N-Q 1 srtii_nq.htm QUARTERLY NOTICE OF PORTFOLIO HOLDINGS srtii_nq.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


 
FORM N-Q
 
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY
 


811-22870
(Investment Company Act file number)


Stone Ridge Trust II
(Exact name of registrant as specified in charter)


405 Lexington Avenue, 55th Floor
New York, New York 10174
(Address of principal executive offices) (Zip code)


Stone Ridge Trust II
405 Lexington Avenue, 55th Floor
New York, New York 10174
 (Name and address of agent for service)


1-855-609-3680
Registrant's telephone number, including area code



Date of fiscal year end: October 31, 2014



Date of reporting period: July 31, 2014

 
 
 
 

 
 
Item 1. Schedule of Investments.
 
STONE RIDGE REINSURANCE RISK PREMIUM INTERVAL FUND
 
Schedule of Investments as of July 31, 2014 (Unaudited)
 
             
   
Principal
   
Fair
 
   
Amount
   
Value
 
EVENT LINKED BONDS - 14.8%
           
FINANCIAL SERVICES - 14.8%
           
Global - 3.0%
           
IBRD Re 2014-1
           
6.500%, 06/07/2017 (a)(b)(c)
  $ 5,000,000     $ 4,984,500  
Kilimanjaro Re 2014-1 Class B
               
4.520%, 04/30/2018 (a)(b)(c)
    14,504,000       14,398,846  
Loma Re 2013-1 A
               
9.770%, 01/08/2018 (a)(b)(c)
    335,000       341,616  
Loma Re 2013-1 B
               
12.020%, 01/08/2018 (a)(b)(c)
    1,005,000       1,029,120  
Loma Re 2013-1 C
               
17.020%, 01/08/2018 (a)(b)(c)
    1,739,000       1,764,563  
Market Re 2014-4 Class A
               
8.000%, 07/15/2016 (a)(b)(c)
    2,802,000       2,811,807  
Market Re 2014-4 Class B
               
8.000%, 07/15/2016 (a)(b)(c)
    1,019,000       1,022,567  
Venterra Re 2013-1 A
               
3.770%, 01/09/2017 (a)(b)(c)
    2,154,000       2,205,373  
              28,558,392  
United States - 11.8%
               
Alamo Re
               
6.370%, 06/07/2017 (a)(b)(c)
    892,000       900,965  
Armor Re
               
4.020%, 12/15/2016 (a)(b)(c)
    1,000,000       987,100  
Citrus Re 2014-1
               
4.270%, 04/18/2017 (a)(b)(c)
    7,410,000       7,306,630  
Citrus Re 2014-2
               
3.770%, 04/24/2017 (a)(b)(c)
    1,483,000       1,462,238  
East Lane Re VI
               
2.770%, 03/14/2018 (a)(b)(c)
    14,443,000       14,272,573  
Everglades Re 2014
               
7.520%, 04/28/2017 (a)(b)(c)
    17,758,000       17,868,100  
Gator Re 2014
               
6.520%, 01/09/2017 (a)(b)(c)
    13,724,000       13,649,890  
Kilimanjaro Re 2014-1 Class A
               
4.770%, 04/30/2018 (a)(b)(c)
    9,740,000       9,721,494  
Residential Re 2014-1 10
               
15.020%, 06/06/2018 (a)(b)(c)
    10,338,000       10,310,087  
Residential Re 2014-1 13
               
3.520%, 06/06/2018 (a)(b)(c)
    2,859,000       2,861,716  
Riverfront Re 2014
               
4.020%, 01/06/2017 (a)(b)(c)
    4,522,000       4,446,483  
Sanders Re 2014-1 D
               
3.920%, 05/28/2019 (a)(b)(c)
    21,295,000       21,069,273  
Sanders Re 2014-2
               
3.920%, 06/07/2017 (a)(b)(c)
    4,927,000       4,894,482  
Skyline Re 2014-1 A
               
14.020%, 01/23/2017 (a)(b)(c)
    2,166,000       2,209,320  
              111,960,351  
TOTAL EVENT LINKED BONDS (Cost $141,115,000)
            140,518,743  
                 
PARTICIPATION NOTES (QUOTA SHARES) - 1.9%
               
FINANCIAL SERVICES - 1.9%
               
Global - 1.9%
               
Eden Re 2014-1
               
04/21/2017 (a)(d)(e)(Cost: $6,250,000; Acquisition Date: 12/31/2013)
    6,250,000       6,702,411  
Silverton Re 2014-1
               
09/16/2016 (a)(d)(e)(Cost: $10,175,000; Acquisition Date: 12/18/2013)
    10,000,000       11,563,367  
TOTAL PARTICIPATION NOTES (QUOTA SHARES) (Cost $16,425,000)
            18,265,778  
                 
   
Shares
         
PREFERENCE SHARES (QUOTA SHARES) - 76.8%
               
FINANCIAL SERVICES - 76.8%
               
Canada - 2.1%
               
Awosting (Kane Segregated Account Company) (a)(e)(Cost: $20,236,028; Acquisition Date: 12/27/2013)
    100       19,770,446  
Global - 63.1%
               
Acadia (Kane Segregated Account Company) (a)(d)(e)(Cost: $51,881,538; Acquisition Date: 12/27/2013)
    100       52,670,710  
Altair Re II (a)(d)(e)(Cost: $25,000,000; Acquisition Date: 12/27/2013)
    25,000,000       26,032,500  
Axis Ventures Re Cell 0001 Class A (a)(d)(e)(Cost: $50,000,000; Acquisition Date: 12/30/2013)
    500,000       53,329,343  
Biscayne (Kane Segregated Account Company) (a)(d)(e)(Cost: $28,710,347; Acquisition Date: 04/30/2014)
    29,293       29,200,933  
Carlsbad (Kane Segregated Account Company) (a)(d)(e)(Cost: $100; Acquisition Date: 04/01/2014)
    100       100  
Carlsbad 2 (Kane Segregated Account Company) (a)(e)(Cost: $20,050,576; Acquisition Date: 04/28/2014)
    20,051       19,350,177  
Carpathian (Kane Segregated Account Company) (a)(d)(e)(Cost: $15,646,064; Acquisition Date: 02/06/2014)
    15,646       16,293,168  
Decker (Kane Segregated Account Company) (a)(d)(e)(Cost: $18,870,785; Acquisition Date: 12/26/2013)
    100       21,341,418  
Hudson Alexander (Mt. Logan Re) (a)(d)(e)(Cost: $40,000,000; Acquisition Date: 01/02/2014)
    40,000       42,060,455  
Hudson Charles (Mt. Logan Re) (a)(d)(e)(Cost: $30,000,000; Acquisition Date: 01/02/2014)
    30,000       31,753,596  
Hudson Charles 2 (Mt. Logan Re) (a)(d)(e)(Cost: $8,465,500; Acquisition Date: 04/02/2014)
    8,466       8,850,481  
Hudson Charles 3 (Mt. Logan Re) (a)(d)(e)(Cost: $14,650,000; Acquisition Date: 06/19/2014)
    14,650       14,943,159  
Hudson Paul (Mt. Logan Re) (a)(d)(e)(Cost: $30,000,000; Acquisition Date: 01/02/2014)
    30,000       32,882,609  
Hudson Paul 3 (Mt. Logan Re) (a)(d)(e)(Cost: $8,465,500; Acquisition Date: 04/02/2014)
    8,466       8,760,724  
Innsbruck (Kane Segregated Account Company) (a)(d)(e)(Cost: $23,690,670; Acquisition Date: 02/18/2014)
    23,691       24,198,140  
Leggett 1 (Kane Segregated Account Company) (a)(d)(e)(Cost: $25,671,804; Acquisition Date: 12/27/2013)
    100       26,616,830  
Leggett 2 (Kane Segregated Account Company) (a)(d)(e)(Cost: $25,225,438; Acquisition Date: 12/27/2013)
    100       26,071,359  
Minnewaska (Kane Segregated Account Company) (a)(d)(e)(Cost: $10,046,063; Acquisition Date: 05/30/2014)
    10,046       10,225,383  
Mohonk (Kane Segregated Account Company) (a)(d)(e)(Cost: $75,061,438; Acquisition Date: 12/24/2013)
    100       82,890,954  
Mulholland (Kane Segregated Account Company) (a)(d)(e)(Cost: $15,028,722; Acquisition Date: 12/26/2013)
    100       17,076,322  
Skytop (Kane Segregated Account Company) (a)(d)(e)(Cost: $13,791,625; Acquisition Date: 01/09/2014)
    100       15,237,874  
Victoria (Kane Segregated Account Company) (a)(d)(e)(Cost: $4,800,502; Acquisition Date: 01/30/2014)
    4,801       3,595,424  
Yellowstone (Kane Segregated Account Company) (a)(d)(e)(Cost: $33,061,438; Acquisition Date: 01/08/2014)
    100       35,066,919  
              598,448,578  
United States - 11.6%
               
Bayswater (Kane Segregated Account Company) (a)(d)(e)(Cost: $26,899,465; Acquisition Date: 06/16/2014)
    26,899       27,297,609  
Latigo (Kane Segregated Account Company) (a)(d)(e)(Cost: $25,059,282; Acquisition Date: 01/06/2014)
    100       26,154,392  
Marbletown (Kane Segregated Account Company) (a)(e)(Cost: $6,267,238; Acquisition Date: 04/29/2014)
    6,267       6,273,372  
Rondout (Kane Segregated Account Company) (a)(d)(e)(Cost: $50,046,063; Acquisition Date: 06/19/2014)
    50,046       50,884,656  
              110,610,029  
TOTAL PREFERENCE SHARES (QUOTA SHARES) (Cost $696,626,186)
            728,829,053  
                 
PRIVATE FUND UNITS - 4.6%
               
FINANCIAL SERVICES - 4.6%
               
Global - 4.6%
               
Aeolus Property Catastrophe Keystone Fund (a)(d)(e)(Cost: $12,500,000; Acquisition Date: 01/01/2014)
    12,500       13,456,831  
Aeolus Property Catastrophe Midyear Keystone Fund (a)(d)(e)(Cost: $30,000,000; Acquisition Date: 05/23/2014)
    30,000       30,481,580  
TOTAL PRIVATE FUND UNITS (Cost $42,500,000)
            43,938,411  
                 
SHORT-TERM INVESTMENTS - 1.9%
               
Money Market Funds - 1.9%
               
Fidelity Institutional Money Market Funds - Money Market Portfolio - Institutional Class - 0.05% (f)
    3,531,145       3,531,145  
First American Government Obligations Fund - Class Z - 0.01% (f)
    3,531,145       3,531,145  
First American Prime Obligations Fund - Class Z - 0.02% (f)
    3,531,144       3,531,144  
Short Term Investments Trust - Liquid Assets Portfolio - Institutional Class - 0.06% (f)
    3,531,144       3,531,144  
Short Term Investments Trust - Treasury Portfolio - Institutional Class - 0.01% (f)
    3,531,144       3,531,144  
TOTAL SHORT-TERM INVESTMENTS (Cost $17,655,722)
            17,655,722  
                 
TOTAL INVESTMENTS (Cost $914,321,908) - 100.0%
            949,207,707  
LIABILITIES IN EXCESS OF OTHER ASSETS - 0.0%
            (393,779 )
TOTAL NET ASSETS - 100.0%
          $ 948,813,928  
 
Country shown is geographic area of peril risk.
 
Percentages are stated as a percent of net assets.
   
(a)
Foreign issued security. Total foreign securities by country of domicile are $931,551,985.  Foreign concentration is as follows: Bermuda: 94.8%, Cayman Islands: 2.9% and Suprnational: 0.5%.
(b)
Security is restricted to resale to institutional investors. The Fund’s Adviser has deemed this security to be liquid based upon procedures approved by the Board of Trustees. The aggregate value of these securities at July 31, 2014 was $140,518,743 which represented 14.8% of net assets.
(c)
Variable rate security.  The rate shown is as of July 31, 2014.
(d)
Non-income producing security.
(e)
Security is restricted to resale. The aggregate value of these securities at July 31, 2014 was $791,033,242 which represented 83.4% of net assets.
(f)
Rate shown is the 7-day effective yield.
   
The accompanying footnotes are an integral part of these Schedules of Investments.

 
 
 

 
 
The cost basis of investments for federal income tax purposes at July 31, 2014 was as follows:
       
   
Stone Ridge Reinsurance Risk Premium Interval Fund
 
Cost of Investments
  $ 914,321,908  
Gross unrealized appreciation
  $ 38,298,338  
Gross unrealized depreciation
    (3,412,539 )
Net unrealized appreciation
  $ 34,885,799  
 
* Because tax adjustments are calculated annually, the above table does not reflect tax adjustments. For the previous fiscal year’s federal income tax information, please refer to the Notes to Financial Statements section in the Fund’s most recent annual report.


 
 
 

 
 
1. Summary of 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 have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
 
Investment Valuation and Fair Value Measurement In determining the net asset value (“NAV”) of the Fund’s shares, investments in open-end mutual funds, including money market funds, are generally priced at the ending net asset value (NAV) provided by the pricing agent of the Trust. Investments in closed-end mutual funds are valued at the last sale price on the exchange on which the shares are primarily traded.
 
Debt securities with a remaining maturity in excess of 60 days, including corporate debt securities and municipal debt securities, collateralized mortgage obligations, loans, and other asset backed securities are valued daily using the mean between the closing bid and asked prices provided by either a pricing service or two independent brokers. Debt securities with a remaining maturity of less than 60 days are valued at amortized cost, which approximates fair value.
 
Event-linked bonds (catastrophe bonds), or similar restricted securities including Participation Notes and Preference Shares (Quota Shares) and private fund units are valued using average firm bids from at least two independent brokers  or at least one firm bid from an independent market maker. In the event that the Trust’s pricing vendor is unable to provide two independent broker firm bids or a market maker firm bid for event-linked bonds the Advisor will use an indicative price or firm bid as the price of the security (or average, if multiple such prices) provided that the Adviser Valuation Committee determines that the indicative price or firm bid is reasonable. The committee will use internal and/or independent external models to generate marks for the security. If the internal and/or independent external marks are within a predetermined range of the indicative price or firm bid, then the Adviser Valuation Committee may deem the indicative price or firm bid as reasonable. Event-linked bonds and similar restricted securities are valued on a weekly basis and on the last business day of each month. The Advisor monitors event-linked bonds daily for significant events that could affect the value of these investments.
 
For the purpose of determining the fair value, the Committee may use a variety of valuation methodologies, including, but not limited to: i) mathematical techniques that refer to the prices of similar or related securities; ii) a percentage increase or decrease across all securities of a region, country or industry affected by a significant event; iii) a multiple of earnings; iv) a discount from the market value of a similar freely-traded security; v) the yield to maturity of debt securities; vi) broker indications or single broker bids provided that such indications or bids not be sole basis for valuation determination); vii) mathematical models developed by independent third parties; or viii) any combination of the aforementioned.
 
The Fund has adopted authoritative fair valuation accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion of changes in valuation techniques and related inputs during the period. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
 
Level 1: Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date;
 
Level 2: Significant inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active and firm bids from brokers or market makers which are not publically available;
 
Level 3: Significant inputs that are unobservable.
 
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Adviser. The Adviser considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Adviser’s perceived risk of that instrument.
 
There were no transfers between Levels during the reporting period. Transfers between levels are recognized at the end of the reporting period. The following tables summarize the inputs used to value the Fund’s investments as of July 31, 2014.
 
Description
 
Level 1
   
Level 2
   
Level 3
   
Total
                       
Stone Ridge Reinsurance Risk Premium Interval Fund
                     
Assets
                     
Event-Linked Bonds
                     
Global
  $ -     $ 19,739,518     $ 8,818,874     $ 28,558,392
United States
    -       109,751,031       2,209,320       111,960,351
Total Event-Linked Bonds
    -       129,490,549       11,028,194       140,518,743
Participation Notes (Quota Shares) (1)
    -       -       18,265,778       18,265,778
Preference Shares (Quota Shares) (1)
    -       -       728,829,053       728,829,053
Private Fund Units (1)
    -       -       43,938,411       43,938,411
Money Market Funds
    17,655,722       -       -       17,655,722
Total Assets
  $ 17,655,722     $ 129,490,549     $ 802,061,436     $ 949,207,707
                               
(1) For further security characteristics, see the Funds' Schedules of Investments.
                             
 
 
Below is a reconciliation that details the activity of securities in Level 3 during the current fiscal period:
     
                       
   
Stone Ridge Reinsurance Risk Premium Interval Fund
   
Event-Linked
Bonds
   
Participation Notes (Quota Shares)
   
Preference Shares (Quota Shares)
   
Private Fund
Units
Beginning Balance (1)
  $ -     $ -     $ -     $ -
Acquisitions
    10,987,000       16,425,000       696,626,186       42,500,000
Dispositions
    -       -       -       -
Realized gains
    -       -       -       -
Realized losses
    -       -       -       -
Change in unrealized appreciation (depreciation)
    41,194       1,840,778       32,202,867       1,438,411
Transfers in/(out) of Level 3
    -       -       -       -
Ending Balance - July 31, 2014
  $ 11,028,194     $ 18,265,778     $ 728,829,053     $ 43,938,411
                               
                               
(1) Inception Date was December 10, 2013.
 
 
 

 
 
The following table summarizes the quantitative inputs used for investments categorized as Level 3 of the fair value hierarchy as of July 31, 2014.
 
Reinsurance Risk Premium Interval Fund
Type of Security
Fair Value at 7/31/14
Valuation Techniques
Unobservable Inputs
Range
Event-Linked Bonds
Financial Services
$11,028,194
Indicative bids
Non-public broker quotations
99.69 - 102
Participation Notes (Quota Shares)
Financial Services
$18,265,778
Insurance industry loss model
Losses and anticipated losses versus premiums earned
107.24 – 115.63
Preference Shares (Quota Shares)
Financial Services
$45,802,946
Indicative bids
Non-public broker quotations
1.0413 – 215,567.05
 
$683,026,107
Insurance industry loss model
Losses and anticipated losses versus premiums earned
1 – 828,909.54
Private Fund Units
Financial Services
$43,938,411
Insurance industry loss model
Losses and anticipated losses versus premiums earned
1,016.05 – 1,076.55
 
Unobservable inputs including original transaction price, losses from severe weather events, and changes in market risk spread of comparable securities (including catastrophe bonds with similar risk profiles). Significant increases in the market risk spread of comparable instruments or severe weather losses in isolation would result in a significantly lower fair value measurement. A high amount of loss from severe weather may also increase market risk spreads. Quota shares are monitored daily for significant events that could affect the value of the instruments.
 
The Fund did not hold any derivative instruments during the period ended July 31, 2014.

 
 
 

 
 
Item 2. Controls and Procedures.
 
(a)  
The Registrant’s President and Treasurer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “1940 Act”)) (17 CFR 270.30a-3(c)) are effective as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rule 13a-15(b) or Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(d)).

(b)  
There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) (17 CFR 270.30a-3(d)) that occurred during the Registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.

Item 3. Exhibits.
 
Separate certifications for each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)).  Filed herewith.
 
 
 
 
 

 
 
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.
 
(Registrant)  Stone Ridge Trust II
 

By (Signature and Title) /s/ Ross Stevens                                                                                                                                         
 Ross Stevens, President                                                                           

Date   9/29/2014                                                                  

 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)* /s/ Ross Stevens                                                                                                                                      
   Ross Stevens, President

Date   9/29/2014                                                                  

 
By (Signature and Title)* /s/ Patrick Kelly                                                                                                                                        
   Patrick Kelly, Treasurer

Date   9/29/2014                                                                        
                                                                                    

* Print the name and title of each signing officer under his or her signature.