10-Q 1 a13-13915_110q.htm 10-Q

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

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

 

For the quarterly period ended June 30, 2013

 

OR

 

o

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

 

For the transition period from                  to                 

 

Commission File Number 0-54623

 

ORTUS CURRENCY FUTURESACCESS LLC

(Exact Name of Registrant as specified in its charter)

 

Delaware

 

45-3237908

(State or other jurisdiction of

 

(IRS Employer Identification No.)

incorporation or organization)

 

 

 

c/o Merrill Lynch Alternative Investments LLC

Four World Financial Center, 11TH Floor

250 Vesey Street

New York, New York 10080

(Address of principal executive offices)

(Zip Code)

 

212-449-3517

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

As of June 30, 2013, 14,297,573 units of limited liability company interest were outstanding.

 

 

 


 



 

PART I - FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

ORTUS CURRENCY FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENT OF FINANCIAL CONDITION

(unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Investment in Ortus Currency GWIM-AI Master Fund Ltd

 

$

9,590,025

 

$

23,611,477

 

Receivable from Ortus Currency GWIM-AI Master Fund Ltd

 

1,205,556

 

387,492

 

Cash

 

60,186

 

48,235

 

Other assets

 

 

100,000

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

10,855,767

 

$

24,147,204

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Sponsor fee payable

 

$

7,726

 

$

17,488

 

Redemptions payable

 

1,155,556

 

387,492

 

Other liabilities

 

197,541

 

126,781

 

 

 

 

 

 

 

Total liabilities

 

1,360,823

 

531,761

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Members’ Interest (14,297,573 Units and 29,305,443 Units outstanding; unlimited Units authorized)

 

9,494,944

 

23,615,443

 

Total members’ capital

 

9,494,944

 

23,615,443

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

10,855,767

 

$

24,147,204

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT:

 

 

 

 

 

(Based on 14,297,573 Units and 29,305,443 Units outstanding, unlimited Units authorized)

 

 

 

 

 

 

 

 

 

 

 

Class A

 

$

0.6528

 

$

0.7842

 

Class C

 

$

0.6373

 

$

0.7694

 

Class D

 

$

0.7242

 

$

0.8635

 

Class I

 

$

0.6568

 

$

0.7874

 

Class Z

 

$

0.6676

 

$

0.7960

 

 

See notes to financial statements.

 

1



 

ORTUS CURRENCY FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the three
months ended
June 30, 2013

 

For the three
months ended
June 30, 2012

 

For the six
months ended
June 30, 2013

 

For the six
months ended
June 30, 2012

 

NET INVESTMENT INCOME (LOSS) ALLOCATED FROM ORTUS CURRENCY GWIM-AI MASTER FUND LTD:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees

 

$

(57,081

)

$

(93,071

)

$

(143,966

)

$

(170,779

)

Interest income

 

908

 

 

4,044

 

 

 

Other

 

(46,323

)

(50,808

)

(101,675

)

(96,904

)

 

 

 

 

 

 

 

 

 

 

Total net investment income (loss) allocated from Ortus Currency GWIM-AI Master Fund Ltd

 

(102,496

)

(143,879

)

(241,597

)

(267,683

)

 

 

 

 

 

 

 

 

 

 

FUND EXPENSES:

 

 

 

 

 

 

 

 

 

Sponsor fees

 

25,323

 

34,467

 

65,815

 

42,829

 

Other

 

77,398

 

81,607

 

283,231

 

169,701

 

Total Fund expenses

 

102,721

 

116,074

 

349,046

 

212,530

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME PROFIT (LOSS)

 

(205,217

)

(259,953

)

(590,643

)

(480,213

)

 

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED PROFIT (LOSS) ON INVESTMENTS ALLOCATED FROM ORTUS CURRENCY GWIM-AI MASTER FUND LTD:

 

 

 

 

 

 

 

 

 

Realized, net

 

(349,935

)

(1,035,763

)

(3,984,838

)

(1,095,768

)

Change in unrealized, net

 

(324,605

)

986,631

 

1,716,884

 

(82,226

)

Brokerage commissions

 

45,418

 

(15,607

)

22,634

 

(30,091

)

Net profit (loss) from derivative contracts

 

(629,122

)

(64,739

)

(2,245,320

)

(1,208,085

)

 

 

 

 

 

 

 

 

 

 

NET PROFIT (LOSS)

 

$

(834,339

)

$

(324,692

)

$

(2,835,963

)

$

(1,688,298

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

 

 

 

 

Class A

 

2,703,597

 

2,613,326

 

3,286,003

 

1,628,779

 

Class C*

 

3,511,044

 

3,427,515

 

4,015,264

 

2,511,784

 

Class D**

 

2,691,146

 

1,000,000

 

3,632,599

 

1,000,000

 

Class I

 

2,205,325

 

2,275,134

 

3,525,439

 

1,472,378

 

Class Z

 

5,474,522

 

10,791,974

 

5,474,522

 

12,445,987

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

 

 

 

 

Class A

 

$

(0.0501

)

$

(0.0204

)

$

(0.1368

)

$

(0.0821

)

Class C*

 

$

(0.0509

)

$

(0.0293

)

$

(0.1362

)

$

(0.0820

)

Class D**

 

$

(0.0518

)

$

(0.0106

)

$

(0.1642

)

$

(0.0106

)

Class I

 

$

(0.0495

)

$

(0.0243

)

$

(0.1532

)

$

(0.0900

)

Class Z

 

$

(0.0496

)

$

(0.0097

)

$

(0.1284

)

$

(0.0969

)

 


*Units issued on February 1, 2012.

**Units issued on April 1, 2012.

 

See notes to financial statements.

 

2



 

ORTUS CURRENCY FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENT OF CHANGES IN MEMBERS’ CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(unaudited) (in Units)

 

 

 

Initial Offering

 

Subscriptions

 

Redemptions

 

Members’ Capital
June 30, 2012

 

Members’ Capital
December 31, 2012

 

Subscriptions

 

Redemptions

 

Members’ Capital
June 30, 2013

 

Class A

 

151,125

 

2,846,338

 

(52,789

)

2,944,674

 

4,065,321

 

174,835

 

(1,986,221

)

2,253,935

 

Class C*

 

400,000

 

3,890,972

 

(161,128

)

4,129,844

 

4,699,376

 

610,152

 

(2,236,793

)

3,072,735

 

Class D**

 

1,000,000

 

 

 

1,000,000

 

7,760,826

 

882,695

 

(6,952,375

)

1,691,146

 

Class I

 

260,000

 

2,342,590

 

 

2,602,590

 

7,305,398

 

459,143

 

(5,959,306

)

1,805,235

 

Class Z

 

14,100,000

 

 

(3,308,026

)

10,791,974

 

5,474,522

 

 

 

5,474,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

15,911,125

 

9,079,900

 

(3,521,943

)

21,469,082

 

29,305,443

 

2,126,825

 

(17,134,695

)

14,297,573

 

 


*Units issued on February 1, 2012.

**Units issued on April 1, 2012.

 

See notes to financial statements.

 

3



 

ORTUS CURRENCY FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENT OF CHANGES IN MEMBERS’ CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(unaudited)

 

 

 

Initial Offering

 

Subscriptions

 

Redemptions

 

Net
Income(loss)

 

Members’ Capital
June 30, 2012

 

Members’ Capital
December 31, 2012

 

Subscriptions

 

Redemptions

 

Net
Income(loss)

 

Members’ Capital
June 30, 2013

 

Class A

 

$

151,125

 

$

2,696,894

 

$

(48,097

)

$

(133,744

)

$

2,666,178

 

$

3,188,197

 

$

126,750

 

$

(1,394,106

)

$

(449,480

)

$

1,471,361

 

Class C*

 

400,000

 

3,639,409

 

(146,259

)

(206,065

)

3,687,085

 

3,615,923

 

425,000

 

(1,535,734

)

(546,922

)

1,958,267

 

Class D**

 

1,000,000

 

 

 

(10,559

)

989,441

 

6,701,343

 

750,000

 

(5,630,190

)

(596,391

)

1,224,762

 

Class I

 

260,000

 

2,233,602

 

 

(132,455

)

2,361,147

 

5,752,019

 

330,000

 

(4,356,256

)

(540,158

)

1,185,605

 

Class Z

 

14,100,000

 

 

(3,050,000

)

(1,205,475

)

9,844,525

 

4,357,961

 

 

 

(703,012

)

3,654,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Capital

 

$

15,911,125

 

$

8,569,905

 

$

(3,244,356

)

$

(1,688,298

)

$

19,548,376

 

$

23,615,443

 

$

1,631,750

 

$

(12,916,286

)

$

(2,835,963

)

$

9,494,944

 

 


*Units issued on February 1, 2012.

**Units issued on April 1, 2012.

 

See notes to financial statements.

 

4



 

ORTUS CURRENCY FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED JUNE 30, 2013 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class Z

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

0.7040

 

$

0.6889

 

$

0.7780

 

$

0.7076

 

$

0.7173

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and net change in unrealized trading profit (loss)

 

(0.0394

)

(0.0385

)

(0.0435

)

(0.0396

)

(0.0401

)

Brokerage commissions

 

0.0026

 

0.0025

 

0.0028

 

0.0026

 

0.0026

 

Interest income, net

 

0.0001

 

0.0001

 

0.0001

 

0.0001

 

0.0001

 

Expenses

 

(0.0145

)

(0.0157

)

(0.0132

)

(0.0139

)

(0.0123

)

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

0.6528

 

$

0.6373

 

$

0.7242

 

$

0.6568

 

$

0.6676

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-7.21

%

-7.40

%

-6.63

%

-7.06

%

-6.89

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-7.21

%

-7.40

%

-6.63

%

-7.06

%

-6.89

%

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (a) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

2.70

%

2.90

%

2.07

%

2.53

%

2.35

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

2.70

%

2.90

%

2.07

%

2.53

%

2.35

%

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-2.69

%

-2.89

%

-2.07

%

-2.53

%

-2.34

%

 


(a) The ratios to average members’ capital have been annualized. The performance fee ratios are not annualized.

(b) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.

 

See notes to financial statements.

 

5



 

ORTUS CURRENCY FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE SIX MONTHS ENDED JUNE 30, 2013 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class Z

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

0.7842

 

$

0.7694

 

$

0.8635

 

$

0.7874

 

$

0.7960

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and net change in unrealized trading profit (loss)

 

(0.1005

)

(0.0984

)

(0.1109

)

(0.1010

)

(0.1022

)

Brokerage commissions

 

0.0016

 

0.0016

 

0.0018

 

0.0016

 

0.0016

 

Interest income, net

 

0.0002

 

0.0002

 

0.0002

 

0.0002

 

0.0002

 

Expenses

 

(0.0327

)

(0.0355

)

(0.0304

)

(0.0314

)

(0.0280

)

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

0.6528

 

$

0.6373

 

$

0.7242

 

$

0.6568

 

$

0.6676

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-16.74

%

-17.11

%

-15.90

%

-16.52

%

-16.13

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-16.74

%

-17.11

%

-15.90

%

-16.52

%

-16.13

%

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (a) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

4.64

%

5.09

%

3.65

%

4.38

%

3.93

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

4.64

%

5.09

%

3.65

%

4.38

%

3.93

%

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-4.62

%

-5.07

%

-3.63

%

-4.36

%

-3.90

%

 


(a) The ratios to average members’ capital have been annualized. The performance fee ratios are not annualized.

(b) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.

 

See notes to financial statements.

 

6



 

ORTUS CURRENCY FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED JUNE 30, 2012 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class A

 

Class C

 

Class D*

 

Class I

 

Class Z

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

0.9185

 

$

0.9080

 

$

1.0000

 

$

0.9194

 

$

0.9220

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and net change in unrealized trading profit (loss)

 

(0.0056

)

(0.0055

)

(0.0061

)

(0.0056

)

(0.0057

)

Brokerage commissions

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Interest income, net (c)

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Expenses

 

(0.0075

)

(0.0097

)

(0.0045

)

(0.0066

)

(0.0041

)

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

0.9054

 

$

0.8928

 

$

0.9894

 

$

0.9072

 

$

0.9122

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-1.43

%

-1.67

%

-1.06

%

-1.33

%

-1.06

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-1.43

%

-1.67

%

-1.06

%

-1.33

%

-1.06

%

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (a) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

0.81

%

1.06

%

0.44

%

0.71

%

0.44

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

0.81

%

1.06

%

0.44

%

0.71

%

0.44

%

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-0.81

%

-1.06

%

-0.44

%

-0.71

%

-0.44

%

 


(a) The ratios to average members’ capital have been annualized. The performance fee ratios are not annualized.

(b) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual member’s return may vary from these returns based on timing of capital transactions.

(c) Interest income, net is less than $0.0001 per Unit

 

*Units issued on April 1, 2012.

 

See notes to financial statements.

 

7



 

ORTUS CURRENCY FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class A

 

Class C*

 

Class D**

 

Class I

 

Class Z

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value at time of initial offering

 

$

1.0000

 

$

1.0000

 

$

1.0000

 

$

1.0000

 

$

1.0000

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and net change in unrealized trading profit (loss)

 

(0.0780

)

(0.0901

)

(0.0061

)

(0.0780

)

(0.0782

)

Brokerage commissions

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Interest income, net (c)

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Expenses

 

(0.0166

)

(0.0171

)

(0.0045

)

(0.0148

)

(0.0096

)

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

0.9054

 

$

0.8928

 

$

0.9894

 

$

0.9072

 

$

0.9122

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-9.46

%

-10.72

%

-1.06

%

-9.28

%

-8.78

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-9.46

%

-10.72

%

-1.06

%

-9.28

%

-8.78

%

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (a) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

1.74

%

1.83

%

0.44

%

1.54

%

1.00

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

1.74

%

1.83

%

0.44

%

1.54

%

1.00

%

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-1.74

%

-1.83

%

-0.44

%

-1.54

%

-1.00

%

 


(a) The ratios to average members’ capital have been annualized. The performance fee ratios are not annualized.

(b) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual member’s return may vary from these returns based on timing of capital transactions.

(c) Interest income, net is less than $0.0001 per Unit

 

*Units issued on February 1, 2012.

**Units issued on April 1, 2012.

 

See notes to financial statements.

 

8



 

 ORTUS CURRENCY FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Ortus Currency FuturesAccess LLC (the “Fund”), a Merrill Lynch FuturesAccessSM Program (“FuturesAccess”) Fund, was organized under the Delaware Limited Liability Company Act on September 12, 2011 and commenced trading activities on January 3, 2012. The Fund is part of a master-feeder structure that invests substantially all of its assets through Ortus Currency GWIM-AI Master Fund Ltd. (the “Master Fund”), which has the same investment objective as the Fund. Ortus Currency Participation Fund Ltd. also invests substantially all of its assets through the Master Fund.  Ortus Capital Management Limited (“Ortus”) is the trading advisor of the Master Fund. The trading advisor trades the Ortus Currency Strategy (the “Trading Program”) for the Fund.  The Trading Advisor currently implements the Trading Program primarily by trading currency spot and forward contracts (“F/X”) but may utilize currency futures contracts or other instruments in the future.  References to the Fund’s activities, expenses and portfolio herein include those of the Master Fund, unless the context requires otherwise.

 

Merrill Lynch Alternative Investments LLC (“MLAI” or “Sponsor”) is the sponsor and manager of the Fund. MLAI is also the sponsor of the Master Fund. MLAI is an indirect wholly-owned subsidiary of Bank of America Corporation. Bank of America Corporation and its affiliates are sometimes referred to herein as “BAC”.

 

UBS AG is the primary F/X prime broker for the Master Fund (“UBS”).  The Sponsor may select other parties as F/X or other over-the-counter (“OTC”) prime brokers, including Merrill Lynch International Bank Ltd. (“MLIB”). MLIB, which previously acted as primary F/X prime broker for the Master Fund, will act as back-up F/X prime broker for the Master Fund.  MLIB’s role as back-up F/X prime broker will allow the Master Fund to use MLIB as F/X prime broker, including as the primary F/X prime broker, should the Sponsor decide such re-engagement is necessary.  Under normal circumstances, however, UBS will act as the primary and sole F/X prime broker to the Master Fund.   MLIB is a BAC affiliate.

 

The Sponsor expects that Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) will act as the exclusive clearing broker for the Master Fund in the event the Fund trades futures, although the Sponsor may select other parties as clearing broker(s).  MLPF&S is a BAC affiliate.

 

FuturesAccess is a group of managed futures funds sponsored by MLAI (“FuturesAccess Funds”).  FuturesAccess is exclusively available to investors that have investment accounts with Merrill Lynch Wealth Management, U.S. Trust and other divisions or affiliates of BAC. FuturesAccess Funds currently are composed of direct-trading funds advised by a single trading advisor or funds of funds for which MLAI acts as the advisor and allocates capital among multiple trading advisors.  Each FuturesAccess Fund is generally similar in terms of fees, although redemption terms vary among FuturesAccess Funds.  Each trading advisor participating in FuturesAccess employs different technical, fundamental, systematic and/or discretionary trading strategies.

 

Interests in the Fund are not insured or otherwise protected by the Federal Deposit Insurance Corporation or any other government authority.  Interests are not deposits or other obligations of, and

 

9



 

are not guaranteed by, BAC or by any bank.  Interests are subject to investment risks, including the possible loss of the full amount invested.

 

In the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of the Fund as of June 30, 2013 and December 31, 2012 and the results of its operations for the three and six month periods ended June 30, 2013 and 2012.  However, the operating results for the interim periods may not be indicative of the results for the full year.

 

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted.  These financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund’s report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2012.

 

Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates and such differences could be material.

 

Initial Offering and Organizational Costs

 

Organization and Offering costs are amortized against the net asset value over 60 months, beginning with the first month-end after the initial issuance of Units for operational and investor trading purposes. However, for financial reporting purposes, organizational costs, to the extent material, will be shown as deducted from net asset value as of the date of such initial issuance. Initial offering costs, to the extent material, will be amortized over a 12-month period after the initial issuance of Units. Accrued costs incurred for the six month periods ended June 30, 2013 and 2012 were $10,192 and $8,274, respectively.

 

10



 

2.              INVESTMENT IN MASTER FUND

 

The Master Fund’s Statement of Financial Condition and Schedule of Investments as of June 30, 2013 and December 31, 2012 and the Statements of Operations for the three and six months ended June 30, 2013 and 2012 are presented below.

 

ORTUS CURRENCY GWIM-AI MASTER FUND LTD.

(a Cayman Islands Company)

 

STATEMENT OF FINANCIAL CONDITION

(unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

ASSETS:

 

 

 

 

 

Equity in commodity trading accounts:

 

 

 

 

 

Cash

 

$

5,551,519

 

$

9,912,150

 

Net unrealized profit on open forwards contracts

 

683,088

 

 

Cash

 

15,600,149

 

32,728,023

 

Other assets

 

50,436

 

51,461

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

21,885,192

 

$

42,691,634

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Net unrealized loss on open forwards contracts

 

$

1,271,456

 

$

3,556,165

 

Advisory fees payable

 

34,096

 

64,945

 

Redemptions payable

 

1,205,556

 

1,492,274

 

Other liabilities

 

156,198

 

168,678

 

 

 

 

 

 

 

Total liabilities

 

2,667,306

 

5,282,062

 

 

 

 

 

 

 

Shareholders Equity:

 

 

 

 

 

Shareholders Equity (27,601,776 Units and 46,071,064 Units outstanding, unlimited Units authorized)

 

19,217,886

 

37,409,572

 

Total shareholders’ equity

 

19,217,886

 

37,409,572

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

21,885,192

 

$

42,691,634

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Class DA

 

$

0.6962

 

$

0.8120

 

Class DI

 

$

0.6962

 

$

0.8119

 

 

See notes to financial statements.

 

11



 

ORTUS CURRENCY GWIM-AI MASTER FUND LTD.

(a Cayman Islands Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the three
months ended
June 30, 2013

 

For the three
months ended
June 30, 2012

 

For the six
months ended
June 30, 2013

 

For the six
months ended
June 30, 2012

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

(658,489

)

$

(2,039,969

)

$

(6,866,792

)

$

(2,131,477

)

Change in unrealized, net

 

(613,265

)

2,027,542

 

2,967,797

 

(203,559

)

Brokerage commissions

 

84,800

 

(30,000

)

45,770

 

(60,000

)

 

 

 

 

 

 

 

 

 

 

Total trading profit (loss), net

 

(1,186,954

)

(42,427

)

(3,853,225

)

(2,395,036

)

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest, net

 

1,711

 

2

 

5,136

 

2

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Management fee

 

107,655

 

178,722

 

254,938

 

339,565

 

Other

 

87,388

 

97,660

 

180,145

 

193,126

 

Total expenses

 

195,043

 

276,382

 

435,083

 

532,691

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(193,332

)

(276,380

)

(429,947

)

(532,689

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

(1,380,286

)

$

(318,807

)

$

(4,283,172

)

$

(2,927,725

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

 

 

 

 

Class DA

 

16,104,864

 

19,768,511

 

19,471,126

 

17,899,810

 

Class DI

 

14,273,866

 

18,178,625

 

15,099,513

 

17,656,340

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

 

 

 

 

Class DA

 

$

(0.0454

)

$

(0.0106

)

$

(0.1277

)

$

(0.0824

)

Class DI

 

$

(0.0454

)

$

(0.0061

)

$

(0.1190

)

$

(0.0822

)

 

See notes to financial statements.

 

12



 

The Master Fund’s investments, defined as net unrealized profit (loss) on open contracts on the Statement of Financial Condition, as of June 30, 2013 and December 31, 2012 are as follows:

 

June 30, 2013

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts / Notional

 

Profit (Loss)

 

Shareholders’ Equity

 

Contracts / Notional

 

Profit (Loss)

 

Shareholders’ Equity

 

on Open Positions

 

Shareholders’ Equity

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currencies

 

12,779,157,689

 

$

(1,271,456

)

-6.62

%

(9,908,450,349

)

$

683,088

 

3.55

%

$

(588,368

)

-3.07

%

July 2013 - September 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

(1,271,456

)

-6.62

%

 

 

$

683,088

 

3.55

%

$

(588,368

)

-3.07

%

 

 

 

December 31, 2012

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts / Notional

 

Profit (Loss)

 

Shareholders’ Equity

 

Contracts / Notional

 

Profit (Loss)

 

Shareholders’ Equity

 

on Open Positions

 

Shareholders’ Equity

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currencies

 

12,969,770,090

 

$

(2,347,279

)

-6.27

%

(3,605,586,050

)

$

(1,208,886

)

-3.23

%

$

(3,556,165

)

-9.50

%

January 2013 - September 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

(2,347,279

)

-6.27

%

 

 

$

(1,208,886

)

-3.23

%

$

(3,556,165

)

-9.50

%

 

 

 

No individual contract’s unrealized profit or loss comprised greater than 5% of Shareholders’ Equity as of June 30, 2013 and December 31, 2012. However the U.S. dollar/Japanese yen forward currency contracts, in aggregate with a combined notional of 3,562,669,833 and varying expiration dates are 6.15% of Shareholders’ Equity for year end December 31, 2012.

 

13


 


 

3.              FAIR VALUE OF INVESTMENTS IN THE MASTER FUND

 

Fair value of an investment is the amount that would be received to sell the investment in an orderly transaction between market participants at the measurement date (i.e. the exit price). All investments (including derivative financial instruments and derivative commodity instruments) are held for trading purposes.  The investments are recorded on trade date and open contracts are recorded at fair value (described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Profits or losses are realized when contracts are liquidated.  Unrealized profits or losses on open contracts are included in Equity in commodity trading accounts on the Statements of Financial Condition.  Any change in net unrealized profit or loss from the preceding period/year is reported on the Statements of Operations.

 

The fair value measurement guidance established by U.S. GAAP is a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

Investments, in the Master Fund, measured and reported at fair value are classified and disclosed in one of the following categories:

 

Level I — Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded investments. As required by the fair market value measurement guidance in U.S. GAAP, the Fund does not adjust the quoted price for these investments even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.

 

Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of generally accepted and understood models or other valuation methodologies. Investments which are generally included in this category are investments valued using market data.

 

Level III — Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair value for these investments is determined using valuation methodologies that consider a range of factors, including but not limited to the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed. Investments that are included in this category generally are privately held debt and equity securities.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. MLAI’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

 

Following is a description of the valuation methodologies used for investments, as well as the general classification of such investments pursuant to the valuation hierarchy.

 

14



 

Exchange traded investments are fair valued by the Master Fund by using the reported closing price on the primary exchange where such investments are traded. These closing prices are observed through the clearing broker and third party pricing services. For non-exchange traded investments, quoted values and other data provided by nationally recognized independent pricing sources are used as inputs into its process for determining fair values.

 

The independent pricing sources obtain market quotations and actual transaction prices for investments that have quoted prices in active markets. Each source has its own proprietary method for determining the fair value of investments that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing source uses observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like investments, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair market value.

 

The Master Fund has determined that Level I investments would include its futures and options contracts where it believes that quoted prices are available in an active market.

 

Where the Master Fund believes that quoted market prices are not available or that the market is not active, fair values are estimated by using quoted prices of investments with similar characteristics, pricing models or matrix pricing and these are generally classified as Level II investments. The Master Fund determined that Level II investments would include its forward contracts.

 

The Master Fund’s net unrealized profit (loss) on open forward and futures contracts, by the above fair value hierarchy levels, as of June 30, 2013 and December 31, 2012 are as follows:

 

Net unrealized profit (loss)

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Futures

 

 

 

 

 

 

 

 

 

Long

 

$

 

$

 

$

 

$

 

Short

 

 

 

 

 

 

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

 

 

 

 

 

 

Long

 

$

(1,271,456

)

$

 

$

(1,271,456

)

$

 

Short

 

683,088

 

 

683,088

 

 

 

 

$

(588,368

)

$

 

$

(588,368

)

$

 

 

 

 

 

 

 

 

 

 

 

June 30, 2013

 

$

(588,368

)

$

 

$

(588,368

)

$

 

 

15



 

Net unrealized profit (loss)

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Futures

 

 

 

 

 

 

 

 

 

Long

 

$

 

$

 

$

 

$

 

Short

 

 

 

 

 

 

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

 

 

 

 

 

 

Long

 

$

(2,347,279

)

$

 

$

(2,347,279

)

$

 

Short

 

(1,208,886

)

 

(1,208,886

)

 

 

 

$

(3,556,165

)

$

 

$

(3,556,165

)

$

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

$

(3,556,165

)

$

 

$

(3,556,165

)

$

 

 

The Master Fund’s volume of trading forwards as of the six month period ended June 30, 2013 and year ended December 31, 2012 are representative of the activity throughout these periods. There were no transfers to or from any level during the three and six month periods ended June 30, 2013 or the year ended December 31, 2012.

 

The Master Fund primarily trades F/X forward contracts, but may utilize currency futures contracts or other instruments in the future. Such contracts meet the definition of a derivative as noted in the ASC guidance for accounting for derivative and hedging activities. The fair value amounts of and the net profits and losses on derivative instruments is disclosed in the Statements of Financial Condition and Statements of Operations, respectively. There are no credit related contingent features embedded in these derivative contracts. The total notional, contract amount or number of contracts and fair values of derivative instruments by contract type/commodity sector are disclosed in Note 2, above.

 

The Master Fund presents their forward contract amounts gross on the Statement of Financial Condition. The Master Fund maintains margin deposits and cash collateral with its forward brokers, respectively, in amounts determined by the respective broker.  At June 30, 2013 and December 31, 2012, the initial margin deposits (cash) are used to satisfy the margin requirements to establish the forward contracts and are presented on the Statement of Financial Condition as Cash on deposit with Broker and the variation margin on open contracts as unrealized gain or loss on forward contracts.

 

16



 

The following table indicates the Master Fund’s trading profits and losses, before brokerage commissions, by type/commodity industry sector on derivative instruments for each of the three and six month periods ended June 30, 2013 and 2012:

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30, 2013

 

June 30, 2013

 

Commodity Industry Sector

 

profit (loss) from trading, net

 

profit (loss) from trading, net

 

 

 

 

 

 

 

Currencies

 

$

(1,271,754

)

$

(3,898,995

)

 

 

 

 

 

 

Total

 

$

(1,271,754

)

$

(3,898,995

)

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30, 2012

 

June 30, 2012

 

Commodity Industry Sector

 

profit (loss) from trading, net

 

profit (loss) from trading, net

 

 

 

 

 

 

 

Currencies

 

$

(12,427

)

$

(2,335,036

)

 

 

 

 

 

 

Total, net

 

$

(12,427

)

$

(2,335,036

)

 

The Master Fund is subject to the risk of insolvency of a counterparty, an exchange, a clearinghouse, other BAC entities or UBS AG.  Fund assets could be lost or impounded during lengthy bankruptcy proceedings.  Were a substantial portion of the Fund’s capital tied up in a bankruptcy or other similar types of proceedings, MLAI might suspend or limit trading, perhaps causing the Fund to miss significant profit opportunities.  There are increased risks in dealing with unregulated trading counterparties including the risk that assets may not benefit from the protection afforded to “customer funds” deposited with regulated dealers and brokers.

 

4.              MARKET AND CREDIT RISKS

 

The Fund is affected by the market risks and credit risks to which the Master Fund is subject.  The following is certain market risk and credit risk of the Master Fund.

 

The nature of the Master Fund has certain risks, which cannot all be presented on the financial statements.  The following summarizes some of those risks.

 

Market Risk

 

Derivative instruments involve varying degrees of market risk. Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently result in changes in the Fund’s Net unrealized profit (loss) on open contracts on such derivative instruments as reflected in the Statements of Financial Condition.  The Master Fund’s exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Master Fund as well as the volatility and liquidity of the markets in which the derivative instruments are traded. Investments in foreign markets may also entail legal and political risks.

 

MLAI has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so.  These procedures focus primarily on monitoring the trading of Ortus, calculating the Net Asset Value of the Fund as of the close of business on each day and reviewing outstanding positions for over-concentrations.  While MLAI does not intervene in the markets to hedge or diversify the Master Fund’s market exposure, MLAI may urge Ortus to reallocate positions in

 

17



 

an attempt to avoid over-concentrations.  However, such interventions are expected to be unusual.  It is expected that MLAI’s basic risk control procedures will consist of the ongoing process of Trading Advisor monitoring, with the market risk controls being applied by Ortus.

 

Credit Risk

 

The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange/clearinghouse is pledged to support the financial integrity of the exchange/clearinghouse.  In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties.  Margins, which may be subject to loss in the event of a default, are generally required in exchange traded contracts, and in the over-the-counter markets counterparties may also require margin.

 

The credit risk associated with these instruments from counterparty nonperformance is the net unrealized profit (loss) on open contracts, if any, included in the Statement of Financial Condition.

 

The Master Fund, in its normal course of business, enters into various contracts, with UBS AG as its foreign currency forward counterpart.  Pursuant to the arrangements with UBS AG (which includes a netting arrangement) has the right to net receivables and payables.

 

Indemnifications

 

In the normal course of business the Master Fund has entered, or may in the future enter, into agreements, that obligate the Master Fund to indemnify certain parties, including BAC affiliates, for breach of certain representations and warranties made by the Master Fund. No claims have actually been made with respect to such indemnities and any quantification would involve hypothetical claims that have not been made. Based on the Master Fund’s experience, MLAI expects the risk of loss to be remote and, therefore, no provision has been recorded.

 

5.              RELATED PARTY TRANSACTIONS

 

MLAI and the Fund entered into a transfer agency and investor services agreement with Financial Data Services, Inc. (the “Transfer Agent”), a wholly-owned subsidiary of BAC and affiliate of MLAI. The Transfer Agent provides registrar, distribution disbursing agent, transfer agent and certain other services related to the issuance, redemption, exchange and transfer of Units. The fees charged by the Transfer Agent for its services is based on the aggregate net assets of funds managed or sponsored by MLAI. The fee rate ranges from 0.016% to 0.02% per year of the aggregate net assets. During the quarter ended June 30, 2013, the rate was 0.02%. The fee is payable monthly in arrears. MLAI allocates the Transfer Agent fees to each of the managed/sponsored funds including the Fund on a monthly basis based on each Fund’s net assets. The Transfer Agent fee allocated to the Fund for the three month periods ended June 30, 2013, and 2012 amounted to $582 and $835, respectively. The Transfer Agent fee allocated to the Fund for the six month periods ended June 30, 2013 and 2012 amounted to $1,480 and $1,635, respectively, of which $371 and $1,064 was payable to the Transfer Agent as of June 30, 2013 and December 31, 2012, respectively.

 

Sponsor fees as presented on the Statement of Operations are paid to related parties. Of the $5,136 of net interest income presented on the Master Fund’s Statement of Operations, $86 was earned from cash held in a commodity trading account held with a related party. Of the equity in commodity trading accounts, including cash and net unrealized profit/loss, as seen on the Master Fund’s Statement of Financial Condition, $334,764 in cash and $0 net unrealized profit/loss is held with a related party.

 

18



 

6.              RECENT ACCOUNTING PRONOUNCEMENTS

 

In June 2013, the Financial Accounting Standards Board (“FASB”) issued an update relating to the criteria used in defining an investment company under US GAAP. It also sets forth certain measurement and disclosure requirements. Under the new standard the typical characteristics of an investment company will be: (i) it has more than one investment and more than one investor, (ii) it has investors that are not related parties of the entity or the investment manager, (iii) it has ownership interests in the form of equity or partnership interests, and (iv) it manages substantially all of its investments on a fair value basis. The standard also reaffirms that a noncontrolling interest in another investment company should be measured at fair value instead of the equity method. It also includes additional disclosure requirements for an entity to disclose the fact that it is an investment company, and to provide information about changes, if any, in its status as an investment company. Finally, an entity will also need to include disclosures around financial support that has been provided or is contractually required to be provided to any of its investees. The requirements of the standard are effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013, with early application prohibited. The Sponsor is currently evaluating the standard and does not believe it will have a material impact to the Fund’s financial statements.

 

7.              SUBSEQUENT EVENTS

 

Management has evaluated the impact of subsequent events on the Fund through the date the financials were able to be issued and has determined that there were no subsequent events that require adjustments to, or disclosure in, the financial statements.

 

19


 


 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

MONTH-END NET ASSET VALUE PER UNIT

 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors throughout the period is a useful performance measure for the investors of the Fund.  Therefore, the charts below referencing Net Asset Value and performance measurements are based on the Net Asset Value for financial reporting purposes.

 

The Fund calculates the Net Asset Value per Unit of each Class of Units as of the close of business on the last calendar day of each month and any other dates MLAI may determine in its discretion (each, a “Calculation Date”). The Fund’s “Net Asset Value” as of any Calculation Date will generally equal the value of the Fund’s investment in the Master Fund as of such date, plus any other assets held by the Fund, minus Sponsor’s fees, organizational expense amortization and any operating costs and other liabilities of the Fund. The net asset value of the Fund’s investment in the Master Fund will reflect reduction (at the Master Fund level) for accrued brokerage commissions, managements fees and performance fees, trading liabilities and any operating costs and other liabilities of the Master Fund. MLAI or its delegates are authorized to make all Net Asset Value determinations.

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2012

 

$

1.0099

 

$

0.9649

 

$

0.9185

 

0.9421

 

0.9346

 

0.9054

 

2013

 

$

0.7468

 

$

0.7222

 

$

0.7040

 

$

0.6885

 

$

0.6647

 

$

0.6528

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2012

 

n/a

 

$

0.9546

 

$

0.9080

 

0.9305

 

0.9223

 

0.8928

 

2013

 

$

0.7321

 

$

0.7074

 

$

0.6889

 

$

0.6732

 

$

0.6495

 

$

0.6373

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2012

 

n/a

 

n/a

 

n/a

 

1.0270

 

1.0200

 

0.9894

 

2013

 

$

0.8233

 

$

0.7972

 

$

0.7780

 

$

0.7618

 

$

0.7365

 

$

0.7242

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2012

 

$

1.0102

 

$

0.9655

 

$

0.9194

 

0.9434

 

0.9361

 

0.9072

 

2013

 

$

0.7500

 

$

0.7256

 

$

0.7076

 

$

0.6921

 

$

0.6685

 

$

0.6568

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS Z

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2012

 

$

1.0111

 

$

0.9673

 

$

0.9220

 

0.9468

 

0.9404

 

0.9122

 

2013

 

$

0.7590

 

$

0.7349

 

$

0.7173

 

$

0.7023

 

$

0.6790

 

$

0.6676

 

 

Liquidity and Capital Resources

 

The Fund borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Fund’s U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency.

 

Substantially all of the Master Fund’s assets are held in cash. The Fund’s assets are substantially invested in the Master Fund. The Net Asset Value of the Fund’s cash is not affected by inflation. However, changes in interest rates could cause periods of strong up or down price trends, during which the Fund’s profit

 

20



 

potential generally increases. Inflation in commodity prices could also generate price movements, which the strategies might successfully follow.

 

The Fund should be able to close out its open trading positions and liquidate its holdings relatively quickly and at market prices, except in unusual circumstances. This typically permits the Fund to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so. In addition, because there is a readily available market value for the Master Fund’s positions and assets, the Fund’s monthly Net Asset Value calculations are precise, and investors need to provide ten business days notice to receive the full redemption proceeds of their Units on the last business day of any month.

 

Investors in the Fund generally may redeem any or all of their Units at Net Asset Value, effective as of last day of any calendar month, upon providing at least ten days prior notice.  Investors will remain exposed to fluctuations in Net Asset Value during the period between submission of their redemption requests and the applicable redemption date.

 

As a commodity pool, the Master Fund maintains an extremely large percentage of its assets in cash, which it must have available to post initial and variation margin on futures contracts.  This cash is also used to fund redemptions.  While the Master Fund has the ability to fund redemption proceeds from liquidating positions, as a practical matter positions are not liquidated to fund redemptions.  In the event that positions were liquidated to fund redemptions, MLAI, as the sponsor of the Master Fund, has the ability to override decisions of the Trading Advisor to fund redemptions if necessary, but in practice the Trading Advisor would determine in its discretion which investments should be liquidated.

 

For the six months ended June 30, 2013, Fund capital decreased 59.79% from $23,615,443 to $9,494,944.  This decrease was attributable to the net loss from operations of $2,835,963 coupled with the redemption of 17,134,695 Redeemable Units resulting in an outflow of $12,916,286.  The cash outflow was offset with cash inflow of $1,631,750 due to subscriptions of 2,126,825 Units.  Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.

 

Critical Accounting Policies

 

Statement of Cash Flows

 

The Fund is not required to provide a Statement of Cash Flows.

 

Investments

 

All investments (including derivatives) are held for trading purposes.  Investments are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date.  Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Profits or losses are realized when contracts are liquidated.  Unrealized profits or losses on open contracts are included as a component of equity in commodity trading accounts on the Statement of Financial Condition.  Realized profits or losses and any change in net unrealized profits or losses from the preceding period are reported in the Statements of Operations.

 

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  For more information on the Fund’s treatment of fair value, see Note 3, Fair Value of Investments.

 

21



 

Forward Foreign Currency Contracts

 

Foreign currency contracts are those contracts where the Fund agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date.  Foreign currency contracts are valued daily, and the Fund’s net equity therein, representing unrealized profit or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statement of Financial Condition.  Realized profits (losses) and changes in unrealized profits (losses) on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations.

 

Income Taxes

 

No provision for income taxes has been made in the accompanying financial statements as each Member is individually responsible for reporting income or loss based on such Member’s share of the Fund’s income and expenses as reported for income tax purposes.

 

The Fund follows the Accounting Standards Codification guidance on accounting for uncertainty in income taxes.  This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements.  This guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority.  Tax positions with respect to tax at the Fund level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year.  MLAI has analyzed the Fund’s tax positions and has concluded that no provision for income tax is required in the Fund’s financial statements. The following is the major tax jurisdiction for the Fund and the earliest tax year subject to examination: United States — 2012, although the Fund has not yet made any tax filings related to 2012.

 

Reform Act

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was signed into law on July 21, 2010. The Reform Act enacts financial regulatory reform, and may alter the way in which the Fund conducts certain trading activities.   The Reform Act includes measures to broaden the scope of derivative instruments subject to regulation, including requiring clearing and exchange trading of certain derivatives, imposing new capital and margin reporting, registration and business conduct requirements for certain market participants and imposing position limits on certain over-the-counter derivatives. The Reform Act grants the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission substantial new authority and requires numerous rulemakings by these agencies. The ultimate impact of these derivatives regulations, and the time it will take to comply, remains uncertain. The final regulations may impose additional operational and compliance costs on the Fund.

 

Results of Operations

 

January 1, 2013 to June 30, 2013

 

January 1, 2013 to March 31, 2013

 

The Master Fund experienced a net trading loss of $2,627,240 in the first quarter of 2013.

 

Losses were posted to the Fund at the beginning of the quarter as markets continued to significantly focus on Japanese politics and policy announcements. The new Abe government unveiled a fiscal package. This was accompanied by a shift in monetary policy with the Bank of Japan set to undertake asset purchases and doubling its inflation target to 2%; asset purchases

 

22



 

are apparently set to continue until this inflation target is met. This led to a further weakening of the Japanese yen The Japanese yen weakened, resulting in a large negative impact on the Trading Program’s portfolio during January.  Losses were posted to the Fund in the middle of the quarter. The Bank of England inflation report projects that inflation will remain above the 2% target for the next two years, but despite this, there is increasing support for expanded QE and additional monetary easing to boost growth.  Moody’s downgraded the UK from AAA to Aa1 in February and sterling has weakened so far this year.  Political tensions heightened in Italy after the parliamentary elections. The market was disappointed as peripheral bond spreads widened anew an inconclusive and downright market-unfriendly outcome, with a weak coalition at best and possibly a new election in coming months. The Emerging Market central banks are still in easing mode. Colombia, Poland and Hungary cut rates, while the Mexican central bank has alluded to rate easing. In the G10 world, and European Central Bank and Bank of England aside, the Royal Bank of Australia left the cash rate unchanged, but hints at further rate cuts to come. Losses were posted to the Fund at the end of the quarter as European policy uncertainty heightened in March. Cyprus came to the forefront of global markets as the EU bailout deal proposed an immediate one-off deposit levy, sparking fears of bank runs and capital flight, not only from Cyprus, but from any troubled sovereign (and  particularly those with  outsized banking sectors relative to  GDP, i.e. Malta and Luxembourg).

 

April 1, 2013 to June 30, 2013

 

The Master Fund experienced a net trading loss of $1,271,754 in the second quarter of 2013.

 

Losses were posted to the Fund at the beginning of the quarter. Eurozone inflation moved lower in April, while disappointments in economic data, especially in Germany, saw expectations  for  further  European Central Bank policy  easing  rise  in  the  month.  The ZEW, PMI and IFO surveys disappointed consensus forecasts.  Weak inflation and growth data were also seen in the U.S. in April with consensus disappointing Growth Domestic Product, Retail sales, Institute for Supply Management, Consumer Price Index and non-farm Payrolls reports, all of which dimmed the outlook into the Federal Reserve’s April meeting. Weaker  growth  momentum  was evident  in the slew of data  out of China  in the month,  with  real GDP,  PMI  manufacturing,  industrial production, fixed asset investment and retail sales disappointing expectations. Losses were posted to the Fund in the middle of the quarter. Japan remained in the foreground. Capital outflows played a role in further Japanese yen weakness; Japanese investors were net buyers of foreign bonds mid-month, while foreign investors cut back on holdings of Japanese Government Bonds. Losses were posted to the Fund at the end of the quarter. Fears of a reduction in central bank liquidity and resultant risk aversion were evident in China as well. While liquidity  in China’s money market usually gets tight ahead of holidays (i.e. the Dragon Boat festival that occurred mid-June), that the People’s Bank of China (“PBOC”) did not add liquidity to the system post-holiday amid higher rates and tighter funding conditions exposed complacency in the interbank market. Without the expected liquidity injection, interbank rates moved higher. Perhaps interpreted as tighter policy from the PBOC, the Shanghai composite declined for seven successive trading sessions in the month, reaching a four-year low.

 

January 1, 2012 to June 30, 2012

 

January 1, 2012 to March 31, 2012

 

The Master Fund experienced a net trading loss of $2,322,608, in the first quarter of 2012.

 

Profits were posted to the Fund at the beginning of the quarter.   January began with risky assets trading well from the first trading day. Moderate U.S. growth and better-than-expected China data helped spur a broad bounce in risk appetite. The three-year Long Term Recovery Organization financing provided by the European Central Bank, as well as dovish U.S. Federal Reserve statement (“keeping low rates at least through late 2014”) provided monetary stimuli to fuel the rally in risky assets. Pushing eight month highs, the Dow breached 12,800 while carry currencies such as the Brazilian real, Mexican peso and New

 

23



 

Zealand dollar all appreciated over 6% against the U.S. dollar during the month of January. However, the European sovereign debt crisis remained a market focus. With a potential recession looming in Europe, Standard & Poor handed down sovereign downgrades with announcements of cuts to several Europe nations. At the end of January, the European Union Summit concluded with ratified treaties to the European Stability Mechanism and the announcement of a fiscal compact that further helped buoy the Euro. Losses were posted to the Fund in the middle of the quarter. Fears over the sustainability of Greek Euro-zone membership was offset by continued central bank liquidity provision and accommodative monetary policy (Federal Open Market Committee Zero Interest Rate Policy extension, Long Term Recovery O2 and more conventional QE extension policies from the Bank of Japan, the Bank of England and a relative risk reduction cut from China). High beta currencies out-performed, a contrast to the weak performance from low-beta foreign exchange and traditional funding currencies (such as Japanese yen, U.S. dollar, Singapore dollar, Taiwan dollar, etc.). The increased risk sentiment was particularly acute in Japanese yen “crosses” with the Japanese yen falling in February against, among others, the Euro, British pound and Swiss franc. The Japanese yen weakness was also associated with Bank of Japan’s elevated dovish rhetoric. However, Europe is not completely in the clear, as Spain remains an issue with severe fiscal tightening announced for 2012, German macro data was softer than expected and Ireland announced a referendum on the fiscal compact for May. Market reaction was swift as yields climbed higher across the curve and the U.S. dollar broadly stronger, supported to some degree by another round of favorable bank stress tests from the U.S. Federal Reserve. Market volatility continued to be moderate as the VIX fell to its lowest level since June 2007. With China lowering its Gross Domestic Product growth target for 2012, hard commodity exporters were sold off. As a consequence, the Australian dollar, which is particularly vulnerable to a perceived slowdown in the mining boom, fell in March. The U.S. dollar’s resurgence was also prevalent in Emerging Market currencies, notably with the Brazilian real and Indian rupee down.

 

April 1, 2012 to June 30, 2012

 

The Master Fund experienced a net trading loss of $12,427, in the second quarter of 2012.

 

Profits were posted to the Fund at the beginning of the quarter. Accordingly, both British sterling and the Singapore dollar traded well in April, both up against the U.S. dollar. Overall the G7 currencies traded within reasonably tight ranges, with the exception of the Japanese yen: while the Bank of Japan’s continued monetary easing was within market expectations, subsequent official comments implied a “wait-and-see” attitude to further actions, if any. The Japanese yen appreciated against the U.S. dollar and in the emerging markets, the Brazil real continued to depreciate down during April.  Losses were posted to the Fund in the middle of the quarter. As prospects for a Greek exit came to the forefront, markets reacted quickly in an effort to price-in the risk. The S&P 500 fell while Spanish-German 10-year spreads hit a record. With European government bond-yields widening across the Mediterranean, there was a general flight-to-safety in the currency markets, with the U.S. dollar and the Japanese yen appreciating sharply. Noticeably, with the Swiss National Bank’s Euro/Swiss franc holding firm, the Swiss franc may have temporarily lost its safe-haven status. Also suffering were the New Zealand dollar, the Euro and the Australian dollar, respectively against the U.S. dollar with rising volatility. With disappointing U.K. data and prospects for a return to additional Bank of England stimulus, sterling depreciated against the U.S. dollar. In Asia, capital outflow pressure was evident; deterioration in India’s twin deficits sparked fears of a balance of payments crisis and pushed U.S. dollar/Indian rupee to a record high. The Russian ruble saw a large move in May, down against the U.S. dollar, reflecting the sharp adjustment in crude prices and wider risk aversion. Losses were posted to the Fund at the end of the quarter.  The New Zealand dollar led the way among the G10, rising against the U.S. dollar, while the Australian dollar rose during June.   The Hungarian forint, Mexican peso and Polish zloty were up against the U.S. dollar.

 

The Fund has no applicable off-balance sheet arrangements or tabular disclosure of contractual obligations of the type described in Items 303(a)(4) and 303(a)(5) of Regulation S-K.

 

24



 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Introduction

 

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

 

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

 

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

 

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

 

Quantifying The Master Fund’s Trading Value At Risk

 

Quantitative Forward-Looking Statements

 

The following quantitative disclosures regarding the Fund’s market risk, through the Master Fund exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).  All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

 

The Master Fund’s risk exposure in the various market sectors traded by Ortus is quantified below in terms of Value at Risk.  Due to the Master Fund’s fair value accounting, any loss in the fair value of the Fund’s open positions is directly reflected in the Master Fund’s earnings (realized or unrealized) and cash flow (in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).

 

Exchange maintenance margin requirements have been used by the Master Fund as the measure of its Value at Risk.  Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels.  The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.

 

25



 

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

 

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

 

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

 

The following table indicates the average, highest and lowest trading Value at Risk associated with the Master Fund’s open positions by market category for the fiscal period. For the three and six month periods ended June 30, 2013 and 2012 the Master Fund’s average Month-end Net Asset Value was approximately $24,968,185 and $32,815,360, respectively.

 

June 30, 2013

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Currencies

 

$

6,863,105

 

27.49

%

$

9,467,634

 

$

5,216,755

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

6,863,105

 

27.49

%

$

9,467,634

 

$

5,216,755

 

 

June 30, 2012

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Currencies

 

$

1,460,200

 

4.45

%

$

1,662,331

 

$

1,252,680

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,460,200

 

4.45

%

$

1,662,331

 

$

1,252,680

 

 

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

 

The face value of the market sector instruments held by the Fund is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Fund.  The magnitude of the Fund’s open positions creates a “risk of ruin” not typically found in most other investment vehicles.  Because of the size of its positions, certain market conditions — unusual, but historically recurring from time to time — could cause the Fund to incur severe losses over a short period of time.   The foregoing Value at Risk table — as well as the past performance of the Fund — gives no indication of this “risk of ruin.”

 

26



 

Non-Trading Risk

 

Foreign Currency Balances; Cash on Deposit with MLPF&S and UBS

 

The Master Fund has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as the market risk they represent) are immaterial.

 

The Master Fund also has non-trading market risk on the approximately 90% of its assets which are held in cash at UBS. The value of this cash is not interest rate sensitive, but there is cash flow risk in that if interest rates decline so will the cash flow generated on these monies.

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regarding the Fund’s market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Fund manages its primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Fund’s primary market risk exposures as well as the strategies used and to be used by MLAI and Ortus for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Fund’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Fund’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of the value of their investment in the Fund.

 

The following were the primary trading risk exposures of the Master Fund as of June 30, 2013, by market sector.

 

Interest Rates

 

Interest rate movements directly affect the price of derivative positions held by the Master Fund. 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-7 countries. However, the Master Fund also takes positions in the government debt of smaller nations (e.g., Australia). MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future.

 

Currencies

 

The Master Fund trades in a number of currencies. The Master Fund’s major exposures have typically been in the U.S. dollar/Japanese yen, U.S. dollar/Euro, U.S. dollar/Australian dollar and U.S. dollar/Swiss franc positions.  The Master Fund 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 of maintaining Value at Risk in a functional currency other than U.S. dollars.

 

27



 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following were the only non-trading risk exposures of the Master Fund as of June 30, 2013.

 

Foreign Currency Balances

 

The Master Fund’s primary foreign currency balances are in Japanese yen, Australian dollar, Swedish krona and Euros.

 

U.S. Dollar Cash Balance

 

The Master Fund holds U.S. dollars in cash at UBS AG. The Master Fund also holds U.S. dollars in cash at Bank of New York, which is in a non-interest bearing account to avail of the unlimited insurance coverage for bank deposits through June 30, 2013.

 

Item 4. Controls and Procedures

 

MLAI, the Sponsor of Ortus Currency FuturesAccess LLC, with the participation of the Sponsor’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934) with respect to the Fund as of the end of the period covered by this quarterly report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.  No change in internal control over financial reporting (in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act of 1934) occurred during the quarter ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.                               Legal Proceedings

 

None.

 

Item 1A.  Risk Factors

 

There are no material changes from risk factors as previously disclosed in the Fund’s report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on March 27, 2013.

 

28


 


 

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

 

(a)  Units are privately offered and sold to “accredited investors” (as defined in Rule 501(a) under the Securities Act) in reliance on the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 thereunder (although Class Z Units may be issued solely in reliance on the exemption provided by Section 4(2)).  The selling agent of the following Class of Units was MLPF&S.

 

CLASS A

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-13

 

$

 

 

$

0.7842

 

Feb-13

 

73,125

 

97,918

 

0.7468

 

Mar-13

 

 

 

0.7222

 

Apr-13

 

24,375

 

34,433

 

0.7040

 

May-13

 

29,250

 

42,484

 

0.6885

 

Jun-13

 

 

 

0.6647

 

Jul-13

 

 

 

0.6528

 

 

CLASS C

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-13

 

$

 

 

$

0.7694

 

Feb-13

 

135,000

 

184,401

 

0.7321

 

Mar-13

 

70,000

 

98,954

 

0.7074

 

Apr-13

 

 

 

0.6889

 

May-13

 

220,000

 

326,797

 

0.6732

 

Jun-13

 

 

 

0.6495

 

Jul-13

 

 

 

0.6373

 

 

CLASS D

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-13

 

$

500,000

 

579,039

 

$

0.8635

 

Feb-13

 

250,000

 

303,656

 

0.8233

 

Mar-13

 

 

 

0.7972

 

Apr-13

 

 

 

0.7780

 

May-13

 

 

 

0.7618

 

Jun-13

 

 

 

0.7365

 

Jul-13

 

 

 

0.7242

 

 

CLASS I

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-13

 

$

50,000

 

63,500

 

$

0.7874

 

Feb-13

 

3,000

 

4,000

 

0.7500

 

Mar-13

 

 

 

0.7256

 

Apr-13

 

218,000

 

306,395

 

0.7076

 

May-13

 

59,000

 

85,248

 

0.6921

 

Jun-13

 

 

 

0.6685

 

Jul-13

 

 

 

0.6568

 

 

CLASS Z

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-13

 

$

 

 

$

0.7960

 

Feb-13

 

 

 

0.7590

 

Mar-13

 

 

 

0.7349

 

Apr-13

 

 

 

0.7173

 

May-13

 

 

 

0.7023

 

Jun-13

 

 

 

0.6790

 

Jul-13

 

 

 

0.6676

 

 


(1) Beginning of the month Net Asset Value

 

Class A Units are subject to a sales commission paid to MLPF&S ranging from 1.0% to 2.5%.  Class D and Class I Units are subject to sales commissions paid to MLPF&S up to 0.5%.  The rate assessed to a given subscription is based upon the subscription amount.  Sales commissions are directly deducted from subscription amounts.  Class C, Class DS, Class DT and Class Z Units are not subject to any sales commissions.

 

(b)                         Not applicable.

 

(c)                          Not applicable.

 

Item 3.                               Defaults Upon Senior Securities

 

None.

 

Item 4.                               Mine Safety Disclosures

 

Not applicable.

 

29



 

Item 5.                                 Other Information

 

None.

 

Item 6.                                 Exhibits

 

The following exhibits are filed herewith to this Quarterly Report on Form 10-Q:

 

31.01 and

31.02                                         Rule 13a-14(a)/15d-14(a) Certifications

 

Exhibit 31.01

and 31.02:             Are filed herewith.

 

32.01 and

32.02                                         Section 1350 Certifications

 

Exhibit 32.01

and 32.02                 Are filed herewith.

 

Exhibit 101   Are filed herewith.

 

The following materials from the Fund’s quarterly Report on Form 10-Q for the three and six month periods ended June 30, 2013 formatted in XBRL (Extensible Business Reporting Language): ( i ) Statement of Financial Condition (ii) Statement of Operations (iii) Statements of  Changes in Members’ Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text. (1)

 


(1)  These interactive data files shall not be deemed filed for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 or otherwise subject to  liability under those sections.

 

30



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ORTUS CURRENCY FUTURESACCESS LLC

 

 

 

 

 

 

 

By:

MERRILL LYNCH ALTERNATIVE INVESTMENTS LLC

 

 

(Manager)

 

 

 

 

 

 

Date: August 14, 2013

By:

/s/ KEITH GLENFIELD

 

 

Keith Glenfield

 

 

Chief Executive Officer and President

 

 

(Principal Executive Officer)

 

 

 

 

 

 

Date: August 14, 2013

By:

/s/ BARBRA E. KOCSIS

 

 

Barbra E. Kocsis

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

31