Aspect FuturesAccess LLC - FORM 10-Q - November 13, 2015

Attached files

file filename
EX-31.02 - EX-31.02 - Aspect FuturesAccess LLCa15-18068_1ex31d02.htm
EX-31.01 - EX-31.01 - Aspect FuturesAccess LLCa15-18068_1ex31d01.htm
EX-32.01 - EX-32.01 - Aspect FuturesAccess LLCa15-18068_1ex32d01.htm
EX-32.02 - EX-32.02 - Aspect FuturesAccess LLCa15-18068_1ex32d02.htm

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2015

 

OR

 

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

 

For the transition period from                  to

 

Commission File Number 0-51085

 

ASPECT FUTURESACCESS LLC

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-1227650

(State or other jurisdiction of

 

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

incorporation or organization)

 

 

 

c/o Merrill Lynch Alternative Investments LLC

250 Vesey Street, 11th Floor

New York, New York 10080

(Address of principal executive offices)

(Zip Code)

 

609-274-5838

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   x    No  o

 

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

 

Large accelerated filer o

 

Accelerated filero

Non-accelerated filer x

 

Smaller reporting companyo

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   o    No  x

 

As of September 30, 2015, 81,751,098 units of limited liability company interest were outstanding.

 

 

 


 

ASPECT FUTURESACCESS LLC

 

QUARTERLY REPORT FOR SEPTEMBER 30, 2015 ON FORM 10-Q

 

Table of Contents

 

 

 

PAGE

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

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

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

PART II—OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

32

 

 

 

Item 1A.

Risk Factors

32

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 5.

Other Information

35

 

 

 

Item 6

Exhibits

35

 


 

PART I - FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

(unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

ASSETS:

 

 

 

 

 

Equity in commodity trading accounts:

 

 

 

 

 

Cash (including restricted cash of $18,929,925 for 2015 and $25,744,662 for 2014)

 

$

137,160,199

 

$

144,270,669

 

Unrealized profit on open futures contracts

 

4,496,028

 

11,405,220

 

Unrealized profit on open forwards contracts

 

1,176,362

 

4,676,369

 

Cash and cash equivalents

 

539,471

 

525,336

 

Other assets

 

10

 

5,490

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

143,372,070

 

$

160,883,084

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Brokerage commissions payable

 

$

11,465

 

$

20,409

 

Sponsor and Advisory fees payable

 

430,070

 

4,128,764

 

Redemptions payable

 

1,133,568

 

2,382,533

 

Unrealized loss on open futures contracts

 

2,145,223

 

2,027,902

 

Unrealized loss on open forwards contracts

 

1,271,693

 

3,120,254

 

Other liabilities

 

1,424,843

 

1,402,503

 

 

 

 

 

 

 

Total liabilities

 

6,416,862

 

13,082,365

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Members’ Capital (81,751,098 Units and 87,952,580 Units outstanding; unlimited Units authorized)

 

136,955,208

 

147,800,719

 

Total members’ capital

 

136,955,208

 

147,800,719

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

143,372,070

 

$

160,883,084

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Class A

 

$

1.8005

 

$

1.7318

 

Class C

 

$

1.6258

 

$

1.5768

 

Class D

 

$

2.1462

 

$

2.0448

 

Class I

 

$

1.8746

 

$

1.7810

 

Class DS*

 

$

—

 

$

2.0290

 

Class DT

 

$

2.2836

 

$

2.1534

 

Class M

 

$

1.1491

 

$

1.0933

 

 

*Units fully redeemed as of April 30, 2015.

 

 

 

 

 

See notes to financial statements.

 

 

 

 

 

 

1


 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the three

 

For the three

 

For the nine

 

For the nine

 

 

 

months ended

 

months ended

 

months ended

 

months ended

 

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

13,777,894

 

$

8,139,832

 

$

21,014,122

 

$

12,037,864

 

Change in unrealized, net

 

3,050,849

 

574,416

 

(8,677,959

)

(3,420,423

)

Brokerage commissions

 

(101,600

)

(130,237

)

(349,025

)

(412,821

)

 

 

 

 

 

 

 

 

 

 

Total trading profit (loss), net

 

16,727,143

 

8,584,011

 

11,987,138

 

8,204,620

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest, net

 

(685

)

3,087

 

(288

)

2,312

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Management fee

 

656,101

 

639,754

 

2,075,519

 

2,076,260

 

Sponsor fee

 

606,151

 

483,663

 

1,779,770

 

1,579,535

 

Performance fee

 

—

 

—

 

2,862,990

 

—

 

Other

 

177,255

 

119,653

 

522,993

 

475,914

 

Total expenses

 

1,439,507

 

1,243,070

 

7,241,272

 

4,131,709

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(1,440,192

)

(1,239,983

)

(7,241,560

)

(4,129,397

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

15,286,951

 

$

7,344,028

 

$

4,745,578

 

$

4,075,223

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

 

 

 

 

Class A

 

13,444,100

 

13,536,957

 

12,865,998

 

15,266,514

 

Class C

 

51,262,497

 

52,041,755

 

50,378,623

 

58,140,722

 

Class D

 

3,005,210

 

2,482,366

 

2,656,657

 

2,482,366

 

Class I

 

1,226,316

 

1,245,489

 

1,227,322

 

2,633,491

 

Class DS*

 

—

 

14,756,637

 

11,455,528

 

16,649,063

 

Class DT

 

5,150,361

 

6,920,809

 

5,241,290

 

7,693,947

 

Class M

 

7,541,857

 

6,465,538

 

6,600,598

 

6,254,717

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

 

 

 

 

Class A

 

$

0.2007

 

$

0.0765

 

$

0.0744

 

$

0.0344

 

Class C

 

$

0.1795

 

$

0.0672

 

$

0.0495

 

$

0.0230

 

Class D

 

$

0.2490

 

$

0.0959

 

$

0.1407

 

$

0.0834

 

Class I

 

$

0.2150

 

$

0.0807

 

$

0.0867

 

$

(0.0080

)

Class DS*

 

$

—

 

$

0.0964

 

$

(0.0266

)

$

0.0641

 

Class DT

 

$

0.2701

 

$

0.1031

 

$

0.1382

 

$

0.0777

 

Class M

 

$

0.1303

 

$

0.0522

 

$

0.0595

 

$

0.0578

 

 

 

*Units fully redeemed as of April 30, 2015. (Presentation of weighted average units outstanding and net income (loss) per weighted average units for this share class is for the period January 1, 2015 to April 30, 2015.)

See notes to financial statements.

 

2


 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(unaudited) (in Units)

 

 

 

Members’ Capital

 

 

 

 

 

Members’ Capital

 

Members’ Capital

 

 

 

 

 

Members’ Capital

 

 

 

December 31, 2013

 

Subscriptions

 

Redemptions

 

September 30, 2014

 

 

December 31, 2014

 

Subscriptions

 

Redemptions

 

September 30, 2015

 

Class A

 

18,353,686

 

86,884

 

(5,262,002

)

13,178,568

 

 

12,349,527

 

1,836,309

 

(688,513

)

13,497,323

 

Class C

 

68,708,959

 

2,698,155

 

(20,867,009

)

50,540,105

 

 

49,129,741

 

4,799,024

 

(2,846,979

)

51,081,786

 

Class D

 

2,482,365

 

—

 

—

 

2,482,365

 

 

2,482,365

 

522,844

 

—

 

3,005,209

 

Class I

 

4,156,462

 

—

 

(2,920,099

)

1,236,363

 

 

1,207,316

 

58,000

 

(59,008

)

1,206,308

 

Class DS*

 

18,932,203

 

1,510,111

 

(6,231,377

)

14,210,937

 

 

11,804,527

 

73,442

 

(11,877,969

)

—

 

Class DT

 

8,531,693

 

—

 

(2,017,863

)

6,513,830

 

 

5,440,620

 

1,026,778

 

(1,179,674

)

5,287,724

 

Class M

 

4,503,373

 

4,430,945

 

(2,738,042

)

6,196,276

 

 

5,538,484

 

2,240,914

 

(106,650

)

7,672,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

125,668,741

 

8,726,095

 

(40,036,392

)

94,358,444

 

 

87,952,580

 

10,557,311

 

(16,758,793

)

81,751,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Units fully redeemed as of April 30, 2015.

See notes to financial statements.

 

3


 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members’ Capital

 

 

 

 

 

Net Income

 

Members’ Capital

 

 

Members’ Capital

 

 

 

 

 

 

 

Members’ Capital

 

 

 

December 31, 2013

 

Subscriptions

 

Redemptions

 

(Loss)

 

September 30, 2014

 

 

December 31, 2014

 

Subscriptions

 

Redemptions

 

Net Income (Loss)

 

September 30, 2015

 

Class A

 

$

24,808,334

 

$

113,081

 

$

(6,893,987

)

$

525,295

 

$

18,552,723

 

 

$

21,386,741

 

$

3,164,851

 

$

(1,207,077

)

$

957,697

 

$

24,302,212

 

Class C

 

85,375,459

 

3,257,730

 

(25,052,283

)

1,338,224

 

64,919,130

 

 

77,465,333

 

7,636,518

 

(4,546,580

)

2,495,288

 

83,050,559

 

Class D

 

3,892,586

 

—

 

—

 

206,908

 

4,099,494

 

 

5,075,852

 

1,000,100

 

—

 

373,921

 

6,449,873

 

Class I

 

5,813,517

 

—

 

(3,985,985

)

(21,109

)

1,806,423

 

 

2,150,219

 

112,000

 

(107,225

)

106,371

 

2,261,365

 

Class DS*

 

29,551,548

 

2,273,745

 

(9,529,835

)

1,066,442

 

23,361,900

 

 

23,951,811

 

161,403

 

(23,808,292

)

(304,922

)

—

 

Class DT

 

14,009,030

 

—

 

(3,294,813

)

597,646

 

11,311,863

 

 

11,715,686

 

2,270,636

 

(2,636,138

)

724,603

 

12,074,787

 

Class M

 

3,767,021

 

3,587,534

 

(2,238,339

)

361,817

 

5,478,033

 

 

6,055,077

 

2,485,000

 

(116,285

)

392,620

 

8,816,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Capital

 

$

167,217,495

 

$

9,232,090

 

$

(50,995,242

)

$

4,075,223

 

$

129,529,566

 

 

$

147,800,719

 

$

16,830,508

 

$

(32,421,597

)

$

4,745,578

 

$

136,955,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Units fully redeemed as of April 30, 2015.

See notes to financial statements.

 

4


 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015 (unaudited)

 

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

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.5966

 

$

1.4459

 

$

1.8940

 

$

1.6619

 

$

2.0146

 

$

1.0152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.2230

 

0.2012

 

0.2671

 

0.2308

 

0.2820

 

0.1419

 

Brokerage commissions

 

(0.0013

)

(0.0012

)

(0.0016

)

(0.0014

)

(0.0017

)

(0.0009

)

Interest income, net (c)

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0178

)

(0.0201

)

(0.0133

)

(0.0167

)

(0.0113

)

(0.0071

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.8005

 

$

1.6258

 

$

2.1462

 

$

1.8746

 

$

2.2836

 

$

1.1491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

12.78

%

12.44

%

13.31

%

12.80

%

13.36

%

13.19

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

12.78

%

12.44

%

13.31

%

12.80

%

13.36

%

13.19

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

1.02

%

1.27

%

0.64

%

0.92

%

0.51

%

0.64

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

1.02

%

1.27

%

0.64

%

0.92

%

0.51

%

0.64

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-1.02

%

-1.27

%

-0.64

%

-0.92

%

-0.51

%

-0.64

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Net investment income (loss) (including Performance fees)

 

-1.02

%

-1.27

%

-0.64

%

-0.92

%

-0.51

%

-0.64

%

 

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

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

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

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

See notes to financial statements.

 

5


 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 (unaudited)

 

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

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS*

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.7318

 

$

1.5768

 

$

2.0448

 

$

1.7810

 

$

2.0290

 

$

2.1534

 

$

1.0933

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.1601

 

0.1440

 

0.1860

 

0.1832

 

0.0233

 

0.2014

 

0.1011

 

Brokerage commissions

 

(0.0044

)

(0.0040

)

(0.0052

)

(0.0046

)

(0.0023

)

(0.0055

)

(0.0028

)

Interest income, net

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

0.0001

 

(0.0000

)

(0.0000

)

Expenses

 

(0.0870

)

(0.0910

)

(0.0794

)

(0.0850

)

(0.0574

)

(0.0657

)

(0.0425

)

Net asset value, before full redemption

 

1.8005

 

1.6258

 

2.1462

 

1.8746

 

1.9927

 

2.2836

 

1.1491

 

Less redemption

 

—

 

—

 

—

 

—

 

1.9927

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.8005

 

$

1.6258

 

$

2.1462

 

$

1.8746

 

$

—

 

$

2.2836

 

$

1.1491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

5.94

%

5.08

%

6.93

%

7.25

%

0.18

%

7.55

%

7.08

%

Performance fees

 

-1.97

%

-1.97

%

-1.97

%

-1.99

%

-1.97

%

-1.50

%

-1.97

%

Total return after Performance fees

 

3.97

%

3.11

%

4.96

%

5.26

%

-1.79

%

6.05

%

5.11

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

3.02

%

3.77

%

1.89

%

2.72

%

1.83

%

1.51

%

1.89

%

Performance fees

 

1.88

%

1.88

%

1.88

%

1.88

%

1.88

%

1.43

%

1.88

%

Expenses (including Performance fees)

 

4.90

%

5.65

%

3.77

%

4.60

%

3.71

%

2.94

%

3.77

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-3.02

%

-3.77

%

-1.89

%

-2.72

%

-1.83

%

-1.51

%

-1.89

%

Performance fees

 

-1.88

%

-1.88

%

-1.88

%

-1.88

%

-1.88

%

-1.43

%

-1.88

%

Net investment income (loss) (including Performance fees)

 

-4.90

%

-5.65

%

-3.77

%

-4.60

%

-3.71

%

-2.94

%

-3.77

%

 

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

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

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

*Units fully redeemed as of April 30, 2015.

See notes to financial statements.

 

6


 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

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

 

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

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.3311

 

$

1.2175

 

$

1.5556

 

$

1.3800

 

$

1.5486

 

$

1.6335

 

$

0.8327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.0921

 

0.0841

 

0.1078

 

0.0955

 

0.1074

 

0.1133

 

0.0577

 

Brokerage commissions

 

(0.0014

)

(0.0013

)

(0.0016

)

(0.0014

)

(0.0016

)

(0.0017

)

(0.0009

)

Interest income, net (c)

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Expenses

 

(0.0140

)

(0.0158

)

(0.0104

)

(0.0130

)

(0.0105

)

(0.0085

)

(0.0054

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.4078

 

$

1.2845

 

$

1.6514

 

$

1.4611

 

$

1.6439

 

$

1.7366

 

$

0.8841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

5.76

%

5.50

%

6.16

%

5.87

%

6.15

%

6.31

%

6.17

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

5.76

%

5.50

%

6.16

%

5.87

%

6.15

%

6.31

%

6.17

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

0.97

%

1.22

%

0.60

%

0.87

%

0.60

%

0.47

%

0.60

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

0.97

%

1.22

%

0.60

%

0.87

%

0.60

%

0.47

%

0.60

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-0.97

%

-1.22

%

-0.59

%

-0.87

%

-0.59

%

-0.47

%

-0.59

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Net investment income (loss) (including Performance fees)

 

-0.97

%

-1.22

%

-0.59

%

-0.87

%

-0.59

%

-0.47

%

-0.59

%

 

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

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

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

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

 

See notes to financial statements.

 

7


 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

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

 

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

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.3517

 

$

1.2426

 

$

1.5681

 

$

1.3987

 

$

1.5609

 

$

1.6420

 

$

0.8365

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.1026

 

0.0936

 

0.1205

 

0.1065

 

0.1200

 

0.1268

 

0.0645

 

Brokerage commissions

 

(0.0039

)

(0.0036

)

(0.0045

)

(0.0040

)

(0.0045

)

(0.0048

)

(0.0024

)

Interest income, net (c)

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Expenses

 

(0.0426

)

(0.0481

)

(0.0327

)

(0.0401

)

(0.0325

)

(0.0274

)

(0.0145

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.4078

 

$

1.2845

 

$

1.6514

 

$

1.4611

 

$

1.6439

 

$

1.7366

 

$

0.8841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

4.15

%

3.37

%

5.31

%

4.46

%

5.31

%

5.76

%

5.69

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

4.15

%

3.37

%

5.31

%

4.46

%

5.31

%

5.76

%

5.69

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

2.97

%

3.72

%

1.84

%

2.67

%

1.84

%

1.47

%

1.84

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

2.97

%

3.72

%

1.84

%

2.67

%

1.84

%

1.47

%

1.84

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-2.96

%

-3.72

%

-1.84

%

-2.66

%

-1.84

%

-1.46

%

-1.84

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Net investment income (loss) (including Performance fees)

 

-2.96

%

-3.72

%

-1.84

%

-2.66

%

-1.84

%

-1.46

%

-1.84

%

 

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

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

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

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

 

See notes to financial statements.

 

8


 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.              ORGANIZATION

 

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

 

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

 

FuturesAccess is a group of managed futures funds sponsored by MLAI (“FuturesAccess Funds”).  FuturesAccess is exclusively available to investors that have investment accounts with Merrill Lynch Wealth Management, U.S. Trust and other divisions or affiliates of BofA Corp.  FuturesAccess Funds currently are composed of direct-trading funds advised by a single trading advisor and a single fund of funds no longer offered to investors for which MLAI acts as the advisor and allocates capital among multiple trading advisors. Although redemption terms vary among FuturesAccess Funds, FuturesAccess applies, with some exceptions, the same minimum investment amounts, fees and other operational criteria across all FuturesAccess Funds.  Each trading advisor participating in FuturesAccess employs different technical, fundamental, systematic and/or discretionary trading strategies.

 

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

 

The Fund considers all highly liquid investments, with a maturity of three months or less when acquired, to be cash equivalents. As of September 30, 2015 the Fund holds cash equivalents. Cash was held at a nationally recognized financial institution.

 

In the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of the Fund as of September 30, 2015 and December 31, 2014 and the results of its operations for the three and nine month periods ended September 30, 2015 and 2014.  However, the operating results for the interim periods may not be indicative of the results for the full year.

 

9


 

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted.  These financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund’s report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2014.

 

Estimates

 

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

 

10


 

2.              CONDENSED SCHEDULES OF INVESTMENTS

 

The Fund’s investments, defined as unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of September 30, 2015 and December 31, 2014, are as follows:

 

September 30, 2015

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

255

 

$

(185,241

)

-0.14

%

(978

)

$

171,890

 

0.13

%

$

(13,351

)

-0.01

%

November 2015 - February 2016

 

Currencies - Futures

 

—

 

—

 

0.00

%

(28

)

3,416

 

0.00

%

3,416

 

0.00

%

December 2015

 

Currencies - Forwards*

 

83,368,865

 

(869,073

)

-0.63

%

(153,195,296

)

773,742

 

0.56

%

(95,331

)

-0.07

%

December 2015

 

Energy

 

—

 

—

 

0.00

%

(519

)

595,332

 

0.43

%

595,332

 

0.43

%

October 2015 - December 2015

 

Interest rates

 

4,552

 

1,849,413

 

1.35

%

(3

)

(240

)

0.00

%

1,849,173

 

1.35

%

December 2015 - March 2018

 

Metals

 

175

 

(57,811

)

-0.04

%

(812

)

(203,736

)

-0.15

%

(261,547

)

-0.19

%

December 2015 - January 2016

 

Stock indices

 

107

 

(39,161

)

-0.03

%

(356

)

216,943

 

0.16

%

177,782

 

0.13

%

October 2015 - December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

698,127

 

0.51

%

 

 

$

1,557,347

 

1.13

%

$

2,255,474

 

1.64

%

 

 

 

December 31, 2014

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

320

 

$

(176,604

)

-0.12

%

(897

)

$

676,248

 

0.46

%

$

499,644

 

0.34

%

February 2015 - April 2015

 

Currencies - Futures

 

—

 

—

 

0.00

%

(106

)

72,529

 

0.05

%

72,529

 

0.05

%

March 2015

 

Currencies - Forwards*

 

177,986,978

 

(2,561,819

)

-1.73

%

(305,534,846

)

4,117,934

 

2.79

%

1,556,115

 

1.06

%

March 2015

 

Energy

 

—

 

—

 

0.00

%

(627

)

3,389,623

 

2.29

%

3,389,623

 

2.29

%

January 2015 - December 2015

 

Interest rates

 

4,974

 

4,862,228

 

3.29

%

(509

)

(41,179

)

-0.03

%

4,821,049

 

3.26

%

March 2015 - June 2017

 

Metals

 

358

 

(930,978

)

-0.63

%

(502

)

613,650

 

0.42

%

(317,328

)

-0.21

%

February 2015 - April 2015

 

Stock indices

 

1,294

 

1,070,026

 

0.72

%

(158

)

(158,225

)

-0.11

%

911,801

 

0.61

%

January 2015 - March 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

2,262,853

 

1.53

%

 

 

$

8,670,580

 

5.87

%

$

10,933,433

 

7.40

%

 

 

 

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

 

No individual contract’s unrealized profit or loss comprised greater than 5% of Members’ Capital as of September 30, 2015 and December 31, 2014. With respect to each commodity industry sector listed in the above chart, the net unrealized profit (loss) on open positions is the sum of the unrealized profits (losses) of long positions and short positions of the open contracts, netting unrealized losses against unrealized profits as applicable.  Net unrealized profit and loss provides a rough measure of the exposure of the Fund to the various sectors as of the date listed, although such exposure can change at any time.

 

11


 

3.              FAIR VALUE OF INVESTMENTS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

12


 

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

 

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

 

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

 

Transfers of investments between different levels of the fair value hierarchy, if any, are recorded as of the beginning of the reporting period. There were no transfers to or from any level during the three or nine month periods ended September 30, 2015 or the year ended December 31, 2014.

 

The Fund’s unrealized profit (loss) on open forwards and futures contracts, by the above fair value hierarchy levels, as of September 30, 2015 and December 31, 2014, are as follows:

 

Net unrealized profit (loss) on open contracts

 

 

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Futures

 

$

4,496,028

 

$

4,019,900

 

$

476,128

 

$

—

 

Forwards

 

1,176,362

 

—

 

1,176,362

 

—

 

 

 

$

5,672,390

 

$

4,019,900

 

$

1,652,490

 

$

—

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Futures

 

$

2,145,223

 

$

1,468,991

 

$

676,232

 

$

—

 

Forwards

 

1,271,693

 

—

 

1,271,693

 

—

 

 

 

$

3,416,916

 

$

1,468,991

 

$

1,947,925

 

$

—

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

$

2,255,474

 

$

2,550,909

 

$

(295,435

)

$

—

 

 

13


 

Net unrealized profit (loss) on open contracts

 

 

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Futures

 

$

11,405,220

 

$

10,808,290

 

$

596,930

 

$

—

 

Forwards

 

4,676,369

 

—

 

4,676,369

 

—

 

 

 

$

16,081,589

 

$

10,808,290

 

$

5,273,299

 

$

—

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Futures

 

$

2,027,902

 

$

1,081,090

 

$

946,812

 

$

—

 

Forwards

 

3,120,254

 

—

 

3,120,254

 

—

 

 

 

$

5,148,156

 

$

1,081,090

 

$

4,067,066

 

$

—

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

$

10,933,433

 

$

9,727,200

 

$

1,206,233

 

$

—

 

 

The Fund’s volume of trading forwards and futures as of the nine month period ended September 30, 2015 and year ended December 31, 2014 are representative of the activity throughout these periods.

 

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

 

The Fund maintains margin deposits and cash collateral with its futures and forwards brokers, respectively, based on the greater of exchange margin or amounts determined by the respective broker. At September 30, 2015 and December 31, 2014, the initial margin deposits (cash) are used to satisfy the margin requirements to establish the futures or forward contracts and are presented on the Statements of Financial Condition in Cash in the Equity in commodity trading accounts. The variation margin on open contracts is presented gross on the Statements of Financial Condition in Unrealized profit or loss on futures or forwards contracts, respectively. The Fund is subject to agreements which support the ability to settle net with their counterparties; however, the Fund has elected to present the related balances on the Statements of Financial Condition on a gross basis. The net of these amounts less the restricted cash presented within the Cash in the Equity in commodity trading accounts on the Statements of Financial Condition represents the Fund’s net exposure.

 

The following table indicates the trading profits and losses before brokerage commissions, by commodity industry sector for each of the three and nine month periods ended September 30, 2015 and 2014:

 

14


 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30, 2015

 

September 30, 2015

 

Commodity Industry

 

profit (loss)

 

profit (loss)

 

Sector

 

from trading, net

 

from trading, net

 

 

 

 

 

 

 

Agriculture

 

$

504,420

 

$

(223,781

)

Currencies

 

1,905,411

 

(313,980

)

Energy

 

6,900,763

 

5,000,737

 

Interest rates

 

4,307,943

 

2,070,400

 

Metals

 

4,089,870

 

4,612,164

 

Stock indices

 

(879,664

)

1,190,623

 

 

 

 

 

 

 

Total, net

 

$

16,828,743

 

$

12,336,163

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30, 2014

 

September 30, 2014

 

Commodity Industry

 

profit (loss)

 

profit (loss)

 

Sector

 

from trading, net

 

from trading, net

 

 

 

 

 

 

 

Agriculture

 

$

5,449,473

 

$

6,713,372

 

Currencies

 

(105,413

)

863,687

 

Energy

 

1,658,364

 

483,040

 

Interest rates

 

2,865,687

 

4,798,243

 

Metals

 

(11,860

)

(3,186,340

)

Stock indices

 

(1,142,003

)

(1,054,561

)

 

 

 

 

 

 

Total, net

 

$

8,714,248

 

$

8,617,441

 

 

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

 

4.              MARKET AND CREDIT RISKS

 

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

 

Market Risk

 

Derivative instruments involve varying degrees of market risk.  Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or

 

15


 

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

 

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

 

Credit Risk

 

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

 

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

 

The Fund, in its normal course of business, enters into various contracts, with MLPF&S acting as its futures clearing broker. Due to the relationship with MLPF&S, in the event of default, all futures balances are eligible for offset with a net settlement due to MLPF&S.  Due to the relationship with MLI, in the event of default, all forwards balances are eligible for offset with a net settlement due to MLI.

 

Indemnifications

 

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

 

16


 

5.              RELATED PARTY TRANSACTIONS

 

MLAI owns 50 Class D Units which represent less than 1% of the Fund’s Net Asset Value as of September 30, 2015.

 

MLAI and the Fund entered into a transfer agency and investor services agreement with Financial Data Services, Inc. (the “Transfer Agent”), a wholly-owned subsidiary of BofA Corp. and affiliate of MLAI. The Transfer Agent provides registrar, distribution disbursing agent, transfer agent and certain other services related to the issuance, redemption, exchange and transfer of Units. The fees charged by the Transfer Agent for its services are based on the aggregate net assets of funds managed or sponsored by MLAI. The fee rate ranges from 0.016% to 0.02% per year of the aggregate net assets managed or sponsored by MLAI. During the quarter ended September 30, 2015, the rate ranged from 0.018% to 0.02%. The fee is payable monthly in arrears. MLAI allocates the Transfer Agent fees to each of the managed or sponsored funds, including the Fund, on a monthly basis based on each fund’s net assets. The Transfer Agent fee allocated to the Fund for the three month periods ended September 30, 2015, and 2014 amounted to $15,156 and $6,474, respectively. The Transfer Agent fee allocated to the Fund for the nine month periods ended September 30, 2015 and 2014 amounted to $47,994 and $21,649, respectively, of which $15,422 and $4,674 was payable to the Transfer Agent as of September 30, 2015 and December 31, 2014, respectively.

 

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

 

6.              RECENT ACCOUNTING PRONOUNCEMENTS

 

In May 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. It also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. ASU 2015-07 will be effective for the Fund beginning in the first quarter of 2016, with early adoption permitted, and will be applied retrospectively. MLAI is currently evaluating the standard and does not believe it will have a material impact on the Fund’s financial statements.

 

7.              SUBSEQUENT EVENTS

 

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

 

17


 

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

 

MONTH-END NET ASSET VALUE PER UNIT

 

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

 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors is a useful performance measure for the investors of the Fund.  Therefore, the charts below are referencing Net Asset Value at each Calculation Date.

 

MONTH-END NET ASSET VALUE PER UNIT CLASS A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan. 

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sep. 15th

 

Sep.

 

2014

 

$

1.3211

 

$

1.2721

 

$

1.2714

 

$

1.2908

 

$

1.2608

 

$

1.2686

 

$

1.2736

 

$

1.2883

 

$

1.2917

 

$

1.3128

 

$

1.3193

 

$

1.3311

 

$

1.3378

 

$

1.3252

 

$

1.3665

 

$

1.3934

 

$

1.3470

 

$

1.4078

 

2015

 

$

1.7560

 

$

1.8109

 

$

1.7658

 

$

1.8049

 

$

1.8747

 

$

1.8615

 

$

1.8530

 

$

1.6778

 

$

1.6154

 

$

1.6743

 

$

1.6110

 

$

1.5966

 

$

1.6636

 

$

1.7499

 

$

1.7655

 

$

1.7439

 

$

1.7580

 

$

1.8005

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS C

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sep. 15th

 

Sep.

 

2014

 

$

1.2140

 

$

1.1684

 

$

1.1673

 

$

1.1849

 

$

1.1568

 

$

1.1633

 

$

1.1673

 

$

1.1804

 

$

1.1827

 

$

1.2015

 

$

1.2071

 

$

1.2175

 

$

1.2232

 

$

1.2113

 

$

1.2486

 

$

1.2725

 

$

1.2296

 

$

1.2845

 

2015

 

$

1.5981

 

$

1.6474

 

$

1.6057

 

$

1.6406

 

$

1.7032

 

$

1.6904

 

$

1.6821

 

$

1.5225

 

$

1.4647

 

$

1.5174

 

$

1.4596

 

$

1.4459

 

$

1.5060

 

$

1.5829

 

$

1.5963

 

$

1.5760

 

$

1.5880

 

$

1.6258

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS D

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sep. 15th

 

Sep.

 

2014

 

$

1.5338

 

$

1.4779

 

$

1.4783

 

$

1.5027

 

$

1.4689

 

$

1.4773

 

$

1.4842

 

$

1.5025

 

$

1.5075

 

$

1.5335

 

$

1.5426

 

$

1.5556

 

$

1.5646

 

$

1.5511

 

$

1.6005

 

$

1.6331

 

$

1.5798

 

$

1.6514

 

2015

 

$

2.0746

 

$

2.1406

 

$

2.0888

 

$

2.1363

 

$

2.2199

 

$

2.2056

 

$

2.1968

 

$

1.9909

 

$

1.9127

 

$

1.9836

 

$

1.9100

 

$

1.8940

 

$

1.9779

 

$

2.0809

 

$

2.1006

 

$

2.0761

 

$

2.0942

 

$

2.1462

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sep. 15th

 

Sep.

 

2014

 

$

1.3672

 

$

1.3167

 

$

1.3163

 

$

1.3360

 

$

1.3053

 

$

1.3134

 

$

1.3189

 

$

1.3346

 

$

1.3377

 

$

1.3591

 

$

1.3508

 

$

1.3800

 

$

1.3873

 

$

1.3745

 

$

1.4176

 

$

1.4458

 

$

1.3980

 

$

1.4611

 

2015

 

$

1.8064

 

$

1.8638

 

$

1.8173

 

$

1.8583

 

$

1.9310

 

$

1.9175

 

$

1.9102

 

$

1.7278

 

$

1.6806

 

$

1.7421

 

$

1.6767

 

$

1.6619

 

$

1.7318

 

$

1.8213

 

$

1.8373

 

$

1.8150

 

$

1.8299

 

$

1.8746

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS DS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sep. 15th

 

Sep.

 

2014

 

$

1.5266

 

$

1.4709

 

$

1.4710

 

$

1.4952

 

$

1.4613

 

$

1.4710

 

$

1.4777

 

$

1.4957

 

$

1.4998

 

$

1.5258

 

$

1.5345

 

$

1.5486

 

$

1.5573

 

$

1.5435

 

$

1.5924

 

$

1.6248

 

$

1.5718

 

$

1.6439

 

2015

 

$

2.0586

 

$

2.1243

 

$

2.0726

 

$

2.1197

 

$

2.2023

 

$

2.1880

 

$

2.1793

 

NA

 

NA

 

NA

 

NA

 

NA

 

NA

 

NA

 

NA

 

NA

 

NA

 

NA

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS DT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sep. 15th

 

Sep.

 

2014

 

$

1.6064

 

$

1.5481

 

$

1.5488

 

$

1.5744

 

$

1.5393

 

$

1.5495

 

$

1.5570

 

$

1.5762

 

$

1.5817

 

$

1.6091

 

$

1.6189

 

$

1.6335

 

$

1.6433

 

$

1.6287

 

$

1.6810

 

$

1.7152

 

$

1.6596

 

$

1.7366

 

2015

 

$

2.1872

 

$

2.2617

 

$

2.2036

 

$

2.2572

 

$

2.3518

 

$

2.3356

 

$

2.3268

 

$

2.1083

 

$

2.0345

 

$

2.1097

 

$

2.0318

 

$

2.0146

 

$

2.1008

 

$

2.2099

 

$

2.2314

 

$

2.2058

 

$

2.2289

 

$

2.2836

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sep. 15th

 

Sep.

 

2014

 

$

0.8180

 

$

0.7870

 

$

0.7871

 

$

0.7998

 

$

0.7867

 

$

0.7906

 

$

0.7943

 

$

0.8040

 

$

0.8066

 

$

0.8204

 

$

0.8252

 

$

0.8327

 

$

0.8375

 

$

0.8302

 

$

0.8565

 

$

0.8737

 

$

0.8452

 

$

0.8841

 

2015

 

$

1.1092

 

$

1.1446

 

$

1.1169

 

$

1.1424

 

$

1.1875

 

$

1.1798

 

$

1.1754

 

$

1.0652

 

$

1.0240

 

$

1.0620

 

$

1.0237

 

$

1.0152

 

$

1.0585

 

$

1.1136

 

$

1.1246

 

$

1.1115

 

$

1.1212

 

$

1.1491

 

 

Liquidity and Capital Resources

 

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

 

Substantially all of the Fund’s assets are held in cash with the brokers. Changes in interest rates could cause periods of strong up or down price trends, during which the Fund’s profit or loss potential might increase.  Inflation in commodity prices could also generate price movements, which the strategies might successfully follow.  The Fund should be able to close out its open trading positions and liquidate its holdings relatively quickly and at market prices, except in unusual circumstances.  This typically permits the Fund to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so.

 

18


 

There is no established public trading market for the Units. Investors in the Fund generally may redeem any or all of their Units at Net Asset Value, in whole or fractional Units, effective as of (i) the 15th calendar day of each month and/or (ii) the last calendar day of each month (each a “Redemption Date”), upon submitting a redemption request by the “Subscription/Redemption Notice Date,” which is eight business days prior to the 1st and 16th of every month.  MLAI may eliminate investors’ mid-month redemption right at any time.  The Net Asset Value of redeemed Units is determined as of the Redemption Date.  Investors will remain exposed to fluctuations in Net Asset Value during the period between submission of their redemption request and the applicable Redemption Date.

 

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

 

For the nine month period ended September 30, 2015, Fund capital decreased 7.34% from $147,800,719 to $136,955,208. This decrease was attributable to the net income from operations of $4,745,578 coupled with the redemption of 16,758,793 redeemable Units resulting in an outflow of $32,421,597.  The cash outflow was offset with cash inflow of $16,830,508 due to subscriptions of 10,557,311 Units. Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.

 

Critical Accounting Policies

 

Statement of Cash Flows

 

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

 

Investments

 

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

 

Fair Value Measurements

 

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

 

Futures Contracts

 

The Fund trades exchange listed futures contracts.  A listed futures contract is a firm commitment to buy or sell a standardized quantity of an underlying asset over a specified duration.  The Fund buys and sells contracts based on indices of financial assets such as stocks, domestic and global stock indices, as well as contracts on various physical commodities. Prices paid or received on these contracts are determined by the

 

19


 

ask or bid provided by the exchanges on which they are traded.  Contracts may be settled in physical form or cash settled depending upon the contract.  Upon the execution of a trade, margin requirements determine the amount of cash that must be on deposit to secure the transaction.  These amounts are considered restricted cash on the Fund’s Statements of Financial Condition.  Contracts are priced daily by the Fund and the profit or loss is based on the daily mark to market and is recorded as unrealized profit (loss).  When the contract is closed, the Fund records a realized profit or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.  Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker or directly with the exchange on which the contracts are traded, credit exposure is limited.  Realized profit (loss), net and change in unrealized profit (loss), net on futures contracts are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations.  The Fund also trades futures contracts on the London Metals Exchange (LME). The valuation pricing for LME contracts is based on action of a committee that incorporates prices from the most liquid trading sessions of the day and can also rely on other inputs such as supply and demand factors and bids and asks from open outcry sessions.

 

Forward Foreign Currency Contracts

 

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

 

Interest Rates and Income

 

BofA Corp.’s “Interest Earning Program,” which offers interest on cash balances subject to a negotiated schedule, will generally apply to Fund cash assets during any time they are maintained by the Sponsor with its affiliates.  The present interest rate under the Interest Earning Program on U.S. dollar cash balances is the daily effective federal funds rate less 20 basis points, recalculated and accrued daily, and subject to a floor of 0%.  The current short term interest rates have remained extremely low when compared with historical rates and thus have contributed negligible amounts to overall Fund performance.

 

Income Taxes

 

Each member is individually responsible for reporting income or loss based on such member’s share of the Fund’s income and expenses as reported for income tax purposes.

 

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

 

20


 

statements. Such amount is included in Other Liabilities on the Statements of Financial Condition. The following is the major tax jurisdiction for the Fund and the earliest tax year subject to examination: United States — 2012.

 

Reform Act

 

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

 

Results of Operations

 

January 1, 2015 to September 30, 2015

 

January 1, 2015 to March 31, 2015

 

The Fund experienced a net trading profit of $15,672,792 before brokerage commissions and related fees in the first quarter of 2015. The Fund’s profits were primarily attributable to the interest rates, stock indices, currency, agriculture, energy and metals sectors.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter. The Bank of Canada cut interest rates to counteract deflationary pressures. The Fund’s long position in Canadian Government bonds and its short exposure to the Canadian dollar benefited from the resultant moves. Signs of slowing inflation in the USA and weaker data out of the UK also caused market participants to speculate that central banks may delay raising interest rates, pushing bond yields downwards. Losses were posted to the Fund in the middle of the quarter as fixed income markets declined in price, in particular in the UK and the U.S., with the prospect of higher interest rates. Profits were posted to the Fund at the end of the quarter as long exposures in fixed income markets, in particular European bonds, were profitable.

 

The stock indices sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter. The Fund made losses from its long position in the Swiss Market Index and also incurred small losses from its long positions in U.S. and Asian indices. Profits were posted to the Fund in the middle of the quarter.  An agreement between Greece and the European Institutions to extend Greek bailout conditions enabled investors to begin to price in the effects of the European Central Bank’s quantitative easing program. European equity indices thus rallied and the Trading Program was well positioned to capture these opportunities. Losses were posted to the Fund at the end of the quarter.  Losses from some long U.S. and emerging market indices made stock indices the only negative sector for March.

 

The currency sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter. The Fund suffered from the decision by the Swiss National Bank to abandon its cap on the Swiss Franc’s strength against the Euro. As a result, the Swiss Franc rallied sharply, reversing its recent trend against the U.S. dollar and leading to losses from the Fund’s short position in this currency pair. Profits were posted to the Fund in the middle of the quarter. Data confirmed that the UK economy grew for an eighth consecutive quarter, strengthening the British pound as a result. This created gains for the Trading Program’s long position

 

21


 

against an ever-weakening Euro. Profits were posted to the Fund at the end of the quarter. The Trading Program’s short EUR/USD position was the top performer of the currency sector.

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter as the Fund profited from short positions in grains markets with the improving weather. Profits were posted to the Fund in the middle of the quarter. In agricultural markets, short positions proved profitable in sugar and coffee.  Profits were posted to the Fund at the end of the quarter as short positions in commodity markets were profitable for the Trading Program. Sugar futures continued to decline, aided by political tension and economic concerns in Brazil.

 

The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter. The Fund generated gains from its short positions in oils in the first half of January as prices declined following news of increasing oil output pushed prices lower. Losses were posted to the Fund in the middle of the quarter due to the Fund’s short exposures in the energy markets as oil posted a monthly price gain. A decline in U.S. oil rig count at the same time as extremely cold temperatures in North America put upward pressure on energy prices. Profits were posted to the Fund at the end of the quarter as oil prices continued to fall following news that a global supply glut remains. This made the short positions in oil markets profitable for the Trading Program.

 

The metals sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter as the Fund incurred losses from its short positions in precious metals. Profits were posted to the Fund in the middle of the quarter. Concerns over a deepening economic slowdown in China saw base metals such as lead and aluminum decline to the benefit of the Trading Program’s short positioning. Profits were posted to the Fund at the end of the quarter as nickel prices fell after signs of weak demand from China. This made the short positions in nickel profitable for the Trading Program.

 

April 1, 2015 to June 30, 2015

 

The Fund experienced a net trading loss of $20,165,372 before brokerage commissions and related fees in the second quarter of 2015. The Fund’s losses were primarily attributable to the metals, stock indices, agriculture, energy, currency and interest rate sectors.

 

The stock indices sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the second quarter due to long positions in Chinese stocks. Profits were posted to the Fund in the middle of the quarter. The stock indices sector finished May profitably: stock markets generally rallied in the middle of May, especially in Europe after the ECB announced that it would bring forward asset purchases. Gains were made from long positions in Japanese, European and US indices. Losses were posted to the Fund at the end of the quarter due to the European stock indices, selling off late in June as prospects for a credible solution to the Greek crisis seemed to diminish.

 

The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the second quarter. The weakening U.S. dollar, together with signs of Chinese efforts to boost their economy, boosted industrial metal prices leading to losses from the Fund’s short positions. Profits were posted to the Fund in the middle of the quarter. In metals, the short positions in aluminum and nickel performed strongly as prices declined following increases in supplies. Profits were posted to the Fund at the end of the quarter. The Fund was able to capture the strong bearish trends in metals. Nickel, aluminum, palladium and platinum all continued to trend lower, reflecting the softer global growth outlook.

 

The agriculture sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the second quarter. Profits were posted to the Fund in the middle of the quarter. In agricultural, short positions in sugar and coffee benefited from improving crop outlooks. Losses were posted to the Fund at the end of the

 

22


 

quarter due to excessive rains across the U.S. Midwest that damaged corn and soybeans and delayed the wheat harvest. The Fund’s short positions on grains incurred losses as prices rallied.

 

The energy sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the second quarter. In April, short positions created losses as oils and natural gas prices rallied, driven by the weaker U.S. dollar, unrest in the Middle East and signs that U.S. production may be faltering. Profits were posted to the Fund in the middle of the quarter. Profits in energies were driven by the Fund’s short exposure to natural gas, whose price declined after data pointing to ample supplies. Losses were posted to the Fund at the end of the quarter.

 

The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the second quarter due to the short exposure to the Euro. Profits were posted to the Fund in the middle of the quarter.  The Fund’s net long exposure to the U.S. dollar benefited from positive economic data from the U.S. losses posted to the Fund at the end of the quarter. In currencies, gains made from the Fund’s short exposure to the New Zealand dollar were outweighed by losses from the Fund’s net short Japanese yen exposure.

 

The interest rate sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the second quarter due to long European bond positions. Losses were posted to the Fund in the middle of the quarter. Losses in bonds came mostly from long positions in European bonds and occurred towards the beginning of May as the sell-off which began in late April continued. Losses were posted to the Fund at the end of the quarter. Fixed income markets struggled to balance the prospects of rising rates in the longer term with the near term risk aversion created by events in Greece and China. As a result the Fund’s losses in fixed income came from long exposures to predominantly longer dated bonds.

 

July 1, 2015 to September 30, 2015

 

The Fund experienced a net trading profit of $16,828,743 before brokerage commissions and related fees in the third quarter of 2015. The Fund’s profits were primarily attributable to the energy, interest rates, metals, currency and agriculture sectors. The stock indices sector posted losses.

 

The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter. In July, short positions created a profit as persistent global oversupply of crude oil resulted in deep declines in the price of both oils and their products. Profits were posted to the Fund in the middle of the quarter as oil markets fell during August leading to gains. Profits were posted to the Fund at the end of the quarter.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter. Long positions in fixed income markets made gains. An interest rate cut in Canada as well as declining risk aversion in Europe saw yields drift lower resulting in profits. Losses were posted to the Fund in the middle of the quarter, which were concentrated in the longer maturity European bonds. Profits were posted to the Fund at the end of the quarter. The Fund’s long positions in both shorter and longer-term fixed income instruments contributed positively to performance.

 

The metals sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter. In keeping with the overall bearish commodity environment, the Fund made strong gains from shorts in both industrial and precious metals. Profits were posted to the Fund in the middle of the quarter. Short positions in some industrial metal markets were among the best overall performers. Profits were posted to the Fund at the end of the quarter.  As a result of the recent VW scandal involving their diesel vehicles, platinum continued to fall but palladium reversed its trend and rallied in September because catalytic converters in diesel vehicles use platinum whereas those in petrol cars use palladium.

 

The currency sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter as currency markets provided most of the profitable opportunities for the Fund. Losses were posted to

 

23


 

the Fund in the middle of the quarter, which came from some long U.S. dollar positions such as those against the Japanese yen and Euro. Profits were posted to the Fund at the end of the quarter. Short exposures to the Canadian dollar and emerging market currencies such as the Brazilian real contributed to gains.

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter as the Fund continued to extract profits from short exposures in soft commodities. Profits were posted to the Fund in the middle of the quarter due to the Fund’s short positions coinciding with significant price falls. Losses were posted to the Fund at the end of the quarter. In agricultural markets, heavy rains in Brazil impacted sugar production, which hurt the Fund’s established short sugar position.

 

The stock indices sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the third quarter due to momentum in stock indices largely dissipating. Losses were posted to the Fund in the middle of the quarter. The Fund responded to the downward trend in global stock markets by switching from net long to net short during August. However, gains from short positions in some Asia ex-Japan and emerging market indices were not enough to offset losses from long positions in other indices including the U.S. and Japan. Profits were posted to the Fund at the end of the quarter.

 

January 1, 2014 to September 30, 2014

 

January 1, 2014 to March 31, 2014

 

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

 

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

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter as agricultural markets performed well as bearish trends continued in wheat and sugar. Losses were posted to the Fund in the middle of the quarter. Coffee, sugar and the soy complex rallied as drought affected Brazil, the world’s biggest exporter of these crops. The Fund made gains from long exposures to the soy contracts but incurred losses from short exposures to wheat.  Losses were posted to the Fund at the end of the quarter. In agricultural markets, the best performers were lean hogs, where a virus outbreak drove prices higher, and soy markets which also rose on concerns about tighter supplies in the U.S. However, losses came from short positions in wheat amid concerns that the Ukrainian situation will threaten supplies.

 

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

 

24


 

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

 

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

 

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

 

April 1, 2014 to June 30, 2014

 

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

 

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

 

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

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the second quarter. In April, the soy complex continued to make gains as the effects of poor North American and South American harvests drove prices higher. Profits were posted to the Fund in the middle of the quarter. In May, performance in agricultural markets was mixed as shorts in wheat and soybean oil profited, but cotton and lean hogs prices saw pullbacks. Profits were posted to the Fund at the end of the quarter due to gains from

 

25


 

the Fund’s shorts in wheat amid easing concerns over global supplies. The Fund’s long exposure to live cattle also made gains as tight supplies in that market drove prices higher.

 

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

 

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

 

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

 

July 1, 2014 to September 30, 2014

 

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

 

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

 

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

 

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

 

26


 

Trading Program’s short position in the energy market, which provided the bulk of the profits due to the downward trend of the energy market.

 

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

 

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

 

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

 

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

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Introduction

 

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

 

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

 

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

 

Value at Risk (“VaR”) is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Fund’s speculative trading and the

 

27


 

recurrence in the markets traded by the Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated VaR or the Fund’s experience to date (i.e., “risk of ruin”). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the quantifications included in this section should not be considered to constitute any assurance or representation that the Fund’s losses in any market sector will be limited to VaR or by the Fund’s attempts to manage its market risk.

 

Quantifying The Fund’s Trading Value At Risk

 

Quantitative Forward-Looking Statements

 

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

 

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

 

Exchange maintenance margin requirements have been used by the Fund as the measure of its VaR.  Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels.  The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.

 

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

 

100% positive correlation in the different positions held in each market risk category has been assumed.  Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading category’s aggregate VaR.  The diversification effects resulting from the fact that the Fund’s positions are rarely, if ever, 100% positively correlated have not been reflected.

 

The Fund’s Trading Value at Risk in Different Market Sectors

 

The following table indicates the average, highest and lowest trading VaR associated with the Fund’s open positions by market category for the fiscal period. For the nine month periods ended September 30, 2015 and 2014 the Fund’s average capitalization was $138,053,489 and $138,909,572, respectively.

 

28


 

September 30, 2015

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

$

3,381,387

 

2.45

%

$

5,649,057

 

$

1,286,560

 

Currencies

 

1,245,587

 

0.90

%

2,199,991

 

238,774

 

Energy

 

1,285,572

 

0.93

%

1,866,903

 

867,890

 

Interest Rates

 

4,458,608

 

3.23

%

6,388,899

 

2,840,612

 

Metals

 

1,713,407

 

1.24

%

3,078,869

 

613,196

 

Stock Indices

 

1,269,019

 

0.92

%

2,109,403

 

822,740

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

13,353,580

 

9.67

%

$

21,293,122

 

$

6,669,772

 

 

September 30, 2014

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

$

3,192,678

 

2.30

%

$

5,655,373

 

$

425,869

 

Currencies

 

1,227,167

 

0.88

%

2,114,425

 

247,234

 

Energy

 

1,457,254

 

1.05

%

2,581,622

 

363,030

 

Interest Rates

 

4,087,570

 

2.94

%

7,053,579

 

1,872,335

 

Metals

 

1,202,025

 

0.87

%

1,796,120

 

434,738

 

Stock Indices

 

2,955,839

 

2.13

%

5,118,661

 

1,361,755

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

14,122,533

 

10.17

%

$

24,319,780

 

$

4,704,961

 

 

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

 

The face value of the market sector instruments held by the Fund is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Fund.  The magnitude of the Fund’s open positions creates a “risk of ruin” not typically found in most other investment vehicles.  Because of the size of its positions, certain market conditions — unusual, but historically recurring from time to time — could cause the Fund to incur severe losses over a short period of time.   The foregoing VaR table — as well as the past performance of the Fund — gives no indication of this “risk of ruin.”

 

Non-Trading Risk

 

Foreign Currency Balances; Cash on Deposit with MLPF&S and MLI

 

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

 

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

 

29


 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

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

 

The following were the primary trading risk exposures of the Fund as of December 31, 2014, by market sector. There have been no material changes at September 30, 2015.

 

Interest Rates

 

Interest rate movements directly affect the price of derivative sovereign bond positions held by the Fund and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries may materially impact the Fund’s profitability. The Fund’s primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries.  However, the Fund may also take positions in the government debt of smaller nations e.g., Australia. MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future.

 

Currencies

 

The Fund trades in a number of currencies. However, the Fund’s major exposures have typically been in the U.S. dollar/Japanese yen, U.S. dollar/Euro and U.S. dollar/Swiss franc positions. The Fund does not anticipate that the risk profile of the Fund’s currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk of maintaining VaR in a functional currency other than U.S. dollars.

 

Stock Indices

 

The Fund’s primary equity exposure is to S&P 500, Nikkei and German DAX equity index price movements. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Asian indices.

 

Metals

 

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

 

30


 

Agricultural Commodities

 

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

 

Energy

 

The Fund’s primary energy market exposure is to natural gas and crude oil price movements, often resulting from political developments in the Middle East. Oil prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.

 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following were the primary non-trading risk exposures of the Fund as of December 31, 2014. There have been no material changes at September 30, 2015.

 

Foreign Currency Balances

 

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

 

U.S. Dollar Cash Balance

 

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

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

Trading Risk

 

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

 

Risk Management

 

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

 

31


 

Non-Trading Risk

 

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

 

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

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

MLAI’s Chief Executive Officer and Chief Financial Officer, on behalf of the Fund, have evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act) with respect to the Fund as of the end of the quarter which ended September 30, 2015, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective.

 

Changes in Internal Control over Financial Reporting

 

No change in internal control over financial reporting (in connection with Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act) occurred during the quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.          Legal Proceedings

 

None.

 

Item 1A.  Risk Factors

 

There are no material changes from risk factors as previously disclosed in the Fund’s report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on March 20, 2015.

 

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

 

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

 

32


 

The Fund’s sales of unregistered securities are as follows for each Class of Units:

 

 

 

Subscription

 

 

 

CLASS A

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

99,000

 

56,717

 

$

1.7318

 

1/16/2015

 

34,525

 

19,509

 

1.7560

 

2/1/2015

 

9,750

 

5,344

 

1.8109

 

2/16/2015

 

123,750

 

69,542

 

1.7658

 

3/01/2015

 

292,750

 

160,967

 

1.8049

 

3/16/2015

 

182,831

 

96,823

 

1.8747

 

4/01/2015

 

80,930

 

43,163

 

1.8615

 

4/16/2015

 

25,034

 

13,412

 

1.8530

 

5/01/2015

 

289,040

 

170,898

 

1.6778

 

5/16/2015

 

24,600

 

15,080

 

1.6154

 

6/01/2015

 

14,850

 

8,786

 

1.6743

 

6/16/2015

 

281,526

 

173,034

 

1.6110

 

7/01/2015

 

146,625

 

90,936

 

1.5966

 

7/16/2015

 

990,000

 

589,496

 

1.6636

 

8/01/2015

 

330,225

 

187,096

 

1.7499

 

8/16/2015

 

66,640

 

37,428

 

1.7655

 

9/01/2015

 

138,200

 

78,576

 

1.7439

 

9/16/2015

 

34,575

 

19,502

 

1.7580

 

10/01/2015

 

86,365

 

47,571

 

1.8005

 

 

 

 

Subscription

 

 

 

CLASS C

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

312,000

 

196,387

 

$

1.5768

 

1/16/2015

 

75,000

 

46,584

 

1.5981

 

2/1/2015

 

295,929

 

178,346

 

1.6474

 

2/16/2015

 

135,277

 

83,628

 

1.6057

 

3/01/2015

 

737,000

 

445,991

 

1.6406

 

3/16/2015

 

297,988

 

173,743

 

1.7032

 

4/01/2015

 

1,247,974

 

733,110

 

1.6904

 

4/16/2015

 

641,000

 

378,439

 

1.6821

 

5/01/2015

 

316,000

 

205,971

 

1.5225

 

5/16/2015

 

632,000

 

427,258

 

1.4647

 

6/01/2015

 

463,000

 

302,239

 

1.5174

 

6/16/2015

 

565,000

 

383,311

 

1.4596

 

7/01/2015

 

681,350

 

466,614

 

1.4459

 

7/16/2015

 

120,000

 

78,937

 

1.5060

 

8/01/2015

 

777,000

 

486,507

 

1.5829

 

8/16/2015

 

160,000

 

99,354

 

1.5963

 

9/01/2015

 

55,000

 

34,587

 

1.5760

 

9/16/2015

 

125,000

 

78,018

 

1.5880

 

10/01/2015

 

118,000

 

71,951

 

1.6258

 

 

 

 

Subscription

 

 

 

CLASS D

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

—

 

—

 

$

2.0448

 

1/16/2015

 

—

 

—

 

2.0746

 

2/1/2015

 

—

 

—

 

2.1406

 

2/16/2015

 

—

 

—

 

2.0888

 

3/01/2015

 

—

 

—

 

2.1363

 

3/16/2015

 

—

 

—

 

2.2199

 

4/01/2015

 

—

 

—

 

2.2056

 

4/16/2015

 

—

 

—

 

2.1968

 

5/01/2015

 

100

 

50

 

1.9909

 

5/16/2015

 

—

 

—

 

1.9127

 

6/01/2015

 

—

 

—

 

1.9836

 

6/16/2015

 

—

 

—

 

1.9100

 

7/01/2015

 

1,000,000

 

522,794

 

1.8940

 

7/16/2015

 

—

 

—

 

1.9779

 

8/01/2015

 

—

 

—

 

2.0809

 

8/16/2015

 

—

 

—

 

2.1006

 

9/01/2015

 

—

 

—

 

2.0761

 

9/16/2015

 

—

 

—

 

2.0942

 

10/01/2015

 

—

 

—

 

2.1462

 

 

 

 

Subscription

 

 

 

CLASS I

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

—

 

—

 

$

1.7810

 

1/16/2015

 

—

 

—

 

1.8064

 

2/1/2015

 

—

 

—

 

1.8638

 

2/16/2015

 

—

 

—

 

1.8173

 

3/01/2015

 

—

 

—

 

1.8583

 

3/16/2015

 

—

 

—

 

1.9310

 

4/01/2015

 

102,000

 

52,316

 

1.9175

 

4/16/2015

 

—

 

—

 

1.9102

 

5/01/2015

 

10,000

 

5,684

 

1.7278

 

5/16/2015

 

—

 

—

 

1.6806

 

6/01/2015

 

—

 

—

 

1.7421

 

6/16/2015

 

—

 

—

 

1.6767

 

7/01/2015

 

—

 

—

 

1.6619

 

7/16/2015

 

—

 

—

 

1.7318

 

8/01/2015

 

—

 

—

 

1.8213

 

8/16/2015

 

—

 

—

 

1.8373

 

9/01/2015

 

—

 

—

 

1.8150

 

9/16/2015

 

—

 

—

 

1.8299

 

10/01/2015

 

—

 

—

 

1.8746

 

 

33


 

 

 

Subscription

 

 

 

CLASS DS

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

—

 

—

 

$

2.0290

 

1/16/2015

 

—

 

—

 

2.0586

 

2/1/2015

 

—

 

—

 

2.1243

 

2/16/2015

 

—

 

—

 

2.0726

 

3/01/2015

 

—

 

—

 

2.1197

 

3/16/2015

 

—

 

—

 

2.2023

 

4/01/2015

 

—

 

—

 

2.1880

 

4/16/2015

 

161,403

 

73,442

 

2.1793

 

5/01/2015

 

—

 

—

 

—

 

5/16/2015

 

—

 

—

 

—

 

6/01/2015

 

—

 

—

 

—

 

6/16/2015

 

—

 

—

 

—

 

7/01/2015

 

—

 

—

 

—

 

7/16/2015

 

—

 

—

 

—

 

8/01/2015

 

—

 

—

 

—

 

8/16/2015

 

—

 

—

 

—

 

9/01/2015

 

—

 

—

 

—

 

9/16/2015

 

—

 

—

 

—

 

10/01/2015

 

—

 

—

 

—

 

 

 

 

Subscription

 

 

 

CLASS DT

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

—

 

—

 

$

2.1534

 

1/16/2015

 

—

 

—

 

2.1872

 

2/1/2015

 

—

 

—

 

2.2617

 

2/16/2015

 

—

 

—

 

2.2036

 

3/01/2015

 

—

 

—

 

2.2572

 

3/16/2015

 

—

 

—

 

2.3518

 

4/01/2015

 

—

 

—

 

2.3356

 

4/16/2015

 

—

 

—

 

2.3268

 

5/01/2015

 

363,062

 

170,596

 

2.1083

 

5/16/2015

 

—

 

—

 

2.0345

 

6/01/2015

 

—

 

—

 

2.1097

 

6/16/2015

 

—

 

—

 

2.0318

 

7/01/2015

 

—

 

—

 

2.0146

 

7/16/2015

 

—

 

—

 

2.1008

 

8/01/2015

 

—

 

—

 

2.2099

 

8/16/2015

 

—

 

—

 

2.2314

 

9/01/2015

 

1,907,574

 

856,182

 

2.2058

 

9/16/2015

 

—

 

—

 

2.2289

 

10/01/2015

 

—

 

—

 

2.2836

 

 

 

 

Subscription

 

 

 

CLASS M

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

—

 

—

 

$

1.0933

 

1/16/2015

 

—

 

—

 

1.1092

 

2/1/2015

 

55,000

 

47,764

 

1.1446

 

2/16/2015

 

15,000

 

13,348

 

1.1169

 

3/01/2015

 

390,000

 

339,366

 

1.1424

 

3/16/2015

 

—

 

—

 

1.1875

 

4/01/2015

 

323,000

 

272,275

 

1.1798

 

4/16/2015

 

100,000

 

84,631

 

1.1754

 

5/01/2015

 

50,000

 

46,668

 

1.0652

 

5/16/2015

 

30,000

 

29,014

 

1.0240

 

6/01/2015

 

850,000

 

792,910

 

1.0620

 

6/16/2015

 

126,000

 

122,022

 

1.0237

 

7/01/2015

 

75,000

 

73,242

 

1.0152

 

7/16/2015

 

—

 

—

 

1.0585

 

8/01/2015

 

471,000

 

419,674

 

1.1136

 

8/16/2015

 

—

 

—

 

1.1246

 

9/01/2015

 

—

 

—

 

1.1115

 

9/16/2015

 

—

 

—

 

1.1212

 

10/01/2015

 

225,000

 

194,418

 

1.1491

 

 

(1) Beginning of the period Net Asset Value

 

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

 

(b)  Not applicable.

 

(c)  Not applicable.

 

Item 3.          Defaults Upon Senior Securities

 

None.

 

Item 4.          Mine Safety Disclosures

 

Not applicable.

 

34


 

Item 5.          Other Information

 

None.

 

Item 6.          Exhibits

 

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

 

31.01 and

 

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

 

Exhibit 31.01

and 31.02:    Are filed herewith.

 

32.01 and

32.02              Section 1350 Certifications

 

Exhibit 32.01

and 32.02      Are filed herewith.

 

Exhibit 101   Are filed herewith.

The following materials from the Fund’s quarterly Report on Form 10-Q for the three and nine month periods ended September 30, 2015 formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition (ii) Statements of Operations (iii) Statements of Changes in Members’ Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text.

 

35


 

SIGNATURES

 

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

 

 

 

 

ASPECT FUTURESACCESS LLC

 

 

 

 

 

By:

MERRILL LYNCH ALTERNATIVE

 

 

INVESTMENTS LLC

 

 

(Manager)

 

 

 

 

 

 

Date: November 13, 2015

By:

/s/ NANCY FAHMY

 

 

Nancy Fahmy

 

 

Chief Executive Officer and President

 

 

(Principal Executive Officer)

 

 

 

 

 

 

Date: November 13, 2015

By:

/s/ BARBRA E. KOCSIS

 

 

Barbra E. Kocsis

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

36

Aspect FuturesAccess LLC Reports