Company Quick10K Filing
Quick10K
Cavendish Futures Fund
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
8-K 2018-12-13 Enter Agreement, Exhibits
8-K 2018-06-30 Amend Bylaw, Exhibits
LSTR Landstar System 4,510
STAY Extended Stay America 3,450
RRR Red Rock Resorts 3,250
FOCS Focus Financial Partners 2,600
ACY Aerocentury 18
BENH Bio-En 0
TECR Techcare 0
AQSP Acquired Sales 0
MWF MWF Global 0
MITL Mitel Networks 0
CAVF 2018-12-31
Part I
Item 1. Business.
Item 1A. Risk Factors.
Item 2. Properties.
Item 3. Legal Proceedings. -
Item 4. Mine Safety Disclosures. Not Applicable.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accountant Fees and Services.
Part IV
Item 15. Exhibits, Financial Statement Schedules.
EX-31.1 a19-30065_1ex31d1.htm
EX-31.2 a19-30065_1ex31d2.htm
EX-32.1 a19-30065_1ex32d1.htm
EX-32.2 a19-30065_1ex32d2.htm

Cavendish Futures Fund Earnings 2018-12-31

CAVF 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 a19-30065_110k.htm 10-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

x      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2018

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                 .

 

Commission File Number 000-55213

 

Cavendish Futures Fund LLC

(Exact name of registrant as specified in its charter)

 

Delaware

 

90-0887130

(State or other jurisdiction of
incorporation or organization)

 

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

 

c/o UBS Alternatives LLC

1285 Avenue of the Americas, 20th Floor

New York, NY 10019

(Address and Zip Code of principal executive offices)

 

(800) 580-2359

(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:

 

Redeemable Units of Limited Liability Company Interest

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes x No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K x.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company”   in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Smaller reporting company o

 

 

 

Emerging growth company o

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

153,435.597 Limited Liability Company Redeemable Units with an aggregate value of $180,434,341 were outstanding and held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

As of February 28, 2019, 124,621.367 Limited Liability Company Redeemable Units were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

[None]

 

 

 


 

PART I

 

Item 1. Business.

 

(a) General Development of Business. Cavendish Futures Fund LLC (the “Fund”) is a Delaware limited liability company formed on August 7, 2012. Trading operations of the Fund commenced on February 19, 2013.  The Fund’s investment objective is to seek to achieve capital appreciation through speculative trading in U.S. and international futures, options on futures and forward markets.  The Fund may also engage in swap transactions as well as other derivative transactions with the approval of the Fund’s commodity pool operator (“CPO”) and trading manager, Sydling Futures Management LLC (“Sydling”).

 

The Fund pursues its objective by investing substantially all of its assets in Sydling WNT Master Fund LLC (the “Master Fund”), a Delaware limited liability company formed on August 7, 2012.  The Fund does not currently intend to trade commodity interests directly.  The Master Fund was organized to permit accounts managed by Winton Capital Management Limited (the “Advisor”), the Fund’s advisor, that use the same program to invest together in one trading vehicle.

 

During the initial offering period (September 30, 2012 through February 18, 2013), the Fund sold 26,182.375 redeemable units of limited liability company interest (“Redeemable Units”) at $1,000 per Redeemable Unit.  No securities which represent an equity interest or any other interest in the Fund trade on any public market. The Fund privately and continuously offers Redeemable Units to qualified investors.  There is no maximum number of Redeemable Units that may be sold by the Fund.  Subscriptions and redemptions of Redeemable Units and Member Designee’s (defined below) contributions for the years ended December 31, 2018, 2017 and 2016 are reported in the Statement of Changes in Members’ Capital under “Item 8.  Financial Statements and Supplementary Data.

 

The Fund is member-managed for purposes of Delaware law.  Pursuant to the Fund’s amended and restated limited liability company agreement, as may be amended from time to time (the “LLC Agreement”), the members of the Fund (each, a “Member” and collectively, the “Members”) have appointed Sydling (the “Member Designee”) to act as the Fund’s CPO and trading manager.  Accordingly, the Members have delegated all of their rights, powers, duties and obligations to manage and control the business and affairs of the Fund to Sydling except for (i) their right under the LLC Agreement to vote on amendments to the LLC Agreement, (ii) their right under the LLC Agreement to call a meeting of the Members, or (iii) their right under the LLC Agreement to vote to revoke the delegation of rights and powers to Sydling.  The Fund has no principals or employees.  The Fund is not registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a mutual fund or otherwise.

 

Sydling is registered as a CPO and a commodity trading advisor with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”) effective August 10, 2011.  Sydling, a wholly owned subsidiary of UBS Alternatives LLC, was formed on August 4, 2011.  UBS Alternatives LLC is a wholly owned subsidiary of UBS Americas Inc. In 2016, UBS AG transferred its ownership interest in UBS Americas Inc. to UBS Americas Holding LLC, a wholly owned subsidiary of UBS AG which is a wholly owned subsidiary of UBS Group AG.  Sydling was formed pursuant to authorization by UBS Alternatives LLC.  Each of the Fund and the Master Fund were formed pursuant to authorization by Sydling.  In order to form the Fund and the Master Fund, Sydling also acted as the initial member of each.

 

Effective February 19, 2013, the Fund allocated substantially all of its assets to the Master Fund.  The Fund maintains a capital account balance at the Master Fund, the initial balance of which was $26,207,375. As of December 31, 2018, the Advisor trades the Fund’s assets in accordance with the Diversifed Macro Strategies at 150% leverage (the “Program”).  A description of the trading activities and focus of the Advisor is included under “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Sydling also acts as the trading manager of the Master Fund.  Sydling and the Advisor believe that trading through this structure should promote efficiency and economy in the trading process. As of December 31, 2018 and 2017, the Fund owned 100% of the Master Fund. The Fund intends to continue to invest substantially all of its assets in the Master Fund.  The performance of the Fund is directly affected by the performance of the Master Fund.  Expenses to investors as a result of the investment in the Master Fund are approximately the same and redemption rights are not affected.

 

Although the Fund allocates substantially all of its assets to the Master Fund, the Fund’s net asset value may, at times, be less than its capital account balance at the Master Fund because the Fund’s capital account balance at the Master Fund does not account for expenses accrued at the Fund level.  Such Fund-level expenses reduce the Fund’s net asset value.

 

The Fund is currently the only member of the Master Fund.  To the extent an investor other than the Fund becomes a member of the Master Fund, a separate capital account will be established and maintained on the books of the Master Fund for such investor.

 

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Under the LLC Agreement, Sydling has responsibility for the administration of the business and affairs of the Fund, but may delegate trading discretion to one or more trading advisors.  The Fund and the Master Fund have entered into a trading manager agreement (the “Trading Manager Agreement”), with Sydling, pursuant to which Sydling has sole authority and responsibility, as one of the Fund’s and the Master Fund’s agents and attorneys-in-fact, for the selection, monitoring and termination of commodity trading advisor(s) to direct the investment and reinvestment of the assets of the Fund and the Master Fund. The Fund pays Sydling a monthly administrative fee in return for its services to the Fund equal to 1/12 of 1/2% (0.5% per year) of adjusted month-end net assets of the Fund.  The Trading Manager Agreement expired on October 8, 2013 and may be renewed automatically for one-year terms each year thereafter, provided that any party thereto may terminate the agreement upon thirty (30) days’ prior written notice to the other parties.

 

Sydling, on behalf of the Fund, has entered into an administration agreement with BNY Mellon Investment Servicing (US) Inc. (the “Administrator”).  The Administrator will assist Sydling in performing certain day-to-day tasks on behalf of the Fund, including but not limited to, calculating daily or periodic portfolio valuations, reconciling cash and portfolio positions, providing portfolio reporting, maintaining books and records and calculating all fund fees.  Sydling will pay a portion of the administrative fee it receives from the Fund to the Administrator.

 

Sydling, on behalf of the Fund, has entered into a trading advisory agreement (the “Trading Advisory Agreement”), with the Advisor, a registered commodity trading advisor, pursuant to which the Advisor manages the Fund’s assets.  The Fund pays the Advisor a monthly advisory fee equal to 1/12 of 1.5% (1.5% per year) of the Fund’s adjusted month-end net assets.  The Advisor is also paid a quarterly incentive fee equal to 20% of new trading profits earned by the Advisor for the Fund during each calendar quarter.  The Trading Advisory Agreement remains in force unless and until terminated by any party by giving the other party not less than 30 days’ written notice.  At any time during the term of the Trading Advisory Agreement, Sydling may elect immediately to terminate the Trading Advisory Agreement by giving written notice to the Advisor (i) upon any material adverse change in the financial condition of the Advisor, which in the opinion of the Advisor might reasonably be expected to materially impair its ability to discharge its obligations under the Trading Advisory Agreement, (ii) if either of Messrs. David W. Harding or Matthew D. Beddall ceases to commit the time and attention necessary to perform his respective duties to the Trading Advisor in respect of its obligations to the Master Fund, dies or has given notice to resign from his employment or directorship with the Advisor, (iii) if there is an occurrence of any material change of control with respect to the Advisor other than internal re-organization or amalgamation, or (iv) if the Master Fund, acting reasonably and in good faith, determines that the Advisor unreasonably withholds its consent to a liquidation as discussed in the Trading Advisory Agreement. Sydling currently expects that the Advisor will continue to be the Fund’s sole trading advisor.

 

UBS Financial Services Inc. (“UBS Financial Services”) acts as the Fund’s selling agent pursuant to an agency agreement, dated as of December 6, 2012.  UBS Financial Services will pay a portion of the selling agent fee to the financial advisors who have sold Redeemable Units.  The Fund may engage additional selling agents in the future.

 

The Master Fund’s trading of futures, swap and option contracts, if applicable, on commodities is done primarily on U.S. commodity exchanges and foreign commodity exchanges. It engages in such trading through a commodity brokerage account maintained with UBS Securities LLC (“UBS Securities”).  UBS Securities acts as the Master Fund’s commodity broker, pursuant to a customer agreement, dated as of September 1, 2011 (the “Customer Agreement”), by and between the Master Fund and UBS Securities. The Master Fund pays or reimburses UBS Securities for the Fund’s actual floor brokerage, exchange, clearing, give-up, user and NFA fees, which are payable on a per transaction basis.  These transaction costs are estimated to be 0.10% of the Fund’s capital account balance per year.  Such brokerage and transaction fees are deducted from the Fund’s capital account at the Master Fund.

 

During the second and third quarter of 2016, the Fund and the Master Fund amended and restated certain agreements.  The purpose of the amendments was to implement and reflect an expense neutral change in the fees paid to certain service providers to the Fund and the Master Fund.  As of July 1, 2016, the Master Fund (and indirectly the Fund) ceased paying an asset based brokerage fee to UBS Securities.  In lieu of such brokerage fee, the Fund will pay (or cause the Master Fund to pay on its behalf) an ongoing selling agent fee to UBS Financial Services at the same rate as the previous brokerage fee, equal to 3.5% per year of the adjusted month-end net assets of the Fund.

 

For the period January 1, 2018 through December 31, 2018, the approximate average market sector allocations for the Fund were 16% Currencies, 8% Energy, 10% Grains, 11% Indices, 13% Non-U.S. Interest Rates, 20% U.S. Interest Rates, 1% Livestock, 10% Metals and 11% Softs.

 

All of the Master Fund’s assets are deposited in commodity brokerage accounts with UBS Securities and are maintained in cash or in U.S. government securities and segregated as customer funds.  On amounts maintained in cash at UBS Securities, the Fund will receive, through its investment in the Master Fund, monthly interest on its allocable share of 100% of the average daily equity maintained in cash in the Master Fund’s brokerage account at a rate equal to the monthly average 30-day U.S. Treasury bill rate.  Any

 

3


 

interest earned in the Master Fund’s account in excess of the amounts due to the Fund and any other feeder fund, as described above, if any, will be retained by Sydling.  Funds held by counterparties as collateral in connection with swap transactions will earn interest at a rate agreed upon between the parties to the transaction.

 

Sydling may, in its sole discretion, direct UBS Securities to place up to all of the Fund’s assets in Treasury bills.  The Fund will receive its allocable share of 100% of the interest earned on Treasury bills purchased for the Master Fund, if any.

 

Funds held in connection with non-U.S. contracts, if any, may be held in secured amount accounts with depositories located outside of the United States or its territories.

 

(b) Financial Information about Segments. The Fund’s business consists of only one segment, speculative trading of commodity interests. The Fund does not engage in sales of goods or services. The Fund’s net income (loss) from operations for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 are set forth under “Item 6. Selected Financial Data.” The Fund’s Capital as of December 31, 2018, was $162,308,934.

 

(c) Narrative Description of Business.

 

See Paragraphs (a) and (b) above.

 

(i) through (xii) — Not applicable.

 

(xiii) — The Fund has no employees.

 

(d) Financial Information About Geographic Areas. The Fund does not engage in sales of goods or services or own any long-lived assets, and therefore this item is not applicable.

 

(e) Available Information. The Fund does not have an Internet address. The Fund will provide paper copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports free of charge upon request.

 

(f) Reports to Security Holders. Not applicable.

 

(g) Enforceability of Civil Liabilities Against Foreign Persons. Not applicable.

 

(h) Smaller Reporting Companies. Not applicable.

 

Item 1A. Risk Factors.

 

As a result of leverage, small changes in the price of the Fund’s positions may result in substantial losses.

 

Good faith or margin deposits normally required in commodity futures trading may range from 1% to 25% of the face value of the contract.  As a result of this leverage, a small change in the market price of a contract can produce major losses.  For example, $2,700 in margin may be required to hold one crude oil futures contract with a face value of approximately $27,000.  Thus, a $2,700 or 10% decrease in the value of that contract would cause a total loss of the margin deposit. The amount of margin required to be deposited with respect to an individual futures contract is determined by the exchange upon which the contract is traded and may be changed by the exchange at any time.  The Fund does not have control over such margin requirements.

 

An investor may lose all of its investment.

 

Due to the speculative nature of trading commodity interests, an investor could lose all of its investment in the Fund.

 

The Fund will pay substantial fees and expenses regardless of profitability.

 

Regardless of its trading performance, the Fund will incur fees and expenses, including but not limited to, selling agent fees, administrative fees, management fees and trading and transaction fees. Fees will be paid to the Advisor even if the Fund experiences a net loss for the full year.

 

4


 

An investor’s ability to redeem or transfer Redeemable Units is limited.

 

An investor’s ability to redeem units is limited and no market exists for the Redeemable Units.

 

Conflicts of interest exist.

 

The Fund is subject to numerous conflicts of interest including those that arise from the facts that:

 

1.         The Member Designee and the Fund’s/Master Fund’s commodity broker are affiliates;

 

2.          The Advisor, the Fund’s/Master Fund’s commodity broker and their principals and affiliates may trade in commodity interests for their own accounts; and

 

3.         An investor’s financial advisor will receive ongoing compensation for providing services to the investor’s account.

 

Investing in Redeemable Units might not provide the desired diversification of an investor’s overall portfolio.

 

The Fund will not provide any benefit of diversification of an investor’s overall portfolio unless it is profitable and produces returns that are independent from stock and bond market returns.

 

Past performance is no assurance of future results.

 

The Advisor’s trading strategies may not perform as they have performed in the past. The Advisor has from time to time incurred substantial losses in trading on behalf of clients.

 

An investor’s tax liability may exceed cash distributions.

 

Investors are taxed on their share of the Fund’s income, even though the Fund does not intend to make any distributions.

 

Regulatory changes could restrict the Fund’s operations.

 

Federal agencies including the SEC, the CFTC and the Federal Reserve Bank regulate certain activities of the Fund, Sydling and the Advisor.  Regulatory changes could adversely affect the Fund by restricting its trading activities and/or increasing the costs or taxes to which the investors are subject.  The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), among other things, grants the CFTC and SEC broad rulemaking authority to implement various provisions of the Dodd-Frank Act, including comprehensive regulation of the over the counter (“OTC”) derivatives market.  The implementation of the Dodd-Frank Act could adversely affect the Fund by increasing transaction and/or regulatory compliance costs.  In addition, greater regulatory scrutiny may increase the Fund’s and Sydling’s exposure to potential liabilities.  Increased regulatory oversight can also impose administrative burdens on Sydling, including, without limitation, responding to investigations and implementing new policies and procedures.  As a result, Sydling’s time, attention and resources may be diverted from portfolio management activities.

 

The enactment of the Dodd-Frank Act has resulted in enhanced regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and may result in enhanced regulation of certain affiliates of UBS AG by the Office of the Comptroller of the Currency.  For example, the Dodd-Frank Act generally requires that, in order for an entity to maintain its status as a financial holding company under the Bank Holding Company Act, it and each of its depository institution subsidiaries must be well capitalized and well managed, as those terms are defined by the Federal Reserve.  The Dodd-Frank Act also grants the Federal Reserve greater regulatory authority over the subsidiaries of a bank holding company.  Additionally, a bank holding company with more than $50 billion in consolidated assets is subject to enhanced supervision and prudential standards established by the Federal Reserve. The Federal Reserve also applies higher capital and liquidity requirements to bank holding companies with more than $50 billion in consolidated assets than to other bank holding companies.

 

Speculative position and trading limits may reduce profitability.

 

The CFTC and/or U.S. exchanges have established “speculative position limits” on the maximum net long or net short position which any person or group of persons may hold or control in particular futures, options on futures and swaps that perform a significant price discovery function.  Most exchanges also limit the amount of fluctuation in commodity futures contract prices on a single trading day.  The Advisor believes that established speculative position and trading limits will not materially adversely affect its trading for

 

5


 

the Fund.  The trading instructions of the Advisor, however, may have to be modified, and positions held by the Fund may have to be liquidated in order to avoid exceeding these limits.  Such modification or liquidation could adversely affect the operations and profitability of the Fund by increasing transaction costs to liquidate positions and limiting potential profits on the liquidated positions.

 

In December 2016, the CFTC re-proposed new rules regarding speculative position limits, replacing a prior proposal from November 2013.  These rules, if adopted in substantially the same form, will impose position limits on certain futures and option contracts and physical commodity swaps that are “economically equivalent” to such contracts.  If enacted, these rules could have an adverse effect on the Advisor’s trading for the Fund.

 

The Member Designee, the Fund and its Service Providers and their Respective Operations Are Potentially Vulnerable to Cyber-Security Attacks or Incidents.

 

Like other business enterprises, the use of the internet and other electronic media and technology exposes the Member Designee, the Fund and its service providers, and their respective operations, to potential risks from cyber-security attacks or incidents (collectively, “cyber events”). Cyber events may include, for example, unauthorized access to systems, networks or devices, infection from computer viruses or other malicious software code, mishandling or misuse of information and attacks which shut down, disable, slow or otherwise disrupt operations, business processes or website access or functionality. In addition to intentional cyber events, unintentional cyber events can occur. Unintentional cyber events may include, for example,  the inadvertent release of confidential information, the mishandling or misuse of information and/or technological limitations or hardware failures (in the markets or otherwise) that constrain the Fund’s and the Master Fund’s ability to gather, process and communicate information efficiently and securely, without interruption.

 

Any cyber event could adversely affect the Fund’s business, financial condition or results of operations and cause the Fund to incur financial loss and expense, as well as face exposure to regulatory penalties or legal claims, reputational damage and additional costs associated with corrective measures. A cyber-security breach could also jeopardize a limited partner’s personal, confidential, proprietary or other information processed and stored in, and transmitted through, the Member Designee’s or a service provider’s computer systems. A cyber event may cause the Fund or its service providers to lose proprietary information, suffer data corruption, lose operational capacity (such as, for example, the loss of the ability to process transactions, calculate the Fund’s net asset value, or allow investors to transact business) and/or fail to comply with applicable privacy and other laws. Among other potentially harmful effects, cyber events also may result in theft, unauthorized monitoring and failures in the physical infrastructure or operating systems that support the Fund or its service providers.

 

The nature of malicious cyber-attacks is becoming increasingly sophisticated and neither the Member Designee nor the Fund can control the cyber systems and cyber-security systems of the Advisor or other third-party service providers.

 

The Impact of Tax Reform Legislation is Uncertain.

 

Tax reform legislation known as the Tax Cuts and Jobs Act (the “Tax Reform Legislation”) was enacted on December 22, 2017.  The Tax Reform Legislation makes major changes to the Code, including a number of provisions that may affect the taxation of investment funds and their investors. The individual and collective impact of these changes is uncertain, and may not become evident for some period of time. Legislative, regulatory or administrative changes could be enacted or promulgated at any time, either prospectively or with retroactive effect, and may adversely affect the Fund, the Master Fund and/or their partners. Prospective investors should consult their tax advisors regarding the implications of the Tax Reform Legislation on their investment.

 

Item 2. Properties.

 

The Fund does not own or lease any properties. The Member Designee operates out of facilities provided by UBS Financial Services.

 

Item 3. Legal Proceedings. -

 

This section describes the major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which UBS Securities or its subsidiaries is a party or to which any of their property is subject. There are no material legal proceedings pending against the Fund or Member Designee.

 

UBS Securities principal business address is 1285 Avenue of the Americas, New York, NY 10019.  UBS Securities acts as the Fund’s and the Master Fund’s commodity broker. UBS Securities is registered in the U.S. with the Securities and Exchange Commission (the “SEC”) as a broker dealer and is also a member of the Financial Industry Regulatory Authority (“FINRA”)  and is registered with the

 

6


 

Commodity Futures Trading Commission (the “CFTC”) as a Futures Commission Merchant and is a member of the National Futures Association (“NFA”).  UBS Securities is a member of various U.S. futures and securities exchanges.

 

UBS Securities is and has been a defendant in numerous legal proceedings, including actions brought by regulatory organizations and government agencies, relating to its securities and commodities business that allege various violations of federal and state securities laws.  UBS Group AG (“UBS”), the ultimate parent company to UBS Securities, files annual reports and quarterly reports to the SEC in which it discloses material information about UBS matters, including information about any material litigation or regulatory investigations (https://www.ubs.com/global/en/about_ubs/investor_relations/quarterly_reporting/2018.html) Actions with respect to UBS Securities’ futures commission merchant business are publicly available on the website of the NFA (http://www.nfa.futures.org/) and with respect to UBS Securities’ brokerage business are publicly available on the website of FINRA (http://www.finra.org).

 

UBS AG, including UBS Securities, has responded to a number of governmental inquiries and investigations and is involved in a number of litigations, arbitrations and disputes related to the financial crisis and, in particular, mortgage-related securities and other structured transactions and derivatives. In August 2013, UBS Securities entered into a settlement with the SEC related to UBS Securities structuring and underwriting of a CDO, ACA 2007-2, in 2007. Pursuant to that settlement, in which the SEC alleged violations of the U.S. securities laws arising out of UBS Securities retention of approximately $23.6 million in upfront premium payments, UBS Securities agreed to make a payment to the U.S. Treasury of approximately $49.8 million.

 

In July 2011, the Federal Housing Finance Authority (“FHFA”), as conservator for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (collectively, the “GSEs”) filed suit against UBS Securities and certain affiliates in connection with the GSEs’ investments in $4.5 billion in original face amount of UBS-sponsored RMBS and $1.8 billion in original face amount of third party RMBS. The suit asserted claims for damages and rescission under federal and state securities laws and state common law and alleges losses of approximately $1.2 billion plus interest. The court denied UBS Securities motion to dismiss in 2012. In April 2013, the court’s decision with respect to two legal issues that were the subject of UBS Securities motion to dismiss was affirmed on appeal by the US Court of Appeals for the Second Circuit. The FHFA also filed suits in 2011 against UBS Securities and other financial institutions relating to their role as underwriter of third-party RMBS purchased by the GSEs asserting claims under various legal theories, including violations of the federal and state securities laws and state common law. In July 2013, UBS Securities entered into a settlement with the FHFA under which UBS Securities paid $885 million to resolve these lawsuits and certain other unasserted claims. More specifically, the FHFA agreed to dismiss the pending lawsuits and release potential claims it could assert against UBS Securities on behalf of the GSEs related to UBS-sponsored RMBS and third-party RMBS underwritten by UBS Securities. The FHFA and the GSEs also agreed that they will not take steps to cause third parties to assert loan repurchase demands or commence loan repurchase litigation in connection with UBS-sponsored RMBS.

 

In July 2013 the European Commission issued a Statement of Objections against multiple CDS dealers including UBS AG and UBS Securities, as well as data service provider Markit and the International Swaps and Derivatives Association (“ISDA”). The Statement of Objections broadly alleges that the dealers infringed European Union (“EU”) antitrust rules by colluding to prevent exchanges from entering the credit derivatives market between 2006 and 2009. UBS AG and UBS Securities have submitted their response to the Statement of Objections in January 2014 and presented their position in an oral hearing in May 2014. Since mid-2009, the Antitrust Division of the Department of Justice has also been investigating whether multiple dealers, including UBS AG and UBS Securities, conspired with each other and with Markit to restrain competition in the markets for CDS trading, clearing and other services. Between May 2013 and November 2013, several putative class action complaints were filed against multiple dealers, including UBS AG and UBS Securities, as well as Markit and ISDA, alleging violations of the U.S. Sherman Antitrust Act (“Sherman Act”) and common law. In January 2014 and April 2014, after the cases were consolidated for pretrial purposes in U.S. federal court in New York, plaintiffs filed a consolidated amended complaint. Plaintiffs allege that the defendants unlawfully conspired to restrain competition in and/or monopolize the market for CDS trading in the U.S. in order to protect the dealers’ profits from trading CDS in the over-the-counter market. Plaintiffs assert claims on behalf of all purchasers and sellers of CDS that transacted directly with any of the dealer defendants since January 1, 2008, and seek unspecified trebled compensatory damages and other relief.

 

UBS Securities is responding to inquiries concerning the operation of UBS’s alternative trading system (“ATS”) (also referred to as a dark pool) and its securities order routing and execution practices from various authorities, including the SEC, the New York Attorney General and FINRA, who reportedly are pursuing similar investigations industry-wide. In January 2015, the SEC announced the resolution of its investigation concerning the operation of UBS’s ATS between 2008 and 2012, which focused on certain order types and disclosure practices that were discontinued two years ago. Under the SEC settlement order, which charges UBS with, among other things, violations of Section 17(a)(2) of the Securities Act of 1933 and Rule 612 of Regulation NMS (known as the sub-penny rule), UBS has paid a total of USD 14.5 million, which includes a fine of USD 12 million and disgorgement of USD 2.4 million. UBS is cooperating in the ongoing regulatory matters, including by the SEC.

 

7


 

In the opinion of management, after consultation with legal counsel, the ultimate resolution of such aforementioned litigation will not have a materially adverse effect on UBS Securities’ financial position.

 

Item 4. Mine Safety Disclosures. Not Applicable.

 

8


 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

(a)         Market Information. The Fund has issued no stock. There is no public market for the Redeemable Units.

 

(b)         Holders. The number of holders of Redeemable Units as of December 31, 2018, was 1,316.

 

(c)          Dividends. The Fund did not declare a distribution in 2018 or 2017. The Fund does not intend to declare distributions in the foreseeable future.

 

(d)         Securities Authorized for Issuance Under Equity Compensation Plans. None.

 

(e)          Performance Graph. Not applicable.

 

(f)           Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities. For the twelve months ended December 31, 2018, there were additional subscriptions of 10,901.036 Redeemable Units totaling $12,779,900.  For the twelve months ended December 31, 2017, there were additional subscriptions of 18,430.054 Redeemable Units totaling $20,456,078. For the twelve months ended December 31, 2016, there were additional subscriptions of 42,744.236 Redeemable Units totaling $52,547,971. The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Exchange Act of 1933, as amended, and Section 506 of Regulation D promulgated thereunder (“Regulation D”). The Redeemable Units were purchased by accredited investors as described in Regulation D. In determining the applicability of the exemption, the Member Designee relied on the fact that the Redeemable Units were purchased by accredited investors in a private offering.

 

Proceeds from the additional subscriptions of Redeemable Units are used in the trading of commodity interests including futures contracts, swaps, options and forward contracts and any other interests pertaining thereto, including interests in commodity pools.

 

(g)     Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

 

The following chart sets forth the purchases of Redeemable Units by the Fund.

 

Period

 

(a) Total Number
of Redeemable
Units Purchased*

 

(b) Average
Price Paid per
Redeemable Unit**

 

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

 

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

 

October 1, 2018— October 31, 2018

 

1,255.848

 

$

1,149.24

 

N/A

 

N/A

 

November 1, 2018 — November 30, 2018

 

3,418.521

 

$

1,184.26

 

N/A

 

N/A

 

December 1, 2018 — December 31, 2018

 

3,965.044

 

$

1,126.62

 

N/A

 

N/A

 

 

 

8,639.413

 

$

1,153.37

 

N/A

 

N/A

 

 


*                 Generally, members are permitted to redeem their Redeemable Units as of the end of each month on five business days’ notice to the Member Designee (provided Redeemable Units have been held for three months). Under certain circumstances, the Member Designee can compel redemption, although to date the Member Designee has not exercised this right. Purchases of Redeemable Units by the Fund reflected in the chart above were made in the ordinary course of the Fund’s business in connection with effecting redemptions for members.

 

**          Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day.

 

9


 

Item 6.  Selected Financial Data.

 

Total trading results, interest income, net income (loss), net income (loss) per unit of Members’ Capital for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 were as follows:

 

 

 

2018

 

2017

 

2016

 

2015

 

2014

 

Total trading results

 

$

(1,227,601

)

$

18,222,946

 

$

(2,515,321

)

$

9,734,927

 

$

23,503,189

 

Total expenses

 

10,859,251

 

11,071,089

 

11,782,846

 

11,141,217

 

9,059,123

 

Interest income allocated from Master Fund

 

3,329,852

 

1,609,322

 

473,865

 

42,256

 

 19,485

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(8,757,000

)

$

8,761,179

 

$

(13,824,302

)

$

(1,364,034

)

$

14,463,551

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per unit of Members’ Capital*

 

$

(58.74

)

$

58.35

 

$

(75.18

)

$

(4.17

)

$

177.79

 

 

 

 

 

 

 

 

 

 

 

 

 

Members’ Capital per unit

 

$

1,126.62

 

$

1,185.36

 

$

1,127.01

 

$

1,202.19

 

$

1,206.36

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

168,596,780

 

$

186,654,431

 

$

193,320,916

 

$

176,578,310

 

$

114,963,978

 

 


* Represents the changes in Members’ Capital per unit

 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Overview

 

The Fund, through its investment in the Master Fund, seeks to achieve capital appreciation through speculative trading, directly or indirectly, in U.S. and international futures, options on futures and forward markets.  The Fund may also engage in swap transactions as well as other derivative transactions with the approval of the Member Designee.

 

The Member Designee manages all business of the Fund/Master Fund. The Member Designee has delegated its responsibility for the investment of the Fund’s assets to the Advisor. The Fund has invested these assets in the Master Fund. The Member Designee has a team of approximately 25 professionals whose primary emphasis is on attempting to maintain quality control among the advisors to the funds operated or managed by the Member Designee. The Member Designee’s due diligence professionals use proprietary technology and on-site evaluations to identify, select and monitor new and existing futures money managers. The accounting and operations staff provide processing of subscriptions and redemptions and reporting to members and regulatory authorities. The Member Designee also includes staff involved in marketing and sales support. In selecting the advisor for the Fund/Master Fund, the Member Designee considered past performance, trading style, volatility of markets traded and fee requirements.

 

Responsibilities of the Member Designee include:

 

·       due diligence examinations of the Advisor;

 

·       selection, appointment and termination of the Advisor;

 

·       negotiation of the Trading Advisory Agreement; and

 

·       monitoring the activity of the Advisor.

 

In addition, the Member Designee relies on the Fund’s Administrator to prepare and maintain the Fund’s books and records and along with the Fund’s Administrator provides the administrative and compliance services that are required by law or regulation from time to time in connection with operation of the Fund/Master Fund. These services include the preparation of reports to members, government agencies and regulators; computation of net asset value; calculation of fees; assistance in connection with subscriptions, redemptions and member communications; and preparation of offering documents and sales literature.

 

The Member Designee seeks the best prices and services available in its commodity futures brokerage transactions.

 

10


 

Winton Capital Management Limited

 

The Fund’s assets allocated to the Advisor for trading are not invested in commodity interests directly. The Advisor’s allocation of the Fund’s assets is currently invested in the Master Fund. The Advisor trades the Master Fund’s, and thereby the Fund’s, assets in accordance with its Diversified Macro Strategies (the “Program”), a proprietary, systematic trading program.

 

The investment objective of the Program is to achieve long-term investment growth.

 

The Program follows a disciplined investment process that is based on statistical analysis of historial data.  The initial stage of the process involves collecting, cleaning and organizing large amounts of data.  The Program uses a wide variety of data inputs including factors that are intrinsic to markets, such as price, volume and open interest; and those that are external to markets, such as economic statistics, industrial and commodity data and public company financial data.  The Advisor conducts statistical research into the data in an attempt to quantify the probability of particular markets rising or falling, conditional on a variety of quantifiable factors.  The Advisor’s research is used to develop mathematical models that attempt to forecast market returns, the variability or volatility associated with such returns (often described as “risk”), and the correlation between markets and transaction costs.  These forecasts are used in investment strategies that determine what positions should be held to maximize profit within a certain range of risk.  As a result of the Advisor’s research, the Advisor expects that the investments made in accordance with this process will have an improved chance of being successful which is expected to lead to profits over the long-term.

 

The Advisor’s investment strategy is operated as an automated, computer-based investment system.  The Program is modified over time as the Advisor monitors its operation and undertakes further research.  Changes to the Program occur as a result of, amongst other things, the discovery of new relationships, changes in market liquidity, the availability of new data or the reinterpretation of existing data.

 

Most of the Advisor’s investment decisions are made strictly in accordance with the output of the programs.  However, the Advisor may, in exceptional circumstances (such as the occurrence of events that fall outside the input parameters of the program), make investment decisions based on other factors and take action to override the output of the programs to seek to protect the interests of investors.

 

The Advisor does not take any responsibility for the accuracy or completeness of the contents of this document, any representations made herein, or the performance of the Fund/Master Fund. The Advisor disclaims any liability for any direct, indirect, consequential or other losses or damages, including loss of profits incurred by members or by any third party that may arise from any reliance on this document. The Advisor is neither responsible for, nor involved in, the marketing, distribution or sales of shares or interests in the Fund and is not responsible for compliance with any marketing or promotion laws, rules or regulations; and no third party other than the Advisor is authorized to make any statement about any of the Advisor’s products or services in connection with any such marketing, distribution or sales. Past performance by any other fund advised by the Advisor is not indicative of any future performance by the Fund/Master Fund.

 

(a) Liquidity.

 

The Fund does not engage in sales of goods or services. Its only assets are its investment in the Master Fund and cash. The Master Fund does not engage in the sale of goods or services. The Master Fund’s only assets are the equity in its trading accounts, consisting of cash and cash equivalents, net unrealized appreciation of open futures contracts, net unrealized appreciation on forward contracts and options, if applicable. Because of the low margin deposits normally required in commodity trading, relatively small price movements may result in substantial losses to the Fund, through its investment in the Master Fund. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the year ended December 31, 2018.

 

11


 

To minimize the risk relating to low margin deposits, the Master Fund follows certain trading policies, including:

 

(i)                The Master Fund invests its assets only in commodity interests that the Advisor believes are traded in sufficient volume to permit ease of taking and liquidating positions. Sufficient volume, in this context, refers to a level of liquidity that the Advisor believes will permit it to enter and exit trades without noticeably moving the market.

 

(ii)            The Advisor will not initiate additional positions in any commodity if these positions would result in aggregate positions requiring a margin of more than 66 2/3% of the Master Fund’s net assets allocated to the Advisor.

 

(iii)         The Master Fund may occasionally accept delivery of a commodity. Unless such delivery is disposed of promptly by retendering the warehouse receipt representing the delivery to the appropriate clearinghouse, the physical commodity position is fully hedged.

 

(iv)         The Master Fund does not employ the trading technique commonly known as “pyramiding,” in which the speculator uses unrealized profits on existing positions as margin for the purchases or sale of additional positions in the same or related commodities.

 

(v)              The Master Fund does not utilize borrowings other than short-term borrowings if the Master Fund takes delivery of any cash commodities.

 

(vi)           The Advisor may, from time to time, employ trading strategies such as spreads or straddles on behalf of the Master Fund. “Spreads” and “Straddles” describe commodity futures trading strategies involving the simultaneous buying and selling of futures contracts on the same commodity but involving different delivery dates or markets.

 

(vii)      The Master Fund will not permit the churning of its commodity trading account. The term “churning” refers to the practice of entering and exiting trades with a frequency unwarranted by legitimate efforts to profit from the trades, driven by the desire to generate commission income.

 

For the year ended December 31, 2018, the Fund’s average margin to equity ratio (i.e., the percentage of assets on deposit required for margin) was approximately 7.72%. The foregoing margin to equity ratio takes into account cash held in the Fund’s name, as well as the allocable value of the positions and cash held on behalf of the Fund in the name of the Master Fund.

 

In the normal course of business, the Master Fund, is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments.  These financial instruments may include futures, forwards and options on futures whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument.  These instruments may be traded on an exchange, a swap execution facility or OTC.  Exchange-traded instruments are standardized and include futures and certain forward, swap and option contracts.  OTC contracts are negotiated between contracting parties and include certain swaps, forwards and options contracts.  Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted.  The purchaser of an option may lose the entire premium paid for the option.  The writer, or seller, of an option has unlimited risk.  Each of these instruments is subject to various risks similar to those related to the underlying financial instruments including market and credit risk.  In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract.  For the years ended December 31, 2018, 2017 and 2016 the Master Fund traded futures contracts only.

 

The risk to the members that have purchased interests in the Master Fund is limited to the amount of their capital contributions to the Master Fund and their share of the Master Fund’s assets and undistributed profits.  This limited liability is a consequence of the organization of the Master Fund as a limited liability company under applicable law.

 

Market risk is the potential for changes in the value of the financial instruments traded by the Master Fund due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices.  Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded.  The Master Fund is exposed to a market risk equal to the value of futures contracts purchased and unlimited liability on such contracts sold short.

 

Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract.  The Master Fund’s risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements

 

12


 

of Financial Condition and not represented by the contract or notional amounts of the instruments.  The Master Fund has credit risk and concentration risk because the sole counterparty or broker with respect to the Master Fund’s assets is UBS or a UBS affiliate.  Credit risk with respect to exchange-traded instruments is reduced to the extent that through UBS, the Master Fund’s counterparty is an exchange or clearing organization.  There is no collateral posted by UBS Securities and as such, in the event of default by UBS, the Master Fund is exposed to the amount shown in the Statements of Financial Condition. Futures contracts are conducted through regulated exchanges which have margin requirements, and are settled in cash on a daily basis, thereby minimizing credit risk.

 

The Member Designee monitors and attempts to control the Fund’s/Master Fund’s risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Fund/Master Fund may be subject. These monitoring systems generally allow the Member Designee to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, exchange-cleared swaps, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions. (See also “Item 8. Financial Statements and Supplementary Data” for further information on financial instrument risk included in the notes to financial statements.)

 

Other than the risks inherent in commodity futures, options and swaps trading, the Master Fund knows of no trends, demands, commitments, events or uncertainties which will result in or which are reasonably likely to result in the Master Fund’s liquidity increasing or decreasing in any material way. The LLC Agreement provides that the Member Designee may, in its discretion, cause the Fund to cease trading operations and liquidate all open positions under certain circumstances including a decrease in net asset value per Redeemable Unit to less than $400 as of the close of business on any business day or the Fund’s aggregate net assets decline to less than $1,000,000.

 

(b) Capital Resources.

 

(i) The Fund has made no material commitments for capital expenditures.

 

(ii) The Fund’s capital consists of the capital contributions of the members as increased or decreased by gains or losses on trading and by expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any. Gains or losses on trading cannot be predicted. Market movements in commodities are dependent upon fundamental and technical factors which the Advisor may or may not be able to identify, such as changing supply and demand relationships, weather, government agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. Fund expenses consist of, among other things, selling agent fees, advisory fees and administrative fees. The level of these expenses is dependent upon the level of trading and the ability of the Advisor to identify and take advantage of price movements in the commodity markets, in addition to the level of Net Assets maintained. In addition, the amount of interest income payable by UBS Securities is dependent upon interest rates over which the Fund has no control.

 

For the year ended December 31, 2018, there were additional subscriptions of 10,901.036 Redeemable Units totaling $12,779,900. For the year ended December 31, 2017, there were additional subscriptions of 18,430.054 Redeemable Units totaling $20,456,078. For the year ended December 31, 2016, there were additional subscriptions of 42,744.236 Redeemable Units totaling $52,547,971.

 

No forecast can be made as to the level of redemptions in any given period. A member may require the Fund to redeem its Redeemable Units at their net asset value as of the last day of a month on five business days’ notice to the Member Designee (provided Redeemable Units have been held for three months). There is no fee charged to members in connection with redemptions. Redemptions generally are funded out of the Fund’s cash holdings. For the year ended December 31, 2018, 21,512.536 Redeemable Units were redeemed totaling $25,064,841. For the year ended December 31, 2017, 32,003.274 Redeemable Units were redeemed totaling $35,489,390. For the year ended December 31, 2016, 17,157.938 Redeemable Units were redeemed totaling $20,612,612.

 

Redeemable Units were sold to persons and entities who are accredited investors as that term is defined in rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”).

 

(c) Results of Operations.

 

For the year ended December 31, 2018, the net asset value per Redeemable Unit decreased 4.96% from $1,185.36 to $1,126.62. For the year ended December 31, 2017, the net asset value per Redeemable Unit increased 5.18% from $1,127.01 to $1,185.36. For the year ended December 31, 2016, the net asset value per Redeemable Unit decreased (6.25)% from $1,202.19 to $1,127.01.

 

13


 

The Fund, through its investment in the Master Fund, experienced a net trading loss of $1,227,601 before selling agent fees and related fees for the year ended December 31, 2018. Losses were primarily attributable to the trading of commodity futures in stock indices, currencies, metals and livestock and were partially offset by gains in energy, U.S and non-U.S. interest rates, softs and grains. The net trading gain (or loss) realized from the Fund’s investment in the Master Fund is disclosed on Page 23 under “Item 8. Financial Statements and Supplementary Data.”

 

During 2018 the Fund generated gains from fixed income and commodities markets, and experienced losses from currencies and equity indices. Profits from fundamental signals reduced losses from technical signals within the strategy. Trend following, which belongs to the latter group of signals, had a particularly difficult 12 months, mostly due to losses sustained in February and October 2018. February’s market reversal served to underscore overcrowding in trend-following strategies and the Advisor gradually reduced some trend-following exposures over the remainder of the year.

 

Energies and precious metals were the biggest contributors to returns within commodities, with the Fund profiting from trends in crude oil, silver and gold. Oil prices rose by more than a fifth over the first nine months of the year, but gave back all those gains and more in the final quarter. The Fund made money in both directions, starting the year with a large long position and turning short during October. At the same time, the Fund’s predominantly short positioning in precious metals profited from downtrends in gold and silver.

 

There were notable moves elsewhere in commodities, albeit with mixed results for performance. The Fund profited from falls in sugar, coffee and soybeans, which all touched multi-year lows during the third quarter of 2018. Meanwhile, the Fund’s long positions in aluminum and nickel lost money, with both markets reversing course after trending upwards during 2017.

 

Gains in fixed income sector were driven by short-term interest rates, with short exposure to Eurodollar futures accounting for the largest share of profits. In government bonds, gains from falling short-dated U.S. Treasuries failed to offset losses from their longer-dated counterparts.

 

Developed market currencies contributed negatively to performance overall, particularly the Japanese yen, which rallied against the dollar during the first quarter. These losses were partly offset by profits in the euro, with the Fund benefiting from short exposure versus the dollar during the second half of the year. The Fund generated gains from trading the Mexican Peso, even as several other emerging currencies experienced volatility.

 

The Fund lost money in equity index futures portfolio due to long exposures in Japanese and European markets, although positions in U.S. and emerging market indices made money overall. The Fund’s short position in the U.S. Russell 2000 Index futures ranked among the top ten contributors for the year.

 

The Fund’s positioning changed considerably over the course of 2018. There were reductions in previously long exposures to stock indices and crude oil as well as a short exposure to U.S. Treasuries. The Fund’s betas to all three were close to zero by the end of 2018. Portfolio sensitivity to the U.S. Dollar Index, meanwhile, increased steadily since the middle of February, as the dollar trended up against most major currencies. The Fund headed into 2019 positioned to benefit from a further strengthening in the U.S. dollar and non-U.S. fixed income prices, and falling precious metals and agricultural prices.

 

The Fund, through its investment in the Master Fund, experienced a net trading gain of $18,222,946 before selling agent and related fees for the year ended December 31, 2017. Gains were primarily attributable to the trading of commodity futures in stock indices, softs, livestock and lumber and were partially offset by losses in currencies, U.S and non-U.S.  interest rates, metals, energy and grains.

 

Eight out of the ten best performing markets during 2017 were in the stock indices sector. Gains came from equity markets around the world with S&P 500, Nasdaq, Hang Seng, Nikkei and Euro Stoxx index futures contributing the most. On the other hand, notable detractors during 2017 included gold, silver, Japanese Yen, British Pound, Eurodollar and U.S. 10 year Treasury futures. The Fund experienced losses in approximately half the number of markets traded in the portfolio, however gains in the winning markets were significantly more than the losses from detractors.

 

Major U.S. equity indices set a succession of record highs amid a general resurgence of risk appetite. In Japan, Shinzo Abe won a snap election by a landslide, which gave his party a strong mandate to continue economic reforms. The Nikkei Index pushed through a twenty year high bringing most Asian markets along with it. In the U.S., tax reform passing through the Congress resulted in the S&P 500 Index trading at new all-time highs. The Fund held high conviction long positions in the stock indices sector throughout 2017.

 

14


 

In foreign exchange sector, the Fund essentially unwound high conviction long U.S. dollar positions, which resulted in losses. Policy uncertainty in the U.S., improved economic prospects in the Eurozone and a general increase in global risk appetite resulted in a weaker U.S. dollar against most major currencies.

 

Bond yields in the U.S., UK and Japan did not change materially during 2017 as wages remained flat even as unemployment declined and economic outlook improved. The Fund generally had long positions in major fixed income markets but modulated exposures throughout the year. Long positions in peripheral European fixed income were profitable as they benefited from declining local inflation.

 

Industrial metals gained as developed market demand indicators picked up in 2017. Chinese demand started to normalize. Copper supply pipeline was relatively empty, with large mining projects not ramping up anytime soon. The Chinese government was looking to implement aluminum production cuts because of concerns over the environment, after relentless investments in smelters over several years. Long positions in copper and aluminum were among the top ten contributors for the Fund during 2017.

 

There was strong demand for petroleum products arising from hurricanes in the U.S. and reduced supply from OPEC producers.  Inventories across the petroleum complex dropped to five-year averages indicating balanced supply/demand conditions. The Fund, however, experienced mixed trading results in the energy sector as gains from brent crude and heating oil were offset by losses from gasoline and natural gas.

 

In grains and softs sectors, short positions in corn, coffee and sugar were profitable as supply worsened. This was offset by small losses from trading wheat and soybeans.

 

The Fund, through its investment in the Master Fund, experienced a net trading loss of $2,515,321 before brokerage commissions and related fees for the year ended December 31, 2016. Losses were primarily attributable to the trading of commodity futures in metals, energy, grains and stock indices and were partially offset by gains in U.S and non-U.S.  interest rates, currencies, livestock and softs.

 

While 2016 losses were disappointing, they were in line with the industry. The SocGen Trend Index returned -6.2% for the year. Directional price moves in futures markets were relatively muted in 2016 compared to the previous year as a majority of the markets reversed course.

 

For the Fund, trend following strategies detracted the most in 2016. Carry and other non-trend strategies contributed positively.Fixed income was the worst sector for the Fund during the fourth quarter 2016 as U.S. Federal Reserve delivered a 25 bps rate increase and the market priced in three more rate increases in 2017. Inflation indicators stabilized in Europe, which resulted in losses for long positions in European bonds. Notwithstanding these changes, fixed income sector was a positive contributor for the full year 2016, as the fund generated more gains during the run up in prices earlier in the year compared to the giveback later.

 

Within the foreign exchange sector, the Pound weakened as the British Supreme Court declined a parliamentary review of the Brexit process, potentially speeding up the UK’s exit from the European Union. The Euro also weakened as economic fundamentals weren’t strong enough compared to the U.S.. Shorts in Euro and British Pound were profitable positions for the fund. The Japanese Yen weakened in the fourth quarter as economic growth and inflation numbers came lower than market expectations. The fund switched from a long position to a short position in the Yen. Despite the losses during position transition, the Yen was among the profitable markets during 2016.

 

The energy sector was a notable detractor for the fund in 2016. In the fourth quarter, crude oil prices continued to advance after the OPEC led production cut in November found additional support from non-OPEC producers. Natural gas experienced a weather related rally in December. Essentially the fund covered most of its short positions in various energy markets and turned long in certain crude products during the fourth quarter.

 

Trading in stock index futures was profitable during the fourth quarter, even though it resulted in small losses for the whole year. The fund held its net long positions in the equities sector through the U.S. election and the Italian referendum. It is notable that the fund increased long positions in U.S. equity indices, as volatility dropped post U.S. election, which was profitable.

 

Gold ranked among the worst detractors for the fund during the fourth quarter 2016 and the whole year. The fund reversed high conviction long positions in gold and other precious metals, as the U.S. Federal Reserve laid out its plan to increase interest rates.

 

During the reporting period, interest income on 100% of the average daily equity maintained in cash in the Master Fund’s brokerage account with UBS Securities was earned at a 30-day U.S. Treasury bill rate. Interest income for the year ended December 31, 2018

 

15


 

increased by $1,720,530 as compared to the year ended December 31, 2017. The increase in interest income is primarily due to an increase in interest rates during the year ended December 31, 2018, as compared to the corresponding period in 2017. Interest earned by the Fund will increase the net asset value of the Fund. The amount of interest income earned by the Fund during the reporting period depended on the average daily equity in the Master Fund’s account and upon interest rates over which neither the Fund, the Masster Fund nor UBS Securities had control.

 

Clearing and transaction fees are based on the number of round turns made in the Master Fund’s account.  Clearing and transaction fees of the Master Fund for the years ended December 31, 2018 and 2017 were $164,983 and $197,880, respectively.  The decrease in clearing and transaction fees for the year ended December 31, 2018 is a result of a decrease in the number of futures contracts traded in the year ended December 31, 2018 as compared to the corresponding period in 2017.

 

Ongoing selling agent fees are calculated as a percentage of the Master Fund’s adjusted net assets as of the end of each month and are affected by trading performance, subscriptions and redemptions.

 

Ongoing selling agent fees of the Fund, and paid for by the Master Fund, for the years ended December 31, 2018 and 2017 were $6,323,564 and $6,589,338.  The decrease in ongoing selling agent fees for the year ended December 31, 2018 as compared to the corresponding period in 2017 is due to a decrease in the Fund’s average capital account balance at the Master fund.

 

Advisory fees are calculated as a percentage of the Fund’s adjusted net assets as of the end of each month and are affected by trading performance, subscriptions and redemptions.

 

Advisory fees of the Fund for the years ended December 31, 2018 and 2017 were $2,701,743 and $2,815,226, respectively.  The calculation of advisory fees for the years ended December 31, 2018 and 2017 was based on a monthly average net asset value of $180,116,171 and $187,681,718, respectively.  The decrease in advisory fees for the year ended December 31, 2018 as compared to the corresponding period in 2017 is due to a decrease in the average net assets.

 

Administrative fees are paid to Sydling for administering the business and affairs of the Fund.  Sydling pays a portion of the administrative fee to the Administrator. These fees are calculated as a percentage of the Fund’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions.

 

Administrative fees of the Fund for the years ended December 31, 2018 and 2017 were $900,581 and $938,409, respectively.  The calculation of administrative fees for the years ended December 31, 2018 and 2017 was based on a monthly average net asset value of $180,116,171 and $187,681,718, respectively.  The decrease in administrative fees for the year ended December 31, 2018 as compared to the corresponding period in 2017 is due to a decrease in the average net assets.

 

Incentive fees to the Advisor are based on the new trading profits generated by the Advisor, paid at the end of each quarter, as defined in the Trading Advisory Agreement among the Master Fund, the Fund, Sydling and the Advisor. Incentive fees of $311,386 were earned for the year ended December 31, 2018. There were no incentive fees earned during the year ended December 31, 2017.

 

The Fund pays professional fees, which generally include legal and accounting expenses, and other expenses, which generally include filing and printing fees. Professional fees and other expenses for the years ended December 31, 2018 and 2017 were $361,494 and $431,736, respectively.

 

Commodity markets are highly volatile. Broad price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase the possibility of profit. The profitability of the Master Fund and the Fund depends on the Advisor’s ability to forecast changes in energy and energy-related commodities. Such price changes are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that the Advisor correctly makes such forecasts, the Master Fund and the Fund expect to increase capital through operations.

 

In allocating substantially all of the assets of the Fund to the Master Fund, the Member Designee considered the Advisor’s past performance, trading style, volatility of markets traded and fee requirements. The Member Designee may modify or terminate the allocation of assets to the Advisor at any time. The Advisor’s trading program is described in the “Overview” section of this Item 7.

 

(d) Off-Balance Sheet Arrangements. None.

 

(e) Contractual Obligations. None.

 

16


 

(f) Operational Risk.

 

The Fund, through its investment in the Master Fund, is directly exposed to market risk and credit risk, which arise in the normal course of its business activities. Slightly less direct, but of critical importance, are risks pertaining to operational and back office support. This is particularly the case in a rapidly changing and increasingly global environment with increasing transaction volumes and an expansion in the number and complexity of products in the marketplace.

 

Such risks include:

 

Operational/Settlement Risk — the risk of financial and opportunity loss and legal liability attributable to operational problems, such as inaccurate pricing of transactions, untimely trade execution, clearance and/or settlement, or the inability to process large volumes of transactions. The Fund/Master Fund is subject to increased risks with respect to their trading activities in emerging market securities, where clearance, settlement, and custodial risks are often greater than in more established markets. Additionally, the Member Designee’s computer systems may be vulnerable to unauthorized access, mishandling or misuse, computer viruses or malware, cyber attacks and other events that could have a security impact on such systems. If one or more of such events occur, this potentially could jeopardize a member’s personal, confidential, proprietary or other information processed and stored in, and transmitted through, the Member Designee’s computer systems, and adversely affect the Fund’s business, financial condition or results of operations.

 

Technological Risk — the risk of loss attributable to technological limitations or hardware failure that constrain the Fund/Master Fund’s ability to gather, process, and communicate information efficiently and securely, without interruption, to customers and in the markets where the Fund/Master Fund participates.

 

Legal/Documentation Risk — the risk of loss attributable to deficiencies in the documentation of transactions (such as trade confirmations) and customer relationships (such as Master Fund netting agreements) or errors that result in noncompliance with applicable legal and regulatory requirements.

 

Financial Control Risk — the risk of loss attributable to limitations in financial systems and controls. Strong financial systems and controls ensure that assets are safeguarded, that transactions are executed in accordance with management’s authorization, and that financial information utilized by management and communicated to external parties, including the Fund’s Redeemable Unit holders, creditors, and regulators, is free of material errors.

 

17


 

(g) Critical Accounting Policies.

 

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

 

Fund’s and Master Fund’s Fair Value Measurements. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements” (“ASC 820”), defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques, as specified by ASC 820, are used to measure fair value.

 

All financial instruments at fair value are categorized into one of three fair value hierarchy levels, based upon the lowest level input that is significant to the financial instrument’s fair value measurement in its entirety:

 

Level 1—quoted market prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2—Valuation techniques for which all significant inputs are market observable, either directly or indirectly.

 

Level 3—Valuation techniques which include significant inputs that are not based on observable market data.

 

In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820) — Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) which introduces new fair value disclosure requirements as well as eliminates and modifies certain existing fair value disclosure requirements.  ASU 2018-13 would be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years; however, the Fund has elected to early adopt ASU 2018-13 effective with the current reporting period.  The impact of the Fund’s adoption was limited to changes in the Fund’s financial statement disclosures regarding fair value, primarily those disclosures related to transfers between levels of the fair value hierarchy.

 

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

 

Fair value measurement disclosure for each class of assets and liabilities requires greater disaggregation than the Master Fund’s line items in the Statement of Financial Condition.  The Master Fund determines the appropriate classes for those disclosures on the basis of the nature and risks of the assets and liabilities and their classification in the fair value hierarchy (i.e., Level 1, Level 2, and Level 3).

 

For assets and liabilities measured at fair value on a recurring basis during the period, the Master Fund provides quantitative disclosures about the fair value measurements separately for each class of assets and liabilities.

 

The Master Fund considers prices for exchange-traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1).  The values of non exchange-traded forward, swap and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2) and for those contracts that are priced using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). As of and for the years ended December 31, 2018, 2017 and 2016, the Master Fund did not hold any derivative instruments for which market quotations are not readily available and which are priced by broker-dealers who derive fair values for these assets from observable inputs (Level 2) or that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).

 

18


 

Futures Contracts. The Master Fund trades futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (“variation margin”) may be made or received by the Master Fund each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Master Fund. When the contract is closed, the Master Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Statements of Operations.

 

Options. The Master Fund may purchase and write (sell) both exchange-listed and OTC options on commodities or financial instruments. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Master Fund writes an option, the premium received is recorded as a liability in the Statements of Financial Condition and marked to market daily. When the Master Fund purchases an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Net realized gains (losses) and changes in net unrealized gains (losses) on options contracts are included in the Statements of Operations.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

The Master Fund is a speculative commodity pool. The market sensitive instruments held by the Master Fund are acquired for speculative trading purposes, and all or substantially all of the Fund’s assets are subject to the risk of trading loss through its investment in the Master Fund. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Master Fund’s and the Fund’s main line of business.

 

The risk to the members that have purchased Redeemable Units is limited to the amount of their capital contributions to the Fund and their share of the Fund’s assets and undistributed profits. This limited liability is a result of the organization of the Fund as a limited liability company under applicable law.

 

Market movements result in frequent changes in the fair market value of the Master Fund’s open positions and, consequently, in its earnings and cash flow. The Master Fund’s and the Fund’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification results among the Master Fund’s open positions and the liquidity of the markets in which it trades.

 

The Master Fund rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Master Fund’s past performance is not necessarily indicative of its future results.

 

“Value at Risk” is a measure of the maximum amount which the Master Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Master Fund’s speculative trading and the recurrence in the markets traded by the Master Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Master Fund’s experience to date (i.e., “risk of ruin”). In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the Master Fund’s losses in any market sector will be limited to Value at Risk or by the Master Fund’s attempts to manage its market risk.

 

Quantifying the Fund’s Trading Value at Risk

 

The following quantitative disclosures regarding the Master Fund’s and the Fund’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor except for statements of historical fact (such as the terms of particular contracts and the number of market risk sensitive instruments held during or at the end of the reporting period).

 

19


 

The Master Fund’s and the Fund’s risk exposure in the various market sectors traded by the Advisor is quantified below in terms of Value at Risk. Due to the Master Fund’s mark-to-market accounting, any loss in the fair value of the Master Fund’s open positions is directly reflected in the Master Fund’s earnings (realized or unrealized).

 

Maintenance margin requirements have been used by the Master Fund as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day intervals. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component which is not relevant to Value at Risk.

 

In the case of market sensitive instruments which are not exchange-traded, the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.

 

The fair value of the Master Fund’s futures and forward positions does not have any optionality component. However, the Advisor does trade commodity options. The Value at Risk associated with options is reflected in the following table as the margin requirement attributable to the instrument underlying each option. Where this instrument is a futures contract, the futures margin has been used, and where this instrument is a physical commodity, the futures-equivalent maintenance margin has been used. This calculation is conservative in that it assumes that the fair value of an option will decline by the same amount as the fair value of the underlying instrument, whereas, in fact, the fair values of the options traded by the Master Fund in almost all cases fluctuate to a lesser extent than those of the underlying instruments.

 

In quantifying the Master Fund’s Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been added to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that the Master Fund’s positions are rarely, if ever, 100% positively correlated have not been reflected.

 

The Master Fund’s Trading Value at Risk in Different Market Sectors

 

Value at Risk tables represent a probabilistic assessment of the risk of loss in the market risk sensitive instruments. The following tables indicates the trading Value at Risk associated with the Master Fund’s open positions by market category as of December 31, 2018 and 2017, and the highest, lowest and average value at any point during the year/period. All open position trading risk exposures of the Master Fund have been included in calculating the figures set forth below. As of December 31, 2018, the Master Fund’s total capitalization was $162,308,934 and the Fund owned approximately 100% of the Master Fund. The Fund invests substantially all of its assets in the Master Fund. The Master Fund’s Value at Risk as of December 31, 2018 was as follows:

 

December 31, 2018

(Unaudited)

 

Market Sector

 

Value
at Risk

 

% of Total
Capitalization

 

High Value
at Risk

 

Low Value
at Risk

 

Average Value
at Risk*

 

Currencies

 

$

3,679,519

 

2.27

%

$

7,678,536

 

$

1,052,854

 

$

2,355,627

 

Energy

 

$

1,896,258

 

1.17

%

$

3,831,662

 

$

251,729

 

$

1,084,131

 

Grains

 

$

2,089,419

 

1.29

%

$

3,957,304

 

$

794,125

 

$

1,315,748

 

Index

 

$

1,247,579

 

0.77

%

$

7,090,936

 

$

411,920

 

$

1,758,613

 

Interest Rate Non-U.S.

 

$

1,725,235

 

1.06

%

$

3,594,919

 

$

599,498

 

$

1,812,433

 

Interest Rate U.S.

 

$

1,184,166

 

0.73

%

$

4,139,754

 

$

1,184,166

 

$

2,691,708

 

Livestock

 

$

185,800

 

0.11

%

$

352,49

 

$

11,197

 

$

201,074

 

Lumber

 

$

2,477

 

% **

$

5,382

 

$

 

$

2,980

 

Metals

 

$

1,154,438

 

0.71

%

$

2,653,592

 

$

643,221

 

$

1,341,207

 

Softs

 

$

2,191,549

 

1.35

%

$

4,549,259

 

$

883,348

 

$

1,484,954

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

15,356,440

 

9.46

%

 

 

 

 

 

 

 


*                                         Annual average month-end Values at Risk

 

**                                  Due to rounding

 

20


 

As of December 31, 2017, the Master Fund’s total capitalization was $183,350,875 and the Fund owned approximately 100% of the Master Fund. The Fund invests substantially all of its assets in the Master Fund. The Master Fund’s Value at Risk as of December 31, 2017 was as follows:

 

December 31, 2017

(unaudited)

 

Market Sector

 

Value
at Risk

 

% of Total
Capitalization

 

High Value
at Risk

 

Low Value
at Risk

 

Average Value
at Risk*

 

Currencies

 

$

2,161,362

 

1.18

%

$

3,657,599

 

$

1,839,853

 

$

2,615,227

 

Energy

 

$

1,373,825

 

0.75

%

$

1,666,690

 

$

267,778

 

$

669,160

 

Grains

 

$

1,065,047

 

0.58

%

$

2,194,809

 

$

965,638

 

$

1,449,607

 

Index

 

$

6,684,197

 

3.64

%

$

9,454,778

 

$

5,875,155

 

$

7,356,467

 

Interest Rate Non-U.S.

 

$

3,002,317

 

1.64

%

$

4,442,928

 

$

1,646,699

 

$

3,419,674

 

Interest Rate U.S.

 

$

3,407,204

 

1.86

%

$

5,540,910

 

$

1,351,448

 

$

3,111,358

 

Livestock

 

$

202,212

 

0.11

%

$

437,374

 

$

193,346

 

$

285,659

 

Lumber

 

$

3,965

 

% **

$

7,162

 

$

 

 

$

4,416

 

Metals

 

$

1,167,014

 

0.64

%

$

1,345,515

 

$

290,344

 

$

658,990

 

Softs

 

$

1,186,704

 

0.65

%

$

1,547,314

 

$

427,606

 

$

810,577

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

20,253,847

 

11.05

%

 

 

 

 

 

 

 


*                 Annual average of month-end Values at Risk

**   Due to rounding

 

Material Limitations on Value at Risk as an Assessment of Market Risk

 

The face value of the market sector instruments held by the Master Fund is typically many times the applicable margin requirement (margin requirements generally range between 1% and 25% of contract face value) as well as many times the capitalization of the Master Fund. The magnitude of the Master Fund’s open positions creates a “risk of ruin” not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions,  unusual, but historically recurring from time to time, could cause the Master Fund to incur severe losses over a short period of time. The foregoing Value at Risk tables, as well as the past performance of the Fund, give no indication of this “risk of ruin.”

 

Materiality as used in this section, “Qualitative and Quantitative Disclosures About Market Risk,” is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of the Master Fund’s market sensitive instruments.

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regarding the Master Fund’s market risk exposures except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Master Fund manages its primary market risk exposures constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.

 

The Master Fund’s primary market risk exposures as well as the strategies used and to be used by the Member Designee and the Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Master Fund’s risk control to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the management strategies of the Master Fund. There can be no assurance that the Master Fund’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short or long term. Investors must be prepared to lose all or substantially all of their investment in the Fund.

 

21


 

The following were the primary trading risk exposures of the Master Fund as of December 31, 2018, by market sector.

 

Interest Rates.  Interest rate movements directly affect the price of the futures positions held by the Master Fund and indirectly the value of its stock index and currency positions.  Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Master Fund’s profitability.  The Master Fund’s primary interest rate exposure is to interest rate fluctuations in the United States and the other G-8 countries.  However, at times the Master Fund could take futures positions on the government debt of smaller nations — e.g., Australia.

 

Currencies.  The Master Fund’s currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs.  These fluctuations are influenced by interest rate changes as well as political and general economic conditions. Sydling does not anticipate that the risk profile of the Master Fund’s currency sector will change significantly in the future.  The currency trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar-based Master Fund in expressing Value at Risk in a functional currency other than U.S. dollars.

 

Stock Indices.  The Master Fund’s primary equity exposure is to equity price risk in the G-8 countries.  The stock index futures traded by the Master Fund are limited to futures on broadly based indices. Sydling anticipates little, if any, trading in non-G-8 stock indices.  The Master Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Japanese indices.  (Static markets would not cause major market changes but would make it difficult for the Master Fund to avoid being “whipsawed” into numerous small losses.)

 

Metals. The Master Fund’s primary metal market exposure was to fluctuations in the prices of aluminum, zinc and copper.

 

Energy.  The Master Fund’s primary energy market exposure is to gas and oil price movements, often resulting from political developments in the Middle East.  Oil prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.

 

Softs.  The Master Fund’s primary commodities exposure is subject to agricultural price movements which are often directly affected by severe or unexpected weather conditions.  Coffee, cocoa and sugar accounted for the substantial bulk of the Master Fund’s commodity exposure.

 

Grains.  The Master Fund’s commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions.

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

The Member Designee monitors and attempts to control the Fund’s, through its investment in the Master Fund, risk exposure on a daily basis through financial, credit and risk management monitoring systems and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Master Fund may be subject.

 

The Member Designee monitors the Master Fund’s performance and the concentration of its open positions, and consults with the Advisor concerning the Master Fund’s overall risk profile. If the Member Designee felt it necessary to do so, the Member Designee could require the Advisor to close out individual positions as well as enter programs traded on behalf of the Master Fund. However, any such intervention would be a highly unusual event. The Member Designee primarily relies on the Advisor’s own risk control policies while maintaining a general supervisory overview of the Master Fund’s market risk exposures.

 

The Advisor applies its own risk management policies to its trading. The Advisor often follows diversification guidelines, margin limits and stop loss points to exit a position. The Advisor’s research of risk management often suggests ongoing modifications to its trading programs.

 

As part of the Member Designee’s risk management, the Member Designee periodically meets with the Advisor to discuss its risk management and to look for any material changes to the Advisor’s portfolio balance and trading techniques. The Advisor is required to notify the Member Designee of any material changes to its programs.

 

22


 

Item 8. Financial Statements and Supplementary Data.

 

Cavendish Futures Fund LLC

 

The following financial statements and related items of the Fund are filed under this Item 8: Oath or Affirmation, Report of Independent Registered Public Accounting Firm, for the years ended December 31, 2018 and 2017; Statements of Financial Condition at December 31, 2018 and 2017; Statements of Operations for the years ended December 31, 2018, 2017 and 2016; Statements of Changes in Members’ Capital for the years ended December 31, 2018, 2017 and 2016; and Notes to Financial Statements.

 

23


 

CAVENDISH FUTURES FUND LLC

Financial Statements
with Report of Independent Registered Public Accounting Firm

 

For the years ended December 31, 2018 and 2017

 

24


 

Cavendish Futures Fund LLC

 

Affirmation of the Commodity Pool Operator

 

IN WITNESS WHEREOF, the undersigned has made and signed this document, and affirms that to the best of his knowledge and belief, the information contained on the attached statement is accurate and complete.

 

 

By:

/s/ Jerry Pascucci

 

 

Jerry Pascucci

 

President and Director

 

Sydling Futures Management LLC

 

Trading Manager, Cavendish Futures Fund LLC

 

25


 

CAVENDISH FUTURES FUND LLC

Financial Statements
with Report of Independent Registered Public Accounting Firm

 

For the years ended December 31, 2018 and 2017

 

Contents

 

Report of Independent Registered Public Accounting Firm

27

 

 

Management’s Report on Internal Control Over Financial Reporting

28

 

 

Statements of Financial Condition

29

 

 

Statements of Operations

30

 

 

Statements of Changes in Members’ Capital

31

 

 

Financial Highlights

32

 

 

Notes to Financial Statements

33

 

Financial statements of Sydling WNT Master Fund LLC for the years ended December 31, 2018 and 2017 are attached to these financial statements and are an integral part thereof.

 

26


 

Report of Independent Registered Public Accounting Firm

 

To the Members and the Board of Directors of Cavendish Futures Fund LLC

 

Opinion on the Financial Statements

 

We have audited the accompanying statements of financial condition of Cavendish Futures Fund LLC (the “Fund”) as of December 31, 2018 and 2017, and the related statements of operations, changes in members’ capital and the financial highlights for each of the three years in the period ended December 31, 2018 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, 2018 and 2017, and the results of its operations, the changes in its members’ capital and its financial highlights for each of the three years ended December 31, 2018 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 the Fund’s 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.

 

 

We have served as the Fund’s auditor since 2013

 

March 20, 2019

 

New York, New York

 

27


 

Management’s Report on Internal Control Over Financial Reporting

 

The management of Cavendish Futures Fund LLC (the “Fund”), Sydling Futures Management LLC, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a - 15(f) and 15d - 15(f) under the Securities Exchange Act of 1934 and for our assessment of internal control over financial reporting. The Fund’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Fund’s internal control over financial reporting includes those policies and procedures that:

 

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Fund;

 

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Fund are being made only in accordance with authorizations of management and directors of the Fund; and

 

(iii) provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use or disposition of the Fund’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

The management of Cavendish Futures Fund LLC has assessed the effectiveness of the Fund’s internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria established in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our assessment, management concluded that the Fund maintained effective internal control over financial reporting as of December 31, 2018 based on the criteria referred to above.

 

/s/ Jerry Pascucci

 

/s/ Jennifer Magro

Jerry Pascucci

 

Jennifer Magro

President and Director

 

Chief Financial Officer

Sydling Futures Management LLC

 

Sydling Futures Management LLC

Trading Manager,

 

Trading Manager,

Cavendish Futures Fund LLC

 

Cavendish Futures Fund LLC

 

28


 

Cavendish Futures Fund LLC

 

Statements of Financial Condition

 

December 31, 2018 and 2017

(Expressed in U.S. Dollars)

 

 

 

2018

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Investment in Sydling WNT Master Fund LLC, at fair value

 

$

162,308,934

 

$

183,350,875

 

Cash (Note 3f)

 

1,513,137

 

1,269,067

 

Receivable from Sydling WNT Master Fund LLC

 

4,774,709

 

2,034,489

 

Total Assets

 

$

168,596,780

 

$

186,654,431

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Subscriptions received in advance (Note 3f)

 

$

1,425,000

 

$

1,165,000

 

Redemption payable

 

4,467,098

 

1,689,784

 

Accrued expenses:

 

 

 

 

 

Advisory fees (Note 4b)

 

208,818

 

231,687

 

Administrative fees (Notes 4a and 4c)

 

69,606

 

77,229

 

Professional fees and other expenses

 

117,324

 

139,856

 

Total Liabilities

 

6,287,846

 

3,303,556

 

 

 

 

 

 

 

MEMBERS’ CAPITAL

 

 

 

 

 

 

 

 

 

 

 

Member Designee (25.000 units, respectively)

 

28,165

 

29,634

 

Non-managing members (144,042.770 units and 154,654.270 units)

 

162,280,769

 

183,321,241

 

Total Members’ Capital

 

162,308,934

 

183,350,875

 

Total Liabilities and Members’ Capital

 

$

168,596,780

 

$

186,654,431

 

Members’ Capital per unit (based on 144,067.770 units and 154,679.270 units)

 

$

1,126.62

 

$

1,185.36

 

 

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

 

29


 

Cavendish Futures Fund LLC

 

Statements of Operations

 

For the years ended December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

 

 

2018

 

2017

 

2016

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income allocated from Sydling WNT Master Fund LLC

 

$

3,329,852

 

$

1,609,322

 

$

473,865

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses allocated from Sydling WNT Master Fund LLC

 

6,584,047

 

6,885,718

 

7,151,461

 

Incentive fee (Note 4b)

 

311,386

 

 

410,292

 

Advisory fees (Note 4b)

 

2,701,743

 

2,815,226

 

2,937,633

 

Administrative fees (Notes 4a)

 

900,581

 

938,409

 

979,211

 

Professional fees and other expenses

 

361,494

 

431,736

 

304,249

 

Total Expenses

 

10,859,251

 

11,071,089

 

11,782,846

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME/(LOSS)

 

(7,529,399

)

(9,461,767

)

(11,308,981

)

 

 

 

 

 

 

 

 

TRADING RESULTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

7,985,729

 

14,670,517

 

(2,774,585

)

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

 

(9,213,330

)

3,552,429

 

259,264

 

Total Trading Results

 

(1,227,601

)

18,222,946

 

(2,515,321

)

 

 

 

 

 

 

 

 

Net income/(loss)

 

(8,757,000

)

8,761,179

 

(13,824,302

)

Net income/(loss) per unit of Members’ Capital *

 

$

(58.74

)

$

58.35

 

$

(75.18

)

 


* Represents the changes in Members’ Capital per unit.

 

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

 

30


 

Cavendish Futures Fund LLC

 

Statements of Changes in Members’ Capital

 

For the years ended December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

 

 

Non-managing
members

 

Member
Designee

 

Total

 

 

 

 

 

 

 

 

 

Members’ Capital at December 31, 2015

 

$

171,481,896

 

$

30,055

 

$

171,511,951

 

 

 

 

 

 

 

 

 

Subscriptions, 42,744.236 units of non-managing member interest

 

52,547,971

 

 

52,547,971

 

 

 

 

 

 

 

 

 

Redemptions, 17,157.938 units of non-managing member interest

 

(20,612,612

)

 

(20,612,612

)

 

 

 

 

 

 

 

 

Net income (loss)

 

(13,822,422

)

(1,880

)

(13,824,302

)

 

 

 

 

 

 

 

 

Members’ Capital at December 31, 2016

 

$

189,594,833

 

$

28,175

 

$

189,623,008

 

 

 

 

 

 

 

 

 

Subscriptions, 18,430.054 units of non-managing member interest

 

20,456,078

 

 

20,456,078

 

 

 

 

 

 

 

 

 

Redemptions, 32,003.274 units of non-managing member interest

 

(35,489,390

)

 

(35,489,390

)

 

 

 

 

 

 

 

 

Net income (loss)

 

8,759,720

 

1,459

 

8,761,179

 

 

 

 

 

 

 

 

 

Members’ Capital at December 31, 2017

 

$

183,321,241

 

$

29,634

 

$

183,350,875

 

 

 

 

 

 

 

 

 

Subscriptions, 10,901.036 units of non-managing member interest

 

12,779,900

 

 

12,779,900

 

 

 

 

 

 

 

 

 

Redemptions, 21,512.536 units of non-managing member interest

 

(25,064,841

)

 

(25,064,841

)

 

 

 

 

 

 

 

 

Net income (loss)

 

(8,755,531

)

(1,469

)

(8,757,000

)

 

 

 

 

 

 

 

 

Members’ Capital at December 31, 2018

 

$

162,280,769

 

$

28,165

 

$

162,308,934

 

 

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

 

31


 

Cavendish Futures Fund LLC

 

Financial Highlights

 

For the years ended December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

The following represents the ratios to average non-managing members’ capital and other supplemental information for the years indicated:

 

 

 

Year Ended
December 31,
2018

 

Year Ended
December 31,
2017

 

Year Ended
December 31,
2016

 

Per share operating performance: (a)

 

 

 

 

 

 

 

Members’ capital per unit, beginning of year

 

$

1,185.36

 

$

1,127.01

 

$

1,202.19

 

Income from investment operations:

 

 

 

 

 

 

 

Net investment income/(loss)

 

(48.89

)

(56.22

)

(70.39

)

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

 

(9.85

)

114.57

 

(4.79

)

Total from investment operations

 

(58.74

)

58.35

 

(75.18

)

Members’ capital per unit, end of year

 

$

1,126.62

 

$

1,185.36

 

$

1,127.01

 

 

 

 

 

 

 

 

 

Ratio/Supplemental Data: (b)

 

 

 

 

 

 

 

Ratio of net investment income/(loss) to average Members’ capital

 

(4.23

)%

(5.12

)%

(5.90

)%

Ratio of operating expenses to average Members’ capital before incentive fee

 

5.93

%

5.99

%

5.93

%

Ratio of incentive fee to average Members’ capital

 

0.18

%

 

0.21

%

Ratio of operating expenses to average Members’ capital after incentive fee

 

6.11

%

5.99

%

6.14

%

 

 

 

 

 

 

 

 

Total return before incentive fee (c)

 

(4.78

)%

5.18

%

(6.04

)%

Incentive fee

 

(0.18

)%

 

(0.21

)%

Total return after incentive fee

 

(4.96

)%

5.18

%

(6.25

)%

Members’ capital at end of year

 

$

162,308,934

 

$

183,350,875

 

$

189,623,008

 

 

The computation of ratios to average members’ capital and total return based on the amount of expenses and incentive allocation assessed to an individual investor’s capital may vary from these ratios and total return based on the timing of capital transactions.

 


(a)              Per share operating performance is calculated on a monthly basis by dividing each line item by the outstanding units at month-end prior to the reduction of redeemed units.

(b)              The average members’ capital used in the above ratios is calculated by using monthly members’ capital after period-end withdrawals.  Ratios include the Fund’s share of income and expense allocated from the Master Fund.

(c)               Total return assumes a purchase of an interest in the Fund at the beginning of the year and a sale of the Fund interest on the last day of the year noted.  Total return is reflected after all investment-related and operating expenses, including the Advisory and Administrative fees.

 

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

 

32


 

Cavendish Futures Fund LLC

 

Notes to Financial Statements

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

1.                                      Organization

 

Cavendish Futures Fund LLC (the “Fund”) is a Delaware limited liability company formed on August 7, 2012.  Trading operations of the Fund commenced on February 19, 2013.  The Fund’s investment objective is to achieve capital appreciation through speculative trading in U.S. and international futures, options on futures and forward markets.  The Fund may also engage in swap and other derivative transactions upon approval of Sydling.  The Fund invests substantially all of its assets in Sydling WNT Master Fund LLC (the “Master Fund”), also a Delaware limited liability company, that has the same investment objective as the Fund.  The financial statements of the Master Fund, including the condensed schedule of investments, are included elsewhere in this report and should be read with the Fund’s financial statements.  The percentage of the Master Fund’s capital owned by the Fund at December 31, 2018 and 2017 was 100%.  The performance of the Fund is directly affected by the performance of the Master Fund.

 

The Fund is member managed for purposes of Delaware law.  Pursuant to the limited liability company agreement of the Fund, as may be amended from time to time (the “LLC Agreement”), the members of the Fund have appointed Sydling Futures Management LLC (“Sydling” or “Member Designee”) to act as the Fund’s trading manager and commodity pool operator.  Sydling is registered as a commodity pool operator and a commodity trading advisor and is a member of the National Futures Association (“NFA”) effective August 10, 2011.  Sydling, a wholly owned subsidiary of UBS Alternatives LLC, was formed on August 4, 2011.  UBS Alternatives LLC is a wholly owned subsidiary of UBS Americas Inc. In 2015, UBS AG (“UBS”) transferred its ownership interest in UBS Americas Inc. to UBS Americas Holdings LLC, a wholly owned subsidiary of UBS which is a wholly owned subsidiary of UBS Group AG. UBS Group AG was established as the holding company of UBS in response to evolving regulatory requirements.

 

In the normal course of business, the Fund may enter into contracts that contain a variety of representations that provide indemnification for certain liabilities.  The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.  However, the Fund has not had any prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

 

The term of the Fund shall end upon the first to occur of the following: (i) December 31, 2037; (ii) the vote to dissolve the Fund by members owning more than 50% of the units of limited liability company interest of the Fund; (iii) the withdrawal, removal, bankruptcy or dissolution of the Member Designee; (iv) a decline in net asset value to less than $400 per unit, as such amount may be adjusted for any splits or combinations of units, as of the end of any trading day; or (v) the occurrence of any event which shall make it unlawful for the existence of the Fund to be continued.  In addition, the Member Designee may, in its sole discretion, cause the Fund to dissolve if the Fund’s aggregate net assets decline to less than  $1,000,000.

 

33


 

Cavendish Futures Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

1.                                      Organization (continued)

 

Winton Capital Management Limited (the “Advisor” or “WNT”) serves as the trading advisor to the Fund and the Master Fund.

 

BNY Mellon Investment Servicing (US) Inc. serves as administrator (the “Administrator”) of the Fund.

 

The Fund privately and continually offers units of limited liability company interest in the Fund to qualified investors and are generally accepted monthly.  A qualified investor is an accredited investor as defined in Regulation D under the Securities Exchange Act of 1933.  There is no maximum number of units that may be sold in the Fund.  Sydling may reject any subscription for any reason for a reasonable period of time after receipt.  Generally, units may be redeemed on the last day of any month with five days written notice provided that such units are held for three full months.  In general, the Fund will make payment for redeemed units within ten business days following the redemption date.

 

2.                                      Going Concern

 

Management has evaluated relevant conditions and events, which are known and reasonably knowable, and has determined that there are no conditions and events that raise substantial doubt about the Fund’s ability to continue as a going concern.

 

3.                                      Significant Accounting Policies

 

a.              Basis of Presentation

 

The Fund has determined its status as an investment company and as such, follows the accounting and reporting requirements of ASC 946, Financial Services — Investment Companies.

 

b.              Use of Estimates

 

The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) 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 increases and decreases in members’ capital from operations during the reporting period.  Actual results could differ from those estimates.

 

34


 

Cavendish Futures Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

3.                                      Significant Accounting Policies (continued)

 

c.               Statements of Cash Flows

 

The Fund is not required to provide a Statements of Cash Flows in accordance with Accounting Standard Codification (“ASC”) 230, Statement of Cash Flows.

 

d.              Fair Value Measurements

 

In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820), Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).  ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient.  Accordingly, the Fund’s investment in the Master Fund has not been categorized in the fair value hierarchy.

 

In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820) — Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) which introduces new fair value disclosure requirements as well as eliminates and modifies certain existing fair value disclosure requirements.  ASU 2018-13 would be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years; however, the Fund has elected to early adopt ASU 2018-13 effective with the current reporting period.  The impact of the Fund’s adoption was limited to changes in the Fund’s financial statement disclosures regarding fair value, primarily those disclosures related to transfers between levels of the fair value hierarchy.  ASU 2018-13 will not impact the financial statements of the Fund.

 

e.               Investment in Master Fund

 

The Fund records its investment in the Master Fund at fair value and is represented by the Fund’s proportionate interest in the members’ capital of the Master Fund at December 31, 2018 and 2017.  Valuation of securities held by the Master Fund is discussed in the notes to the Master Fund’s financial statements.  The Fund records its pro rata share of the Master Fund’s income, expenses and realized and unrealized gains and losses.  The performance of the Fund is directly attributable to the performance of the Master Fund.  The Fund records its subscription and redemption of the capital account related to its investment in the Master Fund on the transaction date.  The Master Fund will adjust the capital account of the Fund.  Brokerage, clearing and transaction fees are incurred by the Master Fund and are reflected in the pro rata allocation received by the Fund from the Master Fund.

 

35


 

Cavendish Futures Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

3.                                      Significant Accounting Policies (continued)

 

f.                Subscriptions Received in Advance

 

Subscriptions received in advance represent the amounts paid by the non-managing members for a percentage ownership into the Fund which have not yet been added as members’ capital as of December 31, 2018 and 2017.  The amount paid is held as cash in the Fund’s escrow account and represents the majority of the cash on the Statements of Financial Condition.

 

g.              Redemptions Payable

 

Pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, capital withdrawals effective December 31, 2018 and 2017 have been reflected as redemptions payable in the Statements of Financial Condition.

 

h.              Income Taxes

 

The Fund is classified as a partnership for U.S. federal income tax purposes, and the Fund will not pay U.S. federal income tax.  As a result, no income tax liability or expense has been recorded in the financial statements.  Each member will be subject to taxation on its share of the Fund’s ordinary income, capital gains and losses.

 

U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Master Fund’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority.

 

Tax positions with respect to tax at the Master Fund level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. Management has analyzed the Master Fund’s tax positions for the open tax period and has concluded that no provision is required in the Master Fund’s financial statements.  The Master Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statements of Operations.  For the years ended December 31, 2018, 2017 and 2016, the Master Fund did not incur any interest or penalties.

 

36


 

Cavendish Futures Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

4.                                      Related Party Transactions and Other Agreements

 

a.              Limited Liability Company Agreement

 

Sydling administers the business affairs of the Fund including selecting one or more advisors to make trading decisions for the Fund.  The Fund will pay Sydling a monthly administration fee in return for its services equal to 1/12 of 0.50% (0.50% per year) of month-end adjusted members’ capital of the Fund.  Month-end members’ capital, for the purpose of calculating administration fees are members’ capital, as defined in the Limited Liability Company Agreement, prior to the reduction of the current month’s incentive allocation accrual, the monthly advisory fee, Sydling’s administration fee and any redemptions or distributions as of the end of such month.  For the years ended December 31, 2018, 2017 and 2016, the Fund incurred administrative fees of $900,581, $938,409 and $979,211, respectively, of which $69,606, and $77,229 remained payable and is reflected on the Statements of Financial Condition as of December 31, 2018 and 2017, respectively.

 

Each unit, when purchased by a member, shall be fully paid and non-assessable.  No member shall be liable for Fund obligations in excess of the capital contributed by the member, plus such member’s share of undistributed profits, if any.

 

b.              Trading Advisory Agreement

 

Sydling, on behalf of the Fund, has entered into an advisory agreement (the “Trading Advisory Agreement”) with the Advisor, a registered commodity trading advisor.  The Advisor is not affiliated with Sydling or UBS Securities LLC, the Master Fund’s commodity broker, or its affiliates and is not responsible for the organization or operation of the Fund.  The Trading Advisory Agreement provides that the Advisor has sole discretion in determining the investment of the assets of the Fund.  The Fund paid the Advisor a monthly advisory fee equal to 1/12 of 1.5% (1.5% per year) of month-end members’ capital of the Fund.  Month-end members’ capital, for the purpose of calculating advisory fees are members’ capital, as defined in the Limited Liability Company Agreement, prior to the reduction of the current month’s incentive allocation accrual, the monthly advisory fee, Sydling’s administration fee and any redemptions or distributions as of the end of such month.  The Trading Advisory Agreement may be terminated upon notice by either party.  For the years ended December 31, 2018, 2017 and 2016, the Fund incurred advisory fees of $2,701,743, $2,815,226 and $2,937,633, respectively of which $208,818 and $231,687 remained payable and is reflected on the Statements of Financial Condition as of December 31, 2018 and 2017, respectively.

 

37


 

Cavendish Futures Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

4.                                      Related Party Transactions and Other Agreements (continued)

 

b.              Trading Advisory Agreement (continued)

 

In addition, the Advisor receives a quarterly incentive fee equal to 20% of New Trading Profits, as defined in the Trading Advisory Agreement, earned on behalf of the Fund during each calendar quarter and are issued as special member units.  The amounts of $311,386 and $410,292 represent the incentive fees earned on new trading profits earned for the years ended December 31, 2018 and 2016, respectively.  For the year ended December 31, 2017, the Fund did not earned any incentive fees.

 

In allocating substantially all of the assets of the Fund to the Master Fund, Sydling considered the Advisor’s past performance, trading style, volatility of markets traded and fee requirements.  Sydling may modify or terminate the allocation of assets to the Advisor at any time.

 

c.               Administration Agreement

 

Sydling, on behalf of the Fund, has entered into an administration agreement with the Administrator.  The Administrator will assist Sydling in performing certain day-to-day tasks on behalf of the Fund, including but not limited to, calculating daily or periodic portfolio valuations, reconciling cash and portfolio positions, providing portfolio reporting, maintaining books and records and calculating all fund fees.  Sydling will pay a portion of the administrative fee it receives from the Fund to the Administrator in full satisfaction of fees owed to the Administrator.

 

5.                                      Subscriptions, Distributions and Redemptions

 

The Fund will offer units privately through its selling agent, UBS Financial Services Inc.  The Fund may engage additional selling agents in the future, including selling agents affiliated or unaffiliated with Sydling.  The minimum initial subscription in the Fund is $25,000 (or $10,000 in the case of ERISA Plans).  The minimum additional investment for those who are current members and are qualified investors is $10,000.  Sydling may, in its sole discretion, lower these amounts.  Subscriptions for units are made five business days prior to the end of a month and are made at the net asset value (“NAV”) on the first day of the following month.  Sydling may reject any subscription for any reason for a reasonable period of time after receipt.

 

Distributions, if any, will be made at the sole discretion of Sydling.

 

38


 

Cavendish Futures Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

5.                                      Subscriptions, Distributions and Redemptions (continued)

 

Contingent upon 5 days’ prior notice to the trading manager, redemptions of the Fund’s units are made at the NAV as of the end of any month, provided that such units were held for three full months.  The units are classified as a liability when a member elects to redeem and informs the trading manager.  Sydling may, in its sole discretion, modify the length of required notices or other restrictions.

 

6.                                      Subsequent Events

 

Management has evaluated the impact of all subsequent events on the Fund through March 20, 2019, the date these financial statements were available to be issued.  Subsequent to year end additional subscriptions were received from the non-managing members totaling $2,005,500.  Subsequent to year end redemptions were paid to the non-managing members totaling $22,950,237.  Management has determined that there were no additional subsequent events requiring recognition or disclosure in the financial statements.

 

39


 

SYDLING WNT MASTER FUND LLC

Financial Statements
with Report of Independent Registered Public Accounting Firm

 

For the years ended December 31, 2018 and 2017

 

Pursuant to Commodity Futures Trading Commission Rule 4.7 Sydling Futures Management LLC has claimed an exemption with respect to Sydling WNT Master Fund LLC from certain reporting requirements.

 

40


 

Sydling WNT Master Fund LLC

 

Affirmation of the Commodity Pool Operator

 

IN WITNESS WHEREOF, the undersigned has made and signed this document, and affirms that to the best of his knowledge and belief, the information contained on the attached statement is accurate and complete.

 

By:

/s/ Jerry Pascucci

 

Jerry Pascucci

 

President and Director

 

Sydling Futures Management LLC

 

Trading Manager, Sydling WNT Master Fund LLC

 

41


 

SYDLING WNT MASTER FUND LLC

Financial Statements
with Report of Independent Registered Public Accounting Firm

 

For the years ended December 31, 2018 and 2017

 

Contents

 

 

Report of Independent Registered Public Accounting Firm

43

 

 

Statements of Financial Condition

44

 

 

Condensed Schedules of Investments

45

 

 

Statements of Operations

47

 

 

Statements of Changes in Member’s Capital

48

 

 

Financial Highlights

49

 

 

Notes to Financial Statements

50

 

42


 

Report of Independent Registered Public Accounting Firm

 

To the Members and the Board of Directors of Sydling WNT Master Fund LLC

 

Opinion on the Financial Statements

 

We have audited the accompanying statements of financial condition of Sydling WNT Master Fund LLC (the “Fund”), including the condensed schedules of investments as of December 31, 2018 and 2017, and the related statements of operations, changes in member’s capital and the financial highlights for the three years in the period ended December 31, 2018, 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, 2018 and 2017, and the results of its operations, the changes in its member’s capital and its financial highlights for each of the three years ended December 31, 2018 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 the Fund’s 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 procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and brokers. 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.

 

 

We have served as the Fund’s auditor since 2013

 

March 20, 2019

 

New York, New York

 

43


 

Sydling WNT Master Fund LLC

 

Statements of Financial Condition

 

December 31, 2018 and 2017

(Expressed in U.S. Dollars)

 

 

 

2018

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash (including restricted cash of $15,356,440 and $20,253,846, respectively)

 

$

171,222,974

 

$

180,260,068

 

Net unrealized appreciation on open futures contracts

 

 

5,227,400

 

Interest receivable

 

375,668

 

512,251

 

Total Assets

 

$

171,598,642

 

$

185,999,719

 

 

 

 

 

 

 

LIABILITIES AND MEMBER’S CAPITAL

 

 

 

 

 

 

 

 

 

 

 

Net unrealized depreciation on open futures contracts

 

$

3,985,930

 

$

 

Redemptions payable

 

4,774,709

 

2,034,489

 

Accrued expenses:

 

 

 

 

 

Selling agent fees

 

488,753

 

542,289

 

Professional fees and other expenses

 

40,316

 

72,066

 

Total Liabilities

 

9,289,708

 

2,648,844

 

 

 

 

 

 

 

Member’s Capital

 

162,308,934

 

183,350,875

 

Total Liabilities and Member’s Capital

 

$

171,598,642

 

$

185,999,719

 

 

The accompanying notes are an integral part of these financial statements.

 

44


 

Sydling WNT Master Fund LLC

 

Condensed Schedules of Investments

 

December 31, 2018

(Expressed in U.S. Dollars)

 

 

 

 

 

 

 

Percent of

 

Number of

 

 

 

 

 

Member’s

 

Contracts

 

 

 

Fair Value

 

Capital

 

 

 

FUTURES CONTRACTS OWNED

 

 

 

 

 

214

 

CURRENCIES

 

$

149,610

 

0.09

%

387

 

ENERGY

 

(3,697,024

)

(2.27

)%

3,150

 

FINANCIALS

 

1,939,185

 

1.19

%

11

 

GRAINS

 

686

 

0.00

%

286

 

INDEX

 

(738,566

)

(0.45

)%

37

 

MATERIALS

 

(126,320

)

(0.08

)%

12

 

MEATS

 

5,250

 

0.00

%

378

 

METALS

 

(2,016,857

)

(1.24

)%

 

 

TOTAL FUTURES CONTRACTS OWNED

 

(4,484,036

)

(2.76

)%

 

 

 

 

 

 

 

 

 

 

FUTURES CONTRACTS SOLD

 

 

 

 

 

(1,271

)

CURRENCIES

 

(933,928

)

(0.57

)%

(400

)

ENERGY

 

1,838,934

 

1.13

%

(467

)

FINANCIALS

 

(660,228

)

(0.41

)%

(1,786

)

GRAINS

 

606,608

 

0.37

%

(223

)

INDEX

 

345,081

 

0.21

%

(1

)

INDUSTRIALS

 

(55

)

0.00

%

(87

)

MEATS

 

60,248

 

0.04

%

(590

)

METALS

 

(758,554

)

(0.47

)%

 

 

TOTAL FUTURES CONTRACTS SOLD

 

498,106

 

0.30

%

 

 

TOTAL FUTURES CONTRACTS

 

(3,985,930

)

(2.46

)%

 

 

OTHER ASSETS IN EXCESS OF OTHER LIABILITIES

 

166,294,864

 

102.46

%

 

 

TOTAL MEMBER’S CAPITAL

 

$

162,308,934

 

100.00

%

 

Percentages shown represent a percentage of member’s capital as of December 31, 2018.

 

The accompanying notes are an integral part of these financial statements.

 

45


 

Sydling WNT Master Fund LLC

 

Condensed Schedules of Investments

 

December 31, 2017

(Expressed in U.S. Dollars)

 

 

 

 

 

 

 

Percent of

 

Number of

 

 

 

 

 

Member’s

 

Contracts

 

 

 

Fair Value

 

Capital

 

 

 

FUTURES CONTRACTS OWNED

 

 

 

 

 

819

 

CURRENCIES

 

$

410,229

 

0.22

%

639

 

ENERGY

 

1,982,511

 

1.08

%

1,596

 

FINANCIALS

 

(738,847

)

(0.40

)%

75

 

GRAINS

 

(15,144

)

(0.01

)%

2,476

 

INDEX

 

1,022,279

 

0.56

%

3

 

INDUSTRIALS

 

4,642

 

0.00

%

53

 

MATERIALS

 

191,550

 

0.11

%

153

 

MEATS

 

(3,705

)

0.00

%

764

 

METALS

 

3,870,421

 

2.11

%

 

 

TOTAL FUTURES CONTRACTS OWNED

 

6,723,936

 

3.67

%

 

 

 

 

 

 

 

 

 

 

FUTURES CONTRACTS SOLD

 

 

 

 

 

(816

)

CURRENCIES

 

(584,626

)

(0.32

)%

(398

)

ENERGY

 

(766,380

)

(0.42

)%

(2,513

)

FINANCIALS

 

529,685

 

0.29

%

(1,549

)

GRAINS

 

390,480

 

0.21

%

(409

)

INDEX

 

(235,893

)

(0.13

)%

(183

)

METALS

 

(829,802

)

(0.45

)%

 

 

TOTAL FUTURES CONTRACTS SOLD

 

(1,496,536

)

(0.82

)%

 

 

TOTAL FUTURES CONTRACTS

 

5,227,400

 

2.85

%

 

 

OTHER ASSETS IN EXCESS OF OTHER LIABILITIES

 

178,123,475

 

97.15

%

 

 

TOTAL MEMBER’S CAPITAL

 

$

183,350,875

 

100.00

%

 

Percentages shown represent a percentage of member’s capital as of December 31, 2017.

 

The accompanying notes are an integral part of these financial statements.

 

46


 

Sydling WNT Master Fund LLC

 

Statements of Operations

 

For the years ended December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

 

 

2018

 

2017

 

2016

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

3,329,852

 

$

1,609,322

 

$

473,865

 

Total Investment Income

 

3,329,852

 

1,609,322

 

473,865

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brokerage, clearing and transaction fees

 

164,983

 

197,880

 

3,588,227

 

Selling agent fees

 

6,323,564

 

6,589,338

 

3,464,734

 

Professional fees

 

95,500

 

98,500

 

98,500

 

Total Expenses

 

6,584,047

 

6,885,718

 

7,151,461

 

Net Investment (Loss)

 

(3,254,195

)

(5,276,396

)

(6,677,596

)

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gain/(loss) on futures and foreign currency

 

7,985,729

 

14,670,517

 

(2,774,585

)

Net change in unrealized appreciation/(depreciation) on futures and foreign currency

 

(9,213,330

)

3,552,429

 

259,264

 

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

 

(1,227,601

)

18,222,946

 

(2,515,321

)

Net Income (Loss)

 

$

(4,481,796

)

$

12,946,550

 

$

(9,192,917

)

 

The accompanying notes are an integral part of these financial statements.

 

47


 

Sydling WNT Master Fund LLC

 

Statements of Changes in Member’s Capital

 

For the years ended December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

 

 

2018

 

2017

 

2016

 

INCREASE (DECREASE) IN MEMBER’S CAPITAL FROM OPERATIONS

 

 

 

 

 

 

 

Net investment income/(loss)

 

$

(3,254,195

)

$

(5,276,396

)

$

(6,677,596

)

Net realized gain/(loss) on futures and foreign currency

 

7,985,729

 

14,670,517

 

(2,774,585

)

Net change in unrealized appreciation/(depreciation) on futures and foreign currency

 

(9,213,330

)

3,552,429

 

259,264

 

Net Income (Loss)

 

(4,481,796

)

12,946,550

 

(9,192,917

)

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Subscriptions

 

12,779,900

 

20,456,078

 

52,547,971

 

Redemptions

 

(29,340,045

)

(39,674,761

)

(25,243,997

)

Net Increase (Decrease) in Member’s Capital Derived from Capital Transactions

 

(16,560,145

)

(19,218,683

)

27,303,974

 

Net Increase (Decrease) in Member’s Capital

 

(21,041,941

)

(6,272,133

)

18,111,057

 

Member’s Capital at Beginning of Year

 

183,350,875

 

189,623,008

 

171,511,951

 

Member’s Capital at End of Year

 

$

162,308,934

 

$

183,350,875

 

$

189,623,008

 

 

The accompanying notes are an integral part of these financial statements.

 

48


 

Sydling WNT Master Fund LLC

 

Financial Highlights

 

For the years ended December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

The following represents the ratios to average member’s capital and other supplemental information for the years indicated:

 

 

 

Year Ended 
December 31, 
2018

 

Year Ended 
December 31, 
2017

 

Year Ended 
December 31, 
2016

 

Ratio/Supplemental Data:

 

 

 

 

 

 

 

Ratio of net investment income/(loss) to average member’s capital (a)

 

(1.83

)%

(2.86

)%

(3.48

)%

Ratio of total expenses to average member’s capital (a)

 

3.70

%

3.73

%

3.72

%

Total return (b)

 

(2.67

)%

7.55

%

(3.94

)%

Member’s capital at end of year

 

$

162,308,934

 

$

183,350,875

 

$

189,623,008

 

 

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

 


(a)

The average member’s capital used in the above ratios are calculated by using monthly member’s capital after period-end withdrawals.

(b)

Total return is calculated based on a time-weighted rate of return methodology. Monthly rates of return are compounded to derive the total return reflected above. Total return is reflected after all investment-related and operating expenses.

 

The accompanying notes are an integral part of these financial statements.

 

49


 

Sydling WNT Master Fund LLC

 

Notes to Financial Statements

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

1.                                      Organization

 

Sydling WNT Master Fund LLC (the “Master Fund”) is a Delaware limited liability company formed on August 7, 2012.  Trading operations of the Master Fund commenced on February 19, 2013.  The Master Fund’s investment objective is to achieve capital appreciation through speculative trading in U.S. and international futures, options on futures and forward markets.  The Fund may also engage in swap and other derivate transactions upon approval of Sydling Futures Management LLC (“Sydling”).

 

The member of the Master Fund appointed Sydling as the member designee (the “Member Designee”) to manage the business and affairs of the Master Fund and to act as the Master Fund’s commodity pool operator.  Sydling is registered as a commodity pool operator and a commodity trading advisor and is a member of the National Futures Association (“NFA”) effective August 10, 2011.  Sydling, a wholly owned subsidiary of UBS Alternatives LLC, was formed on August 4, 2011.  UBS Alternatives LLC is a wholly owned subsidiary of UBS Americas Inc.  In 2015, UBS AG (“UBS”) transferred its ownership interest in UBS Americas Inc. to UBS Americas Holding LLC, a wholly owned subsidiary of UBS which is a wholly owned subsidiary of UBS Group AG.  UBS Group AG was established as the holding company of UBS in response to evolving regulatory requirements.

 

In the normal course of business, the Master Fund may enter into contracts that contain a variety of representations that provide indemnification for certain liabilities.  The Master Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Master Fund that have not yet occurred.  However, the Master Fund has not had any prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

 

The term of the Master Fund shall end upon the first to occur of the following: (i) December 31, 2037; (ii) the vote to dissolve the Fund by members owning more than 50% of the units of limited liability company interest of the Fund; (iii) the withdrawal, removal, bankruptcy or dissolution of the Member Designee; (iv) a decline in net asset value to less than $400 per unit, as such amount may be adjusted for any splits or combinations of units, as of the end of any trading day; or (v) the occurrence of any event which shall make it unlawful for the existence of the Master Fund to be continued.  In addition, the Member Designee may, in its sole discretion, cause the Master Fund to dissolve if the Master Fund’s aggregate net assets decline to less than $1,000,000.

 

The Master Fund’s investor consists exclusively of Cavendish Futures Fund LLC (the “Feeder”).  The Feeder invests substantially all of its assets in the Master Fund.

 

Winton Capital Management Limited (the “Advisor” or “WNT”) serves as the trading advisor to the Master Fund and the Feeder.

 

50


 

Sydling WNT Master Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

1.                                      Organization (continued)

 

BNY Mellon Investment Servicing (US) Inc. serves as administrator (the “Administrator”) of the Master Fund.

 

UBS Securities LLC (“UBS”) is the commodity broker (the “Commodity Broker”) for the Master Fund.  UBS is also an affiliate of Sydling.

 

2.                                      Going Concern

 

Management has evaluated relevant conditions and events, which are known and reasonably knowable, and has determined that there are no conditions and events that raise substantial doubt about the Fund’s ability to continue as a going concern.

 

3.                                      Significant Accounting Policies

 

a.              Basis of Presentation

 

The Master Fund has determined its status as an investment company and as such, follows the accounting and reporting requirements of ASC 946, Financial Services — Investment Companies.

 

b.              Use of Estimates

 

The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) 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 increases and decreases in member’s capital from operations during the reporting period.  Actual results could differ from those estimates.

 

c.               Statement of Cash Flows

 

The Master Fund is not required to provide a Statement of Cash Flows in accordance with Accounting Standard Codification (“ASC”) 230, Statement of Cash Flows.

 

d.              Fair Value Measurements

 

FASB Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements” (“ASC 820”), defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques.  Fair value is the price that would be

 

51


 

Sydling WNT Master Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

3.                                      Significant Accounting Policies (continued)

 

d.              Fair Value Measurements (continued)

 

received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.  Valuation techniques, as specified by ASC 820, are used to measure fair value.

 

All financial instruments at fair value are categorized into one of three fair value hierarchy levels, based upon the lowest level input that is significant to the financial instrument’s fair value measurement in its entirety:

 

Level 1 — quoted market prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 — valuation techniques for which all significant inputs are market observable, either directly or indirectly.

 

Level 3 — valuation techniques which include significant inputs that are not based on observable market data.

 

In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820) — Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) which introduces new fair value disclosure requirements as well as eliminates and modifies certain existing fair value disclosure requirements.  ASU 2018-13 would be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years; however, the Fund has elected to early adopt ASU 2018-13 effective with the current reporting period.  The impact of the Fund’s adoption was limited to changes in the Fund’s financial statement disclosures regarding fair value, primarily those disclosures related to transfers between levels of the fair value hierarchy.

 

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

 

52


 

Sydling WNT Master Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

3.                                      Significant Accounting Policies (continued)

 

d.              Fair Value Measurements (continued)

 

Fair value measurement disclosure for each class of assets and liabilities requires greater disaggregation than the Master Fund’s line items in the Statements of Financial Condition.  The Master Fund determines the appropriate classes for those disclosures on the basis of the nature and risks of the assets and liabilities and their classification in the fair value hierarchy (i.e., Level 1, Level 2, and Level 3).

 

For assets and liabilities measured at fair value on a recurring basis during the year, the Master Fund provides quantitative disclosures about the fair value measurements separately for each class of assets and liabilities, as well as a reconciliation of beginning and ending balances of Level 3 assets and liabilities broken down by class.

 

The Master Fund considers prices for exchange-traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1).  The values of non exchange-traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2) and for those contracts that are priced using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).  As of and for the years ended December 31, 2018, 2017 and 2016, the Master Fund did not hold any derivative instruments for which market quotations are not readily available and which are priced by broker-dealers who derive fair values for these assets from observable inputs (Level 2) or that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).  The gross presentation of the fair value of the Master Fund’s derivatives by instrument type is shown in Note 5, “Trading Activities”.

 

53


 

Sydling WNT Master Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

3.                                      Significant Accounting Policies (continued)

 

d.              Fair Value Measurements (continued)

 

At December 31, 2018 and 2017, financial instruments recorded at fair value, consisted of the following:

 

ASSET TABLE

 

Description

 

Total Fair Value at
December 31, 2018

 

Level 1

 

Level 2

 

Level 3

 

Futures Contracts

 

$

5,914,315

 

$

5,914,315

 

$

 

$

 

Total Assets

 

$

5,914,315

 

$

5,914,315

 

$

 

$

 

 

LIABILITIES TABLE

 

Description

 

Total Fair Value at
December 31, 2018

 

Level 1

 

Level 2

 

Level 3

 

Futures Contracts

 

$

9,900,245

 

$

9,900,245

 

$

 

$

 

Total Liabilities

 

$

9,900,245

 

$

9,900,245

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Net Assets and Liabilities

 

$

(3,985,930

)

$

(3,985,930

)

$

 

$

 

 

ASSET TABLE

 

Description

 

Total Fair Value at
December 31, 2017

 

Level 1

 

Level 2

 

Level 3

 

Futures Contracts

 

$

9,964,270

 

$

9,964,270

 

$

 

$

 

Total Assets

 

$

9,964,270

 

$

9,964,270

 

$

 

$

 

 

LIABILITIES TABLE

 

Description

 

Total Fair Value at
December 31, 2017

 

Level 1

 

Level 2

 

Level 3

 

Futures Contracts

 

$

4,736,870

 

$

4,736,870

 

$

 

$

 

Total Liabilities

 

$

4,736,870

 

$

4,736,870

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Net Assets and Liabilities

 

$

5,227,400

 

$

5,227,400

 

$

 

$

 

 

54


 

Sydling WNT Master Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

3.                                      Significant Accounting Policies (continued)

 

d.              Fair Value Measurements (continued)

 

The Master Fund trades futures contracts.  A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a derivable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash.  Payments (“variation margin”) may be made or received by the Master Fund each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Master Fund.  When the contract is closed, the Master Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.  Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded.  Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Statements of Operations.

 

The fair value of the Master Fund’s assets and liabilities which qualify as financial instruments approximates the carrying amounts presented in the Statements of Financial Condition.

 

e.               Redemptions Payable

 

Pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, capital withdrawals effective December 31, 2018 and 2017 have been reflected as redemptions payable in the Statements of Financial Condition.

 

f.                Cash

 

Cash represents cash held on deposit and in segregated accounts with UBS.  The Master Fund considers all cash and short term deposits with original maturity of three months or less to be cash or cash equivalents.  There are no cash equivalents held as at December 31, 2018 and 2017.  Cash includes the initial cash margin of $15,356,440 and $20,253,846 held by UBS against open derivative positions at December 31, 2018 and 2017, respectively.  Cash includes foreign cash balances equal to $1,246,408 (cost $1,253,345) and $8,230,371 (cost $8,076,884) at December 31, 2018 and 2017, respectively.

 

55


 

Sydling WNT Master Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

3.                                      Significant Accounting Policies (continued)

 

g.              Foreign Currency Transactions

 

The Master Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held or derivatives traded.  Such fluctuations are included within the net realized and unrealized gain or loss on futures and foreign currency.

 

h.              Income and Expenses Recognition

 

All of the income and expenses and realized and unrealized gains and losses on trading of commodity interests are determined on each valuation day, the close of business on the last day of each month, and allocated to the Feeder at the time of such determination.

 

The Master Fund earns interest income on 100% of the average daily equity in the Master Fund’s brokerage account at a rate equal to the monthly average 30-day U.S. Treasury bill rate.

 

i.                 Master Fund Expenses

 

The Master Fund bears all expenses incurred in its business, including, but not limited to, the following: all costs and expenses related to portfolio transactions and positions for the Master Fund’s account; legal fees; accounting and auditing fees; custodial fees; costs of computing the Master Fund’s member’s capital value, including valuation services provided by third parties; all costs with respect to communications to investors; and other types of expenses approved by the member.

 

j.                 Member’s Capital Value

 

Member’s capital of the Master Fund is calculated by the Administrator as of the close of business at the end of any fiscal period in accordance with the valuation principles set forth below or as may be determined from time to time pursuant to policies established by the member.

 

Profits and losses from trading in the Master Fund, net of transaction fees, will be allocated pro rata to the capital account of the Feeder based on the member’s capital in the capital account compared to the aggregate member’s capital of all other capital accounts in the Master Fund.  The Master Fund’s expenses will be charged pro rata to the capital accounts of the Feeder.

 

56


 

Sydling WNT Master Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

3.                                      Significant Accounting Policies (continued)

 

k.              Income Taxes

 

The Master Fund is classified as a partnership for U.S. federal income tax purposes and will not pay U.S. federal income tax.  As a result, no income tax liability or expense has been recorded in the financial statements.  Each member will be subject to taxation on its share of the Master Fund’s ordinary income, capital gains and losses.

 

U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Master Fund’s financial statements to determine whether the tax positions are “more-likely-than not” to be sustained by the applicable tax authority.

 

Tax positions with respect to tax at the Master Fund level not deemed to meet the “more-likely-than not” threshold would be recorded as a tax benefit or expense in the current year.  Management has analyzed the Master Fund’s tax positions for the open tax period and has concluded that no provision is required in the Master Fund’s financial statements.  The Master Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statements of Operations.  For the years ended December 31, 2018, 2017 and 2016, the Master Fund did not incur any interest or penalties.

 

4.                                      Related Party Transactions and Other Agreements

 

a.              Limited Liability Company Agreement

 

The Member Designee administers the business affairs of the Master Fund including selecting one or more advisors to make trading decisions for the Master Fund.

 

b.              Trading Advisory Agreement

 

The Member Designee, on behalf of the Master Fund, has entered into an advisory agreement (the “Trading Advisory Agreement”) with the Advisor, a registered commodity trading advisor.  The Advisor is not affiliated with the Member Designee or UBS and is not responsible for the organization or operation of the Master Fund.  The Trading Advisory Agreement provides that the Advisor has sole discretion in determining the investment of the assets of the Master Fund.  All advisory fees in connection with the Trading Advisory Agreement shall be borne by the Feeder.  The Trading Advisory Agreement may be terminated upon notice by either party.

 

57


 

Sydling WNT Master Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

4.                                      Related Party Transactions and Other Agreements (continued)

 

c.               Customer Agreement

 

For the period ended June 30, 2016, with respect to transactions in the Master Fund that are allocable to the Feeder, the Feeder paid UBS a monthly brokerage fee equal to 3.5% per year of adjusted member’s capital (the “Broker Fee”) allocated pro rata from the Master Fund.

 

During the second and third quarter of 2016, the Feeder and the Master Fund amended and restated certain agreements.  The purpose of the amendments was to implement and reflect an expense neutral change in the fees paid to certain service providers to the Feeder and the Master Fund.  As of July 1, 2016, the Master Fund (and indirectly the Feeder) ceased paying the Broker Fee to the Commodity Broker.  In lieu of the Broker Fee, the Feeder will pay (or cause the Master Fund to pay on its behalf) an ongoing selling agent fee to UBS Financial Services Inc. (the “Selling Agent”) at 3.5% per year of adjusted month-end member’s capital.

 

In addition, the Feeder will pay or reimburse the Commodity Broker its allocable share of all actual transaction fees (including floor brokerage, exchange, clearing, give-up, user and NFA fees) estimated at approximately 0.10% of member’s capital per year.

 

For the years ended December 31, 2018, 2017 and 2016, the Master Fund incurred brokerage commissions and trading fees of $164,983, $197,880 and $3,588,227.  For the years ended December 31, 2018, 2017 and 2016, the Master Fund incurred selling agent fees of $6,323,564, $6,589,338 and $3,464,734 of which $488,753 and $542,289 remained payable as of December 31, 2018 and 2017.

 

5.                                      Trading Activities

 

The Master Fund was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments.  The results of the Master Fund’s trading activities are shown in the Statements of Operations.

 

The Customer Agreement between the Master Fund and UBS gives the Master Fund the legal right to net unrealized gains and losses on open futures contracts.  Futures contracts are executed on exchanges and are typically liquidated by entering into offsetting contracts.  The Master Fund nets, for financial reporting purposes, the unrealized gains and losses on open futures contracts on the Statements of Financial Condition.

 

All of the commodity interests owned by the Master Fund are held for trading purposes.  The average number of futures contracts traded for the years ended December 31, 2018 and 2017, based on a monthly calculation, was 4,894 and 6,727, respectively.

 

58


 

Sydling WNT Master Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

5.                                      Trading Activities (continued)

 

The Master Fund follows authoritative standards of accounting for derivative instruments, which establish disclosure requirements for entities to present enhanced information in order to provide users of financial statements with an improved degree of transparency and understanding of how and why an entity uses derivative instruments, how derivative instruments are accounted for, and how derivative instruments affect an entity’s financial position, results of operations and its cash flows.  In order to provide such information to financial statement users, the Master Fund provides qualitative disclosures about an entity’s associated risk exposures, quantitative disclosures about fair value amounts of derivative instruments and the gains and losses from derivative instruments.

 

59


 

Sydling WNT Master Fund LLC

 

Notes to Financial Statements (continued)

 

December 31, 2018, 2017 and 2016

(Expressed in U.S. Dollars)

 

5.                                      Trading Activities (continued)

 

The following table indicated the gross fair values of derivative instruments of futures contracts as separate assets and liabilities as of December 31, 2018 and 2017.

 

 

 

December 31,
2018

 

December 31,
2017

 

ASSETS