UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-23417
X-Square Balanced Fund, LLC
(Exact name of Registrant as specified in charter)
Popular Center
209 Munoz Rivera, Suite 1111
San Juan, Puerto Rico 00918
(Address of Principal Executive Offices) (Zip code)
Registrant’s Telephone Number, including Area Code: +1 (787) 282-1621
Joshua B. Deringer
Faegre Drinker Biddle & Reath LLP
One Logan Square, Ste. 2000
Philadelphia, Pennsylvania 19103
(Name and Address of Agent for Service)
Date of fiscal year end: December 31
Date of reporting period: December 31, 2019
1
Item 1. Report to Stockholders.
Table of Contents
| Shareholder Letter | 1 |
| Portfolio Update | 3 |
| Disclosure of Fund Expenses | 5 |
| Schedule of Investments | 7 |
| Statement of Assets and Liabilities | 10 |
| Statement of Operations | 11 |
| Statement of Changes in Net Assets | 12 |
| Financial Highlights | 13 |
| Notes to Financial Statements | 16 |
| Report of Independent Registered Public Accounting Firm | 23 |
| Additional Information | 24 |
| Managers and Officers | 27 |
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (www.xsquarecapital.com), and each time a report is posted you will be notified by mail and provided with a website address to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or the Fund at 1-833-X-SQUARE.
If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue receiving paper copies of your shareholder reports.
| X-Square Balanced Fund | Shareholder Letter |
December 31, 2019 (Unaudited)
January 2020
Dear Shareholder:
X-Square Balanced Fund, LLC (the “Fund”) was launched on November 1st, 2019 and registered a 3.70% net gain for the period ended on December 31st.
During 2019, all asset classes across the market were mainly driven by global macro developments, namely the phase-one United States (“U.S.”) and China deal and the degree of dovishness on behalf of the most influential central banks. All three main U.S. indices, the S&P500 Index (“SPX”), the Dow Jones Industrial Average Index (“Dow”), and the Nasdaq Composite Index (“Nasdaq”) posted numerous record highs throughout the quarter, closing the calendar year at near-record levels. The magnitude of the broad-based rally in equities caused the SPX Volatility Index (“VIX”) to touch its lowest settlement price since summer of 2018. Similarly, the yield spread between 2-year and 10-year U.S. Treasury Notes closed the year at its widest level since the third quarter of 2018. The Fund’s performance was buoyed mainly by its equity portfolio.
The third quarter Gross Domestic Product (“GDP”) final revision came in at a 2.1% expansion rate, slightly above the 2.0% rate posted in the second quarter of 2019. Similar to the second quarter of 2019, the expansion throughout the third quarter was fueled by the consumer. Although the consumer managed to maintain the economic growth rate afloat, the manufacturing sector deteriorated throughout the second half of the year. The ISM Manufacturing Purchasing Managers’ Index (“PMI”) has been in contraction since August 2019, falling to lower lows through December. Nonetheless, the Markit U.S. Manufacturing PMI, another gauge that measures the economic health of the manufacturing sector, marked a trough in August and remained in expansion throughout the entire year. In addition, the Markit U.S. Services PMI also bottomed in October 2019. The U.S. labor market remains tight, with unemployment being at the lowest level since the 1960s and non-farm payrolls continuing its sequential expansion since late 2010, as reported by the Bureau of Labor Statistics.
U.S. businesses have reduced their capital expenditure programs due trade uncertainty; however, consumers have filled the gap. The Federal Reserve further increased affordability of credit by cutting rates for a third time in the year by 25 basis points after having increased 100 basis points in 2018. While soft patches of economic data were seen both in the U.S. and globally, recent positive economic data has been dominant. Also, as of January 2020, the equity markets, as measured by the three main U.S. indices, keep closing at record highs. Shrugging off the confrontation between the U.S. and Iran after signs of de-escalation were shown by both countries.
The U.S. and China are set to sign the phase-one deal mid-January. This agreement greatly reduces uncertainty in the economic outlook and should cause businesses to increase their capital expenditure programs. In addition, monetary easing via the Federal Reserve’s balance sheet expansion program and loosened fiscal policy via a larger federal budget deficit should also be positive contributors to the economy. Easy credit should help the consumer continue with its spending habits to keep the U.S. economy on its longest growth trajectory on record.
| Annual Report | December 31, 2019 | 1 |
| X-Square Balanced Fund | Shareholder Letter |
December 31, 2019 (Unaudited)
As the new year unfolds, we will be mindful of the risks and monitor our portfolio companies diligently. The X-Square Capital, LLC team is thankful for your support and trust. We wish you a happy and prosperous new year.
Best regards,
X-Square Capital, LLC
| 2 | www.xsquarecapital.com |
| X-Square Balanced Fund | Portfolio Update |
December 31, 2019 (Unaudited)
Average Annual Total Returns (as of December 31, 2019)
| 1 Month | Since Inception* | |
| X- Square Balanced Fund - A - NAV | 1.77% | 3.70% |
| X- Square Balanced Fund - A - LOAD | -2.08% | -0.19% |
| X- Square Balanced Fund - C - NAV | 1.67% | 3.50% |
| X- Square Balanced Fund - C - LOAD | 0.67% | 2.50% |
| X- Square Balanced Fund - Institutional -NAV | 1.77% | 3.70% |
| S&P 500 Total Return Index(a) | 3.02% | 5.73% |
| 60% S&P 500 and 40% Bloomberg Barclays US Aggregate(b) | 1.78% | 3.43% |
The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund shares will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. The table shown above does not reflect the dedication of taxes that a Shareholder would pay on Fund distributions or the redemption of Fund shares but does reflect the reinvestment of all dividends and distributions. Performance may be lower or higher than performance data quoted. Fund performance current to the most recent month-end is available by calling (787) 282-1621 or by visiting www.xsquarecapital.com.
X-Square Capital, LLC (the “Adviser”) has contractually agreed to reduce its fees and/or absorb expenses of the Fund, for at least one year from the effective date of the Fund’s prospectus, to ensure that Net Annual Operating Expenses will not exceed 2.75%, 3.50% and 2.50% of the Fund’s average daily net assets for Class A, Class C and Institutional Class, respectively. The Adviser may not terminate this waiver arrangement without the approval of the Fund’s Board of Managers.
| * | Fund’s inception date is November 1, 2019. |
| (a) | S&P 500® Total Return Index: the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices. Total return assumes reinvestment of any dividends and distributions realized during a given time period. |
| (b) | The 60/40 blend is composed of 60% Standard & Poor’s 500 Index (S&P) and 40% Bloomberg Barclays U.S. Aggregate Bond Index (BC Agg) and assumes monthly rebalancing. The S&P is an unmanaged index that is widely regarded as the standard for measuring large-cap U.S. stock market performance. The BC Agg is an unmanaged index that is widely regarded as a standard for measuring U.S. investment grade bond market performance. These indices do not incur expenses and are not available for investment. These indices include reinvestment of dividends and/or interest income. |
| Annual Report | December 31, 2019 | 3 |
| X-Square Balanced Fund | Portfolio Update |
December 31, 2019 (Unaudited)
Top Ten Holdings (as a % of Net Assets)*
| U.S. Treasury Notes 10/31/21, 1.50% | 21.37% |
| U.S. Treasury Bills 04/02/20, 1.49% | 5.87% |
| U.S. Treasury Notes 10/31/26, 1.63% | 4.82% |
| Advanced Micro Devices, Inc. | 2.56% |
| Vipshop Holdings, Ltd. | 2.47% |
| Apple, Inc. | 2.45% |
| Micron Technology, Inc. | 2.44% |
| Alibaba Group Holding, Ltd. | 2.41% |
| Amazon.com, Inc. | 2.38% |
| Johnson & Johnson | 2.38% |
| Top Ten Holdings | 49.15% |
Portfolio Composition (as a % of Net Assets)*
| Common Stocks | 60.07% |
| Government Bonds | 26.19% |
| Exchange-Traded Funds | 6.53% |
| Short Term Investments | 5.87% |
| Total Investments | 98.66% |
| Other Assets in Excess of Liabilities | 1.34% |
| Net Assets | 100.00% |
| * | Holdings are subject to change, and may not reflect the current or future position of the portfolio. Tables present indicative values only. |
| 4 | www.xsquarecapital.com |
| X-Square Balanced Fund | Disclosure of Fund Expenses |
December 31, 2019 (Unaudited)
Examples. As a shareholder of the X-Square Balanced Fund (the “Fund”), you incur two types of costs: (1) transaction costs, including applicable redemption fees; and (2) ongoing costs, including management fees, distribution and service (12b-1) fees and other Fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested on July 1, 2019 and held through December 31, 2019.
Actual Expenses. The first line under each class in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period July 1, 2019 - December 31, 2019” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes. The second line under each class in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing Fund costs only and do not reflect any transactional costs, such as redemption fees. Therefore, the second line under each class in the table below is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Annual Report | December 31, 2019 | 5 |
| X-Square Balanced Fund | Disclosure of Fund Expenses |
December 31, 2019 (Unaudited)
|
Beginning Account Value 7/1/19 |
Ending Account Value 12/31/19 |
Expense Ratio |
Expenses Paid During period 7/1/19 to 12/31/19(a) |
|
| Class A: | ||||
| Actual Fund Return(b) | $1,000.00 | $1,037.00 | 2.75% | $4.45 |
| Hypothetical Fund Return | $1,000.00 | $1,011.34 | 2.75% | $13.94 |
| Class C: | ||||
| Actual Fund Return(b) | $1,000.00 | $1,035.00 | 3.50% | $5.66 |
| Hypothetical Fund Return | $1,000.00 | $1,007.56 | 3.50% | $17.71 |
| Institutional Class: | ||||
| Actual Fund Return(b) | $1,000.00 | $1,037.00 | 2.50% | $4.05 |
| Hypothetical Fund Return | $1,000.00 | $1,012.60 | 2.50% | $12.68 |
| (a) | Expenses are equal to the Fund's annualized expense ratio multiplied by the average account values over the period, multiplied by the number of days in the most recent fiscal half year (184), then divided by 365. |
| (b) | The Fund commenced operations on November 4, 2019, and as such the actual expenses paid during the period were based on 58 days. |
| 6 | www.xsquarecapital.com |
| X-Square Balanced Fund | Schedule of Investments |
| December 31, 2019 |
| Description | Shares | Value | ||||||
| COMMON STOCKS (60.07%) | ||||||||
| COMMUNICATIONS (6.87%) | ||||||||
| Alphabet, Inc., Class C(a) | 16 | $ | 21,392 | |||||
| AT&T, Inc. | 542 | 21,182 | ||||||
| Facebook, Inc., Class A(a) | 105 | 21,551 | ||||||
| 64,125 | ||||||||
| CONSUMER DISCRETIONARY (11.67%) | ||||||||
| Alibaba Group Holding, Ltd., Sponsored ADR(a) | 106 | 22,483 | ||||||
| Amazon.com, Inc.(a) | 12 | 22,174 | ||||||
| Southwest Airlines Co. | 215 | 11,605 | ||||||
| TJX Cos., Inc. | 349 | 21,310 | ||||||
| United Airlines Holdings, Inc.(a) | 96 | 8,457 | ||||||
| Vipshop Holdings, Ltd., ADR(a) | 1,624 | 23,013 | ||||||
| 109,042 | ||||||||
| CONSUMER STAPLES (13.53%) | ||||||||
| Altria Group, Inc. | 423 | 21,112 | ||||||
| Costco Wholesale Corp. | 69 | 20,280 | ||||||
| Dollar General Corp. | 133 | 20,745 | ||||||
| Philip Morris International, Inc. | 250 | 21,273 | ||||||
| Target Corp. | 172 | 22,053 | ||||||
| Walmart, Inc. | 175 | 20,797 | ||||||
| 126,260 | ||||||||
| FINANCIALS (9.23%) | ||||||||
| Assured Guaranty, Ltd. | 425 | 20,834 | ||||||
| Berkshire Hathaway, Inc., Class B(a) | 94 | 21,291 | ||||||
| First BanCorp | 430 | 4,554 | ||||||
| JPMorgan Chase & Co. | 155 | 21,606 | ||||||
| OFG Bancorp | 759 | 17,920 | ||||||
| 86,205 | ||||||||
| HEALTH CARE (4.73%) | ||||||||
| Amgen, Inc. | 91 | 21,937 | ||||||
| Johnson & Johnson | 152 | 22,172 | ||||||
| 44,109 | ||||||||
| See Notes to Financial Statements. |
| Annual Report | December 31, 2019 | 7 |
| X-Square Balanced Fund | Schedule of Investments |
| December 31, 2019 |
| Description | Shares | Value | ||||||
| INDUSTRIALS (4.32%) | ||||||||
| General Dynamics Corp. | 114 | $ | 20,104 | |||||
| Lockheed Martin Corp. | 52 | 20,248 | ||||||
| 40,352 | ||||||||
| TECHNOLOGY (9.72%) | ||||||||
| Advanced Micro Devices, Inc.(a) | 522 | 23,938 | ||||||
| Apple, Inc. | 78 | 22,905 | ||||||
| Garmin, Ltd. | 216 | 21,073 | ||||||
| Micron Technology, Inc.(a) | 424 | 22,803 | ||||||
| 90,719 | ||||||||
| TOTAL COMMON STOCKS (Cost $542,513) | 560,812 | |||||||
| EXCHANGE-TRADED FUNDS (6.53%) | ||||||||
| iShares® Broad USD Investment Grade Corporate Bond ETF | 349 | $ | 20,347 | |||||
| iShares® iBoxx $ Investment Grade Corporate Bond ETF | 160 | 20,473 | ||||||
| SPDR® Portfolio Aggregate Bond ETF | 686 | 20,155 | ||||||
| TOTAL EXCHANGE-TRADED FUNDS (Cost $60,982) | 60,975 | |||||||
|
Principal
Amount |
Value | |||||||
| GOVERNMENT BONDS (26.19%) | ||||||||
| U.S. Treasury Notes | ||||||||
| 10/31/21, 1.50% | $ | 199,800 | $ | 199,472 | ||||
| 10/31/26, 1.63% | 45,600 | 44,977 | ||||||
| TOTAL GOVERNMENT BONDS (Cost $244,789) | 244,449 | |||||||
| SHORT-TERM INVESTMENTS (5.87%) | ||||||||
| U.S. Treasury Bills | ||||||||
| 04/02/20, 1.49%(b) | 55,000 | 54,788 | ||||||
| TOTAL SHORT-TERM INVESTMENTS (Cost $54,790) | 54,788 | |||||||
| See Notes to Financial Statements. |
| 8 | www.xsquarecapital.com |
| X-Square Balanced Fund | Schedule of Investments |
| December 31, 2019 |
| Value | ||||
| TOTAL INVESTMENTS (98.66%) (Cost $903,074) | 921,024 | |||
| Other Assets In Excess Of Liabilities (1.34%) | 12,486 | |||
| NET ASSETS (100.00%) | $ | 933,510 | ||
| (a) | Non-income producing security. |
| (b) | Rate shown represents the bond equivalent yield to maturity at date of purchase. |
| See Notes to Financial Statements. |
| Annual Report | December 31, 2019 | 9 |
| X-Square Balanced Fund | Statement of Assets and Liabilities |
| December 31, 2019 |
| ASSETS: | ||||
| Investments, at fair value (Cost $903,074) | $ | 921,024 | ||
| Cash | 126,691 | |||
| Dividend and interest receivable | 1,374 | |||
| Prepaid offering costs | 126,970 | |||
| Total Assets | 1,176,059 | |||
| LIABILITIES: | ||||
| Payable for investment securities purchased | 54,790 | |||
| Accrued chief compliance officer fees payable | 5,562 | |||
| Payable due to advisor | 81,419 | |||
| Accrued fund accounting and administration fees payable | 24,286 | |||
| Accrued distribution fees payable | 227 | |||
| Accrued professional fees payable | 57,667 | |||
| Accrued trustees' fees payable | 6,783 | |||
| Other payables and accrued expenses | 11,815 | |||
| Total Liabilities | 242,549 | |||
| Net Assets | $ | 933,510 | ||
| COMPOSITION OF NET ASSETS ATTRIBUTABLE TO SHARES: | ||||
| Paid-in capital | $ | 915,828 | ||
| Total distributable earnings | 17,682 | |||
| Net Assets | $ | 933,510 | ||
| NET ASSET VALUE | ||||
| Class A: | ||||
| Net assets | $ | 779,221 | ||
| Shares outstanding (unlimited shares authorized, no par value) | 75,143 | |||
| Net Asset Value per Share | $ | 10.37 | ||
| Maximum offering price per share (NAV/0.945, based on maximum sales charge of 5.50% of the offering price) | $ | 10.97 | ||
| Class C: | ||||
| Net assets | 112,799 | |||
| Shares outstanding (unlimited shares authorized, no par value) | 10,894 | |||
| Net Asset Value per Share | 10.35 | |||
| Institutional Class: | ||||
| Net assets | 41,490 | |||
| Shares outstanding (unlimited shares authorized, no par value) | 4,000 | |||
| Net Asset Value per Share | 10.37 | |||
| See Notes to Financial Statements. |
| 10 | www.xsquarecapital.com |
| X-Square Balanced Fund | Statement of Operations |
For the Period November 4, 2019 (Commencement of Operations) to December 31, 2019
| INVESTMENT INCOME: | ||||
| Dividends (net of foreign withholding tax $5) | $ | 1,719 | ||
| Interest | 401 | |||
| Total Investment Income | 2,120 | |||
| EXPENSES: | ||||
| Investment advisory fee (see Note 4) | 837 | |||
| Fund accounting, administration and compliance fees | 29,848 | |||
| Distribution fees | ||||
| Class A | 159 | |||
| Class C | 136 | |||
| Offering cost | 23,980 | |||
| Professional fees | 57,667 | |||
| Trustees' fees and expenses | 6,783 | |||
| Transfer agent fees | 7,146 | |||
| Other expenses | 4,669 | |||
| Total Expenses | 131,225 | |||
| Less fees reimbursed by Adviser (See Note 4) | ||||
| Class A | (84,992 | ) | ||
| Class C | (25,562 | ) | ||
| Institutional Class | (18,283 | ) | ||
| Net Expenses | 2,388 | |||
| Net Investment Loss | (268 | ) | ||
| REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: | ||||
| Change in unrealized appreciation on: | ||||
| Investment securities | 17,950 | |||
| Net Realized and Unrealized Gain on Investments | 17,950 | |||
| Net Increase in Net Assets Resulting from Operations | $ | 17,682 | ||
| See Notes to Financial Statements. |
| Annual Report | December 31, 2019 | 11 |
| X-Square Balanced Fund | Statement of Changes in Net Assets |
| See Notes to Financial Statements. |
| 12 | www.xsquarecapital.com |
| X-Square Balanced Fund – Class A | Financial Highlights |
For a Share Outstanding Throughout the Period Presented
| (a) | Calculated using average shares outstanding. |
| (b) | Less than $0.005 per share. |
| (c) | Total investment return is calculated assuming a purchase of shares at the opening on the first day and a sale at closing on the last day of the period reported. Dividends and distributions are assumed for purposes of this calculation to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total investment returns do not reflect brokerage commissions, if any, and are not annualized. |
| (d) | These ratios to average net assets have been annualized except the non-recurring offering costs, which have not been annualized. |
| See Notes to Financial Statements. |
| Annual Report | December 31, 2019 | 13 |
| X-Square Balanced Fund – Class C | Financial Highlights |
For a Share Outstanding Throughout the Period Presented
| (a) | Calculated using average shares outstanding. |
| (b) | Total investment return is calculated assuming a purchase of shares at the opening on the first day and a sale at closing on the last day of the period reported. Dividends and distributions are assumed for purposes of this calculation to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total investment returns do not reflect brokerage commissions, if any, and are not annualized. |
| (c) | These ratios to average net assets have been annualized except the non-recurring offering costs, which have not been annualized. |
| See Notes to Financial Statements. |
| 14 | www.xsquarecapital.com |
| X-Square Balanced Fund – Institutional Class | Financial Highlights |
For a Share Outstanding Throughout the Period Presented
| (a) | Calculated using average shares outstanding. |
| (b) | Less than $0.005 per share. |
| (c) | Total investment return is calculated assuming a purchase of shares at the opening on the first day and a sale at closing on the last day of the period reported. Dividends and distributions are assumed for purposes of this calculation to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total investment returns do not reflect brokerage commissions, if any, and are not annualized. |
| (d) | These ratios to average net assets have been annualized except the non-recurring offering costs, which have not been annualized. |
| See Notes to Financial Statements. |
| Annual Report | December 31, 2019 | 15 |
| X-Square Balanced Fund | Notes to Financial Statements |
December 31, 2019
NOTE 1 — ORGANIZATION AND REGISTRATION
X-Square Balanced Fund, LLC (the “Fund”) is an open-end investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund is a non-diversified investment company with an investment objective which seeks conservation of capital, current income and long-term growth of capital and income. The Fund currently offers Class A, Class C and Institutional Class Shares. Each share class of the Fund represents an investment in the same portfolio of securities, but each share class has its own expense structures. The Fund’s Investment Adviser is X-Square Capital, LLC (the “Adviser”).
Subject to certain exceptions, investments in Class C shares are subject to a 1.00% contingent deferred sales charge if shares are sold within 12 months of purchase. The contingent deferred sales charge is expected to be calculated based on the lesser of the offering price and market value of shares being sold.
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates. The Fund is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board Accounting Standards Codification Topic 946. The financial statements have been prepared as of the close of the New York Stock Exchange (“NYSE”) on fiscal period end of the Fund.
Portfolio Valuation: The net asset value (“NAV”) per common share of the Fund is determined daily, on each day that there is a regular trading session on the NYSE as of the close of regular trading. The Fund’s NAV per common share is calculated by dividing the value of the Fund’s total assets, less its liabilities, by the number of shares outstanding and rounding the result to the nearest full cent.
The Fund generally values its securities based on market prices determined at the close of regular trading on the NYSE (normally, 4 p.m. Eastern time) on each business day (Monday through Friday). The Fund will not value its securities on any day that the NYSE is closed, including the following observed holidays: New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The Fund’s currency valuations are done as of the close of regular trading on the NYSE (normally, 4 p.m. Eastern time).
For equity securities that are traded on an exchange, the market price is usually the closing sale or official closing price on that exchange, provided such price is not deemed stale, and that it represents fair value. In the case of securities not traded on an exchange, or if such closing prices are not otherwise available, the market price is typically determined by independent third party pricing vendors approved by the Fund’s Board of Managers (“the Board”) using a variety of pricing techniques and methodologies.
| 16 | www.xsquarecapital.com |
| X-Square Balanced Fund | Notes to Financial Statements |
December 31, 2019
The market price for debt obligations (including short-term debt obligations with remaining maturities of 60 days or less) is generally the price supplied by an independent third-party pricing service approved by the Board, which may use a matrix, formula or other objective method that takes into consideration market indices, yield curves and other specific adjustments. In certain circumstances, bid and ask prices may be obtained from: (i) a broker/ dealer specified and deemed reliable by the Adviser, (ii) pink sheets, yellow sheets or the blue list, or (iii) a pricing agent that obtains quotations from broker/dealers or evaluates the value of the respective bid and ask prices. If vendors are unable to supply a price, or if the price supplied is deemed to be unreliable, the market price may be determined using quotations received from one or more brokers/dealers that make a market in the security.
When such prices or quotations are not available, or when the Adviser believes that they are unreliable, securities may be priced using fair value procedures approved by the Board. The Fund may also use fair value procedures if the Adviser determines that a significant event has occurred between the time at which a market price is determined and the time at which the Fund NAV is calculated. In particular, the value of foreign securities may be materially affected by events occurring after the close of the market on which they are traded, but before the Fund prices its shares.
The Fund may determine the fair value of investments based on information provided by pricing services and other third-party vendors, which may recommend fair value prices or adjustments with reference to other securities, indices or assets. In considering whether fair value pricing is required and in determining fair values, the Fund may, among other things, consider significant events (which may be considered to include changes in the value of U.S. securities or securities indices) that occur after the close of the relevant market and before the Fund values its securities. In addition, the Fund may utilize modeling tools provided by third-party vendors to determine fair values of foreign securities.
Valuing securities at fair value involves greater reliance on judgment than valuation of securities based on readily available market quotations. A Fund that uses fair value to price securities may value those securities higher or lower than another fund using market quotations or its own fair value methodologies to price the same securities. There can be no assurance that the Fund could obtain the fair value assigned to a security if it were to sell the security at approximately the time at which the Fund determines its NAV.
The information above is not intended to reflect an exhaustive list of the methodologies that may be used to value portfolio investments. The Fund’s valuation procedures permit the use of a variety of valuation methodologies in connection with valuing portfolio investments. The methodology used for a specific type of investment may vary based on the market data available or other considerations. The methodologies summarized above may not represent the specific means by which portfolio investments are valued on any particular business day.
Cash and Cash Equivalents: Idle cash may be swept into various overnight demand deposits and is classified as cash and cash equivalents on the Statements of Assets and Liabilities. The Fund maintains cash in bank deposit accounts which, at times, may exceed United States federally insured limits. Amounts swept overnight are available on the next business day.
| Annual Report | December 31, 2019 | 17 |
| X-Square Balanced Fund | Notes to Financial Statements |
December 31, 2019
Securities Transactions and Investment Income: Investment security transactions are accounted for on a trade date basis. Dividend income is recorded on the ex-dividend date. Realized gains and losses from securities transactions and unrealized appreciation and depreciation of securities are determined using the identified cost basis method for financial reporting purposes.
Expenses: Some expenses of the Fund can be directly attributed to a Fund specific share class. Expenses that cannot be directly attributed are apportioned among all share classes based on average net assets.
Organizational and Offering Costs: Organization costs consist of costs incurred to establish the Fund and enable it legally to do business. Examples of these costs are fees paid to the Board of Managers, legal fees, and audit fees relating to the seed audit. The Adviser has agreed to bear the costs and to pay all of the Fund’s organizational expenses. As a result, organizational expenses of the Fund are not reflected in the Fund financial statements.
Offering costs incurred by the Fund are treated as deferred charges until operations commence and thereafter will be amortized over a 12 month period using the straight line method. Examples of these costs are registration fees, legal fees, and fees relating to the initial registration statement. All costs incurred by the Fund in connection with its offering will be advanced by the Adviser subject to recoupment as described in Note 4.
Income Taxes: The Fund is taxed under the dispositions applicable to Registered Investment Companies established by the Puerto Rico Internal Revenue Code of 2011, as amended (“the Code”), its regulations and the administrative pronouncements promulgated thereunder. The Code states that every registered investment company will be exempt from Puerto Rico income tax for a taxable year if it distributes to its stockholders at least 90% of its taxable net investment income for such taxable year. The Fund intends to meet the 90% distribution requirement on a yearly basis to maintain the income tax exemption.
For U.S. federal income taxes, the Fund will be treated as a foreign corporation not engaged in a trade or business in the United States for purposes of the U.S. Internal Revenue Code of 1986, as amended (the “U.S. Code”) and does not intend to derive income treated as effectively connected with a trade or business in the United States. As a foreign corporation not engaged in a trade or business in the United States, the Fund will only be subject to United States federal income taxes if it realizes certain items of U.S. source income of a fixed or determinable annual or periodic nature, in which case the Fund will be subject to withholding of United States federal income tax at a 30% gross rate on such U.S. source income (not including interest received by the Fund on certain registered obligations).
As of December 31, 2019, the components of distributable earnings on a tax basis were as follows:
| Undistributed ordinary loss: | ($268) |
| Undistributed long term loss: | $0 |
| Unrealized appreciation: | $17,950 |
| 18 | www.xsquarecapital.com |
| X-Square Balanced Fund | Notes to Financial Statements |
December 31, 2019
The Puerto Rico income tax basis of the Fund's investments at December 31, 2019, was $903,074, and net unrealized appreciation for income tax purposes was $17,950 (gross unrealized appreciation $20,936; gross unrealized depreciation ($2,986)).
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained, assuming examination by tax authorities. Management has analyzed the Fund's tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund's 2019 tax returns. The Fund identifies its major tax jurisdictions as Commonwealth of Puerto Rico; however, the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund did not make any distributions from commencement of operations through December 31, 2019.
Indemnification: The Fund indemnifies its officers and managers for certain liabilities that may arise from the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties that provide general indemnities. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss due to these warranties and indemnities to be remote.
NOTE 3 — FAIR VALUE MEASUREMENTS
The Fund discloses the classification of their fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.
Various inputs are used in determining the value of the Fund’s investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments.
These inputs are categorized in the following hierarchy under applicable financial accounting standards:
| Level 1 – | Unadjusted quoted prices in active markets for identical investments, unrestricted assets or liabilities that the Fund has the ability to access at the measurement date; |
| Annual Report | December 31, 2019 | 19 |
| X-Square Balanced Fund | Notes to Financial Statements |
December 31, 2019
| Level 2 – | Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and |
| Level 3 – | Significant unobservable prices or inputs (including the Fund’s own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date. |
The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2019:
| Investments in Securities at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Common Stocks(a) | $ | 560,812 | $ | – | $ | – | $ | 560,812 | ||||||||
| Exchange-Traded Funds | 60,975 | – | – | 60,975 | ||||||||||||
| Government Bonds | 244,449 | – | – | 244,449 | ||||||||||||
| Short-Term Investments | 54,788 | – | – | 54,788 | ||||||||||||
| Total | $ | 921,024 | $ | – | $ | – | $ | 921,024 | ||||||||
|
(a) |
For a detailed sector breakdown, see the accompanying Schedule of Investments. |
There were no Level 3 securities held in the Fund at December 31, 2019.
NOTE 4 — INVESTMENT ADVISORY AGREEMENT
As compensation for its services, the Fund intends to pay to the Adviser a monthly management fee at an annual rate of 1.00% of its average daily net assets.
The Adviser, pursuant to an Amended and Restated Expense Reimbursement Agreement (the “Agreement”), has contractually agreed to reduce its fees and/or absorb expenses of the Fund, at least until one year from the date of the Fund’s prospectus, to ensure that Net Annual Operating Expenses (excluding taxes, extraordinary expenses, reorganization expenses, brokerage commissions, interest, other expenditures that are not capitalized in accordance with generally accepted accounting principles, and other extraordinary expenses not incurred in the ordinary course of the Fund’s business) will not exceed 2.75%, 3.50% and 2.50% of the Fund average daily net assets, respectively for Class A, Class C and Institutional Class, respectively. The Adviser will be permitted to recover, on a class-by-class basis, any fees waived and/or expenses reimbursed pursuant to the Agreement described above to the extent that the Fund expenses in later periods fall below the lesser of (i) the expense limitation in effect at the time the fees and/or expenses to be recovered were waived and/or reimbursed and (ii) the expense limitation in effect at the time the Adviser seeks to recover the fees or expenses. The Adviser will not be entitled to recover any such waived or reimbursed fees and expenses more than three years after the date on which the fees were waived or expenses were reimbursed. The Adviser may not terminate this waiver arrangement without the approval of the Fund’s Board of Managers.
| 20 | www.xsquarecapital.com |
| X-Square Balanced Fund | Notes to Financial Statements |
December 31, 2019
As of December 31, 2019, the following amounts were available for recoupment by the Adviser based upon their potential expiration date:
| Expiring in 2022 | ||||
| Class A | $ | 84,992 | ||
| Class C | 25,562 | |||
| Institutional | 18,283 | |||
NOTE 5 — OTHER AGREEMENTS
Distribution and Services Agreement
The Fund has adopted a Distribution and Shareholder Servicing Plan pursuant to Rule 12b-1 under the 1940 Act (the “Plan”). Under the Plan, the Fund is authorized to pay distribution fees in connection with the sale and distribution of its shares and pay service fees in connection with the provision of ongoing services to shareholders of each class and the maintenance of shareholder accounts in an amount up to 0.25% of its average daily net assets each year with respect to Class A Shares, 0.00% with respect to Institutional Class shares and 1.00% with respect to Class C shares. The Class C distribution fee includes a distribution fee of up to 0.75% and a service fee of up to 0.25%.
ALPS Distributors, Inc. (the “Distributor”) serves as the Fund’s distributor. The Distributor acts as an agent for the Fund and the distributor of the Fund’s shares.
Administration, Bookkeeping and Pricing Agreement
ALPS Fund Services, Inc. (“ALPS”) serves as the administrator to the Fund. The Fund has agreed to pay expenses incurred in connection with ALPS administrative activities. Pursuant to the Administration, Bookkeeping and Pricing Services Agreement, ALPS will provide operational services to the Fund including, but not limited to fund accounting and fund administration and generally assist in the Fund operations.
Transfer Agency Agreement
ALPS also serves as the Transfer Agent to the Fund. Under the Transfer Agency Agreement, ALPS is responsible for maintaining all shareholder records of the Fund.
NOTE 6 — INVESTMENT TRANSACTIONS
Investment transactions for the period from commencement of operations through December 31, 2019, excluding U.S. Government Obligations and short-term investments, were as follows:
|
Cost
of Investments
Purchased |
Proceeds
from
Investments Sold |
||||||||
| $ | 603,495 | $ | – | ||||||
| Annual Report | December 31, 2019 | 21 |
| X-Square Balanced Fund | Notes to Financial Statements |
December 31, 2019
Purchases and sales of U.S. Government Obligations during the period from commencement of operations through December 31, 2019 were as follows:
|
Cost
of Investments
Purchased |
Proceeds
from
Investments Sold |
||||||||
| $ | 244,771 | $ | – | ||||||
NOTE 7 — SUBSEQUENT EVENTS
The Adviser has evaluated subsequent events through the date of issuance of the financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure or would be required to be recognized in the financial statements.
| 22 | www.xsquarecapital.com |
| X-Square Balanced Fund |
Report
of Independent Registered
Public Accounting Firm |
To the Shareholders and Board of Managers of
X-Square Balanced Fund, LLC:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of X-Square Balanced Fund, LLC (the “Fund”), including the schedule of investments as of December 31, 2019, the related statements of operations and changes in net assets for the period from November 4, 2019 to December 31, 2019, and the related notes (collectively referred to as the “financial statements”) and the financial highlights for the period from November 4, 2019 to December 31, 2019. In our opinion, the financial statements presents fairly, in all material respects, the financial position of the Fund as of December 31, 2019, the results of operations, changes in net assets and the financial highlights for the period from November 4, 2019 to December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodian and broker. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement.
We believe that our audit provides a reasonable basis for our opinion.
We have served as the Fund’s auditor since 2019.
/s/ BDO Puerto Rico, PSC
San
Juan, Puerto Rico
February 26, 2020
Certified Public Accountants
(of Puerto Rico)
License No. 53 expires December 1, 2021
Stamp E387985 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report
| Annual Report | December 31, 2019 | 23 |
| X-Square Balanced Fund | Additional Information |
December 31, 2019 (Unaudited)
PORTFOLIO HOLDINGS
The Fund files a complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT within 60 days after the end of the period. Copies of the Fund’s Form N-PORT are available without a charge, upon request, by contacting the Fund at 1-787-282-1621 and on the SEC’s website at http://www.sec.gov.
PROXY VOTING
A description of the Fund’s proxy voting policies and procedures is available (1) without charge, upon request, by calling 1-787-282-1621, (2) on the Fund’s website located at http://www.xsquarecapital.com, or (3) on the SEC’s website at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the twelve-month period ended June 30 will be available on the SEC’s website at http://www.sec.gov.
BOARD OF MANAGERS’ CONSIDERATIONS IN APPROVING THE INVESTMENT MANAGEMENT AGREEMENT
At an in-person meeting (the “Meeting”) of the Board of Managers (the “Board”) held on March 8, 2019, the Board, including a majority of those managers of the X-Square Balanced Fund, LLC (the “Fund”) who are not “interested persons” (as that term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) (the “Independent Managers”) of the Fund and X-Square Capital, LLC (the “Adviser”) considered and approved the Fund’s investment management agreement (“Management Agreement”) between the Fund and the Adviser. Throughout their deliberations, the Board also recalled its previous discussions with representatives of the Adviser at the Fund’s organizational Board meeting (the “Organizational Meeting” and together with the Meeting, the “Meetings”).
In addition to evaluating, among other things, the written information provided by the Adviser, the Board also considered the presentations from the Adviser at the Meetings on the services proposed to be provided to the Fund. The Independent Managers also met separately in an executive session at both Meetings to review and consider the information provided regarding the Management Agreement. Based on their review, the Board and the Independent Managers determined to approve the Management Agreement at the Meeting. In its deliberations, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together. The material factors and conclusions that formed the basis for the Board’s determinations are discussed below.
NATURE, EXTENT AND QUALITY OF SERVICES
The Board reviewed and considered the nature and extent of the investment advisory services proposed to be provided by the Adviser to the Fund under the Management Agreement, including the selection of Fund investments. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services to be provided by the Adviser, including, among other things, providing office facilities, equipment and personnel. The Board noted that the Adviser would also provide administrative services to the Fund to ensure compliance with the Puerto Rico Investment Companies Act of 2013 (the “Puerto Rico Act”). The Board also reviewed and considered the qualifications of the key personnel of the Adviser who would provide the investment advisory and/or administrative services to the Fund. The Board determined that the Adviser’s key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Adviser’s familiarity with the Puerto Rico Act was specifically noted by the Board in considering the quality of services to be provided. The Board also took into account the Adviser’s compliance policies and procedures, including the procedures used to determine the value of the Fund’s investments. The Board concluded that the overall quality of the advisory and administrative services to be provided was satisfactory.
| 24 | www.xsquarecapital.com |
| X-Square Balanced Fund | Additional Information |
December 31, 2019 (Unaudited)
PERFORMANCE
The Board considered the investment experience of the Adviser as well as the performance of other investment products managed by the Adviser. It was noted that the Adviser did not currently manage other open-end funds with similar investment objectives and strategies as the Fund, but the Board reviewed the performance of two other products managed by the Adviser, which in the Adviser’s view, utilize certain strategies that may be utilized by the Fund. Because the Fund had not yet commenced operations, the Board was not able to review Fund performance.
FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER INVESTMENT MANAGERS
The Board reviewed the advisory fee rates and expected total expense ratio of the Fund. The Board compared the advisory fee and pro-forma total expense ratio for the Fund with various comparative data, including a report of other comparable funds and information with respect to other funds managed by the Adviser. The Board noted that the Fund would be more expensive than many similar funds registered under the 1940 Act from both an administrative standpoint and due to investment limitations imposed by both the 1940 Act and the Puerto Rico Act. The Board considered its discussions with management earlier during the Meeting and during the Organizational Meeting and the materials that the Adviser provided for both Meetings with respect to the Fund’s fees and expenses. After extensive discussion, the Board concluded that the advisory fees to be paid by the Fund and pro-forma total expense ratio were reasonable in light of the services proposed to be provided, particularly considering the unique regulatory structure of the Fund.
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure of the Fund’s investment management under the Management Agreement. The Board considered the Fund’s advisory fees and concluded that the fees were reasonable and satisfactory in light of the services to be provided. The Board also determined that, since the Fund has no assets, economies of scale were not present at this time.
PROFITABILITY OF INVESTMENT MANAGER AND AFFILIATES
Due to the fact that operations for the Fund had not yet commenced, the Board made no determination with respect to profitability.
ANCILLARY BENEFITS AND OTHER FACTORS
The Board also discussed other benefits to be received by the Adviser from its management of the Fund, including, without limitation, the ability to market its advisory services for similar products in the future and the potential growth of the Adviser’s assets under management, which could allow the Adviser to enter into a wider distribution network. After discussion, the Board concluded that the advisory fees were reasonable in light of the fall-out benefits.
| Annual Report | December 31, 2019 | 25 |
| X-Square Balanced Fund | Additional Information |
December 31, 2019 (Unaudited)
GENERAL CONCLUSION
Based on its consideration of all factors that it deemed material, and assisted by the advice of its counsel, the Board concluded that it would be in the best interest of the Fund and its shareholders to approve the Management Agreement for an initial two-year term.
| 26 | www.xsquarecapital.com |
| X-Square Balanced Fund | Managers and Officers |
December 31, 2019 (Unaudited)
Overall responsibility for management of the Fund rests with the members of the Board (the “Managers”), who are elected by the shareholders of the Fund, unless appointed to fill a vacancy in accordance with the limited liability company agreement of the Fund and the 1940 Act. The Fund is managed by the Board in accordance with the laws of the Commonwealth of Puerto Rico. There are currently three (3) Managers, two (2) of whom are not “interested persons” (as defined in the 1940 Act) of the Fund (the “Independent Managers”). The Managers, in turn, elect the officers of the Fund to supervise actively its day-to-day operations.
The following table lists each Manager, his or her year of birth, position with the Fund, principal occupations during the past five years, and other directorships. Each Manager oversees the Fund. There is no defined term of office, and each Manager serves until the earlier of his resignation, retirement, removal, death, or the election of a qualified successor. Each Manager’s address is c/o X-Square Balanced Fund, Popular Center Building, 209 Munoz Rivera, Suite 1111, San Juan, Puerto Rico 00918. The Fund’s Statement of Additional Information includes additional information about Fund Managers and is available, without charge, upon request by calling 1-787-282-1621.
| INDEPENDENT MANAGERS | ||||
|
Name
(Birth Year) |
Positions
Held
with the Fund and Length of Time Served |
Principal
Occupation
During the Past Five Years |
Number
of
Portfolios in Fund Complex* Overseen by Manager |
Other
Directorships held by Manager During Last Five Years |
|
Fernando
Nido
(1959) |
Manager
since 2019 |
Managing Partner, Deloitte & Touche LLP, Puerto Rico until 2014; currently independent consultant. | 1 |
Trans-Oceanic
Life Insurance Company |
|
Luis
Roig
(1959) |
Manager
since 2019 |
Managing Director and CFO, Santander Securities LLC from 2013 until 2016; Chief Financial Officer, Americas Leading Finance LLC since 2016. | 1 | None |
| INTERESTED MANAGERS | ||||
|
Name
(Birth Year) |
Positions
Held
with the Fund and Length of Time Served |
Principal
Occupation
During the Past Five Years |
Number
of
Portfolios in Fund Complex* Overseen by Manager |
Other
Directorships held by Manager During Last Five Years |
|
Ignacio Canto (1983) |
Manager
and
President, since 2019 |
President of X-Square Capital, LLC since 2013. | 1 |
Director of X2 Alternative Dividend Alpha Fund, Inc. |
| * | The “Fund Complex” consists of the Fund. |
| ** | An “interested person,” as defined by the 1940 Act. Mr. Canto is deemed to be an “interested” Manager because he is the owner of all membership interests of the Adviser and also serves as its President, Treasurer and sole director. |
| Annual Report | December 31, 2019 | 27 |
| X-Square Balanced Fund | Managers and Officers |
December 31, 2019 (Unaudited)
OFFICERS
|
Name
(Birth Year) |
Position/Term
of Office* |
Principal
Occupation
During the Past Five Years |
|
Ignacio
Canto
(1983) |
President since 2019 | President of X-Square Capital, LLC since 2013. |
|
Ruben Tapia (1986) |
Treasurer since 2019 |
Chief Compliance Officer and Chief Financial Officer of X-Square Capital, LLC since 2018. Vice President of Finance, Premier Warranty Services from 2015 to 2018. Insurance Broker for Banco Popular de Puerto Rico from 2013 to 2015. |
|
Gabriel Medina (1989) |
Secretary since 2019 |
Portfolio Manager of X-Square Capital, LLC since 2018. Chief Compliance Officer of X-Square Capital, LLC from 2015 to 2018. Analyst at Accenture from 2014 to 2015. |
|
Lucas D. Foss (1977) |
Chief Compliance Officer, since 2019 |
Deputy Chief Compliance Officer, ALPS Holdings, Inc. since December 2017. Mr. Foss joined ALPS in November 2017 as Vice President and Deputy Chief Compliance Officer. Prior to his current role, Mr. Foss served as the Director of Compliance at Transamerica Asset Management (July 2015-November 2017). Deputy Chief Compliance Officer at ALPS (September 2012 – June 2015). Mr. Foss is also CCO of Harvest Volatility Edge Trust, ALPS Series Trust, Clough Funds Trust, Clough Global Equity, Clough Global Opportunities Fund and Clough Global Dividend and Income Fund.
|
| 28 | www.xsquarecapital.com |
Must be accompanied or preceded by a Prospectus.
ALPS Distributors, Inc. is the Distributor for the X-Square Balanced Fund.
| Item 2. | Code of Ethics. |
| (a) | The Registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller or any persons performing similar functions on behalf of the Registrant. |
| (b) | Not applicable. |
| (c) | During the period covered by this report, no amendments to the provisions of the code of ethics adopted in Item 2(a) above were made. |
| (d) | During the period covered by this report, no implicit or explicit waivers to the provisions of the code of ethics adopted in Item 2(a) above were granted. |
| (e) | Not applicable. |
| (f) | The Registrant’s Code of Ethics is attached as Exhibit 13(a)(1) hereto. |
| Item 3. | Audit Committee Financial Expert. |
The Board of Managers (“Board”) of the Registrant has determined that the Registrant has at least one Audit Committee Financial Expert serving on its audit committee. The Board has designated Fernando Nido as the Registrant’s Audit Committee Financial Expert. Mr. Nido is “independent” as that term is defined in paragraph (a)(2) of Item 3 to Form N-CSR.
| Item 4. | Principal Accountant Fees and Services. |
| (a) | Audit Fees: For the Registrant’s fiscal year ended December 31, 2019, the aggregate fees billed for professional services rendered by the principal accountant for the audit of the Registrant’s annual financial statements were $28,500. |
| (b) | Audit-Related Fees: The aggregate fees billed for the Registrant's fiscal year ended December 31, 2019 for assurance and related services by the Registrant's principal accountant reasonably related to the performance of audit of the Registrant's financial statements and not reported under Paragraph (a) of this Item were $0. Such services consisted of a report of the Fund's transfer agent internal controls pursuant to rule 17AD-13, annual report review and a report on the Fund's anti-money laundering controls and policies. |
2
| (c) | Tax Fees: For the Registrant’s fiscal year ended December 31, 2019, the aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning were $4,000. The fiscal year 2019 tax fees were for services pertaining to federal and state income tax return review, review of year-end dividend distributions and excise tax preparation. |
| (d) | All Other Fees: For the Registrant’s fiscal year ended December 31, 2019, aggregate fees billed to the Registrant by the principal accountant for services provided by the principal accountant other than the services reported in paragraphs (a) through (c) of this Item 4 were $0. |
| (e) | (e)(1) Audit Committee Pre-Approval Policies and Procedures: All services to be performed by the Registrant's principal accountant must be pre-approved by the Registrant's Audit Committee. |
| (e)(2) | No services described in paragraphs (b) through (d) of this Item 4 were approved by the Registrant’s audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
| (f) | Not applicable. |
| (g) | Not applicable. |
| (h) | Not applicable. |
| Item 5. | Audit Committee of Listed Registrants. |
Not applicable to Registrant.
| Item 6. | Investments. |
| (a) | Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form N-CSR. |
| (b) | Not applicable. |
3
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable to Registrant.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable to Registrant.
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable to Registrant.
| Item 10. | Submission of Matters to Vote of Security Holders. |
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Managers, where those changes were implemented after the Registrant last provided disclosure in response to the requirements of Item 407(c)(2) of Regulation S-K, or this Item.
| Item 11. | Controls and Procedures. |
| (a) | The Registrant’s principal executive officer and principal financial officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. |
| (b) | There was no change in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. |
| Item 12. | Disclosure of Securities Lending Activities for Closed-end Management Investment Companies. |
Not applicable to Registrant.
| Item 13. | Exhibits. |
| (a)(1) | The Code of Ethics that applies to the Registrant’s principal executive officer and principal financial officer is attached hereto as Exhibit 13(a)(1). |
4
| (a)(2) | The certifications required by Rule 30a-2(a) of the Investment Company Act of 1940, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto as Exhibit 99.Cert. |
| (a)(3) | Not applicable. |
| (a)(4) | Not applicable. |
| (b) | The certifications by the Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(b) of the Investment Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as Exhibit 99.906Cert. |
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| X-Square Balanced Fund, LLC | |||
| By: | /s/ Ignacio Canto | ||
| Ignacio Canto | |||
| President | |||
| Date: | March 6, 2020 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below on behalf of the Registrant and in the capacities and on the dates indicated.
| X-Square Balanced Fund, LLC | |||
| By: | /s/ Ruben Tapia | ||
| Ruben Tapia | |||
| Chief Financial Officer | |||
| Date: | March 6, 2020 | ||
6