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: 333-115353
The Beacon Financial Futures Fund, L.P.
(Exact name of registrant as specified in charter)
Delaware | 20-0963234 | |
(State of Organization) | (IRS Employer Identification Number) |
c/o Beacon Management Corporation (USA) 116 Village Boulevard Suite 210 Princeton, New Jersey | 08540 | |
(Address of principal executive offices) | (Zip Code) |
(609) 514-1801
(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, 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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No 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
Total number of Pages: 18 plus exhibits
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The Beacon Financial Futures Fund, L.P.
Statements of Financial Condition
September 30, 2007 (Unaudited) and December 31, 2006
September 30, 2007 | December 31, 2006 | |||||
(Unaudited) | ||||||
ASSETS | ||||||
Equity in Brokerage Accounts | ||||||
Cash | $ | 80,994 | $ | 810,883 | ||
Net Unrealized Gain on Open Futures Contracts | — | 12,745 | ||||
Total Equity in Brokerage Accounts | 80,994 | 823,628 | ||||
Cash | 91,915 | 18,642 | ||||
Accounts Receivable | 67,729 | 77,728 | ||||
Other Assets | — | 8,298 | ||||
TOTAL ASSETS | $ | 240,638 | $ | 928,296 | ||
LIABILITIES & PARTNERS’ CAPITAL | ||||||
Liabilities | ||||||
Accrued Commissions | $ | — | $ | 310 | ||
Fixed Asset Fee Payable | 1,108 | 2,742 | ||||
Accrued Expenses | 29,500 | 22,055 | ||||
Redemptions Payable | 210,030 | 107,542 | ||||
Total Liabilities | 240,638 | 132,649 | ||||
Partners’ Capital | ||||||
General Partner’s Capital (units outstanding September 30, 2007 — 0.00, December 31, 2006 — 150.00) | — | 140,354 | ||||
Limited Partners’ Capital (units outstanding September 30, 2007 — 0.00, December 31, 2006 — 700.33) | — | 655,293 | ||||
Total Partners’ Capital | — | 795,647 | ||||
TOTAL LIABILITIES & PARTNERS’ CAPITAL | $ | 240,638 | $ | 928,296 | ||
See Accompanying Notes to the Financial Statements.
3
The Beacon Financial Futures Fund, L.P.
Condensed Schedules of Investments
September 30, 2007 (Unaudited) and December 31, 2006
September 30, 2007 (Unaudited) | December 31, 2006 | ||||||||||||
Description | Value | % of Partners’ Capital | Value | % of Partners’ Capital | |||||||||
LONG FUTURES CONTRACTS | |||||||||||||
Currencies | $ | — | 0.00 | % | $ | (2,325 | ) | -0.29 | % | ||||
Interest Rate Instruments | — | 0.00 | % | (9,398 | ) | -1.18 | % | ||||||
Total long futures contracts | — | 0.00 | % | (11,723 | ) | -1.47 | % | ||||||
SHORT FUTURES CONTRACTS | |||||||||||||
Canadian Dollar1 | — | 0.00 | % | 17,630 | 2.21 | % | |||||||
Other Currencies | — | 0.00 | % | 2,300 | 0.29 | % | |||||||
Interest Rate Instruments | — | 0.00 | % | 4,538 | 0.57 | % | |||||||
Total short futures contracts | — | 0.00 | % | 24,468 | 3.07 | % | |||||||
Total futures contracts | $ | — | 0.00 | % | $ | 12,745 | 1.60 | % | |||||
1 | 16 contracts for March 2007 delivery as of December 31, 2006 |
See Accompanying Notes to the Financial Statements.
4
The Beacon Financial Futures Fund, L.P.
Statements of Operations
For the Three and Nine Months Ended September 30, 2007 and 2006 (Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Income | ||||||||||||||||
Trading Gains and Losses | ||||||||||||||||
Change in Unrealized | $ | (2,983 | ) | $ | 6,464 | $ | (12,745 | ) | $ | 10,429 | ||||||
Realized | (30,281 | ) | (13,086 | ) | (9,376 | ) | (19,072 | ) | ||||||||
Brokerage Commissions | (214 | ) | (604 | ) | (1,004 | ) | (3,429 | ) | ||||||||
Total Trading Losses | (33,478 | ) | (7,226 | ) | (23,125 | ) | (12,072 | ) | ||||||||
Investment Income | ||||||||||||||||
Interest Income | 1,030 | 11,143 | 16,929 | 33,200 | ||||||||||||
Expenses | ||||||||||||||||
Fixed Asset Fee | 3,439 | 15,213 | 24,134 | 47,048 | ||||||||||||
Professional Fees | 11,898 | 9,530 | 42,663 | 44,958 | ||||||||||||
Operating Expenses | 2,882 | 1,192 | 6,573 | 9,874 | ||||||||||||
Offering Expenses | 11,586 | 18,919 | 31,753 | 35,613 | ||||||||||||
Total Expenses Before Reimbursement of Expenses | 29,805 | 44,854 | 105,123 | 137,493 | ||||||||||||
Less: Reimbursement of Expenses | (25,806 | ) | (5,200 | ) | (77,221 | ) | (27,693 | ) | ||||||||
Net Expenses | 3,999 | 39,654 | 27,902 | 109,800 | ||||||||||||
Net Investment Loss | (2,969 | ) | (28,511 | ) | (10,973 | ) | (76,600 | ) | ||||||||
Net Loss | $ | (36,447 | ) | $ | (35,737 | ) | $ | (34,098 | ) | $ | (88,672 | ) | ||||
Net loss per General and Limited Partner Unit (Based on weighted average number of units outstanding during the period) | $ | (139.68 | ) | $ | (34.11 | ) | $ | (121.87 | ) | $ | (86.06 | ) | ||||
Decrease in Net Asset Value per General Partner and Limited Partner Unit | $ | (139.68 | ) | $ | (34.11 | ) | $ | (121.87 | ) | $ | (86.06 | ) | ||||
See Accompanying Notes to the Financial Statements.
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The Beacon Financial Futures Fund, L.P.
Statements of Changes in Partners’ Capital
For the Nine Months Ended September 30, 2007 and 2006 (Unaudited)
Partners’ Capital | |||||||||||||||||||||
General | Limited | Total | |||||||||||||||||||
Units | Amount | Units | Amount | Units | Amount | ||||||||||||||||
Nine Months Ended September 30, 2006 (Unaudited) | |||||||||||||||||||||
Balances at December 31, 2005 | 485.00 | $ | 481,706 | 584.31 | $ | 580,338 | 1,069.31 | $ | 1,062,044 | ||||||||||||
Net Loss for the Nine Months Ended September 30, 2006 | — | (34,618 | ) | — | (54,054 | ) | — | (88,672 | ) | ||||||||||||
Additions | — | — | 108.29 | 102,000 | 108.29 | 102,000 | |||||||||||||||
Redemptions | (160.00 | ) | (152,268 | ) | (10.11 | ) | (9,169 | ) | (170.11 | ) | (161,437 | ) | |||||||||
Balances at September 30, 2006 | 325.00 | $ | 294,820 | 682.49 | $ | 619,115 | 1,007.49 | $ | 913,935 | ||||||||||||
Nine Months Ended September 30, 2007 (Unaudited) | |||||||||||||||||||||
Balances at December 31, 2006 | 150.00 | $ | 140,354 | 700.33 | $ | 655,293 | 850.33 | $ | 795,647 | ||||||||||||
Net Loss for the Nine Months Ended September 30, 2007 | — | (3,709 | ) | — | (30,389 | ) | — | (34,098 | ) | ||||||||||||
Additions | 16.88 | 15,500 | 62.53 | 59,000 | 79.41 | 74,500 | |||||||||||||||
Redemptions | (166.88 | ) | (152,145 | ) | (762.86 | ) | (683,904 | ) | (929.74 | ) | (836,049 | ) | |||||||||
Balances at September 30, 2007 | 0.00 | $ | — | 0.00 | $ | — | 0.00 | $ | — | ||||||||||||
The Beacon Financial Futures Fund, L.P.
Net Asset Value Per General and Limited Partner Unit
(Unaudited)
September 30, 2007 | December 31, 2006 | September 30, 2006 | December 31, 2005 | |||||||
$ | 813.82 | $ | 935.69 | $ | 907.13 | $ | 993.21 |
See Accompanying Notes to the Financial Statements.
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The Beacon Financial Futures Fund, L.P.
Statements of Cash Flows
For the Nine Months Ended September 30, 2007 and 2006 (Unaudited)
Nine Months Ended | ||||||||
September 30, 2007 | September 30, 2006 | |||||||
(Unaudited) | (Unaudited) | |||||||
OPERATING ACTIVITIES | ||||||||
Net Loss | $ | (34,098 | ) | $ | (88,672 | ) | ||
Change in Operating Assets and Liabilities | ||||||||
Equity in Brokerage Accounts | 742,634 | 185,078 | ||||||
Accounts Receivable | 9,999 | 4,681 | ||||||
Other Assets | 8,298 | (34,255 | ) | |||||
Escrow Accounts Receivable | — | 10,000 | ||||||
Accrued Expenses | 7,445 | (12,180 | ) | |||||
Accrued Commissions | (310 | ) | (115 | ) | ||||
Fixed Asset Fee Payable | (1,635 | ) | (5,336 | ) | ||||
Rejected Subscriptions Payable | — | 10,071 | ||||||
Net Cash Provided By Operating Activities | 732,333 | 69,272 | ||||||
FINANCING ACTIVITIES | ||||||||
Partner Additions | 74,500 | 102,000 | ||||||
Partner Redemptions(1) | (733,560 | ) | (152,329 | ) | ||||
Net Cash Used In Financing Activities | (659,060 | ) | (50,329 | ) | ||||
Net Cash Increase for the Period | 73,273 | 18,943 | ||||||
Cash at Beginning of the Period | 18,642 | 32,665 | ||||||
Cash at End of the Period | $ | 91,915 | $ | 51,608 | ||||
(1) | Redemptions payable at December 31, 2006 of $107,542 was paid during the nine month period ended September 30, 2007. Partner redemptions of $210,030 during the three months ended September 30, 2007 were unpaid. |
See Accompanying Notes to the Financial Statements.
7
The Beacon Financial Futures Fund, L.P.
Financial Highlights
For the Three Months and Nine Months Ended September 30, 2007 and 2006 (Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Per Unit Performance | ||||||||||||||||
Net Asset Value per unit at the beginning of the period | $ | 953.50 | $ | 941.24 | $ | 935.69 | $ | 933.20 | ||||||||
Income | ||||||||||||||||
Trading Gains and Losses | (128.29 | ) | (6.96 | ) | (101.27 | ) | (12.41 | ) | ||||||||
Investment Income | ||||||||||||||||
Interest Income | 3.90 | 10.60 | 29.26 | 31.78 | ||||||||||||
Expenses | ||||||||||||||||
Fixed Asset Fee | (13.18 | ) | (14.47 | ) | (42.88 | ) | (45.00 | ) | ||||||||
Other Expenses, net | (2.15 | ) | (23.28 | ) | (6.98 | ) | (60.43 | ) | ||||||||
Total Expenses | (15.33 | ) | (37.75 | ) | (49.86 | ) | (105.43 | ) | ||||||||
Net Investment Loss | (11.39 | ) | (27.15 | ) | (20.60 | ) | (73.65 | ) | ||||||||
Net Loss Per Unit | (139.68 | ) | (34.11 | ) | (121.87 | ) | (86.06 | ) | ||||||||
Net Asset Value per unit at the end of the period | $ | 813.82 | $ | 907.13 | $ | 813.82 | $ | 907.13 | ||||||||
Net investment loss as a percentage of Average Partners’ Capital(1) | -5.24 | % | -11.73 | % | -3.07 | % | -10.31 | % | ||||||||
Expenses as a percentage of Average Partners’ Capital(1) | -7.00 | % | 16.31 | % | -7.28 | % | 14.74 | % | ||||||||
Total return(2) | -14.65 | % | -3.62 | % | -13.02 | % | -8.67 | % |
This information has been derived from information presented in the preceding financial statements. The above ratios were calculated for the partners taken as a whole. The computation of such ratios was not based on the amount of expenses assessed and income allocated to an individual partner’s capital account, which may vary from these ratios based on the timing of capital transactions and different fee arrangements (see Note 2).
(1) | Annualized. |
(2) | Not annualized. |
See Accompanying Notes to the Financial Statements.
8
The Beacon Financial Futures Fund, L.P.
Notes to the Financial Statements (Unaudited)
Note 1: Nature of Operations and Significant Accounting Policies
Nature of Operations:The Beacon Financial Futures Fund, L.P. (a Delaware limited partnership) (the “Partnership”) was organized on April 6, 2004 to engage in speculative trading of a diversified portfolio of commodity interests including futures, options on futures and forward contracts. The Partnership’s limited partnership agreement provides, among other things, that the Partnership shall dissolve no later than December 31, 2052. Beacon Management Corporation (USA), the general partner of the Partnership (the “General Partner”), is registered as a commodity pool operator and commodity trading advisor with the National Futures Association (the “NFA”), an industry self-regulatory organization. UBS Financial Services currently serves as the Partnership’s sole clearing broker. The Partnership may also use Man Financial as an additional clearing broker. The General Partner conducts and manages the business of the Partnership. The General Partner is also the commodity trading advisor of the Partnership. The General Partner made an investment in the Partnership equal to, and will maintain its interest in, the capital of the Partnership at no less than the greater of: (a) 1% of the total investments in the Partnership by all Partners or (b) $25,000. These contributions by the General Partner need not exceed the amount described above and are evidenced by units of General Partnership Interest (“Unit(s) of General Partnership Interest”). On March 31, 2007, the General Partner inadvertently caused its holdings to drop below the $25,000 minimum. The General Partner has subsequently subscribed for additional units to bring its holdings back above the $25,000 minimum. As a commodity investment pool, the Partnership is subject to the regulations of the Commodity Futures Trading Commission, an agency of the United States (U.S.) government, which regulates most aspects of the commodity futures industry; rules of the NFA; and the requirements of commodity exchanges and Futures Commission Merchants (brokers) through which the Partnership trades. As a registrant with the Securities and Exchange Commission, the Partnership is subject to the regulatory requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934. By September 30, 2007 the Partnership ceased trading operations and all units were redeemed.
Significant Accounting Policies:The following are the significant accounting policies of the Partnership:
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Valuation—The majority of the Partnership’s positions are exchange-traded futures contracts, which are valued daily at settlement prices published by the exchanges. Any spot and forward foreign currency contracts held by the Partnership are valued at published daily settlement prices or at dealers’ quotes.
Deposits with Brokers—The Partnership deposits funds with brokers subject to Commodity Futures Trading Commission regulations and various exchange and broker requirements. Margin requirements are satisfied by the deposit of cash with such brokers. The Partnership earns interest income on its cash deposited with the brokers.
Income Recognition—Purchases and sales of futures, options on futures, and forward contracts are recorded on the trade date, and open contracts are reflected at market value with the change in unrealized gains (losses) from one period to the next recorded in the statement of operations. Gains or losses are realized when contracts are liquidated. The specific contracts liquidated are determined by the clearing broker (in most cases on a FIFO basis). Net unrealized gains or losses on open contracts (the difference between contract trade price and quoted market price) are reflected in the statement of financial condition. Brokerage commissions include other trading fees and are charged to expense when contracts are opened.
Net Asset Value—For purposes of both financial reporting and calculation of redemption value, the “net asset value” of a unit is an amount equal to the Partnership’s net assets allocated to capital accounts represented by units, divided by the number of units outstanding. “Net assets” means the total assets of the Partnership, including all cash and cash equivalents, accrued interest and amortization of original issue discount, and the market value of all open futures contracts, options on futures contracts, forward contracts, and other assets of the Partnership, less the total liabilities of the Partnership, including, but not limited to, brokerage, incentive allocations, management fees, interest payable and extraordinary expenses.
Escrow Accounts Receivable—Represents deposits due from an escrow agent for recent limited partner capital additions.
9
Offering Expenses—Offering costs are amortized to expense on a straight line basis over periods from nine to twelve months. In December 2006, the Beacon Management Corporation, as the General Partner of the Beacon Financial Futures Fund, LP, elected to reimburse the Fund in the amount of $52,071 for certain continuing offering expenses that had already been incurred by the Fund throughout the year ended December 31, 2006. As of September 30, 2007, this amount has been reimbursed. Furthermore, effective January 1, 2007, the General Partner agreed to reimburse the Partnership for any future offering expenses in excess of 0.5% of net assets per year at the time that they are incurred.
Income Taxes—The Partnership is a partnership for federal income tax purposes and Partnership income or loss will be includable in the income tax returns of the individual partners. Accordingly, the Partnership is not subject to federal income taxes.
Recent Accounting Pronouncements—On July 13, 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” off 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. Adoption of FIN 48 was effective for the Partnership on January 1, 2007 and did not have an impact on the Partnership’s financial statements.
Note 2: Unit Transactions
Limited partners may purchase units of the Partnership upon approval by the General Partner at the net asset value, as of the last day of each month or on any other date as determined by the General Partner. After holding the units for eleven months, limited partners may require the Partnership to redeem some or all of their units at the net asset value as of the last day of each month without a redemption charge. Any units redeemed before the holder has been a limited partner for six months will be assessed a redemption charge equal to 4 percent of the net asset value per unit on the date of such redemption and units redeemed after six but within eleven months will be assessed a 3 percent redemption charge. Redemption charges will be paid by the redeeming limited partner to the General Partner. Unpaid withdrawals are considered redemptions payable.
Note 3: Partnership Fees and Expenses
Fixed Asset Fee:The Partnership pays the General Partner a fixed, monthly Fixed Asset Fee of 0.525%, or 6.30% annually, of the Partnership’s month-end net asset value. Out of this Fixed Asset Fee, the General Partner pays all introducing, initial and ongoing servicing fees, management fees, trading advisory fees and any other transaction costs of the Partnership except brokerage fees, NFA, exchange and clearing fees, which are paid separately by the Partnership and are estimated at 0.50% annually of net asset value. The Partnership incurred Fixed Asset Fees of $3,439 and $15,213 for the three months ended September 30, 2007 and 2006, respectively and $24,134 and $47,048 for the nine months ended September 30, 2007 and 2006, respectively. The General Partner retains any excess amount. Included in the Fixed Asset Fee are the following amounts that are earned by the General Partner and Uhlmann Price Securities, LLC, the Selling Group Manager.
• | Management Fee—paid monthly to the General Partner at a rate of 1/12th of 1.3% of the Partnership’s month-end net asset value. |
• | Trading Advisory Fee—paid monthly to the General Partner at a rate of 1/12th of 2.0% of the Partnership’s month-end net asset value. |
• | Selling Agent Service Fee—fee to compensate distributors of the units for the Partnership for costs incurred in the distribution of Partnership units. Such distribution costs may include commissions, payments to sales agents, promotional materials, overhead allocations and interest. The selling agent service fee is paid monthly by the Partnership at a rate of 1/12thof 3% of the Partnership’s month-end net asset value. For the first 12 months after the sale of such units, the selling agent service fee is paid monthly by the Partnership to the General Partner, as reimbursement to the General Partner for amounts advanced by the General Partner to the selling agent at the time of the sale of such units. Commencing with the 13th month after the sale of such units, the selling agent service fee is paid to the selling agent. |
Incentive Fees: The Partnership makes an incentive allocation equal to 20% of trading profits to the capital account of the General Partner each quarter. Trading profits means the net new profits (realized and unrealized), excluding interest income, decreased by monthly Fixed Asset Fee and other operating expenses that are chargeable to the Partnership’s net assets, with these trading profits and items of decrease determined from the end of the last period for which an incentive fee was earned. Extraordinary expenses of the Partnership, if any, are not deducted in determining trading profits. If the Partnership makes an incentive allocation and the
10
Partnership fails to earn new trading profits for any subsequent period, the General Partner’s capital account will retain the incentive allocation previously made. However, the Partnership will not make any subsequent incentive allocation until these losses have been recovered and the Partnership has again earned new trading profits. There were no incentive fees earned by the General Partner for the three and nine months ended September 30, 2007 and 2006.
Other Operating Expenses: The Partnership pays all of its own direct legal, accounting, administrative, filing, reporting and data processing expenses. The Partnership will not pay more than 0.50% of net assets in annual audit fees provided the Partnership has not issued more than $5 million in subscriptions. Any excess audit fees are reimbursed by the General Partner. As of September 30, 2007 and December 31, 2006, accounts receivable includes $67,470 and $74,242, respectively, that is due from the General Partner. In accordance with Section IV.C. of the NASAA Registration of Commodity Pool Programs, the Brokerage commissions of the Partnership may not exceed 14% of the Partnership’s average monthly net assets as of the last day of each month during the calendar year. The General Partner will bear any fees in excess of these limitations. Fund Dynamics, a related party was owed $6,000 related to fund administration fees as of September 30, 2007.
Note 4: Financial Instruments with Off-Balance-Sheet Risk
The Partnership’s trading activities involve derivative financial instruments, primarily futures, options on futures, and forward contracts, which have market and/or credit risk. Purchase and sale of futures contracts require margin deposits with the brokers. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires a broker to segregate all customer transactions and assets from such broker’s proprietary activities. A customer’s cash and other property (for example, U.S. Treasury bills) deposited with a broker are considered commingled with all other customer funds subject to the broker’s segregation requirements. In the event of a broker’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than total cash and other property deposited.
Market Risk:Market risk arises primarily from changes in the market value of financial instruments. Generally, the Partnership’s exposure is equal to the notional value of futures contracts purchased and unlimited on such contracts sold short. As both a buyer and seller of options on futures, the Partnership pays or receives a premium at the outset and then bears the risk of unfavorable market variations underlying the option. The risk of loss for purchased options on futures is limited to the premiums paid; written or sold options on futures expose the Partnership to potentially unlimited liability. Exposure to market risk is influenced by a number of factors, including the relationships between financial instruments, and the volatility and liquidity in the markets in which the financial instruments are traded. In many cases, the use of financial instruments may serve to modify or offset market risk associated with other transactions and, accordingly, may serve to decrease the Partnership’s overall exposure to market risk. The Partnership attempts to control its exposure to market risk through various analytical monitoring techniques.
Credit Risk: Credit risk arises primarily from the potential inability of counterparties to perform in accordance with the terms of a contract. The Partnership’s exposure to credit risk associated with counterparty nonperformance is limited to the current cost to replace all contracts in which the Partnership has a gain. Exchange-traded financial instruments generally does not give rise to significant counterparty exposure due to the case settlement procedures for daily market movements and the margin requirements of individual exchanges. The net unrealized gain on open futures contracts is comprised of the following:
Futures Contracts (exchange traded)
September 30, 2007 | December 31, 2006 | ||||||
Gross unrealized gains | $ | — | $ | 25,168 | |||
Gross unrealized losses | — | (12,423 | ) | ||||
Net unrealized gain | $ | — | $ | 12,745 | |||
Open contracts generally mature within three months; as of September 30, 2007, all futures contracts were closed.
Concentration of Credit Risk: The Partnership uses UBS Securities as its clearing broker (“Clearing Broker”). In the event this Clearing Broker does not fulfill its obligations, the Partnership may be exposed to risk. This risk of default depends in part on the creditworthiness of this Clearing Broker. The Partnership attempts to minimize this credit risk by monitoring the creditworthiness of the Clearing Broker. The General Partner has established procedures to actively monitor market risk and minimize credit risk, although there can be no assurance that it will, in fact, succeed in doing so. The Limited Partners bear the risk of loss only to the extent of the market value of their respective investments and, in certain specific circumstances, distributions and redemptions received. The amount of required margin and good faith deposits with the Clearing Broker usually range from 9% to 17% of net asset value. As of September 30, 2007, the Partnership maintained broker cash balances of $80,994 to satisfy such requirements, which equals 34% of net asset value.
11
Note 5: Guarantees
In the normal course of business, the Partnership may enter into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Partnership’s maximum exposure under these arrangements cannot be estimated. However, the Partnership believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for such indemnifications.
Note 6: Interim Financial Statements
The financial statements included herein were prepared by us without audit according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America may be omitted pursuant to such rules and regulations. The financial statements reflect, in the opinion of management, all adjustments necessary that were of normal and recurring nature and adequate disclosures to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the three and nine months ended September 30, 2007 and 2006 are not necessarily indicative of the results to be expected for the full year or for any other period.
These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Form S-1 Registration Statement as filed with the Securities and Exchange Commission.
Note 7: Subsequent Events
As of September 30, 2007, all Limited and General Partnership units were redeemed. Subsequently, the fund distributed $184,085.27 in Limited Partnership interests and $25,944.73 in General Partnership interests.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
INTRODUCTION
On May 13, 2005 the General Partner purchased 999 units bringing its total investment up to 1,000 units and enabling the Partnership to commence trading operations on May 16, 2005. From May 16, 2005 through September 30, 2006, the Partnership sold 692.61 units of limited partnership interest. The continuing offering has commenced and will be ongoing. Between September 30, 2005 and March 31, 2007, the General Partner withdrew 985 units. On March 31, 2007, the General Partner inadvertently caused its holdings to drop below a $25,000 minimum. The General Partner subsequently subscribed for additional units to bring its holdings back above the $25,000 minimum as of June 30, 2007. On August 31, the General Partner subscribed for additional units in the amount of $3,000.
CAPITAL RESOURCES
The Partnership will raise additional capital only through the sale of units offered pursuant to the continuing offering and does not intend to raise any capital through borrowing. Due to the nature of the Partnership’s business, it will make no capital expenditures and will have no capital assets that are not for operating capital.
LIQUIDITY
Most United States commodity exchanges limit fluctuations in futures contracts prices during a single day by regulations referred to as “daily price fluctuation limits” or “daily limits.” During a single trading day, no trades may be executed at prices beyond the daily limit. This may affect the Partnership’s ability to initiate new positions or close existing ones or may prevent it from having orders executed. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the Partnership from promptly liquidating unfavorable positions and subject the Partnership to substantial losses, which could exceed the margin initially committed to such trades. In general, the Partnership will be required to have 9%—17% of its assets committed to margin on deposit with the broker. In addition, even if futures prices have not moved the daily limit, the Partnership may not be able to execute futures trades at favorable prices if little trading in such contracts is taking place.
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Trading in forward contracts introduces a possible further impact on liquidity. Because such contracts are executed “off exchange” between private parties, the time required to offset or “unwind” these positions may be greater than that for regulated instruments. This potential delay could be exacerbated to the extent a counterparty is not a United States person.
Other than these limitations on liquidity, which are inherent in the Partnership’s futures trading operations, the Partnership’s assets are expected to be highly liquid.
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2007
Sector | Three Months | Nine Months | ||||
Currencies | -7.85 | % | -4.83 | % | ||
Interest Rates | -5.64 | % | -6.20 | % | ||
Total | -13.49 | % | -11.03 | % |
Of the return for the three months ended September 30, 2007, approximately (13.49%) was due to trading losses net of commissions and approximately 0.52% due to interest income and approximately (1.68%) due to fees and operating costs borne by the Partnership giving a net gain of (14.65%).
Of the return for the nine months ended September 30, 2007, approximately (11.03%) was due to trading gains net of commissions and approximately 3.32% due to interest income and approximately (5.31%) due to fees and operating costs borne by the Partnership giving a net gain of (13.02%).
The Partnership posted a gain for January. The currency sector posted a gain led by the Japanese yen. During January, the Japanese yen continued a trend towards a lower value relative to the U.S. dollar that began in May 2006. During the last nine months, the Japanese yen declined by nearly 8% relative to the U.S. dollar with nearly 1.5% of this decline during the month. Of the other major foreign currencies, the Australian dollar, Canadian dollar, Euro currency, and Swiss franc, decreased in value relative to the U.S. dollar while the British pound remained unchanged. The interest rate sector posted a gain for the month led by the Eurodollar. The Eurodollar, reflecting short-term U.S. interest rates, resumed a trend toward higher short-term interest rates that began in early December 2006. During this two month period, short-term and long-term rates moved slightly higher. The remaining interest rate contracts, the 30-Year Treasury Bond, 10-Year Treasury Note, and 5-Year Treasury Note moved lower in price, higher in yield, reflecting a gradual shift to higher U.S. interest rates along the yield curve.
The Partnership posted a loss for February. The currency sector posted a loss led by the Japanese yen. During February, the Japanese yen reversed a trend towards a lower value relative to the U.S. dollar that began in May 2006. During the previous nine months, as reported last month, the Japanese yen had declined by nearly 8% relative to the U.S. dollar. During the month of February, the Japanese yen reversed nearly 20% of this previous decline. Of the other major foreign currencies, the Australian dollar, Canadian dollar, Euro currency, and Swiss franc, increased in value relative to the U.S. dollar while the British pound remained unchanged. The interest rate sector posted a loss for the month led by the Eurodollar. The Eurodollar, reflecting short-term U.S. interest rates, reversed a trend toward higher short-term interest rates that began in early December 2006. During February, short-term and long-term rates moved lower reflecting a moderate Federal Reserve stance and a flight to quality in conjunction with the collapse of sub-prime lending market. The remaining interest rate contracts, the 30-Year Treasury Bond, 10-Year Treasury Note, and 5-Year Treasury Note moved higher in price, lower in yield, reflecting a shift to lower U.S. interest rates along the yield curve.
The Partnership posted a loss for March. The currency sector posted a loss led by the Canadian dollar. During March, the Canadian dollar reversed a trend towards a lower value relative to the U.S. dollar that began in August 2006. During the previous six months, the Canadian dollar had declined by more than 5% relative to the U.S. dollar. During the month of March, the Canadian dollar reversed nearly 20% of this previous decline. Of the other major foreign currencies, the Australian dollar, British pound, Euro currency, and Swiss franc, increased in value relative to the U.S. dollar while the Japanese yen declined. The interest rate
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sector posted a loss for the month led by the 5-Year Treasury Note. The 5-Year Note, reflecting intermediate maturity U.S. interest rates, remained unchanged for the month in volatile trade. During February, short-term and long-term rates moved generally lower. During March, rates were generally unchanged. Of the remaining interest rate contracts, the 30-Year Treasury Bond and 10-Year Treasury Note traded in a narrow trading range. The Eurodollar traded higher in price, lower in yield, during the early part of the month and then reversed, ending the month slightly lower in price.
The Partnership posted a gain for April. The currency sector posted a gain led by the Euro currency. During April, the Euro currency continued a trend towards a higher value relative to the U.S. dollar that began in January 2007. During this four month period, the Euro currency has increased by nearly 5.5% relative to the U.S. dollar. During the month of April, the Euro currency contributed nearly 2% of this increase. Of the other major foreign currencies, the Australian dollar, British pound, Euro currency, and Swiss franc, increased in value relative to the U.S. dollar while the Japanese yen declined. The interest rate sector posted a loss for the month led by the 10-Year Treasury Note. The 10-Year Note, reflecting longer-term maturity U.S. interest rates, remained unchanged for the month, trading in a narrow range. During the first four months of 2007, longer-dated Treasury securities have traded in a relatively narrow range. Of the remaining interest rate contracts, the 30-Year Treasury Bond and 5-Year Treasury Note, as stated, traded in a narrow trading range. The Eurodollar traded slightly lower in price, higher in yield, during the month reflecting a slight flattening of the U.S. Treasury yield curve.
The Partnership posted a loss for May. The currency sector posted a loss led by the Euro currency. During May, the Euro currency reversed a trend towards a higher value relative to the U.S. dollar that began in January 2007. During the previous four month period, the Euro currency increased by nearly 5.0% relative to the U.S. dollar. During the month of May, the Euro currency erased nearly 30% of this increase. Of the other major foreign currencies, the Canadian dollar and the Australian dollar increased in value relative to the U.S. dollar while the Japanese yen, Swiss franc, and British pound declined. The interest rate sector posted a gain for the month led by the Eurodollar futures contract. The Eurodollar futures, reflecting shorter-term maturity U.S. interest rates, moved lower in price, higher in yield during the month. During the last three months, short-term interest rates have moved higher by approximately .50%. Of the remaining interest rate contracts, the 30-Year Treasury Bond, 10-Year Treasury Note, and 5-Year Treasury Note also traded lower in price, higher in yield during the month. As a result, the U.S. Treasury yield curve shifted to higher yields across the maturity spectrum.
The Partnership posted a gain for June. The currency sector posted a gain led by the Australian dollar. During June, the Australian dollar continued a trend towards a higher value relative to the U.S. dollar that began in March 2006. During the previous fifteen month period, the Australian dollar increased by nearly 20% relative to the U.S. dollar. During the month of June, the Australian dollar contributed nearly 3% of this increase. Of the other major foreign currencies, the Canadian dollar, British pound, and Euro FX increased in value relative to the U.S. dollar while the Japanese yen declined. The interest rate sector posted a gain for the month led by the 30-Year Treasury Bond. The 30-Year Treasury Bond, reflecting long-term maturity U.S. interest rates, moved lower in price, higher in yield during the month. During the last four months, from the February 2007 low yield, long-term interest rates have moved higher by approximately 0.60%. Of the remaining interest rate contracts, the 10-Year Treasury Note and 5-Year Treasury Note also traded lower in price, higher in yield during the month and the Eurodollar was unchanged. As a result, the U.S. Treasury yield curve became slightly steeper across the maturity spectrum.
The Partnership posted a loss for July 2007. The currency sector posted a loss led by the Japanese yen. During July, the Japanese yen reversed a trend towards a lower value relative to the U.S. dollar that began in May 2006. During the previous sixteen month period, the Japanese yen decreased by nearly 12% relative to the U.S. dollar. During the month of July, the Japanese yen reversed, erasing nearly 35% of this decline. Of the other major foreign currencies, the Australian dollar, Canadian dollar, British pound, Swiss franc, and Euro FX increased in value relative to the U.S. dollar while the Canadian dollar was unchanged. The interest rate sector also posted a loss for the month led by the 5-Year Treasury Notes. The 5-Year Treasury Notes, reflecting intermediate-term maturity U.S. interest rates, moved higher in price, lower in yield during the month. This move reversed the trend of the previous few months towards higher interest rates as the sub-prime mortgage market became unraveled. All of the remaining interest rate contracts, the 30-Year Bond, 10-Year Treasury Notes and Eurodollar also traded higher in price, lower in yield during the month. As a result, the U.S. Treasury yield curve became steeper across the maturity spectrum.
The Partnership posted a loss for August 2007. The currency sector posted a loss led by the Australian dollar. During July the Australian dollar had fallen sharply only to rally at the end of the month and the first week of August. This rally collapsed suddenly in the second week of August with the market dropping almost 10% in just a few days. This pattern was experienced by most currencies as the move was driven largely by U.S. dollar fluctuations caused by almost unprecedented volatility in the U.S. credit markets. The interest rate sector posted a loss for the month led by the Eurodollar which had moved up sharply at the beginning of the month in anticipation of a Fed Rate cut. When the cut didn’t materialize the market fell off sharply. The longer term credit markets
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including five and ten year notes had been in a longer term trend towards lower prices, higher rates but these markets did turn around and shift sharply higher reflecting market expectations of lower rates in the intermediate term future
The Partnership posted a gain for September 2007. The currency sector posted a gain led by the Canadian dollar. During September this currency sharply extended a rally that had begun in mid-August and at the end of September, the Canadian dollar was trading at parity with the U.S. dollar. The Swiss franc also posted strong gains having extended a rally that began in mid-August in response to the turmoil in U.S. interest rate markets. The interest rate sector experienced mixed results with losses in the long-term U.S. Bond market offsetting gains in the 5-Year note market. Long term U.S. Bonds had been in an extended rally since early June but the market abruptly and sharply reversed in early September.
OFF-BALANCE SHEET RISK
The term “off-balance sheet risk” refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in future obligation or loss. The Partnership intends to trade in futures and forward contracts and may therefore become a party to financial instruments with elements of off-balance sheet market and credit risk. In entering into these contracts, there exists a market risk that such contracts may be significantly influenced by conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the futures interests positions of the Partnership at the same time, and if the General Partner was unable to offset such positions, the Partnership could experience substantial losses. The General Partner will access daily positions and profit and loss summaries for the Partnership and will employ various measures to monitor draw-downs, market diversification, and leverage.
In addition to market risk, in entering into futures and forward contracts there is a credit risk that a counterparty will not be able to meet its obligations to the Partnership. The counterparty for futures contracts traded in the United States and on most foreign exchanges is the clearinghouse associated with such exchange. In general, clearinghouses are backed by the corporate members of the clearinghouse who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearinghouse is not backed by the clearing members, like some foreign exchanges, it is normally backed by a consortium of banks or other financial institutions.
CRITICAL ACCOUNTING POLICIES – VALUATION OF THE PARTNERSHIP’S POSITIONS
The General Partner believes that the accounting policies that will be most critical to the Partnership’s financial condition and results of operations relate to the valuation of the Partnership’s positions. The majority of the Partnership’s positions will be exchange-traded futures contracts, which will be valued daily at settlement prices published by the exchanges. Any spot and forward foreign currency contracts held by the Partnership will also be valued at published daily settlement prices or at dealers’ quotes. Thus, the General Partner expects that under normal circumstances substantially all of the Partnership’s assets will be valued on a daily basis using objective measures.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
INTRODUCTION
Past Results Are Not Necessarily Indicative of Future Performance
The Partnership is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or a substantial amount of the Partnership’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 Partnership’s main line of business.
Market movements can produce frequent changes in the fair market value of the Partnership’s open positions and, consequently, in its earnings and cash flow. The Partnership’s market risk is influenced by a wide variety of factors, including the level and volatility of exchange rates, interest rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership’s open positions and the liquidity of the markets in which it trades.
The Partnership may rapidly acquire and liquidate 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 Partnership’s past performance is not necessarily indicative of its future results.
Value at Risk (“VaR”) is a measure of the maximum amount which the Partnership could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnership’s speculative trading and the recurrence in the markets traded by
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the Partnership of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated VaR or the Partnership’s experience to date (i.e., “risk of ruin”). In light of this, as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the Partnership’s losses in any market sector will be limited to VaR or by the Partnership’s attempts to manage its market risk.
Standard of Materiality
Materiality, as used in this section, “Quantitative and Qualitative Disclosures about Market Risk,” is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, and multiplier features of the Partnership’s market sensitive instruments.
QUANTIFYING THE PARTNERSHIP’S TRADING CAPITAL AT RISK
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Partnership’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact (such as the dollar amount of maintenance margin required for market risk sensitive instruments held at the end of the reporting period).
The Partnership’s risk exposure in the various market sectors traded by the Partnership is quantified below in terms of VaR. The Partnership estimates VaR using a model based on historical simulation (with a confidence level of 97.5%) which involves constructing a distribution of hypothetical daily changes in the value of the trading portfolio. The VaR model takes into account linear exposures to risks, including equity and commodity prices, interest rates, and correlation among these variables. The hypothetical changes in portfolio value are based on daily percentage changes observed in key market indices or other market factors to which the portfolio is sensitive. The one day 97.5 confidence level of the Partnership’s VaR corresponds to the negative change in portfolio value that, based on observed market risk factors, would have been exceeded once in 40 trading days or one day in 40. VaR typically does not represent the worst case outcome.
The Partnership uses approximately one year of daily market data and revalues its portfolio for each of the historical market moves that occurred over the period. This generates a probability distribution of daily “simulated profit and loss” outcomes. The VaR is the 2.5 percentile of this distribution.
The VaR for a sector represents the one day downside risk for the aggregate exposures associated with this sector. The aggregate VaR represents the VaR of the Partnership’s open positions across all market sectors, and is less than the sum of the VaRs for all such market sectors due to the diversification benefit across asset classes.
The Partnership’s VaR computations are based on the risk representation of the underlying benchmark for each instrument or contract and does not distinguish between exchange and non-exchange dealer-based instruments. It is also not based on exchange and/or dealer based maintenance margin requirements.
VaR models, including the Partnership’s, are continually evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve. Please note that the VaR model is used to numerically quantify market risk for historic reporting purposes only and is not utilized by the Partnership in its daily risk management activities. Please further note that VaR as described above may not be comparable to similarly titled measures used by other entities.
Due to the Partnership’s mark-to-market accounting, any loss in the fair value of the Partnership’s open positions is directly reflected in the Partnership’s earnings (realized or unrealized).
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THE PARTNERSHIP’S TRADING CAPITAL AT RISK IN DIFFERENT MARKET SECTORS
Sector | Value At Risk September 30, 2007 | Value At Risk December 31, 2006 | ||||
Currencies | 0.00 | % | -1.24 | % | ||
Interest Rates | 0.00 | % | -0.44 | % | ||
Entire Portfolio | 0.00 | % | -1.24 | % |
MATERIAL LIMITATIONS ON CAPITAL AT RISK AS AN ASSESSMENT OF MARKET RISK
The face value of the market sector instruments held by the Partnership may typically be many times the risk determined by the VaR calculation. The magnitude of the Partnership’s open positions could create a “risk of ruin” not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions — unusual, but historically recurring from time to time — could cause the Partnership to incur severe losses over a short period of time. The Value at Risk tables — as well as the past performance of the Partnership — give no indication of this “risk of ruin.”
The highly dynamic nature of the Partnership’s portfolio limits the usability of an analysis method (such as VaR), which relies upon the Partnership’s positions as of a single point in time.
Historical price behavior (which is relied upon by the VaR calculation) may not be an accurate predictor of the future price behavior of the markets in the Partnership’s portfolio.
NON-TRADING RISK
The Partnership may experience non-trading market risk on any foreign cash balances not needed for margin. However, these balances (as well as the market risk they represent) are expected to be immaterial. The Partnership also may have non-trading market risk as a result of investing in U.S. Treasury Bills. The market risk represented by these investments is expected to be immaterial.
QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES
The following qualitative disclosures regarding the Partnership’s market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Partnership manages its primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Partnership’s primary market risk exposures as well as the strategies used and to be used by the General Partner for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Partnership. There can be no assurance that the Partnership’s market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Partnership.
As of September 30, 2007, the fund ceased trading operations and there were no primary risk exposures.
QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE
The Partnership is unaware of any (i) anticipated known demands, commitments or capital expenditures; (ii) material trends, favorable or unfavorable, in its capital resources; or (iii) trends or uncertainties that will have a material effect on operations. From time to time, certain regulatory agencies have proposed increased margin requirements on futures contracts. Because the Partnership generally will use a small percentage of assets as margin, the Partnership does not believe that any increase in margin requirements, as proposed, will have a material effect on the Partnership’s operations.
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QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE
The means by which the Partnership attempts to manage the risk of the Partnership’s open positions is essentially the same in all market categories traded. The General Partner applies risk management policies to trading which generally are designed to limit the total exposure that may be taken per “risk unit” of assets under management. In addition, the General Partner follows diversification guidelines (often formulated in terms of the balanced volatility between markets and correlated groups), as well as adopting non-binding “stop-loss” points for each of the markets in which the Partnership trades.
ITEM 4. | CONTROLS AND PROCEDURES |
Beacon Management Corporation (USA), the General Partner of the Partnership, with the participation of the General Partner’s chief executive officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) with respect to the Partnership as of the end of the year covered by this annual report. Based on this evaluation, our Chief Executive Officer concluded that these disclosure controls and procedures were effective, except as discussed in the next paragraph below, in timely alerting him to material information relating to the Partnership required to be included in our periodic filings with the Securities and Exchange Commission. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The General Partner has designed its disclosure controls and procedures to reach a level of reasonable assurance of achieving desired control objectives and, based on the evaluation described above, the General Partner’s Chief Executive Officer concluded that the disclosure controls and procedures were effective at reaching that level of reasonable assurance, except as discussed in the next paragraph below.
The General Partner has identified a material weakness within its internal control framework relating to the preparation and timeliness of financial reporting and in connection with the adequacy of segregation of duties. The General Partner attributes this material weakness to limited personnel resources. Though the Partnership has implemented levels of supervisory reviews and employs a temporary workforce from time to time, there can be no assurance that these measures can definitively prevent transactional errors from occurring or provide the necessary accounting and financial reporting support to the General Partner’s accounting and finance department.
There were no changes in the General Partner’s internal control over financial reporting applicable to the Partnership identified in connection with the evaluation required by paragraph (d) of the Exchange Act Rules 13a-15 or 15d-15 that occurred during the last fiscal quarter that have materially affected, or is reasonably likely to materially affect, internal control over financial reporting applicable to the Partnership.
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Item 1. | Legal Proceedings. |
None
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None
Item 3. | Defaults upon Senior Securities. |
Not applicable.
Item 4. | Submissions of Matters to a Vote of Security Holders. |
None
Item 5. | Other Information |
None
Item 6. | Exhibits. |
See attached exhibit list.
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 on November 14, 2007.
THE BEACON FINANCIAL FUTURES FUND, L.P. | ||
(Registrant) | ||
By: | Beacon Management Corporation (USA) | |
General Partner | ||
By: | /s/ Mark S. Stratton | |
Mark S. Stratton | ||
President |
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EXHIBIT INDEX
Exhibit Number | Description of Document | |
31.01 | Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.01 | Certification by Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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