UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-51085
ASPECT FUTURESACCESS LLC
(Exact Name of Registrant as specified in its charter)
Delaware | | 20-1227650 |
(State or other jurisdiction of | | (IRS Employer Identification No.) |
incorporation or organization) | | |
c/o Merrill Lynch Alternative Investments LLC
Four World Financial Center, 11TH Floor
250 Vesey Street
New York, New York 10080
(Address of principal executive offices)
(Zip Code)
212-449-3517
(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 this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer o | | Accelerated filer o |
| | |
Non-accelerated filer x | | Smaller reporting company o |
(Do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of September 30, 2013, 158,770,748 units of limited liability company interest were outstanding.
ASPECT FUTURESACCESS LLC
QUARTERLY REPORT FOR SEPTEMBER 30, 2013 ON FORM 10-Q
Table of Contents
| | PAGE |
| | |
PART I—FINANCIAL INFORMATION | |
| | |
Item 1. | Financial Statements | 1 |
| | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 |
| | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 28 |
| | |
Item 4. | Controls and Procedures | 32 |
| | |
PART II—OTHER INFORMATION | |
| | |
Item 1. | Legal Proceedings | 32 |
| | |
Item 1A. | Risk Factors | 32 |
| | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 33 |
| | |
Item 3. | Defaults Upon Senior Securities | 34 |
| | |
Item 4. | Mine Safety Disclosures | 34 |
| | |
Item 5. | Other Information | 34 |
| | |
Item 6 | Exhibits | 34 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ASPECT FUTURESACCESS LLC
(a Delaware Limited Liability Company)
STATEMENTS OF FINANCIAL CONDITION
(unaudited)
| | September 30, | | December 31, | |
| | 2013 | | 2012 | |
ASSETS: | | | | | |
Equity in commodity trading accounts: | | | | | |
Cash (including restricted cash of $23,295,443 for 2013 and $25,873,362 for 2012) | | $ | 213,311,916 | | $ | 273,776,825 | |
Net unrealized profit on open futures contracts | | 1,144,420 | | 4,426,946 | |
Net unrealized profit on open forwards contracts | | 1,806,416 | | 655,236 | |
Cash | | 458,784 | | 562,107 | |
Other assets | | — | | 20,328 | |
| | | | | |
TOTAL ASSETS | | $ | 216,721,536 | | $ | 279,441,442 | |
| | | | | |
LIABILITIES AND MEMBERS’ CAPITAL: | | | | | |
LIABILITIES: | | | | | |
| | | | | |
Brokerage commissions payable | | $ | 22,674 | | $ | 18,934 | |
Sponsor and Advisory fees payable | | 622,984 | | 788,788 | |
Redemptions payable | | 4,284,351 | | 4,802,586 | |
Net unrealized loss on open futures contracts | | 5,208,100 | | 1,282,046 | |
Net unrealized loss on open forwards contracts | | 1,302,984 | | — | |
Other liabilities | | 1,569,071 | | 308,095 | |
| | | | | |
Total liabilities | | 13,010,164 | | 7,200,449 | |
| | | | | |
MEMBERS’ CAPITAL: | | | | | |
Members’ Interest (158,770,748 Units and 190,525,071 Units) | | 203,711,372 | | 272,240,993 | |
Total members’ capital | | 203,711,372 | | 272,240,993 | |
| | | | | |
TOTAL LIABILITIES AND MEMBERS’ CAPITAL | | $ | 216,721,536 | | $ | 279,441,442 | |
| | | | | |
NET ASSET VALUE PER UNIT: | | | | | |
(Based on 158,770,748 and 190,525,071 Units outstanding; unlimited Units authorized) | | | | | |
| | | | | |
Class A | | $ | 1.3085 | | $ | 1.4498 | |
Class C | | $ | 1.2059 | | $ | 1.3462 | |
Class D | | $ | 1.5120 | | $ | 1.6565 | |
Class I | | $ | 1.3525 | | $ | 1.4940 | |
Class DS | | $ | 1.5055 | | $ | 1.6494 | |
Class DT | | $ | 1.5824 | | $ | 1.7271 | |
Class M | | $ | 0.8094 | | $ | 0.8868 | |
See notes to financial statements.
1
ASPECT FUTURESACCESS LLC
(a Delaware Limited Liability Company)
STATEMENTS OF OPERATIONS
(unaudited)
| | For the three | | For the three | | For the nine | | For the nine | |
| | months ended | | months ended | | months ended | | months ended | |
| | September 30, | | September 30, | | September 30, | | September 30, | |
| | 2013 | | 2012 | | 2013 | | 2012 | |
TRADING PROFIT (LOSS): | | | | | | | | | |
| | | | | | | | | |
Realized, net | | $ | (2,122,265 | ) | $ | (14,832,755 | ) | $ | (6,014,017 | ) | $ | (3,733,326 | ) |
Change in unrealized, net | | (13,043,452 | ) | 6,399,755 | | (7,360,384 | ) | (8,466,735 | ) |
Brokerage commissions | | (185,186 | ) | (231,662 | ) | (643,556 | ) | (645,339 | ) |
| | | | | | | | | |
Total trading profit (loss), net | | (15,350,903 | ) | (8,664,662 | ) | (14,017,957 | ) | (12,845,400 | ) |
| | | | | | | | | |
INVESTMENT INCOME (EXPENSE): | | | | | | | | | |
Interest, net | | (622 | ) | (8,708 | ) | (6,263 | ) | 1,772 | |
| | | | | | | | | |
EXPENSES: | | | | | | | | | |
Management fee | | 1,098,943 | | 1,562,974 | | 3,660,263 | | 4,666,417 | |
Sponsor fee | | 846,570 | | 1,141,290 | | 2,771,349 | | 3,301,902 | |
Performance fee | | — | | 4,456 | | — | | 19,461 | |
Other | | 1,339,494 | | 237,799 | | 1,793,170 | | 666,950 | |
Total expenses | | 3,285,007 | | 2,946,519 | | 8,224,782 | | 8,654,730 | |
| | | | | | | | | |
NET INVESTMENT INCOME (LOSS) | | (3,285,629 | ) | (2,955,227 | ) | (8,231,045 | ) | (8,652,958 | ) |
| | | | | | | | | |
NET INCOME (LOSS) | | $ | (18,636,532 | ) | $ | (11,619,889 | ) | $ | (22,249,002 | ) | $ | (21,498,358 | ) |
| | | | | | | | | |
NET INCOME (LOSS) PER UNIT: | | | | | | | | | |
| | | | | | | | | |
Weighted average number of Units outstanding | | | | | | | | | |
Class A | | 22,271,123 | | 21,100,347 | | 21,733,403 | | 19,349,694 | |
Class C | | 89,591,951 | | 105,130,626 | | 93,977,087 | | 98,018,265 | |
Class D | | 4,392,750 | | 6,626,695 | | 4,826,261 | | 5,719,975 | |
Class I | | 5,695,119 | | 9,737,908 | | 6,363,907 | | 10,696,218 | |
Class DS | | 24,833,713 | | 39,613,290 | | 27,977,206 | | 41,396,130 | |
Class DT | | 10,911,178 | | 15,286,510 | | 12,161,716 | | 16,234,151 | |
Class M | | 9,120,494 | | 2,604,033 | | 9,623,110 | | 1,425,304 | |
| | | | | | | | | |
Net income (loss) per weighted average Unit | | | | | | | | | |
Class A | | $ | (0.1154 | ) | $ | (0.0620 | ) | $ | (0.1447 | ) | $ | (0.1238 | ) |
Class C | | $ | (0.1086 | ) | $ | (0.0581 | ) | $ | (0.1310 | ) | $ | (0.1226 | ) |
Class D | | $ | (0.1270 | ) | $ | (0.0620 | ) | $ | (0.1123 | ) | $ | (0.1205 | ) |
Class I | | $ | (0.1170 | ) | $ | (0.0438 | ) | $ | (0.1240 | ) | $ | (0.0942 | ) |
Class DS | | $ | (0.1244 | ) | $ | (0.0577 | ) | $ | (0.1173 | ) | $ | (0.0897 | ) |
Class DT | | $ | (0.1301 | ) | $ | (0.0592 | ) | $ | (0.1239 | ) | $ | (0.0908 | ) |
Class M | | $ | (0.0660 | ) | $ | (0.0666 | ) | $ | (0.0699 | ) | $ | (0.1384 | ) |
See notes to financial statements.
2
ASPECT FUTURESACCESS LLC
(a Delaware Limited Liability Company)
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(unaudited) (in Units)
| | Members’ Capital
December 31, 2011 | | Subscriptions | | Redemptions | | Members’ Capital
September 30, 2012 | | Members’ Capital
December 31, 2012 | | Subscriptions | | Redemptions | | Members’ Capital
September 30, 2013 | |
Class A | | 16,360,228 | | 7,204,033 | | (2,028,448 | ) | 21,535,813 | | 21,463,611 | | 3,547,564 | | (2,941,720 | ) | 22,069,455 | |
Class C | | 85,475,661 | | 29,573,386 | | (12,623,317 | ) | 102,425,730 | | 99,953,893 | | 5,849,734 | | (21,203,705 | ) | 84,599,922 | |
Class D | | 4,932,784 | | 1,878,634 | | — | | 6,811,418 | | 5,562,428 | | 92,294 | | (1,246,590 | ) | 4,408,132 | |
Class I | | 10,690,500 | | 2,003,822 | | (3,647,038 | ) | 9,047,284 | | 7,154,253 | | 345,942 | | (1,951,423 | ) | 5,548,772 | |
Class DS | | 46,734,768 | | 1,609,577 | | (10,654,163 | ) | 37,690,182 | | 32,959,715 | | 489,623 | | (9,893,674 | ) | 23,555,664 | |
Class DT | | 17,819,553 | | — | | (2,949,739 | ) | 14,869,814 | | 13,709,450 | | — | | (3,187,920 | ) | 10,521,530 | |
Class M* | | — | | 3,397,778 | | — | | 3,397,778 | | 9,721,721 | | 1,590,801 | | (3,245,249 | ) | 8,067,273 | |
| | | | | | | | | | | | | | | | | |
Total Members’ Units | | 182,013,494 | | 45,667,230 | | (31,902,705 | ) | 195,778,019 | | 190,525,071 | | 11,915,958 | | (43,670,281 | ) | 158,770,748 | |
* Units issued on April 1, 2012
See notes to financial statements.
3
ASPECT FUTURESACCESS LLC
(a Delaware Limited Liability Company)
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(unaudited)
| | Members’ Capital
December 31, 2011 | | Subscriptions | | Redemptions | | Net Income
(Loss) | | Members’ Capital
September 30, 2012 | | Members’ Capital
December 31, 2012 | | Subscriptions | | Redemptions | | Net Income (Loss) | | Members’ Capital
September 30, 2013 | |
Class A | | $ | 26,838,790 | | $ | 11,802,027 | | $ | (3,298,389 | ) | $ | (2,395,452 | ) | $ | 32,946,976 | | $ | 31,117,660 | | $ | 5,105,788 | | $ | (4,201,006 | ) | $ | (3,144,812 | ) | $ | 28,877,630 | |
Class C | | 131,513,252 | | 45,370,768 | | (18,998,937 | ) | (12,018,833 | ) | 145,866,250 | | 134,557,684 | | 7,838,439 | | (28,063,282 | ) | (12,311,762 | ) | 102,021,079 | |
Class D | | 9,108,026 | | 3,442,751 | | — | | (689,269 | ) | 11,861,508 | | 9,214,011 | | 149,775 | | (2,156,850 | ) | (541,847 | ) | 6,665,089 | |
Class I | | 18,000,337 | | 3,404,213 | | (6,147,603 | ) | (1,007,865 | ) | 14,249,082 | | 10,688,469 | | 533,096 | | (2,928,041 | ) | (788,883 | ) | 7,504,641 | |
Class DS | | 85,925,338 | | 2,887,420 | | (19,742,526 | ) | (3,715,255 | ) | 65,354,977 | | 54,364,101 | | 816,059 | | (16,434,610 | ) | (3,281,940 | ) | 35,463,610 | |
Class DT | | 34,131,941 | | — | | (5,692,138 | ) | (1,474,385 | ) | 26,965,418 | | 23,677,968 | | — | | (5,521,285 | ) | (1,507,374 | ) | 16,649,309 | |
Class M* | | — | | 3,365,000 | | — | | (197,299 | ) | 3,167,701 | | 8,621,100 | | 1,402,908 | | (2,821,610 | ) | (672,384 | ) | 6,530,014 | |
| | | | | | | | | | | | | | | | | | | | | |
Total Members’ Interest | | $ | 305,517,684 | | $ | 70,272,179 | | $ | (53,879,593 | ) | $ | (21,498,358 | ) | $ | 300,411,912 | | $ | 272,240,993 | | $ | 15,846,065 | | $ | (62,126,684 | ) | $ | (22,249,002 | ) | $ | 203,711,372 | |
* Units issued on April 1, 2012
See notes to financial statements.
4
ASPECT FUTURESACCESS LLC
(A Delaware Limited Liability Company)
FINANCIAL DATA HIGHLIGHTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 (unaudited)
The following per Unit data and ratios have been derived from information provided in the financial statements.
| | Class A | | Class C | | Class D | | Class I | | Class DS | | Class DT | | Class M | |
Per Unit Operating Performance: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 1.4237 | | $ | 1.3154 | | $ | 1.6389 | | $ | 1.4700 | | $ | 1.6319 | | $ | 1.7131 | | $ | 0.8774 | |
| | | | | | | | | | | | | | | |
Net realized and net change in unrealized trading profit (loss) | | (0.0935 | ) | (0.0862 | ) | (0.1078 | ) | (0.0966 | ) | (0.1073 | ) | (0.1128 | ) | (0.0577 | ) |
Brokerage commissions | | (0.0011 | ) | (0.0011 | ) | (0.0013 | ) | (0.0012 | ) | (0.0013 | ) | (0.0014 | ) | (0.0007 | ) |
Interest income, net (c) | | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) |
Expenses | | (0.0206 | ) | (0.0222 | ) | (0.0178 | ) | (0.0197 | ) | (0.0178 | ) | (0.0165 | ) | (0.0096 | ) |
| | | | | | | | | | | | | | | |
Net asset value, end of period | | $ | 1.3085 | | $ | 1.2059 | | $ | 1.5120 | | $ | 1.3525 | | $ | 1.5055 | | $ | 1.5824 | | $ | 0.8094 | |
| | | | | | | | | | | | | | | |
Total Return: (a) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total return before Performance fees | | -8.08 | % | -8.30 | % | -7.74 | % | -7.99 | % | -7.74 | % | -7.62 | % | -7.73 | % |
Performance fees | | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
Total return after Performance fees | | -8.08 | % | -8.30 | % | -7.74 | % | -7.99 | % | -7.74 | % | -7.62 | % | -7.73 | % |
| | | | | | | | | | | | | | | |
Ratios to Average Member’s Capital: (b) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Expenses (excluding Performance fees) | | 1.49 | % | 1.74 | % | 1.13 | % | 1.40 | % | 1.13 | % | 1.00 | % | 1.12 | % |
Performance fees | | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
Expenses (including Performance fees) | | 1.49 | % | 1.74 | % | 1.13 | % | 1.40 | % | 1.13 | % | 1.00 | % | 1.12 | % |
| | | | | | | | | | | | | | | |
Net investment income (loss) | | -1.49 | % | -1.74 | % | -1.13 | % | -1.40 | % | -1.13 | % | -1.00 | % | -1.12 | % |
(a) The total return calculations are based on compounded monthly returns and are calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.
(b) The ratios to average members’ capital have been annualized. The performance fee ratios are not annualized.
(c) Interest income, net is less than $0.0001 per Unit
See notes to financial statements.
5
ASPECT FUTURESACCESS LLC
(A Delaware Limited Liability Company)
FINANCIAL DATA HIGHLIGHTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 (unaudited)
The following per Unit data and ratios have been derived from information provided in the financial statements.
| | Class A | | Class C | | Class D | | Class I | | Class DS | | Class DT | | Class M | |
Per Unit Operating Performance: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 1.4498 | | $ | 1.3462 | | $ | 1.6565 | | $ | 1.4940 | | $ | 1.6494 | | $ | 1.7271 | | $ | 0.8868 | |
| | | | | | | | | | | | | | | |
Net realized and net change in unrealized trading profit (loss) | | (0.0888 | ) | (0.0817 | ) | (0.1027 | ) | (0.0918 | ) | (0.1022 | ) | (0.1075 | ) | (0.0550 | ) |
Brokerage commissions | | (0.0037 | ) | (0.0034 | ) | (0.0043 | ) | (0.0038 | ) | (0.0043 | ) | (0.0045 | ) | (0.0023 | ) |
Interest income, net (c) | | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) |
Expenses | | (0.0488 | ) | (0.0552 | ) | (0.0375 | ) | (0.0459 | ) | (0.0374 | ) | (0.0327 | ) | (0.0201 | ) |
| | | | | | | | | | | | | | | |
Net asset value, end of period | | $ | 1.3085 | | $ | 1.2059 | | $ | 1.5120 | | $ | 1.3525 | | $ | 1.5055 | | $ | 1.5824 | | $ | 0.8094 | |
| | | | | | | | | | | | | | | |
Total Return: (a) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total return before Performance fees | | -9.73 | % | -10.40 | % | -8.72 | % | -9.47 | % | -8.72 | % | -8.37 | % | -8.71 | % |
Performance fees | | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
Total return after Performance fees | | -9.73 | % | -10.40 | % | -8.72 | % | -9.47 | % | -8.72 | % | -8.37 | % | -8.71 | % |
| | | | �� | | | | | | | | | | | |
Ratios to Average Member’s Capital: (b) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Expenses (excluding Performance fees) | | 3.42 | % | 4.16 | % | 2.31 | % | 3.13 | % | 2.31 | % | 1.93 | % | 2.30 | % |
Performance fees | | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
Expenses (including Performance fees) | | 3.42 | % | 4.16 | % | 2.31 | % | 3.13 | % | 2.31 | % | 1.93 | % | 2.30 | % |
| | | | | | | | | | | | | | | |
Net investment income (loss) | | -3.42 | % | -4.16 | % | -2.31 | % | -3.13 | % | -2.31 | % | -1.93 | % | -2.30 | % |
(a) The total return calculations are based on compounded monthly returns and are calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.
(b) The ratios to average members’ capital have been annualized. The performance fee ratios are not annualized.
(c) Interest income, net is less than $0.0001 per Unit
See notes to financial statements.
6
ASPECT FUTURESACCESS LLC
(A Delaware Limited Liability Company)
FINANCIAL DATA HIGHLIGHTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 (unaudited)
The following per Unit data and ratios have been derived from information provided in the financial statements.
| | Class A | | Class C | | Class D | | Class I | | Class DS | | Class DT | | Class M | |
Per Unit Operating Performance: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 1.5887 | | $ | 1.4826 | | $ | 1.8016 | | $ | 1.6338 | | $ | 1.7939 | | $ | 1.8737 | | $ | 0.9645 | |
| | | | | | | | | | | | | | | |
Net realized and net change in unrealized trading profit (loss) | | (0.0425 | ) | (0.0396 | ) | (0.0484 | ) | (0.0438 | ) | (0.0482 | ) | (0.0504 | ) | (0.0259 | ) |
Brokerage commissions | | (0.0012 | ) | (0.0011 | ) | (0.0013 | ) | (0.0012 | ) | (0.0013 | ) | (0.0014 | ) | (0.0007 | ) |
Interest income, net | | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0000 | ) | (0.0001 | ) | (0.0000 | ) |
Expenses | | (0.0151 | ) | (0.0178 | ) | (0.0105 | ) | (0.0138 | ) | (0.0104 | ) | (0.0084 | ) | (0.0056 | ) |
| | | | | | | | | | | | | | | |
Net asset value, end of period | | $ | 1.5299 | | $ | 1.4241 | | $ | 1.7414 | | $ | 1.5750 | | $ | 1.7340 | | $ | 1.8134 | | $ | 0.9323 | |
| | | | | | | | | | | | | | | |
Total Return: (a) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total return before Performance fees | | -3.71 | % | -3.95 | % | -3.34 | % | -3.61 | % | -3.34 | % | -3.22 | % | -3.34 | % |
Performance fees | | -0.01 | % | -0.01 | % | -0.01 | % | -0.01 | % | -0.01 | % | -0.01 | % | -0.01 | % |
Total return after Performance fees | | -3.72 | % | -3.96 | % | -3.35 | % | -3.62 | % | -3.35 | % | -3.23 | % | -3.35 | % |
| | | | | | | | | | | | | | | |
Ratios to Average Member’s Capital: (b) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Expenses (excluding Performance fees) | | 0.95 | % | 1.20 | % | 0.57 | % | 0.85 | % | 0.57 | % | 0.45 | % | 0.57 | % |
Performance fees | | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
Expenses (including Performance fees) | | 0.95 | % | 1.20 | % | 0.57 | % | 0.85 | % | 0.57 | % | 0.45 | % | 0.57 | % |
| | | | | | | | | | | | | | | |
Net investment income (loss) | | -0.95 | % | -1.20 | % | -0.58 | % | -0.85 | % | -0.58 | % | -0.45 | % | -0.58 | % |
(a) The total return calculations are based on compounded monthly returns and are calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.
(b) The ratios to average members’ capital have been annualized. The performance fee ratios are not annualized.
See notes to financial statements.
7
ASPECT FUTURESACCESS LLC
(A Delaware Limited Liability Company)
FINANCIAL DATA HIGHLIGHTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 (unaudited)
The following per Unit data and ratios have been derived from information provided in the financial statements.
| | Class A | | Class C | | Class D | | Class I | | Class DS | | Class DT | | Class M* | |
Per Unit Operating Performance: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 1.6405 | | $ | 1.5386 | | $ | 1.8464 | | $ | 1.6838 | | $ | 1.8386 | | $ | 1.9154 | | $ | 1.0000 | |
| | | | | | | | | | | | | | | |
Net realized and net change in unrealized trading profit (loss) | | (0.0607 | ) | (0.0563 | ) | (0.0693 | ) | (0.0625 | ) | (0.0690 | ) | (0.0724 | ) | (0.0578 | ) |
Brokerage commissions | | (0.0033 | ) | (0.0031 | ) | (0.0037 | ) | (0.0034 | ) | (0.0037 | ) | (0.0039 | ) | (0.0014 | ) |
Interest income, net (c) | | 0.0000 | | 0.0000 | | 0.0000 | | 0.0000 | | 0.0000 | | 0.0000 | | 0.0000 | |
Expenses | | (0.0466 | ) | (0.0551 | ) | (0.0320 | ) | (0.0429 | ) | (0.0319 | ) | (0.0257 | ) | (0.0085 | ) |
| | | | | | | | | | | | | | | |
Net asset value, end of period | | $ | 1.5299 | | $ | 1.4241 | | $ | 1.7414 | | $ | 1.5750 | | $ | 1.7340 | | $ | 1.8134 | | $ | 0.9323 | |
| | | | | | | | | | | | | | | |
Total Return: (a) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total return before Performance fees | | -6.77 | % | -7.47 | % | -5.71 | % | -6.49 | % | -5.71 | % | -5.36 | % | -7.06 | % |
Performance fees | | -0.04 | % | -0.04 | % | -0.04 | % | -0.04 | % | -0.04 | % | -0.02 | % | 0.26 | % |
Total return after Performance fees | | -6.81 | % | -7.51 | % | -5.75 | % | -6.53 | % | -5.75 | % | -5.38 | % | -6.80 | % |
| | | | | | | | | | | | | | | |
Ratios to Average Members’ Capital: (b) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Expenses (excluding Performance fees) | | 2.83 | % | 3.58 | % | 1.71 | % | 2.53 | % | 1.71 | % | 1.33 | % | 1.14 | % |
Performance fees | | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.00 | % | -0.28 | % |
Expenses (including Performance fees) | | 2.84 | % | 3.59 | % | 1.72 | % | 2.54 | % | 1.72 | % | 1.33 | % | 0.86 | % |
| | | | | | | | | | | | | | | |
Net investment income (loss) | | -2.84 | % | -3.59 | % | -1.72 | % | -2.54 | % | -1.72 | % | -1.33 | % | -0.86 | % |
(a) The total return calculations are based on compounded monthly returns and are calculated for each class taken as a whole. An individual member’s return may vary from these returns based on timing of capital transactions.
(b) The ratio to average members’ capital have been annualized. The performance fee ratios are not annualized.
(c) Interest income, net is less than $0.0001 per Unit
* Units issued on April 1, 2012
See notes to financial statements.
8
ASPECT FUTURESACCESS LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Aspect FuturesAccess LLC (formerly ML Aspect FuturesAccess LLC ) (the “Fund”), a Merrill Lynch FuturesAccessSM Program (“FuturesAccess”) fund, was organized under the Delaware Limited Liability Company Act on May 17, 2004 and commenced trading activities on April 1, 2005. The Fund engages in the speculative trading of futures and forward contracts on a wide range of commodities. Aspect Capital Limited (“Aspect” or “Trading Advisor”) is the trading advisor of the Fund. The Trading Advisor utilizes the Aspect Diversified Program (the “Trading Program”) for the Fund.
Merrill Lynch Alternative Investments LLC (“MLAI” or “Sponsor”) is the sponsor and manager of the Fund. MLAI is an indirect wholly-owned subsidiary of Bank of America Corporation. Bank of America Corporation and its affiliates are referred to herein as “BAC”. Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) is currently the exclusive clearing broker for the Fund. The Sponsor may select other parties as clearing broker(s). Merrill Lynch International Bank, Ltd. (“MLIB”) is the primary foreign exchange (“F/X”) forward prime broker for the Fund. The Sponsor may select other parties as F/X or other over-the-counter (“OTC”) prime brokers, including Merrill Lynch International (“MLI”). MLPF&S, MLIB and MLI are BAC affiliates.
FuturesAccess is a group of managed futures funds sponsored by MLAI (“FuturesAccess Funds”). FuturesAccess is exclusively available to investors that have investment accounts with Merrill Lynch Wealth Management, U.S. Trust and other divisions or affiliates of BAC. FuturesAccess Funds currently are composed of direct-trading funds advised by a single trading advisor or funds of funds for which MLAI acts as the advisor and allocates capital among multiple trading advisors. Although redemption terms vary among FuturesAccess Funds, FuturesAccess applies, with some exceptions, the same minimum investment amounts, fees and other operational criteria across all FuturesAccess Funds. Each trading advisor participating in FuturesAccess employs different technical, fundamental, systematic and/or discretionary trading strategies.
Interests in the Fund are not insured or otherwise protected by the Federal Deposit Insurance Corporation or any other government authority. Interests are not deposits or other obligations of, and are not guaranteed by, BAC or by any bank. Interests are subject to investment risks, including the possible loss of the full amount invested.
In the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of the Fund as of September 30, 2013 and December 31, 2012 and the results of its operations for the three and nine month periods ended September 30, 2013 and 2012. However, the operating results for the interim periods may not be indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund’s report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2012.
9
Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material.
10
2. CONDENSED SCHEDULES OF INVESTMENTS
The Fund’s investments, defined as net unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of September 30, 2013 and December 31, 2012 are as follows:
September 30, 2013
| | Long Positions | | Short Positions | | Net Unrealized | | | | | |
Commodity Industry | | Number of | | Unrealized | | Percent of | | Number of | | Unrealized | | Percent of | | Profit (Loss) | | Percent of | | | |
Sector | | Contracts/Notional* | | Profit (Loss) | | Members’ Capital | | Contracts/Notional* | | Profit (Loss) | | Members’ Capital | | on Open Positions | | Members’ Capital | | Maturity Dates | |
| | | | | | | | | | | | | | | | | | | |
Agriculture | | 651 | | $ | (315,228 | ) | -0.15 | % | (1,336 | ) | $ | 852,579 | | 0.42 | % | $ | 537,351 | | 0.27 | % | October 2013 - February 2014 | |
Currencies* | | 10,522,235,861 | | 1,829,247 | | 0.90 | % | (4,240,553,658 | ) | (1,333,684 | ) | -0.65 | % | 495,563 | | 0.25 | % | October 2013 - December 2013 | |
Energy | | 226 | | (880,690 | ) | -0.43 | % | (322 | ) | 298,580 | | 0.15 | % | (582,110 | ) | -0.28 | % | October 2013 - December 2013 | |
Interest rates | | 2,033 | | 1,081,343 | | 0.53 | % | (3,664 | ) | (3,988,137 | ) | -1.96 | % | (2,906,794 | ) | -1.43 | % | December 2013 - March 2016 | |
Metals | | 137 | | 32,860 | | 0.02 | % | (766 | ) | (516,011 | ) | -0.25 | % | (483,151 | ) | -0.23 | % | December 2013 - January 2014 | |
Stock indices | | 2,281 | | (627,170 | ) | -0.31 | % | (30 | ) | 6,063 | | 0.00 | % | (621,107 | ) | -0.31 | % | October 2013 - December 2013 | |
| | | | | | | | | | | | | | | | | | | |
Total | | | | $ | 1,120,362 | | 0.56 | % | | | $ | (4,680,610 | ) | -2.29 | % | $ | (3,560,248 | ) | -1.73 | % | | |
December 31, 2012
| | Long Positions | | Short Positions | | Net Unrealized | | | | | |
Commodity Industry | | Number of | | Unrealized | | Percent of | | Number of | | Unrealized | | Percent of | | Profit (Loss) | | Percent of | | | |
Sector | | Contracts/Notional* | | Profit (Loss) | | Members’ Capital | | Contracts/Notional* | | Profit (Loss) | | Members’ Capital | | on Open Positions | | Members’ Capital | | Maturity Dates | |
| | | | | | | | | | | | | | | | | | | |
Agriculture | | 326 | | $ | (168,590 | ) | -0.06 | % | (1,375 | ) | $ | 1,275,558 | | 0.47 | % | $ | 1,106,968 | | 0.41 | % | February 2013 - March 2013 | |
Currencies* | | 5,687,194,901 | | 13,309 | | 0.00 | % | (6,394,391,642 | ) | 727,423 | | 0.27 | % | 740,732 | | 0.27 | % | January 2013 - March 2013 | |
Energy | | 248 | | 268,765 | | 0.10 | % | (693 | ) | 166,215 | | 0.06 | % | 434,980 | | 0.16 | % | January 2013 - February 2013 | |
Interest rates | | 7,047 | | 199,089 | | 0.07 | % | (624 | ) | (30,816 | ) | -0.01 | % | 168,273 | | 0.06 | % | March 2013 - June 2015 | |
Metals | | 1,029 | | (861,550 | ) | -0.32 | % | (735 | ) | (775,158 | ) | -0.28 | % | (1,636,708 | ) | -0.60 | % | February 2013 - April 2013 | |
Stock indices | | 4,017 | | 3,012,821 | | 1.11 | % | (15 | ) | (26,930 | ) | -0.01 | % | 2,985,891 | | 1.10 | % | January 2013 - March 2013 | |
| | | | | | | | | | | | | | | | | | | |
Total | | | | $ | 2,463,844 | | 0.90 | % | | | $ | 1,336,292 | | 0.50 | % | $ | 3,800,136 | | 1.40 | % | | |
*Currencies are stated in notional amounts.
No individual contract’s unrealized profit or loss comprised greater than 5% of Members’ Capital as of September 30, 2013 and December 31, 2012. With respect to each commodity industry sector listed in the above chart, the net unrealized profit (loss) on open positions is the sum of the unrealized profits (loss) of long positions and short positions of the open contracts, netting unrealized losses against unrealized profits as applicable. Net unrealized profit and loss provides an approximate measure of the exposure of the Fund to the various sectors as of the date listed, although such exposure can change at any time.
11
3. FAIR VALUE OF INVESTMENTS
Fair value of an investment is the amount that would be received to sell the investment in an orderly transaction between market participants at the measurement date (i.e. the exit price). All investments (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The investments are recorded on trade date and open contracts are recorded at fair value (described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Profits or losses are realized when contracts are liquidated. Unrealized profits or losses on open contracts are included in equity in commodity trading accounts on the Statements of Financial Condition. Any change in net unrealized profit or loss from the preceding period/year is reported in the respective Statements of Operations.
The fair value measurement guidance established by U.S. GAAP is a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following categories:
Level I — Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded investments. As required by the fair market value measurement guidance in U.S. GAAP, the Fund does not adjust the quoted price for these investments even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.
Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of generally accepted and understood models or other valuation methodologies. Investments which are generally included in this category are investments valued using market data.
Level III — Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair value for these investments is determined using valuation methodologies that consider a range of factors, including but not limited to the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed. Investments that are included in this category generally are privately held debt and equity securities.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. MLAI’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
Following is a description of the valuation methodologies used for investments, as well as the general classification of such investments pursuant to the valuation hierarchy.
12
Exchange traded investments are fair valued by the Fund by using the reported closing price on the primary exchange where such investments are traded. These closing prices are observed through the clearing broker and third party pricing services. For non-exchange traded investments, quoted values and other data provided by nationally recognized independent pricing sources are used as inputs into its process for determining fair values.
The independent pricing sources obtain market quotations and actual transaction prices for investments that have quoted prices in active markets. Each source has its own proprietary method for determining the fair value of investments that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing source uses observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like investments, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair market value.
The Fund has determined that Level I investments would include its futures and options contracts where it believes that quoted prices are available in an active market.
Where the Fund believes that quoted market prices are not available or that the market is not active, fair values are estimated by using quoted prices of investments with similar characteristics, pricing models or matrix pricing and these are generally classified as Level II investments. The Fund determined that Level II investments would include its forward and certain futures contracts.
The Fund’s net unrealized profit (loss) on open forward and futures contracts, by the above fair value hierarchy levels, as of September 30, 2013 and December 31, 2012 are as follows:
Net unrealized profit (loss) | | | | | | | | | |
on open contracts | | Total | | Level I | | Level II | | Level III | |
| | | | | | | | | |
Futures | | | | | | | | | |
Long | | $ | (686,053 | ) | $ | (738,363 | ) | $ | 52,310 | | $ | — | |
Short | | (3,377,627 | ) | (2,799,978 | ) | (577,649 | ) | — | |
| | $ | (4,063,680 | ) | $ | (3,538,341 | ) | $ | (525,339 | ) | $ | — | |
| | | | | | | | | |
Forwards | | | | | | | | | |
Long | | $ | 1,806,415 | | $ | — | | $ | 1,806,415 | | $ | — | |
Short | | (1,302,983 | ) | — | | (1,302,983 | ) | — | |
| | $ | 503,432 | | $ | — | | $ | 503,432 | | $ | — | |
| | | | | | | | | |
September 30, 2013 | | $ | (3,560,248 | ) | $ | (3,538,341 | ) | $ | (21,907 | ) | $ | — | |
| | | | | | | | | |
Net unrealized profit (loss) | | | | | | | | | |
on open contracts | | Total | | Level I | | Level II | | Level III | |
| | | | | | | | | |
Futures | | | | | | | | | |
Long | | $ | 2,436,006 | | $ | 2,480,431 | | $ | (44,425 | ) | $ | — | |
Short | | 708,894 | | 1,416,965 | | (708,071 | ) | — | |
| | $ | 3,144,900 | | $ | 3,897,396 | | $ | (752,496 | ) | $ | — | |
| | | | | | | | | |
Forwards | | | | | | | | | |
Long | | $ | 27,838 | | $ | — | | $ | 27,838 | | $ | — | |
Short | | 627,398 | | — | | 627,398 | | — | |
| | $ | 655,236 | | $ | — | | $ | 655,236 | | $ | — | |
| | | | | | | | | |
December 31, 2012 | | $ | 3,800,136 | | $ | 3,897,396 | | $ | (97,260 | ) | $ | — | |
13
The Fund’s volume of trading forwards and futures as of the nine month period ended September 30, 2013 and year ended December 31, 2012 are representative of the activity throughout these periods. There were no transfers to or from any level during the three or nine month periods ended September 30, 2013 or the year ended December 31, 2012.
The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Such contracts meet the definition of a derivative as noted in the ASC guidance for accounting for derivative and hedging activities. The fair value amounts of, and the net profits and losses on, derivative instruments is disclosed in the Statements of Financial Condition and Statements of Operations, respectively. There are no credit related contingent features embedded in these derivative contracts. The total notional, contract amount, or number of contracts and fair values of derivative instruments by contract type/commodity sector are disclosed in Note 2, above.
The Fund presents its futures and forward contract amounts gross on the Statement of Financial Condition. The Fund maintains margin deposits and cash collateral with its futures and forward brokers, respectively, in amounts determined by the respective broker. At September 30, 2013 and December 31, 2012, the initial margin deposits (cash) are used to satisfy the margin requirements to establish the futures or forward contracts and are presented on the Statement of Financial Condition as Cash on deposit with Broker and the variation margin on open contracts as unrealized gain or loss on futures or forward contracts, respectively.
The following table indicates the trading profits and losses, before brokerage commissions, by type/commodity industry sector, on derivative instruments for each of the three and nine month periods ended September 30, 2013 and 2012:
| | For the three months ended | | For the nine months ended | |
| | September 30, 2013 | | September 30, 2013 | |
Commodity Industry | | profit (loss) | | profit (loss) | |
Sector | | from trading, net | | from trading, net | |
| | | | | |
Agriculture | | $ | (874,143 | ) | $ | 1,730,875 | |
Currencies | | (1,818,317 | ) | (7,950,692 | ) |
Energy | | (3,271,917 | ) | (13,648,154 | ) |
Interest rates | | (3,725,513 | ) | (17,494,714 | ) |
Metals | | (7,107,757 | ) | 10,651,417 | |
Stock indices | | 1,631,930 | | 13,336,867 | |
| | | | | |
Total, net | | $ | (15,165,717 | ) | $ | (13,374,401 | ) |
14
| | For the three months ended | | For the nine months ended | |
| | September 30, 2012 | | September 30, 2012 | |
Commodity Industry | | profit (loss) | | profit (loss) | |
Sector | | from trading, net | | from trading, net | |
| | | | | |
Agriculture | | $ | 522,539 | | $ | 72,377 | |
Currencies | | 2,694,294 | | (6,502,246 | ) |
Energy | | (6,595,920 | ) | (1,901,180 | ) |
Interest rates | | 3,004,015 | | 14,254,321 | |
Metals | | (4,876,513 | ) | (7,137,961 | ) |
Stock indices | | (3,181,415 | ) | (10,985,372 | ) |
| | | | | |
Total, net | | $ | (8,433,000 | ) | $ | (12,200,061 | ) |
The Fund is subject to the risk of insolvency of a counterparty, an exchange, a clearinghouse, MLPF&S or other BAC entities. Fund assets could be lost or impounded during lengthy bankruptcy proceedings. Were a substantial portion of the Fund’s capital tied up in a bankruptcy or other similar types of proceedings, MLAI might suspend or limit trading, perhaps causing the Fund to miss significant profit opportunities. There are increased risks in dealing with unregulated trading counterparties including the risk that assets may not benefit from the protection afforded to “customer funds” deposited with regulated dealers and brokers.
4. MARKET AND CREDIT RISKS
The nature of this Fund has certain risks, which cannot all be presented on the financial statements. The following summarizes some of those risks.
Market Risk
Derivative instruments involve varying degrees of market risk. Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently result in changes in the Fund’s Net unrealized profit (loss) on open contracts on such derivative instruments as reflected in the Statements of Financial Condition. The Fund’s exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Fund as well as the volatility and liquidity of the markets in which the derivative instruments are traded. Investments in foreign markets may also entail legal and political risks.
MLAI has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of Aspect, calculating the Net Asset Value of the Fund as of the close of business on each day and reviewing outstanding positions for over-concentrations. While MLAI does not intervene in the markets to hedge or diversify the Fund’s market exposure, MLAI may urge Aspect to reallocate positions in an attempt to avoid over-concentrations. However, such interventions are expected to be unusual. It is expected that MLAI’s basic risk control procedures will consist of the ongoing process of Trading Advisor monitoring, with the market risk controls being applied by Aspect.
15
Credit Risk
The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange/clearinghouse is pledged to support the financial integrity of the exchange/clearinghouse. In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties. Margins, which may be subject to loss in the event of a default, are generally required in exchange traded contracts, and in the over-the-counter markets counterparties may also require margin.
The credit risk associated with these instruments from counterparty nonperformance is the net unrealized profit (loss) on open contracts, if any, included in the Statements of Financial Condition. MLAI, as sponsor of the Fund, has a general policy of maintaining clearing and prime brokerage arrangements with BAC affiliates, such as MLPF&S and MLIB, although MLAI may engage non-BAC affiliated service providers as clearing brokers or prime brokers for the Fund.
The Fund, in its normal course of business, enters into various contracts, with MLPF&S acting as its futures clearing broker. Pursuant to the brokerage arrangement with MLPF&S (which includes a netting arrangement), MLPF&S has the right to net receivables and payables.
Indemnifications
In the normal course of business the Fund has entered, or may in the future enter, into agreements that obligate the Fund to indemnify certain parties, including BAC affiliates, for breach of certain representations and warranties made by the Fund. No claims have actually been made with respect to such indemnities and any quantification would involve hypothetical claims that have not been made. Based on the Fund’s experience, MLAI expects the risk of loss to be remote and, therefore, no provision has been recorded.
5. RELATED PARTY TRANSACTIONS
MLAI and the Fund entered into a transfer agency and investor services agreement with Financial Data Services, Inc. (the “Transfer Agent”), a wholly-owned subsidiary of BAC and affiliate of MLAI. The Transfer Agent provides registrar, distribution disbursing agent, transfer agent and certain other services related to the issuance, redemption, exchange and transfer of Units. The fees charged by the Transfer Agent for its services are based on the aggregate net assets of funds managed or sponsored by MLAI. The fee rate ranges from 0.016% to 0.02% per year of the aggregate net assets. During the quarter ended September 30, 2013, the rate was 0.02%. The fee is payable monthly in arrears. MLAI allocates the Transfer Agent fees to each of the managed or sponsored funds, including the Fund, on a monthly basis based on each Fund’s net assets. The Transfer Agent fee allocated to the Fund for the three month periods ended September 30, 2013, and 2012 amounted to $10,351 and $15,445, respectively. The Transfer Agent fee allocated to the Fund for the nine month periods ended September 30, 2013 and 2012 amounted to $36,512 and $46,963, respectively, of which $7,434 and $10,210 was payable to the Transfer Agent as of September 30, 2013 and December 31, 2012, respectively.
Brokerage Commissions, Interest and Sponsor fees as presented on the Statements of Operations are all received from or paid to related parties. Equity in commodity trading accounts, including cash and net unrealized profit/loss, as seen on the Statement of Financial Condition are held with a related party.
16
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2013, the Financial Accounting Standards Board (“FASB”) issued an update relating to the criteria used in defining an investment company under US GAAP. It also sets forth certain measurement and disclosure requirements. Under the new standard the typical characteristics of an investment company will be: (i) it has more than one investment and more than one investor, (ii) it has investors that are not related parties of the entity or the investment manager, (iii) it has ownership interests in the form of equity or partnership interests, and (iv) it manages substantially all of its investments on a fair value basis. The standard also reaffirms that a noncontrolling interest in another investment company should be measured at fair value instead of the equity method. It also includes additional disclosure requirements for an entity to disclose the fact that it is an investment company, and to provide information about changes, if any, in its status as an investment company. Finally, an entity will also need to include disclosures around financial support that has been provided or is contractually required to be provided to any of its investees. The requirements of the standard are effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013, with early application prohibited. The Sponsor is currently evaluating the standard and does not believe it will have a material impact to the Fund’s financial statements.
7. SUBSEQUENT EVENTS
Management has evaluated the impact of subsequent events on the Fund through the date the financials were able to be issued and has determined that there were no subsequent events that require adjustments to, or disclosure in, the financial statements.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MONTH-END NET ASSET VALUE PER UNIT
MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors throughout the period is a useful performance measure for the investors of the Fund. Therefore, the charts below referencing Net Asset Value and performance measurements are based on the Net Asset Value for financial reporting purposes.
The Fund calculates the Net Asset Value per Unit of each Class of Units as of the close of business on (i) the 15th calendar day of each month, (ii) the last calendar day of each month and (iii) any other dates MLAI may determine in its discretion (each, a “Calculation Date”). The Fund’s “Net Asset Value” as of any Calculation Date generally equals the value of the Fund’s account under the management of the Trading Advisor as of that date plus any other assets held by the Fund, minus accrued Sponsor’s, management and performance fees, trading liabilities, including brokerage commissions, any offering or operating costs, amortized organizational and initial offering costs and all other liabilities of the Fund. MLAI or its delegates are authorized to make all Net Asset Value determinations.
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A
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| | Jan. 15th | | Jan. | | Feb. 15th | | Feb. | | Mar. 15th | | Mar. | | Apr. 15th | | Apr. | | May 15th | | May | | June 15th | | June | | July 15th | | Jul. | | Aug. 15th | | Aug. | | Sept. 15th | | Sept. | |
2012 | | n/a | | $ | 1.6554 | | n/a | | $ | 1.6864 | | n/a | | $ | 1.6534 | | n/a | | $ | 1.6608 | | n/a | | $ | 1.6683 | | n/a | | $ | 1.5887 | | n/a | | $ | 1.6362 | | n/a | | $ | 1.5873 | | n/a | | $ | 1.5299 | |
2013 | | $ | 1.4555 | | $ | 1.4991 | | $ | 1.5191 | | $ | 1.4457 | | $ | 1.4752 | | $ | 1.4696 | | $ | 1.5077 | | $ | 1.5189 | | $ | 1.4797 | | $ | 1.4193 | | $ | 1.3646 | | $ | 1.4237 | | $ | 1.4088 | | $ | 1.3965 | | $ | 1.3775 | | $ | 1.3552 | | $ | 1.3775 | | $ | 1.3085 | |
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C
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| | Jan. 15th | | Jan. | | Feb. 15th | | Feb. | | Mar. 15th | | Mar. | | Apr. 15th | | Apr. | | May 15th | | May | | June 15th | | June | | July 15th | | Jul. | | Aug. 15th | | Aug. | | Sept. 15th | | Sept. | |
2012 | | n/a | | $ | 1.5513 | | n/a | | $ | 1.5790 | | n/a | | $ | 1.5468 | | n/a | | $ | 1.5525 | | n/a | | $ | 1.5582 | | n/a | | $ | 1.4826 | | n/a | | $ | 1.5257 | | n/a | | $ | 1.4788 | | n/a | | $ | 1.4241 | |
2013 | | $ | 1.3510 | | $ | 1.3908 | | $ | 1.4088 | | $ | 1.3402 | | $ | 1.3669 | | $ | 1.3612 | | $ | 1.3959 | | $ | 1.4057 | | $ | 1.3688 | | $ | 1.3124 | | $ | 1.2613 | | $ | 1.3154 | | $ | 1.3011 | | $ | 1.2892 | | $ | 1.2711 | | $ | 1.2500 | | $ | 1.2700 | | $ | 1.2059 | |
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D
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| | Jan. 15th | | Jan. | | Feb. 15th | | Feb. | | Mar. 15th | | Mar. | | Apr. 15th | | Apr. | | May 15th | | May | | June 15th | | June | | July 15th | | Jul. | | Aug. 15th | | Aug. | | Sept. 15th | | Sept. | |
2012 | | n/a | | $ | 1.8656 | | n/a | | $ | 1.9028 | | n/a | | $ | 1.8679 | | n/a | | $ | 1.8787 | | n/a | | $ | 1.8895 | | n/a | | $ | 1.8016 | | n/a | | $ | 1.8578 | | n/a | | $ | 1.8045 | | n/a | | $ | 1.7414 | |
2013 | | $ | 1.6641 | | $ | 1.7149 | | $ | 1.7389 | | $ | 1.6560 | | $ | 1.6908 | | $ | 1.6855 | | $ | 1.7302 | | $ | 1.7442 | | $ | 1.7002 | | $ | 1.6318 | | $ | 1.5699 | | $ | 1.6389 | | $ | 1.6228 | | $ | 1.6097 | | $ | 1.5888 | | $ | 1.5640 | | $ | 1.5907 | | $ | 1.5120 | |
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I
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| | Jan. 15th | | Jan. | | Feb. 15th | | Feb. | | Mar. 15th | | Mar. | | Apr. 15th | | Apr. | | May 15th | | May | | June 15th | | June | | July 15th | | Jul. | | Aug. 15th | | Aug. | | Sept. 15th | | Sept. | |
2012 | | n/a | | $ | 1.6997 | | n/a | | $ | 1.7320 | | n/a | | $ | 1.6987 | | n/a | | $ | 1.7069 | | n/a | | $ | 1.7152 | | n/a | | $ | 1.6338 | | n/a | | $ | 1.6833 | | n/a | | $ | 1.6335 | | n/a | | $ | 1.5750 | |
2013 | | $ | 1.5002 | | $ | 1.5453 | | $ | 1.5662 | | $ | 1.4908 | | $ | 1.5214 | | $ | 1.5160 | | $ | 1.5555 | | $ | 1.5673 | | $ | 1.5271 | | $ | 1.4650 | | $ | 1.4088 | | $ | 1.4700 | | $ | 1.4549 | | $ | 1.4425 | | $ | 1.4231 | | $ | 1.4003 | | $ | 1.4235 | | $ | 1.3525 | |
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DS
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| | Jan. 15th | | Jan. | | Feb. 15th | | Feb. | | Mar. 15th | | Mar. | | Apr. 15th | | Apr. | | May 15th | | May | | June 15th | | June | | July 15th | | Jul. | | Aug. 15th | | Aug. | | Sept. 15th | | Sept. | |
2012 | | n/a | | $ | 1.8577 | | n/a | | $ | 1.8947 | | n/a | | $ | 1.8600 | | n/a | | $ | 1.8707 | | n/a | | $ | 1.8815 | | n/a | | $ | 1.7939 | | n/a | | $ | 1.8499 | | n/a | | $ | 1.7968 | | n/a | | $ | 1.7340 | |
2013 | | $ | 1.6570 | | $ | 1.7076 | | $ | 1.7315 | | $ | 1.6489 | | $ | 1.6836 | | $ | 1.6783 | | $ | 1.7229 | | $ | 1.7367 | | $ | 1.6929 | | $ | 1.6249 | | $ | 1.5632 | | $ | 1.6319 | | $ | 1.6159 | | $ | 1.6028 | | $ | 1.5820 | | $ | 1.5573 | | $ | 1.5839 | | $ | 1.5055 | |
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DT
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| | Jan. 15th | | Jan. | | Feb. 15th | | Feb. | | Mar. 15th | | Mar. | | Apr. 15th | | Apr. | | May 15th | | May | | June 15th | | June | | July 15th | | Jul. | | Aug. 15th | | Aug. | | Sept. 15th | | Sept. | |
2012 | | n/a | | $ | 1.9372 | | n/a | | $ | 1.9790 | | n/a | | $ | 1.9412 | | n/a | | $ | 1.9537 | | n/a | | $ | 1.9664 | | n/a | | $ | 1.8737 | | n/a | | $ | 1.9331 | | n/a | | $ | 1.8783 | | n/a | | $ | 1.8134 | |
2013 | | $ | 1.7354 | | $ | 1.7888 | | $ | 1.8142 | | $ | 1.7281 | | $ | 1.7647 | | $ | 1.7596 | | $ | 1.8067 | | $ | 1.8216 | | $ | 1.7760 | | $ | 1.7050 | | $ | 1.6406 | | $ | 1.7131 | | $ | 1.6966 | | $ | 1.6832 | | $ | 1.6617 | | $ | 1.6361 | | $ | 1.6644 | | $ | 1.5824 | |
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS M
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| | Jan. 15th | | Jan. | | Feb. 15th | | Feb. | | Mar. 15th | | Mar. | | Apr. 15th | | Apr. | | May 15th | | May | | June 15th | | June | | July 15th | | Jul. | | Aug. 15th | | Aug. | | Sept. 15th | | Sept. | |
2012 | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | $ | 1.0058 | | n/a | | $ | 1.0116 | | n/a | | $ | 0.9645 | | n/a | | $ | 0.9946 | | n/a | | $ | 0.9661 | | n/a | | $ | 0.9323 | |
2013 | | $ | 0.8909 | | $ | 0.9181 | | $ | 0.9309 | | $ | 0.8865 | | $ | 0.9051 | | $ | 0.9023 | | $ | 0.9263 | | $ | 0.9337 | | $ | 0.9102 | | $ | 0.8736 | | $ | 0.8405 | | $ | 0.8774 | | $ | 0.8688 | | $ | 0.8617 | | $ | 0.8505 | | $ | 0.8373 | | $ | 0.8516 | | $ | 0.8094 | |
Liquidity and Capital Resources
The Fund borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Fund’s U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency.
Substantially all of the Fund’s assets are held in cash. The Net Asset Value of the Fund’s cash is not affected by inflation. However, changes in interest rates could cause periods of strong up or down price trends, during
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which the Fund’s profit potential generally increases. Inflation in commodity prices could also generate price movements, which the strategies might successfully follow. The Fund should be able to close out its open trading positions and liquidate its holdings relatively quickly and at market prices, except in unusual circumstances. This typically permits the Fund to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so.
Investors in the Fund generally may redeem any or all of their Units at Net Asset Value, effective as of (i) the 15th calendar day of each month and/or (ii) the last calendar day of each month (each a “Redemption Date”), upon providing eight business days notice prior to the 1st and 16th of the month. MLAI, at any time in its discretion, may discontinue allowing redemptions as of the 15th calendar day of each month on a going forward basis. Investors will remain exposed to fluctuations in Net Asset Value during the period between submission of their redemption request and the applicable Redemption Date.
As a commodity pool, the Fund maintains an extremely large percentage of its assets in cash, which it must have available to post initial and variation margin on futures contracts. This cash is also used to fund redemptions. While the Fund has the ability to fund redemption proceeds from liquidating positions, as a practical matter positions are not liquidated to fund redemptions. In the event that positions were liquidated to fund redemptions, MLAI, as the manager of the Fund, has the ability to override decisions of the Trading Advisor to fund redemptions if necessary, but in practice the Trading Advisor would determine in its discretion which investments should be liquidated.
For the nine month period ended September 30, 2013, Fund capital decreased 25.17% from $272,240,993 to $203,711,372. This decrease was attributable to the net loss from operations of $22,249,002 coupled with the redemption of 43,670,281 Redeemable Units resulting in an outflow of $62,126,684. The cash outflow was offset with cash inflow of $15,846,065 due to subscriptions of 11,915,958 Units. Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.
Critical Accounting Policies
Statement of Cash Flows
The Fund is not required to provide a Statement of Cash Flows.
Investments
All investments (including derivatives) are held for trading purposes. Investments are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Profits or losses are realized when contracts are liquidated. Unrealized profits or losses on open contracts are included as a component of equity in commodity trading accounts on the Statements of Financial Condition. Realized profits or losses and any change in net unrealized profits or losses from the preceding period are reported in the Statements of Operations.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For more information on the Fund’s treatment of fair value, see Note 3, Fair Value of Investments.
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Futures Contracts
The Fund trades exchange listed futures contracts. A listed futures contract is a firm commitment to buy or sell a standardized quantity of an underlying asset over a specified duration. The Fund buys and sells contracts based on indices of financial assets such as stocks, domestic and global stock indices, as well as contracts on various physical commodities. Prices paid or received on these contracts are determined by the ask or bid provided by the exchanges on which they are traded. Contracts may be settled in physical form or cash settled depending upon the contract. Upon the execution of a trade, margin requirements determine the amount of cash that must be on deposit to secure the transaction. These amounts are considered restricted cash on the Fund’s Statements of Financial Condition. Contracts are priced daily by the Fund and the profit or loss based on the daily mark to market are recorded as unrealized profits. When the contract is closed, the Fund records a realized profit or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded, credit exposure is limited. Realized profits (losses), net and changes in unrealized profits (losses), net on futures contracts are included in the Statements of Operations. The Fund also trades futures contracts on the London Metals Exchange (LME). The valuation pricing for LME contracts is based on action of a committee that incorporates prices from the most liquid trading sessions of the day and can also rely on other inputs such as supply and demand factors and bid and asks from open outcry sessions.
Forward Foreign Currency Contracts
Foreign currency contracts are those contracts where the Fund agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign currency contracts are valued daily, and the Fund’s net equity therein, representing unrealized profit or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Realized profits (losses) and changes in unrealized profits (losses) on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations.
Interest Rates and Income
The Fund currently earns interest based on the prevailing Fed Funds rate plus a spread for short cash positions and minus a spread for long cash positions. The current short term interest rates have remained extremely low when compared with historical rates and thus has contributed negligible amounts to overall Fund performance.
Income Taxes
No provision for income taxes has been made in the accompanying financial statements as each Member is individually responsible for reporting income or loss based on such Member’s share of the Fund’s income and expenses as reported for income tax purposes.
The Fund follows the Accounting Standards Codification guidance on accounting for uncertainty in income taxes. This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. This guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the Fund level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. A prospective investor should be aware that, among other things, income taxes could have a material adverse effect on the periodic calculations of the net asset value of the
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Fund, including reducing the net asset value of the Fund to reflect reserves for income taxes, such as foreign withholding taxes, that may be payable by the Fund. This could cause benefits or detriments to certain investors, depending upon the timing of their entry and exit from the Fund. MLAI has analyzed the Fund’s tax positions and has concluded that a provision for income tax of $1,164,420 is required in the Fund’s financial statements. The following is the major tax jurisdiction for the Fund and the earliest tax year subject to examination: United States — 2010.
Reform Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was signed into law on July 21, 2010. The Reform Act enacts financial regulatory reform, and may alter the way in which the Fund conducts certain trading activities. The Reform Act includes measures to broaden the scope of derivative instruments subject to regulation, including requiring clearing and exchange trading of certain derivatives, imposing new capital and margin reporting, registration and business conduct requirements for certain market participants and imposing position limits on certain over-the-counter derivatives. The Reform Act grants the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission substantial new authority and requires numerous rulemakings by these agencies. The ultimate impact of these derivatives regulations, and the time it will take to comply, remains uncertain. The final regulations may impose additional operational and compliance costs on the Fund.
Results of Operations
January 1, 2013 to September 30, 2013
January 1, 2013 to March 31, 2013
The Fund experienced a net trading profit of $6,783,336 before brokerage commissions and related fees in the first quarter of 2013. The Fund’s profits were primarily attributable to stock indices, agriculture and the currencies sectors posting profits. The metals, energy and interest rate sectors posted losses.
The stock indices sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter due to the Trading Program’s long exposures in stock indices. Losses were posted to the Fund in the middle of the quarter. The Trading Program’s uniformly long exposures to stock indices made gains on North American and Japanese indices, but these were not enough to offset losses from Southern European and Chinese indices. Profits were posted to the Fund at the end of the quarter as the dominant news item during the second half of March was the banking crisis in Cyprus, causing the Fund to give back some of its earlier gains from stock indices. By the end March, the reopening of banks in Cyprus reassured markets and stock indices ended the month as the top sector. Following the Japanese government’s upgrade to its economic assessment, and the confirmation of Haruhiko Kuroda as the new governor of the Bank of Japan, Japanese stock indices in particular made strong gains.
The agriculture sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the quarter only to be reversed in the middle of the quarter. Snowstorms provided relief to drought stricken U.S. wheat and bumper crops caused coffee and sugar to also trade lower, making the predominantly short agriculturals sector the top performer in February. Profits continued to be posted to the Fund at the end of the quarter due to the Trading Programs short positions in agriculture.
The currency sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The Trading Program made gains from its short exposure to the Japanese yen and long exposure to the Euro. Losses were posted to the Fund in the middle of the quarter. The Trading Program’s net short exposure to the U.S. dollar, in particular against the euro, dominated the losses in the currencies sector. Profits were posted to
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the Fund at the end of the quarter due to the Trading Program’s long exposure to the Mexican peso which made profits amid a strong outlook for the Mexican economy.
The metals sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter due to the Trading Program’s long exposures in certain base metals. Losses were posted to the Fund in the middle of the quarter. The Trading Program’s net long exposures to industrial metals dominated the losses in the metals sector. Profits were posted to the Fund at the end of the quarter attributable to the Trading Program’s short positions in industrial metals.
The energy sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter as reformulated gasoline rallied strongly as the risk appetite was partnered with reducing inventories. Losses were posted to the Fund in the middle of the quarter. The increased production of crude oil in the United States resulted in the Trading Program’s long exposures to the energy sector incurring the worst losses in February. Profits were posted to the Fund at the end of the quarter. The energies sector performed negatively as prices of oil products fell following a combination of weak Chinese industrial production data and strong inventories in March.
The interest rate sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. The Trading Program incurred losses from its net long bond exposures. German bonds dominated the losses as European sentiment continued to strengthen. Profits were posted to the Fund in the middle of the quarter due to the Trading Program’s long exposures in Japanese and German bonds. Profits were posted to the Fund at the end of the quarter. The Trading Program’s long positions in bonds were profitable as Eurozone uncertainty boosted safe haven demand.
April 1, 2013 to June 30, 2013
The Fund experienced a net trading loss of $4,992,020 before brokerage commissions and related fees in the second quarter of 2013. The Fund’s profits were primarily attributable to the metals and agriculture sectors posting profits. The stock indices, currency, energy and interest rate sectors posted losses.
The metals sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The Trading Program’s established short positions in precious metals dominated performance when prices collapsed in the middle of the April as the price of gold saw a large drop as fears emerged that Cyprus and other crisis-hit countries may be forced to sell their gold reserves. Profits were posted to the Fund in the middle of the quarter. Short positions in gold and silver were profitable in May, as prices fell largely in response to the U.S. dollar’s strength. Profits continued to be posted the Fund at the end of the quarter. The Trading Program’s established short positions across both precious and industrial metals contributed strongly in June as prices continued to fall, with gold at one point trading below U.S. dollar.
The agriculture sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the quarter due to the Trading Program’s short positions in wheat and other grains markets. Profits were posted to the Fund in the middle of the quarter due to the Trading Program’s short sugar position as forecasts of large crop yields pushed prices lower. Profits were posted to the Fund at the end of the quarter. Agricultural markets were profitable in June capturing continued trends on the short side in grains such as wheat and corn and in coffee.
The stock indices posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter. A reduction in inflation concerns following April’s Federal Open Market Committee minutes which showed a possible early end to QE helped foster a generally positive economic outlook which, combined with some strong corporate earnings results, propelled stock markets higher. This benefited the Trading Program’s long positions where Japanese indices led performance. Profits were posted to the Fund in the middle of the quarter due to the Trading Program’s long positions in stock indices, which rose at the beginning of May following
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central bank actions and announcements. Losses were posted to the Fund at the end of the quarter as gains from newly opened short exposures to some emerging markets were not enough to offset the losses incurred from reducing longs in the rest of the sector.
The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter as the short Japanese yen and long New Zealand dollar positions continued to generate profits which was not enough to offset losses in the Swedish krona. The high unemployment and dovish interest rate forecasts in Sweden led to a reversal in the Swedish krona’s recent strength. Losses were posted to the Fund in the middle of the quarter as the New Zealand and Australian dollars fell against the U.S. dollar, causing losses for the Trading Program after it was revealed that the Reserve Bank of New Zealand had taken steps to curb currency strength, and the Reserve Bank of Australia cut interest rates. Losses were posted to the Fund at the end of the quarter due to a reversal in the recent U.S. dollar weakness which led to losses against the Japanese yen and British sterling.
The energy sector posted losses to the Fund. Loses were posted to the Fund at the beginning of the quarter. Profits from the Trading Program’s long natural gas positions were not enough to offset losses from declining oil prices. Losses were posted to the Fund in the middle of the quarter from the long natural gas position as higher than expected inventories in the U.S. which triggered a sell-off. Losses were posted to the Fund at the end of the quarter as oil markets stayed range-bound.
The interest rate posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter from the Trading Program’s long positions where Japanese indices led performance. Government bond positions in Japan suffered, as a sharp single-day correction caused some of the recent profits to be given back. However, the long positions in the remainder of the bonds sector were more successful, led by European markets - where speculation of an European Central Bank rate cut pushed German yields down. Profits were posted to the Fund in the middle of the quarter. Stronger global economic data also helped bolster risk appetite, causing bond markets to sell off against the Trading Program’s long positions. The second half of May was dominated by uncertainty over the future of the U.S. Federal Reserve’s asset purchase program, causing the Trading Program to give back some of its gains from stock indices and accelerating the sell-off in government bonds. Losses were posted to the Fund at the end of the quarter due to the Trading Program’s long bond and rates exposures, particularly in Australia.
July 1, 2013 to September 30, 2013
The Fund experienced a net trading loss of $ 15,165,717 before brokerage commissions and related fees in the third quarter of 2013. The Fund’s profits were primarily attributable to the stock indices sector posting profits. The agriculture, currency, energy, interest rates and metals sectors posted losses.
The stock indices posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The early market driver in July was the release of stronger non-farm payrolls figures in the United States. This boosted stocks as the Trading Program was well positioned to take advantage of these moves. Losses were posted to the Fund in the middle of the quarter. The general market mood reversed sharply towards the end of August as the U.S. considered military action against Syria. Against this backdrop, stock markets sold off. Profits were posted to the Fund at the end of the quarter. Initially, the Trading Program made gains from its long positions in stock indices. The end of September was marked by a deadlock in U.S. Congress surrounding the fiscal budget, while uncertainty surrounding the German and Italian governments added to nervousness. The Trading Program gave back some of its earlier gains from stock indices but not enough to offset profits posted to the Fund.
The agriculture sector posted losses to the Fund. Losses were posted to the Fund at the beginning through the middle of the quarter. Losses were posted to the Fund at the end of the quarter as the Trading Program’s short positions suffered in September as prices of sugar and wheat rose on signs of stronger demand.
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The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. The early market driver in July was the release of stronger non-farm payrolls figures in the United States. This boosted the U.S. dollar and the Trading Program was well positioned to take advantage of these moves. However, the market mood changed course mid July as Chairman of the U.S. Federal Reserve, Ben Bernanke sought to clarify his June comments on the end of Quantitative Easing. Pointing to low inflation and below-target employment. Chairman Ben Bernanke’s dovish reassurances in July pushed back market expectations on tapering resulting in the U.S. dollar retreat. Losses were posted to the Fund in the middle of the quarter. In the United Kingdom, growth data mid August helped drive the prices of UK Gilts lower, to the benefit of the Trading Program’s short exposure. However, the Trading Program’s net short exposure to Sterling suffered and dominated losses in currencies. Losses were posted to the Fund at the end of the quarter. Returns from currencies were muted overall, although the Trading Program’s long exposure to the New Zealand dollar profited after the central bank signaled that rates may rise.
The energy sector posted losses to the Fund. Loses were posted to the Fund at the beginning of the quarter. Profits from the Trading Program’s long natural gas positions were not enough to offset losses from declining oil prices. Profits were posted to the Fund in the middle of the quarter as the potential for U.S. military action in Syria pushed oil prices higher, benefiting the Trading Program’s long positions, as fears of supply disruptions mounted. Losses were posted to the Fund at the end of the quarter as the Trading Program’s long oil positions were adversely impacted by the easing of geopolitical concerns over Syria.
The interest rate posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter due to the Trading Program’s short fixed income positions, with UK positions further affected by lower than expected inflation data. Profits were posted to Fund in the middle of the quarter as the Trading Program’s long positions in Japanese government bonds generated gains. In the UK, better than expected growth data mid August helped drive the prices of UK Gilts lower, to the benefit of the Trading Program’s short exposure. Losses were posted to the Fund at the end of the quarter as speculation around impending policy announcements in the U.S. and elsewhere, with market participants focused on the timing of the U.S. Federal Reserve’s “tapering” and other interest rate moves, drove fixed income markets. Initially, the Trading Program made gains from its long positions in short exposures to fixed income as yields rose. However, the gains from fixed income were later eroded as bonds reversed course following the U.S. Federal Reserve’s decision not to begin withdrawing stimulus.
The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. Metals continued to rise in July as gold was particularly strong in response to the weakening U.S. dollar, making the Trading Program’s short position the worst performer for July. Losses were posted to the Fund in the middle of the quarter. The metals sector was the worst performer in August, with losses incurred from the Trading Program’s short positions in both industrial and precious metals. Losses were posted to the Fund at the end of the quarter. The Trading Program’s short positions suffered as prices of industrial metals rose on signs of stronger demand.
January 1, 2012 to September 30, 2012
January 1, 2012 to March 31, 2012
The Fund experienced a net trading gain of $6,539,822 before brokerage commissions and related fees in the first quarter of 2012. The Fund’s profits were primarily attributable to the energy and the stock indices sectors posting profits. The agriculture, currency, metals and the interest rate sectors posted losses.
The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter as natural gas continued to trend lower, making the Trading Program’s short position the top performer. Additional gains in energies came from the Trading Program’s long position in reformulated gasoline as the price rallied on reports of U.S. refinery shutdowns. Profits were posted to the Fund in the middle of the quarter
24
as increased global demand and Iranian-induced supply-stresses meant the oil complex rallied strongly. Profits were posted to the Fund at the end of the quarter due to the Trading Program’s short position in natural gas that made gains as continued warm weather and reports of high supplies pushed prices lower.
The stock indices sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the quarter as the rise in global stock markets resulted in losses from short positions, especially in Asian indices. Notably, Chinese indices were also driven upwards by speculation of further monetary easing by The People’s Bank of China. Profits were posted to the Fund in the middle of the quarter as the European Central Bank’s anticipated long-term refinancing operation was over-subscribed when it finally occurred. As a result, world equity markets rallied to the Trading Program’s benefit. Profits continued to be posted to the Fund at the end of the quarter as the Trading Program made gains from its long stock index exposures.
The agriculture sector posted losses to the Fund. Losses were posted to the Fund at the beginning through the middle of the quarter due to the Trading Program’s short positions in agriculturals. Profits were posted to the Fund at the end of the Trading Program’s short position in coffee made gains as prices fell on signs that output from Brazil and Vietnam will increase.
The currency sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter. Towards the end of the month of January the U.S. Federal Reserve forecast that U.S. interest rates would remain low until the end of 2014, boosting U.S. treasuries, stock indices and gold. The U.S. dollar fell in response, to the benefit of the Trading Program’s positions. Profits were posted to the Fund in the middle of the quarter. In Asia, the Bank of Japan began a liquidity operation, focusing on purchasing longer maturity Japanese government bonds in an apparent to bring about some inflation. This led the Japanese yen to weaken sharply against its longer term trend making. However, higher yielding currencies contributed to making the currencies sector a positive performer overall despite reversals in the Japanese yen and Euro. In Australia, as interest rates were left unchanged with rhetoric suggesting potential monetary easing in the near future, the Australian dollar fell making it the along with the Japanese yen the Trading Program’s worst performers resulting in losses posted to the Fund at the end of the quarter.
The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter from the Trading Program’s short positions in zinc and aluminum. Losses were posted to the Fund in the middle through the end of the quarter.
Interest rate sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter. Towards the end of the month the U.S. Federal Reserve forecast that U.S. interest rates would remain low until the end of 2014, boosting U.S. treasuries. Gains were also made on long fixed income positions. Euribor futures rose amid the prospect of further liquidity injections by the European Central Bank. Losses were posted to the Fund in the middle of the quarter as bonds traded lower incurring losses from the Trading Program’s reducing long exposures. The Reserve Bank of Australia did not cut rates, contributing to the Trading Program making losses from its Australian bond exposures. The U.S. Federal Reserve upwardly revised the economic outlook for the U.S. leading to a global sell-off in bonds which amounted to losses from the Trading Program’s fixed income exposures resulting in losses posted to the Fund at the end of the quarter.
April 1, 2012 to June 30, 2012
The Fund experienced a net trading loss of $10,306,883 before brokerage commissions and related fees in the second quarter of 2012. The Fund’s profits were primarily attributable to the interest rates, metals and the agriculture sectors posting profits. The currency, energy and stock indices sectors posted losses.
The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter as fixed income advanced, leading to gains from the Trading Program’s long bond and interest rate positions. Profits were posted to the Fund in the middle of the quarter as the central bank action also drove the
25
Trading Program’s positive performance in fixed income. The Reserve Bank of Australia signaled the possibility of further rate cuts, thus driving the prices of Australian fixed income higher and benefiting the Trading Program’s long positioning. Losses were posted to the Fund at the end of the quarter as fixed income sectors contributed negatively with losses dominated by long positions in German government bonds. U.S. Treasuries also declined following the U.S. Federal Reserve’s decision to extend ‘Operation Twist’ rather than provide a more aggressive form of easing.
The metals sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the quarter which reversed in the middle of the quarter. The metals contributed positively to performance in May with gains being derived from short positions across both industrial and precious metals as prices declined with the general sell off in risky assets. Losses were posted to the Fund at the end of the quarter. The metal prices rose over the month of June resulting in losses for the Trading Program.
The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter with gains coming in particular from long positions in the soy complex as news of strong demand, combined with poor weather in South America, pushed prices higher. Losses were posted to the Fund in the middle through the end of the quarter as losses sustained from the net short position in the sector were lessened by long positions held in the soy complex which gained as news of low soil-moisture levels in the U.S. drove grain prices higher.
The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter as the Trading Program’s long position in U.S. dollar/Japanese yen made losses as the U.S. dollar fell following a weaker-than-expected U.S. Gross Domestic Product growth figure towards the end of the month. Losses were posted to the Fund in the middle of the quarter as the short U.S. dollar exposure was significantly reduced and switched to long towards the end of the month. Losses were posted to the Fund at the end of the quarter as the U.S. dollar declined, resulting in losses for the Trading Program. Gains made from the Euro based cross pairs currencies such as the Swedish krona, Polish zloty and Hungarian forint continued to be supported by Eurozone uncertainty were not enough to overcome the losses from the Trading Program’s short Euro position against the U.S. dollar.
The energy sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. Oil markets fell as the International Energy Agency gave signs that the oil supply and demand in balance has started to ease, while talks between Iran and the West progressed. Losses were posted to the Fund in the middle of the quarter. Oil prices were further pushed downwards by increasing inventories in the U.S. and a potential increase in supply by Saudi Arabia. Natural gas experienced a strong rally following short covering to the detriment of the Trading Program’s short positioning. Losses were posted to the Fund at the end of the quarter as natural gas prices surged following reports of smaller than expected inventories and above average temperatures in the U.S. The Trading Program’s losses from natural gas were slightly offset by gains from short positions in crude oil as prices declined following weak U.S. and European employment data.
The stock indices sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. Japanese stock indices fell sharply, and in an effort to boost Japan’s economy the Bank of Japan expanded its asset purchase program. Losses were posted to the Fund in the middle of the quarter. Risk aversion dominated markets following poor U.S. labor market data at the start of the month, increasing concerns about Greece exiting the Euro and the health of banks in Spain. Equity markets sold off and the U.S. dollar strengthened. The Trading Program responded to these sharp reversals and switched to a net short position in stock indices by the middle of the month. Losses were posted to the Fund at the end of the quarter. The majority of June’s losses occurred on the last trading day as European leaders agreed to ease repayment rules for Spanish banks and help reduce Italy’s borrowing costs. Broadly, June was characterized by a return of risk appetite amid expectations that central banks would act to help spur growth.
26
July 1, 2012 to September 30, 2012
The Fund experienced a net trading loss of $8,433,000 before brokerage commissions and related fees in the third quarter of 2012. The Fund’s profits were primarily attributable to the interest rates, currencies and the agriculture sectors posting profits. The stock indices, metals and energy sectors posted losses.
The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The Bank of England extended their Quantitative Easing program while central banks in the Eurozone, China, Korea and South Africa cut rates in July. Accordingly, the trading program made gains across its long fixed income positions, except in Australia where the Reserve Bank surprised markets and kept rates on hold. Losses were posted to the Fund in the middle of the quarter. Increased optimism surrounding Euro zone issues, the prospect of further quantitative easing by global central banks and strong U.S. economic data helped boost risk appetite during the month of August. As a result, losses arose from the Fund’s long exposure to fixed income. Losses were posted to the Fund at the end of the quarter. In Europe, a ratification of the European Stability Mechanism by Germany and a strengthening of the pro-Euro political landscape helped increase risk appetite. As a result, the trading program generally incurred losses from long fixed income exposures.
The currency sector posted profits to the Fund. The trading program’s short Euro position, especially against the Swedish krona, made the currencies sector the top performer for the month of July. Losses were posted to the Fund in the middle of the quarter. The Euro also had a strong month, advancing against both the U.S. dollar and the Japanese yen, causing further losses for the Fund. The weakening Australian dollar and strengthening Swiss franc also led to negative performance from the trading program’s positioning in these currencies relative to the U.S. dollar. Losses were posted to the Fund at the end of the quarter. The U.S. dollar depreciated in the middle of September, as the U.S. Federal Reserve initiated an open-ended quantitative easing program, thus benefiting the trading program’s short exposures especially against the New Zealand and Singapore dollar. However, some of these currency gains were offset by losses from a stronger Euro where the trading program held a net short exposure.
The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The impact of the worst U.S. drought in more than half a century pushed soy prices higher, to the benefit of the Fund’s long positions. Profits were posted to the Fund in the middle of the quarter. The impact of the worst U.S. drought in more than half a century pushed soy prices higher, to the benefit of the trading program’s long positions. Short positions in sugar also made gains as prices fell due to declining demand from India and an acceleration of harvesting in Brazil. Losses were posted to the Fund at the end of the quarter as the established trends in grains such as soy and corn reversed following improved conditions for the new planting season.
The stock indices sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter through the middle of the quarter. Increased optimism surrounding Euro zone issues, the prospect of further quantitative easing by global central banks and stronger U.S. economic data helped boost risk appetite during the month of August. As a result, losses arose from the trading program’s long exposure to fixed income and the remaining short positions within the stock indices sector. Losses were posted to the Fund at the end of the quarter. In Europe, a ratification of the European Stability Mechanism by Germany and a strengthening of the pro-Euro political landscape helped increase risk appetite. As a result, the trading program incurred losses from the remaining short stock indices exposures.
The metals sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter as the trading program made gains from its short positions in base metals. Losses were posted to the Fund in the middle of the quarter due to the Fund’s short positions in platinum. Losses were posted to the Fund at the end of the quarter. In Europe, a ratification of the European Stability Mechanism by Germany and a strengthening
27
of the pro-Euro political landscape helped increase risk appetite. As a result, the trading program generally incurred losses from the short exposures to industrial metals
The energy sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. Natural gas appreciated in price as a result of hot weather in the U.S. and the trading program’s short exposures in the oils complex caused losses as geopolitical tensions and potential supply disruptions resulted in higher oil prices. Losses were posted to the Fund in the middle of the quarter due to the trading program’s short positions in the energies sector. Oil prices rose due to the stronger U.S. economic data as well as bullish inventory statistics. However some gains were made from the trading program’s short natural gas positions amid forecasts of milder weather in the U.S. which was not enough to offset losses. Losses were posted to the Fund at the end of the quarter. The trading program’s short natural gas exposure incurred losses as the onset of colder weather drove prices higher.
(The Fund has no applicable off-balance sheet arrangements or tabular disclosure of contractual obligations of the type described in Items 303(a)(4) and 303(a)(5) of Regulation S-K.)
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Introduction
The Fund is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes and all or substantially all of the Fund’s assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Fund’s main line of business.
Market movements result in frequent changes in the fair market value of the Fund’s open positions and, consequently, in its earnings and cash flow. The Fund’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Fund’s open positions and the liquidity of the markets in which it trades.
The Fund, under the direction of Aspect, rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Fund’s past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Fund’s speculative trading and the recurrence in the markets traded by the Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Fund’s experience to date (i.e., “risk of ruin”). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the quantifications included in this section should not be considered to constitute any assurance or representation that the Fund’s losses in any market sector will be limited to Value at Risk or by the Fund’s attempts to manage its market risk.
Quantifying The Fund’s Trading Value At Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Fund’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and
28
Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.
The Fund’s risk exposure in the various market sectors traded by Aspect is quantified below in terms of Value at Risk. Due to the Fund’s fair value accounting, any loss in the fair value of the Fund’s open positions is directly reflected in the Fund’s earnings (realized or unrealized) and cash flow (in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).
Exchange maintenance margin requirements have been used by the Fund as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Fund), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.
100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that the Fund’s positions are rarely, if ever, 100% positively correlated have not been reflected.
The Fund’s Trading Value at Risk in Different Market Sectors
The following table indicates the average, highest and lowest trading Value at Risk associated with the Fund’s open positions by market category for the fiscal period. For the nine month periods ended September 30, 2013 and 2012, the Fund’s average Month-end Net Asset Value was approximately $246,807,600 and $310,632,531, respectively.
29
September 30, 2013
| | Average Value | | % of Average | | Highest Value | | Lowest Value | |
Market Sector | | at Risk | | Capitalization | | at Risk | | at Risk | |
| | | | | | | | | |
Agriculture | | $ | 2,291,813 | | 0.93 | % | $ | 5,938,317 | | $ | 459,322 | |
Currencies | | 4,404,273 | | 1.78 | % | 7,975,498 | | 667,733 | |
Energy | | 1,853,272 | | 0.75 | % | 3,228,528 | | 1,043,898 | |
Interest Rates | | 5,212,903 | | 2.11 | % | 9,034,889 | | 1,642,078 | |
Metals | | 7,819,096 | | 3.17 | % | 11,382,356 | | 4,308,491 | |
Stock Indices | | 1,544,636 | | 0.63 | % | 3,432,477 | | 28,451 | |
| | | | | | | | | |
Total | | $ | 23,125,993 | | 9.37 | % | $ | 40,992,065 | | $ | 8,149,973 | |
September 30, 2012
| | Average Value | | % of Average | | Highest Value | | Lowest Value | |
Market Sector | | at Risk | | Capitalization | | at Risk | | at Risk | |
| | | | | | | | | |
Agriculture | | $ | 6,099,003 | | 1.96 | % | $ | 8,773,514 | | $ | 2,877,282 | |
Currencies | | 1,804,544 | | 0.58 | % | 4,511,438 | | 428,075 | |
Energy | | 6,661,015 | | 2.14 | % | 11,422,080 | | 3,604,133 | |
Interest Rates | | 5,061,327 | | 1.63 | % | 8,692,769 | | 2,634,393 | |
Metals | | 1,721,756 | | 0.55 | % | 2,443,925 | | 734,799 | |
Stock Indices | | 6,960,039 | | 2.24 | % | 10,956,258 | | 854,887 | |
| | | | | | | | | |
Total | | $ | 28,307,684 | | 9.10 | % | $ | 46,799,984 | | $ | 11,133,569 | |
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Fund is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Fund. The magnitude of the Fund’s open positions creates a “risk of ruin” not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions — unusual, but historically recurring from time to time — could cause the Fund to incur severe losses over a short period of time. The foregoing Value at Risk table — as well as the past performance of the Fund — gives no indication of this “risk of ruin.”
Non-Trading Risk
Foreign Currency Balances; Cash on Deposit with MLPF&S and MLIB
The Fund has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as the market risk they represent) are immaterial.
The Fund also has non-trading market risk on approximately 90% of its assets which are held in cash at MLPF&S. The value of this cash is not interest rate sensitive, but there is cash flow risk in that if interest rates decline so will the cash flow generated on these monies.
30
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Fund’s market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Fund manages its primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Fund’s primary market risk exposures as well as the strategies used and to be used by MLAI and Aspect for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Fund’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Fund’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of the value of their investment in the Fund.
The following were the primary trading risk exposures of the Fund as of September 30, 2013, by market sector.
Interest Rates
Interest rate movements directly affect the price of derivative sovereign bond positions held by the Fund and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Fund’s profitability. The Fund’s primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries. However, the Fund also takes positions in the government debt of smaller nations e.g., Australia. MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future.
Currencies
The Fund trades in a number of currencies. However, the Fund’s major exposures have typically been in the U.S. dollar/Japanese yen, U.S. dollar/Euro and U.S. dollar/Swiss franc positions. The Fund does not anticipate that the risk profile of the Fund’s currency sector will change significantly in the future. The currency trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk of maintaining Value at Risk in a functional currency other than U.S. dollars.
Stock Indices
The Fund’s primary equity exposure is to S&P 500, Nikkei and German DAX equity index price movements. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Asian indices.
Metals
The Fund’s metals market exposure is to fluctuations in the price of precious and non-precious metals.
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Agricultural Commodities
The Fund’s primary agricultural commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions. Grains, cocoa and livestock accounted for the majority of the Fund’s agricultural commodities exposure as of September 30, 2013.
Energy
The Fund’s primary energy market exposure is to natural gas and crude oil price movements, often resulting from political developments in the Middle East. Oil prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Fund as of September 30, 2013.
Foreign Currency Balances
The Fund’s primary foreign currency balances are in Japanese yen, British pounds and Euros.
U.S. Dollar Cash Balance
The Fund holds U.S. dollars in cash at MLPF&S and MLIB. The Fund has immaterial cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline.
Item 4. Controls and Procedures
MLAI, the Sponsor of Aspect FuturesAccess LLC, with the participation of the Sponsor’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934) with respect to the Fund as of the end of the period covered by this quarterly report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. No change in internal control over financial reporting (in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act of 1934) occurred during the quarter ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There are no material changes from risk factors as previously disclosed in the Fund’s report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on March 27, 2013.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Units are privately offered and sold to “accredited investors” (as defined in Rule 501(a) under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 thereunder. The selling agent of the Units was MLPF&S.
CLASS A
| | Subscription | | | |
| | Amount | | Units | | NAV (1) | |
1/01/2013 | | $ | 157,950 | | 108,946 | | $ | 1.4498 | |
1/16/2013 | | 38,025 | | 26,125 | | 1.4555 | |
2/01/2013 | | 492,623 | | 328,613 | | 1.4991 | |
2/16/2013 | | 362,872 | | 238,873 | | 1.5191 | |
3/01/2013 | | 107,250 | | 74,186 | | 1.4457 | |
3/16/2013 | | 209,625 | | 142,099 | | 1.4752 | |
4/01/2013 | | 180,375 | | 122,737 | | 1.4696 | |
4/16/2013 | | 89,054 | | 59,066 | | 1.5077 | |
5/01/2013 | | 311,150 | | 204,852 | | 1.5189 | |
5/16/2013 | | 757,167 | | 511,703 | | 1.4797 | |
6/01/2013 | | 170,625 | | 120,218 | | 1.4193 | |
6/16/2013 | | 59,475 | | 43,584 | | 1.3646 | |
7/01/2013 | | 39,000 | | 27,393 | | 1.4237 | |
7/16/2013 | | 448,107 | | 318,077 | | 1.4088 | |
8/01/2013 | | 144,074 | | 103,168 | | 1.3965 | |
8/16/2013 | | 1,434,091 | | 1,041,082 | | 1.3775 | |
9/01/2013 | | 92,625 | | 68,348 | | 1.3552 | |
9/16/2013 | | 11,700 | | 8,494 | | 1.3775 | |
10/01/2013 | | 123,825 | | 94,092 | | 1.3085 | |
| | | | | | | | | |
CLASS C
| | Subscription | | | |
| | Amount | | Units | | NAV (1) | |
1/01/2013 | | $ | 339,814 | | 252,425 | | $ | 1.3462 | |
1/16/2013 | | 256,145 | | 189,596 | | 1.3510 | |
2/01/2013 | | 919,410 | | 661,065 | | 1.3908 | |
2/16/2013 | | 557,000 | | 395,372 | | 1.4088 | |
3/01/2013 | | 414,085 | | 308,973 | | 1.3402 | |
3/16/2013 | | 480,670 | | 351,650 | | 1.3669 | |
4/01/2013 | | 115,000 | | 84,484 | | 1.3612 | |
4/16/2013 | | 750,364 | | 537,549 | | 1.3959 | |
5/01/2013 | | 243,454 | | 173,190 | | 1.4057 | |
5/16/2013 | | 468,417 | | 342,210 | | 1.3688 | |
6/01/2013 | | 1,150,502 | | 876,640 | | 1.3124 | |
6/16/2013 | | 303,791 | | 240,856 | | 1.2613 | |
7/01/2013 | | 304,857 | | 231,760 | | 1.3154 | |
7/16/2013 | | 299,738 | | 230,372 | | 1.3011 | |
8/01/2013 | | 249,556 | | 193,575 | | 1.2892 | |
8/16/2013 | | 388,000 | | 305,247 | | 1.2711 | |
9/01/2013 | | 332,636 | | 266,109 | | 1.2500 | |
9/16/2013 | | 265,000 | | 208,661 | | 1.2700 | |
10/01/2013 | | 241,294 | | 198,956 | | 1.2059 | |
| | | | | | | | | |
CLASS D
| | Subscription | | | |
| | Amount | | Units | | NAV (1) | |
1/01/2013 | | $ | — | | — | | $ | 1.6565 | |
1/16/2013 | | — | | — | | 1.6641 | |
2/01/2013 | | — | | — | | 1.7149 | |
2/16/2013 | | — | | — | | 1.7389 | |
3/01/2013 | | — | | — | | 1.6560 | |
3/16/2013 | | — | | — | | 1.6908 | |
4/01/2013 | | — | | — | | 1.6855 | |
4/16/2013 | | — | | — | | 1.7302 | |
5/01/2013 | | — | | — | | 1.7442 | |
5/16/2013 | | — | | — | | 1.7002 | |
6/01/2013 | | — | | — | | 1.6318 | |
6/16/2013 | | — | | — | | 1.5699 | |
7/01/2013 | | — | | — | | 1.6389 | |
7/16/2013 | | 149,775 | | 92,294 | | 1.6228 | |
8/01/2013 | | — | | — | | 1.6097 | |
8/16/2013 | | — | | — | | 1.5888 | |
9/01/2013 | | — | | — | | 1.5640 | |
9/16/2013 | | — | | — | | 1.5907 | |
10/01/2013 | | — | | — | | 1.5120 | |
| | | | | | | | | |
CLASS I
| | Subscription | | | |
| | Amount | | Units | | NAV (1) | |
1/01/2013 | | $ | 20,000 | | 13,387 | | $ | 1.4940 | |
1/16/2013 | | — | | — | | 1.5002 | |
2/01/2013 | | 108,000 | | 69,889 | | 1.5453 | |
2/16/2013 | | 60,449 | | 38,596 | | 1.5662 | |
3/01/2013 | | 36,850 | | 24,719 | | 1.4908 | |
3/16/2013 | | — | | — | | 1.5214 | |
4/01/2013 | | 17,504 | | 11,546 | | 1.5160 | |
4/16/2013 | | 249,060 | | 160,116 | | 1.5555 | |
5/01/2013 | | 10,233 | | 6,529 | | 1.5673 | |
5/16/2013 | | — | | — | | 1.5271 | |
6/01/2013 | | 31,000 | | 21,160 | | 1.4650 | |
6/16/2013 | | — | | — | | 1.4088 | |
7/01/2013 | | — | | — | | 1.4700 | |
7/16/2013 | | — | | — | | 1.4549 | |
8/01/2013 | | — | | — | | 1.4425 | |
8/16/2013 | | — | | — | | 1.4231 | |
9/01/2013 | | — | | — | | 1.4003 | |
9/16/2013 | | — | | — | | 1.4235 | |
10/01/2013 | | — | | — | | 1.3525 | |
| | | | | | | | | |
CLASS DS
| | Subscription | | | |
| | Amount | | Units | | NAV (1) | |
1/01/2013 | | $ | — | | — | | $ | 1.6494 | |
1/16/2013 | | — | | — | | 1.6570 | |
2/01/2013 | | — | | — | | 1.7076 | |
2/16/2013 | | — | | — | | 1.7315 | |
3/01/2013 | | 466,363 | | 282,833 | | 1.6489 | |
3/16/2013 | | — | | — | | 1.6836 | |
4/01/2013 | | — | | — | | 1.6783 | |
4/16/2013 | | — | | — | | 1.7229 | |
5/01/2013 | | — | | — | | 1.7367 | |
5/16/2013 | | 341,749 | | 201,872 | | 1.6929 | |
6/01/2013 | | — | | — | | 1.6249 | |
6/16/2013 | | — | | — | | 1.5632 | |
7/01/2013 | | — | | — | | 1.6319 | |
7/16/2013 | | 7,947 | | 4,918 | | 1.6159 | |
8/01/2013 | | — | | — | | 1.6028 | |
8/16/2013 | | — | | — | | 1.5820 | |
9/01/2013 | | — | | — | | 1.5573 | |
9/16/2013 | | — | | — | | 1.5839 | |
10/01/2013 | | 52,769 | | 34,852 | | 1.5055 | |
| | | | | | | | | |
CLASS DT
| | Subscription | | | |
| | Amount | | Units | | NAV (1) | |
1/01/2013 | | $ | — | | — | | $ | 1.7271 | |
1/16/2013 | | — | | — | | 1.7354 | |
2/01/2013 | | — | | — | | 1.7888 | |
2/16/2013 | | — | | — | | 1.8142 | |
3/01/2013 | | — | | — | | 1.7281 | |
3/16/2013 | | — | | — | | 1.7647 | |
4/01/2013 | | — | | — | | 1.7596 | |
4/16/2013 | | — | | — | | 1.8067 | |
5/01/2013 | | — | | — | | 1.8216 | |
5/16/2013 | | — | | — | | 1.7760 | |
6/01/2013 | | — | | — | | 1.7050 | |
6/16/2013 | | — | | — | | 1.6406 | |
7/01/2013 | | — | | — | | 1.7131 | |
7/16/2013 | | — | | — | | 1.6966 | |
8/01/2013 | | — | | — | | 1.6832 | |
8/16/2013 | | — | | — | | 1.6617 | |
9/01/2013 | | — | | — | | 1.6361 | |
9/16/2013 | | — | | — | | 1.6644 | |
10/01/2013 | | — | | — | | 1.5824 | |
| | | | | | | | | |
CLASS M
| | Subscription | | | |
| | Amount | | Units | | NAV (1) | |
1/01/2013 | | $ | — | | — | | $ | 0.8868 | |
1/16/2013 | | 50,000 | | 56,123 | | 0.8909 | |
2/01/2013 | | 580,000 | | 631,739 | | 0.9181 | |
2/16/2013 | | 50,000 | | 53,712 | | 0.9309 | |
3/01/2013 | | — | | — | | 0.8865 | |
3/16/2013 | | — | | — | | 0.9051 | |
4/01/2013 | | — | | — | | 0.9023 | |
4/16/2013 | | — | | — | | 0.9263 | |
5/01/2013 | | — | | — | | 0.9337 | |
5/16/2013 | | 50,000 | | 54,933 | | 0.9102 | |
6/01/2013 | | 45,000 | | 51,511 | | 0.8736 | |
6/16/2013 | | 463,908 | | 551,942 | | 0.8405 | |
7/01/2013 | | 19,000 | | 21,655 | | 0.8774 | |
7/16/2013 | | 25,000 | | 28,775 | | 0.8688 | |
8/01/2013 | | 75,000 | | 87,037 | | 0.8617 | |
8/16/2013 | | 20,000 | | 23,516 | | 0.8505 | |
9/01/2013 | | 25,000 | | 29,858 | | 0.8373 | |
9/16/2013 | | — | | — | | 0.8516 | |
10/01/2013 | | — | | — | | 0.8094 | |
| | | | | | | | | |
(1) Beginning of the period Net Asset Value
33
Class A Units are subject to a sales commission paid to MLPF&S ranging from 1.0% to 2.5%. Class D Units and Class I Units are subject to sales commissions paid to MLPF&S up to 0.5%. The rate assessed to a given subscription is based upon the subscription amount. Sales commissions are directly deducted from subscription amounts. Class C Units, Class DS Units, Class DT Units and Class M Units are not subject to any sales commissions.
(b) | Not applicable. |
| |
(c) | Not applicable. |
| |
Item 3. | Defaults Upon Senior Securities |
| |
| None. |
| |
Item 4. | Mine Safety Disclosures |
| |
| Not applicable. |
| |
Item 5. | Other Information |
| |
| None. |
| |
Item 6. | Exhibits |
| |
| The following exhibits are filed herewith to this Quarterly Report on Form 10-Q: |
| |
| 31.01 and |
| 31.02 Rule 13a-14(a)/15d-14(a) Certifications |
| |
| Exhibit 31.01 |
| and 31.02: Are filed herewith. |
| |
| 32.01 and |
| 32.02 Section 1350 Certifications |
| |
| Exhibit 32.01 |
| and 32.02 Are filed herewith. |
| |
| Exhibit 101 Are filed herewith. |
| |
| The following materials from the Fund’s quarterly Report on Form 10-Q for the three and nine month periods ended September 30, 2013 formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition (ii) Statements of Operations (iii) Statements of Changes in Members’ Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text. (1) |
(1) These interactive data files shall not be deemed filed for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | ASPECT FUTURESACCESS LLC |
| | |
| | |
| By: | MERRILL LYNCH ALTERNATIVE INVESTMENTS LLC |
| | (Manager) |
| | |
| | |
Date: November 14, 2013 | By: | /s/ KEITH GLENFIELD |
| | Keith Glenfield |
| | Chief Executive Officer and President |
| | (Principal Executive Officer) |
| | |
| | |
Date: November 14, 2013 | By: | /s/ BARBRA E. KOCSIS |
| | Barbra E. Kocsis |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
35
