UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended March 31, 2007
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 000-52192
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UBS MANAGED FUTURES LLC (ASPECT SERIES)
(Exact name of registrant as specified in its charter)
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Delaware 03-0607985
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
c/o UBS MANAGED FUND SERVICES INC.
One North Wacker Drive
31st Floor
Chicago, Illinois 60606
(Address of Principal Executive Offices)
(877) 272-2613
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to -Section 12(g) of the Act:
Units of Limited Liability Company Interest
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 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 | |
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer | | Accelerated filer | | Non-accelerated file(R) |X|
Indicate by check mark whether the Registrant is a shell company (as defined
in Rule 12b-2 of the Securities Exchange Act of 1934). Yes | | No |X|
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ii
UBS MANAGED FUTURES LLC (ASPECT SERIES)
QUARTERLY REPORT FOR PERIOD ENDED MARCH 31, 2007 ON FORM 10-Q
Table of Contents
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Page
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PART I - FINANCIAL INFORMATION
Item 1. CONDENSED FINANCIAL STATEMENTS 1
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Condensed Statements of Financial Condition (unaudited)
Condensed Statement of Operations (unaudited)
Condensed Statement of Changes in Members' Capital (unaudited)
Condensed Schedule of Investments (unaudited)
Notes to Financial Statements (unaudited)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 13
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Item 4. CONTROLS AND PROCEDURES 13
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Item 4T. CONTROLS AND PROCEDURES 13
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PART II - OTHER INFORMATION
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Item 1. LEGAL PROCEEDINGS 13
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Item 1A. RISK FACTORS 13
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Item 2. UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS 13
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Item 3. DEFAULTS UPON SENIOR SECURITIES 13
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
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Item 5. OTHER INFORMATION 14
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Item 6. EXHIBITS 14
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SIGNATURES S-1
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iii
PART I - FINANCIAL INFORMATION
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Item 1: Financial Statements
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UBS MANAGED FUTURES LLC (ASPECT SERIES)
Condensed Statements of Financial Condition
March 31, 2007 December 31, 2006
----------------- --------------------
(unaudited)
Assets
Equity in commodity trading account at clearing broker:
Cash $ 7,735,632 $ -
Unrealized appreciation/depreciation on open contracts, net 102,882 -
----------------- --------------------
7,838,514 -
Cash at bank 592,452 -
Deferred offering costs - 109,591
Interest receivable 17,462 -
----------------- --------------------
Total assets $ 8,448,428 $ 109,591
================= ====================
Liabilities and Members' Capital
Liabilities
Accrued brokerage commissions $ 1,094 $ -
Accrued sales commission 6,725 -
Accrued sponsor's fee 842 -
Accrued management fee 6,733 -
Accrued performance fee 12,013 -
Accrued operating costs and administrative fee 10,323 -
Accrued organizational and initial offering costs 328,552 318,411
Subscriptions received in advance 602,452 -
----------------- --------------------
Total liabilities 968,734 318,411
----------------- --------------------
Members' Capital
Members (7,760.62 and 0 units outstanding at March 31, 2007 and
December 31, 2006, respectively, unlimited units authorized) 7,479,694 (208,820)
Sponsor (0 units outstanding at March 31, 2007 and
December 31, 2006, respectively, unlimited units authorized) - -
----------------- --------------------
Total members' capital 7,479,694 (208,820)
----------------- --------------------
Total liabilities and members' capital $ 8,448,428 $ 109,591
================= ====================
See accompanying notes to financial statements.
1
UBS MANAGED FUTURES LLC (ASPECT SERIES)
Condensed Statement of Operations
(unaudited)
January 1, 2007 January 1, 2006
through through
March 31, 2007 March 31, 2006 *
-------------------- ---------------------
Income:
Trading gains (losses)
Net realized loss $ (31,296) $ -
Change in unrealized appreciation/depreciation on open contracts 102,882 -
Interest income 17,462 -
Foreign currency transaction gain 20 -
-------------------- ---------------------
Total income 89,068 -
-------------------- ---------------------
Expenses:
Brokerage commission 4,806 -
Sales commission 6,725 -
Sponsor's fee 842 -
Management fee 6,733 -
Performance fee 12,013 -
Operating costs and administrative fee 10,323 -
-------------------- ---------------------
Total expenses 41,442 -
-------------------- ---------------------
Net income $ 47,626 $ -
==================== =====================
Net Income per unit:
Number of units outstanding 7,760.62 -
==================== =====================
Net Income per unit $ 6.137 $ -
==================== =====================
* Commencement of the operations of the Series was March 16, 2007
See accompanying notes to financial statements.
2
UBS MANAGED FUTURES LLC (ASPECT SERIES)
Condensed Statement of Changes in Members' Capital
Quarter ended March 31, 2007
(unaudited)
Member Units Sponsor Units Total
--------------- --------------- -------------
Members' capital at January 1, 2007 -- -- --
Members' subscriptions 7,760.62 -- 7,760.62
Members' redemptions -- -- --
Members' capital at March 31, 2007 7,760.62 -- 7,760.62
Sponsor
Member Dollars Dollars Total
---------------- --------------- -------------
Members' capital at January 1, 2007 $ (208,820) - (208,820)
Initial offering costs (119,732) - (119,732)
Members' subscriptions 7,760,620 - 7,760,620
Members' redemptions - - -
Net income 47,626 - 47,626
---------------- --------------- -------------
Members' capital at March 31, 2007 $ 7,479,694 - 7,479,694
================ =============== ==============
Net asset value per unit at March 16, 2007* $ 957.664 - 957.664
Net income per unit 6.137 - 6.137
Net asset value per unit at March 31, 2007 963.801 - 963.801
* Commencement of the operations of the Series
See accompanying notes to financial statements.
3
UBS MANAGED FUTURES LLC (ASPECT SERIES)
Condensed Schedule of Investments
March 31, 2007
(unaudited)
% of Net Unrealized Appreciation /
Members' Decpreciation on Open
Capital Contracts
------------- ------------------------------
FUTURES CONTRACTS:
Long contracts
Domestic
Agriculture (0.11%) $ (8,588)
Interest rates (0.01%) (425)
Metals 0.17% 13,088
Stock 0.01% 860
Foreign
Agriculture 0.12% 8,978
Interest rates (0.01%) (614)
Stock 0.31% 23,359
------------- ------------------------------
0.48% 36,658
Short contracts
Domestic
Agriculture 0.09% 6,799
Energy (0.93%) (69,553)
Fixed income 0.01% 469
Interest rates 0.02% 1,353
Foreign
Fixed income 0.26% 19,403
Interest rates 0.57% 42,983
------------- ------------------------------
0.02% 1,454
Total futures contracts 0.50% 38,112
------------- ------------------------------
FORWARD CURRENCY CONTRACTS:
Total long forward currency contracts 0.09% 6,798
Total short forward currency contracts 0.78% 57,972
------------- ------------------------------
Total forward currency contracts 0.87% 64,770
------------- ------------------------------
Net unrealized appreciation/depreciation on open contracts 1.37% $ 102,882
============= ==============================
See accompanying notes to financial statements.
4
UBS MANAGED FUTURES LLC (ASPECT SERIES)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2007
(unaudited)
(1) Organization
UBS Managed Fund Services Inc. (the "Sponsor"), an indirect subsidiary of UBS
AG, is the sponsor of UBS Managed Futures LLC (the "Platform") of which UBS
Managed Futures LLC (Aspect Series) (the "Aspect Series") is a "segregated
series." The Aspect Series invests all or substantially all of its assets in
UBS Managed Futures (Aspect) LLC (the "Trading Fund") which is advised by
Aspect Capital Limited (the "Trading Advisor"). The Aspect Series and the
Trading Fund are collectively referred to herein as the "Series". UBS
Securities LLC is the Series' futures clearing broker and UBS AG is the
foreign exchange clearing broker of the Series (collectively, the "Clearing
Broker"). The Sponsor, over time, intends to offer investors a selection of
different trading advisors, each managing a different segregated series of the
Platform. The Series was organized on October 26, 2006 and had not commenced
trading until March 16, 2007, except for matters relating to the Series'
organization, the registration of the Series' units of limited liability
company interests ("Units") under the Securities Exchange Act of 1934, as
amended and the offering of such Units.
On March 15, 2007, the Series issued 5,000.00 Units to the Trading Advisor for
$5,000,000 (the "Trading Advisor Investment") and issued 2,760.62 Units for
$2,760,620 to third parties. The Series may terminate upon the determination
of the Sponsor to do so for any reason (for the avoidance of doubt, the
Sponsor shall be entitled, without any violation of any contractual or
fiduciary obligation to any investor in the Series (a "Member"), to dissolve
the Series at any time).
(2) Summary of Significant Accounting Policies
The accompanying unaudited financial statements of the Series have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair statement of the financial condition and operations of
the Series for the period presented have been included. The following is a
description of the more significant of those policies that the Series follows
in preparing its financial statements.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
- -------------------
Commodity futures, options on futures, and forward contract transactions are
recorded on the trade date and open contracts are reflected in net unrealized
appreciation/depreciation on open contracts in the Statements of Financial
Condition as the difference between the original contract value and the market
value (as determined by exchange settlement prices for futures contracts and
related options and cash dealer prices at a predetermined time for forward
contracts, physical commodities, and their related options) as of the last
business day of the year or as of the last date of the financial statements.
The change in unrealized profit (loss) on open contracts from one period to
the next is reflected in the change in unrealized appreciation/depreciation on
open contracts in the Statements of Operations. Realized gains and losses on
futures and forward contracts are recognized when contracts are closed.
5
Foreign Currency Transactions
- -----------------------------
The Series' functional currency is the U.S. dollar; however, it transacts
business in the U.S. dollar and in currencies other than the U.S. dollar.
Trading accounts in foreign currency denominations are susceptible to both
movements in the underlying contract markets as well as fluctuations in
currency rates. Asset and liabilities denominated in currencies other than the
U.S. dollar are translated into U.S. dollars at the rates in effect at the
date of the Statements of Financial Condition. Income and expense items
denominated in currencies other than the U.S. dollars are translated into U.S.
dollars at the rates in effect during the period. Gains and losses resulting
from the translation into U.S. dollar are reported as foreign currency
transaction gain or loss in the Statements of Operations.
Cash at the Clearing Broker
- ---------------------------
A portion of the assets maintained at the Clearing Broker is restricted cash
required to meet maintenance margin requirements. Included in cash deposits
with the Clearing Broker as of March 31, 2007 was restricted cash for margin
requirements of $627,281.
Income Taxes
- ------------
No provision has been made in the accompanying Financial Statements for U.S.
federal or state income taxes as each Member is individually responsible for
reporting income or loss based on such Member's share of the Series' income
and expenses as reported for income tax purposes.
Distributions
- -------------
The Sponsor does not intend to make any distributions. Consequently, in order
to pay the taxes attributable to their investment in a Series, Members must
either redeem Units or pay such taxes from other sources.
Subscriptions
- -------------
Units are purchased generally at the beginning of each calendar month at the
net asset value per Unit for all other purposes (see Note 3). The subscription
request must be submitted at least seven calendar days prior to the first day
of any month in which a Member intends to invest.
Redemptions
- -----------
Units may be redeemed as of the end of any calendar month (each, a "Redemption
Date") at the net asset value per Unit for all other purposes (see Note 3) as
of such Redemption Date. Redemption requests must be submitted on or prior to
the 15th day of the calendar month of such Redemption Date or the following
business day.
The Trading Advisor will be subject to the same redemption terms and
procedures as other Members with respect to its investment in the Series.
However, as soon as the Series reaches a capitalization of $10 million
(including the Trading Advisor Investment and any performance gains thereon)
(the "Capitalization Threshold"), the Trading Advisor shall be entitled to
redeem the Trading Advisor Investment (together with any performance gains
thereon), subject to the terms of the then current Confidential Disclosure
Document of the Platform (the "Disclosure Document"); provided, that the
Trading Advisor will only be entitled to redeem on any individual redemption
date as described the Disclosure Document in an amount of up to one-third of
the Trading Advisor Investment (together with any performance gains on that
proportion of the Trading Advisor Investment which may be redeemed). In
addition, the Trading Advisor will be able to make such redemptions only to
the extent that the capitalization of the Series does not decrease below the
Capitalization Threshold as of the applicable redemption date after accounting
for such redemptions and any redemptions of other Members of the Series
effective as of such redemption date. For the avoidance of doubt, the Trading
Advisor will not be obliged to make any additional investments into the
Series.
To the extent that the Trading Advisor has not already redeemed the entire
Trading Advisor Investment (together with any performance gains thereon)
before March 15, 2008, from that date onwards, the Trading Advisor shall be
entitled to redeem in full any proportion of the Trading Advisor Investment
(together with any performance gains thereon) which remains invested in the
Series subject to the terms of the Disclosure Document.
6
Indemnifications
- ----------------
In the normal course of business, the Series enters into contracts and
agreements that contain a variety of representations and warranties and which
would provide general indemnifications. The Series maximum exposure under
these arrangements is unknown, as this would involve future claims that may be
made against the Series that have not yet occurred. The Series expects the
risk of any future obligation under these indemnifications to be remote.
(3) Related Party Transactions
The Series' assets are maintained at the Clearing Broker. On assets held in
U.S. dollars, the Clearing Broker credits the Series with interest at the
prevailing Federal Funds Rate less 50 basis points. In the case of non-U.S.
dollar instruments, the Clearing Broker lends to the Series all required
non-U.S. currencies at a local short term interest rate plus a spread of up to
100 basis points (at current rates). For deposits held in local currency, the
Clearing Broker credits the local short-term interest rate less a spread of up
to 200 basis points (at current rates).
The Series incurred brokerage commissions of $4,806 for the period and accrued
$1,094 owed to the Clearing Broker at March 31, 2007.
Each Member or Member-related account is subject to an upfront, waivable
placement fee of 0%-2% of the subscription price of the Units, which will be
paid once by the relevant Member (not by the Series or by the Sponsor) on such
Member's initial subscription to the Series during any twelve month period.
For instance, if a Member first subscribes for Units of a Series on January 1,
redeems completely from such Series on June 1 and subscribes again for such
Series on December 1, such Member will pay the Placement Fee only on the
subscription price of the Units purchased on January 1.
Members are subject to an ongoing sales commission paid to UBS Financial
Services Inc. ranging from 0% to 2% per annum of the month-end net asset value
for all other purposes (see below). The Series incurred for the period and
owed UBS Financial Services Inc. $6,725 at March 31, 2007.
The Series pays a fee to the Sponsor of 25 basis points per annum on the
Series' month-end net asset value for all other purposes (see below) and
reserves the right to waive or reduce the fee at its sole discretion.
The Sponsor paid all expenses incurred in connection with the organizational
and initial offering of the Units at the Series level. As described in the
Disclosure Document, the Series is reimbursing the Sponsor for these costs and
the unreimbursed costs as of March 31, 2007 are recorded in accrued
organizational and the initial offering costs on the Condensed Statements of
Financial Condition. For financial reporting purposes in conformity with U.S.
generally accepted accounting principles, the Series expensed the total
organizational costs of $208,820 when incurred and deducted the initial
offering costs of $119,732 from members' capital as of March 16, 2007 (the
date of commencement of operations of the Series). For all other purposes,
including determining the net asset value per Unit for subscription and
redemption purposes, the Series amortizes organizational and initial offering
costs over a 60 month period (the "net asset value for all other purposes" or
the "net asset value per Unit for all other purposes").
(4) Advisory Agreement
Under signed agreement, the Trading Advisor receives a monthly management fee
at the rate of 0.167% (a 2% annual rate) of the Series' month-end net asset
value for all other purposes (see Note 3) calculated before reduction for any
management fees, performance fees, sponsor's fees or extraordinary fees
accrued as of such month-end and before giving effect to any capital
contributions made as of the beginning of the month immediately following such
month-end and before any distributions or redemptions accrued during or as of
such month-end, but after all expenses as of such month-end.
7
Also, under signed agreement the Series pays to the Trading Advisor a
quarterly performance fee equal to 20% of the new net trading profits, if any,
of the Series calculated before deducting the Sponsor's fee but after
deducting the management fee.
(5) Recent Accounting Pronouncement FAS 157
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Standards No. 157. Fair Value Measurements ("FAS 157")
establishes a common definition for fair value under U.S. generally accepted
accounting principles, establishes a framework for measuring fair value and
expands disclosure requirements about such fair value measurements. FAS 157 is
effective for financial statements issued with fiscal years beginning after
November 15, 2007 and interim periods within these fiscal years. The Series is
currently evaluating the impact of adopting FAS 157 on its financial
statements.
(6) Trading Activities and Related Market and Credit Risk
The Series engages in the speculative trading of U.S. and foreign futures
contracts and forward contracts (collectively "derivatives"). These
derivatives include both financial and non-financial contracts held as part of
a diversified trading strategy. The Series is exposed to both market risk, the
risk arising from changes in the market value of the contracts, and credit
risk, the risk of failure by another party to perform according to the terms
of a contract.
The purchase and sale of futures requires margin deposits with a futures
commission merchant ("FCM"). Additional deposits may be necessary for any loss
on contract value. The Commodity Exchange Act requires an FCM to segregate all
customer transactions and assets from the FCM's proprietary activities. A
customer's cash and other property, such as U.S. Treasury Bills, deposited
with an FCM are considered commingled with all other customer funds subject to
the FCM's segregation requirements. In the event of an FCM's insolvency,
recovery may be limited to a pro rata share of segregated funds available. It
is possible that the recovered amount could be less than the total of cash and
other property deposited. The Clearing Broker is an FCM.
Due to forward contracts being traded in unregulated markets between
principals, the Series also assumes a credit risk, the risk of loss from
counterparty non-performance. Additionally, the Series is exposed to the
creditworthiness of the Clearing Broker. In the unlikely event of Clearing
Broker bankruptcy, the Series could lose all or substantially all of its
assets.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Series is exposed to a market risk equal to the
value of futures and forward contracts purchased and unlimited liability on
such contracts sold short.
Net trading results from derivatives for the quarter ended March 31, 2007 are
reflected in the Condensed Statement of Operations and equal the trading gains
(losses) less brokerage commission. Such trading results reflect the net gain
or loss arising from the Series' speculative trading of futures contracts and
forward contracts.
The Members bear the risk of loss only to the extent of the market value of
their respective capital account.
(7) Financial Highlights
The following financial highlights show the Series' financial performance for
the period from March 16, 2007 to March 31, 2007. Total return is calculated
as the change in a theoretical Member's investment over the entire period - a
percentage change in the member's capital value for the period. Total return
is calculated based on the aggregate return of the Series taken as a whole.
The amounts are not annualized.
8
Members capital per Unit at beginning of period $ 957.664
Net realized loss (4.033)
Change in unrealized trading profits 13.257
Interest income 2.250
Foreign currency transaction gain 0.003
Expenses (5.340)
--------------------
Members capital per Unit at end of period $ 963.801
====================
Total Return:
Total return before performance fee 0.80%
Performance fee (0.16%)
--------------------
Total return after performance fee 0.64%
====================
Ratios to members' capital
Net investment loss (0.26%)
Expenses:
Expenses 0.39%
Performance fees 0.16%
--------------------
Total expenses 0.55%
====================
(8) Subsequent Events
Member subscriptions received for the period April 1, 2007 to May 15, 2007
totaled $3,087,002.
Item 2: Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Operational Overview
This performance summary describes the manner in which UBS Managed Futures LLC
(Aspect Series) (the "Series") has performed in the past and is not an
indication of future performance. While certain market movements are
attributable to various market factors, such factors may or may not have
caused such movements but they may have simply occurred at or about the same
time.
The Series is unlikely to be profitable in markets in which trends do not
occur. Static or erratic prices are likely to result in losses. Similarly,
sharp trend reversals, which can be caused by many unexpected events, can lead
to major short term losses, as well as gains.
While there is no assurance the Series will profit in any market condition,
markets having substantial and sustainable price movements offer the best
profit potential for the Series.
Liquidity
Virtually all of the Series' capital is held in cash or cash equivalents at
UBS Securities LLC (the "Clearing Broker") and is used to margin the Series'
futures and forward currency positions and withdrawn, as necessary, to pay
redemptions and expenses. It does not maintain any sources of financing other
than that made available by the Clearing Broker to fund foreign currency
settlements for those instruments transacted and settled in foreign
currencies. The Series pays prevailing market rates for such borrowings.
9
Because the Series' assets are held in cash, it expects to be able to
liquidate all of its open positions or holdings quickly and at prevailing
market prices, except in unusual circumstances. This permits the Trading
Advisor to enter and exit markets, leverage and deleverage in accordance with
its strategy. During its operations through March 31, 2007, the Series
experienced no meaningful periods of illiquidity in any of the numerous
markets in which it trades. The Series processes redemptions on a monthly
basis.
Capital Resources
Units may be offered for sale as of the beginning, and may be redeemed as of
the end, of each month.
The amount of capital raised for the Series is not expected to have a
significant impact on its operations, as the Series has no significant capital
expenditure or working capital requirements other than for monies to pay
trading losses, brokerage commissions and charges. Within broad ranges of
capitalization, the Series' trading positions should increase or decrease in
approximate proportion to the size of the Series.
The Series raises additional capital only through the sale of Units and
capital is increased through trading profits (if any). The Series does not
maintain any sources of financing other than that made available by the
Clearing Broker to fund foreign currency settlements for those instruments
transacted and settled in foreign currencies.
The Series trades a variety of futures-related instruments, including futures
contracts in bonds, currencies, interest rates, equities, equity indices, debt
securities, selected physical commodities and derivatives. Risk arises from
changes in the value of these contracts (market risk) and the potential
inability of counterparties or brokers to perform under the terms of their
contracts (credit risk). Market risk is generally to be measured by the face
amount of the futures positions acquired and the volatility of the markets
traded. The credit risk from counterparty non-performance associated with
these instruments is the net unrealized gain, if any, on these positions plus
the value of the margin or collateral held by the counterparty. The risks
associated with exchange-traded contracts are generally perceived to be less
than those associated with over-the-counter 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 is pledged to support the financial integrity of
the exchange. 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 trading, and counterparties may require margin or
collateral in the over-the-counter markets.
The Series' trading advisor, Aspect Capital Limited (the "Trading Advisor")
attempts to control risk in all aspects of the investment process -- from
confirmation of a trend to determining the optimal exposure in a given market,
and to money management issues such as the startup or upgrade of investor
accounts. The Trading Advisor double checks the accuracy of market data, and
will not trade a market without multiple price sources for analytical input.
In constructing a portfolio, the Trading Advisor seeks to control overall risk
as well as the risk of any one position, and the Trading Advisor trades only
markets that have been identified as having positive performance
characteristics. Trading discipline requires plans for the exit of a market as
well as for entry. The Trading Advisor factors the point of exit into the
decision to enter (stop loss). The size of the Trading Advisor's positions in
a particular market is not a matter of how large a return can be generated but
of how much risk it is willing to take relative to that expected return.
The financial instruments traded by the Series contain varying degrees of
off-balance sheet risk whereby changes in the market values of the futures and
forward contracts or the Series' satisfaction of the obligations may exceed
the amount recognized in the Statements of Financial Condition of the Series.
Due to the nature of the Series' business, substantially all its assets are
represented by cash and U.S. government obligations, while the Series
maintains its market exposure through open futures and forward contract
positions.
The Series' futures contracts are settled by offset and are cleared by the
exchange clearinghouse function. Open futures positions are marked to market
each trading day and the Series' trading accounts are debited or credited
accordingly. Options on futures contracts are settled either by offset or by
exercise. If an option on a future is exercised, the Series is assigned a
position in the underlying future which is then settled by offset. The Series'
spot
10
and forward currency transactions conducted in the interbank market are
settled by netting offsetting positions or payment obligations and by cash
payments.
The value of the Series' cash and financial instruments is not materially
affected by inflation. Changes in interest rates, which are often associated
with inflation, could cause the value of certain of the Series' debt
securities to decline, but only to a limited extent. More important, changes
in interest rates could cause periods of strong up or down market price
trends, during which the Series' profit potential generally increases.
However, inflation can also give rise to markets which have numerous short
price trends followed by rapid reversals, markets in which the Series is
likely to suffer losses.
Results of Operations
General
- -------
UBS Managed Futures LLC (the "Platform") is being sponsored by UBS Managed
Fund Services Inc. (the "Sponsor"). The purpose of the Platform is to make
available to qualified clients of the Sponsor or it is affiliates professional
managed futures advisors. The Platform is a limited liability company issuing
segregated series of limited liability company interests. Each series will
invest in either a wholly-owned trading subsidiary or an existing fund managed
by a professional managed futures advisor. Over time, the Platform intends to
offer investors a selection of different segregated series managed by
different advisors collectively employing a range of technical, fundamental,
systematic and/or discretionary trading strategies.
The Series is the first to be offered on the Platform. The Series is traded
solely by the Trading Advisor, using its Aspect Diversified Program (the
"Program"). The Program is a broadly diversified global trading strategy that
deploys multiple trading strategies that seek to identify and exploit
directional moves in market behavior of a broad range of global financial
instruments including (but not limited to) futures contracts in bonds,
currencies, interest rates, equities, equity indices, debt securities,
selected physical commodities and derivatives. By maintaining a comparatively
small exposure to any individual market, the aim is to achieve real
diversification.
The Trading Advisor was established in 1997 by Martin Lueck, Anthony Todd,
Eugene Lambert and Michael Adam, all of whom were involved in the development
of Adam, Harding and Lueck Limited (now called ED&F Man Investment Products
Limited). The Trading Advisor has grown to a team of 106 with a strong focus
on research and implementation. As of March 31, 2007, the Trading Advisor was
managing approximately $4.4 billion. The Trading Advisor is a limited
liability company registered in England and Wales, which is regulated in the
United Kingdom by the Financial Services Authority. Since 1999, the Trading
Advisor has been a member of the National Futures Association and has been
registered with the Commodity Futures Trading Commission as a commodity
trading advisor and commodity pool operator. The Trading Advisor has also been
registered with the Securities and Exchange Commission as an investment
adviser since October 2003.
The Series commenced trading activities March 16, 2007 with an initial
capitalization of $7,760,620, of which $5,000,000 was contributed by the
Trading Advisor as seed capital. The Trading Advisor did not participate in
approximately twenty of seventy markets traded by the Program due the
relatively small size of the account, but will continue to enter the remaining
markets as the Series' assets increase.
Performance Summary
This performance summary is an outline description of how the Series performed
during the final weeks of March 2007, not necessarily an indication of how it
will perform in the future. In addition, the general causes to which certain
price movements are attributed may or may not in fact have caused such
movements, but simply occurred at or about the same time.
11
March 16, 2007 to March 31, 2007
Realized/Unrealized
Trading Gains (Losses)
----------------------
Stock Indices $ 49,709
Metals 19,063
Currencies 64,770
Energy (156,707)
Interest Rates 76,577
Agricultural Commodities 18,173
---------
$ 71,585
The Series ended March 2007 with a slightly positive return of .64 percent.
The majority of the return was realized in the foreign exchange and interest
rate markets with the British pound sterling/U.S. dollar and Australian
Dollar/U.S. dollar positions strengthening against the weaker U.S. dollar.
This benefited the Series' overall short U.S. dollar position. The Series'
positions in the interest rate markets profited as well with the majority of
the gains generated from the Series' short British pound sterling position.
Energy was the worst performing sector with crude oil contributing the
greatest losses. The market suffered as geopolitical pressures coupled with
tightening markets drove prices upward against the Series' net short position.
The remaining sectors finished the month in positive territory. In particular
the Series benefited from stock indices profits as the markets rebounded from
the sharp declines in late February and early March.
Variables Affecting Performance
- -------------------------------
The principal variables that determine the net performance of the Series are
gross profitability from the Series' trading activity and interest income.
The Series' assets are maintained at the Clearing Broker. On assets held in
U.S. dollars, UBS credits the Series with interest at the prevailing Federal
Funds Rate less 50 basis points. In the case of non-US dollar instruments, the
Clearing Broker lends to the Series all required non-US currencies at a local
short term interest rate plus a spread of up to 100 basis points (at current
rates). For deposits held in local currency, the Clearing Broker credits the
local short-term interest rate less a spread of up to 200 basis points (at
current rates).
The Series' management, Sponsor's and administrative fees are a constant
percentage of the Series' Net Asset Value. Brokerage commissions, which are
not based on a percentage of the Series net assets, are based on the volume of
trades executed and cleared on behalf of the Series. Brokerage commissions are
based on the actual number of contracts traded. The performance fees payable
to the Trading Advisor are based on the new net trading profits generated by
the Series, excluding interest income and after reduction for brokerage
commissions and certain other fees and expenses.
For the Series, there is no meaningful distinction between realized and
unrealized profits. Most of the instruments traded on behalf of the Series are
highly liquid and can be closed out immediately.
Off-balance Sheet Arrangements
The Series has no applicable off-balance sheet arrangements of the type
described in Items 3.03(a)(4) of Regulation S-K.
Contractual Obligations
The Series does not enter into any contractual obligations or commercial
commitments to make future payments of a type that would be typical for an
operating company or that would affect its liquidity or capital resources. The
Series' sole business is trading futures and forward currency contracts, both
long (contracts to buy) and short (contracts to sell). All such contracts are
settled by offset, not delivery. The Series' Financial Statements included
12
in Item 1 present a Condensed Schedule of Investments setting forth net
unrealized appreciation (depreciation) of the Series' open future and forward
currency contracts, both long and short, at March 31, 2007.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Not applicable; the Series is a small business issuer.
Item 4: Controls and Procedures
-----------------------
The Sponsor, with the participation of the Sponsor's principal executive
officer and principal financial officer, has evaluated the effectiveness of
the design and operation of its disclosure controls and procedures with
respect to the Series as of the end of the fiscal quarter for which this
Quarterly Report on Form 10-Q is being filed, and, based on their evaluation,
have concluded that these disclosure controls and procedures are effective.
There were no significant changes in the Sponsor's internal controls with
respect to the Series or in other factors applicable to the Series that could
significantly affect these controls subsequent to the date of their
evaluation.
Item 4T: Controls and Procedures
-----------------------
Not applicable.
PART II - OTHER INFORMATION
- ---------------------------
Item 1: Legal Proceedings
-----------------
The Sponsor is not aware of any pending legal proceedings to which either the
Series is a party or to which any of its assets are subject. In addition there
are no pending material legal proceedings involving the Sponsor. UBS AG, an
affiliate of the Sponsor and the Series, as well as certain of its
subsidiaries and affiliates have been named as defendants in civil actions,
arbitration proceedings and claims arising out of their respective business
activities. Although the ultimate outcome of these actions cannot be predicted
at this time and the results of legal proceedings cannot be predicted with
certainty, it is the opinion of management that the result of these matters
will not be materially adverse to the business operations or financial
condition of the Sponsor or the Series.
Item 1A: Risk Factors
------------
There are not material changes to the risk factors previously disclosed in the
Series' most recent Form 10-K filed on March 29, 2007.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) None.
Item 3: Defaults Upon Senior Securities
-------------------------------
(a) None.
(b) None.
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
13
Item 5: Other Information
-----------------
(a) None.
(b) Not applicable.
Item 6: Exhibits
--------
The following exhibits are included herewith.
- -------------------------------------------------------------------------------------------------------------------------------
Exhibit Number Description of Document
-------------- -----------------------
- -------------------------------------------------------------------------------------------------------------------------------
**1.1 Selling Agreement.
- -------------------------------------------------------------------------------------------------------------------------------
*3.1 Certificate of Formation of UBS Managed Futures LLC.
- -------------------------------------------------------------------------------------------------------------------------------
*4.1 Limited Liability Company Operating Agreement of UBS Managed Futures LLC.
- -------------------------------------------------------------------------------------------------------------------------------
*4.2 Separate Series Agreement for the Series.
- -------------------------------------------------------------------------------------------------------------------------------
*10.1 Advisory Agreement.
- -------------------------------------------------------------------------------------------------------------------------------
**10.2 Representation Letter.
- -------------------------------------------------------------------------------------------------------------------------------
**10.3 Administration Agreement.
- -------------------------------------------------------------------------------------------------------------------------------
**10.4 Escrow Agreement.
- -------------------------------------------------------------------------------------------------------------------------------
*10.5 Form of Customer Agreement.
- -------------------------------------------------------------------------------------------------------------------------------
**10.6 Form of Subscription Agreement.
- -------------------------------------------------------------------------------------------------------------------------------
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.
- -------------------------------------------------------------------------------------------------------------------------------
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.
- -------------------------------------------------------------------------------------------------------------------------------
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
- -------------------------------------------------------------------------------------------------------------------------------
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
- -------------------------------------------------------------------------------------------------------------------------------
* Incorporated by reference to the Series' Form 10/A previously filed on
November 2, 2006.
** Incorporated by reference to the Series' Form 10/A previously filed on
January 30, 2007.
14
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.
Dated: May 15, 2007
UBS MANAGED FUTURES LLC (ASPECT SERIES)
By: UBS Managed Fund Services Inc.
Sponsor
By: /s/ Julie M. DeMatteo
------------------------------------------------
Name: Julie M. DeMatteo
Title: President and Chief Executive Officer
S-1