legal Officer, he oversees the legal aspects related to the firm’s futures activities. Mr. Finkle received a J.D. from New York University School of Law in 1985, a Ph.D. from the University of Pennsylvania in 1998 specializing in sociological theory, and a B.A. with honors in philosophy from Haverford College in 1973.

Gavin Gilbert is a discretionary trader of Graham, specializing in fixed income markets. He became registered as an associated person and listed as a principal of Graham effective June 24, 2008. Prior to joining Graham in March 2008, Mr. Gilbert was senior trader at Brevan Howard Asset Management, an investment management firm, where he was employed from April 2004 to March 2008.

Sanjeev Gupta is a discretionary trader of Graham, specializing in the global fixed income and foreign exchange markets. He became registered as an associated person of Graham effective August 20, 2007 and listed as a principal on October 11, 2007. Prior to joining Graham in May 2007, Mr. Gupta worked as a Fund Manager and Senior Trader at Proxima Alfa Investments USA LLC, a commodity trading advisor, and Vega Asset Management USA LLC, an investment management firm, from June 2002 to April 2007. Mr. Gupta was an associated person of Proxima from May 2004 to March 2007 and a principal from May 2004 to August 2004 and from January 2005 to November 2005. Mr. Gupta was an associated person of Vega from October 2003 to July 2004 and from October 2005 to April 2006. Mr. Gupta earned a Bachelor’s degree from The Indian Institute of Technology in May 1986 and an M.B.A. from The Wharton School of the University of Pennsylvania in May 1992.

Britton Holland is a discretionary trader of Graham, specializing in the energy commodity markets. In March 2004, he joined Graham and became registered as an associated person on April 6, 2005 and listed as a principal on April 27, 2005. He became a Branch Office Manager effective April 23, 2008. Mr. Holland received a B.A. in Economics in 1997 from the University of Texas in Austin, Texas.

Steven H. Jacolow is a discretionary trader of Graham specializing in global macro markets with a focus on global foreign exchange, fixed income and equity indices. He became registered as an associated person of Graham effective February 15, 2007 and listed as a principal on June 5, 2007. Prior to joining Graham in September 2006, Mr. Jacolow managed a portfolio at his investment management firm, Aboukir Investment Management, from October 2005 through August 2006. From March 2004 through September 2005, Mr. Jacolow worked as a proprietary trader at Deutsche Bank in New York. Mr. Jacolow received a B.A. in Economics in 1987 and a M.B.A. in Accounting from Rutgers University in 1989.

Peter Jepsen is a discretionary trader of Graham, specializing in global macro markets with a focus on fixed income and currencies. He became registered as an associated person of Graham effective June 12, 2006 and listed as a principal on June 22, 2006. Prior to joining Graham in March 2006, Mr. Jepsen was employed as a portfolio manager at Exis Capital

 

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Management, an investment management firm, in New York from March 2002 to March 2006. Mr. Jepsen graduated from Bucknell University in June 1993 where he received his B.A. in Economics.

David E. Keelan is a discretionary trader of Graham, specializing in long/short credit strategies. He became registered as an associated person and listed as a principal of Graham effective, respectively, March 16, 2007 and May 11, 2007. Prior to joining Graham in February 2007, Mr. Keelan was a Senior Portfolio Manager at Exis Capital, an investment management firm, from May 2006 to January 2007 and from September 2002 to August 2005, where he ran a long/short credit strategy. From September 2005 to April 2006, Mr. Keelan worked as a Portfolio Manager at Millennium Partners, an investment management firm, in New York. Mr. Keelan received a M.B.A in finance from New York University in 1995 and a B.A. from Colgate University in 1988. Mr. Keelan received the designation Chartered Financial Analyst in 2002.

Jon Tiktinsky is a discretionary trader of Graham, specializing in the U.S. fixed income markets. He became registered as an associated person of Graham effective May 23, 2008 and listed as a principal on May 30, 2008. Prior to joining Graham in May 2008, Mr. Tiktinsky held positions of increasing responsibility, including Managing Director, Head of U.S. Treasury Dealership, at RBS Greenwich Capital, an investment bank, where he was employed from July 2004 to March 2008. For the period of April 2008, Mr. Tiktinsky was unemployed. Mr. Tiktinsky was President and Founder of Hulls Farm Capital LLC, an investment management firm, from February 2002 to June 2004. He was an associated person and principal of Hulls Farm Capital LLC from August 2002 to May 2005. Mr. Tiktinsky received his B.A. in economics from Colgate University in 1982.

Marwan Younes is a discretionary trader of Graham, specializing in the commodities markets. He became registered as an associated person of Graham effective April 18, 2008 and listed as a principal on May 1, 2008. Prior to joining Graham in November 2007, Mr. Younes worked as an associate in the commodities department of the investment bank Morgan Stanley in New York from July 2006 to October 2007, where he designed foreign exchange and commodities trading strategies and models. Before joining Morgan Stanley, Mr. Younes was on sabbatical during June 2006. Mr. Younes attained his engineering degree in May 2006 from École Nationale Supérieure de Techniques Avancées (“ENSTA”) in Paris, France where he was enrolled from September 2002 through May 2006. In May 2006, Mr. Younes also received his Masters of Science in Financial Engineering from Columbia University where he was enrolled from July 2005 to May 2006. During his enrollment at ENSTA, Mr. Younes completed a corporate internship at the Paris, France office of the investment bank Lazard Frères where he worked as an analyst in the Equities and Capital Markets Department from July 2004 through June 2005.

Shannon Bass is a discretionary trader of Graham, specializing in capital structure credit trading. He became registered as an associated person of Graham effective June 1, 2009 and listed as a principal on May 14, 2010. Prior to joining Graham in January 2009, Mr. Bass was at R3 Capital Partners, an investment management firm, from June 2008 to January 2009, where he was a Senior Partner and Portfolio Manager focusing on capital structure credit trading. From November 2002 to May 2008, Mr. Bass held positions of increasing responsibility including Managing Director at the investment bank, Lehman Brothers, Inc. He was an associated person of Lehman Brothers, Inc. from January 2003 to May 2008. Mr. Bass received his M.B.A. from New York University in 1989 and his B.S. in Electrical Engineering from the University of California, San Diego in 1986.

Melanie Lynch is Senior Economist and a discretionary trader at Graham, specializing in fixed income markets with particular emphasis on short-term interest rates. Ms. Lynch joined Graham in December 2001 and became registered as an associated person of Graham effective May 30, 2002 and listed as a principal on August 3, 2010. Ms. Lynch received her B.S. in economics from the University of Maryland at College Park in 1989.

Rita Nagle is a discretionary trader of Graham, specializing in energy commodity markets. She became registered as an associated person of Graham effective June 29, 2010 and listed as a principal on July 1, 2010. Prior to joining Graham in April 2010, Ms. Nagle was a Senior Trader at Bunge North America, a large grain merchandising firm, from January 2009 to April 2010. She held the position of Vice President of Trading at Louis Dreyfus Highbridge Energy LLC, a merchant energy company, from November 2007 to December 2008. She was on sabbatical from July 2007 until November 2007. From July 2005 to June 2007, Ms. Nagle was Managing Director of Fixed Income, Energy Trading and Marketing for the investment bank, Credit Suisse Group AG. Ms. Nagle held the position of Managing Director in the Fixed Income, Currency and Commodities Division at the investment bank Goldman Sachs Group Inc. where she was employed from July 1998 to July 2005. Ms. Nagle received a B.A. in Economics and Psychology from Trinity College in 1989.

Cameron Crise is a discretionary trader of Graham, specializing in multi-asset global macro markets. He became registered as an associated person of Graham effective August 18, 2010 and listed as a principal on September 1, 2010. Prior to joining Graham in May 2010, Mr. Crise was employed as a portfolio manager at Nylon Capital LLP, an investment management firm, in London from April 2008 to March 2010. He moved back to the United States in April 2010 in order to take on the position with Graham the following month. He was between employment from February 2008 through March 2008. Mr. Crise worked as a currency portfolio manager at Fortis Investments, the global asset management arm of Fortis Group, the investment bank, from August 2004 to January 2008. Mr. Crise graduated from Duke University in 1993 where he received his B.A. in Public Policy Studies and History.

 

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Timothy Every is a discretionary trader of GCM, specializing in global foreign exchange, fixed income, and equity indices. He became registered as an associated person of Graham effective August 4, 2010 and listed as a principal on October 1, 2010. Prior to joining Graham in April 2010, Mr. Every was a proprietary trader and Vice President in the Foreign Exchange Division of Citibank, an investment bank, from October 2007 to April 2010. From July 2000 to October 2007, Mr. Every held positions of increasing responsibility including Executive Director of U.S. Products Trading for the investment bank, Goldman Sachs. He was an associated person of Citibank from July 2008 to April 2010 and an associated person of Goldman Sachs from February 2001 to October 2007. Mr. Every received a B.A. in Economics from Stanford University in June 2000.

Martin A. Brennan III is a discretionary trader of Graham, specializing in US fixed income and other liquid sovereign markets. He became an Associated Person of Graham effective May 26, 2011 and a Principal on May 27, 2011. Prior to joining Graham in January 2011, Mr. Brennan was an original Partner and Senior Portfolio Manager at Sailfish Capital Partners, LLC, an investment management firm, from March 2005 to February 2007. From January 2010 to January 2011, Mr. Brennan was between employment. Mr. Brennan received a B.A. in Accounting from Michigan state University in June 1983.

Daren McCullough is a discretionary trader of Graham, specializing in agricultural and energy options. Prior to joining Graham in March 2011, Mr. McCullough was a portfolio manager at Yannix Capital, an investment management firm, from February 2007 to March 2011. Mr. McCullough was a Senior Trader, global Options Strategist with Louis Dreyfus Corporation, an investment management firm, from May 2003 to January 2007. Mr. McCullough received a M.B.A. from the University of Kansas in October 1991. Mr. McCullough received the designation Chartered Financial Analyst in 1991.

KGT, Inc. and KGT Investment Partners, L.P. are entity principals of Graham.

Graham and its principals may, from time to time, trade futures, forwards and option contracts and securities for their own proprietary accounts. If Graham or its principals engage in such trading, investors will not be able to inspect such records.

Graham and its principals do not own an Interest in the Fund.

There have been no material administrative, civil or criminal proceedings against Graham, its affiliates, or its principals, any of which are pending, are on appeal or have concluded at any time during the last five years.

Overview of the K4D-15V Program

The K4D-15V quantitative investment program has its origin in Graham’s legacy trend-following systems, dated as far back as 1995. Graham’s trend systems are designed to participate selectively in potential profit opportunities that can occur during periods of price trends in a diverse number of U.S. and international markets. The trend systems establish positions in markets where the price action of a particular market signals the computerized systems used by Graham that a potential trend in prices is occurring. The trend systems are designed to analyze mathematically the recent trading characteristics of each market and statistically compare such characteristics to the historical trading patterns of the particular market. The trend systems also employ proprietary risk management and trade filter strategies that seek to benefit from sustained price trends while reducing risk and volatility exposure.

The K4D-15V Program utilizes multiple computerized trading models and offers broad diversification in both financial and non-financial markets, trading in approximately 100 global markets. It is intended to generate significant returns over time with an acceptable degree of risk and volatility. The computer models on a daily basis analyze the recent price action, the relative strength and the risk characteristics of each market and compare statistically the quantitative results of this data to years of historical data on each market. In addition to the trend system or systems at its base, the K4D-15V quantitative investment program has added substantial other trading strategies developed by Graham’s research department. Graham believes strongly in the importance of research and development activity and particularly in the development of new trading strategies. As one example of such efforts, Graham has incorporated a proprietary multi-factor leverage model within each of its trend-following programs to adjust the program’s exposure to key market sectors systematically based on proprietary factors that assess the potential of prices to trend in the near term. Other trading strategies developed by Graham research and added to Graham investment programs include not only a broad array of trend systems with varying time horizons, but also counter-trend trading systems and trading systems that do not seek to identify or follow price trends at all. Such systems generally are based on computerized mathematical models and rely primarily on technical rather than fundamental information as the basis for their trading decisions. Graham intends to add new trading strategies to its investment programs as well as to modify the systems currently in place in such programs in its ongoing efforts to keep pace with changing market conditions and it anticipates that the constellation of trading strategies comprising each investment program will continue to

 

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grow and evolve over time. The decision to add or subtract systems or strategies from any investment program shall be at the sole discretion of Graham. Clients will not be informed of these changes as they occur.

The Futures Clearing Broker

UBS Securities LLC serves as futures clearing broker to the Registrant. In its capacity as futures clearing broker, UBS Securities executes and clears the Registrant’s futures and options transactions and performs certain administrative services for the Registrant.

The Foreign Exchange Prime Broker

UBS AG Inc. serves as foreign exchange prime broker to the Registrant. In its capacity as foreign exchange prime broker, UBS AG clears the Registrant’s foreign exchange forward transactions and performs certain administrative services for the Registrant.

The Administrator

Spectrum Global Fund Administration, L.L.C. (“Spectrum” or the “Administrator”), a Delaware limited liability company located at 33 West Monroe – Suite 1000, Chicago, IL, USA, 60603, and 8415 Pulsar Place Suite 400, Columbus, Ohio 43240., was the administrator of the Registrant and provided certain administration and accounting services pursuant to the terms of a Services Agreement with the Registrant dated as of May 23, 2007. On December 10, 2010, AlphaMetrix360, LLC purchased the assets of Spectrum.

Effective May 31, 2011, the Registrant replaced AlphaMetrix 360, LLC with GlobeOp Financial Services LLC (“GlobeOp” or the “Administrator”), a Delaware limited liability company located at 1 South Road, Harrison, NY, USA, 10528 as administrator and AlphaMetrix 360, LLC Services Agreement with the Registrant was terminated effective close of business on May 31, 2011.

The Administrator performs or supervises the performance of services necessary for the operation and administration of the Registrant (other than making investment decisions), including administrative and accounting services. The Administrator also calculates the Registrant’s Net Asset Value. In addition, the Administrator maintains certain books and records of the Registrant, including certain books and records required by CFTC Rule 4.23(a), at its offices located as specified above. “Administrator” refers to Spectrum, AlphaMetrix 360, LLC, or GlobeOp depending on the applicable period discussed.

Fees and Expenses

Management Fee

Beginning January 1, 2010, the Registrant pays to the Managing Member in advance a monthly management fee equal to 1/12^th of 6.00% (6.00% per annum) of the Net Asset Value (defined below) of the Registrant as of the beginning of the month, See Note 3 of the Registrant’s 2010 Annual Report filed as an exhibit to the Registrant’s Form 10-K.

“Net Asset Value” is the total assets in the Registrant less total liabilities of the Registrant, each determined on the basis of accounting principles generally accepted in the United States of America.

Effective January 1, 2011, the Registrant pays a monthly administrative fee to ClariTy Managed Account & Analytics Platform LLC, an affiliate of the Managing Member, for risk management and related services with respect to monitoring the Trading Advisors.

Trading Advisors’ Fees

The Registrant pays Winton and Graham monthly management fees at an annual rate of 1.5% (2% prior to 10/1/10) and 2% respectively, of their Managed Accounts’ allocated assets as defined in their respective Trading Advisory Agreements.

The Registrant pays each Winton and Graham an incentive fee equal to 20% and 22%, respectively, of the New High Net Trading Profits (defined below) generated by each Trading Advisor, including realized and unrealized gains and losses, as of the close of business on the last day of each calendar quarter. The incentive fees will be paid quarterly in arrears.

“New High Net Trading Profits” (for purposes of calculating an Trading Advisor’s incentive fees) will be computed as of the close of business of the last day of each calendar quarter, or the Incentive Measurement Date, and will include such profits (as outlined below) since the immediately preceding Incentive Measurement Date (or, with respect to the first Incentive Measurement Date, since commencement of operations of the Registrant or the date the Trading Advisor

 

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commenced trading activities for the Registrant), or each an Incentive Measurement Period. New High Net Trading Profits for any Incentive Measurement Period will be the net profits, if any, from the Trading Advisor’s trading during such period (including (i) realized trading profit (loss) plus or minus (ii) the change in unrealized trading profit (loss) on open positions), and will be calculated after the determination of certain transaction costs attributable to the Trading Advisor’s trading activities and the Trading Advisor’s management fee, but before deduction of any incentive fees payable during the Incentive Measurement Period. New High Net Trading Profits will not include interest earned or credited on the assets allocated to the Trading Advisor.

New High Net Trading Profits will be generated only to the extent that the cumulative New High Net Trading Profits achieved by the Trading Advisor exceed the highest level of cumulative New High Net Trading Profits achieved by such Trading Advisor as of a previous Incentive Measurement Date. Except as set forth below, net losses from prior quarters must be recouped before New High Net Trading Profits can again be generated.

If a withdrawal or distribution occurs or if the Trading Advisory Agreement is terminated at any date that is not an Incentive Measurement Date, the date of the withdrawal or distribution or termination will be treated as if it were an Incentive Measurement Date. New High Net Trading Profits for an Incentive Measurement Period shall exclude capital contributions allocated to the Trading Advisor in an Incentive Measurement Period, distributions or redemptions paid or payable from the Trading Advisor’s account during an Incentive Measurement Period and any loss carry-forward attributable to the Trading Advisor will be reduced in the same proportion that the value of the assets allocated away from the Trading Advisor comprises of the value of the assets allocated to the Trading Advisor prior to such allocation away from the Trading Advisor). In calculating New High Net Trading Profits, incentive fees paid for a previous Incentive Measurement Period will not reduce cumulative New High Net Trading Profits in subsequent periods.

Through December 31, 2009, the Trading Advisors’ incentive fees were calculated at the Member level. Beginning January 1, 2010, the Trading Advisors’ incentive fees have been calculated at the Registrant level. The Managing Member has determined that any difference in each Member’s loss carryforward in the Registrant as of December 31, 2009 was immaterial. As such, to reduce administrative costs, the Managing Member determined to allocate the loss carryforward equally based on each Member’s pro rata interest in the Registrant as of December 31, 2009.

Brokerage Commissions and Fees

The Registrant pays to the clearing brokers all brokerage commissions, including applicable exchange fees, NFA fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with the Registrant’s trading activities. On average, total charges paid to the clearing brokers are expected to be less than $10.00 per round-turn trade, although the clearing broker’s brokerage commissions and trading fees will be determined on a contract-by-contract basis. The exact amount of such brokerage commissions and trading fees to be incurred is impossible to estimate and will vary based upon a number of factors including the trading frequency of each advisor, the types of instruments traded, transaction sizes, degree of leverage employed and transaction rates in effect from time to time.

Routine Operational, Administrative and Other Ordinary Expenses

The Registrant pays all of its routine operational, administrative and other ordinary expenses, including, but not limited to, (i) legal, bookkeeping, accounting, custodial, administration (including, without limitation, the costs and expenses of the Administrator), auditing, tax preparation charges and related charges of the Registrant (including reimbursement of the Managing Member on a reasonable time-spent basis, for certain legal, accounting, administrative and registrar and transfer agent work performed by certain of the Managing Member’s personnel for and on behalf of the Registrant), as well as printing and other related expenses, (ii) investment related expenses, including, but not limited to brokerage commissions, “bid-ask” spreads, mark-ups, margin interest and other transactional charges and clearing fees, as well as banking, sales and purchase commissions and charges and exchange fees, fees and charges of other custodians and clearing agencies, interest and commitment fees on loans and debit balances, income taxes, withholding taxes, transfer taxes and other governmental charges and duties, and other transactional charges and clearing fees incurred by the Trading Advisor on behalf of the Registrant, The Registrant’s pro rata share of the expenses of any Access Fund into which it invests, and any due diligence expenses incurred in selecting and monitoring the Trading Advisor and any Access Funds, (iii) operational and overhead expenses of the Registrant, including but not limited to, photocopying, postage, and telephone expenses, (iv) preparation of monthly, quarterly, annual and other reports required by applicable Federal and state regulatory authorities, (v) Registrant meetings and preparing, printing and mailing of proxy statements and reports to Members, (vi) client relations and services, and (vii) computer equipment, system maintenance and other technology-related expenses.

Extraordinary Fees and Expenses

The Registrant pays all its extraordinary fees and expenses, if any, and its allocable portion of all extraordinary fees and expenses of the Registrant generally, if any, as determined by the Managing Member. Extraordinary fees and expenses are

 

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fees and expenses that are non-recurring and unusual in nature, such as legal claims and liabilities and litigation costs and any permitted indemnification payments related thereto. Extraordinary fees and expenses shall also include material expenses that are not currently anticipated obligations of the Registrant or of managed futures funds in general, such as the payment of partnership taxes or governmental fees associated with payment of such taxes. Routine operational, administrative and other ordinary expenses will not be deemed extraordinary expenses. Any fees and expenses imposed on the Registrant due to the status of an individual shall be paid by such individual or the Registrant, not the Managing Member.

Expense Cap

Beginning January 1, 2010, brokerage commissions and fees, routine operational, administrative and other ordinary expenses, other than the Managing Member’s management fee, the fees to be paid to the Registrant’s Trading Advisor(s) and extraordinary fees and expenses, are limited to 1.50% of average Net Asset Value per annum, See Note 3 of the Registrant’s 2010 Annual Report filed as an exhibit to the Registrant’s Form 10-K. In the event fees and expenses for such items exceed such amount, the Managing Member will pay such amounts.

Redemption Charge

There is no redemption charge in respect of Interests.

Competition

The Registrant competes with other private and publicly offered commodity pools, as well as other alternative investments such as REITs and oil and gas limited partnerships and hedge funds. The Registrant operates in a competitive environment in which it faces several forms of competition, including, without limitation:

 

•

The Registrant competes with other commodity pools and other investment vehicles for investors.

 

•

The Trading Advisor may compete with other traders in the markets in establishing or liquidating positions on behalf of the Registrant.

Employees

The Registrant has no employees. Management and administrative services for the Registrant are performed by the Managing Member or third parties pursuant to the LLC Operating Agreement, as further discussed in Notes 3 and 4 of the Registrant’s financial statements included in its annual report for the year ended December 31, 2010 (the “Registrant’s 2010 Annual Report”), which is filed as an exhibit to the Registrant’s Form 10-K for the fiscal year ended December 31, 2010.

Critical Accounting Policies

Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires the application of appropriate accounting rules and guidance. Applying these policies requires the Managing Member to make judgments, estimates and assumptions in connection with the preparation of the Registrant’s financial statements. Actual results may differ from the estimates used.

The Managing Member has evaluated the Registrant’s financial statements and related disclosures and has determined that the policies discussed below are critical accounting policies because they involve estimates, judgments and assumptions that are particularly complex, subjective or uncertain. For further discussion of the Registrant’s significant accounting policies, see Note 2 of the Registrant’s 2010 Annual Report filed as an exhibit to the Registrant’s Form 10-K.

The valuation of the Registrant’s investments that are not traded on a United States (“U.S.”) or internationally recognized futures exchange is a critical accounting policy. The market values of futures (exchange traded) contracts is verified by the Registrant’s administrator, which obtains valuation data from third party data providers such as Bloomberg, Reuters and Super Derivatives and compares those prices with the Registrant’s clearing broker. The market value of currency swap and forward (non-exchange traded) contracts is extrapolated on a forward basis from the spot prices quoted as of 4 p.m. on the last business day of the reporting period. All values assigned by the administrator and confirmed by the Managing Member are final and conclusive as to all of the Registrant’s Members. As such, if actual results vary from estimates used, they are not anticipated to have a material impact on the financial statements and related disclosures.

The Registrant records all investments at fair value in its financial statements, with changes in fair value reported as a component of Trading Profits (Losses) in the Condensed Statements of Operations. Generally, fair values are based on quoted market prices; however, in certain circumstances, significant judgments and estimates are involved in determining fair

 

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value in the absence of an active market closing price. The Registrant considers its investments in public mutual funds, prices for exchange traded commodity futures and options contracts to be based on quoted prices in active markets for identical assets (Level 1). The values of forwards, swaps, and certain option contracts for which market quotations are not readily available are priced by LME, CME, and ICE exchanges, as well as Super Derivatives, Bloomberg, Reuters and or other third party data providers who derive fair values for those assets from observable inputs (Level 2). Level 3 inputs reflect the Registrant’s assumptions that it believes market participants would use in pricing the asset or liability. The Registrant develops Level 3 inputs based on the best information available in the circumstances, which may include indirect correlation to a market value, combinations of market values or the Registrant’s proprietary data. Level 3 inputs generally include information derived through extrapolation or interpolation of observable market data. The Registrant does not currently have any investments valued using Level 3 inputs.

Of the Registrant’s investments at September 30, 2011, $205,772 or 208.66% of the Registrant’s investments are classified as Level 1 and $(107,157) or (108.66)% as Level 2. Of the Registrant’s investments at December 31, 2010, $23,095,206 or 99.10% of the Registrant’s investments are classified as Level 1 and $209,049 or 0.90% as Level 2. There are no Level 3 investments at September 30, 2011 or December 31, 2010.

The Managing Member has determined that it is in the best interest of the Registrant to invest a portion of non-margin assets, either directly or indirectly through certain investment funds which invest primarily in (i) U.S. government securities (which include any security issued or guaranteed as to principal or interest by the United States), (ii) any certificate of deposit for any of the foregoing, including U.S. treasury bonds, U.S. treasury bills and issues of agencies of the United States government, (iii) corporate bonds or notes, or (iv) other instruments permitted by applicable rules and regulations. At the end of each month, the Managing Member will be paid 1/12 of 50% (a 50% annual rate) of the first 1% of the returns earned on its investment of non-margin assets. The Registrant will be credited with all additional returns earned on the Registrants investment of non-margin assets.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04 (“ASU 2011-04”) to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. It does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amended guidance is effective for financial statements for fiscal years and interim periods beginning after December 15, 2011. The impact of this guidance on the Registrant’s financial statements and disclosures, if any, is currently being assessed.

Liquidity and Capital Resources

The Registrant commenced operations on January 1, 2007. Contributions were raised and redemptions paid through new members’ investments in and redemptions out of the aggregate trading vehicle through December 31, 2009. Beginning January 1, 2010, individual members may redeem from the direct investment vehicle. Interests in the Registrant may be redeemed on a monthly basis.

Subscriptions and Redemptions

Third Quarter 2011

Subscriptions of Interests for the Third Quarter 2011 were $0. Redemptions of Interests for the Third Quarter 2011 were $1,570,289.

Third Quarter 2010

Subscriptions of Interests for the Third Quarter 2010 were $12,170,845. Redemptions of Interests for the Third Quarter 2010 were $13,070,531.

Liquidity

A portion of the Registrant’s net assets has been held in cash, which was used as margin for trading in commodities. In as much as the sole business of the Registrant is to trade in commodities, The Registrant continues to own such liquid assets to be used as margin. The clearing broker and bank credit the Registrant with interest income on 100% of its average daily equity maintained in its accounts with the clearing broker and bank during each month at competitive interest rates.

The commodities contracts may be subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, commodity exchanges limit fluctuations in certain commodity futures contract prices during a single day by regulations referred to as “daily limits.” During a single day, no trades may be executed

 

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at prices beyond the daily limit. Once the price of a futures contract for a particular commodity has increased or decreased by an amount equal to the daily limit, positions in the commodity can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Commodity futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent the Registrant from promptly liquidating its commodity futures positions.

Since the Registrant’s business is to trade futures, forward and options contracts, its capital is at risk due to changes in the value of these contracts (market risk) or the inability of counterparties to perform under the terms of the contracts (credit risk). The Registrant’s exposure to market risk is influenced by a number of factors including the volatility of interest rates and foreign currency exchange rates, the liquidity of the markets in which the contracts are traded and the relationships among the contracts held. The inherent uncertainty of the Registrant’s speculative trading as well as the development of drastic market occurrences could result in losses considerably beyond the Registrant’s experience to date and could ultimately lead to a loss of all or substantially all of investors’ capital. The Managing Member attempts to minimize these risks by requiring the Registrant and the Trading Advisor to abide by various trading limitations and policies, which include limiting margin amounts, trading only in liquid markets and permitting the use of stop loss provisions. See Note 8 of the Registrant’s 2010 Annual Report for a further discussion on the credit and market risks associated with the Registrant’s futures, forwards and option contracts.

There are no known material trends, demands, commitments, events or uncertainties at the present time that are reasonably likely to result in the Registrant’s liquidity increasing or decreasing in a material way.

Capital Resources

The Registrant does not intend to raise additional capital through the sale of Interests offered or through any borrowing. Due to the nature of the Registrant’s business, the Registrant does not contemplate making capital expenditures. The Registrant does not have, nor does it expect to have, any capital assets. Redemptions, exchanges, and sales of Interests in the future will affect the amount of funds available for investments in futures interests in subsequent periods. It is not possible to estimate the amount, and therefore the impact, of future inflows and outflows of Interests. There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Registrant’s capital resource arrangements at the present time.

Market Overview

Following is a market overview for Third Quarter 2011 and Third Quarter 2010:

Third Quarter 2011

The third quarter of 2011 brought the most significant risk aversion in financial markets since late 2008. The circumspection that reared its head in the second quarter mushroomed in the third quarter as the next leg of the European crisis unfolded and was compounded by growing indications of a sharp deceleration in global economic activity. The latest episode of the Eurozone crisis brought forth new complications as the sovereign debt problem spread to more countries placing increased stress on the fragile banking system and making it difficult for policymakers to come up with quick fixes. US GDP growth in the second quarter came in at a disappointing 1.33%, annual rate, and the first quarter growth was revised down to a 0.36%, annual rate. Data released so far for the third quarter indicates a modest pickup in GDP growth. Meanwhile, job growth slowed sharply in the third quarter and the unemployment rate stubbornly remained above the 9% mark. The housing market remained in the doldrums. Global economic data was even weaker with Europe leading the way and emerging markets also showing signs of significant slowdown.

Treasuries experienced their biggest rally since the fourth quarter of 2008 as confidence in the economic recovery faltered and concerns about Eurozone fueled safe haven demand. The 10-year yield easily breached the 2008 low, broke the 2% mark, and fell to its lowest level in six decades. The yield plunged by 126 basis points to end the quarter at 1.9%. The 30- year yield also fell sharply, by 148 basis points, to end the quarter at 2.9%. The 5-year experienced a substantial rally, although the yield curve flattened noticeably. The yield on the 5-year note fell 80 basis points to 0.96%. The two year yield declined to 25 basis points, the lowest on record. The Fed made two moves during the quarter—one announcing its intentions to keep interest rates low until 2013 and the other announcing the so-called Operation Twist. The European Central Bank maintained status quo on rates even as it intensified its firefighting by stepping up its purchase of Italian and Spanish government bonds. The Bank of England continued to be divided over elevated inflation but the fragile and stalling economy prevented any action. The Bank of Japan kept key rates unchanged throughout the quarter as well.

The greenback experienced a rally resulting from the euro’s travails and the global flight to safety. The Dollar Index surged 5.7% and rose to its highest level since early 2011. The euro fell 7.4%, its biggest quarterly decline since the second

 

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quarter of 2010. The Swiss franc reversed its meteoric climb as the Swiss Central Bank intervened to cap the franc’s rise against the euro. The British pound was more subdued but still declined 2.76% against the greenback. Not surprisingly, the Japanese yen appreciated 4.46% amid global risk aversion. Declining commodity prices, fears about Chinese slowdown, and the global risk aversion dented the Australian and Canadian dollars, which dropped 9.2% and 7.8%, respectively.

US equities suffered their biggest quarterly loss since the fourth quarter of 2008. The declines were broad-based. Financial and transportation led the way down. The Dow^SM, the S&P 500®, and the Nasdaq® declined approximately 12.1%, 13.9% and 12.9%, respectively for the quarter. European stocks fared much worse. The STOXX 600®, a broad measure of European equities, plunged 23.3%, in dollar terms. The CAC, the DAX® and the FTSE 100® closed the quarter with losses of approximately 25.4%, 25.1%, and 13.7%, respectively. Asian markets were hard hit as well. The Nikkei declined 11.4%, the Hang Seng dropped 21.5%, and the Kospi® fell 15.8%. The Australian All Ordinaries Index declined 12.7%.

Commodities slipped for the second consecutive quarter as global industrial activity appeared to be decelerating and the risks of US and European recession loomed larger and fears of a hard landing in China gained some credence. While much of the commodity complex declined during the quarter, gold, lean hogs, live cattle, and wheat were the notable exceptions. Crude fell 17.2% during the quarter and heating oil declined 4.7%. Gasoline dropped 4.6%. Natural gas declined 14.1%.

Gold breached the $1,900 mark during the quarter but fell sharply in September, paring the gains to 9.2% for the quarter. Silver declined 10.9%. Base metals were hit hard. Copper, zinc, aluminum, and nickel recorded declines of 26.8%, 21.4%, 13.8%, and 23.5%, respectively.

Grains were among the better performers within the commodity complex and their losses were largely restricted to September when the financial markets exhibited symptoms of liquidity squeeze. Wheat actually gained 1.1%, while corn and soybean declined 5.3% and 10.2%, respectively. Cotton continued to correct sharply, falling 26.5%. Lean hogs and live cattle bucked the trend within commodities and in the broader financial markets by registering solid gains of 12.6% and 7.3%, respectively.

Third Quarter 2010

The third quarter of 2010 was a roller coaster ride in the financial markets, with two months of powerful rallies sandwiching a month of risk aversion. While economic data published during the quarter showed a softening U.S. economy, it took a backseat to policymakers’ actions. Widespread expectations of another round of quantitative easing (“QE”) by the Federal Reserve (“Fed”) spurred hopes of reflation in asset prices. Moreover, the European Central Bank’s (“ECB”) success in containing the financial market fallout of the sovereign debt problem as well as keeping the banking system liquid and stable helped resuscitate confidence in the euro and the Eurozone economy. In that context, better-than-expected data out of Europe and especially robust growth in Germany buoyed financial markets even though problems in the troubled members of the Eurozone festered. U.S. Gross Domestic Product growth decelerated further in the second quarter to a 1.7% annual rate. The tone of economic data during the third quarter was mixed. Business spending was firm and consumer spending stabilized after weakening in the second quarter, housing dipped to new lows, with home sales reflecting the expiration of the Obama administration tax credits. Meanwhile, the U.S. labor markets remained disappointing throughout the third quarter and many market participants are predicting that the U.S. will enter into another recession over the next few quarters.

Despite the powerful rally in risk assets during the third quarter and the lack of flight to safety demand, U.S. Treasury bonds had another solid rally. The 10-year yield ended the quarter lower. While yields backed up a little in early September, the widespread expectations of QE lead to a smart rally in the second half of September. The Fed, the ECB, the Bank of England and the Bank of Japan all kept key rates unchanged throughout the quarter.

Increased confidence in the euro, the widespread rally in risk assets and the anticipation of the Fed’s second wave of QE all triggered a halt to the U.S. dollar rally that began in November 2009. The U.S. Dollar Index dropped 8.5%. Among the major currencies, the euro rose 10.7% and was the largest gainer against the dollar. The Swiss franc increased by 9.0%, and breached parity for the first time since early 2008. The British pound experienced more modest gains, appreciating by more than 5.3% to cap the quarter. Surprisingly, despite the risk-on environment, the Japanese yen remained strong increasing by 5.6% against the greenback and reached levels not seen since 1995. The Australian dollar surged 13.7% on the back of the commodity rally, robust economic data and surging exports to Asia. The Canadian dollar gained 2.9%.

Global equities rallied smartly in the third quarter. In the U.S., earnings continued to beat expectations. The gains were broad-based across the sectors, with technology leading the charge and financials lagging. The Dow Jones Industrial Average, S&P 500 and Nasdaq gained approximately 10.4%, 12.3% and 10.7%, respectively for the quarter. European equities snapped back even more powerfully, as the STOXX 600, a broad measure of European equities, surged approximately 18.9%, in dollar terms. The CAC, FTSE and DAX closed the quarter with gains of approximately 7.9%, 12.7% and 4.4% respectively. Pacific Rim markets posted mixed results during the quarter. Japan failed to participate in the

 

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global rally as the Nikkei edged down 0.1%. However, the Hang Seng rose 11.1% and the Korean Kospi gained 10.3%. The Australian All Ordinaries Index posted a 7.2% increase.

Commodities had a robust quarter, not surprising given the broad-based risk-aversion. Among the major commodities, only natural gas and cocoa declined during the quarter, while many commodities registered solid double-digit gains. Crude oil rose 6.9% and was one of the laggards in the commodity space, as the Organization for Economic Co-Operation and Development (“OECD”) demand continued to be soft. Natural gas plunged 22.5%, handily wiping out the previous quarter’s gain due to an oversupplied market. Heating oil ended the quarter with an approximate 13.6% gain, and reformulated gasoline rose a modest 3.2%.

Gold continued its steady climb, rising 8.3% to a record high. The growing fears of global competitive currency devaluation fueled the yellow metal rally. Silver soared by 22.7% as the engines of industrial and investment demand fired on all cylinders throughout the quarter. Base metals recorded large increases as well. Copper, aluminum and nickel ended the quarter with gains of 26.7%, 21.5% and 23.2%, respectively.

Price increases in agricultural commodities were the strongest in the commodity sector during the quarter. Sugar posted the largest gain with a 55.4% surge. Wheat surged on bad harvests and export clampdowns in Russia. The other grains and cotton were also strong performers during the quarter. Cotton soared as the world’s textile mills, nervous about a global shortage of cotton, propelled prices of the fiber to their highest levels in 15-years.

Sector Performance

Due to the nature of the Registrant’s trading activities, a period-to-period comparison of its trading results is not meaningful. However, set forth below are the following:

 

(a)

the major sectors to which the Registrant’s assets were allocated as of the Third Quarter 2011 and 2010, measured as a percentage of the “gross speculator margin” (i.e., the minimum amount of cash or marginable securities a speculator must post when buying or selling futures assets); and

 

(b)

a discussion of the Registrant’s trading results for the major sectors in which the Registrant traded for the Third Quarter 2011 and 2010.

Third Quarter 2011

As of September 30, 2011, the allocation of the Registrant’s assets to major sectors was as follows:

 

Sector		Allocation
Currencies			31.74	%
Energies			16.09	%
Grains			6.44	%
Indices			15.13	%
Interest Rates			23.26	%
Meats			0.50	%
Metals			4.69	%
Tropicals			2.15	%
TOTAL			100.00	%

Trading results for the major sectors in which the Registrant traded for Third Quarter 2011 were as follows:

Currencies: (-) The Registrant experienced the majority of its losses in the Australian and Canadian dollars. The majority of its gains were incurred in the Swiss franc and Japanese yen.

Energies: (-) The Registrant experienced the majority of its losses in gasoline, heating oil and brent crude. Gains were generated from natural gas.

Grains: (-) The Registrant experienced most of its losses in corn and soybeans. Small gains were generated in wheat and soybean oil.

 

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Indices: (-) The Registrant experienced losses in the S&P 500® Mini Index, the Nikkei and NASDAQ 100 and the Dow Jones Industrial Average. Small gains were incurred in the DJ STOXX® and the S&P TSE 60® Index.

Interest Rates: (+) The Registrant experienced the majority of its gains in Treasury Notes, Treasury Bonds, the London Gilt and the German Bund. Small losses were incurred in the Aussie Bank Bill.

Meats: (-) The Registrant experienced the majority of its losses in live cattle and live hogs.

Metals: (+) The Registrant experienced the majority of its gains in gold, aluminum, copper and nickel. Losses were realized in silver and lead.

Tropicals: (-) The Registrant experienced the majority of its losses in cocoa and coffee. Small gains were generated in sugar.

Third Quarter 2010

As of September 30, 2010, the allocation of the Registrant’s assets to major sectors was as follows:

 

Sector		Allocation
Currencies			30.99	%
Energies			13.53	%
Grains			3.00	%
Indices			29.69	%
Interest Rates			16.52	%
Meats			0.28	%
Metals			5.09	%
Tropicals			0.90	%
TOTAL			100.00	%

Trading results for the major sectors in which the Registrant traded for Third Quarter 2010 were as follows:

Currencies: (+) The Registrant experienced a majority of its gains in the Australian dollar, Japanese yen, South African rand and Swiss franc. The majority of its losses were incurred in the euro, British pound and Canadian dollar.

Energies: (-) The Registrant experienced a majority of its gains in natural gas. The majority of its losses were incurred in Brent crude, crude oil, gas oil, reformulated gasoline and heating oil.

Grains: (-) The Registrant experienced gains in cotton and soybeans. The majority of its losses were incurred in bean oil, corn and wheat.

Indices: (-) The Registrant experienced gains in the Dow Jones Industrial Average and the Nasdaq. The majority of its losses were incurred in the CAC, DAX, DJ STOXX, Ibex Plus and the S&P 500.

Interest Rates: (+) The Registrant experienced a majority of its gains in US Treasuries, German Bund, Eurodollar, Japanese Governmental Bonds and the London Gilt. The majority of its losses were incurred in Euribor Liffe and German 2-Year bonds.

Meats: (+) The Registrant experienced gains in live hogs and cattle.

Metals: (+) The Registrant experienced in gold, silver, nickel, copper, lead and aluminum. Losses were realized in zinc.

Softs: (+) The Registrant experienced gains in coffee. The majority of its losses were incurred in cocoa and sugar.

 

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Results of Operations

Third Quarter 2011

The Net Asset Value of the Registrant as of September 30, 2011 was $29,283,202, a decrease of $2,001,499 from the June 30, 2011 Net Asset Value of $31,284,701. The Registrant’s average net asset level during the Third Quarter 2011 was approximately $30,652,000. The Registrant’s average net assets decreased during the Third Quarter 2011 in comparison to the Third Quarter 2010 decreased by approximately $2,839,000, primarily due the net effect of redemptions and negative trading performance in 2011.

The Registrant’s performance for the Third Quarter 2011 was (1.53)%. Performance includes the percentage change in the Registrant’s Net Asset Value excluding the effect of any subscriptions and redemptions and includes the percentage impact of trading gains/(losses) less any commissions and related fees and expenses. Past performance is not necessarily indicative of future results.

The Registrant’s trading gains before commissions and related fees for the Third Quarter 2011 were approximately $309,000.

Dividend income for the Third Quarter 2011 was approximately $46,000, an increase of approximately $46,000, as compared to the Third Quarter 2010, as the Registrant started earning dividend income on the investment of non-margin assets in investment funds starting October 2010. For a further discussion of these investments, see Note 4 of the Registrant’s 2010 Annual Report, which is filed as an exhibit to the Registrant’s Form 10-K for the fiscal year ended December 31, 2010.

Commissions and other transaction fees for the Third Quarter 2011 were approximately $41,000, an increase of approximately $18,000 as compared to the Third Quarter 2010, primarily due to increased trading volumes.

Trading Advisors’ management fees for the Third Quarter 2011 were approximately $135,000, a decrease of approximately $33,000 as compared to the Third Quarter 2010, primarily due to the decreased average net asset levels described above.

Management Fees to the Managing Member for the Third Quarter 2011 were approximately $200,000, a decrease of approximately $123,000 as compared to the Third Quarter 2010, primarily due to the change in service fee structure as discussed in Note 6 of the Registrant’s Condensed Financial Statements, attached herein.

Incentive fees are based on the “New High Net Trading Profits” generated by the Trading Advisors, as defined in the trading advisory Agreements between the Registrant and the Trading Advisors. Incentive fees for the Third Quarter 2011 were approximately $51,000.

ClariTy Managed Account fees for the Third Quarter 2011 were approximately $19,000, an increase of approximately $19,000 as compared to the Third Quarter 2010, as the Registrant started paying a fee to ClariTy Managed Account & Analytics Platform LLC, an affiliate of the Managing Member, in January 2011. For a further discussion of this fee, see Note 9 of the Registrant’s 2010 Annual Report, which is filed as an exhibit to the Registrant’s Form 10-K for the fiscal year ended December 31, 2010.

Service Fees for the Third Quarter 2011 were approximately $266,000, an increase of approximately $266,000 as compared to the Third Quarter 2010, primarily due to the change in fee structure discussed in Note 6 of the Registrant’s Condensed Financial Statements, attached herein.

Managing Member interest earned on investment funds for the Third Quarter 2011 were approximately $13,000, an increase of approximately $13,000 as compared to the Third Quarter 2010, as the Managing Member started earning interest on the return of the investment of non-margin assets in January 2011. For a further discussion of this fee, see Note 9 of the Registrant’s 2010 Annual Report, which is filed as an exhibit to the Registrant’s Form 10-K for the fiscal year ended December 31, 2010.

Operating expenses include accounting, audit, tax, and legal fees. Operating expenses for the Third Quarter 2011 were approximately $61,000.

Third Quarter 2010

The Net Asset Value of the Registrant as of September 30, 2010 was $21,498,545, a decrease of $434,854 from the June 30, 2010 Net Asset Value of $21,933,399, as investors in Member Series E who elected not to redeem their Interest at September 30, 2010 received a pro rata distribution of their Interest in the Registrant on September 30, 2010 and replaced it

 

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with a direct ownership interest in the Registrant as of October 1, 2010. Direct ownership interest in the Registrant as of October 1, 2010 totaled $11,861,650. The Registrant’s average net asset level during the Third Quarter 2010 was approximately $33,491,000. The Registrant’s average net assets increased during the Third Quarter 2010 in comparison to the Third Quarter 2009 by approximately $7,552,000, primarily due to positive trading performance and the additions from Member Series E on July 1, 2010.

The Registrant’s performance for Member and Member Series E’s for the Third Quarter 2010 was 0.78% and 2.57%, respectively. Performance includes the percentage change in the Registrant’s Net Asset Value excluding the effect of any subscriptions and redemptions and includes the percentage impact of trading gains (losses) less any commissions and related fees and expenses. Past performance is not necessarily indicative of future results.

The Registrant’s trading gains before commissions and related fees for the Third Quarter 2010 were approximately $1,119,000.

Commissions and other transaction fees for the Third Quarter 2010 were approximately $23,000, an increase of approximately $13,000 as compared to the Third Quarter 2009, primarily due to increased average net asset levels discussed above.

Trading Advisor’s Management Fees for the Third Quarter 2010 were approximately $168,000, an increase of approximately $35,000 as compared to the Third Quarter 2009, primarily due to increased average net asset levels discussed above.

Management Fees for the Third Quarter 2010 were approximately $323,000, an increase of approximately $323,000 as compared to the Third Quarter 2009, primarily due to the change in structure discussed above. See Note 1 and Note 3 of the Registrant’s 2009 Annual Report for a further discussion of the change in structure.

During the Third Quarter 2010 no incentive fees were earned, as the fund’s incentive fee calculation did not exceed the previous high water mark on which the Trading Advisor’s were paid an incentive fee.

Operating expenses include accounting, audit, tax, and legal fees. Operating expenses for the Third Quarter 2010 were approximately $88,000.

Inflation

Inflation has had no material impact on the operations or on the financial condition of the Registrant from inception through September 30, 2011.

Off-Balance Sheet Arrangements and Contractual Obligations

The Registrant does not have any off-balance-sheet arrangements (as defined in Regulation S-K 303(a)(4)(ii)) that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

The Registrant’s contractual obligations are with the Managing Member, the Trading Advisor and its commodity broker. Management fees payable by the Registrant to the Trading Advisor and commencing January 1, 2010, management fees to the Managing Member, are calculated as a fixed percentage of the Registrant’s Net Asset Value. Incentive fees payable by the Registrant to the Trading Advisor are at a fixed rate, calculated as a percentage of Registrant’s “New High Net Trading Profits” (as defined in the Advisory Agreement). As such, the Managing Member cannot anticipate the amounts to be paid for future periods as Net Asset Values and “New High Net Trading Profits” are not known until a future date. Commissions payable to the Registrant’s commodity broker are based on a cost per executed trade and, as such, the Managing Member cannot anticipate the amount that will be required under the brokerage agreement, as the level of executed trades are not known until a future date. These agreements are effective for one-year terms, renewable automatically for additional one-year terms unless terminated. Additionally, these agreements may be terminated by either party thereto for various reasons. Additionally, since the Registrant does not enter into other long-term debt obligations, capital lease obligations, operating lease obligations or other long-term liabilities that would otherwise be reflected on the Registrant’s Statements of Financial Condition, therefore a table of contractual obligations has not been presented. For a further discussion of the Registrant’s contractual obligations, see Notes 1, 3 and 4 to the Registrant’s 2010 Annual Report filed as an exhibit to the Registrant’s Form 10-K.

 

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Past Results Not Necessarily Indicative of Future Performance

The Registrant is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and substantially all of the Registrant’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 Registrant’s main line of Market movements result in frequent changes in the fair market value of the Registrant’s open positions and, consequently, in its earnings and cash flow. The Registrant’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 Registrant’s open positions and the liquidity of the markets in which it trades.

The Registrant 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 futures market scenario will affect performance, and the Registrant’s past performance is not necessarily indicative of its future results.

“Value at Risk” is a measure of the maximum amount which the Registrant could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Registrant’s speculative trading and the recurrence in the markets traded by the Registrant of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Registrant’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 quantification included in this section should not be considered to constitute any assurance or representation that the Registrant’s losses in any market sector will be limited to Value at Risk or by the Registrant’s attempts to manage its market risk.

Standard of Materiality

Materiality as used in this section, “Quantitative and Qualitative Disclosures About Market Risk,” is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of the Registrant’s market sensitive instruments.

Quantifying the Registrant’s Trading Value at Risk

Quantitative Forward-Looking Statements

The following quantitative disclosures regarding The Registrant’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, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934. as amended (the “Exchange Act”)).

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

Exchange maintenance margin requirements have been used by the Registrant as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. 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. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.

In the case of market sensitive instruments that are not exchange-traded (almost exclusively currencies in the case of the Registrant), the margin requirements for the approximate estimated equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, estimated dealers’ margins have been used.

In quantifying the Registrant’s Value at Risk, 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 simply been aggregated to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that the Registrant’s positions are rarely, if ever, 100% positively correlated have not been reflected.

 

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Registrant’s Trading Value at Risk in Different Market Sectors

The following table presents the trading value at risk associated with the Registrant’s open positions by market sector at September 30, 2011 and December 31, 2010. All open position trading risk exposures of the Registrant have been included in calculating the figure set forth below. At September 30, 2011 and December 31, 2010, the Registrant had total capitalizations of approximately $29 million and $33 million, respectively.

 

		September 30, 2011								December 31, 2010
Market Sector		Value at Risk				% of Total Capitalization				Value at Risk				% of Total Capitalization
Interest rates		$	584,466				2.00	%		$	424,425				1.27	%
Currencies			797,470				2.72	%			992,009				2.98	%
Commodities			750,227				2.56	%			684,758				2.06	%
Stock indices			380,186				1.30	%			1,118,480				3.36	%
Total		$	2,512,349				8.58	%		$	3,219,672				9.67	%

The following table presents the average trading value at risk of the Registrant’s open positions by market sector for Third Quarter 2011 and 2010 based upon the Registrant’s total average capitalization of approximately $31 million and $30 million, respectively.

 

		Third Quarter 2011								Third Quarter 2010
Market Sector		Value at Risk				% of Total Capitalization				Value at Risk				% of Total Capitalization
Interest rates		$	686,167				2.24	%		$	849,146				2.79	%
Currencies			1,214,786				3.96	%		$	1,074,067				3.53	%
Commodities			906,581				2.96	%		$	988,112				3.25	%
Stock indices			537,849				1.75	%		$	661,715				2.17	%
Total		$	3,345,383				10.91	%		$	3,573,039				11.74	%

Material Limitations on Value at Risk as an Assessment of Market Risk

The notional value of the market sector instruments held by the Registrant is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally range between approximately 1% and 10% of the face value) as well as many times the total capitalization of the Registrant. The magnitude of the Registrant’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, although unusual, but historically recurring from time to time, could cause the Registrant to incur severe losses over a short period of time. The foregoing Value at Risk table, as well as the past performance of the Registrant give no indication of this “risk of ruin.”

Non-Trading Risk

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

Qualitative Disclosures Regarding Primary Trading Risk Exposures

The following qualitative disclosures regarding the Registrant’s market risk exposures—except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Registrant 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 Exchange Act. The Registrant’s primary market risk exposures as well as the strategies used and to be used by the Managing Member and the Trading Advisors for managing such exposures are subject to numerous uncertainties, contingencies and risks are one of which could cause the actual results of the Registrant’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 Registrant. There can be no assurance that the Registrant’s current

 

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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 their investment in the Registrant.

Based on trading value at risk at September 30, 2011, the Registrant experienced a decrease in its value at risk, relative to capitalization levels, as compared with the value at risk at December 31, 2010. Decreases in trading value at risk were experienced in currencies and stock indices at September 30, 2011.

Qualitative Disclosures Regarding Means of Managing Risk Exposure

The means by which the Managing Member and the Trading Advisors, severally, attempt to manage the risk of the Registrant’s open positions is essentially the same in all market categories traded.

The Trading Advisors attempt to minimize market risk exposure by applying their own risk management trading policies that include the diversification of trading assets into various market sectors. Additionally, the Trading Advisors have an oversight committee broadly responsible for evaluating and overseeing the Trading Advisors’ trading policies. The oversight committee meets periodically to discuss and analyze issues such as liquidity, position size, capacity, performance cycles, and new product and market strategies.

The Managing Member attempts to minimize market risk exposure by requiring the Trading Advisors to abide by various trading limitations and policies. The Managing Member monitors compliance with these trading limitations and policies which include, but are not limited to, limiting the amount of margin or premium required for any one commodity or all commodities combined and generally limiting transactions to contracts which are traded in sufficient volume to permit the taking and liquidating of positions. Additionally, the Managing Member shall automatically terminate the Trading Advisor if the Net Asset Value of the Registrant declines by 40% during any year or since the commencement of trading activities. Furthermore, the Trust Agreement provides that the Registrant will liquidate its positions, and eventually dissolve, if the Registrant experiences a decline in the net asset value of 50% in any year or since the commencement of trading activities. In each case, the decline in Net Asset Value is after giving effect for contributions, distributions and redemptions. The Managing Member may impose additional restrictions (through modifications of such trading limitations and policies) upon the trading activities of the Trading Advisors as it, in good faith, deems to be in the best interest of the Registrant.

Qualitative Disclosures Regarding Non-Trading Risk Exposure

At September 30, 2011, the Registrant has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as any market risk they represent) are immaterial. The Registrant’s primary exposure to non-trading market risk resulted from foreign currency balances held in the Euro, British pound, Swiss Franc, Hong Kong dollar, South Korean won, Japanese yen, Swedish krona, New Zealand dollar, Singapore dollar, Australian dollar and Canadian dollar.

 

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Registrant’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended, are designed to ensure that information required to be disclosed by the Registrant in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to the Registrant’s management, including the Managing Member’s Co-Chief Executive Officers and Director of Fund Administration (who, in these capacities, function as the Principal Executive Officers and Principal Financial/Accounting Officer, respectively, of the Registrant), as appropriate to allow for timely decisions regarding required disclosure.

In designing and evaluating the Registrant’s disclosure controls and procedures, the Managing Member recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of the controls can prove absolute assurance that all control issues and instances of fraud, if any, within the Registrant have been detected.

The Managing Member’s management, under the supervision and with the participation of certain officers of the Managing Member (including the Managing Member’s Co-Chief Executive Officers and Director of Fund Administration), has evaluated the effectiveness of the Registrant’s disclosure controls and procedures during Third Quarter 2011. Based upon

 

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such evaluation, the Managing Member’s Co-Chief Executive Officers and Director of Fund Administration have concluded that, as of September 30, 2011, the Registrant’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Registrant’s internal control over financial reporting (as defined in Rules 13a – 15(f) and 15d – 15(f) under the Exchange Act) during the Third Quarter of 2011 that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

There are no material legal proceedings pending, on appeal, or concluded to which the Registrant is a party or to which any of its assets are subject.

 

Item 1.A.

Risk Factors

There have been no changes from risk factors as previously disclosed in the Registrant’s Form 10-K for the fiscal year ended December 31, 2010.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

From January 1, 2011 to September 30, 2011, the Registrant sold Interests which resulted in aggregate proceeds to the Registrant of $4,412.339.

 

Item 3.

Defaults Upon Senior Securities

None

 

Item 5.

Other Information

None

 

Item 6.

Exhibits:

 

 

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In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to the Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

[Remainder of page left blank intentionally.]

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

KMP FUTURES FUND I LLC
By:		Kenmar Preferred Investments Corp.,
		its Managing Member
		By:		/s/ Kenneth A. Shewer				Date: November 10, 2011
				Name:		Kenneth A. Shewer
				Title:		Co-Chief Executive Officer
						(Principal Executive Officer)
		By:		/s/ David K. Spohr				Date: November 10, 2011
				Name:		David K. Spohr
				Title:		Senior Vice President and Director of Fund Administration
						(Principal Financial/Accounting Officer)

 

 

 

 

 

 

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