Attached files
file | filename |
---|---|
EX-32.2 - EX-32.2 - Cavendish Futures Fund LLC | a16-17161_1ex32d2.htm |
EX-32.1 - EX-32.1 - Cavendish Futures Fund LLC | a16-17161_1ex32d1.htm |
EX-31.2 - EX-31.2 - Cavendish Futures Fund LLC | a16-17161_1ex31d2.htm |
EX-31.1 - EX-31.1 - Cavendish Futures Fund LLC | a16-17161_1ex31d1.htm |
EX-10.4(C) - EX-10.4(C) - Cavendish Futures Fund LLC | a16-17161_1ex10d4c.htm |
EX-10.2(B) - EX-10.2(B) - Cavendish Futures Fund LLC | a16-17161_1ex10d2b.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
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 000-55213
CAVENDISH FUTURES FUND LLC
(Exact name of registrant as specified in its charter)
Delaware |
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38-3849454 |
(State or other jurisdiction of |
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(I.R.S. Employer |
c/o UBS Alternatives LLC
1285 Avenue of the Americas, 20th Floor
New York, New York 10019
(Address of principal executive offices) (Zip Code)
(212) 713-3234
(Registrants 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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of the 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. (Check one):
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
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 October 31, 2016,167,548.471 Limited Liability Company Redeemable Units were outstanding.
CAVENDISH FUTURES FUND LLC
Form 10-Q
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Statements of Financial Condition at September 30, 2016 (unaudited) and December 31, 2015 |
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5 17 | ||
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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21 22 | |||
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23 | |||
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24 26 | ||||
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Exhibits |
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Exhibit 31.1 Certification |
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Exhibit 31.2 Certification |
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Exhibit 32.1 Certification |
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Exhibit 32.2 Certification |
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Exhibit 101.INS XBRL Instance Document |
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Exhibit 101.SCH XBRL Taxonomy Extension Schema Document. |
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Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. |
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Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document. |
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Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. |
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Exhibit 101.DEF XBRL Taxonomy Extension Definition Document. |
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Cavendish Futures Fund LLC
Statements of Financial Condition
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(Unaudited) |
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September 30, 2016 |
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December 31, 2015 |
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ASSETS |
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Investment in Sydling WNT Master Fund LLC, at fair value (cost $182,521,757 and $148,679,254, respectively) |
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$ |
199,731,329 |
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$ |
171,511,951 |
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Cash |
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1,812,975 |
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3,771,989 |
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Receivable from Sydling WNT Master Fund LLC |
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1,893,939 |
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1,294,370 |
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Total Assets |
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$ |
203,438,243 |
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$ |
176,578,310 |
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LIABILITIES |
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Subscriptions received in advance |
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$ |
1,775,500 |
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$ |
3,541,000 |
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Redemptions payable |
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1,530,667 |
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1,001,677 |
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Accrued expenses: |
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Advisory fees |
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251,997 |
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216,002 |
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Administrative fees |
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83,999 |
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72,001 |
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Professional fees and other expenses |
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64,751 |
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235,679 |
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Total Liabilities |
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3,706,914 |
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5,066,359 |
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MEMBERS CAPITAL |
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Member Designee (25.000 Redeemable Units) |
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29,751 |
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30,055 |
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Non-Managing Members (167,812.328 and 142,641.192 Redeemable Units) |
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199,701,578 |
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171,481,896 |
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Total Members Capital |
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199,731,329 |
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171,511,951 |
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Total Liabilities and Members Capital |
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$ |
203,438,243 |
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$ |
176,578,310 |
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Members Capital per Redeemable Unit (based on 167,837.328 and 142,666.192 Redeemable Units) |
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$ |
1,190.03 |
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$ |
1,202.19 |
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See accompanying notes to financial statements.
Cavendish Futures Fund LLC
Statements of Operations and Changes in Members Capital
(Unaudited)
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Three Months Ended |
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Three Months Ended |
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Nine Months Ended |
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Nine Months Ended |
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September 30, 2016 |
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September 30, 2015 |
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September 30, 2016 |
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September 30, 2015 |
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INVESTMENT INCOME |
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Interest allocated from Sydling WNT Master Fund LLC |
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$ |
115,162 |
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$ |
6,266 |
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$ |
318,092 |
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$ |
14,886 |
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EXPENSES |
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Expenses allocated from Sydling WNT Master Fund LLC |
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1,861,833 |
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1,512,617 |
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5,409,579 |
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4,053,254 |
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Incentive fees |
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410,292 |
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2,112,137 |
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Advisory fees |
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765,910 |
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618,132 |
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2,223,247 |
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1,652,010 |
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Administrative fees |
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255,303 |
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206,044 |
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741,082 |
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550,670 |
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Professional fees and other expenses |
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59,626 |
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112,300 |
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156,677 |
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336,900 |
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Total Expenses |
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2,942,672 |
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2,449,093 |
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8,940,877 |
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8,704,971 |
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NET INVESTMENT (LOSS) |
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(2,827,510 |
) |
(2,442,827 |
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(8,622,785 |
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(8,690,085 |
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TRADING RESULTS |
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Net realized gain/(loss) allocated from Sydling WNT Master Fund LLC |
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7,561,725 |
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2,048,389 |
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5,695,096 |
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5,912,928 |
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Net change in unrealized appreciation/(depreciation) allocated from Sydling WNT Master Fund LLC |
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(12,065,182 |
) |
8,566,849 |
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(242,063 |
) |
2,551,029 |
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Total Trading Results |
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(4,503,457 |
) |
10,615,238 |
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5,453,033 |
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8,463,957 |
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Net income/(loss) |
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(7,330,967 |
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8,172,411 |
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(3,169,752 |
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(226,128 |
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Subscriptions Non-managing Members |
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8,030,138 |
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11,022,500 |
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48,182,871 |
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65,933,584 |
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Redemptions Non-managing Members |
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(4,528,959 |
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(2,125,563 |
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(16,793,741 |
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(2,586,842 |
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Net increase in Members Capital |
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(3,829,788 |
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17,069,348 |
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28,219,378 |
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63,120,614 |
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Members Capital, beginning of period |
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$ |
203,561,117 |
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$ |
151,652,425 |
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$ |
171,511,951 |
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$ |
105,601,159 |
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Members Capital, end of period |
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$ |
199,731,329 |
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$ |
168,721,773 |
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$ |
199,731,329 |
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$ |
168,721,773 |
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Net income/(loss) per Redeemable Unit |
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$ |
(43.59 |
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$ |
58.99 |
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$ |
(12.16 |
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$ |
3.95 |
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Weighted average Redeemable Units outstanding |
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166,417.833 |
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136,594.768 |
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155,710.216 |
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112,535.568 |
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See accompanying notes to financial statements.
Cavendish Futures Fund LLC
September 30, 2016
(Unaudited)
1. General
Cavendish Futures Fund LLC (the Fund) is a Delaware limited liability company formed on August 7, 2012. Trading operations of the Fund commenced on February 19, 2013. The Funds investment objective is to achieve capital appreciation through speculative trading in U.S. and international futures, options on futures and forward markets. The Fund may also engage in swap and other derivative transactions upon approval of Sydling Futures Management LLC (Sydling). The Fund privately and continuously offers redeemable units of limited liability company interest in the Fund (Redeemable Units) to qualified investors and subscriptions are generally accepted monthly. There is no maximum number of Redeemable Units that may be sold by the Fund. The Fund invests substantially all of its assets in the Sydling WNT Master Fund LLC (Master Fund), also a Delaware limited liability company, which has the same investment objective as the Fund. The Master Funds Statements of Financial Condition, including Condensed Schedules of Investments and Statements of Operations and Changes in Members Capital are included herein. The percentage of the Master Funds capital owned by the Fund at September 30, 2016 and December 31, 2015 was 100%. The performance of the Fund is directly affected by the performance of the Master Fund.
The Fund is member managed for purposes of Delaware law. Pursuant to the Funds limited liability company agreement, as may be amended from time to time (the LLC Agreement), the members of the Fund (each, a Member and collectively, the Members) have appointed Sydling to act as the Funds commodity pool operator and trading manager. Sydling is registered with the Commodity Futures Trading Commission (CFTC) as a commodity pool operator and a commodity trading advisor and is a member of the National Futures Association (NFA) effective August 10, 2011. Sydling, a wholly owned subsidiary of UBS Alternatives LLC, was formed on August 4, 2011. UBS Alternatives LLC is a wholly owned subsidiary of UBS Americas Inc. In 2015, UBS AG transferred its ownership interest in UBS Americas Inc. to UBS Americas Holding LLC, a wholly owned subsidiary of UBS AG which is a wholly owned subsidiary of UBS Group AG.
Sydling, on behalf of the Fund, has entered into a selling agreement appointing UBS Financial Services Inc. (UBS Financial Services) as selling agent to the Fund.
The Master Fund has entered into a customer agreement appointing UBS Securities LLC (UBS Securities) as commodity broker to the Master Fund.
During the third quarter of 2016, the Fund and the Master Fund amended and restated certain agreements. The purpose of the amendments was to implement and reflect an expense neutral change in the fees paid to certain service providers to the Fund and the Master Fund. As of July 1, 2016, the Master Fund (and indirectly the Fund) ceased paying an asset based brokerage fee to UBS Securities. In lieu of such brokerage fee, the Fund will pay (or cause the Master Fund to pay on its behalf) an ongoing selling agent fee to UBS Financial Services at the same rate as the previous brokerage fee.
BNY Mellon Investment Servicing (US) Inc. serves as administrator of the Fund (the Administrator).
Winton Capital Management Limited (the Advisor) serves as the trading advisor to the Fund and the Master Fund.
Sydling and each Member share in the profits and losses of the Fund in proportion to the amount of limited liability company interest owned by each except that no Member shall be liable for obligations of the Fund in excess of such members capital contribution and profits, if any, net of distributions and losses, if any.
The accompanying financial statements and notes are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. These financial statements should be read in conjunction with the financial statements and notes included in the Funds Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the SEC).
The preparation of financial statements and accompanying notes in conformity with U.S. GAAP requires Sydling to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.
Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.
The Master Funds Statements of Financial Condition and Condensed Schedules of Investments as of September 30, 2016 and December 31, 2015 and Statements of Operations and Changes in Members Capital for the three and nine months ended September 30, 2016 and 2015 are presented below:
Sydling WNT Master Fund LLC
Statements of Financial Condition
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(Unaudited) |
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September 30, 2016 |
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December 31, 2015 |
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ASSETS |
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Cash (including restricted cash of $25,725,652 and $20,104,777, respectively) |
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$ |
201,541,991 |
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$ |
171,893,278 |
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Net unrealized appreciation on open futures contracts |
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1,173,644 |
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1,415,707 |
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Interest receivable |
|
178,896 |
|
25,725 |
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Total Assets |
|
$ |
202,894,531 |
|
$ |
173,334,710 |
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|
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LIABILITIES AND MEMBERS CAPITAL |
|
|
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Redemptions payable |
|
$ |
1,893,939 |
|
$ |
1,294,370 |
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Accrued expenses: |
|
|
|
|
| ||
Selling agent fees |
|
1,182,027 |
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|
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Brokerage fees |
|
|
|
505,493 |
| ||
Professional fees and other expenses |
|
87,236 |
|
22,896 |
| ||
Total Liabilities |
|
3,163,202 |
|
1,822,759 |
| ||
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MEMBERS CAPITAL |
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|
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Non-Managing Members |
|
199,731,329 |
|
171,511,951 |
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Total Members Capital |
|
199,731,329 |
|
171,511,951 |
| ||
Total Liabilities and Members Capital |
|
$ |
202,894,531 |
|
$ |
173,334,710 |
|
Sydling WNT Master Fund LLC
Condensed Schedule of Investments
September 30, 2016
(Unaudited)
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Percent of |
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Number of |
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Members |
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Contracts |
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Fair Value |
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Capital |
| |
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FUTURES CONTRACTS OWNED |
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| |
558 |
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CURRENCIES |
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$ |
352,728 |
|
0.18 |
% |
7,199 |
|
FINANCIALS |
|
1,214,074 |
|
0.61 |
% | |
287 |
|
GRAINS |
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(31,105 |
) |
(0.02 |
)% | |
1,937 |
|
INDEX |
|
1,367,923 |
|
0.68 |
% | |
3 |
|
INDUSTRIALS |
|
1,243 |
|
0.00 |
% | |
50 |
|
MATERIALS |
|
47,915 |
|
0.02 |
% | |
421 |
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METALS |
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(544,227 |
) |
(0.27 |
)% | |
|
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TOTAL FUTURES CONTRACTS OWNED |
|
2,408,551 |
|
1.20 |
% | |
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| |
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FUTURES CONTRACTS SOLD |
|
|
|
|
| |
(767 |
) |
CURRENCIES |
|
593,589 |
|
0.30 |
% | |
(509 |
) |
ENERGY |
|
(1,553,048 |
) |
(0.78 |
)% | |
(446 |
) |
FINANCIALS |
|
(147,396 |
) |
(0.07 |
)% | |
(758 |
) |
GRAINS |
|
264,658 |
|
0.13 |
% | |
(13 |
) |
INDEX |
|
245 |
|
0.00 |
% | |
(68 |
) |
MEATS |
|
109,638 |
|
0.05 |
% | |
(111 |
) |
METALS |
|
(502,593 |
) |
(0.24 |
)% | |
|
|
TOTAL FUTURES CONTRACTS SOLD |
|
(1,234,907 |
) |
(0.61 |
)% | |
|
|
TOTAL FUTURES CONTRACTS |
|
1,173,644 |
|
0.59 |
% | |
|
|
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES |
|
198,557,685 |
|
99.41 |
% | |
|
|
TOTAL MEMBERS CAPITAL |
|
$ |
199,731,329 |
|
100.00 |
% |
Percentages shown represent a percentage of members capital as of September 30, 2016.
Sydling WNT Master Fund LLC
Condensed Schedule of Investments
December 31, 2015
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Percent of |
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Number of |
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|
|
|
|
Members |
| |
Contracts |
|
|
|
Fair Value |
|
Capital |
| |
|
|
FUTURES CONTRACTS OWNED |
|
|
|
|
| |
323 |
|
CURRENCIES |
|
$ |
140,883 |
|
0.08 |
% |
5,778 |
|
FINANCIALS |
|
(1,194,580 |
) |
(0.70 |
)% | |
94 |
|
GRAINS |
|
10,686 |
|
0.01 |
% | |
754 |
|
INDEX |
|
267,181 |
|
0.16 |
% | |
24 |
|
MATERIALS |
|
3,430 |
|
0.00 |
% | |
1 |
|
MEATS |
|
(40 |
) |
(0.00 |
)% | |
|
|
TOTAL FUTURES CONTRACTS OWNED |
|
(772,440 |
) |
(0.45 |
)% | |
|
|
|
|
|
|
|
| |
|
|
FUTURES CONTRACTS SOLD |
|
|
|
|
| |
(1,148 |
) |
CURRENCIES |
|
732,243 |
|
0.43 |
% | |
(667 |
) |
ENERGY |
|
350,328 |
|
0.20 |
% | |
(196 |
) |
FINANCIALS |
|
(9,629 |
) |
(0.01 |
)% | |
(869 |
) |
GRAINS |
|
520,477 |
|
0.30 |
% | |
(501 |
) |
INDEX |
|
(154,135 |
) |
(0.09 |
)% | |
(3 |
) |
INDUSTRIALS |
|
3,058 |
|
0.00 |
% | |
(114 |
) |
MEATS |
|
(189,420 |
) |
(0.11 |
)% | |
(496 |
) |
METALS |
|
935,225 |
|
0.55 |
% | |
|
|
TOTAL FUTURES CONTRACTS SOLD |
|
2,188,147 |
|
1.27 |
% | |
|
|
TOTAL FUTURES CONTRACTS |
|
1,415,707 |
|
0.82 |
% | |
|
|
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES |
|
170,096,244 |
|
99.18 |
% | |
|
|
TOTAL MEMBERS CAPITAL |
|
$ |
171,511,951 |
|
100.00 |
% |
Percentages shown represent a percentage of members capital as of December 31, 2015.
Sydling WNT Master Fund LLC
Statements of Operations and Changes in Members Capital
(Unaudited)
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
| ||||
|
|
September 30, 2016 |
|
September 30, 2015 |
|
September 30, 2016 |
|
September 30, 2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
INVESTMENT INCOME |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
$ |
115,162 |
|
$ |
6,266 |
|
$ |
318,092 |
|
$ |
14,886 |
|
|
|
|
|
|
|
|
|
|
| ||||
EXPENSES |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Brokerage, clearing and transaction fees |
|
44,684 |
|
1,487,492 |
|
3,543,180 |
|
3,977,879 |
| ||||
Selling agent fees |
|
1,792,524 |
|
|
|
1,792,524 |
|
|
| ||||
Professional fees |
|
24,625 |
|
25,125 |
|
73,875 |
|
75,375 |
| ||||
Total Expenses |
|
1,861,833 |
|
1,512,617 |
|
5,409,579 |
|
4,053,254 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
NET INVESTMENT (LOSS) |
|
(1,746,671 |
) |
(1,506,351 |
) |
(5,091,487 |
) |
(4,038,368 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
NET REALIZED AND UNREALIZED GAIN/(LOSS) FROM DERIVATIVE INSTRUMENTS |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net realized gain/(loss) from futures |
|
7,561,725 |
|
2,048,389 |
|
5,695,096 |
|
5,912,928 |
| ||||
Net change in unrealized appreciation/(depreciation) on futures |
|
(12,065,182 |
) |
8,566,849 |
|
(242,063 |
) |
2,551,029 |
| ||||
Net Realized and Unrealized Gain/(Loss) from Derivative Instruments |
|
(4,503,457 |
) |
10,615,238 |
|
5,453,033 |
|
8,463,957 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income/(loss) |
|
(6,250,128 |
) |
9,108,887 |
|
361,546 |
|
4,425,589 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
INCREASE/(DECREASE) IN MEMBERS CAPITAL FROM CAPITAL TRANSACTIONS |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Subscriptions |
|
8,030,138 |
|
11,022,500 |
|
48,182,871 |
|
65,933,584 |
| ||||
Redemptions |
|
(5,609,798 |
) |
(3,062,039 |
) |
(20,325,039 |
) |
(7,246,124 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Increase in Members Capital Derived from Capital Transactions |
|
2,420,340 |
|
7,960,461 |
|
27,857,832 |
|
58,687,460 |
| ||||
Net Increase in Members Capital |
|
(3,829,788 |
) |
17,069,348 |
|
28,219,378 |
|
63,113,049 |
| ||||
Members Capital, Beginning of Period |
|
203,561,117 |
|
151,652,425 |
|
171,511,951 |
|
105,608,724 |
| ||||
Members Capital, End of Period |
|
$ |
199,731,329 |
|
$ |
168,721,773 |
|
$ |
199,731,329 |
|
$ |
168,721,773 |
|
2. Financial Highlights
Changes in the net asset value per Redeemable Unit for the three and nine months ended September 30, 2016 and 2015 are as follows:
|
|
(Unaudited) |
| ||||||||||
|
|
Three |
|
Three |
|
Nine |
|
Nine |
| ||||
Per share operating performance: (a) |
|
|
|
|
|
|
|
|
| ||||
Members capital per Redeemable Unit, beginning of period |
|
$ |
1,233.62 |
|
$ |
1,151.32 |
|
$ |
1,202.19 |
|
$ |
1,206.36 |
|
Income/(loss) from investment operations: |
|
|
|
|
|
|
|
|
| ||||
Net investment (loss) including incentive fee |
|
(16.84 |
) |
(17.73 |
) |
(54.51 |
) |
(75.73 |
) | ||||
Net realized and unrealized gain/(loss) from investment activities (b) |
|
(26.75 |
) |
76.72 |
|
42.35 |
|
79.68 |
| ||||
Total from investment operations |
|
(43.59 |
) |
58.99 |
|
(12.16 |
) |
3.95 |
| ||||
Members capital per Redeemable Unit, end of period |
|
$ |
1,190.03 |
|
$ |
1,210.31 |
|
$ |
1,190.03 |
|
$ |
1,210.31 |
|
|
|
|
|
|
|
|
|
|
| ||||
Ratio/Supplemental Data: (c) |
|
|
|
|
|
|
|
|
| ||||
Ratio of net investment loss to average Members capital |
|
(5.58 |
)% |
(6.08 |
)% |
(5.97 |
)% |
(8.17 |
)% | ||||
Ratio of total expenses to average Members capital |
|
5.81 |
% |
6.09 |
% |
5.90 |
% |
6.20 |
% | ||||
Ratio of incentive fee to average Members capital |
|
|
% |
|
% |
0.28 |
% |
1.99 |
% | ||||
Ratio of total expenses and incentive fee to average Members capital |
|
5.81 |
% |
6.09 |
% |
6.18 |
% |
8.19 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Total return before incentive fee |
|
(3.53 |
)% |
5.12 |
% |
(0.80 |
)% |
1.82 |
% | ||||
Incentive fee |
|
|
|
|
|
(0.21 |
) |
(1.49 |
)% | ||||
Total return after incentive fee |
|
(3.53 |
)% |
5.12 |
% |
(1.01 |
)% |
0.33 |
% | ||||
|
|
|
|
|
|
|
|
|
| ||||
Members capital at end of period |
|
$ |
199,731,329 |
|
$ |
168,721,773 |
|
$ |
199,731,329 |
|
$ |
168,721,773 |
|
The computation of ratios to average Members capital and total return based on the amount of expenses and incentive fee assessed to an individual Members capital may vary from these ratios and total return based on the timing of capital transactions.
(a) Per share operating performance is calculated on a monthly basis by dividing each line item by the outstanding units at month-end prior to the reduction of redeemed units.
(b) Net realized and unrealized gain/(loss) from investment activities has been adjusted to reflect organization costs amortized over 24 months for the purpose of subscriptions and redemptions.
(c) The ratios to average Members capital are annualized. The average Members capital used in the above ratios is an average of each month-end Members capital during the period.
Financial Highlights of the Master Fund:
|
|
(Unaudited) |
| ||||||||||
|
|
Three |
|
Three |
|
Nine |
|
Nine |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Ratio/Supplemental Data: (a) |
|
|
|
|
|
|
|
|
| ||||
Ratio of net investment loss to average Members capital |
|
(3.45 |
)% |
(3.75 |
)% |
(3.52 |
)% |
(3.79 |
)% | ||||
Ratio of total expenses to average Members capital |
|
3.67 |
% |
3.76 |
% |
3.74 |
% |
3.81 |
% | ||||
Total return |
|
(3.02 |
)% |
5.72 |
% |
0.84 |
% |
3.76 |
% | ||||
Members capital at end of period |
|
$ |
199,731,329 |
|
$ |
168,721,773 |
|
$ |
199,731,329 |
|
$ |
168,721,773 |
|
Total return and the ratios to average Members capital are calculated for investors capital taken as a whole. An individual investors capital may vary from these ratios and total return based on the timing of capital transactions.
(a) The ratios to average Members capital are annualized. The average Members capital used in the above ratios is an average of each month-end members capital during the period.
3. Trading Activities
The Fund was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The Fund invests substantially all of its assets through a master/feeder structure. The Funds pro rata share of the results of the Master Funds trading activities is shown in the Funds Statements of Operations and Changes in Members Capital.
The customer agreement between the Master Fund and UBS Securities, gives the Master Fund the legal right to net unrealized gains and losses on open futures contracts. Futures contracts are executed on exchanges and are typically liquidated by entering into offsetting contracts. The Master Fund nets, for financial reporting purposes, the unrealized gains and losses on open futures contracts on the Master Funds Statements of Financial Condition.
All of the commodity interests owned by the Master Fund are held for trading purposes. The average number of futures contracts traded for the three months ended September 30, 2016 and 2015, based on a monthly calculation, was 5,210 and 6,756, respectively. The average number of futures contracts traded for the nine months ended September 30, 2016 and 2015, based on a monthly calculation, was 5,999 and 5,719, respectively.
The following tables indicate the gross fair values of derivative instruments of the Master Funds futures contracts as separate assets and liabilities as of September 30, 2016 and December 31, 2015.
|
|
September 30, 2016 |
|
December 31, 2015 |
| ||
|
|
(Unaudited) |
|
|
| ||
ASSETS |
|
|
|
|
| ||
Futures Contracts |
|
|
|
|
| ||
Currencies |
|
$ |
1,036,905 |
|
$ |
966,615 |
|
Energy |
|
29,360 |
|
834,260 |
| ||
Financials |
|
2,047,992 |
|
695,436 |
| ||
Grains |
|
644,179 |
|
636,305 |
| ||
Index |
|
1,724,854 |
|
571,447 |
| ||
Industrials |
|
1,243 |
|
3,058 |
| ||
Materials |
|
47,915 |
|
3,430 |
| ||
Meats |
|
109,638 |
|
|
| ||
Metals |
|
74,947 |
|
1,076,636 |
| ||
Total unrealized appreciation on open futures contracts |
|
$ |
5,717,033 |
|
$ |
4,787,187 |
|
|
|
|
|
|
| ||
LIABILITIES |
|
|
|
|
| ||
Futures Contracts |
|
|
|
|
| ||
Currencies |
|
$ |
(90,589 |
) |
$ |
(93,490 |
) |
Energy |
|
(1,582,408 |
) |
(483,932 |
) | ||
Financials |
|
(981,315 |
) |
(1,899,644 |
) | ||
Grains |
|
(410,625 |
) |
(105,142 |
) | ||
Index |
|
(356,686 |
) |
(458,400 |
) | ||
Meats |
|
|
|
(189,460 |
) | ||
Metals |
|
(1,121,766 |
) |
(141,412 |
) | ||
Total unrealized depreciation on open futures contracts |
|
$ |
(4,543,389 |
) |
$ |
(3,371,480 |
) |
|
|
|
|
|
| ||
Net unrealized appreciation on open futures contracts * |
|
$ |
1,173,644 |
|
$ |
1,415,707 |
|
* These amounts are presented as Net unrealized appreciation on open futures contracts on the Master Funds Statements of Financial Condition.
The following table indicates the trading gains and losses, by market sector, on the Master Funds derivative instruments for the three and nine months ended September 30, 2016 and 2015.
|
|
Three months ended |
|
Three months ended |
|
Nine months ended |
|
Nine months ended |
| ||||
Sector |
|
Gain/(loss) from |
|
Gain/(loss) from |
|
Gain/(loss) from |
|
Gain/(loss) from |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Currencies |
|
$ |
(319,408 |
) |
$ |
678,960 |
|
$ |
86,898 |
|
$ |
1,303,388 |
|
Energy |
|
(2,195,582 |
) |
4,939,118 |
|
(3,296,356 |
) |
2,476,696 |
| ||||
Financials |
|
(1,952,628 |
) |
6,868,984 |
|
19,277,245 |
|
6,797,406 |
| ||||
Grains |
|
(1,132,778 |
) |
(24,937 |
) |
(2,048,639 |
) |
(586,845 |
) | ||||
Index |
|
2,323,186 |
|
(4,865,484 |
) |
(2,949,903 |
) |
(3,689,250 |
| ||||
Industrials |
|
5,841 |
|
15,906 |
|
(12,188 |
) |
21,461 |
| ||||
Materials |
|
83,405 |
|
(36,855 |
) |
48,475 |
|
(117,235 |
) | ||||
Meats |
|
(48,059 |
) |
478,033 |
|
342,958 |
|
589,866 |
| ||||
Metals |
|
(1,267,434 |
) |
2,561,513 |
|
(5,995,457 |
) |
1,668,470 |
| ||||
|
|
$ |
(4,503,457 |
)** |
$ |
10,615,238 |
** |
$ |
5,453,033 |
** |
$ |
8,463,957 |
** |
** These amounts are presented as Net Realized and Unrealized Gain/(Loss) from Derivative Instruments on the Master Funds Statements of Operations and Changes in Members Capital.
The volume of activity of futures that are presented in the Master Funds Condensed Schedule of Investments is consistent with the average monthly activity during the periods ended September 30, 2016 and 2015.
4. Fair Value Measurements
Funds Fair Value Measurements. In May, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-07 (ASU 2015-07), Fair Value Measurement (Topic 820): 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 net asset value per share as a practical expedient. The Fund adopted ASU 2015-07 as of and for the quarter ended March 31, 2016. Accordingly, investments for which fair value is measured using net asset value per share as a practical expedient have not been categorized within the fair value hierarchy.
The Fund values investments in the Master Fund, where there are no other rights or obligations inherent within the ownership interest held by the Fund, based on the end of the day net asset value of the Master Fund. The value of the Funds investment in the Master Fund reflects its proportional interest in the Master Fund. As of and for the periods ended September 30, 2016 and December 31, 2015, the Fund did not hold any derivative instruments that were based on unadjusted quoted prices in active markets for identical assets (Level 1) or priced at fair value using unobservable inputs through the application of Sydlings assumptions and internal valuation pricing models (Level 3).
Master Funds Fair Value Measurements. FASB Accounting Standards Codification (ASC) 820, Fair Value Measurements (ASC 820), defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques. Fair value is 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. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques, as specified by ASC 820, are used to measure fair value.
All financial instruments at fair value are categorized into one of three fair value hierarchy levels, based upon the lowest level input that is significant to the financial instruments fair value measurement in its entirety:
Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 Valuation techniques for which all significant inputs are market observable, either directly or indirectly.
Level 3 Valuation techniques which include significant inputs that are not based on observable market data.
Fair value measurement disclosure for each class of assets and liabilities requires greater disaggregation than the Funds line items in its Statements of Financial Condition. The Fund determines the appropriate classes for those disclosures on the basis of the nature and risks of the assets and liabilities and their classification in the fair value hierarchy (i.e., Level 1, Level 2, and Level 3).
For assets and liabilities measured at fair value on a recurring basis during the period, the Master Fund provides quantitative disclosures about the fair value measurements separately for each class of assets and liabilities, as well as a reconciliation of beginning and ending balances of Level 3 assets and liabilities broken down by class.
The Master Fund considers prices for exchange-traded commodity futures and option contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1). As of and for the periods ended September 30, 2016 and December 31, 2015, the Master Fund did not hold any derivative instruments for which market quotations were not readily available and which were priced by broker-dealers who derive fair values for these assets from observable inputs (Level 2) or that were priced at fair value using unobservable inputs through the application of Sydlings assumptions and internal valuation pricing models (Level 3). The gross presentation of the fair value of the Master Funds derivatives by instrument type is shown in Note 3, Trading Activities.
The Master Fund recognizes transfers into and out of the levels indicated above at the end of the reporting period. During the periods ended September 30, 2016 and December 31, 2015, there were no transfers amongst Levels 1, 2 and 3 of the valuation hierarchy.
The following is a summary of the Master Funds investments at fair value. The inputs or methodology used for valuing derivative instruments are not necessarily an indication of the risk associated with investing in those derivative instruments.
ASSET TABLE (Unaudited)
Description |
|
Total Fair Value at |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
Future Contracts |
|
$ |
5,717,033 |
|
$ |
5,717,033 |
|
$ |
|
|
$ |
|
|
Total Assets |
|
$ |
5,717,033 |
|
$ |
5,717,033 |
|
$ |
|
|
$ |
|
|
LIABILITIES TABLE (Unaudited)
Description |
|
Total Fair Value at |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
Future Contracts |
|
$ |
4,543,389 |
|
$ |
4,543,389 |
|
$ |
|
|
$ |
|
|
Total Liabilities |
|
$ |
4,543,389 |
|
$ |
4,543,389 |
|
$ |
|
|
$ |
|
|
ASSET TABLE
Description |
|
Total Fair Value at |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
Futures Contracts |
|
$ |
1,415,707 |
|
$ |
1,415,707 |
|
$ |
|
|
$ |
|
|
Total Assets |
|
$ |
1,415,707 |
|
$ |
1,415,707 |
|
$ |
|
|
$ |
|
|
5. Financial Instrument Risks
In the normal course of business, the Master Fund is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include futures, forwards and options on futures whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange, a swap execution facility (SEF), or over-the-counter (OTC). Exchange-traded instruments are standardized and include futures and certain forward and options contracts. OTC contracts are negotiated between contracting parties and include certain forward, option and swap contracts. Certain swap contracts may also be traded on a SEF. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. The writer, or seller, of an option has unlimited risk. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded or SEF traded instruments because of the greater risk of default by the counterparty to an OTC contract. For the nine months ended September 30, 2016 and 2015 the Master Fund traded futures contracts only.
The risk to the members that have purchased interests in the Master Fund is limited to the amount of their capital contributions to the Master Fund and their share of the Master Funds assets and undistributed profits. This limited liability is a consequence of the organization of the Master Fund as a limited liability company under applicable law.
Market risk is the potential for changes in the value of the financial instruments traded by the Master Fund due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The Master Fund is exposed to a market risk equal to the value of futures contracts purchased and unlimited liability on such contracts sold short.
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The Master Funds risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements
of Financial Condition and not represented by the contract or notional amounts of the instruments. The Master Fund has credit risk and concentration risk because the sole counterparty or broker with respect to the Master Funds assets is UBS Securities or a UBS affiliate. Credit risk with respect to exchange-traded instruments is reduced to the extent that through UBS Securities, the Master Funds counterparty is an exchange or clearing organization. Futures contracts are conducted through regulated exchanges which have margin requirements, and are settled in cash on a daily basis, thereby minimizing credit risk.
6. Significant Accounting Policies
The Funds and the Master Funds accounting policies are the same and are consistent with the accounting policies in the Funds financial statements on Form 10-K for the year ended December 31, 2015.
The Master Fund is an investment company and applies specialized accounting and reporting guidance as outlined in FASB Update 2013-08, Financial Services Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements (ASU 2013-08).
Statement of Cash Flows. The Fund is not required to provide a Statement of Cash Flows in accordance with Accounting Standards Codification (ASC) 230 Statement of Cash Flows.
Investment in Master Fund. The Fund records its investment in the Master Fund at fair value and is represented by the Funds proportionate interest in the capital of the Master Fund at September 30, 2016 and December 31, 2015. Valuation of securities held by the Master Fund is discussed in the Notes to the Master Funds financial statements on Form 10-K for the year ended December 31, 2015. The Fund records its pro rata share of the Master Funds income, expenses and realized and unrealized gains and losses. The performance of the Fund is directly attributable to the performance of the Master Fund. The Fund records its subscription and withdrawal of the capital account related to its investment in the Master Fund on the transaction date. The Master Fund will adjust the capital account of the Fund. Brokerage, clearing and transaction fees are incurred by the Master Fund and are reflected in the pro rata allocation received by the Fund from the Master Fund.
Subscriptions Received in Advance. Subscriptions received in advance represent amounts paid by the non-managing Members for a percentage ownership into the Fund which have not yet been added as Members capital as of September 30, 2016 and December 31, 2015. The amount paid is held as cash in the Funds escrow account and represents the cash on the Funds Statements of Financial Condition.
Redemptions Payable. Pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, capital withdrawals effective September 30, 2016 and December 31, 2015 have been reflected as redemptions payable in the Statements of Financial Condition.
Income Taxes. The Fund is classified as a partnership for U.S. federal income tax purposes, and the Fund will not pay U.S. federal income tax. As a result, no income tax liability or expense has been recorded in the financial statements.
Sydling has analyzed the Master Funds tax positions for the open tax period and has concluded that no provision is required in the Master Funds financial statements. The Master Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in its Statements of Income. For the periods ended September 30, 2016 and December 31, 2015, the Master Fund did not incur any interest or penalties.
7. Subsequent Events
Sydling has evaluated the impact of all subsequent events on the Fund through the date of the filing. Subsequent to September 30, 2016, additional subscriptions were received from the non-managing Members totaling $2,960,100. Subsequent to September 30, 2016, redemptions of $2,015,498 will be paid to the non-managing Members. Sydling has determined that there were no additional subsequent events requiring recognition or disclosure in the financial statements.
After the reporting period the Fund and UBS Financial Services entered into a second amended and restated selling agreement. The purpose of the amended and restated agreement is to clarify that the Master Fund may pay the selling agent fee on the Funds behalf.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
The Fund does not engage in sales of goods or services. Its only assets are its investment in the Master Fund, cash and receivables from the Master Fund. The Master Fund does not engage in the sale of goods or services. The Master Funds only assets are its equity in its trading accounts, consisting of cash, net unrealized appreciation/(depreciation) on open futures contracts and interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Fund, through its investment in the Master Fund. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the third quarter of 2016.
For the nine months ended September 30, 2016 and 2015, the Master Funds average margin to equity ratio was 10.62 % and 11.14%, respectively.
The Funds capital consists of the capital contributions of the Members as increased or decreased by income/(loss) from its investment in the Master Fund and by expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.
For the nine months ended September 30, 2016, the Funds capital increased 16.45% from $171,511,951 to $199,731,329. This increase was attributable to subscriptions for Redeemable Units totaling $48,182,871, which was partially offset by redemptions of Redeemable Units resulting in an outflow of $16,793,741 coupled with a net loss from operations of $3,169,752. Future redemptions from the Fund could impact the amount of funds available for investment in the Master Fund in subsequent periods.
The Master Funds capital consists of the capital contributions of the investors of the Master Fund as increased or decreased by realized and/or unrealized gains or losses on trading and by expenses, interest income, withdrawals of interest from the Master Fund and distributions of profits, if any.
For the nine months ended September 30, 2016, the Master Funds capital increased 16.45% from $171,511,951 to $199,731,329. This increase was attributable to subscriptions for interest in the Master Fund totaling $48,182,871 coupled with net income from operations of $361,546, which was partially offset by the withdrawal of interest in the Master Fund resulting in an outflow of $20,325,039. Future withdrawals from the Master Fund can impact the amount of funds available for investments in commodity contract positions in subsequent periods.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. GAAP requires Sydling to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Sydling believes that the estimates and assumptions utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Funds significant accounting policies are described in detail in Note 6. Significant Accounting Policies.
The Fund records all investments at fair value in its financial statements, with changes in fair value reported as a component of net realized gains/(losses) and change in net unrealized gains/(losses) in the Statements of Operations and Changes in Members Capital.
Results of Operations
During the Funds third quarter of 2016, the net asset value per Redeemable Unit decreased 3.5% from $1,233.62 to $1,190.03. The Fund, for its own account, through its investment in the Master Fund, experienced a net trading loss before brokerage fees and related fees in the third quarter of 2016 of $4,503,457. Losses were primarily attributable to the Master Funds trading of commodity futures in U.S. interest rates, energy, grains, currencies, metals and livestock and were partially offset by gains in indices, non-U.S. interest rates and softs.
The Funds performance, through its investment in the Master Fund, declined in the third quarter of 2016 giving back first half gains. Through July, the Master Fund benefited from net long positions in bonds and stock indexes, particularly in the U.S.. However, the Master Fund delivered negative returns in August and September driven by the fixed income, precious metals and energies sectors.
Hawkish comments from Janet Yellen and Stanley Fischer, the respective chair and vice-chair of the U.S. Federal Reserve, increased expectations of a further U.S. rate rise in 2016 and led to losses from long positions in the U.S. government bond and Eurodollar futures, paring their year-to-date contribution to returns. Furthermore, the European Central Bank announced that it had not discussed
extending its quantitative easing program which triggered a market selloff in September. However, the Master Fund earned profits in German government bonds.
Meanwhile in energies, the price of WTI crude oscillated between $40 and $50 a barrel during the third quarter. The Master Funds short crude positions suffered as crude oil rallied following OPECs decision to modestly cut output. Within precious metals, the strengthening in the U.S. dollar weighed on the Master Funds long position in gold and silver.
Performance in currencies was driven by long exposure to the Japanese yen, which has now gained nearly 20% against the U.S. dollar since the start of the year after appreciating another 2% during September. The Master Fund made profits in stock indices for the quarter but this was not enough to offset the losses from other sectors. Long positioning in stock indices proved beneficial, particularly in the Hang Seng.
During the Funds third quarter of 2015, the net asset value per Redeemable Unit increased by 5.12% from $1,151.32 to $1,210.31. The Fund, for its own account, through its investment in the Master Fund, experienced a net trading gain before brokerage fees and related fees in the third quarter of 2015 of $10,615,238. Gains were primarily attributable to the Master Funds trading of commodity futures in energy, U.S. and non-U.S. interest rates, metals, currencies, softs and livestock and were partially offset by losses in indices and grains.
Third quarter of 2015 was profitable for the Fund due to strong gains in July and September. Most notably the Master Fund delivered gains in a quarter when S&P 500 index indices declined 6.9%.
The Master Fund had strong gains from the energy sector. Crude oil had its biggest drop in almost seven years due to increased OPEC supplies and expectation that lower demand from China would prolong a global glut. U.S. crude stockpiles were almost 100 million barrels above the five-year seasonal average. During the quarter, Iraq raised its crude output to 3.9 million barrels per day which is significantly more than the previous years output. Market participants expected that sanctions on oil exports from Iran, which holds the worlds fourth-biggest crude reserves, would be lifted after a nuclear accord on July 14. US WTI Crude oil closed the quarter at $45 per barrel and had declined 24% during the period.
Gains in equity index sector for the Master Fund came mostly from short positions, most notably in Asian and Emerging market equity indices. Shanghai Composite Index declined 14% in July amid record-high volatility. Continued worsening outlook in China eventually led to sell offs in European and U.S. equity indices in August and September. After coming into the quarter with sizable net long index position, the Master Fund quickly turned flat and eventually maintained a net short posture for the most of September. Most short positions were in China H-Shares, Hang Seng, Kospi and MSCI Emerging Market indices, which were all related to the economic weakness in China.
The fixed income sector was also profitable, as the Master Fund almost doubled its long positions in Euro Bund, BOBL and Short Sterling futures. The Master Fund also reestablished long positions in U.S. T-note and bond futures after briefly being short in the earlier part of the quarter. U.S. Treasuries benefited as cooling growth in China wiped off trillions from the value of global equities. Also, most European bond yields declined as inflation in the Eurozone dipped into negative territory during the quarter, in spite of ECBs large asset purchase plan that was announced in March.
By the end of the quarter, most of the risk in the Master Fund was in currencies, equity indices, short term interest rates and bonds sectors. Among notable foreign exchange positions, the Master Fund had short Euro, long British pound, short Canadian dollar and short Australian dollar exposures. Among other notable positions, the Master Fund had short crude oil, short gold and short sugar positions.
Commodity futures markets are highly volatile. Broad and rapid price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase the possibility for profit or loss. The profitability of the Fund (and the Master Fund) depends on the existence of major price trends and the ability of the Advisor to correctly identify those price trends. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisor is able to identify them, the Fund (and the Master Fund) expects to increase capital through operations.
Clearing and transaction fees are based on the number of round turns made in the Master Funds account. The asset based brokerage fee paid to UBS Securities was calculated as a percentage of the Funds capital account balance at the Master Fund as of the end of each month. Clearing and transaction fees of the Master Fund for the three months ended September 30, 2016 were $44,684. Brokerage, clearing and transaction fees of the Master Fund for the three months ended September 30, 2015 and the nine months ended September 30, 2016 and 2015 were $1,487,492, $3,543,180 and $3,977,879, respectively. The decrease in brokerage, clearing
and transaction fees for the periods ended September 30, 2016 as compared to the corresponding periods in 2015 is a result of the change in fees paid to certain service providers to the Fund and Master Fund.
Ongoing selling agent fees are calculated as a percentage of the Funds capital account balance at the Master Fund as of the end of each month and are affected by trading performance, subscriptions and redemptions.
Ongoing selling agent fees of the Fund for the three months ended September 30, 2016 were $1,792,524 and $0 for the three months ended September 30, 2015. Ongoing selling agent fees for the nine months ended September 30, 2016 were $1,792,524 and $0 for the nine months ended September 30, 2015. The ongoing selling agent fee was instituted in the third quarter of 2016.
Advisory fees are calculated as a percentage of the Funds adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions.
Advisory fees of the Fund for the three months ended September 30, 2016 and 2015 were $765,910 and $618,132, respectively. The calculation of advisory fees for the three months ended September 30, 2015 and 2014 was based on a monthly average net asset value of $204,242,541 and $164,835,090, respectively. The increase in advisory fees for the three months ended September 30, 2016 as compared to the corresponding period in 2015 is due to an increase in the average net assets.
Advisory fees of the Fund for the nine months ended September 30, 2016 and 2015 were $2,223,247 and $1,652,010, respectively. The calculation of advisory fees for the nine months ended September 30, 2016 and 2015 was based on a monthly average net asset value of $197,621,950 and $146,845,339, respectively. The increase in advisory fees for the nine months ended September 30, 2016 as compared to the corresponding period in 2015 is due to an increase in the average net assets.
Administrative fees are paid to Sydling for administering the business and affairs of the Fund. Sydling pays a portion of the administrative fee to the Administrator. These fees are calculated as a percentage of the Funds adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions.
Administrative fees of the Fund for the three months ended September 30, 2016 and 2015 were $255,303 and $206,044, respectively. The calculation of administrative fees for the three months ended September 30, 2016 and 2015 was based on a monthly average net asset value of $204,242,541 and $164,835,090, respectively. The increase in administrative fees for the three months ended September 30, 2016 as compared to the corresponding period in 2015 is due to an increase in the average net assets.
Administrative fees of the Fund for the nine months ended September 30, 2016 and 2015 were $741,082 and $550,670, respectively. The calculation of administrative fees for the nine months ended September 30, 2016 and 2015 was based on a monthly average net asset value of $197,621,950 and $146,845,339, respectively. The increase in administrative fees for the nine months ended September 30, 2016 as compared to the corresponding period in 2015 is due to an increase in the average net assets.
Incentive fees to the Advisor are based on the new trading profits generated by the Advisor, paid at the end of each quarter, as defined in the Trading Advisory Agreement among the Master Fund, the Fund, Sydling and the Advisor. There were no incentive fees earned during the three months ended September 30, 2016 and 2015. Incentive fees of $410,292 and $2,112,137 were earned for the nine months ended September 30, 2016 and 2015, respectively.
In allocating substantially all of the assets of the Fund to the Master Fund, Sydling considers the Advisors past performance, trading style, volatility of markets traded and fee requirements. Sydling may modify or terminate the allocation of assets to the Advisor at any time.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
All of the Funds assets are subject to the risk of trading loss through its investment in the Master Fund.
The Master Fund is a speculative commodity pool. The market sensitive instruments held by the Master Fund are acquired for speculative trading purposes, and all or substantially all of the Funds capital is subject to the risk of trading loss through its investment in the Master Fund. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Master Funds and the Funds main line of business.
The risk to the Members that have purchased Redeemable Units is limited to the amount of their capital contributions to the Fund and their share of Fund assets and undistributed profits. This limited liability is a consequence of the organization of the Fund as a limited liability company under Delaware law.
Market movements result in frequent changes in the fair value of the Master Funds open positions and, consequently, in its earnings and cash balances. The Master Funds and the Funds 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 Master Funds open contracts and the liquidity of the markets in which the Master Fund trades.
The Master Fund rapidly acquires and liquidates both long and short positions in a range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Master Funds past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Master Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Master Funds speculative trading and the recurrence in the markets traded by the Master Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Master Funds 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 inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Master Funds losses in any market sector will be limited to Value at Risk or by the Master Funds attempts to manage its market risk.
Exchange maintenance margin requirements have been used by the Master Fund as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.
Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The following tables indicate the trading Value at Risk associated with the Master Funds open positions by market category as of September 30, 2016 and December 31, 2015, and the highest, lowest and average value during the three months ended September 30, 2016 and the twelve months ended December 31, 2015. All open position trading risk exposures of the Master Fund have been included in calculating the figures set forth below. There has been no material change in the trading Value at Risk information previously disclosed in the Funds Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
As of September 30, 2016, the Master Funds total capitalization was $199,731,329 and the Fund owned 100% of the Master Fund. The Fund invests substantially all of its assets in the Master Fund. The Master Funds Value at Risk as of September 30, 2016 was as follows:
|
|
|
|
|
|
Three Months ended September 30, 2016 (unaudited) |
| ||||||||
Market Sector |
|
Value |
|
% of Total |
|
High Value |
|
Low Value |
|
Average Value |
| ||||
Currencies |
|
$ |
3,214,999 |
|
1.61 |
% |
$ |
3,716,694 |
|
$ |
2,463,111 |
|
$ |
3,307,774 |
|
Energy |
|
1,202,466 |
|
0.60 |
|
1,373,257 |
|
382,341 |
|
893,710 |
| ||||
Grains |
|
1,891,900 |
|
0.95 |
|
1,922,461 |
|
1,008,641 |
|
2,727,461 |
| ||||
Index |
|
5,823,380 |
|
2.92 |
|
5,871,714 |
|
2,299,962 |
|
4,421,632 |
| ||||
Interest Rate Non-U.S. |
|
5,450,436 |
|
2.73 |
|
5,683,422 |
|
4,326,109 |
|
5,114,419 |
| ||||
Interest Rate U.S. |
|
5,978,932 |
|
2.99 |
|
7,637,376 |
|
5,443,846 |
|
6,708,367 |
| ||||
Livestock |
|
164,869 |
|
0.08 |
|
416,644 |
|
107,392 |
|
253,987 |
| ||||
Lumber |
|
7,274 |
|
|
** |
7,563 |
|
6,231 |
|
6,977 |
| ||||
Metals |
|
1,289,859 |
|
0.65 |
|
1,374,628 |
|
807,757 |
|
1,177,236 |
| ||||
Softs |
|
701,537 |
|
0.35 |
|
763,398 |
|
618,379 |
|
711,646 |
| ||||
Total |
|
$ |
25,725,652 |
|
12.88 |
% |
|
|
|
|
|
| |||
*Average daily Value at Risk.
** Due to rounding
As of December 31, 2015, the Master Funds total capitalization was $171,511,951 and the Fund owned 100% of the Master Fund. The Fund invests substantially all of its assets in the Master Fund. The Master Funds Value at Risk as of December 31, 2015 was as follows:
December 31, 2015
(unaudited)
Market Sector |
|
Value |
|
% of Total |
|
High Value |
|
Low Value |
|
Average Value |
| ||||
Currencies |
|
$ |
3,672,600 |
|
2.14 |
% |
$ |
3,672,600 |
|
$ |
853,041 |
|
$ |
1,798,593 |
|
Energy |
|
$ |
1,624,349 |
|
0.95 |
|
$ |
1,624,349 |
|
$ |
357,446 |
|
$ |
841,862 |
|
Grains |
|
$ |
1,828,050 |
|
1.07 |
|
$ |
1,828,050 |
|
$ |
251,312 |
|
$ |
839,932 |
|
Index |
|
$ |
3,362,435 |
|
1.96 |
|
$ |
4,178,890 |
|
$ |
1,510,936 |
|
$ |
2,802,941 |
|
Interest Rate Non-U.S. |
|
$ |
3,077,529 |
|
1.79 |
|
$ |
5,019,800 |
|
$ |
1,345,612 |
|
$ |
3,640,257 |
|
Interest Rate U.S. |
|
$ |
4,470,531 |
|
2.61 |
|
$ |
7,137,134 |
|
$ |
3,242,996 |
|
$ |
5,840,910 |
|
Livestock |
|
$ |
282,060 |
|
0.16 |
|
$ |
382,860 |
|
$ |
83,250 |
|
$ |
206,738 |
|
Lumber |
|
$ |
7,488 |
|
|
** |
$ |
7,488 |
|
$ |
1,855 |
|
$ |
4,606 |
|
Metals |
|
$ |
1,238,070 |
|
0.72 |
|
$ |
1,238,070 |
|
$ |
262,177 |
|
$ |
680,897 |
|
Softs |
|
$ |
541,665 |
|
0.32 |
|
$ |
575,538 |
|
$ |
267,237 |
|
$ |
463,353 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
$ |
20,104,777 |
|
11.72 |
% |
|
|
|
|
|
|
*Average daily Value at Risk.
** Due to rounding
Item 4. Controls and Procedures
The Funds disclosure controls and procedures are designed to ensure that information required to be disclosed by the Fund on the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and reported within the time periods expected in the SECs rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Fund in the reports it files is accumulated and communicated to Sydling, including the President and Chief Financial Officer (CFO) of Sydling, to allow for timely decisions regarding required disclosure and appropriate SEC filings.
Sydling is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Funds external disclosures.
Sydlings President and CFO have evaluated the effectiveness of the Funds disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2016 and, based on that evaluation, Sydlings President and CFO have concluded that, at that date, the Funds disclosure controls and procedures were effective.
The Funds internal control over financial reporting is a process under the supervision of Sydlings President and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. These controls include policies and procedures that:
· pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Fund;
· provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and (ii) the Funds receipts are handled and expenditures are made only pursuant to authorizations of Sydling; and
· provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use or disposition of the Funds assets that could have a material effect on the financial statements.
There were no changes in the Funds internal control over financial reporting process during the fiscal quarter ended September 30, 2016 that materially affected, or are reasonably likely to materially affect, the Funds internal control over financial reporting.
Item 1. Legal Proceedings
There are no material legal proceedings against the Fund and Sydling.
There are no material changes to the discussion set forth under Item 3. Legal Proceedings in the Funds Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as updated by the Funds Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.
Item 1A. Risk Factors
There have been no material changes to the risk factors set forth under Part 1, Item 1A. Risk Factors in the Funds Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and under Part II, Item 1A. Risk Factors in the Funds Quarterly Report on Form 10-Q for the quarters ended March 31, 2016 June 30, 2016.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
For the three months ended September 30, 2016, there were additional subscriptions of 6,553.409 Redeemable Units totaling $8,030,138. The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act of 1933 and Section 506 of Regulation D promulgated thereunder. These Redeemable Units were purchased by accredited investors as defined in Regulation D. In determining the applicability of the exemption, Sydling relied on the fact that the Redeemable Units were purchased by accredited investors in a private offering.
Proceeds of net offering were used for the trading of commodity interests, including futures and option contracts.
The following chart sets forth the purchases of Redeemable Units by the Fund.
Period |
|
(a) Total Number |
|
(b) Average Price |
|
(c) Total Number |
|
(d) Maximum |
| |
July 1, 2016 July 31, 2016 |
|
1,478.825 |
|
$ |
1,242.35 |
|
N/A |
|
N/A |
|
August 1, 2016 August 31, 2016 |
|
962.596 |
|
$ |
1,206.19 |
|
N/A |
|
N/A |
|
September 1, 2016 September 30, 2016 |
|
1,286.239 |
|
$ |
1,190.03 |
|
N/A |
|
N/A |
|
Total |
|
3,727.660 |
|
$ |
1,212.86 |
|
|
|
|
|
* Generally, Members are permitted to redeem their Redeemable Units as of the end of each month on five business days notice to Sydling. Under certain circumstances, Sydling can compel redemption, although to date, it has not exercised this right. Purchases of Redeemable Units by the Fund reflected in the chart above were made in the ordinary course of the Funds business in connection with effecting redemptions for Members.
** Redemptions of Redeemable Units are effected as of the end of each month at the net asset value per Redeemable Unit as of that day.
Item 3. Defaults Upon Senior Securities None
Item 4. Mine Safety Disclosures Not Applicable
Item 5. Other Information None
Item 6. Exhibits
Exhibit 3.1 |
|
Certificate of Formation (filed as Exhibit 3.1 to the general form for registration of securities on Form 10 filed on May 29, 2014 and incorporated herein by reference). |
|
|
|
|
(a) |
Certificate of Amendment of the Certificate of Formation (filed as Exhibit 3.1(a) to the general form for registration of securities on Form 10 filed on May 29, 2014 and incorporated herein by reference). |
|
|
|
Exhibit 3.2 |
|
Application for Authority (filed as Exhibit 3.2 to the general form for registration of securities on Form 10 filed on May 29, 2014 and incorporated herein by reference). |
|
|
|
Exhibit 3.3 |
|
Limited Liability Company Agreement (filed as Exhibit 3.3 to the general form for registration of securities on Form 10 filed on May 29, 2014 and incorporated herein by reference). |
|
|
|
Exhibit 10.1 |
|
Customer Agreement between the Master Fund and UBS Securities (filed as Exhibit 10.1 to the general form for registration of securities on Form 10 filed on May 29, 2014 and incorporated herein by reference). |
|
|
|
Exhibit 10.2 |
|
Selling Agent Agreement between the Fund and UBS Financial Services (filed as Exhibit 10.2 to the general form for registration of securities on Form 10 filed on May 29, 2014 and incorporated herein by reference). |
|
|
|
|
(a) |
Amended and Restated Selling Agent Agreement between the Fund and UBS Financial Services (filed as Exhibit 10.2 to the Current Report on Form 8-K filed on July 12, 2016 and incorporated herein by reference). |
|
|
|
|
(b) |
Second Amended and Restated Selling Agent Agreement between the Fund and UBS Financial Services (filed herewith). |
|
|
|
Exhibit 10.3 |
|
Trading Manager Agreement among the Fund, the Master Fund and Sydling (filed as Exhibit 10.3 to the general form for registration of securities on Form 10 filed on May 29, 2014 and incorporated herein by reference). |
|
|
|
Exhibit 10.4 |
|
Trading Advisory Agreement among the Master Fund, the Fund, Sydling and the Advisor (filed as Exhibit 10.4 to the general form for registration of securities on Form 10 filed on May 29, 2014 and incorporated herein by reference). |
|
|
|
|
(a) |
Letter from Sydling extending the Trading Advisory Agreement until June 30, 2015, dated June 29, 2014 (filed as Exhibit 10.4(a) to the Form 10-Q filed on August 14, 2014 and incorporated herein by reference). |
|
|
|
|
(b) |
Letter from Sydling extending the Trading Advisory Agreement until June 30, 2016, dated June 26, 2015 (filed as Exhibit 10.4(b) to the Form 10-Q filed on August 14, 2015 and incorporated herein by reference). |
|
|
|
|
(c) |
Letter from Sydling extending the Trading Advisory Agreement until June 30, 2017, dated June 16, 2016 (filed herein). |
|
|
|
Exhibit 10.5 |
|
Fee Arrangement Agreement among Sydling, the Master Fund and UBS Securities (filed as Exhibit 10.5 to the general form for registration of securities on Form 10 filed on May 29, 2014 and incorporated herein by reference). |
|
|
|
|
(a) |
First Amended and Restated Fee Arrangement Agreement among Sydling, the Master Fund and UBS Securities (filed as Exhibit 10.5 to the Form 10-Q filed on August 15, 2016 and incorporated herein by reference). |
|
|
|
Exhibit 31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director filed herewith). |
|
|
|
Exhibit 31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer filed herewith). |
|
|
|
Exhibit 32.1 |
|
Section 1350 Certification (Certification of President and Director filed herewith). |
|
|
|
Exhibit 32.2 |
|
Section 1350 Certification (Certification of Chief Financial Officer filed herewith). |
|
|
|
Exhibit 99.1 |
|
Annual Report of the Fund for the period ended December 31, 2013 (filed as Exhibit 99.1 to the general form for registration of securities on Form 10 filed on May 29, 2014 and incorporated herein by reference). |
Exhibit 99.2 |
|
Organization Chart (filed as Exhibit 99.2 to the amended general form for registration of securities on Form 10 filed on May 29, 2014 and incorporated herein by reference). |
|
|
|
Exhibit 101.INS |
|
XBRL Instance Document. |
|
|
|
Exhibit 101.SCH |
|
XBRL Taxonomy Extension Schema Document. |
|
|
|
Exhibit 101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
Exhibit 101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
Exhibit 101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
Exhibit 101.DEF |
|
XBRL Taxonomy Extension Definition Document. |
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.
CAVENDISH FUTURES FUND LLC |
| |
(Registrant) |
| |
|
|
|
|
|
|
By: |
Sydling Futures Management LLC |
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By: |
/s/ Jerry Pascucci |
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Jerry Pascucci |
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President and Director |
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Date: |
November 14, 2016 |
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