FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
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 333-108629
Providence Select Fund, Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 20-0069251
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
505 Brookfield Drive, Dover, DE 19901
(Address of principal executive offices, including zip code)
(800) 331-1532
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.
232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ X ]
Smaller Reporting Company [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) f the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ] Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Not Applicable
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Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
The reviewed financial statements for the Registrant for the six months ended
June 30, 2009 are attached hereto and made a part hereof.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General Information
The Registrant (the "Fund") was granted an effective date by the Securities
and Exchange Commission on September 12, 2005. On March 2, 2007, the Fund
commenced business after admission of 46 limited partners, with total
subscriptions of $1,088,370. The Fund, pursuant to the terms of the Limited
Partnership Agreement, is engaged in the business of speculative and high risk
trading of commodity futures and options markets through the services of the
commodity trading advisor its management has selected.
Description of Fund Business
The Fund grants one or more commodity trading advisors ("CTA") a power of
attorney that is terminable at the will of either party to trade the equity
assigned to each CTA by Fund management. From inception to June 2, 2008,
NuWave Investment Corp. was the sole commodity trading advisor of the Fund,
after which time a power of attorney was granted to Clarke Capital Management,
Inc. to serve as sole trading advisor. The General Partner has reserved the
right to add and delete CTAs and reallocate equity assigned as it shall
determine, in its sole discretion, without prior notice to the partners
(investors). The CTA has discretion to select the trades and does not
disclose the methods it uses to make those determinations in its disclosure
documents or to the Fund or to Fund management. There is no promise or
expectation of a fixed or any other return to the investors. The investors
must look solely to trading profits for a return their investment as the
interest income is expected to be less than the fixed expenses to operate the
Fund.
Assets
The general partner has sole authority to determine the percentage of our
assets that will be held on deposit with the futures commission merchant, used
for other investments, and held in bank accounts to pay current obligations.
As of the date of this Report, the partnership maintains approximately 70% of
its assets in a Treasury Direct Account maintained with the United States
Department of the Treasury, and it also retains the right to invest in cash
management funds that invest in U.S. Treasuries and have high liquidity.
Funds maintained with the Department of Treasury and any cash management funds
are in the name of the partnership and not commingled with those of any other
entity. The general partner also maintains approximately 30% of our net
assets with the futures commission merchant ("FCM") for margin for trading by
the trading advisor. Approximately 1% of the previous month's net assets is
retained in our bank accounts to pay expenses and redemptions. The Fund
assets at the FCM consist of cash used as margin to secure futures (formerly
called commodity) trades entered on its behalf by the commodity trading
advisors it selects. The Fund deposits its cash with one or more FCMs
(brokers) that hold and allocate the cash to use as margin to secure the
trades made. The futures held in the Fund accounts are valued at the market
price on the close of business each day by the FCM that holds the Fund equity
made available for trading.
The Capital accounts of the Partners are immediately responsible for all
profit and losses incurred by trading and payment and accrual of the expenses
of offering partnership interests for sale and the operation of the
partnership. During the six months ended June 30, 2008, until the removal of
NuWave on June 2, 2008, the fixed costs of operation included a management fee
of a percentage based on the rate of trading assigned by NuWave and approved
by the General Partner of up to 3.25% annually and a quarterly incentive fee
of 20% paid to the commodity trading advisor, a quarterly incentive fee of up
to 0.5% paid to the general partner, fixed annual brokerage commissions of 6%,
an annual continuing service fee of 3%, and accounting, legal and other
operating expenses that must be paid before the limited partners may earn a
profit on their investment. With the removal of NuWave, all fees to NuWave
were eliminated, and the decision was made to change the Fund's fee structure
such that the General Partner's incentive fee would be eliminated, Clarke
would be paid a quarterly incentive fee of 25%, the annual brokerage
commission to the General Partner would be increased to 7%, and the annual
continuing service fee to the selling agents would be increased to 4%.
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The Fund has not in the past and does not intend in the future to borrow from
third parties. Its trades are entered pursuant to a margin agreement with the
futures commission merchant which obligates the fund to the actual loss, if
any, without reference or limit by the amount of cash posted to secure the
trade. The limited partners are not personally liable for the debts of the
Fund, including any trading losses. By its post effective amendment to its
registration statement on Form S-1 that became effective April 30, 2009, the
Fund updated its prospectus to include up-to-date performance and financials.
The Registrant will, in the future, offer Units for sale to the public until
the balance, as of the date of this Report of $45,976,620 in face amount of
registered Units is sold. As of the date of this Report, of the $50,000,000
in Units registered, $4,023,380 has been sold and, upon redemption by the
holder, will not be resold. Capital available will be dependent upon the
marketing and sales effort put in place by Fund management to sell the
registered limited partnership interests. Absent the registration of
additional Units, the Fund will be capitalized at $50,000,000 subject to
redemption of Units by the holders as they request, which are expected to be
honored by the General Partner.
An Investment in the Fund Depends upon Redemption of Fund Units
The Fund Units are not traded and they have no market value. Liquidity of an
investment in the Fund depends upon the credit worthiness of the exchanges,
brokers, and third parties of off exchange traded futures that hold Fund
equity or have a lien against Fund assets for payment of debts incurred.
Those parties must honor their obligations to the Fund for the Fund to be able
to obtain the return of its cash from the futures commission merchant that
holds the Fund account.
The commodity trading advisor selects the markets and the off exchange
instruments to be traded. The General Partner selects the futures commission
merchants to hold the Fund assets. Both the commodity trading advisor and the
general partner believe all parties who hold Fund assets or are otherwise
obligated to pay value to the Fund are credit worthy. Margin is an amount to
secure the entry of a trade and is not a limit of the profit or loss to be
gained from the trade. The general partner intends to allocate nearly all of
the Fund equity to be used as margin to enter trades. Although it is
customary for the commodity trading advisor to use 40% or less of the equity
available as margin, there is no limit imposed by the Fund upon the amount of
equity the advisors may commit to margin. It is possible for the Fund to
suffer losses in excess of the margin it posts to secure the trades made.
To have the purchase price or appreciation, if any, of the Units, paid to
them, partners must use the redemption feature of the Partnership.
Distributions, although possible in the sole discretion of the general
partner, are not expected to be made. There is no current market for the
Units sold, none is expected to develop and the partnership agreement limits
the ability of a limited partner to transfer the Units.
Results of Operations
The Fund is subject to ongoing offering and operating expenses; however,
profits or losses are primarily generated by the commodity trading advisor by
methods that are proprietary to it. These results are not to be construed as
an expectation of similar profits in the future.
The Limited Partnership Agreement grants solely to the General Partner the
right to select the trading advisor or advisors and to otherwise manage the
operation of the Fund. The CTA selected is responsible for the selection of
trades. See the Registration Statement, incorporated by reference herein, for
an explanation of the operation of the Fund.
The following comparison between the six month periods ended June 30, 2009 and
June 30, 2008 should be read taking into consideration that (i) the Fund did
not commence business until March 2, 2007 and, therefore, had no expectation
of profit generation prior to that; and, (ii) calculations of profits and
losses, including calculation of the net asset value (NAV) and NAV per Unit,
are calculated both for financial reporting purposes, in which the offering
expenses were expensed as incurred during the two periods, and for
subscription and redemption purposes, in which the offering expenses incurred
prior to the commencement of business were deferred until after the twelfth
month following the commencement of business. As of March 4, 2008, these
expenses were amortized on a straight-line basis over the subsequent twenty
four months. See Note 1 to the financial statements herein.
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Discussion for Financial Reporting Purposes
The Fund's realized and unrealized trading gains (losses) before commissions
were $(57,804) [$(39.14) per Unit] and $337,704 [$96.07] per Unit] for the six
months ended June 30, 2009 and June 30, 2008, respectively. The Fund's
results after payment and accrual of expenses for the six months ended June
30, 2009 and June 30, 2008 were profits (losses) of $(187,961) [$(106.36) per
Unit] and $(46,061) [$(11.80) per Unit], respectively. The NAV per Unit as of
June 30, 2009 and June 30, 2008 were $635.95 and $816.87 respectively. The
changes in NAV and NAV per Unit include the results of the intervening
quarters of 2008 and 2009.
Discussion for Subscription and Redemption Purposes
The Fund's realized and unrealized trading gains (losses) before commissions
were $(57,804) [$(39.14) per Unit] and $337,704 [$96.07 per Unit] for the six
months ended June 30, 2009 and June 30, 2008, respectively. The Fund's
results after payment and accrual of expenses for the six months ended June
30, 2009 and June 30, 2008 were profits (losses) of $[(256,640) [$[(128.23)]
per Unit] and [$(91,472)] [$[(20.61)] per Unit], respectively. The net asset
value ("NAV") per Unit as of June 30, 2009, was $686.92, a decrease of 22.17%
from the June 30, 2008 NAV per Unit of $882.54. The changes in NAV and NAV
per Unit include the results of the intervening quarters of 2008 and 2009.
Discussion for all Purposes
The above described performance was primarily due to the trading of the
commodity trading advisor that has traded for the Fund via its proprietary
methods. If a large movement occurs in a sector that a trading advisor
trades, such as agriculture, financials, metals or softs, it does not
necessarily mean that the trading advisor will engage in trades that capture
such moves. Accordingly, market movements and conditions are not necessarily
correlated with Fund performance. Past performance is not necessarily
indicative of future results.
Net additions (withdrawals) for the six months ended June 30, 2009 and June
30, 2008 were $(303,598) and $(166,917), respectively.
Interest income is earned on the Fund's assets, either through investment in
short term cash instruments or through its deposits with the clearing broker.
Interest income to the Fund varies monthly according to interest rates,
trading performance, subscriptions and redemptions. Interest income for the
six months ended June 30, 2009 was $824 a 96.73% decrease over the interest
income for the six months ended June 30, 2008 of $25,214. The decrease in
interest income for the comparative six month periods was primarily due to
significantly reduced short term interest rates and redemptions that lowered
the investment funds available.
Brokerage commissions are calculated on the Fund's equity allocated to trading
as of the end of each month and therefore, vary according to monthly trading
performance, subscriptions and redemptions. See Note 5 to the financial
statements herein for the current brokerage fee amounts. Commissions for the
six months ended June 30, 2009 were $49,352 a 50.50% decrease over the
commissions for six months ended June 30, 2008 of $99,694. The decrease in
commissions for the comparative six month periods was primarily due to
redemptions that lowered the funds invested.
Continuing service fees are calculated on net asset value of the Units sold by
the selling agents as of the end of each month and therefore, vary according
to monthly trading performance, subscriptions and redemptions. See Note 5 to
the financial statements herein for the current continuing service fee
amounts. Such fees for the six months ended June 30, 2009 were $26,454 a
45.74% decrease over such fees for six months ended June 30, 2008 of $48,751.
The decrease in continuing service fees for the comparative six month periods
was primarily due to redemptions.
Pursuant to the Trading Advisory Agreement, the Fund paid a management fee to
the prior trading advisor until it was removed in June 2008, which was
calculated on the value of the Fund equity allocated to the advisor as of the
end of each month, and therefore, was affected by monthly trading performance,
subscriptions and redemptions. No management fee is paid to the current
trading advisor. See Note 5 to the financial statements herein for the
current management fee amounts. Management fees for the six months ended June
30, 2009 were $0 a 100.00% decrease over the management fee for the six months
ended June 30, 2008 of $46,073. The decrease in management fee for the
comparative six month periods was primarily due to the elimination of the
management fee in June 2008.
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Pursuant to the Trading Advisory Agreement, the Fund pays a quarterly
incentive fee to the trading advisor. It also paid the General Partner an
incentive fee until the change in trading advisors. See Note 5 to the
financial statements herein for the current incentive fees. Incentive fees
during the six months ended June 30, 2009 and June 30, 2008 were $0 and
$158,087, respectively. The amounts are directly related to the trading
performance of the trading advisor.
Operating expenses include accounting, audit, tax, and legal fees, as well as
regulatory costs and printing and postage costs related to reports sent to
limited partners. Operating expenses during the six months ended June 30, 2009
and June 30, 2008 were $55,174 and $56,374 respectively. The decrease over the
comparative six month periods was primarily due to reduced state registration
fees from the prior period.
Inflation has had no material impact on the operations or on the financial
condition of the Fund from inception through June 30, 2009.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The business of the Fund is speculative and involves a high degree of risk of
loss. See the Fund's Registration Statement and prospectus contained therein,
incorporated herein, for a full description of the risks attendant to Fund
business.
Item 4T. Controls and Procedures
Disclosure Controls and Procedures
The Registrant has adopted procedures in connection with the operation of its
business including, but not limited to, the review of account statements sent
to the General Partner before the open of business each day that disclose the
positions held overnight in the Fund accounts, the margin to hold those
positions, and the amount of profit or loss on each position, and the net
balance of equity available in each account. The Fund brokerage account
statements and financial books and records accounts are prepared by an
independent CPA Firm and then are reviewed each quarter and audited each year
by a different independent CPA firm.
The General Partner of the Fund, under the actions of its sole principal,
Michael Pacult, 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 Fund as of the
end of the period covered by this Report. Based on their evaluation, Mr.
Pacult has concluded that these disclosure controls and procedures are
effective.
Changes in Internal Control over Financial Reporting
There were no changes in the General Partner's internal control over financial
reporting during the quarter ended June 30, 2009 that have materially
affected, or are reasonably likely to materially affect, internal control over
financial reporting applicable to the Fund.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no legal proceedings against the Fund, its General Partner,
the CTA, the IB or any of their Affiliates, directors or officers. The FCM,
MF Global Inc. ("MFG"), (MFG was formerly known as Man Financial Inc. ("MFI")
until the change of name to MFG was effected on July 19, 2007), has had the
following described reportable events. Neither the Fund nor the General
Partner is a party to any of these events and they are included in reliance
upon a report supplied by MFG without verification by the General Partner.
MFG has represented to the General Partner that that none of the events it has
reported below will not now, or at any time in the future, interfere with its
performance as the FCM for the Fund's account.
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MF Global Inc. ("MFG") is registered under the Commodity Exchange Act, as
amended, as a futures commission merchant and a commodity pool operator, and
is a member of the National Futures Association in such capacities. In
addition, MFG is registered with the Financial Industry Regulatory Authority
as a broker-dealer. MFG was formerly known as Man Financial Inc. ("MFI")
until the change of name to MFG was effected on July 19, 2007. MFG is a
member of all major U.S. futures exchanges and most major U.S. securities
exchanges. MFG's main office is located at 717 Fifth Avenue, 9th Floor, New
York, New York 10022-8101. MFG's telephone number at such location is (212)
589-6200.
At any given time, MFG is involved in numerous legal actions and
administrative proceedings, which in the aggregate, are not, as of the date of
this report, expected to have a material effect upon its condition, financial
or otherwise, or to the services it will render to the Fund. There have been
no administrative, civil or criminal proceedings pending, on appeal or
concluded against MFG or its principals within the five years preceding the
date of this Memorandum that MFI would deem material for purposes of Part 4 of
the Regulations of the Commodity Futures Trading Commission, except as
follows:
In May, 2006, MFI was sued by the Receiver for Philadelphia Alternate Asset
Fund ("PAAF") and associated entities for common law negligence, common law
fraud, violations of the Commodity Exchange Act and RICO violations (the
"Litigation"). In December, 2007, without admitting any liability of any
party to the Litigation to any other party to the Litigation, the Litigation
was settled with MFI agreeing to pay $69 million, plus $6 million of legal
expenses, to the Receiver, in exchange for releases from all applicable
parties and the dismissal of the Litigation with prejudice. In a related
action, MFI settled a CFTC administrative proceeding (In the Matter of MF
Global, f/k/a Man Financial Inc., and Thomas Gilmartin) brought by the CFTC
against MFI and one of its employees for failure to supervise and
recordkeeping violations. Without admitting or denying the allegations, MFI
agreed to pay a civil monetary penalty of $2 million and accepted a cease and
desist order. MFI has informed the General Partner, the Trading Advisor and
the Placement Agent that the settlements referenced above will not materially
affect MFG or its ability to perform as a clearing broker.
On February 20, 2007, MFI also settled a CFTC administrative proceeding (In
the Matter of Steven M. Camp and Man Financial Inc., CFTC Docket No. 07-04) in
which MFI was alleged to have failed to supervise one of its former associated
persons ("AP") who was charged with fraudulently soliciting customers to open
accounts at MFI. The CFTC alleged that the former AP misrepresented the
profitability of a web-based trading system and of a purported trading system
to be traded by a commodity trading advisor. Without admitting or denying the
allegation, MFI agreed to pay restitution to customers amounting to
$196,900.44 and a civil monetary penalty of $120,000. MFI also agreed to a
cease and desist order and to strengthen its supervisory system for overseeing
sales solicitations by employees in connection with accounts to be traded
under letters of direction in favor of third party system providers.
On March 6, 2008, and thereafter, 5 virtually identical proposed class action
securities suits were filed against MFG's parent, MF Global Ltd. ("MF
Global"), certain of its officers and directors, and Man Group plc. These
suits have now been consolidated into a single action. The complaints seek to
hold defendants liable under Sec. Sec. 11, 12, and 15 of the Securities Act
of 1933 by alleging that the registration statement and prospectus issued in
connection with MF Global's initial public offering in July 2007, were
materially false and misleading to the extent that representations were made
regarding MF Global's risk management policies, procedures and systems. The
allegations are based upon MF Global's disclosure of $141.5 million in trading
losses incurred in a single day by an AP in his personal trading account,
which losses MFG was responsible to pay as an exchange clearing member.
In connection with the incident involving the trading losses referenced above,
the CFTC issued a formal order of investigation naming MFG and the AP. The
CFTC, in coordination with the Chicago Mercantile Exchange ("CME"), has been
collecting documentation and taking depositions of MFG employees. This
investigation is ongoing and it is not yet certain what actions the CFTC
and/or the CME might take. MF Global has established an accrual of $10.0
million to cover potential CFTC civil monetary penalties in this matter and
the two CFTC matters referred to below. This is MFG's best estimate at this
time and there is no assurance that the $10.0 million accrual will be
sufficient for these purposes or that the CFTC will not require remedial
measures. No accrual has been made for the CME matter.
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In May 2007, MFG and two of its employees received what is commonly referred
to as a "Wells notice" from the staff of the Division of Enforcement of the
CFTC. The notice relates to two trades MFG executed in 2004 for a customer and
reported to NYMEX. The notice indicates that the Division of Enforcement is
considering recommending to the CFTC that a civil proceeding be commenced
against MFG and the two employees, in which the CFTC would assert that MFG and
the two employees violated Section 9(a)(4) of the Commodity Exchange Act,
which generally prohibits any person from willfully making any false,
fictitious, or fraudulent statements or representations, or making or using
any false writing or document knowing the same to contain any false,
fictitious, or fraudulent statement to a board of trade. The Division of
Enforcement staff contends that MFG and the individuals presented or
participated in the submission of information to NYMEX that falsely
represented the dates on which the trades in question occurred. MFG and the
individuals dispute these contentions. It is not yet certain what action the
CFTC will take, but see the reference to a $10.0 million accrual above.
Additionally, MFG is currently cooperating in an investigation conducted by a
New York County Grand Jury in conjunction with the U.S. Attorneys Office in
the Southern District of New York, with which the CFTC and the SEC are also
involved. The investigation centers around trading by a market making energy
trader at Bank of Montreal (BMO) who allegedly mismarked his book. An MFG
broker did business with the BMO trader, and used bid and offer prices for
forward OTC trades the BMO trader sent to him as a basis for prices which the
MFG broker disseminated to MFG's customers, including BMO, as price
indications that reflected a consensus. MFG has been told that neither MFG nor
the broker are targets of the Grand Jury investigation. In connection with
this investigation, MFG has been served by the CFTC with a Wells notice in
anticipation of civil charges against the broker under the anti-fraud
provisions of CFTC Regulation 33.10 and MFG with derivative liability for the
broker's actions. It is not yet certain what action the CFTC may take against
MFG or the broker, but see the reference to a $10.0 million accrual above.
On December 12, 2008, MFG settled three CME Group disciplinary actions
involving allegations that on a number of occasions in 2006 and 2007, MFG
employees engaged in impermissible pre-execution communications in connection
with trades executed on the e-cbot electronic trading platform, withheld
customer orders that were executable in the market for the purpose of
soliciting, and brokering contra-orders and crossed orders on the e-cbot
trading platform without allowing for the minimum required exposure period
between the entry of the orders. MFG was also charged with failing to properly
supervise its employees in connection with these trades. Without admitting or
denying any wrongdoing, MFG consented to an order of a CME Business Conduct
Committee Panel which found that MFG violated legacy CBOT Rule 504.00 and
Regulations 480.10 and 9B.13 and 9B.13(c) and ordered MFG to pay a $400,000
fine, cease and desist from similar conduct and, in consultation with CME
Market Regulation staff, enhance its training practices and supervisory
procedures regarding electronic trading practices.
The Fund is not aware of any threatened or potential claims or legal
proceedings to which the Fund is a party or to which any of its assets are
subject.
Item 1A. Risk Factors
There have been no material changes from risk factors as previously disclosed
in the Fund's 2008 Form 10-K. The risks of the Fund are (1) described fully
in its prospectus filed with its registration statement on Form S-1, which is
incorporated herein by reference (2) described in summary in Part I of this
Form 10-Q, which is incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
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Item 5. Other Information
(a) None
(b) None
Item 6. Exhibits
31.1 Certification of Principal Executive Officer and Principal Financial
Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-Q for the
period ended June 30, 2009, to be signed on its behalf by the undersigned,
thereunto duly authorized.
Registrant: Providence Select Fund, Limited Partnership
By White Oak Financial Services, Incorporated
Its General Partner
By: /s/ Michael Pacult
Mr. Michael Pacult
Sole Director, Sole Shareholder,
President, and Treasurer of the General Partner
Date: August 18, 2009
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PROVIDENCE SELECT FUND, LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
QUARTERLY REPORT
June 30, 2009
GENERAL PARTNER:
White Oak Financial Services, Inc.
% Corporate Systems, Inc.
505 Brookfield Drive
Dover, Kent County, Delaware 19901
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Index to the Financial Statements
Page
Report of Independent Registered Public Accounting Firm F-2
Statements of Assets and Liabilities F-3
Schedule of Investments - Cash and Securities - June 30, 2009 F-4
Schedule of Investments - Futures Contracts - June 30, 2009 F-5
Schedule of Investments - Cash and Securities - December 31, 2008 F-6
Statements of Operations F-7
Statements of Changes in Net Assets F-8
Statements of Cash Flows F-9
Notes to the Financial Statements F-10 - F-17
Affirmation of the Commodity Pool Operator F-18
F-1
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Jordan, Patke & Associates, Ltd.
Certified Public Accountants
Report of Independent Registered Public Accounting Firm
To the Partners of
Providence Select Fund, Limited Partnership
Dover, Delaware
We have reviewed the accompanying statements of assets and liabilities of
Providence Select Fund, Limited Partnership, as of June 30, 2009 and the
related statements of operations for the three and six months ended June 30,
2009 and 2008, and the statements of changes in net assets and cash flows for
the six months ended June, 2009 and 2008. These financial statements are the
responsibility of the Partnership's management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States),
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States
of America.
We have previously audited, in accordance with the auditing standards of the
Public Accounting Oversight Board (United States), the statement of assets and
liabilities of Providence Select Fund, Limited Partnership as of December 31,
2008 and the related statements of operations, changes in net assets and cash
flows for the year then ended (not presented herein); and in our report dated
March 30, 2009, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
statement of assets and liabilities as of December 31, 2008 is fairly stated,
in all material respects, in relation to the statement of assets and
liabilities from which it has been derived.
/s/ Jordan, Patke & Associates, Ltd.
Jordan, Patke & Associates, Ltd.
Lincolnshire, Illinois
August 12, 2009
300 Village Green Drive, Suite 210 * Lincolnshire, Illinois 60069
Phone: (847) 913-5400 * Fax: (847) 913-5435
F-2
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Assets and Liabilities
<table>
<s> <c> <c>
June 30, December 31,
2009 2008
(A Review)
Assets
Investments
Equity in broker trading accounts
Cash and cash equivalents at broker $391,526 $489,774
Net unrealized gain on open futures contracts 3,710 -
Total equity in broker trading accounts 395,236 489,774
U.S. Treasury Bills (cost $799,658 and $998,736) 799,943 999,803
Cash 39,714 11,826
Interest receivable - 12
Money market fund 1,503 166,464
Prepaid continuing service fee 5,258 -
Total assets 1,241,654 1,667,879
Liabilities
Accrued expenses 13,792 18,426
Accrued commissions payable to related parties 6,754 10,292
Accounts payable - 2,479
Accrued incentive and management fees - 7,367
Redemptions payable 83,352 -
Total liabilities 103,898 38,564
Net assets $1,137,756 $1,629,315
Analysis of net assets
Limited partners $1,112,502 $1,599,838
General partner 25,254 29,477
Net assets (equivalent to $635.95 and $742.31 per unit) $1,137,756 $1,629,315
Partnership units outstanding
Limited partners units outstanding 1,749.36 2,155.21
General partner units outstanding 39.71 39.71
Total partnership units outstanding 1,789.07 2,194.92
</table>
The accompanying notes are an integral part of the financial statements
F-3
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Schedule of Investments - Cash and Securities
June 30, 2009
(A Review)
<table>
<s> <c> <c> <c> <c> <c> <c>
Fair Value Percent
Description Maturity Date Cost Face Value Local Currency U.S. Dollars of Net Assets
United States Treasury Bill July 2009 799,658 800,000 799,943 $799,943
Total United States Treasury Bills $799,943 70.31%
Cash and cash equivalents in trading accounts:
United States Markets 390,174 $390,174
Total cash and cash equivalents in trading accounts
denominated in U.S. Dollars 390,174 34.29%
Cash denominated in foreign currency:
Australian Dollar Markets - AUD 1,676 1,352
Total cash denominated in foreign currency 1,352 0.12%
Total cash and cash equivalents in trading accounts $391,526 34.41%
Money market fund (1502.97 shares at $1 per share) 1,503 $1,503 0.13%
</table>
The accompanying notes are an integral part of the financial statements
F-4
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Schedule of Investments - Futures Contracts
June 30, 2009
(A Review)
<table>
<s> <c> <c> <c> <c>
Fair Value Percent
Description Expiration Date Contracts Local Currency USD of Net Assets
Net unrealized gain (loss) on open futures contracts:
United States commodity futures held short:
Dec 09 CBT Bean Oil (USD) December 2009 4 (1,080) $(1,080)
Total United States commodity futures positions held short (1,080) (0.09)%
United States commodity futures held long:
Sep 09 IMM B-pounds (USD) September 2009 4 5,300 5,300
Total United States commodity futures positions held long 5,300 0.47 %
Euro commodity futures positions held long:
Sep 09 LIF 3M Euriobor (EUR) September 2009 8 50 70
Sep 09 Euro E-Schatz (EUR) September 2009 4 (120) (168)
Total European commodity futures positions held long (98) (0.01)%
British commodity futures positions held long:
Mar 10 LIF 3M STG IR (GBP) March 2010 4 (250) (412)
Total British commodity futures positions held long (412) (0.04)%
Net commodity futures positions $3,710 0.33%
</table>
The accompanying notes are an integral part of the financial statements
F-5
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Schedule of Investments - Cash and Securities
December 31, 2008
<table>
<s> <c> <c> <c> <c> <c> <c>
Fair Value Percent
Description Maturity Date Cost Face Value Local Currency U.S. Dollars of Net Assets
United States Treasury Bill
Total United States Treasury Bills January 2009 998,736 1,000,000 999,803 $999,803 61.36%
Cash and cash equivalents in trading accounts:
United States Markets 489,774 $489,774 30.06%
Total cash denominated in U.S. Dollars 489,774 30.06%
Total cash and cash equivalents in trading accounts $489,774 30.06%
Money market fund (166,464 shares at $1 per share) 166,464 $166,464 10.22%
</table>
The accompanying notes are an integral part of the financial statements
F-6
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Operations
(A Review)
<table>
<s> <c> <c> <c> <c>
Three Months Ended June 30, Six Months Ended June 30,
2009 2008 2009 2008
Investment income
Interest income $336 $8,184 $824 $25,214
Total investment income 336 8,184 824 25,214
Expenses
Commission expense 21,874 48,424 49,352 99,694
Management fees - 18,489 - 46,073
Continuing service fee 14,404 24,063 26,455 48,751
Incentive fees - 50,186 - 158,087
Professional accounting and legal fees 18,379 19,558 40,645 30,640
Other operating and administrative expenses 14,011 1,546 14,529 25,734
68,668 162,266 130,981 408,979
Net investment (loss) (68,332) (154,082) (130,157) (383,765)
Realized and unrealized gain (loss) from investments and foreign currency
Net realized gain (loss) from:
Investments 9,561 256,961 (41,575) 791,449
Foreign currency transactions (2,486) (561,540) (19,939) (464,222)
Net realized gain (loss) from investments and foreign
currency transactions 7,075 (304,579) (61,514) 327,227
Net increase (decrease) in unrealized appreciation (depreciation) on:
Investments 4,220 141,233 4,220 34,686
Foreign currency transactions (510) (55,632) (510) (24,209)
Net increase in unrealized appreciation on investments and
foreign currency transactions 3,710 85,601 3,710 10,477
Net gain (loss) on investments and foreign currency 10,785 (218,978) (57,804) 337,704
Net (decrease) in net assets resulting from operations $(57,547) $(373,060) $(187,961) $(46,061)
Net income (loss) per unit for a single unit outstanding during the period
Limited partnership unit (30.83) (98.99) (106.36) (11.80)
General partnership unit (30.83) (98.99) (106.36) (11.80)
</table>
The accompanying notes are an integral part of the financial statements
F-7
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Changes in Net Assets
(A Review)
<table>
<s> <c> <c> <c>
Partners' Capital
General Limited Total
Net assets at December 31, 2007 $29,302 $3,031,282 $3,060,584
Increase (decrease) in net assets from operations:
Net investment (loss) (7,199) (376,566) (383,765)
Net realized gain from investments and foreign currency transactions 6,138 321,089 327,227
Net increase in unrealized appreciation on
investments and foreign currency transactions 197 10,280 10,477
Net (decrease) in net assets resulting from operations (864) (45,197) (46,061)
Subscriptions 4,000 166,097 170,097
Redemptions - (337,014) (337,014)
Net assets at June 30, 2008 $32,438 $2,815,168 $2,847,606
Net assets at December 31, 2008 $29,477 $1,599,838 $1,629,315
(Decrease) in net assets from operations:
Net investment (loss) (2,924) (127,233) (130,157)
Net realized (loss) from investments and foreign
currency transactions (1,299) (56,505) (57,804)
Net (decrease) in net assets resulting from operations (4,223) (183,738) (187,961)
Subscriptions - 160,011 160,011
Redemptions - (463,609) (463,609)
Net assets at June 30, 2009 $25,254 $1,112,502 $1,137,756
</table>
The accompanying notes are an integral part of the financial statements
F-8
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Cash Flows
(A Review)
<table>
<s> <c> <c>
Six Months Ended June 30,
2009 2008
Cash Flows from Operating Activities
Net (decrease) in net assets resulting from operations $(187,961) $(46,061)
Adjustments to reconcile net increase (decrease) in net assets from operations
to net cash provided by (used in) operating activities:
Changes in operating assets and liabilities:
Unrealized appreciation on investments (3,710) (10,477)
Increase in interest receivable 12 6,475
(Increase) decrease in prepaid continuing service fee (5,258) 37,300
Increase (decrease) in accrued management and incentive fees (7,367) 66,675
(Decrease) in accounts payable (2,479) (14,679)
(Decrease) in accrued expenses (4,634) (1,391)
Net cash provided by (used in) operating activities (211,397) 37,842
Cash Flows from Financing Activities
(Decrease) in due to related parties (3,538) (266,564)
Proceeds from sale of units, net of sales commissions 160,011 170,097
Partner redemptions (380,257) (337,934)
Net cash (used in) financing activities (223,784) (434,401)
Net (decrease) in cash and cash equivalents (435,181) (396,559)
Cash and cash equivalents at the beginning of the period 1,667,867 3,302,395
Cash and cash equivalents at the end of the period $1,232,686 $2,905,836
End of period cash and cash equivalents consist of:
Cash and cash equivalents at broker $391,526 $883,607
U.S. Treasury Bills 799,943 1,998,988
Cash 39,714 22,237
Money market fund 1,503 1,004
Total cash and cash equivalents $1,232,686 $2,905,836
</table>
The accompanying notes are an integral part of the financial statements
F-9
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2009
(A Review)
1. Nature of the Business
Providence Select Fund, Limited Partnership (the Fund) was formed on May 16,
2003 under the Delaware Uniform Limited Partnership Act. The Fund is engaged
in high risk, speculative and hedge trading of futures and forward contracts,
options on futures and forward contracts, and other instruments selected by
registered commodity trading advisors (CTA's). On March 2, 2007, the Fund
commenced business after admission of 46 limited partners, with total
subscriptions of $1,088,370. The maximum offering is $50,000,000. White Oak
Financial Services, Inc. (White Oak) and Michael Pacult are the General
Partners and commodity pool operators (CPO's) of the Fund. From inception
through June 2, 2008, the Fund's CTA was NuWave Investment Corp. From June 2,
2008 forward, the Fund's CTA has been Clarke Capital Management, Inc. The CTA
has the authority to trade as much of the Fund's equity as is allocated to it
by the General Partner. The selling agent is Futures Investment Company (FIC),
which is controlled by Michael Pacult and his wife.
2. Significant Accounting Polices
Regulation - The Fund is a registrant (effective September 12, 2005) with
the Securities and Exchange Commission (SEC) pursuant to the Securities Act of
1933 (the Act). The Fund is subject to the regulations of the SEC and the
reporting requirements of the Securities and Exchange Act of 1934. The Fund is
also be subject to the regulations of the Commodities Futures Trading
Commission (CFTC), an agency of the U.S. government which regulates most
aspects of the commodity futures industry, the rules of the National Futures
Association and the requirements of various commodity exchanges where the Fund
executes transactions. Additionally, the Fund will be subject to the
requirements of futures commission merchants and interbank market makers
through which the Fund trades.
Offering Costs and Organizational Expenses - For financial reporting
purposes in conformity with U.S. Generally Accepted Accounting Principles
(GAAP), on the Fund's initial effective date, September 12, 2005, the Fund
deducted from Limited Partners' capital the total initial offering costs of
$79,876 as of that date and began expensing all subsequent offering costs.
The commencement of business was contingent upon the sale of at least
$1,030,000 of partnership interests. Organizational and operating costs are
expensed as incurred for GAAP purposes. For all other purposes, including
determining the Net Asset Value per Unit for subscription and redemption
purposes, the Fund capitalized all offering and organizational costs until
after the twelfth month following the commencement of business. The Fund has
agreed to reimburse White Oak and other affiliated companies for all expenses
incurred up to the commencement of business, which was March 2, 2007, until
after the twelfth month following the commencement of business. On March 4,
2008, during the thirteenth month following the commencement of business,
White Oak and its affiliates were reimbursed for all such expenses, which
totaled $274,715, and which are being amortized by the Fund on a straight-line
basis at $11,446 per month for twenty four months commencing March 4, 2008.
Any partner in the Fund during this twenty four month period will be exposed
to this per month charge on a pro rata basis.
Consequently, as of June 30, 2009 and December 31 2008, the Net Asset Value
and Net Asset Value per Unit for financial reporting purposes and for all
other purposes are as follows:
<table>
<s> <c> <c> <c> <c>
Balance Per Unit Calculation
June 30, December 31, June 30, December 31,
2009 2008 2009 2008
Net Asset Value for financial reporting purposes $1,137,756 $1,629,315 $635.95 $742.31
Adjustment for initial offering costs 79,876 79,876 44.64 36.39
Adjustment for other offering costs and organizational expenses 11,321 80,000 6.33 36.45
Net Asset Value for all other purposes $1,228,953 $1,789,191 $686.92 $815.15
Number of units 1,789.07 2,194.92
</table>
Registration Costs - Costs incurred for the initial filings with Securities
and Exchange Commission, National Association of Securities Dealers, Inc. and
the states where the offering is expected to be made are included in the
offering expenses and, accordingly, are accounted for as described above under
"Offering Costs and Organizational Expenses".
F-10
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2009
(A Review)
2. Significant Accounting Polices, Continued
Revenue Recognition - Commodity futures contracts are recorded on the trade
date and are reflected in the balance sheet at the difference between the
original contract amount and the market value on the last business day of the
reporting period.
Market value of commodity futures contracts is based upon exchange or other
applicable market best available closing quotations.
Interest income is recognized when it is earned.
Use of Accounting Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure 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.
Income Taxes - The Fund prepares calendar year U.S. and applicable state tax
information tax returns and reports to the partners their allocable shares of
the Fund's income, expenses and trading gains or losses. No provision for
income taxes has been made in the accompanying financial statements as each
partner is individually responsible for reporting income or loss based on such
partner's respective share of the Fund's income and expenses as reported for
income tax purposes.
Management has continued to evaluate the application of Financial Accounting
Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109 (FIN 48)," to the
Fund and has determined that FIN 48 does not have a material impact on the
Fund's financial statements. The Fund files federal and state tax returns.
The 2005 through 2008 tax years generally remain subject to examination for
the U.S. federal and most state tax authorities.
Statement of Cash Flows - For purposes of the Statement of Cash Flows, the
Fund considers cash at broker, cash, U.S. Treasury Bills and money market
funds to be cash equivalents. Net cash provided by operating activities
include no cash payments for interest or income taxes for the periods ended
June 30, 2009 and 2008.
Foreign Currency - Investment securities and other assets and liabilities
denominated in foreign currencies are translated into U.S. dollar amounts at
the date of valuation. Purchases and sales of investment securities and
income and expense items denominated in foreign currencies are translated into
U.S. dollar amounts on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from changes
in the fair values of assets and liabilities, other than investments in
securities at fiscal period end, resulting from changes in exchange rates.
Fair Value Measurement - The Fund adopted the provisions of Statement of
Financial Accounting Statement No. 157 - "Fair Value Measurement", or SFAS
157, as of January 1, 2008. SFAS 157 provides guidance for determining fair
value and requires increased disclosure regarding the inputs to valuation
techniques used to measure fair value. SFAS 157 clarifies the definition of
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
SFAS No. 157 establishes a fair value hierarchy which prioritizes the inputs
to valuation techniques used to measure fair value into three broad levels.
The fair value hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements).
Level 1 inputs are unadjusted quoted prices in active markets for identical
assets or liabilities that the Fund has the ability to access at the
measurement date.
Level 2 inputs are inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for an asset or liability, including
the Fund's own assumptions used in determining the fair value of investments.
Unobservable inputs shall be used to measure fair value to the extent that
observable inputs are not available, thereby allowing for situations in which
there is little, if any, market activity for the asset or liability at the
measurement date. As of and for the period ended June 30, 2009 and year ended
December 31, 2008, the Fund did not have any Level 3 assets or liabilities.
The following table sets forth by level within the fair value hierarchy the
Fund's investments accounted for at fair value on a recurring basis as of June
30, 2009 and December 31, 2008.
<table>
<s> <c> <c> <c> <c>
Fair Value at June 30, 2009
Description Level 1 Level 2 Level 3 Total
Money market funds $1,503 $- $- $1,503
U.S. Treasury Bills - 799,943 - 799,943
Exchange traded - futures contracts 3,710 - - 3,710
Total $5,213 $799,943 $- $805,156
Fair Value at December 31, 2008
Description Level 1 Level 2 Level 3 Total
Money market funds $166,464 $- $- $166,464
U.S. Treasury Bills - 999,803 - 999,803
Total $166,464 $999,803 $- $1,166,267
</table>
F-11
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2009
(A Review)
3. General Partner Duties
The responsibilities of the General Partner, in addition to directing the
trading and investment activity of the Fund, including suspending all trading,
includes executing and filing all necessary legal documents, statements and
certificates of the Fund, retaining independent public accountants to audit
the Fund, employing attorneys to represent the Fund, reviewing the brokerage
commission rates to determine reasonableness, maintaining the tax status of
the Fund as a limited partnership, maintaining a current list of the names,
addresses and numbers of units owned by each Limited Partner and taking such
other actions as deemed necessary or desirable to manage the business of the
Partnership.
The Corporate General Partner has contributed $38,050 in cash for deposit to
the capital of the Fund for a General Partnership interest in the Partnership.
If the net unit value of the partnership falls to less than 50% of the
greater of the original $1,000 selling price, less commissions and other
charges or such higher value earned through trading, then the General Partner
will immediately suspend all trading, provide all limited partners with notice
of the reduction in net unit value and give all limited partners the
opportunity, for fifteen days after such notice, to redeem partnership
interests. No trading shall commence until after the lapse of such fifteen
day period.
4. The Limited Partnership Agreement
The Limited Partnership Agreement provides, among other things, that-
Capital Account - A capital account shall be established for each partner.
The initial balance of each partner's capital account shall be the amount of
the initial contributions to the partnership.
Monthly Allocations - Any increase or decrease in the Partnership's net
asset value as of the end of a month shall be credited or charged to the
capital account of each Partner in the ratio that the balance of each account
bears to the total balance of all accounts.
Any distribution from profits or partners' capital will be made solely at
the discretion of the General Partner.
Federal Income Tax Allocations - As of the end of each fiscal year, the
Partnership's realized capital gain or loss and ordinary income or loss shall
be allocated among the Partners, after having given effect to the fees and
expenses of the Fund.
Subscriptions - Investors must submit subscription agreements and funds at
least five business days prior to month end. Subscriptions must be accepted or
rejected by the general partner within five business days. The investor also
has five business days to withdraw his subscription. Funds are deposited into
an interest bearing subscription account and will be transferred to the Fund's
account after the minimum to commence business has been raised and,
thereafter, on the first business day of the month after the subscription is
accepted. Interest earned on the subscription funds will accrue to the
account of the investor.
Redemptions - A limited partner may request any or all of his investment be
redeemed at the net asset value as of the end of a month. Unless this
requirement is waived, the written request must be received by the general
partner no less than ten days prior to a month end. Redemptions will
generally be paid within twenty days of the effective month end. However, in
various circumstances due to liquidity, etc. the general partner may be unable
to comply with the request on a timely basis. For partners admitted after
July 31, 2008, there will be a redemption fee commencing from the date of
purchase of units of 4% during the first three months, 3% during the second
three months, 2% during the third three months, 1% during the fourth three
months and no redemption fees for redemption requests received in the
thirteenth month or later. For partners admitted prior, there will be a
redemption fee commencing from the date of purchase of units of 3% during the
first four months, 2% during the second four months, 1% during the third four
months and no redemption fees for redemption requests received in the
thirteenth month or later.
F-12
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2009
(A Review)
5. Fees
A monthly management fee is paid to the CTA based on the rate of trading
assigned by the CTA and approved by the General Partner of up to 3.25% (annual
rate) of the Fund's net assets allocated to the CTA to trade.
The Fund pays the Corporate General Partner a fixed brokerage commission of
6% on total Fund net assets, from which the Corporate General Partner pays the
round turn commissions to the futures commission merchant.
A quarterly incentive fee of 20% of "new trading profits" is paid to the CTA
and a 2.5% quarterly incentive fee is paid to the Corporate General Partner.
"New trading profits" includes all income earned by the CTA and expense
allocated to his activity. In the event that trading produces a loss for the
CTA, no incentive fees will be paid and all losses will be carried over to the
following months until profits from trading exceed the loss. It is possible
for the CTA to be paid an incentive fee during a quarter or a year when the
Fund experienced a loss.
The Fund pays the selling agents a 3% continuing service fee based on the
initial investment the first year. Each year thereafter, for so long as the
investment remains in the Fund, the Fund pays this fee at 1/4% monthly based
on the net asset value of the investment.
On June 2, 2008, the Fund changed trading advisors from NuWave to Clarke.
The Fund also made the decision to change the fees as follows:
A 25% quarterly incentive fee of new trading profits is paid to the CTA and
no management fee is paid to it.
Brokerage commissions of 7% annually on total Fund net assets are paid to
the Corporate General Partner, and no incentive fee is paid to it.
A 4% continuing service fee to the selling agents based on the initial
investment the first year. Each year thereafter, for so long as the
investment remains in the Fund, the Fund pays this fee at 1/3% monthly based
on the net asset value of the investment.
The General Partner has reserved the right to change the management fee and
the incentive fee at its sole discretion. The total incentive fees may be
increased to 27% if the management fee is eliminated. The Fund may also
increase the management fees paid to the CTA and general partner to 6% of
total net assets if the total incentive fees are decreased to 15%.
6. Related Party Transactions
Financial Accounting Standards Board Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, identifies certain disclosures to be
made by a guarantor in its financial statements about its obligations under
certain guarantees that it has issued. In the normal course of business, the
Fund has provided general indemnifications to the General Partner, its CTA
and others when they act, in good faith, in the best interests of the Fund.
The Fund is unable to develop an estimate for future payments resulting from
hypothetical claims, but expects the risk of having to make any payments under
these indemnifications to be remote.
F-13
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2009
(A Review)
6. Related Party Transactions, Continued
"Commissions: The Fund has an agreement to pay commissions to White Oak
Financial Services, Inc. The related party is 100% owned by Michael Pacult,
the Fund's CPO. Commissions payable to White Oak Financial Service, Inc. at
June 30, 2009 and December 31, 2008 were $6,754 and $10,292, respectively.
"
Incentive fees: Prior to June 2, 2008, White Oak Financial Services, Inc.
received a quarterly incentive fee (see footnote 5) of new trading profits.
There were no incentive fees due at June 30, 2009 or December 31, 2008.
Continuing service fee: The Fund pays Futures Investment Company a
continuing service fee. Continuing service fees prepaid to Futures Investment
Company amounted to $5,258 and $0 at June 30, 2009 and December 31, 2008,
respectively.
Commissions and fees included in expenses:
Six Months Ended June 30,
2009 2008
White Oak Financial Services, Inc. - commissions $44,972 $92,587
White Oak Financial Services, Inc. - incentive fee $- $2,677
Futures Investment Company -continuing service fee $11,241 $5,082
7. Partnership Unit Transactions
As of June 30, 2009 and 2008 partnership units were valued at $635.95 and
$816.87 per unit respectively for
financial reporting purposes.
Transactions in partnership units were as follows:
<table>
<s> <c> <c> <c> <c>
Units Amount
2009 2008 2009 2008
Limited Partner Units
Subscriptions 213.90 182.31 $160,011 $166,097
Redemptions (619.75) (394.05) (463,609) (337,014)
Net (loss) for the period ended 6/30 - - (183,738) (45,197)
Total (405.85) (211.74) (487,336) (216,114)
General Partner Units
Subscriptions - 4.35 - 4,000
Redemptions - - - -
Net (loss) for the period ended 6/30 - - (4,223) (864)
Total - 4.35 (4,223) 3,136
Total Units
Subscriptions 213.90 186.66 160,011 170,097
Redemptions (619.75) (394.05) (463,609) (337,014)
Net (loss) for the period ended 6/30 - - (187,961) (46,061)
Total (405.85) (207.39) $(491,559) $(212,978)
</table>
F-14
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2009
(A Review)
8. Trading Activities and Related Risks
The Fund is engaged in speculative trading of U.S. and foreign futures
contracts in commodities. The Fund is exposed to both market risk, the risk
arising from changes in market value of the contracts, and credit risk, the
risk of failure by another party to perform according to the terms of a
contract.
A certain portion of cash in trading accounts are pledged as collateral for
commodities trading on margin. 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.
Each U.S. commodity exchange, with the approval of the CFTC and the futures
commission merchant, establish minimum margin requirements for each traded
contract. The futures commission merchant may increase the margin
requirements above these minimums for any or all contracts. In general, the
amount of required margin should never fall below 10% of the Net Asset Value.
The cash deposited in trading accounts at June 30, 2009 and December 31, 2008
was $391,526 and $489,774, respectively, which equals approximately 34.41% and
30.06% of Net Asset Value, respectively.
Trading in futures contracts involves entering into contractual commitments
to purchase or sell a particular commodity at a specified date and price. The
gross or face amount of the contract, which is typically many times that of
the Fund's net assets being traded, significantly exceeds the Fund's future
cash requirements since the Fund intends to close out its open positions prior
to settlement. As a result, the Fund is generally subject only to the risk of
loss arising from the change in the value of the contracts. The market risk is
limited to the gross or face amount of the contracts held of approximately
$5,227,943 on long positions at June 30, 2009 and $0 on long positions at
December 31, 2008. However, when the Fund enters into a contractual commitment
to sell commodities, it must make delivery of the underlying commodity at the
contract price and then repurchase the contract at prevailing market prices or
settle in cash. Since the repurchase price to which a commodity can rise is
unlimited, entering into commitments to sell commodities exposes the Fund to
unlimited potential risk.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and volatility
of interest rates, foreign currency exchange rates, the diversification
effects among the derivative instruments the Fund holds and the liquidity and
inherent volatility of the markets in which the Fund trades.
The net unrealized gains (losses) on open commodity futures contracts for
reporting purposes on June 30, 2009 and December 31, 2008 were $3,710 and $0,
respectively.
Open contracts generally mature within three months of June 30, 2009.
However, the latest maturity for open futures contracts is in March 2010.
However the Fund intends to close all contracts prior to maturity.
In March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging
Activities - an amendment of FASB Statement No. 133." SFAS 161 provides for
disclosures about derivative instruments and hedging activities. SFAS 161 is
intended to improve financial reporting about derivative instruments and
hedging activities by requiring enhanced disclosures to enable investors to
better understand how those instruments and activities are accounted for, how
and why they are used, and their effects on a Fund's financial position,
financial performance and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years.
The Fund adopted the provisions of SFAS 161 effective January 1, 2009.
The following tables disclose the fair values of derivative and hedging
activities in the Statement of Assets and Liabilities and the Statement of
Operations.
Derivative Instruments
Statement of Assets and Liabilities
<table>
<s> <c> <c> <c> <c> <c>
Asset Liability
Derivatives at Derivatives at
June 30, 2009 June 30, 2009
Statement of Assets and Liabilities Location Fair Value Fair Value Net
Derivatives not designated as Commodity contracts Net unrealized gain (loss) on open futures $5,370 $(1,660) $3,710
hedge instruments under contacts
Statement 133
</table>
Derivative instruments
Statement of Operations
<table>
<s> <c> <c> <c> <c>
Three Months Ended Six Months Ended
Line Item in the Statement of Operations June 30, 2009 June 30, 2009
Derivatives not designated Commodity contracts Net realized gain (loss) from investments and $7,075 $(61,514)
as hedge instruments under foreign currency transactions
Statement 133
Net increase in unrealized appreciation on $3,710 $3,710
investments and foreign currency transactions
</table>
Credit risk is the possibility that a loss may occur due to the failure of a
counter party to perform according to the terms of a contract.
The Fund has a substantial portion of its assets on deposit with financial
institutions. In the event of a financial institution's insolvency, recovery
of Fund deposits may be limited to account insurance or other protection
afforded deposits.
The Fund has established procedures to actively monitor market risk and
minimize credit risk although there can be no assurance that it will succeed.
The basic market risk control procedures consist of continuously monitoring
open positions, diversification of the portfolio and maintenance of a
desirable margin-to-equity ratio. The Fund seeks to minimize credit risk
primarily by depositing and maintaining its assets at financial institutions
and brokers which it believes to be creditworthy.
F-15
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2009
(A Review)
9. Derivative Financial Instruments and Fair Value of Financial Instruments
A derivative financial instrument is a financial agreement whose value is
linked to, or derived from, the performance of an underlying asset. The
underlying asset can be currencies, commodities, interest rates, stocks, or
any combination. Changes in the underlying asset indirectly affect the value
of the derivative. As the instruments are recognized at fair value, those
changes directly affect reported income.
All investment holdings are recorded in the statement of assets and
liabilities at their net asset value (fair value) at the reporting date.
Financial instruments (including derivatives) used for trading purposes are
recorded in the statement of assets and liabilities at fair value at the
reporting date. Realized and unrealized changes in fair values are recognized
in net investment gain (loss) in the period in which the changes occur.
Interest income arising from trading instruments is included in the statement
of operations as part of interest income.
Notional amounts are equivalent to the aggregate face value of the
derivative financial instruments. Notional amounts do not represent the
amounts exchanged by the parties to derivatives and do not measure the Fund's
exposure to credit or market risks. The amounts exchanged are based on the
notional amounts and other terms of the derivatives.
10. Financial Instruments with Off-Balance Sheet Credit and Market Risk
All financial instruments are subject to market risk, the risk that future
changes in market conditions may make an instrument less valuable or more
onerous. As the instruments are recognized at fair market value, those
changes directly affect reported income.
Included in the definition of financial instruments are securities,
restricted securities and derivative financial instruments. Theoretically,
the investments owned by the Fund directly are exposed to a market risk (loss)
equal to the notional value of the financial instruments purchased and
substantial liability on certain financial instruments purchased short.
Generally, financial instruments can be closed. However, if the market is not
liquid, it could prevent the timely close-out of any unfavorable positions or
require the Fund to hold those positions to maturity, regardless of the
changes in their value or the trading advisor's investment strategies.
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise
from financial instruments exist for groups of counterparties when they have
similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or
other conditions.
11. Indemnifications
In the normal course of business, the Fund enters into contracts and
agreements that contain a variety of representations and warranties and which
provide general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be made
against the Fund that have not yet occurred. The Fund expects the risk of any
future obligation under these indemnifications to be remote.
F-16
<page>
Providence Select Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2009
(A Review)
12. Financial Highlights
<table>
<s> <c> <c> <c> <c>
Three Months Ended June 30, Six Months Ended June 30,
2009 2008 2009 2008
Performance per Unit (1)
Net unit value, beginning of period $666.78 $915.86 $742.31 $828.67
Net realized and unrealized gain (loss) on
commodity transactions 6.76 (52.50) (39.14) 96.07
Investment and other income 0.18 2.24 0.41 6.80
Expenses (37.77) (48.73) (67.63) (114.67)
Net increase (decrease) for the period (30.83) (98.99) (106.36) (11.80)
Net unit value at the end of the period $635.95 $816.87 $635.95 $816.87
Net assets, end of the period ($000) $1,138 $2,848 $1,138 $2,848
Total return (2) (4.62)% (10.81)% (14.33)% (1.42)%
Number of units outstanding at the end of the period 1,789.07 3,486.00 1,789.07 3,486.00
Ratio to average net assets (3)
Investment and other income 0.08 % 1.04 % 0.10 % 1.62 %
Expenses (19.88)% (20.68)% (16.90)% (26.30)%
</table>
Total return is calculated based on the change in value of a unit during the
period. An individual partner's total return and ratios may vary from the
above total returns and ratios based on the timing of additions and
redemptions.
(1) Investments and other income and expenses and net realized and
unrealized gains and losses on commodity transactions are calculated based on
a single unit outstanding during the period.
(2) Not Annualized
(3) Annualized
F-17
<page>
Providence Select Fund, Limited Partnership
Affirmation of the Commodity Pool Operator
For the six months ended June 30, 2009 and 2008
*****************************************************************************
To the best of the knowledge and belief of the undersigned, the information
contained in this report is accurate and complete.
/s/ Michael Pacult
Michael Pacult
President, White Oak Financial Services, Inc.
General Partner
Providence Select Fund, Limited Partnership
F-18
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