FINANCIAL STATEMENTS
FEG Absolute Access Fund I LLC |
FEG Absolute Access Fund I LLC
Financial Statements
Year Ended March 31, 2016
Contents
Report of Independent Registered Public Accounting Firm | 1 |
Statement of Assets and Liabilities | 2 |
Statement of Operations | 3 |
Statements of Changes in Net Assets | 4 |
Statement of Cash Flows | 5 |
Financial Highlights | 6 |
Notes to Financial Statements | 7 |
Other Information (Unaudited) | |
Fund Management | 13 |
Other Information | 15 |
Privacy Policy | 18 |
Financial Statements of FEG Absolute Access Fund LLC
FEG Absolute Access Fund I LLC
Report of Independent Registered Public Accounting Firm
March 31, 2016
The Board of Directors and Members of FEG Absolute Access Fund I LLC
(formerly FEG Absolute Access TEI Fund LLC)
We have audited the accompanying statement of assets and liabilities of FEG Absolute Access Fund I LLC (the Fund) as of March 31, 2016, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of March 31, 2016, by correspondence with the portfolio fund manager. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of FEG Absolute Access Fund I LLC at March 31, 2016, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended in conformity with U.S. generally accepted accounting principles.
Cincinnati, Ohio
May 27, 2016
1
FEG Absolute Access Fund I LLC
Statement of Assets and Liabilities
March 31, 2016
Assets | ||||
Cash | $ | 1,485,485 | ||
Investment in FEG Absolute Access Fund LLC, at fair value (cost $310,462,772) | 333,584,580 | |||
Other assets | 30,333 | |||
Total assets | 335,100,398 | |||
Liabilities | ||||
Capital redemptions payable | 1,485,337 | |||
Accounting and administration fees payable | 41,306 | |||
Professional fees payable | 32,088 | |||
Directors fees payable | 6,000 | |||
Other liabilities | 20,114 | |||
Total liabilities | 1,584,845 | |||
Net assets | $ | 333,515,553 | ||
Net assets consist of: | ||||
Paid-in capital | $ | 347,782,613 | ||
Accumulated net investment loss | (3,261,320 | ) | ||
Accumulated net realized loss on investments | (1,261,567 | ) | ||
Accumulated net unrealized depreciation on investments | (9,744,173 | ) | ||
Net assets | $ | 333,515,553 | ||
Units issued and outstanding (unlimited units authorized) | 294,290 | |||
Net Asset Value per unit | $ | 1,133.29 |
See accompanying notes.
2
FEG Absolute Access Fund I LLC
Statement of Operations
Year Ended March 31, 2016
Investment income/(loss) allocated from FEG Absolute Access Fund LLC | ||||
Withholding tax rebate | $ | 41,292 | ||
Dividend income | 9,704 | |||
Expenses | (3,567,200 | ) | ||
Net investment loss allocated from FEG Absolute Access Fund LLC | (3,516,204 | ) | ||
Fund Investment Income | ||||
Withholding tax rebate | 30,256 | |||
Fund expenses | ||||
Withholding tax | 179,504 | |||
Accounting and administration fees | 154,496 | |||
Professional fees | 145,791 | |||
Compliance monitoring expense | 111,112 | |||
Registration fees | 91,651 | |||
Custodian fees | 34,239 | |||
Directors fees | 27,000 | |||
Other expenses | 32,244 | |||
Total Fund expenses | 776,037 | |||
Net investment loss | (4,261,985 | ) | ||
Realized and unrealized loss on investments allocated | ||||
Net realized loss on investments | (1,261,567 | ) | ||
Net change in unrealized appreciation/depreciation on investments | (9,744,173 | ) | ||
Net realized and unrealized loss on investments | (11,005,740 | ) | ||
Net decrease in net assets resulting from operations | $ | (15,267,725 | ) |
See accompanying notes.
3
FEG Absolute Access Fund I LLC
Statements of Changes in Net Assets
Year Ended | Year Ended | |||||||
Operations | ||||||||
Net investment loss | $ | (4,261,985 | ) | $ | (3,538,689 | ) | ||
Net realized gain (loss) on investments | (1,261,567 | ) | 20,789,067 | |||||
Net change in unrealized appreciation/depreciation on investments | (9,744,173 | ) | (4,775,886 | ) | ||||
Net change in net assets resulting from operations | (15,267,725 | ) | 12,474,492 | |||||
Distributions to members | ||||||||
From net investment income | (698,680 | ) | — | |||||
From net realized gains | (677,868 | ) | — | |||||
Change in net assets from distributions to members | (1,376,548 | ) | — | |||||
Capital transactions | ||||||||
Capital subscriptions | 57,077,510 | 81,078,616 | ||||||
Capital reinvestments of distribution | 1,309,866 | — | ||||||
Capital redemptions | (29,552,143 | ) | (11,999,324 | ) | ||||
Net change in net assets resulting from capital transactions | 28,835,233 | 69,079,292 | ||||||
Net change in net assets | 12,190,960 | 81,553,784 | ||||||
Net assets at beginning of year | 321,324,593 | 239,770,809 | ||||||
Net assets at end of year | $ | 333,515,553 | $ | 321,324,593 | ||||
Accumulated net investment loss | $ | (3,261,320 | ) | $ | (10,317,200 | ) | ||
Units transactions | ||||||||
Units sold | 48,236 | 69,425 | ||||||
Units reinvested | 1,150 | — | ||||||
Units redeemed | (25,283 | ) | (10,316 | ) | ||||
Net change in units | 24,103 | 59,109 |
See accompanying notes.
4
FEG Absolute Access Fund I LLC
Statement of Cash Flows
Year Ended March 31, 2016
Operating activities | ||||
Net decrease in net assets resulting from operations | $ | (15,267,725 | ) | |
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities: | ||||
Purchases of investments | (57,077,211 | ) | ||
Proceeds from sales of investments | 30,642,162 | |||
Net investment loss allocated from FEG Absolute Access Fund LLC | 3,516,204 | |||
Net realized gain on investments | 1,261,567 | |||
Net change in unrealized appreciation/depreciation on investments | 9,744,173 | |||
Changes in operating assets and liabilities: | ||||
Other assets | (2,165 | ) | ||
Accounting and administration fees payable | 800 | |||
Professional fees payable | (29,825 | ) | ||
Director fees payable | (4,000 | ) | ||
Other liabilities | 11,193 | |||
Withholding tax payable | (253,858 | ) | ||
Net cash used in operating activities | (27,458,685 | ) | ||
Financing activities | ||||
Proceeds from capital subscriptions | 56,827,510 | |||
Dividends paid to shareholders, net of reinvestments | (66,682 | ) | ||
Payments for capital redemptions | (29,103,113 | ) | ||
Net cash provided by financing activities | 27,657,715 | |||
Net change in cash | 199,030 | |||
Cash at beginning of year | 1,286,455 | |||
Cash at end of year | $ | 1,485,485 | ||
Supplemental disclosure of cash flow information | ||||
Non-cash distribution fully reinvested | $ | 1,309,866 |
See accompanying notes.
5
FEG Absolute Access Fund I LLC
Financial Highlights
Year Ended March 31, 2016 | Year Ended March 31, 2015 | Year Ended March 31, 2014 | ||||||||||
Per unit operating performances:(1)(2) | ||||||||||||
Net asset value per unit, beginning of year | $ | 1,189.27 | $ | 1,135.93 | $ | 1,062.22 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment loss | (13.72 | ) | (6.07 | ) | (5.98 | ) | ||||||
Net realized and unrealized gain (loss) on investments | (37.63 | ) | 59.41 | 79.69 | ||||||||
Total change in per unit value from investment operations | (51.35 | ) | 53.34 | 73.71 | ||||||||
Distributions paid from: | ||||||||||||
Net investment income | (2.35 | ) | — | — | ||||||||
Net realized gains | (2.28 | ) | — | — | ||||||||
Total distributions to shareholders | (4.63 | ) | — | — | ||||||||
Net asset value per unit, end of year | $ | 1,133.29 | $ | 1,189.27 | $ | 1,135.93 |
Year Ended March 31, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Ratios to average net assets:(3) | ||||||||||||||||||||
Total expenses | 1.27 | % | 1.34 | % | 1.56 | % | 1.39 | % | 1.39 | % | ||||||||||
Net investment loss | (1.27 | )% | (1.34 | )% | (1.56 | )% | (1.39 | )% | (1.39 | )% | ||||||||||
Total return | (4.32 | )% | 4.70 | % | 6.94 | % | 8.24 | % | (1.91 | )% | ||||||||||
Portfolio turnover | 12.33 | % | 28.75 | % | 17.93 | % | 7.96 | % | 8.84 | % | ||||||||||
Net assets end of year (000’s) | $ | 333,516 | $ | 321,325 | $ | 239,771 | $ | 159,565 | $ | 147,616 |
(1) | Selected data is for a single unit outstanding throughout the year. |
(2) | Effective April 1, 2013, the Fund was unitized. |
(3) | The ratios include the Fund’s proportionate share of income and expenses allocated from FEG Absolute Access Fund LLC. |
See accompanying notes.
6
FEG Absolute Access Fund I LLC
Notes to Financial Statements
Year Ended March 31, 2016
1. Organization
FEG Absolute Access Fund I LLC (the “Fund”) was organized as a limited liability company under the laws of the State of Delaware on January 20, 2011 and commenced operations on April 1, 2011. Prior to December 31, 2015 the Fund was known as FEG Absolute Access TEI Fund LLC. The Fund is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company. The business and operations of the Fund are managed and supervised under the direction of the Board of Directors (the “Board”). The objective of the Fund is to achieve capital appreciation in both rising and falling markets, although there can be no assurance that the Fund will achieve this objective. Effective January 1, 2015, the Fund attempts to achieve its investment objective by investing all or substantially all of its assets directly in FEG Absolute Access Fund LLC (“FEG Absolute Access Fund”), a limited liability company organized under the laws of the State of Delaware and registered under the 1940 Act. The Fund and FEG Absolute Access Fund are managed by FEG Investors, LLC (the “Investment Manager”), an investment manager registered under the Investment Advisers Act of 1940, as amended. FEG Absolute Access Fund’s Board of Directors (the “FEG Absolute Access Fund Board”) has overall responsibility for the management and supervision of FEG Absolute Access Fund’s operations. To the extent permitted by applicable law, the FEG Absolute Access Fund Board may delegate any of its respective rights, powers and authority to, among others, the officers of FEG Absolute Access Fund, any committee of the FEG Absolute Access Fund Board, or the Investment Manager.
Units of limited liability company interest (“Units”) of the Fund are offered only to investors (“Members”) that represent that they are an “accredited investor” within the meaning of Rule 501 under the Securities Act of 1933, as amended (the “1933 Act”).
The Second Amended and Restated Limited Liability Company Operating Agreement (the “Operating Agreement”) for the Fund was approved by the Board at a meeting held on August 18, 2014, and by Members at a meeting held on December 12, 2014. The Operating Agreement: (a) allows the Fund to elect to be classified, for purposes of U.S. federal income tax, as a corporation that intends to elect to be treated as a regulated investment company (“RIC”) under Subchapter M of Subtitle A, Chapter 1, of the Internal Revenue Code of 1986, as amended (the “Code”); and (b) permits the creation of multiple classes of Units of the Fund.
On August 22, 2014, the Fund submitted an exemptive application to the Securities and Exchange Commission (the “SEC”) to permit the Fund to offer multiple classes of Units of limited liability company interest (the “Exemptive Application”). The Exemptive Application was submitted to the SEC in conjunction with a proxy statement sent to Members of the Fund requesting approval of the Operating Agreement, which was approved at the meeting of the Members held on December 12, 2014, and the Fund’s registration statement under the 1933 Act, which is discussed below. The SEC declared the Exemptive Application effective and granted the Fund an Exemptive Order on September 9, 2015.
The Board approved the filing of a registration statement, which was filed with the SEC on October 23, 2014, to allow the Fund to register Units under the 1933 Act. Additionally, the Board approved the name change of the Fund from FEG Absolute Access TEI Fund LLC to FEG Absolute Access Fund I LLC, contingent upon the Fund receiving the Exemptive Order from the SEC and the Fund’s proposed Operating Agreement being approved by its Members. The SEC declared the registration statement under the 1933 Act effective on January 11, 2016. The Fund’s registration statement permits it to offer two additional classes of Units. As of March 31, 2016, the Fund’s two additional share classes had not yet commenced operations.
UMB Fund Services, Inc., a subsidiary of UMB Financial Corporation, serves as the Fund’s administrator (the “Administrator”). The Fund has entered into an agreement with the Administrator to perform general administrative tasks for the Fund, including but not limited to maintenance of the books and records of the Fund and the capital accounts of the Members of the Fund.
7
FEG Absolute Access Fund I LLC
Notes to Financial Statements (continued)
2. Significant Accounting Policies
The Fund is an investment company, as such, these financial statements have applied the guidance set forth in Accounting Standards Codification (“ASC”) 946, Financial Services—Investment Companies. The following is a summary of significant accounting and reporting policies used in preparing the financial statements.
Use of Estimates
The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from such estimates.
Calculation of Net Assets and Net Asset Value per Unit
The Fund calculates its net assets as of the close of business on the last business day of each calendar month and the last day of each fiscal period. In determining its net assets, the Fund values its investments as of such month-end or as of the end of such fiscal period, as applicable. The net assets of the Fund equals the value of the total assets of the Fund less liabilities, including accrued fees and expenses, each determined as of the date the Fund’s net assets is calculated. The net asset value per unit equals net assets divided by Units outstanding.
Investment in FEG Absolute Access Fund LLC
The Fund records its investment in FEG Absolute Access Fund at fair value which is represented by the Fund’s units held in FEG Absolute Access Fund valued at their per unit net asset value. Valuation of investment funds and other investments held by FEG Absolute Access Fund is discussed in the notes to FEG Absolute Access Fund’s financial statements. The performance of the Fund is directly affected by the performance of FEG Absolute Access Fund. The financial statements of FEG Absolute Access Fund, which accompany this report, are an integral part of these financial statements. Refer to the accounting policies disclosed in the financial statements of FEG Absolute Access Fund for additional information regarding significant accounting policies that affect the Fund. As of March 31, 2016, the Fund owned 86.54% of the units of FEG Absolute Access Fund.
Taxation and Distributions to Members
For periods prior to January 1, 2015, the Fund, as a limited liability company, was classified as a partnership for federal tax purposes. Accordingly, no provision for federal income taxes was required. Components of net assets reflected in the Statement of Assets and Liabilities are reported on a tax basis, removing historical information prior to January 1, 2015.
Effective January 1, 2015, the Fund elected to be treated as a corporation for federal income tax purposes, and it further intends to elect to be treated, and expects each year to qualify, as a RIC under Subchapter M of the Code. For each taxable year that the Fund so qualifies, the Fund will not be subject to federal income tax on that part of its taxable income that it distributes to its investors. Taxable income consists generally of net investment income and net capital gains. The Fund intends to distribute sufficient net investment income and net capital gains, if any, so that it will not be subject to excise tax on undistributed income and gains, resulting in no provision requirements for federal income or excise taxes.
Management has analyzed the Fund’s tax positions for all open tax years, which include the years ended December 31, 2012 through December 31, 2015, and has concluded that as of March 31, 2016, no provision for income taxes is required in the financial statements. Therefore, no additional tax expense, including any interest and penalties, was recorded in the current year and no adjustments were made to prior periods. To the extent the Fund recognizes interest and penalties, they are included in interest expense and other expenses, respectively, in the Statement of Operations.
8
FEG Absolute Access Fund I LLC
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
The character of distributions made during the year from net investment income or net realized gain may differ from the characterization for federal income tax purposes due to differences in the recognition of income, expense, and gain/(loss) items for financial statement and tax purposes. Where appropriate, reclassifications between net asset accounts are made for such differences that are permanent in nature.
Additionally, U.S. GAAP requires certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. Permanent differences between book and tax basis are attributable to net investment losses, partnerships, and passive foreign investment companies adjustments. These reclassifications have no effect on net assets or net asset value per unit. For the tax year ended December 31, 2015, the following amounts were reclassified:
Paid-in capital | $ | (2,377,213 | ) | |
Accumulated net investment loss | 1,699,345 | |||
Accumulated net realized loss on investments | 677,868 |
As of March 31, 2016, the federal tax cost of investments and unrealized appreciation/(depreciation) were as follows:
Gross unrealized appreciation | $ | 24,944,531 | ||
Gross unrealized depreciation | (57,093 | ) | ||
Net unrealized appreciation | $ | 24,887,438 | ||
Cost of investments | $ | 308,697,142 |
The difference between cost amounts for financial statement and federal income tax purposes is due primarily to timing differences in recognizing certain gains and losses in investment transactions.
Post-October capital losses and qualified late-year losses incurred after October 31 and within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year. For the tax year ended December 31, 2015, the Fund deferred to January 1, 2016 $621,396 in qualified late-year losses.
As of December 31, 2015, the Fund had net capital loss carryforwards which are available to offset future net capital gains, if any:
Short-Term | Long-Term | |||||||
Non-Expiring | $ | 519,261 | $ | 389,476 |
The tax character of distributions paid during the tax year ended December 31, 2015 was as follows:
2015 | ||||
Distributions paid from: | ||||
Ordinary income | $ | 924,636 | ||
Net long-term capital gains | 451,912 | |||
Total taxable distributions | 1,376,548 | |||
Total distributions paid | $ | 1,376,548 |
9
FEG Absolute Access Fund I LLC
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Capital Subscriptions Received in Advance and Capital Redemptions Payable
Capital subscriptions received in advance, if any, are comprised of cash received on or prior to March 31, 2016 for which Units are issued April 1, 2016. Capital subscriptions received in advance do not participate in the earnings of the Fund until such Units are issued. Capital redemptions payable are comprised of requests for redemptions that were effective on March 31, 2016 but were paid subsequent to fiscal year-end.
3. Related Party Transactions
The Investment Manager receives from FEG Absolute Access Fund a monthly management fee (the “Management Fee”) equal to 1/12 of 0.85% of the FEG Absolute Access Fund’s month-end members’ capital balances. The Fund indirectly incurs the Management Fee as a member of FEG Absolute Access Fund.
Prior to April 1, 2015, each member of the Board who is not an “interested person” of the Fund (the “Independent Directors”), as defined by the 1940 Act, received a fee of $2,500 per quarter. From April 1, 2015 to December 31, 2015, each Independent Director received a quarterly retainer of $3,500. Effective January 1, 2016, each Independent Director receives a quarterly retainer of $3,000. In addition, all Independent Directors are reimbursed by the Fund for all reasonable out-of-pocket expenses incurred by them in performing their duties. The Independent Directors’ fees totaled $27,000 for the year ended March 31, 2016, of which $6,000 was payable as of March 31, 2016.
4. Capital
Members may be admitted when permitted by the Board. Generally, Members will only be admitted as of the beginning of a calendar month but, may be admitted at any other time in the discretion of the Board. The minimum initial investment is $50,000, and additional subscriptions from existing Members may be made in a minimum amount of $25,000, although the Board may waive such minimums in certain cases.
No Member will have the right to require the Fund to redeem its Units. Rather, the Board may, from time to time and in its complete and absolute discretion, cause the Fund to offer to repurchase Units from Members pursuant to written requests by Members on such terms and conditions as it may determine. However, because all or substantially all of the Fund’s assets will be invested in FEG Absolute Access Fund, the Fund generally will find it necessary to liquidate a portion of its FEG Absolute Access Fund units in order to satisfy repurchase requests. Because FEG Absolute Access Fund’s units may not be transferred, the Fund may withdraw a portion of its FEG Absolute Access Fund units only pursuant to repurchase offers by FEG Absolute Access Fund. Therefore, the Fund does not expect to conduct a repurchase offer for Units unless FEG Absolute Access Fund contemporaneously conducts a repurchase offer for FEG Absolute Access Fund units.
In determining whether the Fund should offer to repurchase Units from Members pursuant to written requests, the Board will consider, among other things, the recommendation of the Investment Manager. The Investment Manager expects that it will recommend to the FEG Absolute Access Fund Board that FEG Absolute Access Fund repurchases FEG Absolute Access Fund units from members twice a year, effective as of June 30th and December 31st. The repurchase amount will be determined by the FEG Absolute Access Fund Board in its complete and absolute discretion, but is expected to be no more than approximately 25% of FEG Absolute Access Fund’s outstanding units.
FEG Absolute Access Fund will make repurchase offers, if any, to all holders of FEG Absolute Access Fund units, including the Fund. The Fund does not expect to make a repurchase offer that is larger than the portion of FEG Absolute Access Fund’s corresponding repurchase offer expected to be available for acceptance by the Fund. Consequently, the Fund will conduct repurchase offers on a schedule and in amounts that will depend on FEG Absolute Access Fund’s repurchase offers.
10
FEG Absolute Access Fund I LLC
Notes to Financial Statements (continued)
4. Capital (continued)
Subject to the considerations described above, the aggregate value of Units to be repurchased at any time will be determined by the Board in its sole discretion, and such amount may be stated as a percentage of the value of the Fund’s outstanding Units. Therefore, the Fund may determine not to conduct a repurchase offer at a time that FEG Absolute Access Fund conducts a repurchase offer.
The Board also will consider the following factors, among others, in making such determination: (i) whether FEG Absolute Access Fund is making a contemporaneous repurchase offer for FEG Absolute Access Fund units, and the aggregate value of FEG Absolute Access Fund units that FEG Absolute Access Fund is offering to repurchase; (ii) the liquidity of the assets of the applicable fund; (iii) the investment plans and working capital requirements of the applicable fund; (iv) the relative economies of scale with respect to the size of the applicable fund; (v) the history of the applicable fund in repurchasing Units; (vi) the conditions in the securities markets and economic conditions generally; and (vii) the anticipated tax consequences of any proposed repurchases of Units.
The Operating Agreement and the FEG Absolute Access Fund operating agreement each provides that the respective entity will be dissolved if any Member that has submitted a written request, in accordance with the terms of the applicable Operating Agreement, to tender all of such Member’s Units or FEG Absolute Access Fund’s units, as applicable, for repurchase by the applicable fund has not been given the opportunity to so tender within a period of two (2) years after the request (whether in a single repurchase offer or multiple consecutive offers within the two-year period). Such a dissolution of the FEG Absolute Access Fund would likely result in a determination to dissolve the Fund.
When the Board determines that the Fund will offer to repurchase Units (or portions of Units), written notice will be provided to Members that describes the commencement date of the repurchase offer, and specifies the date on which repurchase requests must be received by the Fund (the “Repurchase Request Deadline”).
For Members tendering all of their Units in the Fund, Units will be valued for purposes of determining their repurchase price as of a date approximately 95 days after the Repurchase Request Deadline (the “Full Repurchase Valuation Date”). The amount that a Member who is tendering all of its Units in the Fund may expect to receive on the repurchase of such Member’s Units will be the value of the Member’s capital account determined on the Full Repurchase Valuation Date, and the Fund will generally not make any adjustments for final valuations based on adjustments received from FEG Absolute Access Fund, and the withdrawing Member (if such valuations are adjusted upwards) or the remaining Members (if such valuations are adjusted downwards) will bear the risk of change of any such valuations.
Members who tender a portion of their Units in the Fund (defined as a specific dollar value in their repurchase request), and which portion is accepted for repurchase by the Fund, will receive such specified dollar amount. Within five days of the Repurchase Request Deadline, each Member whose Units have been accepted for repurchase will be given a non-interest bearing, non-transferable promissory note by the Fund entitling the Member to be paid an amount equal to 100% of the unaudited net asset value of such Member’s capital account (or portion thereof) being repurchased, determined as of the Full Repurchase Valuation Date (after giving effect to all allocations to be made as of that date to such Member’s capital account). The note will entitle the Member to be paid within 30 days after the Full Repurchase Valuation Date, or ten business days after the Fund has received at least 90% of the aggregate amount withdrawn by the Fund from its investment in FEG Absolute Access Fund), whichever is later (either such date, a “Payment Date”). Notwithstanding the foregoing, if a Member has requested the repurchase of 90% or more of the Units held by such Member, such Member shall receive (i) a non-interest bearing, non-transferable promissory note, in an amount equal to 90% of the estimated unaudited net asset value of such Member’s capital account (or portion thereof) being repurchased, determined as of the Full Repurchase Valuation Date (after giving effect to all allocations to be made as of that date to such Member’s capital account) (the “Initial Payment”), which will be paid on or prior to the Payment Date; and (ii) a promissory note entitling the holder thereof to the balance of the proceeds, to be paid within 30 days following the completion of the Fund’s next annual audit, which is expected to be completed within 60 days after the end of the Fund’s fiscal year.
11
FEG Absolute Access Fund I LLC
Notes to Financial Statements (continued)
4. Capital (continued)
In the event that a Member requests a repurchase of a capital account amount that had been contributed to the Fund within 18 months of the date of the most recent repurchase offer, the Board may require payment of a repurchase fee payable to the Fund in an amount equal to 2.00% of the repurchase price. The repurchase fee is intended to compensate the Fund for expenses related to such repurchase. Subscriptions shall be treated on a “first-in, first-out basis.” Otherwise, the Fund does not intend to impose any charges on the repurchase of Units.
If Members request that the Fund repurchase a greater number of Units than the repurchase offer amount as of the Repurchase Request Deadline, as determined by the Board in its complete and absolute discretion, the Fund shall repurchase the Units pursuant to repurchase requests on a pro rata basis, disregarding fractions, according to the portion of the Units requested by each Member to be repurchased as of the Repurchase Request Deadline.
A Member who tenders some but not all of the Member’s Units for repurchase will be required to maintain a minimum capital account balance of $50,000. The Fund reserves the right to reduce the amount to be repurchased from a Member so that the required capital account balance is maintained.
5. Indemnifications
The Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is not known. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
6. Subsequent Events
Management evaluated subsequent events through the date the financial statements were issued, and concluded that there were no recognized or unrecognized subsequent events that required disclosure in or adjustment to the Fund’s financial statements.
12
FEG Absolute Access Fund I LLC
Company Management
(unaudited)
The identity of the Board Members and brief biographical information as of March 31, 2016 is set forth below. The Fund’s Statement of Additional Information includes additional information about the Board Members and is available, without charge, by calling 1-888-268-0333.
INDEPENDENT DIRECTORS | ||||
Name, Date Of Birth, And Address | Position(s) Held With The Company | Term Of Office And Length Of Time Served | Principal Occupation(s) During Past 5 Years And Other Directorships Held By Director | Number Of Portfolios In Fund Complex Overseen By Director |
David Clark Hyland | Director; Chairman of Audit Committee | Indefinite; | Associate Professor of Finance, Xavier University since 2008; Board of Advisors, Sterling Valuation Group, 2006-present. | 3 |
Gregory James Hahn | Director; Audit Committee Member | Indefinite; Since Inception | Chief Investment Officer, Portfolio Manager, Investment Strategy, Winthrop Capital Management, LLC since 2007; Trustee, Indiana Public Employee Retirement Fund, 2010-present; Trustee, Indiana State Teachers’ Retirement Fund, 2008-present. | 3 |
INTERESTED DIRECTORS AND OFFICERS | ||||
Name, Date Of Birth, And Address | Position(s) Held With The Company | Term Of Office And Length Of Time Served | Principal Occupation(s) During Past 5 Years And Other Directorships Held By Director Or Officer | Number Of Portfolios In Fund Complex Overseen By Director Or Officer |
J. Alan Lenahan, | Chairman of the Board of Directors; President | Indefinite; Since May 2015 | Managing Principal and Portfolio Manager, Fund Evaluation Group, LLC since 2002. | 3 |
Mary T. Bascom | Treasurer | Indefinite; Since Inception | Chief Financial Officer, Fund Evaluation Group, LLC since 1999. | 3 |
13
FEG Absolute Access Fund I LLC
Company Management (continued)
(unaudited)
INTERESTED DIRECTORS AND OFFICERS (continued) | ||||
Name, Date Of Birth, And Address | Position(s) Held With The Company | Term Of Office And Length Of Time Served | Principal Occupation(s) During Past 5 Years And Other Directorships Held By Director Or Officer | Number Of Portfolios In Fund Complex Overseen By Director Or Officer |
Ryan S. Wheeler 201 E. Fifth St., | Secretary | Indefinite; Since Inception | Director of Fund Operations since 2012 and Research Analyst, 2008-2012, Fund Evaluation Group, LLC. | 3 |
Ann Marie Swanson | Chief Compliance Officer | Indefinite; Since 2015 | Chief Compliance Officer of FEG Absolute Access Fund I LLC since 2015; Vice President and Chief Compliance Officer, Thomas Partners Investment Management, 2013-2015; Senior Vice President/Chief Compliance Officer, Althea Research and Management, Inc., 2010-2013. | 3 |
14
FEG Absolute Access Fund I LLC
Other Information
(unaudited)
Information on Proxy Voting
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-888-268-0333. It is also available on the SEC’s website at http://www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 1-888-268-0333, and on the SEC’s website at http://www.sec.gov.
Availability of Quarterly Report Schedule
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Other Tax Information
For Federal income tax purposes, the Fund designates long-term capital gain dividends of $451,912 or the amounts determined to be necessary, for the tax year ended December 31, 2015.
15
FEG Absolute Access Fund I LLC
Other Information (continued)
(unaudited)
Approval of Investment Management and Sub-Advisory Agreements
At a meeting of the Board of the Fund held on February 22, 2016, by a unanimous vote, the Board, including a majority of the Directors who are not “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act (the “Independent Directors”), approved the continuation of the investment management agreement (the “Investment Management Agreement”) between the Investment Manager and the Fund and the sub-advisory agreement among the Investment Manager, Sub-Adviser and the Fund (the “Sub-Advisory Agreement”, and together with the Investment Management Agreement, the “Advisory Agreements”).
In advance of the meeting, the Directors requested and received extensive materials from the Investment Manager and Sub-Adviser to assist them in considering the approval of the Advisory Agreements. The materials provided by the Investment Manager and Sub-Adviser contained information including detailed comparative information relating to the performance, advisory fees and other expenses of the Fund.
The Board engaged in a detailed discussion of the materials with management of the Investment Manager and Sub-Adviser. The Board then met in executive session with the counsel to the Independent Directors for a full review of the materials. Following this session, the meeting reconvened and after further discussion the Board determined that the information presented provided a sufficient basis upon which to approve the Advisory Agreements.
Discussion of Factors Considered
The Board considered, among other things: (1) the nature and quality of the advisory services rendered, including, the complexity of the services provided; (2) the experience and qualifications of the personnel providing such services; (3) the fee structure and the expense ratios in relation to those of other investment companies having comparable investment policies and limitations; (4) the direct and indirect costs that may be incurred by the Investment Manager, the Sub-Adviser and their affiliates in performing advisory services for the Fund, the basis of determining and allocating these costs, and the estimated profitability to the Investment Manager and its affiliates in performing such services; (5) possible economies of scale arising from any anticipated growth of the Fund and the extent to which these would be passed on to the Fund; (6) other compensation or possible benefits to the Investment Manager, the Sub-Adviser and their affiliates arising from their advisory and other relationships with the Fund; (7) possible alternative fee structures or bases for determining fees; (8) the fees charged by the Investment Manager and other investment managers to similar clients and in comparison to industry fees for similar services; (9) the allocation of total fees between the Investment Manager and the Sub-Adviser with respect to the Fund; and (10) possible conflicts of interest that the Investment Manager and the Sub-Adviser may have with respect to the Fund. It was noted that the Sub-Adviser does not perform similar services for other clients.
The Board concluded that the nature, extent and quality of the services to be provided by the Investment Manager and the Sub-Adviser to the Fund are appropriate and consistent with the terms of the Fund’s Amended and Restated Limited Liability Company Operating agreements, that the quality of those services are anticipated to be consistent with industry norms and that the Fund is likely to benefit from the Investment Manager’s and the Sub-Adviser’s management of the Fund’s investment program.
The Board considered the historic performance of the Fund and the performance of the Investment Manager’s other clients and concluded that the performance was in line with its relative peer group.
The Board also concluded that the Investment Manager and the Sub-Adviser had sufficient personnel, with the appropriate education and experience, to serve the Fund effectively and have demonstrated their continuing ability to attract and retain qualified personnel.
16
FEG Absolute Access Fund I LLC
Other Information (continued)
(unaudited)
Approval of Investment Management and Sub-Advisory Agreements (continued)
The Board considered the anticipated costs of the services provided by the Investment Manager, and the compensation and benefits received by the Investment Manager in providing services to the Fund. The Board reviewed the financial statements of the Investment Manager. In addition, the Board considered any direct or indirect revenues which may be received by the Investment Manager, the Sub-Adviser and their affiliates. The Board concluded that the Investment Manager’s anticipated fees and profits to be derived from its relationship with the Fund in light of the Fund’s expenses, were reasonable in relation to the nature and quality of the services provided, taking into account the fees charged by other investment managers for managing comparable funds.
The Board also considered that the sub-advisory fee received by InterOcean reflected the overall value of services provided to the Fund and to the Investment Manager, generally. The Board also concluded that the overall expense ratio of the Fund was reasonable, taking into account the projected size of the Fund and the quality of services provided by the Investment Manager.
The Board considered the extent to which economies of scale were expected to be realized relative to fee levels as the Fund’s assets grow.
The Board considered all factors and no one factor alone was deemed dispositive. After further discussion the Board determined that the information presented provided a sufficient basis upon which to approve the Management Agreement and Sub-Advisory Agreement.
Conclusion
After receiving full disclosure of relevant information of the type described above, the Board of Directors of the Fund concluded that the compensation and other terms of the Advisory Agreements were in the best interests of the Fund’s Members.
17
FEG Absolute Access Fund I LLC
Privacy Policy
(unaudited)
In the course of doing business with shareholders, FEG Absolute Access Fund I LLC (the “Fund”) collects nonpublic personal information about shareholders. “Nonpublic personal information” is personally identifiable financial information about shareholders. For example, it includes shareholders’ social security number, account balance, bank account information, and purchase and redemption history.
The Fund collects this information from the following sources:
● | Information it receives from shareholders on applications or other forms; |
● | Information about shareholder transactions with the Fund and its service providers, or others; |
● | Information it receives from consumer reporting agencies (including credit bureaus). |
What information does the Fund disclose and to whom does the Fund disclose information?
The Fund only discloses nonpublic personal information collected about shareholders as permitted by law. For example, the Fund may disclose nonpublic personal information about shareholders:
● | To government entities, in response to subpoenas or to comply with laws or regulations. |
● | When shareholders direct the Fund to do so or consent to the disclosure. |
● | To companies that perform necessary services for the Fund, such as data processing companies that the Fund uses to process shareholders transactions or maintain shareholder accounts. |
● | To protect against fraud, or to collect unpaid debts. |
● | Information about former shareholders. |
If a shareholder closes its account, the Fund will adhere to the privacy policies and practices described in this notice.
How the Fund safeguards information
Within the Fund, access to nonpublic personal information about shareholders is limited to employees and in some cases to third parties (for example, the service providers described above), as permitted by law. The Fund and its service providers maintain physical, electronic, and procedural safeguards that comply with federal standards to guard shareholder nonpublic personal information.
18
FINANCIAL STATEMENTS
FEG Absolute Access Fund LLC |
FEG Absolute Access Fund LLC
Financial Statements
Year Ended March 31, 2016
Contents
Report of Independent Registered Public Accounting Firm | 1 |
Statement of Assets, Liabilities and Members’ Capital | 2 |
Schedule of Investments | 3 |
Statement of Operations | 6 |
Statements of Changes in Members’ Capital | 7 |
Statement of Cash Flows | 8 |
Financial Highlights | 9 |
Notes to Financial Statements | 10 |
Other Information (Unaudited) | |
Company Management | 17 |
Other Information | 19 |
Privacy Policy | 21 |
FEG Absolute Access Fund LLC
Report of Independent Registered Public Accounting Firm
March 31, 2016
The Board of Directors and Members of FEG Absolute Access Fund LLC
We have audited the accompanying statement of assets, liabilities and members’ capital of FEG Absolute Access Fund LLC (the Fund), including the schedule of investments, as of March 31, 2016, and the related statements of operations and cash flows for the year then ended, the statements of changes in members’ capital for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of March 31, 2016, by correspondence with the custodian and portfolio fund managers/administrators. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of FEG Absolute Access Fund LLC at March 31, 2016, the results of its operations and its cash flows for the year then ended, the changes in its members’ capital for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended in conformity with U.S. generally accepted accounting principles.
Cincinnati, Ohio
May 27, 2016
1
FEG Absolute Access Fund LLC
Statement of Assets, Liabilities and Members’ Capital
March 31, 2016
Assets | ||||
Cash | $ | 2,679,151 | ||
Short-term investments (cost $3,091,028) | 3,091,028 | |||
Investments in Portfolio Funds, at fair value (cost $354,907,242) | 382,712,779 | |||
Receivable for Portfolio Funds sold | 180,329 | |||
Other assets | 789 | |||
Total assets | $ | 388,664,076 | ||
Liabilities and members’ capital | ||||
Capital withdrawals payable | $ | 1,648,116 | ||
Capital contributions received in advance | 750,000 | |||
Management fee payable | 546,283 | |||
Professional fees payable | 108,401 | |||
Accounting and administration fees payable | 91,264 | |||
Directors fees payable | 6,000 | |||
Line of credit fees payable | 2,564 | |||
Other liabilities | 35,153 | |||
Total liabilities | 3,187,781 | |||
Members’ capital | 385,476,295 | |||
Total liabilities and members’ capital | $ | 388,664,076 | ||
Components of members’ capital | ||||
Paid-in capital | $ | 337,818,887 | ||
Accumulated net investment loss | (17,995,226 | ) | ||
Accumulated net realized gain on investments | 37,847,097 | |||
Accumulated net unrealized appreciation on investments | 27,805,537 | |||
Members’ capital | $ | 385,476,295 | ||
Units issued and outstanding (unlimited units authorized) | 312,323 | |||
Net Asset Value per unit | $ | 1,234.22 |
See accompanying notes.
2
FEG Absolute Access Fund LLC
Schedule of Investments
March 31, 2016
Investment Name | Cost | Fair | Percentage of Members’ Capital | Withdrawals Permitted (1) | Notice | ||||||||||||
Investments in Portfolio Funds: (2) | |||||||||||||||||
United States: | |||||||||||||||||
Multi-Strategy: (3) | |||||||||||||||||
AG Super Fund, L.P.(4) | $ | 626,913 | $ | 831,349 | 0.2 | % | Annually (5) | 60 days | |||||||||
BlueTrend Fund, L.P., Class A | 14,500,000 | 17,225,745 | 4.5 | Monthly | 30 days | ||||||||||||
Canyon Balanced Fund, L.P. | 19,642,801 | 17,688,837 | 4.6 | Quarterly (6) | 90 days | ||||||||||||
Claren Road Credit Partners, L.P. | 6,287,944 | 5,026,279 | 1.3 | Quarterly (5) | 45 days | ||||||||||||
CVI Global Value Fund A, L.P., Class H(4) | 649,449 | 1,848,310 | 0.5 | Quarterly (7) | 120 days | ||||||||||||
Eton Park Fund, L.P., Class B(4) | 19,227,946 | 22,720,351 | 5.9 | Quarterly | 65 days | ||||||||||||
Farallon Capital Partners, L.P.(4) | 18,060,570 | 21,660,000 | 5.6 | Annually (5) | 45 days | ||||||||||||
Fir Tree Capital Opportunity Fund, L.P. | 17,850,400 | 20,214,342 | 5.2 | Annually (5) | 90 days | ||||||||||||
Governors Lane Onshore Fund L.P. | 6,000,000 | 5,795,388 | 1.5 | Annually (5) | 65 days | ||||||||||||
GSO Special Situations Fund, L.P.(4)(8) | 216,975 | 312,167 | 0.1 | Semi-Annually (5) | 90 days | ||||||||||||
HBK Multi-Strategy Fund, L.P., Class A | 13,497,263 | 17,377,089 | 4.5 | Quarterly | 90 days | ||||||||||||
Highfields Capital II, L.P. | 166,079 | 176,682 | 0.1 | Annually (7) | 60 days | ||||||||||||
Kepos Alpha Fund, L.P., Class A | 18,550,000 | �� | 19,791,381 | 5.1 | Quarterly (9) | 65 days | |||||||||||
LibreMax SL Fund, L.P. | 11,500,000 | 11,422,012 | 3.0 | Not Permitted | N/A |
| |||||||||||
MKP Enhanced Opportunity Partners, L.P. | 13,500,000 | 13,358,694 | 3.5 | Monthly | 60 days | ||||||||||||
OZ Asia Domestic Partners, L.P.(4) | 17,250,000 | 20,177,913 | 5.2 | Quarterly (10) | 45 days | ||||||||||||
Rimrock High Income PLUS (QP) Fund, L.P. | 20,000,000 | 19,851,148 | 5.2 | Annually (7) | 120 days | ||||||||||||
Stark Investments, L.P. (4)(11) | 14,122 | 4,189 | 0.0 | Quarterly | N/A |
| |||||||||||
Stark Investments, L.P., Class A (4)(12) | 174,412 | 182,114 | 0.0 | Quarterly | N/A |
| |||||||||||
Stark Investments, L.P., Class B (4) | 9,377 | 11,294 | 0.0 | Quarterly | N/A |
| |||||||||||
Strategic Value Restructuring Fund, L.P., Class C | 17,999,612 | 18,684,160 | 4.8 | Annually (5) | 95 days | ||||||||||||
Taconic Opportunity Fund, L.P. | 19,423,630 | 21,404,421 | 5.6 | Quarterly | 60 days | ||||||||||||
Total United States: | 235,147,493 | 255,763,865 | 66.4 | ||||||||||||||
Cayman Islands: | |||||||||||||||||
Multi-Strategy: (3) | |||||||||||||||||
Brevan Howard Argentina Fund Limited | 12,000,000 | 13,241,363 | 3.4 | Monthly | 90 days | ||||||||||||
Caxton Global Investments Limited, Class T Unrestricted | 18,800,000 | 18,502,952 | 4.8 | Quarterly | 45 days | ||||||||||||
Elliott International Limited | 25,928,845 | 27,117,879 | 7.0 | Semi-Annually (7) | 60 days | ||||||||||||
Eton Park Overseas Fund, Ltd.(4) | 1,960,350 | 2,707,036 | 0.7 | Annually (5) | 65 days | ||||||||||||
Graham Global Investment Fund II SPC, Ltd. | 18,875,886 | 20,350,503 | 5.3 | Monthly | 3 days | ||||||||||||
Highfields Capital, Ltd.(4) | 19,194,668 | 21,532,900 | 5.6 | Annually (7)(13) | 60 days | ||||||||||||
Indaba Capital Partners (Cayman), LP | 23,000,000 | 23,496,281 | 6.1 | Quarterly | 90 days | ||||||||||||
Total Cayman Islands: | 119,759,749 | 126,948,914 | 32.9 | ||||||||||||||
Total investments in Portfolio Funds | $ | 354,907,242 | $ | 382,712,779 | 99.3 | % |
See accompanying notes.
3
FEG Absolute Access Fund LLC
Schedule of Investments (continued)
Investment Name | Cost | Fair | Percentage of Members’ Capital | |||||||||
Short-term investments: | ||||||||||||
United States: | ||||||||||||
Money market fund: | ||||||||||||
Federated Prime Obligations Fund #10, 0.41% (14) | $ | 3,091,028 | $ | 3,091,028 | 0.8 | % | ||||||
Total investments in Portfolio Funds and short-term investments | $ | 357,998,270 | $ | 385,803,807 | 100.1 | % | ||||||
Liabilities less other assets | (327,512 | ) | (0.1 | )% | ||||||||
Members’ capital | $ | 385,476,295 | 100.0 | % |
(1) | Redemption frequency and redemption notice period reflect general redemption terms, and exclude liquidity restrictions. |
(2) | Non-income producing. |
(3) | Absolute return managers, while often investing in the same asset classes as traditional investment managers, do so in a market neutral framework that attempts to arbitrage pricing discrepancies or other anomalies that are unrelated to general market moves. Absolute return strategies are designed to reduce exposure to the market risks that define the broad asset classes and therefore should be viewed as a separate absolute return or diversifying strategy category for asset allocation purposes. An allocation to absolute return strategies can add a potentially valuable element of diversification to a portfolio of traditional investments and can be used by investors as a way to manage the total market risk of their portfolios. Examples of individual strategies that generally fall into this absolute return category include merger arbitrage, fixed income arbitrage, equity market neutral, convertible arbitrage, relative value arbitrage, and other event-driven strategies. |
(4) | All or a portion of these investments are held in side-pockets. Such investments generally cannot be withdrawn until removed from the side-pocket, the timing of which cannot be determined. See note 2 for a discussion of the Fund’s Investments in side-pockets. |
(5) | Withdrawals from these Portfolio Funds are permitted after a one-year lockup period from the date of the initial investment. |
(6) | Withdrawals from this Portfolio Fund are permitted on a quarterly basis, with 25%, 33⅓%, 50%, and 100% of the total investment becoming eligible for redemption each successive quarter. |
(7) | Withdrawals from these Portfolio Funds are permitted after a two-year lockup period from the date of the initial investment. |
(8) | Does not include holdback at cost of $18,051, included in receivable for Portfolio Funds sold in the Statement of Assets, Liabilities and Members' Capital. |
(9) | In addition to quarterly withdrawals, monthly withdrawals are also permitted from this Portfolio Fund at a limited amount of 33% of the net asset value held by a shareholder subject to a 0.20% redemption fee on the proceeds. |
(10) | Withdrawals from this Portfolio Fund are permitted after a one-year and a quarter lockup period from the date of the initial investment. |
(11) | Does not include holdback at cost of $147,191, included in receivable for Portfolio Funds sold in the Statement of Assets, Liabilities and Members’ Capital. |
(12) | Does not include holdback at cost of $1,459, included in receivable for Portfolio Funds sold in the Statement of Assets, Liabilities and Members’ Capital. |
(13) | In addition to annual withdrawals, semi-annual withdrawals are also permitted from this Portfolio Fund at a limited amount of 25% of the net asset value held by a shareholder. |
(14) | The rate shown is the annualized 7-day yield as of March 31, 2016. |
See accompanying notes.
4
FEG Absolute Access Fund LLC
Schedule of Investments (continued)
Type of Investment as a Percentage of Total Members’ Capital (Unaudited):
See accompanying notes.
5
FEG Absolute Access Fund LLC
Statement of Operations
Year Ended March 31, 2016
Investment income | ||||
Withholding tax rebate | $ | 47,716 | ||
Dividend income | 11,367 | |||
Total investment income | 59,083 | |||
Expenses | ||||
Management fees | 3,408,189 | |||
Accounting and administration fees | 358,937 | |||
Professional fees | 152,000 | |||
Line of credit interest expense | 112,465 | |||
Line of credit fees | 76,554 | |||
Custodian fees | 42,268 | |||
Directors fees | 27,000 | |||
Other expenses | 65,048 | |||
Total expenses | 4,242,461 | |||
Net investment loss | (4,183,378 | ) | ||
Realized and unrealized loss on investments | ||||
Net realized loss on investments | (1,505,465 | ) | ||
Net change in unrealized appreciation/depreciation on investments | (11,589,153 | ) | ||
Net realized and unrealized loss on investments | (13,094,618 | ) | ||
Net decrease in members' capital resulting from operations | $ | (17,277,996 | ) |
See accompanying notes.
6
FEG Absolute Access Fund LLC
Statements of Changes in Members’ Capital
Year Ended | Year Ended | |||||||
Operations | ||||||||
Net investment loss | $ | (4,183,378 | ) | $ | (3,605,281 | ) | ||
Net realized gain (loss) on investments | (1,505,465 | ) | 26,788,437 | |||||
Net change in unrealized appreciation/depreciation on investments | (11,589,153 | ) | (6,154,215 | ) | ||||
Net change in members' capital resulting from operations | (17,277,996 | ) | 17,028,941 | |||||
Capital transactions | ||||||||
Capital contributions | 59,737,509 | 90,617,087 | ||||||
Capital withdrawals | (55,190,017 | ) | (23,609,518 | ) | ||||
Net change in members' capital resulting from capital transactions | 4,547,492 | 67,007,569 | ||||||
Net change in members' capital | (12,730,504 | ) | 84,036,510 | |||||
Members' capital at beginning of year | 398,206,799 | 314,170,289 | ||||||
Members' capital at end of year | $ | 385,476,295 | $ | 398,206,799 | ||||
Accumulated net investment loss | $ | (17,995,226 | ) | $ | (13,811,848 | ) | ||
Units transactions | ||||||||
Units sold | 46,606 | 71,925 | ||||||
Units redeemed | (43,674 | ) | (18,797 | ) | ||||
Net change in units | 2,932 | 53,128 |
See accompanying notes.
7
FEG Absolute Access Fund LLC
Statement of Cash Flows
Year Ended March 31, 2016
Operating activities | ||||
Net decrease in members’ capital resulting from operations | $ | (17,277,996 | ) | |
Adjustments to reconcile net decrease in members' capital resulting from operations to net cash used in operating activities: | ||||
Purchases of investments in Portfolio Funds | (48,665,879 | ) | ||
Proceeds from sales of investments in Portfolio Funds | 50,989,300 | |||
Net realized loss on investments in Portfolio Funds | 1,505,465 | |||
Net change in unrealized appreciation/depreciation on investments in Portfolio Funds | 11,589,153 | |||
Proceeds from short-term investments, net | 929,007 | |||
Changes in operating assets and liabilities: | ||||
Other assets | (726 | ) | ||
Management fee payable | (12,293 | ) | ||
Professional fees payable | (46,597 | ) | ||
Accounting and administration fees payable | 1,442 | |||
Directors fees payable | (4,000 | ) | ||
Other liabilities | (38,178 | ) | ||
Net cash used in operating activities | (1,031,302 | ) | ||
Financing activities | ||||
Line of credit fees payable | (829 | ) | ||
Payments for line of credit | (22,000,000 | ) | ||
Proceeds from line of credit | 22,000,000 | |||
Proceeds from capital contributions | 56,962,509 | |||
Payments for capital withdrawals | (54,276,017 | ) | ||
Net cash provided by financing activities | 2,685,663 | |||
Net change in cash | 1,654,361 | |||
Cash at beginning of year | 1,024,790 | |||
Cash at end of year | $ | 2,679,151 | ||
Supplemental disclosure of interest paid | $ | 112,465 |
See accompanying notes.
8
FEG Absolute Access Fund LLC
Financial Highlights
Year Ended March 31, 2016 | Year Ended March 31, 2015 | Year Ended March 31, 2014 | ||||||||||
Per unit operating performances:(1)(2) | ||||||||||||
Net asset value per unit, beginning of year | $ | 1,287.07 | $ | 1,225.97 | $ | 1,141.52 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment loss | (12.98 | ) | (4.81 | ) | (3.84 | ) | ||||||
Net realized and unrealized gain (loss) on investments | (39.87 | ) | 65.91 | 88.29 | ||||||||
Total change in per unit value from investment operations | (52.85 | ) | 61.10 | 84.45 | ||||||||
Net asset value per unit, end of year | $ | 1,234.22 | $ | 1,287.07 | $ | 1,225.97 |
Year Ended March 31, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Ratios to average members' capital:(3) | ||||||||||||||||||||
Total expenses | 1.06 | % | 1.06 | % | 1.12 | % | 1.21 | % | 1.14 | % | ||||||||||
Net investment loss | (1.04 | )% | (1.06 | )% | (1.12 | )% | (1.21 | )% | (1.14 | )% | ||||||||||
Total return | (4.11 | )% | 4.98 | % | 7.40 | % | 8.26 | % | (1.89 | )% | ||||||||||
Portfolio turnover | 12.33 | % | 28.75 | % | 17.93 | % | 7.96 | % | 8.84 | % | ||||||||||
Members' capital end of period (000's) | $ | 385,476 | $ | 398,207 | $ | 314,170 | $ | 232,230 | $ | 241,336 |
(1) | Selected data is for a single unit outstanding throughout the year. |
(2) | Effective April 1, 2013, the Company was unitized. |
(3) | The ratios do not include investment income or expenses of the Portfolio Funds in which the Company invests. |
See accompanying notes.
9
FEG Absolute Access Fund LLC
Notes to Financial Statements
Year Ended March 31, 2016
1. Organization
FEG Absolute Access Fund LLC (the “Company”) was formed on January 18, 2008, and is a Delaware limited liability company that commenced operations on April 1, 2008. The Company registered with the U.S. Securities and Exchange Commission (the “SEC”) on August 16, 2010, under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company. The Company’s Board of Directors (the “Board”) has overall responsibility for the management and supervision of the Company’s operations. To the extent permitted by applicable law, the Board may delegate any of its respective rights, powers, and authority to, among others, the officers of the Company, any committee of the Board, or the Investment Manager (as defined below). Under the supervision of the Board and pursuant to an investment management agreement, FEG Investors, LLC serves as the investment manager (the “Investment Manager”) to the Company. The Investment Manager is a registered investment adviser with the SEC under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Pursuant to a sub-advisory agreement with the Investment Manager and the Company, InterOcean Capital, LLC, an investment adviser registered under the Advisers Act, serves as the Company’s sub-adviser (in such capacity, the “Sub-Adviser”). The Sub-Adviser participates by appointing a member of the Investment Manager’s investment policy committee, thereby assisting in oversight of the Company’s investments, making Portfolio Fund Manager (as defined below) selection and termination recommendations and approving significant and strategic asset allocation changes.
The Company’s investment objective is to achieve capital appreciation in both rising and falling markets, although there can be no assurance that the Company will achieve this objective. The Company was formed to capitalize on the experience of the Investment Manager’s principals by creating a fund-of-funds product, which offers professional portfolio fund manager due diligence, selection and monitoring, consolidated reporting, risk monitoring, and access to portfolio fund managers for a smaller minimum investment than would be required for direct investment. The Investment Manager manages the Company by allocating its capital among a number of independent general partners or investment managers (the “Portfolio Fund Managers”) acting through pooled investment vehicles and/or managed accounts (collectively, the “Portfolio Funds”).
Units of limited liability company interest (“Units”) of the Company are offered only to investors (“Members”) that represent that they are an “accredited investor” within the meaning of Rule 501 under the Securities Act of 1933, as amended (the “1933 Act”).
UMB Fund Services, Inc., a subsidiary of UMB Financial Corporation, serves as the Company’s administrator (the “Administrator”). The Company has entered into an agreement with the Administrator to perform general administrative tasks for the Company, including but not limited to maintenance of the books and records of the Company and the capital accounts of the Members of the Company.
2. Significant Accounting Policies
The Company is an investment company, and as such, these financial statements have applied the guidance set forth in Accounting Standards Codification (“ASC”) 946, Financial Services—Investment Companies. The following is a summary of significant accounting and reporting policies used in preparing the financial statements.
Use of Estimates
The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from such estimates.
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FEG Absolute Access Fund LLC
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Calculation of Members’ Capital and Net Asset Value per Unit
The Company calculates its Members’ capital as of the close of business on the last business day of each calendar month and the last day of each fiscal period. In determining its Members’ capital, the Company values its investments as of such month-end or as of the end of such fiscal period, as applicable. The Members’ capital of the Company equals the value of the total assets of the Company less liabilities, including accrued fees and expenses, each determined as of the date the Company’s Members’ capital is calculated. The net asset value per Unit equals Members’ capital divided by Units outstanding.
Investments in Portfolio Funds
The Company values its investments in Portfolio Funds at fair value, which generally represents the Company’s pro rata interest in the members’ capital of the Portfolio Funds, net of management fees and incentive allocations payable to Portfolio Fund Managers. The underlying investments held by the Portfolio Funds are valued at fair value in accordance with the policies established by the Portfolio Funds, as described in their respective financial statements and agreements. Due to the inherent uncertainty of less liquid investments, the value of certain investments held by the Portfolio Funds may differ from the values that would have been used if a ready market existed. The Portfolio Funds may hold investments for which market quotations are not readily available and are thus valued at their fair value, as determined in good faith by their respective Portfolio Fund Managers. Net realized and unrealized gains and losses from investments in Portfolio Funds are reflected in the Statement of Operations. Realized gains and losses from Portfolio Funds are recorded on the average cost basis.
For the year ended March 31, 2016, the aggregate cost of purchases and proceeds from sales of investments in Portfolio Funds were $50,797,823 and $49,336,291, respectively.
Certain of the Portfolio Funds may hold a portion of their assets as side-pocket investments (the “Side-Pockets”), which have restricted liquidity, potentially extending over a much longer period of time than the typical liquidity an investment in a Portfolio Fund may provide. Should the Company seek to liquidate its investments in the Side-Pockets, the Company might not be able to fully liquidate its investment without delay, and such, delay could be considerable. In such cases, until the Company is permitted to fully liquidate its interest in the Side-Pockets, the value of its investment could fluctuate based on adjustments to the fair value of the Side-Pockets. As of March 31, 2016, 11 of the 29 Portfolio Funds in which the Company invested had all or a portion of their assets held as Side-Pockets. The fair value of these Side-Pockets as of March 31, 2016 was $9,730,051 and represented 2.52% of total Members’ capital.
Fair Value of Financial Instruments
In accordance with ASC 820, Fair Value Measurement, fair value is defined as the price that the Company would receive if it were to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions that market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs), and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the fair value of the Company’s investments.
The inputs are summarized in the three broad levels listed below:
Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
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FEG Absolute Access Fund LLC
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly.
Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement. This includes situations where there is little, if any, market activity for the asset or liability.
The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments.
Short-term investments represent an investment in a money market fund. Short-term investments are recorded at fair value, which is their published net asset value and are listed in the table below as a Level 1 investment.
Investments in Portfolio Funds are recorded at fair value, using the Portfolio Funds’ net asset value as a practical expedient.
The following table represents the investments carried at fair value on the Statement of Assets, Liabilities and Members’ Capital by level within the valuation hierarchy as of March 31, 2016:
Investments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Short-term investments | $ | 3,091,028 | $ | — | $ | — | $ | 3,091,028 | ||||||||
Total | $ | 3,091,028 | $ | — | $ | — | $ | 3,091,028 |
In accordance with ASC 820, investments in Portfolio Funds with a fair value of $382,712,779 are excluded from the fair value hierarchy as of March 31, 2016.
The Schedule of Investments categorizes the aggregate fair value of the Company’s investments in the Portfolio Funds by domicile, investment strategy, and liquidity.
The Company discloses transfers between levels based on valuations at the end of the reporting period. There were no transfers between Levels 1, 2, or 3 for the year ended March 31, 2016.
Investment Transactions and Investment Income
Investment transactions are recorded on a trade-date basis. Dividend income is recorded on the ex-dividend date.
Taxation
The Company is treated as a partnership for federal income tax purposes and therefore is not subject to U.S. federal income tax. For income tax purposes, the individual Members will be taxed upon their distributive share of each item of the Company’s profit and loss. The only taxes payable by the Company are withholding taxes applicable to certain investment income.
Management has analyzed the Company’s tax positions for all open tax years, which include the years ended December 31, 2012 through December 31, 2015, and has concluded that as of March 31, 2016, no provision for income taxes is required in the financial statements. Therefore, no additional tax expense, including any interest and penalties, was recorded in the current year and no adjustments were made to prior periods. To the extent the Company recognizes interest and penalties, they are included in interest expense and other expenses, respectively, in the Statement of Operations.
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FEG Absolute Access Fund LLC
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Capital Contributions Received in Advance and Capital Withdrawals Payable
Capital contributions received in advance are comprised of cash received on or prior to March 31, 2016 for which Units are issued April 1, 2016. Capital contributions received in advance do not participate in the earnings of the Company until such Units are issued. Capital withdrawals payable are comprised of requests for withdrawals that were effective on March 31, 2016 but were paid subsequent to fiscal year-end.
3. Investments in Portfolio Funds
The Investment Manager utilizes due diligence processes with respect to the Portfolio Funds and their Portfolio Fund Managers, which are intended to assist management in determining that financial information provided by the underlying Portfolio Fund Managers is reasonably reliable.
The Company has the ability to liquidate its investments in Portfolio Funds periodically in accordance with the provisions of the respective Portfolio Fund’s operating agreement; however, these withdrawal requests may be subject to certain lockup periods such as gates, suspensions, and the Side-Pockets, or other delays, fees, or restrictions in accordance with the provisions of the respective Portfolio Fund’s operating agreement.
The Portfolio Funds in which the Company has investments may utilize a variety of financial instruments in their trading strategies, including equity and debt securities of both U.S. and foreign issuers, options and futures, forwards, and swap contracts. These financial instruments contain various degrees of off-balance-sheet risk, including both market and credit risk. Market risk is the risk of potentially adverse changes to the value of the financial instruments and their derivatives because of the changes in market conditions, such as interest and currency rate movements and volatility in commodity or security prices. Credit risk is the risk of the potential inability of counterparties to perform based on the terms of the contracts, which may be in excess of the amounts recorded in the Portfolio Funds’ respective statement of financial condition. In addition, several of the Portfolio Funds sell securities sold, not yet purchased, whereby a liability is created for the repurchase of the security at prevailing prices. Such Portfolio Funds’ ultimate obligations to satisfy the sales of securities sold, not yet purchased may exceed the amount recognized on the Portfolio Funds’ respective statement of financial condition. However, due to the nature of the Company’s interest in these investment entities, the Company’s risk with respect to such transactions is generally limited to its investment in each Portfolio Fund.
The Company is also subject to liquidity risks, including the risk that the Company may encounter difficulty in generating cash to meet obligations associated with tender requests. Liquidity risk may result from an inability of the Company to sell an interest in a Portfolio Fund on a timely basis at an amount that approximates its fair value. The Portfolio Funds require advance notice for withdrawal requests, generally only permit withdrawals at specified times, and have the right in certain circumstances to limit or delay withdrawals.
The Portfolio Funds provide for compensation to the respective Portfolio Fund Managers in the form of management fees generally ranging from 1.0% to 3.0% annually of members’ capital, and incentive allocations that typically range between 10.0% and 30.0% of profits, subject to loss carryforward provisions, as defined in the respective Portfolio Funds’ agreement.
4. Management Fee and Related Party Transactions
The Investment Manager receives from the Company a monthly management fee (the “Management Fee”) equal to 1/12 of 0.85% of the Company’s month-end Members’ capital balance, prior to reduction for the Management Fee then being calculated (a 0.85% annual rate). The Management Fee is paid monthly in arrears and is prorated with respect to investments in the Company made other than at the beginning of a month. The Management Fee totaled $3,408,189 for the year ended March 31, 2016, of which $546,283 was payable as of March 31, 2016.
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FEG Absolute Access Fund LLC
Notes to Financial Statements (continued)
4. Management Fee and Related Party Transactions (continued)
The Investment Manager, not the Company, pays the Sub-Adviser a monthly fee equal to 10% of the Management Fee received by the Investment Manager from the Company as of the end of each calendar month. Effective May 11, 2015, the Sub-Adviser agreed to waive any unpaid past and future compensation that did or would exceed 10% of the adjusted income of the Investment Manager attributable to the services that the Investment Manager renders to the Company.
Prior to April 1, 2015, each member of the Board who is not an “interested person” of the Company (the “Independent Directors”), as defined by the 1940 Act, received a fee of $2,500 per quarter. From April 1, 2015 through December 31, 2015, each Independent Director received a quarterly retainer of $3,500. Effective January 1, 2016, each Independent Director receives a quarterly retainer of $3,000. In addition, all Independent Directors are reimbursed by the Company for all reasonable out-of-pocket expenses incurred by them in performing their duties. The Company’s Independent Director fees totaled $27,000 for the year ended March 31, 2016, of which $6,000 was payable as of March 31, 2016.
As of March 31, 2016, FEG Absolute Access Fund I LLC (formerly, FEG Absolute Access TEI Fund LLC), an affiliated investment company of the Company registered under the 1940 Act, owned 86.54% of the Company's outstanding Units, with a value of $333.584,580.
5. Members’ Capital
In accordance with the Company’s Amended and Restated Limited Liability Company Operating Agreement (the “Operating Agreement”), net profits or net losses are allocated to the Members in proportion to their respective capital accounts. In addition, each Member's liability is generally limited to its investment in the Company.
Members may be admitted when permitted by the Board. Generally, Members will only be admitted as of the beginning of a calendar month, but may be admitted at any other time at the discretion of the Board. The minimum initial investment is $50,000, and additional contributions from existing Members may be made in a minimum amount of $25,000, although the Board may waive such minimums in certain cases.
No Member will have the right to require the Company to redeem its Units. Rather, the Board may, from time to time and in its complete and absolute discretion, cause the Company to offer to repurchase Units from Members pursuant to written requests by Members on such terms and conditions as it may determine. In determining whether the Company should offer to repurchase Units from Members pursuant to written requests, the Board will consider, among other things, the recommendation of the Investment Manager. The Investment Manager expects that it will recommend such repurchase offers twice a year, effective as of June 30th and December 31st. The repurchase amount will be determined by the Board in its complete and absolute discretion, but is expected to be no more than approximately 25% of the Company’s outstanding Units. The Board also will consider the following factors, among others, in making such determination: (i) whether any Members have requested that the Company repurchase Units; (ii) the liquidity of the Company’s assets; (iii) the investment plans and working capital requirements of the Company; (iv) the relative economies of scale with respect to the size of the Company; (v) the history of the Company in repurchasing Units; (vi) the conditions in the securities markets and economic conditions generally; and (vii) the anticipated tax consequences of any proposed repurchases of Units.
The Company’s Operating Agreement provides that the Company will be dissolved if any Member that has submitted a written request, in accordance with the terms of the Operating Agreement, to tender all of such Member’s Units for repurchase by the Company has not been given the opportunity to so tender within a period of two (2) years after the request (whether in a single repurchase offer or multiple consecutive offers within the two-year period).
When the Board determines that the Company will offer to repurchase Units (or portions of Units), written notice will be provided to Members that describes the commencement date of the repurchase offer, and specifies the date on which repurchase requests must be received by the Company (the “Repurchase Request Deadline”).
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FEG Absolute Access Fund LLC
Notes to Financial Statements (continued)
5. Members’ Capital (continued)
For Members tendering all of their Units in the Company, Units will be valued for purposes of determining their repurchase price as of a date approximately 95 days after the Repurchase Request Deadline (the “Full Repurchase Valuation Date”). The amount that a Member who is tendering all of its Units in the Company may expect to receive on the repurchase of such Member’s Units will be the value of the Member’s capital account determined on the Full Repurchase Valuation Date, and the Company will generally not make any adjustments for final valuations based on adjustments received from the Portfolio Funds, and the withdrawing Member (if such valuations are adjusted upwards) or the remaining Members (if such valuations are adjusted downwards) will bear the risk of change of any such valuations.
Members who tender a portion of their Units in the Company (defined as a specific dollar value in their repurchase request), and which portion is accepted for repurchase by the Company, will receive such specified dollar amount. Within five days of the Repurchase Request Deadline, each Member whose Units have been accepted for repurchase will be given a non-interest bearing, non-transferable promissory note by the Company entitling the Member to be paid an amount equal to 100% of the unaudited net asset value of such Member’s capital account (or portion thereof) being repurchased, determined as of the Full Repurchase Valuation Date (after giving effect to all allocations to be made as of that date to such Member’s capital account). The note will entitle the Member to be paid within 30 days after the Full Repurchase Valuation Date, or ten business days after the Company has received at least 90% of the aggregate amount withdrawn by the Company from the Portfolio Funds, whichever is later (either such date, a “Payment Date”). Notwithstanding the foregoing, if a Member has requested the repurchase of 90% or more of the Units held by such Member, such Member shall receive (i) a non-interest bearing, non-transferable promissory note, in an amount equal to 90% of the estimated unaudited net asset value of such Member’s capital account (or portion thereof) being repurchased, determined as of the Full Repurchase Valuation Date (after giving effect to all allocations to be made as of that date to such Member’s capital account) (the “Initial Payment”), which will be paid on or prior to the Payment Date; and (ii) a promissory note entitling the holder thereof to the balance of the proceeds, to be paid within 30 days following the completion of the Company’s next annual audit, which is expected to be completed within 60 days after the end of the Company’s fiscal year-end.
In the event that a Member requests a repurchase of a capital account amount that had been contributed to the Company within 18 months of the date of the most recent repurchase offer, the Board may require payment of a repurchase fee payable to the Company in an amount equal to 2.00% of the repurchase price. The repurchase fee is intended to compensate the Company for expenses related to such repurchase. Contributions shall be treated on a “first-in, first-out basis.” Otherwise, the Company does not intend to impose any charges on the repurchase of Units.
If Members request that the Company repurchase a greater number of Units than the repurchase offer amount as of the Repurchase Request Deadline, as determined by the Board in its complete and absolute discretion, the Company shall repurchase the Units pursuant to repurchase requests on a pro rata basis, disregarding fractions, according to the portion of the Units requested by each Member to be repurchased as of the Repurchase Request Deadline.
A Member who tenders some but not all of the Member’s Units for repurchase will be required to maintain a minimum capital account balance of $50,000. The Company reserves the right to reduce the amount to be repurchased from a Member so that the required capital account balance is maintained.
6. Indemnifications
The Company enters into contracts that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is not known. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
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FEG Absolute Access Fund LLC
Notes to Financial Statements (continued)
7. Credit Facility
Effective September 30, 2013 (the “Closing Date”), the Company entered into a $20 million line of credit facility (the “LOC”) used for cash management purposes, such as providing liquidity for investments and repurchases. A fee of 50 basis points (0.50%) per annum is payable monthly in arrears on the unused portion of the LOC, while the interest rate charged on borrowings on the LOC is the 1-month London Interbank Offer Rate plus a spread of 200 basis points (2.00%). The average interest rate and the average daily loan balance for the 162 days the Company had outstanding borrowings under the LOC were 2.28% and $11,426,543, respectively. As of March 31, 2016, the unused amount of the LOC was $20,000,000.
Assets permitted as investment collateral include U.S. marketable obligations, bankers’ acceptance and certificates of deposit, money market accounts, demand deposits, and time deposits. Effective October 1, 2015, the LOC agreement was amended to change the scheduled commitment termination date (the “Termination Date”) to September 30, 2016. The LOC agreement can be terminated on the earliest to occur of (i) the date declared by the lender in respect of the occurrence of an event of default, (ii) a date selected by the Company upon at least 30 days’ prior written notice to the lender, or (iii) the Termination Date.
8. Subsequent Events
Management evaluated subsequent events through the date the financial statements were issued and concluded that there were no recognized or unrecognized subsequent events that required disclosure in or adjustment to the Company’s financial statements.
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FEG Absolute Access Fund LLC
Company Management
(unaudited)
The identity of the Board Members and brief biographical information as of March 31, 2016 is set forth below. The Company’s Statement of Additional Information includes additional information about the Board Members and is available, without charge, by calling 1-888-268-0333.
INDEPENDENT DIRECTORS | ||||
Name, Date Of Birth, And Address | Position(s) Held With The Company | Term Of Office And Length Of Time Served | Principal Occupation(s) During Past 5 Years And Other Directorships Held By Director | Number Of Portfolios In Fund Complex Overseen By Director |
David Clark Hyland | Director; Chairman of Audit Committee | Indefinite; Since Inception | Associate Professor of Finance, Xavier University since 2008; Board of Advisors, Sterling Valuation Group, 2006-present. | 3 |
Gregory James Hahn | Director; Audit Committee Member | Indefinite; Since Inception | Chief Investment Officer, Portfolio Manager, Investment Strategy, Winthrop Capital Management, LLC since 2007; Trustee, Indiana Public Employee Retirement Fund, 2010-present; Trustee, Indiana State Teachers’ Retirement Fund, 2008-present. | 3 |
INTERESTED DIRECTORS AND OFFICERS | ||||
Name, Date Of Birth, And Address | Position(s) Held With The Company | Term Of Office And Length Of Time Served | Principal Occupation(s) During Past 5 Years And Other Directorships Held By Director Or Officer | Number Of Portfolios In Fund Complex Overseen By Director Or Officer |
J. Alan Lenahan, | Chairman of the Board of Directors; President | Indefinite; Since May 2015 | Managing Principal and Portfolio Manager, Fund Evaluation Group, LLC since 2002. | 3 |
Mary T. Bascom | Treasurer | Indefinite; Since Inception | Chief Financial Officer, Fund Evaluation Group, LLC since 1999. | 3 |
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FEG Absolute Access Fund LLC
Company Management (continued)
(unaudited)
INTERESTED DIRECTORS AND OFFICERS (continued) | ||||
Name, Date Of Birth, And Address | Position(s) Held With The Company | Term Of Office And Length Of Time Served | Principal Occupation(s) During Past 5 Years And Other Directorships Held By Director Or Officer | Number Of Portfolios In Fund Complex Overseen By Director Or Officer |
Ryan S. Wheeler 201 E. Fifth St., | Secretary | Indefinite; Since Inception | Director of Fund Operations since 2012 and Research Analyst from 2008-2012, Fund Evaluation Group, LLC. | 3 |
Ann Marie Swanson | Chief Compliance Officer | Indefinite; Since 2015 | Chief Compliance Officer of FEG Absolute Access Fund LLC since 2015; Vice President and Chief Compliance Officer, Thomas Partners Investment Management, 2013-2015; Senior Vice President/Chief Compliance Officer, Althea Research and Management, Inc., 2010-2013. | 3 |
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FEG Absolute Access Fund LLC
Other Information
(unaudited)
Information on Proxy Voting
A description of the policies and procedures that the Company uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-888-268-0333. It is also available on the SEC’s website at http://www.sec.gov.
Information regarding how the Company voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 1-888-268-0333, and on the SEC’s website at http://www.sec.gov.
Availability of Quarterly Report Schedule
The Company files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Company’s Forms N-Q are available on the SEC’s website at http://www.sec.gov. The Company’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Approval of Investment Management and Sub-Advisory Agreements
At a meeting of the Board of the Company held on February 22, 2016, by a unanimous vote, the Board, including a majority of the Directors who are not “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act (the “Independent Directors”), approved the continuation of the investment management agreement (the “Investment Management Agreement”) between the Investment Manager and the Company and the sub-advisory agreement among the Investment Manager, Sub-Adviser and the Company (the “Sub-Advisory Agreement”, and together with the Investment Management Agreement, the “Advisory Agreements”).
In advance of the meeting, the Directors requested and received extensive materials from the Investment Manager and Sub-Adviser to assist them in considering the approval of the Advisory Agreements. The materials provided by the Investment Manager and Sub-Adviser contained information including detailed comparative information relating to the performance, advisory fees and other expenses of the Company.
The Board engaged in a detailed discussion of the materials with management of the Investment Manager and Sub-Adviser. The Board then met in executive session with the counsel to the Independent Directors for a full review of the materials. Following this session, the meeting reconvened and after further discussion the Board determined that the information presented provided a sufficient basis upon which to approve the Advisory Agreements.
Discussion of Factors Considered
The Board considered, among other things: (1) the nature and quality of the advisory services rendered, including, the complexity of the services provided; (2) the experience and qualifications of the personnel providing such services; (3) the fee structure and the expense ratios in relation to those of other investment companies having comparable investment policies and limitations; (4) the direct and indirect costs that may be incurred by the Investment Manager, the Sub-Adviser and their affiliates in performing advisory services for the Company, the basis of determining and allocating these costs, and the estimated profitability to the Investment Manager and its affiliates in performing such services; (5) possible economies of scale arising from any anticipated growth of the Company and the extent to which these would be passed on to the Company; (6) other compensation or possible benefits to the Investment Manager, the Sub-Adviser and their affiliates arising from their advisory and other relationships with the Company; (7) possible alternative fee structures or bases for determining fees; (8) the fees charged by the Investment Manager and other investment managers to similar clients and in comparison to industry fees for similar services; (9) the allocation of total fees between the Investment Manager and the Sub-Adviser with respect to the Company; and (10) possible conflicts of interest that the Investment Manager and the Sub-Adviser may have with respect to the Company. It was noted that the Sub-Adviser does not perform similar services for other clients.
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FEG Absolute Access Fund LLC
Other Information (continued)
(unaudited)
Approval of Investment Management and Sub-Advisory Agreements (continued)
The Board concluded that the nature, extent and quality of the services to be provided by the Investment Manager and the Sub-Adviser to the Company are appropriate and consistent with the terms of the Company’s Amended and Restated Limited Liability Company Operating agreements, that the quality of those services are anticipated to be consistent with industry norms and that the Company is likely to benefit from the Investment Manager’s and the Sub-Adviser’s management of the Company’s investment program.
The Board considered the historic performance of the Company and the performance of the Investment Manager’s other clients and concluded that the performance was in line with its relative peer group.
The Board also concluded that the Investment Manager and the Sub-Adviser had sufficient personnel, with the appropriate education and experience, to serve the Company effectively and have demonstrated their continuing ability to attract and retain qualified personnel.
The Board considered the anticipated costs of the services provided by the Investment Manager, and the compensation and benefits received by the Investment Manager in providing services to the Company. The Board reviewed the financial statements of the Investment Manager. In addition, the Board considered any direct or indirect revenues which may be received by the Investment Manager, the Sub-Adviser and their affiliates. The Board concluded that the Investment Manager’s anticipated fees and profits to be derived from its relationship with the Company in light of the Company’s expenses, were reasonable in relation to the nature and quality of the services provided, taking into account the fees charged by other investment managers for managing comparable funds.
The Board also considered that the sub-advisory fee received by InterOcean reflected the overall value of services provided to the Company and to the Investment Manager, generally. The Board also concluded that the overall expense ratio of the Company was reasonable, taking into account the projected size of the Company and the quality of services provided by the Investment Manager.
The Board considered the extent to which economies of scale were expected to be realized relative to fee levels as the Company’s assets grow.
The Board considered all factors and no one factor alone was deemed dispositive. After further discussion the Board determined that the information presented provided a sufficient basis upon which to approve the Management Agreement and Sub-Advisory Agreement.
Conclusion
After receiving full disclosure of relevant information of the type described above, the Board of Directors of the Company concluded that the compensation and other terms of the Advisory Agreements were in the best interests of the Company's Members.
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FEG Absolute Access Fund LLC
Privacy Policy
(unaudited)
In the course of doing business with shareholders, FEG Absolute Access Fund LLC (the “Fund”) collects nonpublic personal information about shareholders. “Nonpublic personal information” is personally identifiable financial information about shareholders. For example, it includes shareholders’ social security number, account balance, bank account information, and purchase and redemption history.
The Fund collects this information from the following sources:
● | Information it receives from shareholders on applications or other forms; |
● | Information about shareholder transactions with the Fund and its service providers, or others; |
● | Information it receives from consumer reporting agencies (including credit bureaus). |
What information does the Fund disclose and to whom does the Fund disclose information?
The Fund only discloses nonpublic personal information collected about shareholders as permitted by law. For example, the Fund may disclose nonpublic personal information about shareholders:
● | To government entities, in response to subpoenas or to comply with laws or regulations. |
● | When shareholders direct the Fund to do so or consent to the disclosure. |
● | To companies that perform necessary services for the Fund, such as data processing companies that the Fund uses to process shareholders transactions or maintain shareholder accounts. |
● | To protect against fraud, or to collect unpaid debts. |
● | Information about former shareholders. |
If a shareholder closes its account, the Fund will adhere to the privacy policies and practices described in this notice.
How the Fund safeguards information
Within the Fund, access to nonpublic personal information about shareholders is limited to employees and in some cases to third parties (for example, the service providers described above), as permitted by law. The Fund and its service providers maintain physical, electronic, and procedural safeguards that comply with federal standards to guard shareholder nonpublic personal information.
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(a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
1. | Records of proxy statements received regarding client securities; |
2. | Records of each vote cast by the Firm on behalf of a client; |
3. | Copies of any document created by the Firm that was material to making a decision on voting clients’ securities; |
4. | Records of all communications received and internal documents created that were material to the voting decision; and |
5. | Each written client request for proxy voting information and the Firm’s written response to such client request (written or oral) for proxy voting information. |
6. | Documentation noting the rationale behind each proxy vote decision made. |
· | The Firm receives increased compensation as a result of the proxy vote due to increased or additional fees or other charges to be paid by the client. |
· | The Firm retains an institutional client, or is in the process of retaining an institutional client that is affiliated with an issuer subject to a proxy. This type of relationship may influence the Firm to vote with management on proxies to gain favor with management. |
· | The Firm retains a client or investor, or is in the process of retaining a client or investor that is an officer or director of an issuer that is held in a client’s portfolio. The similar conflicts of interest exist in this relationship as discussed above. |
· | The Firm’s employees maintain a personal and/or business relationship (not an advisory relationship) with issuers or individuals that serve as officers or directors of issuers. For example, the spouse of a Firm employee may be a high-level executive of an issuer that is held in a client’s portfolio. The spouse could attempt to influence the Firm to vote in favor of management. |
· | The Firm or an employee personally owns a significant number of an issuer’s securities that are also held in a client’s portfolio. For any number of reasons, an employee may seek to vote proxies in a different direction for his/her personal holdings than would otherwise be warranted by the proxy voting policy. The employee could oppose voting the proxies according to the policy and successfully influence the Firm to vote proxies in contradiction to the policy. |
1. | Vote the proxy in accordance with the Firm’s proxy policies; |
2. | Disclose the conflict to the client(s), providing sufficient information regarding the matter and the nature of the Firm’s conflict, and obtaining consent before voting; |
3. | Employ an outside service provider to advise in the voting of the proxy; |
4. | Employ an outside service provider to vote the proxy on behalf of the Firm and its clients; or |
5. | Decline to vote the proxy because the cost of addressing the potential conflict of interest is greater than the benefit to the clients of voting the proxy. |
Name of Portfolio Manager | Title | Length of Time of Service to the Fund | Business Experience During the Past 5 Years |
Gregory M. Dowling | Deputy Chief Investment Officer | Since Inception | Managing Principal and Director of Hedged Strategies for Fund Evaluation Group since 2004 |
J. Alan Lenahan | Deputy Chief Investment Officer | Since Inception | Managing Principal and Director of Hedged Strategies for Fund Evaluation Group since 2002 |
Name of Portfolio Manager | Type of Accounts | Total Number of Accounts Managed | Total Assets | Number of Accounts Managed for Which Advisory Fee is Based on Performance | Total Assets for Which Advisory Fee is Based on Performance |
Gregory M. Dowling | Registered Investment Companies | 1 | $93,890,570 | 0 | $0 |
Other Pooled Investment Vehicles | 0 | $0 | 0 | $0 | |
Other Accounts | 0 | $0 | 0 | $0 | |
J. Alan Lenahan | Registered Investment Companies | 1 | $93,890,570 | 0 | $0 |
Other Pooled Investment Vehicles | 0 | $0 | 0 | $0 | |
Other Accounts | 0 | $0 | 0 | $0 |
Portfolio Manager | Dollar Range of Fund Shares Beneficially Owned |
Gregory M. Dowling | $50,001-$100,000 |
J. Alan Lenahan | $50,001-$100,000 |
(a)(1) | The code of ethics of the registrant, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(a)(3) | Not applicable. |
(b) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(registrant) | FEG ABSOLUTE ACCESS FUND I LLC | |
By (Signature and Title)* | /s/ J. Alan Lenahan | |
J. Alan Lenahan, President | ||
(principal executive officer) | ||
Date | JUNE 09, 2016 |
By (Signature and Title)* | /s/ J. Alan Lenahan | |
J. Alan Lenahan, President | ||
(principal executive officer) | ||
Date | JUNE 09, 2016 | |
By (Signature and Title)* | /s/ Mary T. Bascom | |
Mary T. Bascom, Treasurer | ||
(principal financial officer) | ||
Date | JUNE 09, 2016 |
* | Print the name and title of each signing officer under his or her signature. |