MAN FRM MANAGED FUTURES STRATEGIES LLC
(Formerly Systematic Momentum FuturesAccess LLC)
(a Delaware Limited Liability Company)
TABLE OF CONTENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 1 |
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FINANCIAL STATEMENTS: |
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Statements of Financial Condition as of December 31, 2017 and 2016 | 3 |
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Statements of Operations for the years ended December 31, 2017, 2016 and 2015 | 4 |
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Statements of Changes in Members’ Capital for the years ended December 31, 2017, 2016 and 2015 | 5 |
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Financial Data Highlights for the years ended December 31, 2017, 2016 and 2015 | 7 |
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Notes to Financial Statements | 10 |
Report of Independent Registered Public Accounting Firm
To the Members and Manager of Man FRM Managed Futures Strategies LLC (formerly known as Systematic Momentum FuturesAccess LLC)
Opinion on the Financial Statements
We have audited the accompanying statements of financial condition of Man FRM Managed Futures Strategies LLC (formerly known as Systematic Momentum FuturesAccess LLC) (the “Fund”), as of December 31, 2017 and 2016, and the related statements of operations, changes in members’ capital, and financial data highlights for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund at December 31, 2017 and 2016, and the results of its operations for each of the two years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young Ltd.
We have served as the Fund’s auditor since 2016.
Grand Cayman, Cayman Islands
March 29, 2018
Report of Independent Registered Public Accounting Firm
To the Members of MAN FRM Managed Futures Strategies LLC (formerly Systematic Momentum FuturesAccess LLC)
In our opinion, the accompanying statements of operations and of changes in members’ capital and the financial data highlights for the year ended December 31, 2015 present fairly, in all material respects, the results of operations and changes in members’ capital and the financial data highlights of MAN FRM Managed Futures Strategies LLC (formerly Systematic Momentum FuturesAccess LLC) (“the Fund”) for the year ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial data highlights (hereafter collectively referred to as the “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 29, 2016
PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue, New York, NY 10017 T: (646) 471 3000, F:(813) 286 6000, www.pwc.com/us
MAN FRM MANAGED FUTURES STRATEGIES LLC
(Formerly Systematic Momentum FuturesAccess LLC)
(a Delaware Limited Liability Company)
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 2017 AND 2016
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| 2017 |
| 2016 |
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ASSETS: |
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Cash |
| $ | 29,046,167 |
| $ | 48,971,063 |
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Investment in Affiliated Funds (Cost: $41,142,989 and $77,057,266 at December 31, 2017 and 2016, respectively) |
| 43,966,696 |
| 68,779,867 |
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Receivable from Affiliated Funds |
| 640,000 |
| 100,000 |
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TOTAL ASSETS |
| $ | 73,652,863 |
| $ | 117,850,930 |
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LIABILITIES AND MEMBERS’ CAPITAL: |
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LIABILITIES: |
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Management fee payable |
| 355,220 |
| 606,974 |
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Redemptions payable |
| 1,246,141 |
| 1,846,095 |
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Administrative fee payable |
| 26,948 |
| 46,954 |
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Professional fees payable |
| 166,814 |
| 194,639 |
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Other liabilities |
| 117,554 |
| 217,974 |
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Total liabilities |
| 1,912,677 |
| 2,912,636 |
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MEMBERS’ CAPITAL: |
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Members’ Capital (68,166,663 Units and 113,650,916 Units outstanding at December 31, 2017 and 2016, respectively; unlimited Units authorized) |
| 71,740,186 |
| 114,938,294 |
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Total Members’ Capital |
| 71,740,186 |
| 114,938,294 |
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TOTAL LIABILITIES AND MEMBERS’ CAPITAL |
| $ | 73,652,863 |
| $ | 117,850,930 |
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NET ASSET VALUE PER UNIT: |
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Class A |
| $ | 1.0894 |
| $ | 1.0385 |
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Class C |
| $ | 1.0231 |
| $ | 0.9851 |
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Class D |
| $ | 1.4292 |
| $ | 1.3421 |
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Class I |
| $ | 1.1867 |
| $ | 1.1267 |
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Class M |
| $ | 1.0558 |
| $ | 0.9915 |
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Class AA |
| $ | 0.9483 |
| $ | 0.9133 |
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Class II |
| $ | 0.9856 |
| $ | 0.9382 |
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Class MM |
| $ | 0.9639 |
| $ | 0.9106 |
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See notes to financial statements.
MAN FRM MANAGED FUTURES STRATEGIES LLC
(Formerly Systematic Momentum FuturesAccess LLC)
(a Delaware Limited Liability Company)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
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| 2017 |
| 2016 |
| 2015 |
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TRADING PROFIT (LOSS), NET: |
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Realized from Affiliated Funds, net |
| $ | (5,747,290 | ) | $ | (7,369,110 | ) | $ | 31,061,059 |
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Change in unrealized from Affiliated Funds, net |
| 11,101,106 |
| 3,152,181 |
| (41,752,455 | ) | |||
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Total trading profit (loss), net |
| 5,353,816 |
| (4,216,929 | ) | (10,691,396 | ) | |||
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INVESTMENT INCOME: |
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Interest |
| — |
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| 275 |
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EXPENSES: |
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Management fee |
| 1,693,232 |
| 2,875,987 |
| 4,070,605 |
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Professional fees |
| 289,800 |
| 572,269 |
| 390,820 |
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Administrative fee |
| 194,728 |
| 306,995 |
| 339,321 |
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Other expenses |
| 257,155 | # | 680,526 | # | 259,829 |
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Total expenses |
| 2,434,915 |
| 4,435,777 |
| 5,060,575 |
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NET INVESTMENT INCOME (LOSS) |
| (2,434,915 | ) | (4,435,777 | ) | (5,060,300 | ) | |||
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NET INCOME (LOSS) |
| $ | 2,918,901 |
| $ | (8,652,706 | ) | $ | (15,751,696 | ) |
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NET INCOME (LOSS) PER UNIT: |
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Weighted average number of Units outstanding |
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Class A |
| 13,462,310 |
| 20,340,977 |
| 24,858,980 |
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Class C |
| 48,870,020 |
| 83,850,361 |
| 115,841,365 |
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Class D |
| 1,992,602 |
| 2,885,277 |
| 3,066,004 |
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Class I |
| 10,503,691 |
| 12,900,892 |
| 14,846,095 |
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Class M |
| 3,976,325 |
| 6,379,411 |
| 8,178,434 |
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Class AA |
| 1,957,855 |
| 4,102,054 |
| 803,375 | * | |||
Class II |
| 9,082,061 |
| 2,491,734 |
| 1,584,229 | ** | |||
Class MM*** |
| 28,831 |
| 36,529 |
| — |
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Net income (loss) per weighted average Unit |
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Class A |
| $ | 0.0364 |
| $ | (0.0611 | ) | $ | (0.0908 | ) |
Class C |
| $ | 0.0226 |
| $ | (0.0666 | ) | $ | (0.0964 | ) |
Class D |
| $ | 0.0485 |
| $ | (0.0642 | ) | $ | (0.1006 | ) |
Class I |
| $ | 0.0512 |
| $ | (0.0663 | ) | $ | (0.0943 | ) |
Class M |
| $ | 0.0512 |
| $ | (0.0321 | ) | $ | (0.0720 | ) |
Class AA |
| $ | 0.0397 |
| $ | (0.1157 | ) | $ | (0.0355 | )* |
Class II |
| $ | 0.0446 |
| $ | (0.0395 | ) | $ | 0.0011 | ** |
Class MM |
| $ | 0.0533 |
| $ | (0.0838 | )*** | $ | — |
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*Units issued on November 16, 2015. Amounts presented reflect the period from November 16, 2015 through December 31, 2015.
**Units issued on December 7, 2015. Amounts presented reflect the period from December 7, 2015 through December 31, 2015.
***Units issued on January 25, 2016. Amounts presented reflect the period from January 25, 2016 through December 31, 2016.
#See Note 2 for further breakout of other expenses
See notes to financial statements.
MAN FRM MANAGED FUTURES STRATEGIES LLC
(Formerly Systematic Momentum FuturesAccess LLC)
(a Delaware Limited Liability Company)
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(in Units)
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| Members’ Units |
| Subscriptions#### |
| Redemptions#### |
| Members’ Units |
| Subscriptions## |
| Redemptions### |
| Members’ Units |
| Subscriptions# |
| Redemptions# |
| Members’ Units |
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Class A |
| 26,447,606 |
| 474,649 |
| (3,957,137 | ) | 22,965,118 |
| — |
| (6,723,662 | ) | 16,241,456 |
| — |
| (6,735,074 | ) | 9,506,382 |
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Class C |
| 131,433,730 |
| 706,472 |
| (34,225,981 | ) | 97,914,221 |
| — |
| (32,057,651 | ) | 65,856,570 |
| — |
| (28,670,322 | ) | 37,186,248 |
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Class D |
| 3,270,753 |
| — |
| (321,749 | ) | 2,949,004 |
| 893,199 |
| (875,694 | ) | 2,966,509 |
| — |
| (2,192,525 | ) | 773,984 |
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Class I |
| 15,579,536 |
| 170,060 |
| (2,160,074 | ) | 13,589,522 |
| — |
| (1,417,315 | ) | 12,172,207 |
| — |
| (4,037,734 | ) | 8,134,473 |
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Class M |
| 8,338,628 |
| 123,985 |
| (839,088 | ) | 7,623,525 |
| — |
| (2,856,741 | ) | 4,766,784 |
| — |
| (1,558,319 | ) | 3,208,465 |
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Class AA* |
| — |
| 1,187,288 |
| — |
| 1,187,288 |
| 5,287,677 |
| (388,913 | ) | 6,086,052 |
| 57,527 |
| (5,378,373 | ) | 765,206 |
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Class II** |
| — |
| 1,584,229 |
| — |
| 1,584,229 |
| 4,074,667 |
| (126,389 | ) | 5,532,507 |
| 4,912,626 |
| (1,882,059 | ) | 8,563,074 |
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Class MM*** |
| — |
| — |
| — |
| — |
| 43,497 |
| (14,666 | ) | 28,831 |
| — |
| — |
| 28,831 |
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Total Members’ Units |
| 185,070,253 |
| 4,246,683 |
| (41,504,029 | ) | 147,812,907 |
| 10,299,040 |
| (44,461,031 | ) | 113,650,916 |
| 4,970,153 |
| (50,454,406 | ) | 68,166,663 |
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* Units issued on November 16, 2015.
** Units issued on December 7, 2015.
*** Units issued on January 25, 2016.
# Includes transfer of 5,058,851 units out of Class AA for 4,912,626 units of Class II, on March 20, 2017.
## Includes transfers in to Class AA, from Class A, of 167,859 units, 23,521 units and 14,142 units, on April 11, 2016, May 16, 2016 and August 1, 2016, respectively.
### Includes transfers out of Class A, to Class AA, of 148,700 units, 20,816 units and 12,489 units, on April 8, 2016, May 13, 2016 and July 29, 2016, respectively.
#### Includes transfers out of 399,447 units and 1,073,617 units of Class A and Class C, respectively, into Class II.
Amounts have been rounded to the nearest whole unit.
See notes to financial statements.
MAN FRM MANAGED FUTURES STRATEGIES LLC
(Formerly Systematic Momentum FuturesAccess LLC)
(a Delaware Limited Liability Company)
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(in Dollars)
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| Members’ |
| Subscriptions#### |
| Redemptions#### |
| Net Income |
| Members’ |
| Subscriptions## |
| Redemptions### |
| Net Income |
| Members’ |
| Subscriptions# |
| Redemptions# |
| Net Income |
| Members’ |
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Class A |
| $ | 31,855,022 |
| $ | 587,905 |
| $ | (4,696,867 | ) | $ | (2,258,381 | ) | $ | 25,487,679 |
| $ | — |
| $ | (7,377,434 | ) | $ | (1,243,359 | ) | $ | 16,866,886 |
| $ | — |
| $ | (7,000,458 | ) | $ | 489,807 |
| $ | 10,356,235 |
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Class C |
| 153,204,368 |
| 858,000 |
| (38,777,389 | ) | (11,169,717 | ) | 104,115,262 |
| — |
| (33,653,036 | ) | (5,588,159 | ) | 64,874,067 |
| — |
| (27,936,608 | ) | 1,106,338 |
| 38,043,797 |
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Class D |
| 4,940,417 |
| — |
| (465,189 | ) | (308,403 | ) | 4,166,825 |
| 1,237,616 |
| (1,237,617 | ) | (185,327 | ) | 3,981,497 |
| — |
| (2,971,932 | ) | 96,605 |
| 1,106,170 |
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Class I |
| 20,196,513 |
| 234,625 |
| (2,733,249 | ) | (1,399,630 | ) | 16,298,259 |
| — |
| (1,728,455 | ) | (854,932 | ) | 13,714,872 |
| — |
| (4,599,897 | ) | 538,018 |
| 9,652,993 |
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Class M |
| 9,304,391 |
| 145,000 |
| (903,348 | ) | (588,791 | ) | 7,957,252 |
| — |
| (3,026,560 | ) | (204,651 | ) | 4,726,041 |
| — |
| (1,542,194 | ) | 203,502 |
| 3,387,349 |
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Class AA* |
| — |
| 1,199,000 |
| — |
| (28,537 | ) | 1,170,463 |
| 5,227,420 |
| (364,918 | ) | (474,781 | ) | 5,558,184 |
| 52,000 |
| (4,962,329 | ) | 77,815 |
| 725,670 |
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Class II** |
| — |
| 1,584,229 |
| — |
| 1,763 |
| 1,585,992 |
| 3,835,000 |
| (132,064 | ) | (98,435 | ) | 5,190,493 |
| 4,673,872 |
| (1,829,463 | ) | 405,280 |
| 8,440,182 |
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Class MM*** |
| — |
| — |
| — |
| — |
| — |
| 43,831 |
| (14,515 | ) | (3,062 | ) | 26,254 |
| — |
| — |
| 1,536 |
| 27,790 |
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Total Members’ Capital |
| $ | 219,500,711 |
| $ | 4,608,759 |
| $ | (47,576,042 | ) | $ | (15,751,696 | ) | $ | 160,781,732 |
| $ | 10,343,867 |
| $ | (47,534,599 | ) | $ | (8,652,706 | ) | $ | 114,938,294 |
| $ | 4,725,872 |
| $ | (50,842,881 | ) | $ | 2,918,901 |
| $ | 71,740,186 |
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* Units issued on November 16, 2015.
** Units issued on December 7, 2015.
*** Units issued on January 25, 2016.
# Includes transfers in to Class II, from Class AA, of $4,673,872 on March 20, 2017.
## Includes transfers in to Class AA, from Class A, of $170,663, $22,966 and $14,578, on April 11, 2016, May 16, 2016 and August 1, 2016, respectively.
### Includes transfers out of Class A, to Class AA, of $170,663, $22,966 and $14,578, on April 8, 2016, May 13, 2016 and July 29, 2016, respectively.
#### Includes transfers out of $442,867 and $1,141,362 of Class A and Class C, respectively, into Class II of $1,584,229.
Amounts have been rounded to the nearest dollar.
See notes to financial statements.
MAN FRM MANAGED FUTURES STRATEGIES LLC
(Formerly Systematic Momentum FuturesAccess LLC)
(a Delaware Limited Liability Company)
FINANCIAL DATA HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 2017
The following per Unit data and ratios have been derived from information provided in the financial statements.
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| Class A |
| Class C |
| Class D |
| Class I |
| Class M |
| Class AA |
| Class II |
| Class MM |
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Per Unit Operating Performance |
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Net asset value, beginning of year |
| $ | 1.0385 |
| $ | 0.9851 |
| $ | 1.3421 |
| $ | 1.1267 |
| $ | 0.9915 |
| $ | 0.9133 |
| $ | 0.9382 |
| $ | 0.9106 |
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Net realized and net change in unrealized trading profit (loss) |
| 0.0750 |
| 0.0705 |
| 0.0983 |
| 0.0817 |
| 0.0726 |
| 0.0652 |
| 0.0678 |
| 0.0663 |
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Net investment loss (b) |
| (0.0241 | ) | (0.0325 | ) | (0.0112 | ) | (0.0217 | ) | (0.0083 | ) | (0.0302 | ) | (0.0204 | ) | (0.0130 | ) | ||||||||
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Net asset value, end of year |
| $ | 1.0894 |
| $ | 1.0231 |
| $ | 1.4292 |
| $ | 1.1867 |
| $ | 1.0558 |
| $ | 0.9483 |
| $ | 0.9856 |
| $ | 0.9639 |
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Total Return: (a)(c) |
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Total return |
| 4.90 | % | 3.86 | % | 6.49 | % | 5.33 | % | 6.49 | % | 3.83 | % | 5.05 | % | 5.85 | % | ||||||||
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Ratios to Average Members’ Capital: (b) |
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Expenses |
| 2.33 | % | 3.33 | % | 0.83 | % | 1.93 | % | 0.83 | % | 3.33 | % | 2.18 | % | 1.43 | % | ||||||||
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Net investment income (loss) |
| (2.33 | )% | (3.33 | )% | (0.83 | )% | (1.93 | )% | (0.83 | )% | (3.33 | )% | (2.18 | )% | (1.43 | )% |
(a) The total return is calculated for each class taken as a whole based on the change in net asset value. An individual member’s return may vary from these returns based on the timing of the capital transactions.
(b) The amounts do not reflect the proportionate share of expense from the Affiliated Funds.
See notes to financial statements.
MAN FRM MANAGED FUTURES STRATEGIES LLC
(Formerly Systematic Momentum FuturesAccess LLC)
(a Delaware Limited Liability Company)
FINANCIAL DATA HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 2016
The following per Unit data and ratios have been derived from information provided in the financial statements.
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| Class A |
| Class C |
| Class D |
| Class I |
| Class M |
| Class AA |
| Class II |
| Class MM* |
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Per Unit Operating Performance |
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Net asset value, beginning of year |
| $ | 1.1098 |
| $ | 1.0633 |
| $ | 1.4130 |
| $ | 1.1993 |
| $ | 1.0438 |
| $ | 0.9858 |
| $ | 1.0011 |
| $ | 1.0000 |
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Net realized and net change in unrealized trading profit (loss) |
| (0.0426 | ) | (0.0402 | ) | (0.0552 | ) | (0.0463 | ) | (0.0409 | ) | (0.0373 | ) | (0.0385 | ) | (0.0738 | ) | ||||||||
Net investment loss (b) |
| (0.0287 | ) | (0.0380 | ) | (0.0157 | ) | (0.0263 | ) | (0.0114 | ) | (0.0352 | ) | (0.0244 | ) | (0.0156 | ) | ||||||||
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Net asset value, end of year |
| $ | 1.0385 |
| $ | 0.9851 |
| $ | 1.3421 |
| $ | 1.1267 |
| $ | 0.9915 |
| $ | 0.9133 |
| $ | 0.9382 |
| $ | 0.9106 |
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Total Return: (a)(c) |
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Total return |
| (6.42 | )% | (7.35 | )% | (5.02 | )% | (6.05 | )% | (5.01 | )% | (7.35 | )% | (6.28 | )% | (8.94 | )% | ||||||||
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Ratios to Average Members’ Capital: (b) |
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Expenses |
| 2.58 | % | 3.58 | % | 1.08 | % | 2.18 | % | 1.08 | % | 3.58 | % | 2.43 | % | 1.72 | % | ||||||||
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Net investment income (loss) |
| (2.58 | )% | (3.58 | )% | (1.08 | )% | (2.18 | )% | (1.08 | )% | (3.58 | )% | (2.43 | )% | (1.72 | )% |
(a) The total return is calculated for each class taken as a whole based on the change in net asset value. An individual member’s return may vary from these returns based on the timing of the capital transactions.
(b) The amounts do not reflect the proportionate share of expense from the Affiliated Funds.
(c) Total return has not been annualized.
* Class MM units issued on January 25, 2016, and the ratios have been annualized.
See notes to financial statements.
MAN FRM MANAGED FUTURES STRATEGIES LLC
(Formerly Systematic Momentum FuturesAccess LLC)
(a Delaware Limited Liability Company)
FINANCIAL DATA HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 2015
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 M |
| Class AA* |
| Class II** |
| |||||||
Per Unit Operating Performance |
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Net asset value, beginning of year |
| $ | 1.2045 |
| $ | 1.1656 |
| $ | 1.5105 |
| $ | 1.2963 |
| $ | 1.1158 |
| $ | 1.0000 |
| $ | 1.0000 |
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Net realized and net change in unrealized trading profit (loss) |
| (0.0707 | ) | (0.0678 | ) | (0.0899 | ) | (0.0764 | ) | (0.0664 | ) | (0.0101 | ) | 0.0026 |
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Net investment loss (b) |
| (0.0240 | ) | (0.0345 | ) | (0.0076 | ) | (0.0206 | ) | (0.0056 | ) | (0.0041 | ) | (0.0015 | ) | |||||||
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Net asset value, end of year |
| $ | 1.1098 |
| $ | 1.0633 |
| $ | 1.4130 |
| $ | 1.1993 |
| $ | 1.0438 |
| $ | 0.9858 |
| $ | 1.0011 |
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Total Return: (a)(c) |
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Total return |
| (7.86 | )% | (8.78 | )% | (6.45 | )% | (7.48 | )% | (6.45 | )% | (1.42 | )% | 0.11 | % | |||||||
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Ratios to Average Members’ Capital: (b) |
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Expenses |
| 2.01 | % | 3.02 | % | 0.51 | % | 1.61 | % | 0.51 | % | 3.26 | % | 2.13 | % | |||||||
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Net investment income (loss) |
| (2.01 | )% | (3.02 | )% | (0.51 | )% | (1.61 | )% | (0.51 | )% | (3.26 | )% | (2.13 | )% |
(a) The total return is calculated for each class taken as a whole based on the change in net asset value. An individual member’s return may vary from these returns based on the timing of the capital transactions.
(b) The amounts do not reflect the proportionate share of expense from the FuturesAccess Portfolio Funds and the Affiliated Funds.
(c) Total return has not been annualized.
* Class AA units issued on November 16, 2015, and the ratios have been annualized.
** Class II units issued on December 7, 2015, and the ratios have been annualized.
See notes to financial statements.
MAN FRM MANAGED FUTURES STRATEGIES LLC
(Formerly Systematic Momentum FuturesAccess LLC)
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Man FRM Managed Futures Strategies LLC (the “Fund”), a Delaware limited liability company, is a managed futures fund of funds managed by FRM Investment Management (USA) LLC (the “Manager” or “FRM”). FRM is registered as a commodity pool operator (“CPO”) and commodity trading adviser (“CTA”) with the Commodity Futures Trading Commission (“CFTC”) under the Commodity Exchange Act. FRM is also registered as an investment adviser under the Investment Advisers Act of 1940. FRM is an indirect wholly-owned subsidiary of Man Group plc (“Man Group”). The Fund was organized under the Delaware Limited Liability Company Act in March 2007 and commenced operations in April 2007. The Fund is an investment company as defined by Accounting Standards Codification (“ASC”) guidance. The Fund was previously known as “Systematic Momentum FuturesAccess LLC” through April 30, 2015.
Prior to May 1, 2015, the Fund was a participating fund in the FuturesAccessSM Program (“FuturesAccess”) sponsored by Merrill Lynch Alternative Investments LLC (“MLAI”). The Fund operated as a “fund of funds”, allocating and reallocating its capital among underlying FuturesAccess Funds (“FuturesAccess Portfolio Funds” or “Portfolio Funds”). MLAI was the sponsor and manager of the Fund prior to May 1, 2015. MLAI is an indirect wholly-owned subsidiary of Bank of America Corporation.
Pursuant to an Asset Purchase Agreement between MLAI and an indirect wholly-owned subsidiary of Man Group, as amended, the Man Group purchased, among other assets, the rights of MLAI and its affiliates under certain agreements relating to the management of the Fund. FRM replaced MLAI as manager of the Fund on May 1, 2015, upon the closing of such purchase. Effective as of May 1, 2015, the Fund was renamed “Man FRM Managed Futures Strategies LLC.”
Under the direction of the Manager, the Fund allocates its capital among a group of underlying related party funds (each an “Affiliated Fund”, and collectively the “Affiliated Funds”) which, in turn, allocate capital to related party master funds (each a “Master Fund” and collectively the “Master Funds”) that implement a systematic-based managed futures strategy under the direction of related party commodity trading advisors (each a “Trading Advisor” and collectively, the “Trading Advisors”).
The Manager invests the Fund’s assets in Affiliated Funds that are on the FRM platform. The Affiliated Funds invested in by the Fund are established as Delaware limited liability companies, each of which engages the Manager as the risk manager and each of which further invests in a Master Fund, established as a Cayman Islands exempted company, which engages a single Trading Advisor (see Note 3). As of December 31, 2017 and December 31, 2016, there are five and six Affiliated Funds (see Note 3), respectively, held by the Fund. The Manager serves as CPO of the Affiliated Funds and Master Funds.
Unless the context requires otherwise, references to the Fund in these financial statements notes, also refer to the Affiliated Funds and the Master Funds in which the Affiliated Funds invest. Reference to the investment process, strategies, objectives or activities of the Fund and the Affiliated Funds refer to the investment activities of the Master Funds through which the Affiliated Funds and Fund indirectly
conduct their investment processes, strategies, objectives and activities. Additionally, references to the Affiliated Funds that follow are also related to the FuturesAccess Portfolio Funds during the period prior to May 1, 2015.
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 any bank. Interests are subject to investment risks, including the possible loss of the full amount invested.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund prepares its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These financial statements have applied the guidance as set forth in the Financial Accounting Standards Board (“FASB”) ASC 946, Financial Services - Investment Companies. The following is a summary of the significant accounting and reporting policies used in preparing the financial statements.
Cash and Cash Equivalents
The Fund considers all highly liquid investments, with a maturity of three months or less when acquired, to be cash equivalents. As of December 31, 2017 and December 31, 2016, the Fund does not hold any cash equivalents. Cash is held at a nationally recognized financial institution.
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.
Statement of Cash Flows
In accordance with FASB ASC 230, Statement of Cash Flows, the Fund is exempt from the requirement to provide a statement of cash flows as all required conditions have been met.
Revenue Recognition
The resulting change between cost and market value (net of subscription and redemption activity in the investment in the Affiliated Funds) is reflected in the Statements of Operations as change in unrealized from the investments in the Affiliated Funds. In addition, when the Fund redeems or partially redeems its interest in the Affiliated Funds, it records realized (net profit or loss) under Trading profit (loss), net for such interests in the Statements of Operations of the Fund.
Foreign Currency Transactions
The Fund’s functional currency is the U.S. dollar. The Master Funds may invest in financial instruments denominated in currencies other than U.S. dollar. However, the Master Funds value their financial instruments in U.S. dollars. The Master Funds may or may not seek to hedge their foreign currency exposure by entering into currency hedging transactions, such as treasury locks, forward contracts, future
contracts and cross-currency swaps. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect as of the dates of the Statements of Financial Condition of the Fund and each of the Affiliated Funds and Master Funds. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the year. Profits and losses, including adjustments, resulting from the translation to U.S. dollars are included in Trading profit (loss), net in the Statement of Operations of the Master Funds.
Operating Expenses and Selling Commissions
The Fund pays all of its ongoing operating costs, including, without limitation: ongoing offering fees and expenses; transaction costs; legal, accounting, audit and tax reporting and preparation fees and expenses; administrative, custody, transfer, subscription and redemption processing fees and expenses; regulatory, filing and printing fees and expenses; and any extraordinary expenses. Operating costs are allocated pro rata among each Class of Units based on their respective Net Asset Values.
During the years ended December 31, 2017 and 2016, the Fund incurred $91,000 and $485,878, respectively, of costs for reports to shareholders, which is currently included in other expenses on the Statement of Operations.
Class A Units are subject to upfront sales commissions paid to Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) ranging from 1.0% to 2.5% of an investor’s gross subscription amount. Class D Units and Class I Units are subject to upfront sales commissions paid to MLPF&S up to 2.5% of an investor’s gross subscription amount. Class AA, Class II and Class MM Units are subject to upfront sales commissions of up to 3.0% of an investor’s net subscription amount, payable to MLPF&S. Sales commissions are directly deducted from subscription amounts. Class C Units and Class M Units are not subject to upfront sales commissions.
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 ASC guidance on accounting for uncertain tax positions. 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 (“NAV”) of the Fund, including reducing the NAV of the Fund to reflect reserves for income taxes, such as foreign withholding taxes, that may be payable by the Fund or the Affiliated Funds. This could cause benefits or detriments to certain investors, depending upon the timing of their entry and exit from the Fund. The Manager has analyzed the Fund’s tax positions and has concluded that no provision for income tax 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 — 2014.
Distributions
Each investor is entitled to receive, equally per unit, any distributions which may be made by the Fund. No such distributions have been declared for the years ended December 31, 2017, 2016 and 2015.
Subscriptions
The Fund generally offers units (“Units”) for investment each Monday (or, where such day is not a business day, the immediately following business day) and/or such other days as the Manager may determine in its sole discretion (each a “Subscription Day”). Investors must submit their executed subscription agreement five business days prior to the Subscription Day. Investors’ subscriptions will be used to purchase a number of Units, including fractional Units, with an aggregate NAV, equal to the dollar amount invested.
Each member shares in the profits and losses of the Fund in proportion to the number of Units held by each member. However, no member is liable for obligations of the Fund in excess of its capital subscription and net profits or losses, if any. Except as noted above in respect to sales commissions and in Notes 6 below in respect of fees, the classes of units are identical.
Redemptions
Investors in the Fund generally may redeem any or all of their Units at NAV, in whole or fractional Units, effective as of (i) each Friday (or, where such day is not a business day, the immediate following business day) and/or (ii) such other days as the Manager may determine in its sole discretion (each a “Redemption Day”), upon providing notice to the Fund in writing (or in such other manner as the Manager may determine in its sole discretion) not less than four business days prior to the Redemption Day. The NAV of redeemed Units is determined as of the Redemption Date. Investors will remain exposed to fluctuations in NAV during the period between submission of their redemption requests and the applicable Redemption Date.
3. INVESTMENTS IN AFFILIATED FUNDS
As of December 31, 2017, the five Underlying Funds in which the Fund is invested in, and the respective Master Funds in which the Underlying Funds are invested in are: (i) Blakeney Delaware Feeder LLC (“Blakeney”) which invests in Blakeney Fund Limited, (ii) Campbell Delaware Feeder LLC (“Campbell”) which invests in Campbell MAC Cayman Fund Limited, (iii) Century CAT MAC Delaware Feeder LLC (“Century CAT”) which invests in Century CAT MAC Cayman Fund Limited, (iv) Quantica MF Delaware Feeder LLC (“Quantica MF”) which invests in Quantica MF Cayman Fund Limited, and (v) Silver Delaware Feeder LLC (“Silver”) which invests in Silver MAC Limited. As used herein, Trading Advisor in respect of an Affiliated Fund refers to the Trading Advisor of its related Master Fund. FRM, in its discretion, may change the Affiliated Funds at any time. FRM, also at its discretion, may vary the percentage of the Fund’s total portfolio allocated to the different Affiliated Funds. In the process of rebalancing, the Fund’s allocation to any individual Affiliated Fund may range between 3% - 25% of the Fund’s NAV.
During the year, the Fund had purchases of $15,020,000 and sales of $45,186,987 of investments in Affiliated Funds. The investment transactions were accounted for on trade date. The investments in the Affiliated Funds are valued at fair value and are reflected in the Statements of Financial Condition. In determining fair value, FRM utilized the NAV of the Affiliated Funds which approximates fair value. The fair value was net of all fees relating to the Affiliated Funds, paid or accrued. Additionally, FRM
monitored the performance of the Affiliated Funds. The fair value of the Fund’s assets and liabilities which qualify as financial instruments approximates the carrying amounts presented on the Statements of Financial Condition.
The details of investments in Affiliated Funds at and for the year ended December 31, 2017 are as follows:
|
| Percentage |
| Fair Value |
| Profit (Loss) |
| Cost @ |
| Management |
| Performance |
| Redemptions Permitted |
| |||||
Blakeney |
| 17.67 | % | $ | 12,668,793 |
| $ | 1,809,898 |
| $ | 11,426,766 |
| $ | 241,153 |
| $ | 138,258 |
| Weekly |
|
Campbell |
| 10.11 | % | 7,252,364 |
| 1,101,081 |
| 6,970,719 |
| 155,918 |
| 26,590 |
| Weekly |
| |||||
CCP Core Macro * |
| — |
| — |
| 388,541 |
| — |
| 92,403 |
| — |
| Weekly |
| |||||
Century CAT |
| 12.06 | % | 8,654,545 |
| 1,000,853 |
| 7,604,846 |
| 76,655 |
| — |
| Weekly |
| |||||
Quantica MF |
| 12.35 | % | 8,860,115 |
| 1,960,321 |
| 7,735,745 |
| 102,447 |
| 91,355 |
| Weekly |
| |||||
Silver |
| 9.10 | % | 6,530,879 |
| (906,878 | ) | 7,404,913 |
| 83,277 |
| — |
| Weekly |
| |||||
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| |||||
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| 61.29 | % | $ | 43,966,696 |
| $ | 5,353,816 |
| $ | 41,142,989 |
| $ | 751,853 |
| $ | 256,203 |
|
|
|
* Affiliated Fund was redeemed in July 2017 and the Fund received proceeds of $10,741,987.
The details of investments in Affiliated Funds at and for the year ended December 31, 2016 are as follows:
|
| Percentage |
| Fair Value |
| Profit (Loss) |
| Cost @ |
| Management |
| Performance |
| Redemptions |
| |||||
Blakeney |
| 11.13 | % | $ | 12,788,895 |
| $ | (15,627 | ) | $ | 13,427,752 |
| $ | 405,674 |
| 178,465 |
| Weekly |
| |
Campbell |
| 9.33 | % | 10,721,283 |
| (3,135,990 | ) | 13,028,816 |
| 356,382 |
| 8,285 |
| Weekly |
| |||||
Carlisle* |
| — |
| — |
| 713,644 |
| — |
| 35,154 |
| 119,723 |
| Weekly |
| |||||
CCP Core Macro |
| 10.12 | % | 11,633,446 |
| (425,212 | ) | 12,743,445 |
| 176,762 |
| (407 | ) | Weekly |
| |||||
Century CAT** |
| 12.32 | % | 14,163,692 |
| (2,881,308 | ) | 16,787,646 |
| 93,602 |
| — |
| Weekly |
| |||||
Quantica MF |
| 8.64 | % | 9,934,794 |
| 1,510,060 |
| 10,088,625 |
| 143,688 |
| — |
| Weekly |
| |||||
Silver |
| 8.30 | % | 9,537,757 |
| 17,504 |
| 10,980,982 |
| 116,455 |
| — |
| Weekly |
| |||||
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| |||||
|
| 59.84 | % | $ | 68,779,867 |
| $ | (4,216,929 | ) | $ | 77,057,266 |
| $ | 1,327,717 |
| $ | 306,066 |
|
|
|
* Affiliated Fund was redeemed in April 2016 and the Fund received proceeds of $8,826,829.
** Affiliated Fund purchased in March 2016.
As of December 31, 2017 and 2016, there are no investments held by the Affiliated Funds and the Affiliated Funds’ Master Funds that in the aggregate exceed 5% of the Fund’s members’ capital.
The following is summarized financial information as required by Regulation S-X, for each of the FuturesAccess Portfolio Funds and the Affiliated Funds:
|
| As of December 31, 2017 |
| |||||||
|
| Total Assets |
| Total Liabilities |
| Total Capital |
| |||
Blakeney |
| $ | 12,752,469 |
| $ | 72,892 |
| $ | 12,679,577 |
|
Campbell |
| 7,316,145 |
| 55,004 |
| 7,261,141 |
| |||
Century CAT |
| 8,916,033 |
| 250,122 |
| 8,665,911 |
| |||
Quantica MF |
| 8,928,604 |
| 59,738 |
| 8,868,866 |
| |||
Silver |
| 6,591,357 |
| 54,210 |
| 6,537,147 |
| |||
|
|
|
|
|
|
|
| |||
Total |
| $ | 44,504,608 |
| $ | 491,966 |
| $ | 44,012,642 |
|
|
| As of December 31, 2016 |
| |||||||
|
| Total Assets |
| Total Liabilities |
| Total Capital |
| |||
Blakeney |
| $ | 12,939,371 |
| $ | 141,001 |
| $ | 12,798,370 |
|
Campbell |
| 10,859,354 |
| 130,341 |
| 10,729,013 |
| |||
Carlisle |
| 11,744,051 |
| 98,433 |
| 11,645,618 |
| |||
CCP Core Macro |
| 14,247,902 |
| 75,923 |
| 14,171,979 |
| |||
Quantica MF |
| 10,069,651 |
| 127,622 |
| 9,942,029 |
| |||
Silver |
| 9,670,349 |
| 125,495 |
| 9,544,854 |
| |||
|
|
|
|
|
|
|
| |||
Total |
| $ | 69,530,678 |
| $ | 698,815 |
| $ | 68,831,863 |
|
|
| For the year ended December 31, 2017 |
| ||||||||||
|
| Income (Loss) |
| Commissions |
| Expenses |
| Net |
| ||||
Blakeney |
| $ | 2,023,676 |
| $ | — |
| $ | (212,478 | ) | $ | 1,811,198 |
|
Campbell |
| 1,269,104 |
| — |
| (166,976 | ) | 1,102,128 |
| ||||
CCP Core Macro # |
| 703,735 |
| — |
| (313,997 | ) | 389,738 |
| ||||
Century CAT |
| 1,186,878 |
| — |
| (182,944 | ) | 1,003,934 |
| ||||
Quantica MF |
| 2,139,225 |
| — |
| (177,384 | ) | 1,961,841 |
| ||||
Silver |
| (742,075 | ) | — |
| (165,627 | ) | (907,702 | ) | ||||
|
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|
|
|
|
|
| ||||
Total |
| $ | 6,580,543 |
| $ | — |
| $ | (1,219,406 | ) | $ | 5,361,137 |
|
#Affiliated Fund was redeemed in July 2017 and the Fund received proceeds of $10,741,987.
|
| For the year ended December 31, 2016 |
| ||||||||||
|
| Income (Loss) |
| Commissions |
| Expenses |
| Net |
| ||||
Blakeney |
| $ | 285,631 |
| $ | — |
| $ | (301,619 | ) | $ | (15,988 | ) |
Campbell |
| (2,865,772 | ) | — |
| (271,928 | ) | (3,137,700 | ) | ||||
Carlisle# |
| 776,008 |
| — |
| (115,102 | ) | 660,906 |
| ||||
CCP Core Macro |
| 111,541 |
| — |
| (529,943 | ) | (418,402 | ) | ||||
Century CAT## |
| (2,697,621 | ) | — |
| (182,029 | ) | (2,879,650 | ) | ||||
Quantica MF |
| 1,731,012 |
| — |
| (220,354 | ) | 1,510,658 |
| ||||
Silver |
| 233,347 |
| — |
| (216,584 | ) | 16,763 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ | (2,425,854 | ) | $ | — |
| $ | (1,837,559 | ) | $ | (4,263,413 | ) |
#Affiliated Fund was redeemed in April 2016 and the Fund received proceeds of $8,826,829.
##Affiliated Fund purchased in March 2016.
|
| For the year ended December 31, 2015 |
| ||||||||||
|
| Income (Loss) |
| Commissions |
| Expenses |
| Net |
| ||||
Aspect* |
| $ | 404,556 |
| $ | (169,723 | ) | $ | (4,910,852 | ) | $ | (4,676,019 | ) |
BlueTrend* |
| 9,245,595 |
| (170,694 | ) | (2,259,861 | ) | 6,815,040 |
| ||||
John Locke* |
| 1,864,422 |
| (74,165 | ) | (506,783 | ) | 1,283,474 |
| ||||
Lynx * |
| 2,414,522 |
| (79,733 | ) | (1,344,163 | ) | 990,626 |
| ||||
Transtrend* |
| 1,877,424 |
| (177,794 | ) | (921,164 | ) | 778,466 |
| ||||
Tudor* |
| 1,983,906 |
| (127,346 | ) | (514,687 | ) | 1,341,873 |
| ||||
Winton* |
| 25,719,496 |
| (335,422 | ) | (24,207,340 | ) | 1,176,734 |
| ||||
Blakeney** |
| (246,302 | ) | — |
| (224,457 | ) | (470,759 | ) | ||||
Campbell** |
| (1,355,182 | ) | — |
| (236,523 | ) | (1,591,705 | ) | ||||
Carlisle** |
| (1,152,742 | ) | — |
| (152,437 | ) | (1,305,179 | ) | ||||
CCP Core Macro** |
| (1,757,466 | ) | — |
| (145,345 | ) | (1,902,811 | ) | ||||
Quantica MF** |
| (7,392,755 | ) | — |
| (230,874 | ) | (7,623,629 | ) | ||||
Silver** |
| (4,343,455 | ) | — |
| (206,272 | ) | (4,549,727 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ | 27,262,019 |
| $ | (1,134,877 | ) | $ | (35,860,758 | ) | $ | (9,733,616 | ) |
* FuturesAccess Portfolio Funds redeemed as of April 30, 2015. The information above reflects income and expenses of the related FuturesAccess Portfolio Fund for the period from January 1, 2015 through April 30, 2015.
** Affiliated Funds purchased in May 2015.
4. 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).
The fair value measurement guidance established by U.S. GAAP is a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following categories:
Level I — Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded investments. As required by the fair market value measurement guidance in U.S. GAAP, the Fund does not adjust the quoted price for these investments even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.
Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of generally accepted and understood models or other valuation methodologies.
Level III — Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair value for these investments is determined using valuation methodologies that consider a range of factors, including but not limited to the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating
performance and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. FRM’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.
FASB ASC 820 - Fair Value Measurement and Disclosures no longer requires investments for which fair value is determined based on practical expedient reliance to be reported utilizing the fair value hierarchy. As of December 31, 2017 and December 31, 2016, all of the investments were fair valued using the NAV as practical expedient of the Affiliated Funds.
5. MARKET, CREDIT AND CONCENTRATION RISKS
The nature of this Fund has certain risks, which cannot all be presented in the financial statements. The following summarizes certain 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 Master Funds’ financial assets (liabilities) at fair value through profit or loss on such derivative instruments as reflected in the Statements of Financial Condition of the Master Funds. The Fund’s exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Master Funds 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.
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 derivatives, at fair value, if any, included in the Master Funds’ Statements of Financial Condition.
As of December 31, 2017, the Affiliated Funds held by the Fund do not invest directly in positions other than their related Master Funds. The Master Funds enter into contracts with various futures clearing brokers. These brokers may encounter financial difficulties that can impair the operating capabilities or the capital position of the Master Funds, and in turn, the Affiliated Funds. The Trading Advisors of the
Master Funds will attempt to limit transactions to well-capitalized and established brokers in an effort to mitigate such risk.
Credit risk is the possibility that a loss may occur from the failure of a counterparty to make payments according to the terms of a contract. The Fund’s exposure to credit risk is contingent upon the Affiliated Funds and the brokers and counterparties which the Affiliated Funds transact business with as well as amounts recorded as assets in the Statements of Financial Condition.
Cash held as deposits may exceed the amount of federal insurance provided on such deposits and are therefore subject to credit risk.
Concentration Risk
The Fund’s investments in the Affiliated Funds are subject to the market and credit risk of the Affiliated Funds. Because the majority of the Fund’s capital is invested in the Affiliated Funds, any changes in the market conditions that would adversely affect the Affiliated Funds could significantly impact the solvency of the Fund.
Currency Risk
The Fund’s investments in the Affiliated Funds are subject to currency risk to the extent that the fair value or future cash flow of a financial instrument held by any Affiliated Fund will fluctuate because of changes in foreign exchange rates.
Liquidity Risk
Liquidity risk is the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities. Redemption requests for Units are the main liquidity risk for the Fund. The Units are redeemable as outlined in Note 2. The exposure to liquidity risk through redemption requests for Units is managed by specifically setting the redemption notice period to accommodate the expected liquidity of the Affiliated Funds as agreed by the Investment Manager.
Indemnifications
The Fund enters into administrative and other professional service contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is not known; however, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
6. RELATED PARTY TRANSACTIONS
MLAI and the Fund entered into a transfer agency and investor services agreement with Financial Data Services, Inc. (the “Former Transfer Agent”), an affiliate of MLAI, which was in place through April 30, 2015. The fees charged by the Former Transfer Agent for its services were based on the aggregate net assets of funds managed or sponsored by MLAI. The fee rate ranged from 0.016% to 0.02% per year of the aggregate net assets managed or sponsored by MLAI. Effective as of May 1, 2015, The Bank of New York Mellon, a corporation organized under the laws of the State of New York, through its Alternative Investment Services division (“AIS”), serves as the administrator, registrar and transfer agent (“New Transfer Agent”) for the Fund pursuant to an Administrative Services Agreement. The New Transfer Agent provides registrar, distribution disbursing agent, transfer agent and certain other services related to
the issuance, redemption, exchange and transfer of units. The New Transfer Agent is not a related party of the Fund.
The Former Transfer Agent fee allocated to the Fund for the year ended December 31, 2017, 2016 and 2015 amounted to $0, $0 and $36,363, respectively.
The Manager receives monthly management fees (“Management Fees”) based on the aggregate NAV of the Class of Units. The respective Management Fee rates are: Class A Units 1.5% per annum; Class C Units 2.5% per annum, Class I Units 1.1% per annum, Class AA units 2.5% per annum; Class II units 1.35% per annum; Class MM units 0.60% per annum. Class D Units and Class M Units are not charged Management Fees.
7. WEIGHTED AVERAGE UNITS
The weighted average number of Units outstanding for each Class is computed for purposes of disclosing net income (loss) per weighted average Unit. The weighted average number of Units outstanding for each Class for the years ended December 31, 2017, 2016 and 2015 equals the Units outstanding as of such date, adjusted proportionately for Units sold or redeemed based on the respective length of time each was outstanding during the year.
8. SUBSEQUENT EVENTS
For the period January 1, 2018 to March 29, 2018, the Fund has recorded redemptions of approximately $6,260,223.
Management has evaluated the impact of subsequent events on the Fund through the date the financial statements were issued and has determined that there were no additional subsequent events that require adjustment to, or disclosure in, the financial statements.