Attached files

file filename
EX-32.2 - EX-32.2 - Cavendish Futures Fund LLCa17-20605_1ex32d2.htm
EX-32.1 - EX-32.1 - Cavendish Futures Fund LLCa17-20605_1ex32d1.htm
EX-31.2 - EX-31.2 - Cavendish Futures Fund LLCa17-20605_1ex31d2.htm
EX-31.1 - EX-31.1 - Cavendish Futures Fund LLCa17-20605_1ex31d1.htm
EX-10.4(D) - EX-10.4(D) - Cavendish Futures Fund LLCa17-20605_1ex10d4d.htm

Table of Contents

 

 

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, 2017

 

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

 

38-3849454

(State or other jurisdiction of
incorporation or organization)

 

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

 

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

(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 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, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

 

 

 

Emerging Growth company o

 

 

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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, 2017, 158,965.931 Limited Liability Company Redeemable Units were outstanding.

 

 

 



Table of Contents

 

CAVENDISH FUTURES FUND LLC

 

Form 10-Q

 

Index

 

 

Page

 

Number

 

 

PART I — Financial Information:

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Statements of Financial Condition at September 30, 2017 (unaudited) and December 31, 2016

3

 

 

 

 

Statements of Operations and Changes in Members’ Capital for the three and nine months ended September 30, 2017 and 2016 (unaudited)

4

 

 

 

 

Notes to Financial Statements, including the Financial Statements of Sydling WNT Master Fund LLC (unaudited)

5 – 18

 

 

 

Item 2.

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

19 – 21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

22 – 23

 

 

 

Item 4.

Controls and Procedures

24

 

 

 

PART II — Other Information

25 – 27

 

 

Exhibits

 

 

 

Exhibit 31.1 — Certification

 

 

 

Exhibit 31.2 — Certification

 

 

 

Exhibit 32.1 — Certification

 

 

 

Exhibit 32.2 — Certification

 

 

 

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.

 

 

2



Table of Contents

 

PART I

 

Item 1.  Financial Statements

 

Cavendish Futures Fund LLC

Statements of Financial Condition

 

 

 

(Unaudited)

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Investment in Sydling WNT Master Fund LLC, at fair value

 

$

174,987,977

 

$

189,623,008

 

Cash

 

559,284

 

1,863,996

 

Receivable from Sydling WNT Master Fund LLC

 

8,593,124

 

1,833,912

 

Total Assets

 

$

184,140,385

 

$

193,320,916

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Subscriptions received in advance

 

$

500,000

 

$

1,826,000

 

Redemptions payable

 

8,261,686

 

1,453,446

 

Accrued expenses:

 

 

 

 

 

Advisory fees

 

229,444

 

239,244

 

Administrative fees

 

76,481

 

79,748

 

Professional fees and other expenses

 

84,797

 

99,470

 

Total Liabilities

 

9,152,408

 

3,697,908

 

 

 

 

 

 

 

MEMBERS’ CAPITAL

 

 

 

 

 

 

 

 

 

 

 

Member Designee (25.000 Redeemable Units)

 

26,935

 

28,175

 

Non-managing members (162,390.082 and 168,227.490 Redeemable Units)

 

174,961,042

 

189,594,833

 

 

 

 

 

 

 

Total Members’ Capital

 

174,987,977

 

189,623,008

 

Total Liabilities and Members’ Capital

 

$

184,140,385

 

$

193,320,916

 

Members’ Capital per Redeemable Unit (based on 162,415.082 and 168,252.490 Redeemable Units)

 

$

1,077.41

 

$

1,127.01

 

 

See accompanying notes to financial statements and attached financial statements of Sydling WNT Master Fund LLC.

 

3



Table of Contents

 

Cavendish Futures 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, 2017

 

September 30, 2016

 

September 30, 2017

 

September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest allocated from Sydling WNT Master Fund LLC

 

$

458,673

 

$

115,162

 

$

1,095,574

 

$

318,092

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses allocated from Sydling WNT Master Fund LLC

 

1,699,817

 

1,861,833

 

5,192,625

 

5,409,579

 

Incentive fees

 

 

 

 

410,292

 

Advisory fees

 

694,965

 

765,910

 

2,125,117

 

2,223,247

 

Administrative fees

 

231,655

 

255,303

 

708,372

 

741,082

 

Professional fees and other expenses

 

194,267

 

59,626

 

347,893

 

156,677

 

Total Expenses

 

2,820,704

 

2,942,672

 

8,374,007

 

8,940,877

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT (LOSS)

 

(2,362,031

)

(2,827,510

)

(7,278,433

)

(8,622,785

)

 

 

 

 

 

 

 

 

 

 

TRADING RESULTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gain/(loss) allocated from Sydling WNT Master Fund LLC

 

(979,879

)

7,561,725

 

1,569,657

 

5,695,096

 

Net change in unrealized appreciation/(depreciation) allocated from Sydling WNT Master Fund LLC

 

3,155,135

 

(12,065,182

)

(2,781,894

)

(242,063

)

Total Trading Results

 

2,175,256

 

(4,503,457

)

(1,212,237

)

5,453,033

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss)

 

(186,775

)

(7,330,967

)

(8,490,670

)

(3,169,752

)

 

 

 

 

 

 

 

 

 

 

Subscriptions — Non-managing Members

 

4,476,000

 

8,030,138

 

19,500,078

 

48,182,871

 

Redemptions — Non-managing Members

 

(12,809,648

)

(4,528,959

)

(25,644,439

)

(16,793,741

)

 

 

 

 

 

 

 

 

 

 

Net increase/(decrease) in Members’ Capital

 

(8,520,423

)

(3,829,788

)

(14,635,031

)

28,219,378

 

 

 

 

 

 

 

 

 

 

 

Members’ Capital, beginning of period

 

$

183,508,400

 

$

203,561,117

 

$

189,623,008

 

$

171,511,951

 

 

 

 

 

 

 

 

 

 

 

Members’ Capital, end of period

 

$

174,987,977

 

$

199,731,329

 

$

174,987,977

 

$

199,731,329

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss) per Redeemable Unit*

 

$

(1.04

)

$

(43.59

)

$

(49.60

)

$

(12.16

)

 

 

 

 

 

 

 

 

 

 

Weighted average Redeemable Units outstanding

 

167,649.548

 

166,417.833

 

169,216.787

 

155,710.216

 

 

See accompanying notes to financial statements and attached financial statements of Sydling WNT Master Fund LLC.

 


* Represents the changes in Members’ Capital per unit

 

4



Table of Contents

 

Cavendish Futures Fund LLC

Notes to Financial Statements

September 30, 2017

(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 Fund’s 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 Fund’s 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 Fund’s capital owned by the Fund at September 30, 2017 and December 31, 2016 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 Fund’s 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 Fund’s 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.

 

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 second and 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, equal to 3.5% per year of the adjusted month-end net assets of the Fund.

 

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 member’s capital contribution and profits, if any, net of distributions and losses, if any.

 

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”).  The update provides guidance about management’s responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as  going concern and to provide related footnote disclosure.  Management has evaluated relevant conditions and events, which are known and reasonable knowable, and has determined that there are no conditions and events that raise substantial doubt about the Fund’s ability to continue as a going concern.

 

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 Fund’s Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (the “SEC”).

 

5



Table of Contents

 

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 Fund’s Statements of Financial Condition and Condensed Schedules of Investments as of September 30, 2017 and December 31, 2016 and Statements of Operations and Changes in Members’ Capital for the three and nine months ended September 30, 2017 and 2016 are presented below:

 

6



Table of Contents

 

Sydling WNT Master Fund LLC

Statements of Financial Condition

 

 

 

(Unaudited)

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash (including restricted cash of $19,158,359 and $23,311,302, respectively)

 

$

184,814,948

 

$

190,271,646

 

Net unrealized appreciation on open futures contracts

 

 

1,674,971

 

Interest receivable

 

457,528

 

118,169

 

Total Assets

 

$

185,272,476

 

$

192,064,786

 

 

 

 

 

 

 

LIABILITIES AND MEMBER’S CAPITAL

 

 

 

 

 

 

 

 

 

 

 

Net unrealized depreciation on open futures contracts

 

$

1,106,923

 

$

 

Redemptions payable

 

8,593,124

 

1,833,912

 

Accrued expenses:

 

 

 

 

 

Selling agent fees

 

537,011

 

560,050

 

Professional fees and other expenses

 

47,441

 

47,816

 

Total Liabilities

 

10,284,499

 

2,441,778

 

 

 

 

 

 

 

MEMBER’S CAPITAL

 

 

 

 

 

 

 

 

 

 

 

Member’s Capital

 

174,987,977

 

189,623,008

 

Total Liabilities and Member’s Capital

 

$

185,272,476

 

$

192,064,786

 

 

7



Table of Contents

 

Sydling WNT Master Fund LLC

Condensed Schedule of Investments

September 30, 2017

(Unaudited)

 

 

 

 

 

 

 

Percent of

 

Number of

 

 

 

 

 

Member’s

 

Contracts

 

 

 

Fair Value

 

Capital

 

 

 

FUTURES CONTRACTS OWNED

 

 

 

 

 

1,171

 

CURRENCIES

 

$

(1,359,628

)

(0.78

)%

228

 

ENERGY

 

251,783

 

0.14

%

4,799

 

FINANCIALS

 

(2,643,656

)

(1.51

)%

67

 

GRAINS

 

(102,637

)

(0.06

)%

2,652

 

INDEX

 

3,761,006

 

2.15

%

3

 

INDUSTRIALS

 

14,905

 

0.01

%

32

 

MATERIALS

 

(39,975

)

(0.02

)%

182

 

MEATS

 

(66,960

)

(0.04

)%

256

 

METALS

 

(632,985

)

(0.36

)%

 

 

TOTAL FUTURES CONTRACTS OWNED

 

(818,147

)

(0.47

)%

 

 

 

 

 

 

 

 

 

 

FUTURES CONTRACTS SOLD

 

 

 

 

 

(538)

 

CURRENCIES

 

880,350

 

0.50

%

(234)

 

ENERGY

 

(97,560

)

(0.06

)%

(263)

 

FINANCIALS

 

127,237

 

0.07

%

(1,200)

 

GRAINS

 

618,855

 

0.36

%

(485)

 

INDEX

 

(1,845,258

)

(1.05

)%

(18)

 

METALS

 

27,600

 

0.02

%

 

 

TOTAL FUTURES CONTRACTS SOLD

 

(288,776

)

(0.16

)%

 

 

TOTAL FUTURES CONTRACTS

 

(1,106,923

)

(0.63

)%

 

 

OTHER ASSETS IN EXCESS OF OTHER LIABILITIES

 

176,094,900

 

100.63

%

 

 

TOTAL MEMBER’S CAPITAL

 

$

174,987,977

 

100.00

%

 

Percentages shown represent a percentage of member’s capital as of September 30, 2017.

 

8



Table of Contents

 

Sydling WNT Master Fund LLC

Condensed Schedule of Investments

December 31, 2016

 

 

 

 

 

 

 

Percent of

 

Number of

 

 

 

 

 

Member’s

 

Contracts

 

 

 

Fair Value

 

Capital

 

 

 

FUTURES CONTRACTS OWNED

 

 

 

 

 

18

 

CURRENCIES

 

$

75

 

0.00

%

170

 

ENERGY

 

185,114

 

0.10

%

1,237

 

FINANCIALS

 

291,766

 

0.15

%

286

 

GRAINS

 

(398,259

)

(0.21

)%

2,590

 

INDEX

 

1,127,694

 

0.59

%

1

 

INDUSTRIALS

 

616

 

0.00

%

50

 

MATERIALS

 

50,650

 

0.03

%

85

 

MEATS

 

82,065

 

0.04

%

180

 

METALS

 

(975,168

)

(0.51

)%

 

 

TOTAL FUTURES CONTRACTS OWNED

 

364,553

 

0.19

%

 

 

 

 

 

 

 

 

 

 

FUTURES CONTRACTS SOLD

 

 

 

 

 

(929)

 

CURRENCIES

 

(292,988

)

(0.15

)%

(68)

 

ENERGY

 

(136,329

)

(0.07

)%

(2,446)

 

FINANCIALS

 

286,984

 

0.15

%

(801)

 

GRAINS

 

1,016,819

 

0.54

%

(89)

 

INDEX

 

(15,362

)

(0.01

)%

(8)

 

MEATS

 

(28,220

)

(0.01

)%

(271)

 

METALS

 

479,514

 

0.24

%

 

 

TOTAL FUTURES CONTRACTS SOLD

 

1,310,418

 

0.69

%

 

 

TOTAL FUTURES CONTRACTS

 

1,674,971

 

0.88

%

 

 

OTHER ASSETS IN EXCESS OF OTHER LIABILITIES

 

187,948,037

 

99.12

%

 

 

TOTAL MEMBER’S CAPITAL

 

$

189,623,008

 

100.00

%

 

Percentages shown represent a percentage of member’s capital as of December 31, 2016.

 

9



Table of Contents

 

Sydling WNT Master Fund LLC

Statements of Operations and Changes in Member’s Capital

(Unaudited)

 

 

 

Three Months Ended

 

Three Months Ended

 

Nine Months Ended

 

Nine Months Ended

 

 

 

September 30, 2017

 

September 30, 2016

 

September 30, 2017

 

September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

458,673

 

$

115,162

 

$

1,095,574

 

$

318,092

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brokerage, clearing and transaction fees

 

48,296

 

44,684

 

144,622

 

3,543,180

 

Selling agent fees

 

1,626,896

 

1,792,524

 

4,974,128

 

1,792,524

 

Professional fees

 

24,625

 

24,625

 

73,875

 

73,875

 

Total Expenses

 

1,699,817

 

1,861,833

 

5,192,625

 

5,409,579

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT (LOSS)

 

(1,241,144

)

(1,746,671

)

(4,097,051

)

(5,091,487

)

 

 

 

 

 

 

 

 

 

 

NET REALIZED AND UNREALIZED GAIN/(LOSS) FROM DERIVATIVE INSTRUMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gain/(loss) from futures

 

(979,879

)

7,561,725

 

1,569,657

 

5,695,096

 

Net change in unrealized appreciation/(depreciation) on futures

 

3,155,135

 

(12,065,182

)

(2,781,894

)

(242,063

)

Net Realized and Unrealized Gain/(Loss) from Derivative Instruments

 

2,175,256

 

(4,503,457

)

(1,212,237

)

5,453,033

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss)

 

934,112

 

(6,250,128

)

(5,309,288

)

361,546

 

 

 

 

 

 

 

 

 

 

 

INCREASE/(DECREASE) IN MEMBER’S CAPITAL FROM CAPITAL TRANSACTIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscriptions

 

4,476,000

 

8,030,138

 

19,500,078

 

48,182,871

 

Redemptions

 

(13,930,535

)

(5,609,798

)

(28,825,821

)

(20,325,039

)

 

 

 

 

 

 

 

 

 

 

Net Increase in Member’s Capital Derived from Capital Transactions

 

(9,454,535

)

2,420,340

 

(9,325,743

)

27,857,832

 

Net Increase in Member’s Capital

 

(8,520,423

)

(3,829,788

)

(14,635,031

)

28,219,378

 

Member’s Capital, Beginning of Period

 

183,508,400

 

203,561,117

 

189,623,008

 

171,511,951

 

Member’s Capital, End of Period

 

$

174,987,977

 

$

199,731,329

 

$

174,987,977

 

$

199,731,329

 

 

10



Table of Contents

 

2.              Financial Highlights

 

Changes in the net asset value per Redeemable Unit for the three and nine months ended September 30, 2017 and 2016 are as follows:

 

Financial Highlights of the Fund:

 

 

 

(Unaudited)

 

 

 

Three
Months Ended
September 30,
2017

 

Three
Months Ended
September 30,
2016

 

Nine
Months Ended
September 30,
2017

 

Nine
Months Ended
September 30,
2016

 

Per share operating performance: (a)

 

 

 

 

 

 

 

 

 

Members’ capital per Redeemable Unit, beginning of period

 

$

1,078.45

 

$

1,233.62

 

$

1,127.01

 

$

1,202.19

 

Income/(loss) from investment operations:

 

 

 

 

 

 

 

 

 

Net investment (loss) including incentive fee

 

(13.85

)

(16.84

)

(42.52

)

(54.51

)

Net realized and unrealized gain/(loss) from investment activities

 

12.81

 

(26.75

)

(7.08

)

42.35

 

Total from investment operations

 

(1.04

)

(43.59

)

(49.60

)

(12.16

)

Members’ capital per Redeemable Unit, end of period

 

$

1,077.41

 

$

1,190.03

 

$

1,077.41

 

$

1,190.03

 

 

 

 

 

 

 

 

 

 

 

Ratio/Supplemental Data: (b)

 

 

 

 

 

 

 

 

 

Ratio of net investment loss to average Members’ capital

 

(5.21

)%

(5.58

)%

(5.21

)%

(5.97

)%

Ratio of total expenses to average Members’ capital

 

6.22

%

5.81

%

6.00

%

5.90

%

Ratio of incentive fee to average Members’ capital

 

%

%

%

0.28

%

Ratio of total expenses and incentive fee to average Members’ capital

 

6.22

%

5.81

%

6.00

%

6.18

%

 

 

 

 

 

 

 

 

 

 

Total return before incentive fee (c)

 

(0.10

)%

(3.53

)%

(4.40

)%

(0.80

)%

Incentive fee

 

 

 

 

(0.21

)%

Total return after incentive fee (c)

 

(0.10

)%

(3.53

)%

(4.40

)%

(1.01

)%

 

 

 

 

 

 

 

 

 

 

Members’ capital at end of period

 

$

174,987,977

 

$

199,731,329

 

$

174,987,977

 

$

199,731,329

 

 

The computation of ratios to average Members’ capital and total return based on the amount of expenses and incentive fee assessed to an individual Member’s 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)         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.

(c)          Total return assumes a purchase of an interest in the Fund at the beginning of the period and a sale of the interest on the last day of the period noted.

 

11



Table of Contents

 

Financial Highlights of the Master Fund:

 

 

 

(Unaudited)

 

 

 

Three
Months Ended
September 30,
2017

 

Three
Months Ended
September 30,
2016

 

Nine
Months Ended
September 30,
2017

 

Nine
Months Ended
September 30,
2016

 

 

 

 

 

 

 

 

 

 

 

Ratio/Supplemental Data: (a)

 

 

 

 

 

 

 

 

 

Ratio of net investment loss to average Member’s capital

 

(2.74

)%

(3.45

)%

(2.94

)%

(3.52

)%

Ratio of total expenses to average Member’s capital

 

3.75

%

3.67

%

3.72

%

3.74

%

Total return (b)

 

0.51

%

(3.02

)%

(2.77

)%

0.84

%

Member’s capital at end of period

 

$

174,987,977

 

$

199,731,329

 

$

174,987,977

 

$

199,731,329

 

 

Total return and the ratios to average Member’s capital are calculated for investor’s capital taken as a whole.  An individual investor’s capital may vary from these ratios and total return based on the timing of capital transactions.

 


(a)         The ratios to average Member’s capital are annualized.  The average Member’s capital used in the above ratios is an average of each month-end member’s capital during the period.

(b)         Total return assumes a purchase of the Master Fund at the beginning of the period and a sale of the interest on the last day of the period noted.

 

12



Table of Contents

 

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 Fund’s pro rata share of the results of the Master Fund’s trading activities is shown in the Fund’s 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 Fund’s 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, 2017 and 2016, based on a monthly calculation, was 6,600 and 5,210, respectively. The average number of futures contracts traded for the nine months ended September 30, 2017 and 2016, based on a monthly calculation, was 7,021 and 5,999, respectively.

 

The following tables indicate the gross fair values of derivative instruments of the Master Fund’s futures contracts as separate assets and liabilities as of September 30, 2017 and December 31, 2016.

 

 

 

(Unaudited)

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

ASSETS

 

 

 

 

 

Futures Contracts

 

 

 

 

 

Currencies

 

$

880,350

 

$

202,384

 

Energy

 

377,359

 

185,114

 

Financials

 

165,121

 

781,990

 

Grains

 

802,755

 

1,073,984

 

Index

 

4,055,753

 

2,068,125

 

Industrials

 

14,905

 

616

 

Materials

 

 

50,650

 

Meats

 

30,035

 

85,540

 

Metals

 

89,223

 

615,613

 

Total unrealized appreciation on open futures contracts

 

$

6,415,501

 

$

5,064,016

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Futures Contracts

 

 

 

 

 

Currencies

 

$

(1,359,628

)

$

(495,296

)

Energy

 

(223,136

)

(136,329

)

Financials

 

(2,681,540

)

(203,240

)

Grains

 

(286,537

)

(455,424

)

Index

 

(2,140,005

)

(955,793

)

Materials

 

(39,975

)

 

Meats

 

(96,995

)

(31,695

)

Metals

 

(694,608

)

(1,111,268

)

Total unrealized depreciation on open futures contracts

 

$

(7,522,424

)

$

(3,389,045

)

 

 

 

 

 

 

Net unrealized appreciation (depreciation) on open futures contracts*

 

$

(1,106,923

)

$

1,674,971

 

 


* These amounts are presented as Net unrealized appreciation or (depreciation) on open futures contracts  on the Master Fund’s Statements of Financial Condition.

 

13



Table of Contents

 

The following table indicates the trading gains and losses, by market sector, on the Master Fund’s derivative instruments for the three and nine months ended September 30, 2017 and 2016.

 

 

 

Three months ended
September 30, 2017

 

Three months ended
September 30, 2016

 

Nine months ended
September 30, 2017

 

Nine months ended
September 30, 2016

 

Sector

 

Gain/(loss) from
trading

 

Gain/(loss) from
trading

 

Gain/(loss) from
trading

 

Gain/(loss) from
trading

 

 

 

 

 

 

 

 

 

 

 

Currencies

 

$

274,555

 

$

(319,408

)

$

(6,914,513

)

$

86,898

 

Energy

 

(929,873

)

(2,195,582

)

(5,567,483

)

(3,296,356

)

Financials

 

(1,202,443

)

(1,952,628

)

(7,068,745

)

19,277,245

 

Grains

 

72,779

 

(1,132,778

)

420,942

 

(2,048,639

)

Index

 

6,099,935

 

2,323,186

)

22,479,125

 

(2,949,903

)

Industrials

 

13,981

 

5,841

 

6,490

 

(12,188

)

Materials

 

(115,695

)

83,405

 

(101,505

)

48,475

 

Meats

 

(443,377

)

(48,059

)

278,213

 

342,958

 

Metals

 

(1,594,606

)

(1,267,434

)

(4,744,761

)

(5,995,457

)

 

 

$

2,175,256

**

$

(4,503,457

)**

$

(1,212,237

)**

$

5,453,033

**

 


** These amounts are presented as “Net Realized and Change in Unrealized Gain/(Loss) from Derivative Instruments” on the Master Fund’s Statements of Operations and Changes in Members’ Capital.

 

The volume of activity of futures that are presented in the Master Fund’s Condensed Schedule of Investments is consistent with the average monthly activity during the periods ended September 30, 2017 and 2016.

 

14



Table of Contents

 

4.              Fair Value Measurements

 

Fund’s Investments. The Fund values its investment in the Master Fund at fair value and is represented by the Fund’s proportionate interest in the members’ capital of the Master Fund.

 

Fund’s and Master Fund’s 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 instrument’s fair value measurement in its entirety:

 

Level 1—Quoted market 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.

 

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, 2017 and December 31, 2016, there were no transfers amongst Levels 1, 2 and 3 of the valuation hierarchy.

 

U.S. GAAP provides guidance in determining whether there has been a significant decrease in the volume and level of activity for an asset or liability when compared with normal market activity for such asset or liability (or similar assets or liabilities).  U.S. GAAP also provides guidance on identifying circumstances that indicate a transaction with regards to such an asset or liability is not orderly.  In its consideration, the Master Fund must consider inputs and valuation techniques used for each class of assets and liabilities.  Judgment is used to determine the appropriate classes of assets and liabilities for which disclosures about fair value measurements are provided.

 

Fair value measurement disclosure for each class of assets and liabilities requires greater disaggregation than the Master Fund’s line items in the Statement of Financial Condition.  The Master 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, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1).  The values of non exchange-traded forward, swap and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2) and for those contracts that are priced using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). As of and for the periods ended September 30, 2017 and December 31, 2016, the Master Fund did not hold any derivative instruments for which market quotations are not readily available and which are priced by broker-dealers who derive fair values for these assets from observable inputs (Level 2) or that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).

 

15



Table of Contents

 

The following is a summary of the Master Fund’s 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
September 30, 2017

 

Level 1

 

Level 2

 

Level 3

 

Future Contracts

 

$

6,415,501

 

$

6,415,501

 

$

 

$

 

Total Assets

 

$

6,415,501

 

$

6,415,501

 

$

 

$

 

 

LIABILITIES TABLE (Unaudited)

 

Description

 

Total Fair Value at
September 30, 2017

 

Level 1

 

Level 2

 

Level 3

 

Future Contracts

 

$

7,522,424

 

$

7,522,424

 

$

 

$

 

Total Liabilities

 

$

7,522,424

 

$

7,522,424

 

$

 

$

 

Net Assets and (Liabilities)

 

$

(1,106,923

)

$

(1,106,923

)

$

 

$

 

 

ASSET TABLE

 

Description

 

Total Fair Value at
December 31, 2016

 

Level 1

 

Level 2

 

Level 3

 

Futures Contracts

 

$

5,064,016

 

$

5,064,016

 

$

 

$

 

Total Assets

 

$

5,064,016

 

$

5,064,016

 

$

 

$

 

 

LIABILITIES TABLE

 

Description

 

Total Fair Value at
December 31, 2016

 

Level 1

 

Level 2

 

Level 3

 

Future Contracts

 

$

3,389,045

 

$

3,389,045

 

$

 

$

 

Total Liabilities

 

$

3,389,045

 

$

3,389,045

 

$

 

$

 

Net Assets and (Liabilities)

 

$

1,674,971

 

$

1,674,971

 

$

 

$

 

 

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

 

16



Table of Contents

 

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, 2017 and 2016 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 Fund’s 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 Fund’s 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 Fund’s 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 Fund’s 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 Fund’s and the Master Fund’s accounting policies are the same and are consistent with the accounting policies in the Fund’s financial statements on Form 10-K for the year ended December 31, 2016.

 

The Fund and the Master Fund have determined their status as investment companies and as such, follow the accounting and reporting requirements of Accounting Standards Codification (“ASC”) 946, Financial Services — Investment Companies.

 

Statement of Cash Flows. The Fund is not required to provide a Statement of Cash Flows in accordance with 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 Fund’s proportionate interest in the capital of the Master Fund at September 30, 2017 and December 31, 2016.  Valuation of securities held by the Master Fund is discussed in the Notes to the Master Fund’s financial statements on Form 10-K for the year ended December 31, 2016.  The Fund records its pro rata share of the Master Fund’s 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, 2017 and December 31, 2016. The amount paid is held as cash in the Fund’s escrow account and represents the cash on the Fund’s Statements of Financial Condition.

 

Redemptions Payable.  Pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, capital withdrawals effective September 30, 2017 and December 31, 2016 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. Each member will be subject to taxation on its share of the Fund’s ordinary income, capital gains and losses.

 

U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Master 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 Master 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. Sydling has analyzed the Master Fund’s tax positions for the open tax period and has concluded that no provision is required in the Master Fund’s financial statements.  The Master Fund recognizes interest and penalties,

 

17



Table of Contents

 

if any, related to unrecognized tax benefits as income tax expense in its Statements of Income.  For the periods ended September 30, 2017 and December 31, 2016, 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, 2017, additional subscriptions were received from the non-managing Members totaling $824,100.  Subsequent to September 30, 2017, redemptions of $4,443,818 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.

 

18



Table of Contents

 

Item 2.     Management’s 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 Fund’s 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 second quarter of 2017.

 

For the nine months ended September 30, 2017 and 2016, the Master Fund’s average margin to equity ratio was 10.63% and 10.62%, respectively.

 

The Fund’s 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, 2017, the Fund’s capital decreased 7.72% from $189,623,008 to $174,987,977. This decrease was attributable to redemptions of Redeemable Units resulting in an outflow of $25,644,439 coupled with a net loss from operations of $8,490,670, which was partially offset by subscriptions for Redeemable Units totaling $19,500,078. Future redemptions from the Fund could impact the amount of funds available for investment in the Master Fund in subsequent periods.

 

The Master Fund’s 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, 2017, the Master Fund’s capital decreased 7.72% from $189,623,008 to $174,987,977. This decrease was attributable to the withdrawal of interest in the Master Fund resulting in an outflow of $28,825,821 coupled with a net loss from operations of $5,309,288, which was partially offset by subscriptions for interest in the Master Fund totaling $19,500,078. 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 Fund’s 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 Fund’s third quarter of 2017, the net asset value per Redeemable Unit decreased 0.10% from $1,078.45 to $1,077.41. 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 2017 of $2,175,256. Gains were primarily attributable to the Master Fund’s trading of commodity futures in indices, grains and lumber and were partially offset by losses in metals, U.S. and non-U.S. interest rates, energy, livestock, softs and currencies.

 

August was the most profitable month in this quarter, as the Fund traded through the impact of Hurricane Harvey, the standoff between the U.S. and North Korea, and central bank policy uncertainties. However, markets were choppy in September and trend-following strategies experienced small losses during several trading days.

 

Seven out of the ten best performing markets during this quarter were in the equity indices sector. Gains came from equities around the world with S&P 500, Nasdaq, Hang Seng, TOPIX and Euro Stoxx index futures contributing the most. By mid-September U.S. equity indices reached an all-time high. Risk appetite improved as the Trump administration exhibited bipartisanship in working with the U.S. Congress on increasing the debt limit. Long positions in European indices were also profitable as economic growth picked up

 

19



Table of Contents

 

in Spain and industrial output in the Eurozone rose. The Fund had a short position in E-mini Russell 2000 Index futures which detracted.

 

Eurodollar and Short Sterling Rates detracted as the ECB and Bank of England indicated that some withdrawal of monetary stimulus is likely to be appropriate over the coming months. Fed Chair Janet Yellen suggested another rate increase in the U.S. before the end of the year. U.S. 10 year bond yields increased in September and long positions in that market were unprofitable. The Fund ended the quarter with net long positioning in U.S. and European fixed income, with few short positions in the shorter maturities.

 

In foreign exchanges sector, the Fund gained from long positions in the Euro and Canadian Dollar. Euro gained as the Eurozone economy grew at the fastest pace in over five years, and the ECB president was sanguine about the strong run in the currency thus far. The British Pound strengthened as the Bank of England signaled its willingness to remove policy stimulus. The Fund turned from short to long positioning in the British Pound during the quarter.

 

Commodities positions resulted in mixed performance during the quarter as there were gains in grains and lumber, while energy and metals markets detracted. The Fund maintained sizable short positions in corn and wheat, which were profitable as the USDA reported better than expected crop yields.  Oil markets entered a bullish phase during the quarter as prices rose more than 20 percent from June lows. Reports of a strong global oil demand growth, a supply scare over possible disruptions of Kurdish oil exports and improved compliance from OPEC members on production limits all combined to boost crude prices. Gasoline prices continued to gain after the hurricane driven rally in August. The Fund turned long in Brent crude, gasoline and heating oil, during the quarter, while it built short positions in natural gas.

 

During the Fund’s 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 Fund’s 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 Fund’s 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 Fund’s short crude positions suffered as crude oil rallied following OPEC’s decision to modestly cut output. Within precious metals, the strengthening in the U.S. dollar weighed on the Master Fund’s 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.

 

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 Fund’s account.  The asset based brokerage fee paid to UBS Securities was calculated as a percentage of the Fund’s 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 and nine months ended September 30, 2017 were $48,296 and $144,622. Brokerage, clearing and transaction fees of the Master Fund for the three and nine months ended September 30, 2016 were $44,684 and $3,543,180.  The decrease in brokerage, clearing and transaction fees for the nine months ended September 30,

 

20



Table of Contents

 

2017 as compared to the corresponding period in 2016 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 Fund’s 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, 2017 and 2016 were $1,626,896 and $1,792,524, respectively.  The decrease in selling agent fees in the three months ended September 30, 2017 as compared to the corresponding period in 2016 is due to a decrease in the Fund’s average capital account balance at the Master Fund.

 

Ongoing selling agent fees of the Fund for the nine months ended September 30, 2017 were $4,974,128. The ongoing selling agent fee was instituted in the third quarter of 2016.

 

Advisory fees are calculated as a percentage of the Fund’s 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, 2017 and 2016 were $694,965 and $765,910, respectively.  The calculation of advisory fees for the three months ended September 30, 2017 and 2016 was based on a monthly average net asset value of $185,323,921 and $204,242,541, respectively.  The decrease in advisory fees for the three months ended September 30, 2017 as compared to the corresponding period in 2016 is due to a decrease in the average net assets.

 

Advisory fees of the Fund for the nine months ended September 30, 2017 and 2016 were $2,125,117 and $2,223,247, respectively.  The calculation of advisory fees for the nine months ended September 30, 2017 and 2016 was based on a monthly average net asset value of $188,899,250 and $197,621,950, respectively.  The decrease in advisory fees for the nine months ended September 30, 2017 as compared to the corresponding period in 2016 is due to a decrease 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 Fund’s 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, 2017 and 2016 were $231,655 and $255,303, respectively.  The calculation of administrative fees for the three months ended September 30, 2017 and 2016 was based on a monthly average net asset value of $185,323,921 and $204,242,541, respectively.  The decrease in administrative fees for the three months ended September 30, 2017 as compared to the corresponding period in 2016 is due to a decrease in the average net assets.

 

Administrative fees of the Fund for the nine months ended September 30, 2017 and 2016 were $708,372 and $741,082, respectively.  The calculation of administrative fees for the nine months ended September 30, 2017 and 2016 was based on a monthly average net asset value of $188,899,250 and $197,621,950, respectively.  The decrease in administrative fees for the nine months ended September 30, 2017 as compared to the corresponding period in 2016 is due to a decrease 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 and nine months ended September 30, 2017. There were no incentive fees paid during the three months ended September 30, 2016. Incentive fees earned for the nine months ended September 30, 2016 were $410,292.

 

In allocating substantially all of the assets of the Fund to the Master Fund, Sydling considers the Advisor’s 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.

 

21



Table of Contents

 

Item 3.       Quantitative and Qualitative Disclosures about Market Risk

 

All of the Fund’s 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 Fund’s 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 Fund’s and the Fund’s 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 Fund’s open positions and, consequently, in its earnings and cash balances. The Master Fund’s and 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 Master Fund’s 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 Fund’s past performance is not necessarily indicative of its future results.

 

Quantifying the Fund’s Trading Value at Risk

 

The following quantitative disclosures regarding the Master Fund’s and 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, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “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 (such as the terms of particular contracts and the number of market risk sensitive instruments held during or at the end of the reporting period).

 

“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 Fund’s 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 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 inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Master Fund’s losses in any market sector will be limited to Value at Risk or by the Master Fund’s 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 Fund’s open positions by market category as of September 30, 2017 and December 31, 2016, and the highest, lowest and average value during the three months ended September 30, 2017 and the twelve months ended December 31, 2016. 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 Fund’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

 

22



Table of Contents

 

As of September 30, 2017, the Master Fund’s total capitalization was $174,987,977, and the Fund owned 100% of the Master Fund. The Fund invests substantially all of its assets in the Master Fund. The Master Fund’s Value at Risk as of September 30, 2017 was as follows:

 

 

 

 

 

 

 

Three Months ended September 30, 2017 (unaudited)

 

Market Sector

 

Value
at Risk

 

% of Total
Capitalization

 

High Value
at Risk

 

Low Value
at Risk

 

Average Value
at Risk*

 

Currencies

 

$

2,372,410

 

1.36

%

$

3,657,599

 

$

2,099,039

 

$

2,941,730

 

Energy

 

$

641,284

 

3.35

%

$

786,365

 

$

410,828

 

$

578,712

 

Grains

 

$

1,105,321

 

0.63

%

$

1,538,891

 

$

1,082,483

 

$

1,265,590

 

Index

 

$

6,790,271

 

3.88

%

$

6,790,271

 

$

5,875,155

 

$

6,207,950

 

Interest Rate Non-U.S.

 

$

4,150,777

 

2.37

%

$

4,442,928

 

$

1,646,699

 

$

3,308,071

 

Interest Rate U.S.

 

$

2,774,735

 

1.59

%

$

3,673,805

 

$

1,723,549

 

$

2,612,936

 

Livestock

 

$

252,627

 

0.14

%

$

377,009

 

$

229,565

 

$

298,628

 

Lumber

 

$

4,164

 

% **

$

4,891

 

$

2,010

 

$

3,683

 

Metals

 

$

380,329

 

0.22

%

$

796,352

 

$

290,344

 

$

469,949

 

Softs

 

$

686,441

 

0.39

%

$

1,191,835

 

$

637,646

 

$

886,208

 

Total

 

$

19,158,359

 

13.93

%

 

 

 

 

 

 

 


*Average daily Value at Risk.

** Due to rounding

 

As of December 31, 2016, the Master Fund’s total capitalization was $189,623,008 and the Fund owned 100% of the Master Fund. The Fund invests substantially all of its assets in the Master Fund. The Master Fund’s Value at Risk as of December 31, 2016 was as follows:

 

December 31, 2016

(unaudited)

 

Market Sector

 

Value
at Risk

 

% of Total
Capitalization

 

High Value
at Risk

 

Low Value
at Risk

 

Average Value
at Risk*

 

Currencies

 

$

1,386,270

 

0.73

%

$

4,637,893

 

$

431,807

 

$

2,678,022

 

Energy

 

$

276,209

 

0.15

%

$

1,688,877

 

$

96,434

 

$

805,200

 

Grains

 

$

1,748,887

 

0.92

%

$

2,152,013

 

$

104,940

 

$

1,495,412

 

Index

 

$

4,755,942

 

2.51

%

$

6,180,432

 

$

1,866,050

 

$

3,568,653

 

Interest Rate Non-U.S.

 

$

800,543

 

0.42

%

$

5,683,422

 

$

245,896

 

$

3,566,156

 

Interest Rate U.S.

 

$

4,409,299

 

2.33

%

$

7,637,376

 

$

119,709

 

$

5,369,918

 

Livestock

 

$

193,346

 

0.10

%

$

416,644

 

$

 

$

254,784

 

Lumber

 

$

2,511

 

% **

$

8,390

 

$

 

$

5,598

 

Metals

 

$

719,708

 

0.38

%

$

1,374,628

 

$

120,620

 

$

781,454

 

Softs

 

$

676,647

 

0.36

%

$

797,902

 

$

22,955

 

$

521,678

 

Total

 

$

14,969,362

 

7.90

%

 

 

 

 

 

 

 


*Average daily Value at Risk.

** Due to rounding

 

23



Table of Contents

 

Item 4.       Controls and Procedures

 

The Fund’s 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 Exchange Act is recorded, processed, summarized and reported within the time periods expected in the SEC’s 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 Fund’s external disclosures.

 

Sydling’s President and CFO have evaluated the effectiveness of the Fund’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2017 and, based on that evaluation, Sydling’s President and CFO have concluded that, at that date, the Fund’s disclosure controls and procedures were effective.

 

The Fund’s internal control over financial reporting is a process under the supervision of Sydling’s 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 Fund’s 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 Fund’s assets that could have a material effect on the financial statements.

 

There were no changes in the Fund’s internal control over financial reporting process during the fiscal quarter ended September 30, 2017 that materially affected, or are reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

24



Table of Contents

 

PART II. OTHER INFORMATION

 

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 Fund’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 as updated by the Fund’s Quarterly Report on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017. There are no material legal proceedings pending against the Fund and Sydling.

 

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 Fund’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and under Part II, Item 1A. “Risk Factors”  in the Fund’s Quarterly Report on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017.

 

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

 

For the three months ended September 30, 2017, there were additional subscriptions of 4,106.957 Redeemable Units totaling $4,476,000. The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act 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
of Redeemable
Units Purchased*

 

(b) Average Price
Paid per
Redeemable
Unit**

 

(c) Total Number
of Redeemable
Units Purchased as
Part of Publicly
Announced Plans
or Programs

 

(d) Maximum
Number (or
Approximate
Dollar Value) of
Redeemable Units
that May Yet Be
Purchased Under
the Plans or
Programs

 

July 1, 2017 – July 31, 2017

 

2,371.360

 

$

1,073.38

 

N/A

 

N/A

 

August 1, 2017 – August 31, 2017

 

1,812.514

 

$

1,104.87

 

N/A

 

N/A

 

September 1, 2017 – September 30, 2017

 

7,668.098

 

$

1,077.41

 

N/A

 

N/A

 

Total

 

11,851.972

 

$

1,085.22

 

 

 

 

 

 


* 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 Fund’s 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

 

25



Table of Contents

 

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 as exhibit 10.2(b) to the Form 10-Q filed on November 14, 2016 and incorporated herein by reference).

 

 

 

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 as Exhibit 10.4(c) to the Form 10-Q filed on November 14, 2016 and incorporated herein by reference).

 

 

 

(d)

 

Letter from Sydling extending the Trading Advisory Agreement until June 30, 2018, dated July 6, 2017 (filed herewith).

 

 

 

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).

 

26



Table of Contents

 

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.

 

27



Table of Contents

 

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.

 

CAVENDISH FUTURES FUND LLC

 

(Registrant)

 

 

 

 

 

By:

Sydling Futures Management LLC

 

 

 

 

 

 

 

By:

/s/ Jerry Pascucci

 

 

Jerry Pascucci

 

 

President and Director

 

 

 

 

Date:

November 14, 2017

 

 

28