Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2007
OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 000-51282
CITIGROUP FAIRFIELD FUTURES FUND L.P. II
(Exact name of registrant as specified in its charter)
New York | 56-2421596 | ||
(State or other jurisdiction of | (I.R.S. Employer | ||
incorporation or organization) | Identification No.) |
c/o Citigroup Managed Futures LLC
731 Lexington Avenue — 25th Floor
New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 559-2011
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer Accelerated filer Non-accelerated filer X
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes No X
As of October 31, 2007, 79,364.1467 Limited Partnership Redeemable Units were outstanding.
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CITIGROUP FAIRFIELD FUTURES FUND L.P. II
FORM 10-Q
INDEX
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PART I
Item 1. Financial Statements
Citigroup Fairfield Futures Fund L.P. II
Statements of Financial Condition
(Unaudited)
September 30, 2007 | December 31, 2006 | |||||||||||
Assets: | ||||||||||||
Investment in Master, at fair value | $ | 72,470,690 | $ | 68,415,732 | ||||||||
Cash | 139,268 | 85,324 | ||||||||||
$ | 72,609,958 | $ | 68,501,056 | |||||||||
Liabilities and Partners’ Capital: | ||||||||||||
Liabilities: | ||||||||||||
Accrued expenses: | ||||||||||||
Brokerage commissions | $ | 272,287 | 256,879 | |||||||||
Management fees | 120,464 | 113,694 | ||||||||||
Administrative fees | 30,116 | 28,424 | ||||||||||
Other | 59,202 | 27,707 | ||||||||||
Redemptions payable | 113,403 | 6,542,911 | ||||||||||
595,472 | 6,969,615 | |||||||||||
Partners’ Capital: | ||||||||||||
General Partner, 724.0407 Unit equivalents outstanding in 2007 and 2006 | 622,342 | 574,541 | ||||||||||
Special Limited Partner, 100.0000 Redeemable Units of Limited Partnership Interest outstanding in 2007 and 2006 | 85,954 | 79,352 | ||||||||||
Limited Partners, 82,958.1103 and 76,718.2552 Redeemable Units of Limited Partnership Interest outstanding in 2007 and 2006, respectively | 71,306,190 | 60,877,548 | ||||||||||
72,014,486 | 61,531,441 | |||||||||||
$ | 72,609,958 | $ | 68,501,056 |
See accompanying notes to financial statements.
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Citigroup Fairfield Futures Fund L.P. II
Statements of Income and Expenses and Partners’ Capital
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||
Income: | ||||||||||||||||||||||||
Net realized gains (losses) on closed positions allocated from Master | $ | (1,830,805 | ) | $ | (2,985,464 | ) | $ | 6,814,586 | $ | (4,497,013 | ) | |||||||||||||
Change in net unrealized gains on open positions allocated from Master | 550,383 | 502,838 | 176,971 | 860,608 | ||||||||||||||||||||
Interest income allocated from Master | 623,822 | 687,594 | 1,793,704 | 914,716 | ||||||||||||||||||||
Expenses allocated from Master | (75,006 | ) | (52,259 | ) | (206,615 | ) | (76,463 | ) | ||||||||||||||||
Net gains (losses) on trading of commodity futures: | ||||||||||||||||||||||||
Realized gains on closed positions | — | 655 | — | 4,796,018 | ||||||||||||||||||||
Change in unrealized losses on open positions | — | (3,504 | ) | — | (1,003,227 | ) | ||||||||||||||||||
(731,606 | ) | (1,850,140 | ) | 8,578,646 | 994,639 | |||||||||||||||||||
Interest income | — | 2,372 | — | 1,183,484 | ||||||||||||||||||||
(731,606 | ) | (1,847,768 | ) | 8,578,646 | 2,178,123 | |||||||||||||||||||
Expenses: | ||||||||||||||||||||||||
Brokerage commissions including clearing fees of $0, $0, $0 and $64,859, respectively | 799,244 | 789,217 | 2,200,449 | 2,606,913 | ||||||||||||||||||||
Management fees | 353,544 | 346,334 | 972,676 | 1,109,519 | ||||||||||||||||||||
Administrative fees | 88,386 | 86,584 | 243,168 | 277,381 | ||||||||||||||||||||
Other | 49,181 | 30,200 | 145,499 | 93,429 | ||||||||||||||||||||
1,290,355 | 1,252,335 | 3,561,792 | 4,087,242 | |||||||||||||||||||||
Net income (loss) | (2,021,961 | ) | (3,100,103 | ) | 5,016,854 | (1,909,119 | ) | |||||||||||||||||
Additions – Limited Partners | 8,504,000 | 2,269,000 | 14,195,000 | 10,247,000 | ||||||||||||||||||||
Redemptions – Limited Partners | (1,150,674 | ) | (5,247,384 | ) | (8,728,809 | ) | (16,989,133 | ) | ||||||||||||||||
Net increase (decrease) in Partners’ Capital | 5,331,365 | (6,078,487 | ) | 10,483,045 | (8,651,252 | ) | ||||||||||||||||||
Partners’ Capital, beginning of period | 66,683,121 | 72,873,509 | 61,531,441 | 75,446,274 | ||||||||||||||||||||
Partners’ Capital, end of period | $ | 72,014,486 | $ | 66,795,022 | $ | 72,014,486 | $ | 66,795,022 | ||||||||||||||||
Net Asset Value per Redeemable Unit (83,782.1510 and 86,085.7918 Redeemable Units outstanding at September 30, 2007 and 2006, respectively) | $ | 859.54 | $ | 775.91 | $ | 859.54 | $ | 775.91 | ||||||||||||||||
Net income (loss) per Redeemable Unit of Limited Partnership Interest and General Partner Unit equivalent | $ | (24.88 | ) | $ | (34.39 | ) | $ | 66.02 | $ | (22.12 | ) |
See accompanying notes to financial statements.
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Citigroup Fairfield Futures Fund L.P. II
Statements of Cash Flow
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income (loss) | $ | (2,021,961 | ) | $ | (3,100,103 | ) | $ | 5,016,854 | $ | (1,909,119 | ) | |||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Purchase of investment in Master | (8,504,000 | ) | (2,269,000 | ) | (14,195,000 | ) | (77,957,021 | ) | ||||||||||||||||
Proceeds from sale of investment in Master | 2,832,142 | 7,453,079 | 18,718,688 | 7,453,080 | ||||||||||||||||||||
Net unrealized (appreciation) depreciation on investment in Master | 731,606 | 1,847,291 | (8,578,646 | ) | 2,798,152 | |||||||||||||||||||
(Increase) decrease in restricted cash | — | — | — | 4,363,860 | ||||||||||||||||||||
(Increase) decrease in unrealized appreciation on open forward contracts | — | 5,880 | — | 3,298,568 | ||||||||||||||||||||
(Increase) decrease in interest receivable | — | — | — | 30,485 | ||||||||||||||||||||
Increase (decrease) in net unrealized depreciation on open futures positions | — | — | — | (78,814 | ) | |||||||||||||||||||
Increase (decrease) in unrealized depreciation on open forward contracts | — | (2,376 | ) | — | (2,216,527 | ) | ||||||||||||||||||
Accrued expenses: | ||||||||||||||||||||||||
Increase (decrease) in brokerage commissions | 18,493 | (26,469 | ) | 15,408 | (45,595 | ) | ||||||||||||||||||
Increase (decrease) in management fees | 8,203 | (11,687 | ) | 6,770 | (20,087 | ) | ||||||||||||||||||
Increase (decrease) in administrative fees | 2,051 | (2,922 | ) | 1,692 | (5,022 | ) | ||||||||||||||||||
Increase (decrease) in due to CGM | — | — | — | (10,451 | ) | |||||||||||||||||||
Increase (decrease) in other | (8,919 | ) | (19,354 | ) | 31,495 | (53,608 | ) | |||||||||||||||||
Net cash provided by (used in) operating activities | (6,942,385 | ) | 3,874,339 | 1,017,261 | (64,352,099 | ) | ||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Proceeds from additions – Limited Partners | 8,504,000 | 2,269,000 | 14,195,000 | 10,247,000 | ||||||||||||||||||||
Payments for redemptions – Limited Partners | (1,570,309 | ) | (6,166,760 | ) | (15,158,317 | ) | (18,860,648 | ) | ||||||||||||||||
Net cash provided by (used in) financing activities | 6,933,691 | (3,897,760 | ) | (963,317 | ) | (8,613,648 | ) | |||||||||||||||||
Net change in cash | (8,694 | ) | (23,421 | ) | 53,944 | (72,965,747 | ) | |||||||||||||||||
Cash, at beginning of period | 147,962 | 116,302 | 85,324 | 73,058,628 | ||||||||||||||||||||
Cash, at end of period | $ | 139,268 | $ | 92,881 | $ | 139,268 | $ | 92,881 |
See accompanying notes to financial statements.
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Citigroup Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2007
(Unaudited)
1. General:
Citigroup Fairfield Futures Fund L.P. II (the ‘‘Partnership’’) is a limited partnership which was organized on December 18, 2003 under the partnership laws of the State of New York to engage in the speculative trading of a diversified portfolio of commodity interests including futures contracts, options and forward contracts. The commodity interests that are traded by the Partnership are volatile and involve a high degree of market risk.
During the initial offering period (January 12, 2004 through March 12, 2004), the Partnership sold 28,601 redeemable units of Limited Partnership Interest (‘‘Redeemable Units’’) and 285 Units of General Partnership Interest. The Partnership commenced trading on March 15, 2004.
Citigroup Managed Futures LLC, a Delaware Limited Liability Company, acts as the general partner (the ‘‘General Partner’’) of the Partnership. The Partnership’s commodity broker is Citigroup Global Markets Inc. (‘‘CGM’’), CGM is an affiliate of the General Partner. The General Partner is wholly owned by Citigroup Global Markets Holdings Inc. (‘‘CGMHI’’), which is the sole owner of CGM. CGMHI is a wholly owned subsidiary of Citigroup Inc.
On June 1, 2006, the assets allocated to Graham for trading were invested in CMF Graham Master Fund L.P. (the ‘‘Master’’), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 74,569.3761 Units of the Master with cash of $75,688,021. The Master was formed in order to permit accounts managed then or in the future by Graham Capital Management L.P. (the ‘‘Advisor’’) using the Multi-Trend Program at 125% Leverage, to invest together in one trading vehicle. The General Partner of the Partnership is the general partner of the Master. Individual and pooled accounts currently managed by the Advisor, including the Partnership, are permitted to be limited partners of the Master. The Master’s commodity broker is CGM. The General Partner and the Advisor believe that trading through this master-feeder structure promotes efficiency and economy in the trading process . Expenses to investors as a result of the investment in the Master are approximately the same and redemption rights are not affected.
As of September 30, 2007, the Partnership owned approximately 32.6% of the Master. As of December 31, 2006, the Partnership owned approximately 30.1% of the Master. It is the Partnership’s intention to continue to invest substantially all of its assets in the Master. The performance of the Partnership is directly affected by the performance of the Master. The Masters’ Statement of Financial Condition, Statements of Income and Expenses and Partner’s Capital, Condensed Schedules of Investments and Statements of Cash Flows are included herein.
The accompanying financial statements are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnership’s financial condition at September 30, 2007 and December 31, 2006 and the results of its operations, changes in Partners’ Capital, and cash flows for the three and nine months ended September 30, 2007 and 2006. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. These financial statements should be read together with the financial statements and notes included in the Partnership’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2006.
Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.
Certain prior period balances have been reclassified to conform to current period presentation.
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Citigroup Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2007
(Unaudited)
CMF Graham Capital Master Fund L.P.
Statement of Financial Condition
(Unaudited)
September 30, 2007 | December 31, 2006 | ||||||||||
Assets: | |||||||||||
Equity in commodity futures trading account: | |||||||||||
Cash (restricted $26,113,068 and $50,059,681 in 2007 and 2006, respectively) | $ | 215,546,285 | $ | 219,754,941 | |||||||
Net unrealized appreciation on open futures contracts | 1,351,435 | 3,678,200 | |||||||||
Unrealized appreciation on open forward contracts | 11,260,987 | 5,812,534 | |||||||||
228,158,707 | 229,245,675 | ||||||||||
Interest receivable | 575,774 | 736,340 | |||||||||
$ | 228,734,481 | $ | 229,982,015 | ||||||||
Liabilities and Partners’ Capital: | |||||||||||
Liabilities: | |||||||||||
Unrealized depreciation on open forward contracts | $ | 6,321,602 | $ | 2,555,481 | |||||||
Accrued expenses: | |||||||||||
Professional fees | 24,480 | 16,678 | |||||||||
Distribution payable | 575,774 | 736,340 | |||||||||
6,921,856 | 3,308,499 | ||||||||||
Partners’ Capital: | |||||||||||
Limited Partners’ Capital, 200,136.2088 and 227,674.0725 Redeemable Units of Limited Partnership outstanding | 221,812,625 | 226,673,516 | |||||||||
$ | 228,734,481 | $ | 229,982,015 |
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Citigroup Fairfield Futures Fund L.P. II
Condensed Schedule of Investments
September 30, 2007
(Unaudited)
CMF Graham Capital Master Fund L.P.
Condensed Schedule of Investments
September 30, 2007
(Unaudited)
Fair Value | % of Partners’ Capital | |||||||||||
Futures Contracts Purchased | ||||||||||||
Energy | $ | 667,933 | 0.30 | % | ||||||||
Grains | 86,535 | 0.04 | ||||||||||
Indices | 98,456 | 0.04 | ||||||||||
Interest Rates U.S. | 2,731 | 0.00 | * | |||||||||
Interest Rates Non-U.S. | (141,373 | ) | (0.06 | ) | ||||||||
Metals | 125,880 | 0.06 | ||||||||||
Softs | (64,035 | ) | (0.03 | ) | ||||||||
Total futures contracts purchased | 776,127 | 0.35 | ||||||||||
Futures Contracts Sold | ||||||||||||
Energy | 15,340 | 0.01 | ||||||||||
Grains | (16,892 | ) | (0.01 | ) | ||||||||
Indices | 636,324 | 0.29 | ||||||||||
Interest Rates Non-U.S. | (5,274 | ) | (0.00 | )* | ||||||||
Softs | (54,190 | ) | (0.02 | ) | ||||||||
Total futures contracts sold | 575,308 | 0.27 | ||||||||||
Unrealized Appreciation on Forward Contracts | ||||||||||||
Currencies | 11,210,062 | 5.05 | ||||||||||
Metals | 50,925 | 0.02 | ||||||||||
Total unrealized appreciation on forward contracts | 11,260,987 | 5.07 | ||||||||||
Unrealized Depreciation on Forward Contracts | ||||||||||||
Currencies | (6,066,583 | ) | (2.73 | ) | ||||||||
Metals | (255,019 | ) | (0.12 | ) | ||||||||
Total unrealized depreciation on forward contracts | (6,321,602 | ) | (2.85 | ) | ||||||||
Total fair value | $ | 6,290,820 | 2.84 | % |
* Due to rounding.
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Citigroup Fairfield Futures Fund L.P. II
Condensed Schedule of Investments
September 30, 2007
(Unaudited)
CMF Graham Capital Master Fund L.P.
Condensed Schedule of Investments
December 31, 2006
(unaudited)
Fair Value | % of Partners’ Capital | |||||||||||
Futures Contracts Purchased | ||||||||||||
Grains | $ | 34,445 | 0.02 | % | ||||||||
Indices | 1,926,352 | 0.85 | ||||||||||
Interest Rates U.S. | (722,446 | ) | (0.32 | ) | ||||||||
Interest Rates Non-U.S. | (372,521 | ) | (0.16 | ) | ||||||||
Metals | 8,100 | 0.00 | * | |||||||||
Softs | 91,256 | 0.04 | ||||||||||
Total futures contracts purchased | 965,186 | 0.43 | ||||||||||
Futures Contracts Sold | ||||||||||||
Energy | 584,478 | 0.26 | ||||||||||
Indices | (368,680 | ) | (0.16 | ) | ||||||||
Interest Rates U.S. | 9,990 | 0.00 | * | |||||||||
Interest Rates Non-U.S. | 2,686,771 | 1.19 | ||||||||||
Softs | (199,545 | ) | (0.09 | ) | ||||||||
Total futures contracts sold | 2,713,014 | 1.20 | ||||||||||
Unrealized Appreciation on Open Forward Contracts | ||||||||||||
Currencies | 5,782,021 | 2.55 | ||||||||||
Metals | 30,513 | 0.01 | ||||||||||
Total unrealized appreciation on open forward contracts | 5,812,534 | 2.56 | ||||||||||
Unrealized Depreciation on Open Forward Contracts | ||||||||||||
Currencies | (2,422,725 | ) | (1.07 | ) | ||||||||
Metals | (132,756 | ) | (0.06 | ) | ||||||||
Total unrealized depreciation on open forward contracts | (2,555,481 | ) | (1.13 | ) | ||||||||
Total fair value | $ | 6,935,253 | 3.06 | % |
* Due to rounding
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Citigroup Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2007
(Unaudited)
CMF Graham Capital Master Fund L.P.
Statements of Income and Expenses and Partners’ Capital
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | For the Period April 1, 2006 (commencement of trading operations) to September 30, | ||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||
Income: | ||||||||||||||||||||||||
Net gains (losses) on trading of commodity interests: | ||||||||||||||||||||||||
Net realized gains (losses) on closed positions | $ | (5,538,875 | ) | $ | (10,142,960 | ) | $ | 22,938,740 | $ | (14,296,303 | ) | |||||||||||||
Change in net unrealized gains (losses) on open positions | 1,402,654 | 1,853,527 | (644,433 | ) | 3,136,246 | |||||||||||||||||||
(4,136,221 | ) | (8,289,433 | ) | 22,294,307 | (11,160,057 | ) | ||||||||||||||||||
Interest income | 1,947,985 | 2,329,476 | 5,946,883 | 3,555,528 | ||||||||||||||||||||
(2,188,236 | ) | (5,959,957 | ) | 28,241,190 | (7,604,529 | ) | ||||||||||||||||||
Expenses: | ||||||||||||||||||||||||
Brokerage commissions including clearing fees of $64,711, $65,356, $195,098 and $131,322, respectively | 225,707 | 161,124 | 651,936 | 275,065 | ||||||||||||||||||||
Professional fees | 9,784 | 14,803 | 29,824 | 22,303 | ||||||||||||||||||||
235,491 | 175,927 | 681,760 | 297,368 | |||||||||||||||||||||
Net income (loss) | (2,423,727 | ) | (6,135,884 | ) | 27,559,430 | (7,901,897 | ) | |||||||||||||||||
Additions – Limited Partners | 8,504,000 | 5,239,550 | 20,404,811 | 264,074,623 | ||||||||||||||||||||
Redemptions – Limited Partners | (6,606,544 | ) | (14,230,591 | ) | (46,878,249 | ) | (22,621,861 | ) | ||||||||||||||||
Distribution of interest income to feeder funds | (1,947,985 | ) | (2,329,476 | ) | (5,946,883 | ) | (3,555,528 | ) | ||||||||||||||||
Net increase (decrease) in Partners’ Capital | (2,474,256 | ) | (17,456,401 | ) | (4,860,891 | ) | 229,995,337 | |||||||||||||||||
Partners’ Capital, beginning of period | 224,286,881 | 247,451,738 | 226,673,516 | — | ||||||||||||||||||||
Partners’ Capital, end of period | $ | 221,812,625 | $ | 229,995,337 | $ | 221,812,625 | $ | 229,995,337 | ||||||||||||||||
Net Asset Value per Redeemable Unit (200,136.2088 and 238,436.8217 Redeemable Units outstanding at September 30, 2007 and 2006, respectively) | $ | 1,108.31 | $ | 964.60 | $ | 1,108.31 | $ | 964.60 | ||||||||||||||||
Net income (loss) per Redeemable Unit of Limited Partnership Interest | $ | (11.73 | ) | $ | (24.96 | ) | $ | 141.39 | $ | (16.26 | ) |
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Citigroup Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2007
(Unaudited)
CMF Graham Capital Master Fund L.P.
Statements of Cash Flows
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | For the Period April 1, 2006 (commencement of trading operations) to September 30, | ||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income (loss) | $ | (2,423,727 | ) | $ | (6,135,884 | ) | $ | 27,559,430 | $ | (7,901,897 | ) | |||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
(Increase) decrease in restricted cash | 14,371,991 | (16,159,953 | ) | 23,946,613 | (31,937,859 | ) | ||||||||||||||||||
(Increase) decrease in net unrealized appreciation on open futures contracts | 1,046,078 | (1,686,602 | ) | 2,326,765 | (3,101,809 | ) | ||||||||||||||||||
(Increase) decrease in unrealized appreciation on open forward contracts | 1,506,792 | 75,794 | (5,448,453 | ) | (2,829,640 | ) | ||||||||||||||||||
(Increase) decrease in interest receivable | 69,264 | 34,477 | 160,566 | (724,444 | ) | |||||||||||||||||||
Increase (decrease) in unrealized depreciation on open forward contracts | (3,955,524 | ) | (242,719 | ) | 3,766,121 | 2,795,203 | ||||||||||||||||||
Accrued expenses: | ||||||||||||||||||||||||
Increase (decrease) in professional fees | (6,275 | ) | (3,520 | ) | 7,802 | 3,794 | ||||||||||||||||||
Net cash provided by (used in) operating activities | 10,608,599 | (24,118,407 | ) | 52,318,844 | (43,696,652 | ) | ||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Proceeds from additions – Limited Partners | 8,504,000 | 5,239,550 | 20,404,811 | 264,074,623 | ||||||||||||||||||||
Payments for redemptions − Limited Partners | (6,606,544 | ) | (14,230,591 | ) | (46,878,249 | ) | (22,621,861 | ) | ||||||||||||||||
Distribution of interest income to feeder funds | (2,017,249 | ) | (2,363,953 | ) | (6,107,449 | ) | (2,831,084 | ) | ||||||||||||||||
Net cash provided by (used in) financing activities | (119,793 | ) | (11,354,994 | ) | (32,580,887 | ) | 238,621,678 | |||||||||||||||||
Net change in unrestricted cash | 10,488,806 | (35,473,401 | ) | 19,737,957 | 194,925,026 | |||||||||||||||||||
Unrestricted cash, at beginning of period | 178,944,411 | 230,398,427 | 169,695,260 | — | ||||||||||||||||||||
Unrestricted cash, at end of period | $ | 189,433,217 | $ | 194,925,026 | $ | 189,433,217 | $ | 194,925,026 |
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Citigroup Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2007
(Unaudited)
2. Financial Highlights:
Changes in Net Asset Value per Redeemable Unit for the three and nine months ended September 30, 2007 and 2006 were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||
Net realized and unrealized gains (losses) allocated from Master* | $ | (26.45 | ) | $ | (36.89 | ) | $ | 60.70 | $ | (28.80 | ) | |||||||||||||
Interest income allocated from Master | 7.54 | 7.77 | 22.50 | 22.86 | ||||||||||||||||||||
Expenses** | (5.97 | ) | (5.27 | ) | (17.18 | ) | (16.18 | ) | ||||||||||||||||
Increase (decrease) for the period | (24.88 | ) | (34.39 | ) | 66.02 | (22.12 | ) | |||||||||||||||||
Net Asset Value per Redeemable Unit, beginning of period | 884.42 | 810.30 | 793.52 | 798.03 | ||||||||||||||||||||
Net Asset Value per Redeemable Unit, end of period | $ | 859.54 | $ | 775.91 | $ | 859.54 | $ | 775.91 |
* | Includes Partnership brokerage commissions and expenses allocated from Master. |
** | Excludes Partnership brokerage commissions and expenses allocated from Master. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||
Ratios to average net assets:*** | ||||||||||||||||||||||||
Net investment loss before allocation to Special Limited Partner**** | (4.3 | )% | (3.5 | )% | (4.2 | )% | (7.3 | )% | ||||||||||||||||
Operating expenses | 7.8 | % | 7.5 | % | 7.9 | % | 7.7 | % | ||||||||||||||||
Allocation to Special Limited Partner | — | % | — | % | — | % | — | % | ||||||||||||||||
Total expenses and allocation to Special Limited Partner | 7.8 | % | 7.5 | % | 7.9 | % | 7.7 | % | ||||||||||||||||
Total return: | ||||||||||||||||||||||||
Total return before allocation to Special Limited Partner | (2.8 | )% | (4.2 | )% | 8.3 | % | (2.8 | )% | ||||||||||||||||
Allocation to Special Limited Partner | — | % | — | % | — | % | — | % | ||||||||||||||||
Total return after allocation to Special Limited Partner | (2.8 | )% | (4.2 | )% | 8.3 | % | (2.8 | )% |
*** | Annualized (except for allocation to Special Limited Partner, if applicable). |
**** | Interest income allocated from Master less total expenses (exclusive of allocation to Special Limited Partner, if applicable). |
The above ratios may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the Limited Partner class using the Limited Partners’ share of income, expenses and average net assets.
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Citigroup Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2007
(Unaudited)
2. Financial Highlights (continued):
Financial Highlights of the Master:
Three Months Ended September 30, | Nine Months Ended September 30, | For the Period April 1, 2006 (commencement of trading operations) to September 30, | ||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||
Net realized and unrealized gains (losses)* | $ | (21.37 | ) | $ | (34.54 | ) | $ | 112.85 | $ | (35.26 | ) | |||||||||||||
Interest income | 9.69 | 9.64 | 28.69 | 19.14 | ||||||||||||||||||||
Expenses** | (0.05 | ) | (0.06 | ) | (0.15 | ) | (0.14 | ) | ||||||||||||||||
Increase (decrease) for the period | (11.73 | ) | (24.96 | ) | 141.39 | (16.26 | ) | |||||||||||||||||
Distribution of interest to feeder funds | (9.69 | ) | (9.64 | ) | (28.69 | ) | (19.14 | ) | ||||||||||||||||
Net Asset Value per Unit, beginning of period | 1,129.73 | 999.20 | 995.61 | 1,000.00 | ||||||||||||||||||||
Net Asset Value per Unit, end of period | $ | 1,108.31 | $ | 964.60 | $ | 1,108.31 | $ | 964.60 |
* | Includes brokerage commissions. |
** | Excludes brokerage commissions. |
Three Months Ended September 30, | Nine Months Ended September 30, | For the Period April 1, 2006 (commencement of trading operations) to September 30, | ||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||
Ratios to average net assets:*** | ||||||||||||||||||||||||
Net investment gain **** | 3.1 | % | 3.6 | % | 3.3 | % | 3.9 | % | ||||||||||||||||
Operating expenses | 0.4 | % | 0.3 | % | 0.4 | % | 0.4 | % | ||||||||||||||||
Total return | (1.0 | )% | (2.5 | )% | 14.2 | % | (1.6 | )% |
*** | Annualized. |
**** | Interest income less total expenses. |
The above ratios may vary for individual investors based on the timing of capital transactions during the period.
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Citigroup Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2007
(Unaudited)
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The Partnership invests substantially all of its assets through a ‘‘master-feeder’’ structure. The results of the Partnership’s investment in the Master are shown in the Statements of Income and Expenses and Partners’ Capital and are discussed in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The respective Customer Agreements between the Partnership and CGM and the Master and CGM give the Partnership and the Master, respectively, the legal right to net unrealized gains and losses.
All of the commodity interests previously owned by the Partnership were held for trading purposes. The average fair values of these interests during the nine and twelve months ended September 30, 2007 and December 31, 2006, based on a monthly calculation, were $0 and $504,239, respectively. All of the commodity interests owned by the Master for the nine months ended September 30, 2007 are held for trading purposes. The average fair value during the nine and twelve months ended September 30, 2007 and December 31, 2006 were $3,062,715 and $1,197,907, respectively. The fair values of these commodity interests, including options thereon, if applicable at September 30, 2007 and December 31, 2006 were $6,290,820 and $6,935,253, respectively. Fair values for exchange traded commodity futures and options are based on quoted market prices for those futures and options. Fair values for all other financial instruments for which market quotations are not readily a vailable are based on other measures of fair value deemed appropriate by the General Partner.
4. Financial Instrument Risks:
In the normal course of its business, the Partnership through its investment in the Master, is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures and options, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash flows, to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (‘‘OTC’’). Exchange traded instruments are standardized and include futures and certain option contracts. OTC contracts are negotiated between contracting p arties and include forwards and certain options. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange traded instruments because of the greater risk of default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial instruments traded by the Master due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded.
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Citigroup Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2007
(Unaudited)
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk with respect to exchange traded instruments is reduced to the extent that an exchange or clearing organization acts as a counterparty to the transactions. The Master’s risk of loss in the event of counterparty default is typically limited to the amounts recognized as unrealized appreciation in the Statements of Financial Condition and not represented by the contract or notional amounts of the instruments. The Partnership, through its investment in the Master, has credit risk and concentration risk because the sole counterparty or broker with respect to the Master’s assets is CGM.
The General Partner monitors and controls the Master’s risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Master is subject. These monitoring systems allow the General Partner to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, on-line monitoring systems provide account analysis of futures, forward and option positions by sector, margin requirements, gain and loss transactions and collateral positions.
The majority of these instruments mature within one year of the inception date. However, due to the nature of the Master’s business, these instruments may not be held to maturity.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only assets are its investment in the Master, and cash. The Master does not engage in the sale of goods or services. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership through its investment in the Master. While substantial losses could lead to a substantial decrease in liquidity, no such losses occurred in the third quarter of 2007.
The Partnership’s capital consists of capital contributions of the partners, as increased or decreased by income (loss) from its investment in the Master, expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.
For the nine months ended September 30, 2007, Partnership capital increased 17.0% from $61,531,441 to $72,014,486. This increase was attributable to the net income from operations of $5,016,854, coupled with the addition of 17,297.4232 Redeemable Units of Limited Partnership Interest totaling $14,195,000 which was partially offset by the redemption of 11,057.5681 Redeemable Units of Limited Partnership Interest totaling $8,728,809. Future redemptions can impact the amount of funds available for investment in commodity contract positions in subsequent periods.
The Master’s capital consists of the capital contributions of the partners as increased or decreased by the realized and/or unrealized gains or losses on commodity futures trading, expenses, interest income, redemptions of units and distribution of profits, if any.
For the nine months ended September 30, 2007, the Master’s capital decreased 2.1% from $226,673,516 to $221,812,625. This decrease was attributable to the redemption of 47,828.3880 Redeemable Units of Limited Partnership Interest totaling $46,878,249, coupled with distribution of interest income to the feeder fund of $5,946,883, which were partially offset by a net gain from operations of $27,559,430, coupled with the addition of 20,290.5243 Redeemable Units of Limited Partnership Interest totaling $20,404,811. Future redemptions can impact the funds available for investments in commodity contract positions in subsequent periods.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
All commodity interests held by the Master (including derivative financial instruments and derivative commodity instruments) are used for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded in the statements of financial condition at fair value on the last business day of the period, which represents market value for those commodity interests for which market quotations are readily available or other measures of fair value deemed appropriate by management of the General Partner for those commodity interests and foreign currencies for which market quotations are not readily available. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing on the last business day of the period. Realized gains (losses) and changes in unrealized values on open positions are recognized in the period in which the contract is closed or the changes occur and are included in net gains (losses) on trading of commodity interests.
The value of the Partnership’s investment in the Master reflects the Partnership’s proportional interest in the Partnership Capital of the Master. All of the income and expenses and unrealized and realized gains and losses from the commodity transactions of the Master are allocated pro rata among the investors at the time of such determination.
Foreign currency contracts are those contracts where the Master agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign currency
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contracts are valued daily, and the Master’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Realized gains (losses) and changes in unrealized values on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur and are included in the Statements of Income and Expenses and Partners’ Capital.
In July 2006, the FASB released FASB Interpretation No. 48 ‘‘Accounting for Uncertainty in Income Taxes’’ (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The Partnership adopted FIN 48 as of January 1, 2007 and the application of this standard did not impact the financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards (‘‘SFAS’’) No. 157, ‘‘Fair Value Measurements.’’ This accounting standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and the interim periods within those fiscal years. As of September 30, 2007, the Partnership is still evaluating the impact the adoption of SFAS No. 157 will have on the financial statement amounts; however, additional disclosures will be required about the inputs used to develop the measurements and the effect of certain measurements on changes in Partners’ Capital for the period.
Results of Operations
During the Partnership’s third quarter of 2007, the Net Asset Value per Redeemable Unit decreased 2.8% from $884.42 to $859.54 as compared to a decrease of 4.2% in the third quarter of 2006. The Partnership experienced a net trading loss (comprised of net realized losses on closed positions and change in net unrealized gains (losses) on open positions allocated from the Master) before brokerage commissions and related fees in the third quarter of 2007 of $1,280,422. Losses were primarily attributable to the Master’s trading of commodity futures in currencies, U.S. and non-U.S. interest rates, livestock and softs and were partially offset by gains in energy, grains, metals and indices. The Partnership experienced a net trading loss before brokerage commissions, related fees and net trading losses allocated from the Master in the third quarter of 2006 of $2,485,475. Losses were primarily attributable to the Master’s trading of commodity futures i n currencies, energy, grains, U.S. and non-U.S. interest rates and metals and were partially offset by gains in softs and indices.
The third quarter of 2007 presented a very difficult trading environment influenced by the sub prime mortgage issue in its various manifestations ranging from high volatility in the equity markets to the unwinding of the Japanese yen carry trade, and to the Partnership sell-offs triggered by forced liquidations, redemptions and margin calls. Amid such high turbulence, several long-term trends were interrupted and the benefits of diversification were eliminated as the domino effect permeated across several sectors. The Partnership registered losses in currencies, fixed-income and agricultural soft commodities markets while it registered gains in energy, metals, stock indices and grains markets.
In currency markets, losses were primarily incurred in Japanese yen and Swiss francs trades. High non-directional volatility was seen especially in the Japanese yen due to the brief unwinding of the currency carry trade. In the fixed income sector, losses were caused by reversal of well-established trends due to widespread uncertainty as the markets speculated the future direction of the interest rates. Trading in soft commodities such as cotton and coffee also contributed to losses.
The Partnership registered gains in the energy sector primarily due to trades in crude oil markets. Weaker U.S. Dollar and strong demand driven by global growth pushed the crude oil price to its highest exchange-listed value. Gains were also registered in grains, especially in wheat as strong technical trends continued to push the prices to new highs. Trading in stock indices modestly contributed to the gains as
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the global markets rebounded from their lows earlier in the quarter. In the metals sector, modest gains were realized primarily from trading in gold while trading in base metals such as copper and aluminum offset some of these gains.
During the Partnership’s nine months ended September 30, 2007, the Net Asset Value per Redeemable Unit increased 8.3% from $793.52 to $859.54 as compared to a decrease of 2.8% for the nine months ended September 30, 2006. The Partnership experienced a net trading gain (comprised of net realized gains on closed positions and change in net unrealized gains (losses) on open positions allocated from the Master) before brokerage commissions and related fees during the nine months of September 30, 2007 of $6,991,557. Gains were primarily attributable to the Master’s trading of commodity futures in currencies, grains, U.S. and Non-U.S. interest rates and indices and were partially offset by losses in energy, livestock, metals and softs. The Partnership experienced a net trading gain before brokerage commissions, related fees and net trading losses allocated from the Master during the nine months ended September 30, 2006 of $156,386. Gains were primarily att ributable to the trading of commodity futures by the Master and the Partnership in U.S. and non-U.S. interest rates, metals, softs and indices and were partially offset by losses in currencies, energy, grains and livestock.
Commodity futures markets are highly volatile. The potential for broad and rapid price fluctuations increases the risks involved in commodity trading, but also increases the possibility of profit. The profitability of the Partnership (and the Master) depends on the existence of major price trends and the ability of the Advisor to correctly identify those price trends. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisor is able to identify them, the Partnership/Master expects to increase capital through operations.
Interest income on 80% of the Partnership’s daily average equity allocated to it by the Master, was earned at a 30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days. CGM may continue to maintain the Master’s assets in cash and/or place all of the Master’s assets in 90-day Treasury bills and pay the Partnership its allocated share of 80% of the interest earned on the Treasury bills purchased. CGM will retain 20% of any interest earned on Treasury bills. Interest income allocated from the Master for the three and nine months ended September 30, 2007 decreased by $66,144 and $304,496, as compared to the allocated and unallocated amount earned directly in the corresponding periods in 2006. The decrease in interest income is primarily due to lower interest rates during the three months ended September 30, 2007 as compared to the corresponding period in 2 006. The decrease in interest income for the nine months ended September 30, 2007 is primarily due to lower average net assets during the nine months ended September 30, 2007 as compared to the corresponding period in 2006.
Brokerage commissions are calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and are affected by trading performance, additions and redemptions. Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values. Commissions and fees for the three months ended September 30, 2007 increased by $10,027 as compared to the corresponding period in 2006. The increase in brokerage commissions is due to higher average adjusted net assets as compared to the corresponding period in 2006. Commissions and fees for the nine months ended September 2007 decreased by $406,464 as compared to the corresponding period in 2006. The decrease in brokerage commissions is due to lower average adjusted net assets as compared to the corresponding period in 2006.
Management fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, additions and redemptions. Management fees for the three months ended September 30, 2007 increased by $7,210 as compared to the corresponding period in 2006. The increase in management fees is due to higher average adjusted net assets as compared to the corresponding period in 2006. Management fees for the nine months ended September 30, 2007 decreased by $136,843 as compared to the corresponding period in 2006. The decrease in management fees is due to lower average adjusted net assets as compared to the corresponding period in 2006.
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Administrative fees are paid to the General Partner for administering the business and affairs of the Partnership. These fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance and redemptions. Administrative fees for the three months ended September 30, 2007 increased by $1,802 as compared to the corresponding period in 2006. The increase in administrative fees is due to higher average adjusted net assets as compared to the corresponding period in 2006. Administrative fees for the nine months ended September 30, 2007 decreased by $34,213 as compared to the corresponding period in 2006. The decrease in administrative fees is due to lower average adjusted net assets as compared to the corresponding period in 2006.
Special Limited Partner profit share allocations are based on the new trading profits generated by the Advisor at the end of the quarter, as defined in the advisory agreement between the Partnership, the General Partner and the Advisor. There were no profit share allocations earned for the three and nine months ended September 30, 2007 or 2006.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
All of the Partnership’s assets are subject to the risk of trading loss through its investment in the Master. The Master is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or substantially all of the Master’s assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Master’s main line of business.
Market movements result in frequent changes in the fair market value of the Master’s open positions and, consequently, its earnings and cash flow. The Master’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Master’s open positions and the liquidity of the markets in which it trades.
The Master rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Master’s past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Master could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Master’s speculative trading and the recurrence in the markets traded by the Master of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Master’s experience to date (i.e., ‘‘risk of ruin’’). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Master’s losses in any market sector will be limited to Value at Risk or by the Master’s attempts to manage its market risk.
Exchange maintenance margin requirements have been used by the Master as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.
The following table indicates the trading Value at Risk associated with the Master’s open positions by market category as of September 30, 2007, and the highest, lowest and average values during the three months ended September 30, 2007. All open position trading risk exposures of the Master have been included in calculating the figures set forth below. As of September 30, 2007, the Master’s total capitalization was $221,812,625. There has been no material change in the trading Value at Risk information previously disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2006.
September 30, 2007
(Unaudited)
Three months ended September 30, 2007 | ||||||||||||||||||||||||||||||
Market Sector | Value at Risk | % of Total Capitalization | High Value at Risk | Low Value at Risk | Average * Value at Risk | |||||||||||||||||||||||||
Currencies: | ||||||||||||||||||||||||||||||
– OTC Contracts | $ | 19,610,569 | 8.84 | % | $ | 25,861,289 | $ | 5,719,304 | $ | 16,176,684 | ||||||||||||||||||||
Energy | 1,443,050 | 0.65 | % | 1,443,050 | 192,150 | 1,002,937 | ||||||||||||||||||||||||
Grains | 60,080 | 0.03 | % | 326,650 | 60,080 | 152,452 | ||||||||||||||||||||||||
Interest Rates U.S. | 125,550 | 0.06 | % | 2,185,300 | 36,268 | 178,117 | ||||||||||||||||||||||||
Interest Rates Non-U.S. | 215,012 | 0.10 | % | 2,478,491 | 215,012 | 318,525 | ||||||||||||||||||||||||
Metals: | ||||||||||||||||||||||||||||||
– Exchange Traded Contracts | 135,000 | 0.06 | % | 187,500 | 4,000 | 56,333 | ||||||||||||||||||||||||
– OTC Contracts | 451,535 | 0.20 | % | 563,721 | 11,349 | 295,998 | ||||||||||||||||||||||||
Softs | 186,150 | 0.08 | % | 217,754 | 44,739 | 115,426 | ||||||||||||||||||||||||
Indices | 783,037 | 0.35 | % | 6,773,850 | 335,292 | 1,219,199 | ||||||||||||||||||||||||
Total | $ | 23,009,983 | 10.37 | % |
* | Average month end Values at Risk. |
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Item 4. Controls and Procedures
The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.
Management is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Partnership’s external disclosures.
The General Partner’s CEO and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2007 and, based on that evaluation, the CEO and CFO have concluded that at that date the Partnership’s disclosure controls and procedures were effective.
The Partnership’s internal control over financial reporting is a process under the supervision of the General Partner’s CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. These controls include policies and procedures that:
• | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; |
• | provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and (ii) the Partnership’s receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements. |
There were no changes in the Partnership’s internal control over financial reporting during the fiscal quarter ended September 30, 2007 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The following information supplements and amends our discussion set forth under Part I, Item 3 ‘‘Legal Proceedings’’ in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, as updated by our Quarterly Report on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007.
Enron-Related Civil Actions
On August 27, 2007, the District Court for the Southern District of New York in In Re. Enron Corp. reversed the rulings of the federal bankruptcy court that certain bankruptcy claims held by Citigroup transferees could be equitably subordinated or disallowed solely because of the alleged misconduct of Citigroup, and remanded for further proceedings.
IPO Regulatory Inquiries
On August 14, 2007, plaintiffs filed amended complaints in the six focus cases as well as amended master allegations for all cases in the coordinated proceedings. On September 27, 2007, plaintiffs filed a motion to certify new classes in the six focus cases.
Item 1A. Risk Factors
There are no material changes from the risk factors set forth under Part I, Item 1A. ‘‘Risk Factors’’ in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and under Part II, Item 1A ‘‘Risk Factors’’ in the Partnership’s Quarterly report on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
For the three months ended September 30, 2007 there were additional sales of 9,750.7030 Redeemable Units of Limited Partnership totaling $8,504,000. The Redeemable Units were issued in reliance upon applicable exemptions from registration under section 4(2) of the Securities Act of 1933, as amended and section 506 of Regulation D promulgated thereunder.
Proceeds from the sale of additional Redeemable Units are used in the trading of commodity interests including futures contracts, options and forwards contracts at the Master level.
The following chart sets forth the purchases of Redeemable Units by the Partnership.
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Period | (a) Total Number of Redeemable Units Purchased* | (b) Average Price Paid per Redeemable Unit* | (c) Total Number of Redeemable Units Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Redeemable Units that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||
July 1, 2007 – July 31, 2007 | 349.4579 | $862.28 | N/A | N/A | |||||||||||||||||
August 1, 2007 – August 31, 2007 | 884.3312 | $832.20 | N/A | N/A | |||||||||||||||||
September 1, 2007 – September 30, 2007 | 131.9347 | $859.54 | N/A | N/A | |||||||||||||||||
1,365.7238 | $851.34 | N/A | N/A |
* Generally, Limited Partners are permitted to redeem their Redeemable Units as of the end of each month on 10 days’ notice to the General Partner. Under certain circumstances, the General Partner can compel redemption but to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnership’s business in connection with effecting redemptions for Limited Partners. |
** Redemptions of Redeemable Units are effected as of the last day of each month at the Net Asset Value per Redeemable Unit as of that day. |
Item 3. | Defaults Upon Senior Securities – None. |
Item 4. | Submission of Matters to a Vote of Security Holders – None. |
Item 5. | Other Information – None. |
Item 6. Exhibits
The exhibits required to be filed by Item 601 of Regulation S-K are incorporated herein by reference to the exhibit index of the Partnership’s Annual Report on Form 10-K for the period ended December 31, 2006. |
Exhibit – 31.1 – Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director) |
Exhibit – 31.2 – Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director) |
Exhibit – 32.1 – Section 1350 Certification (Certification of President and Director) |
Exhibit – 32.2 – Section 1350 Certification (Certification of Chief Financial Officer and Director) |
23
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CITIGROUP FAIRFIELD FUTURES FUND L.P. II
By: | Citigroup Managed Futures LLC | |||||
(General Partner) | ||||||
By: | /s/ Jerry Pascucci | |||||
Jerry Pascucci President and Director | ||||||
Date: | November 14, 2007 | |||||
By: | /s/ Jennifer Magro | |||||
Jennifer Magro Chief Financial Officer and Director | ||||||
Date: | November 14, 2007 |