Attached files
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EXCEL - IDEA: XBRL DOCUMENT - FAIRFIELD FUTURES FUND LP II | Financial_Report.xls |
EX-31.1 - EX-31.1 - FAIRFIELD FUTURES FUND LP II | y05244exv31w1.htm |
EX-32.1 - EX-32.1 - FAIRFIELD FUTURES FUND LP II | y05244exv32w1.htm |
EX-32.2 - EX-32.2 - FAIRFIELD FUTURES FUND LP II | y05244exv32w2.htm |
EX-31.2 - EX-31.2 - FAIRFIELD FUTURES FUND LP II | y05244exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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
OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2011
OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 000-51282
FAIRFIELD FUTURES FUND L.P. II
(Exact name of registrant as specified in its charter)
New York | 56-2421596 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
c/o Ceres Managed Futures LLC
522 Fifth Avenue 14th Floor
New York, New York 10036
522 Fifth Avenue 14th Floor
New York, New York 10036
(Address of principal executive offices) (Zip Code)
(212) 296-1999
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant 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 (§232.405 of the 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 the definitions 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
Exchange Act).
Yes No X
As of
October 31, 2011, 23,828.3246 Limited Partnership Redeemable Units were outstanding.
FAIRFIELD FUTURES FUND L.P. II
FORM 10-Q
INDEX
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
2
Table of Contents
PART I
Item 1. Financial Statements
Fairfield Futures Fund L.P. II
Statements of Financial Condition
(Unaudited) | ||||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets: |
||||||||
Investment in Master, at fair value |
$ | 22,884,185 | $ | 38,570,051 | ||||
Cash |
188,567 | 201,347 | ||||||
Total assets |
$ | 23,072,752 | $ | 38,771,398 | ||||
Liabilities and Partners Capital: |
||||||||
Liabilities: |
||||||||
Accrued expenses: |
||||||||
Brokerage fees |
$ | 86,523 | $ | 145,393 | ||||
Management fees |
38,154 | 64,178 | ||||||
Administrative fees |
9,539 | 16,045 | ||||||
Other |
93,793 | 118,947 | ||||||
Redemptions payable |
586,059 | 469,933 | ||||||
Total liabilities |
814,068 | 814,496 | ||||||
Partners Capital: |
||||||||
General
Partner, 413.8866 and 546.3187 unit equivalents outstanding at
September 30, 2011 and December 31, 2010, respectively |
375,416 | 579,475 | ||||||
Special Limited Partner, 442.4015 units outstanding at
September 30, 2011 and December 31, 2010 |
401,280 | 469,251 | ||||||
Limited Partners, 23,683.4311 and 34,796.4209 Redeemable Units
outstanding at September 30, 2011 and December 31, 2010, respectively |
21,481,988 | 36,908,176 | ||||||
Total partners capital |
22,258,684 | 37,956,902 | ||||||
Total liabilities and partners capital |
$ | 23,072,752 | $ | 38,771,398 | ||||
Net asset value per unit |
$ | 907.05 | $ | 1,060.69 | ||||
See accompanying notes to financial statements.
3
Table of Contents
Fairfield Futures Fund L.P. II
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Investment Income: |
||||||||||||||||
Interest income allocated from Master |
$ | 769 | $ | 10,868 | $ | 9,304 | $ | 25,806 | ||||||||
Expenses: |
||||||||||||||||
Expenses allocated from Master |
37,229 | 33,221 | 127,616 | 103,853 | ||||||||||||
Brokerage fees |
287,840 | 463,219 | 1,101,947 | 1,379,323 | ||||||||||||
Management fees |
126,877 | 204,946 | 485,923 | 610,372 | ||||||||||||
Administrative fees |
31,720 | 51,237 | 121,481 | 152,594 | ||||||||||||
Other |
567 | 129,628 | 101,359 | 262,050 | ||||||||||||
Total expenses |
484,233 | 882,251 | 1,938,326 | 2,508,192 | ||||||||||||
Net investment income (loss) |
(483,464 | ) | (871,383 | ) | (1,929,022 | ) | (2,482,386 | ) | ||||||||
Trading Results: |
||||||||||||||||
Net realized gains (losses) on closed contracts allocated from Master |
(1,560,820 | ) | (136,394 | ) | (2,249,394 | ) | (373,594 | ) | ||||||||
Change in net unrealized gains (losses) on open contracts allocated from Master |
448,530 | 1,564,039 | (466,432 | ) | 882,177 | |||||||||||
Total trading results allocated from Master |
(1,112,290 | ) | 1,427,645 | (2,715,826 | ) | 508,583 | ||||||||||
Net income (loss) |
(1,595,754 | ) | 556,262 | (4,644,848 | ) | (1,973,803 | ) | |||||||||
Subscriptions Limited Partners |
0 | 2,494,500 | 0 | 5,950,500 | ||||||||||||
Redemptions General Partner |
(125,000 | ) | 0 | (125,000 | ) | (700,077 | ) | |||||||||
Redemptions Limited Partners |
(3,240,890 | ) | (633,772 | ) | (10,928,370 | ) | (4,861,191 | ) | ||||||||
Net increase (decrease) in Partners Capital |
(4,961,644 | ) | 2,416,990 | (15,698,218 | ) | (1,584,571 | ) | |||||||||
Partners Capital, beginning of period |
27,220,328 | 39,363,665 | 37,956,902 | 43,365,226 | ||||||||||||
Partners Capital, end of period |
$ | 22,258,684 | $ | 41,780,655 | $ | 22,258,684 | $ | 41,780,655 | ||||||||
Net asset
value per unit (24,539.7192 and 40,856.7724
units outstanding at September 30, 2011 and 2010, respectively) |
$ | 907.05 | $ | 1,022.61 | $ | 907.05 | $ | 1,022.61 | ||||||||
Net income (loss) per unit* |
$ | (63.30 | ) | $ | 13.17 | $ | (153.64 | ) | $ | (49.00 | ) | |||||
Weighted average units outstanding |
26,629.8951 | 40,401.0679 | 31,913.5187 | 40,037.1669 | ||||||||||||
*Based on change in net asset value per unit.
See accompanying notes to financial statements.
4
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
September 30, 2011
(Unaudited)
1. General:
Fairfield Futures Fund L.P. II
(the Partnership) is a limited partnership organized
on December 18, 2003 under the partnership laws of the State of New York to engage, directly or indirectly, in the
speculative trading of a diversified portfolio of commodity interests including futures contracts,
options, swaps and forward contracts. The sectors traded include currencies, energy, grains,
indices, U.S. and non-U.S. interest rates, livestock, metals and softs. The Partnership
commenced trading operations on March 15, 2004. The commodity interests that are traded by the Partnership, through its investment in the
Master (as defined below), are volatile and involve a high degree of market risk.
Between January 12, 2004 (commencement of the offering period) and March 12, 2004, 28,601
redeemable units of limited partnership interest (Redeemable
Units) and 285 General Partner unit equivalents were sold at $1,000 per unit. The proceeds of the initial offering
were held in an escrow account until March 15, 2004 at which time they were remitted to the
Partnership for trading. The Partnership was authorized to sell 200,000 Redeemable
Units during its initial offering period. Effective January 31, 2011,
the Partnership no longer offers Redeemable Units for sale.
Ceres Managed Futures LLC, a Delaware
limited liability company, acts as the general partner
(the General Partner) and commodity pool operator of the Partnership. The General Partner is
wholly owned by Morgan Stanley Smith Barney Holdings LLC (MSSB Holdings).
Morgan Stanley, indirectly through various subsidiaries, owns a majority equity interest in MSSB Holdings. Citigroup
Global Markets Inc. (CGM), the commodity broker for the Partnership, owns a
minority equity interest in MSSB Holdings. Citigroup Inc. (Citigroup),
indirectly through various subsidiaries, wholly owns CGM. Prior to July 31, 2009, the date as of
which MSSB Holdings became its owner, the General Partner was wholly owned by Citigroup Financial
Products Inc., a wholly owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner of which is
Citigroup.
As of September 30, 2011, all trading decisions for the Partnership are made by the Advisor (defined below).
As of September 30, 2011, all trading decisions for the Partnership are made by the Advisor (defined below).
On June 1, 2006, the Partnership allocated substantially all of its capital to the CMF Graham
Capital Master Fund L.P. (the Master), a limited partnership organized under the partnership laws
of the State of New York. The Partnership purchased 74,569.3761 units
of the Master with cash equal to
$75,688,021. The Master was formed in order to permit accounts
managed by Graham Capital Management,
L.P. (Graham or the Advisor) using the K4D-15V Program, the Advisors proprietary, systematic
trading program, to invest together in one trading vehicle. The General Partner is also the general
partner of the Master. In addition, the Advisor is a special limited
partner (in its capacity as special limited partner, the Special Limited
Partner) of the Partnership. The Masters commodity broker is CGM. Individual and pooled accounts
currently managed by the Advisor, including the Partnership, are permitted to be limited partners
of the Master. The General Partner and the Advisor believe that trading through this master-feeder
structure promotes efficiency and economy in the trading process. Expenses to investors as a result
of the investment in the Master are approximately the same and redemption rights are not affected.
The General Partner is not aware of any material changes to the trading program discussed
above during the fiscal quarter ended September 30, 2011.
At
September 30, 2011, the Partnership owned approximately 16.0% of the Master. At December 31,
2010, the Partnership owned approximately 22.8% of the Master. It is the Partnerships intention to
continue to invest substantially all of its assets in the Master. The performance of the
Partnership is directly affected by the performance of the Master. The Masters trading of futures, forwards, swaps and options contracts, if applicable, on
commodities is done primarily on U.S. and foreign commodity exchanges. It
engages in such trading through a commodity brokerage account maintained with CGM.
The Masters Statements of
Financial Condition, Condensed Schedules of Investments and Statements of Income and Expenses and
Changes in Partners Capital are included herein.
The General Partner and each limited partner share in the profits and losses of the
Partnership, after the allocation to the Special Limited Partner, in proportion to the amount of
Partnership interest owned by each except that no limited partner shall be liable for obligations
of the Partnership in excess of its capital contribution and profits, if any, net of
distributions.
The
accompanying financial statements and accompanying notes are unaudited but, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of
the Partnerships financial condition at September 30, 2011
and
December 31, 2010, and the results of its operations
and changes in partners capital for the three and nine months ended September 30, 2011 and
5
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
2010. These financial statements present the results of interim periods and do not include all
disclosures normally provided in annual financial statements. These financial statements should be
read together with the financial statements and notes included in the Partnerships Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the SEC) for the year ended
December 31, 2010.
The
preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America
(GAAP) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, income and expenses, and related disclosures of contingent
assets and liabilities in the financial statements and accompanying notes.
As a result, actual results could differ from these estimates.
Due to the nature of commodity trading, the results of operations for the interim periods
presented should not be considered indicative of the results that may be expected for the entire
year.
6
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
The Masters Statements of Financial Condition and Condensed Schedules of Investments as of
September 30, 2011 and December 31, 2010 and Statements of Income and Expenses and Changes in Partners
Capital for the three and nine months ended September 30, 2011 and 2010 are presented below:
CMF Graham Capital Master Fund L.P.
Statements of Financial Condition
Statements of Financial Condition
(Unaudited) | ||||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets: |
||||||||
Equity in trading account: |
||||||||
Cash |
$ | 129,326,288 | $ | 151,476,359 | ||||
Cash margin |
12,914,704 | 14,248,524 | ||||||
Net unrealized appreciation on open futures contracts |
41,546 | 1,429,574 | ||||||
Net unrealized appreciation on open forward contracts |
718,861 | 1,819,046 | ||||||
Total assets |
$ | 143,001,399 | $ | 168,973,503 | ||||
Liabilities and Partners Capital: |
||||||||
Liabilities: |
||||||||
Accrued expenses: |
||||||||
Professional fees |
$ | 43,258 | $ | 48,832 | ||||
Total liabilities |
43,258 | 48,832 | ||||||
Partners Capital: |
||||||||
General
Partner, 0.0000 unit equivalents at September 30, 2011 and
December 31, 2010 |
0 | 0 | ||||||
Limited Partners, 90,157.9131 and 96,248.2420
units outstanding at September 30, 2011 and December 31, 2010,
respectively |
142,958,141 | 168,924,671 | ||||||
Total liabilities and partners capital |
$ | 143,001,399 | $ | 168,973,503 | ||||
Net asset value per unit |
$ | 1,585.64 | $ | 1,755.09 | ||||
7
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
CMF Graham Capital Master Fund L.P.
Condensed Schedule of Investments
September 30, 2011
Condensed Schedule of Investments
September 30, 2011
(Unaudited)
Notional ($)/ Number | % of Partners | |||||||||||
of Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased |
||||||||||||
Currencies |
90 | $ | (10,151 | ) | (0.01 | )% | ||||||
Energy |
109 | (609,580 | ) | (0.43 | ) | |||||||
Grains |
127 | (1,020,436 | ) | (0.71 | ) | |||||||
Indices |
265 | (561,775 | ) | (0.39 | ) | |||||||
Interest Rates U.S. |
777 | (353,172 | ) | (0.25 | ) | |||||||
Interest Rates Non-U.S. |
1,536 | (601,045 | ) | (0.42 | ) | |||||||
Metals |
12 | (200,616 | ) | (0.14 | ) | |||||||
Softs |
11 | (10,259 | ) | (0.01 | ) | |||||||
Total futures contracts purchased |
(3,367,034 | ) | (2.36 | ) | ||||||||
Futures Contracts Sold |
||||||||||||
Currencies |
108 | 166,072 | 0.12 | |||||||||
Energy |
417 | 1,237,719 | 0.87 | |||||||||
Grains |
390 | 1,559,321 | 1.09 | |||||||||
Indices |
444 | 208,670 | 0.14 | |||||||||
Interest Rates U.S. |
212 | (8,175 | ) | (0.01 | ) | |||||||
Interest Rates Non-U.S. |
132 | (6,290 | ) | (0.00) | * | |||||||
Livestock |
53 | (110,294 | ) | (0.08 | ) | |||||||
Metals |
31 | 325,827 | 0.23 | |||||||||
Softs |
133 | 35,730 | 0.02 | |||||||||
Total futures contracts sold |
3,408,580 | 2.38 | ||||||||||
Unrealized Appreciation on Open Forward Contracts |
||||||||||||
Currencies |
$509,254,977 | 8,472,749 | 5.93 | |||||||||
Metals |
208 | 1,747,824 | 1.22 | |||||||||
Total unrealized appreciation on open forward contracts |
10,220,573 | 7.15 | ||||||||||
Unrealized Depreciation on Open Forward Contracts |
||||||||||||
Currencies |
$493,557,883 | (8,924,774 | ) | (6.24 | ) | |||||||
Metals |
65 | (576,938 | ) | (0.40 | ) | |||||||
Total unrealized depreciation on open forward contracts |
(9,501,712 | ) | (6.64 | ) | ||||||||
Net fair value |
$ | 760,407 | (0.53 | )% | ||||||||
* | Due to rounding |
8
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
CMF Graham Capital Master Fund L.P.
Condensed Schedule of Investments
December 31, 2010
Condensed Schedule of Investments
December 31, 2010
Notional ($)/ |
||||||||||||
Number of |
% of Partners |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased
|
||||||||||||
Currencies
|
228 | $ | 359,313 | 0.21 | % | |||||||
Energy
|
283 | 315,626 | 0.19 | |||||||||
Grains
|
266 | 558,739 | 0.33 | |||||||||
Indices
|
1,248 | (459,198 | ) | (0.27 | ) | |||||||
Interest Rates U.S.
|
504 | 67,408 | 0.04 | |||||||||
Interest Rates
Non-U.S.
|
203 | 53,235 | 0.03 | |||||||||
Livestock
|
40 | 9,485 | 0.00 | * | ||||||||
Metals
|
116 | 778,969 | 0.46 | |||||||||
Softs
|
73 | 266,456 | 0.16 | |||||||||
Total futures contracts purchased
|
1,950,033 | 1.15 | ||||||||||
Futures Contracts Sold
|
||||||||||||
Currencies
|
77 | 29,787 | 0.02 | |||||||||
Energy
|
25 | (61,340 | ) | (0.04 | ) | |||||||
Grains
|
10 | (33,100 | ) | (0.02 | ) | |||||||
Indices
|
56 | 15,505 | 0.01 | |||||||||
Interest Rates U.S.
|
308 | (68,192 | ) | (0.04 | ) | |||||||
Interest Rates
Non-U.S.
|
1,570 | (394,024 | ) | (0.23 | ) | |||||||
Metals
|
1 | (7,875 | ) | (0.01 | ) | |||||||
Softs
|
5 | (1,220 | ) | (0.00 | )* | |||||||
Total futures contracts sold
|
(520,459 | ) | (0.31 | ) | ||||||||
Unrealized Appreciation on Open Forward Contracts
|
||||||||||||
Currencies
|
$ | 437,368,583 | 6,906,040 | 4.09 | ||||||||
Metals
|
91 | 653,412 | 0.39 | |||||||||
Total unrealized appreciation on open forward contracts
|
7,559,452 | 4.48 | ||||||||||
Unrealized Depreciation on Open Forward Contracts
|
||||||||||||
Currencies
|
$ | 362,272,604 | (5,591,385 | ) | (3.31 | ) | ||||||
Metals
|
23 | (149,021 | ) | (0.09 | ) | |||||||
Total unrealized depreciation on open forward contracts
|
(5,740,406 | ) | (3.40 | ) | ||||||||
Net fair value
|
$ | 3,248,620 | 1.92 | % | ||||||||
* | Due to rounding. |
9
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
CMF Graham Capital Master Fund L.P.
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Investment Income: |
||||||||||||||||
Interest income |
$ | 4,364 | $ | 45,847 | $ | 41,918 | $ | 109,312 | ||||||||
Expenses: |
||||||||||||||||
Clearing fees |
195,362 | 127,589 | 579,139 | 353,131 | ||||||||||||
Professional fees |
22,855 | 12,173 | 59,748 | 85,447 | ||||||||||||
Total expenses |
218,217 | 139,762 | 638,887 | 438,578 | ||||||||||||
Net investment income (loss) |
(213,853 | ) | (93,915 | ) | (596,969 | ) | (329,266 | ) | ||||||||
Trading Results: |
||||||||||||||||
Net gains (losses) on trading of commodity interests: |
||||||||||||||||
Net realized gains (losses) on closed contracts |
(9,378,729 | ) | (740,880 | ) | (13,368,839 | ) | (1,476,833 | ) | ||||||||
Change in net unrealized gains (losses) on open contracts |
2,377,343 | 6,661,117 | (2,488,213 | ) | 4,411,588 | |||||||||||
Total
trading results |
(7,001,386 | ) | 5,920,237 | (15,857,052 | ) | 2,934,755 | ||||||||||
Net income (loss) |
(7,215,239 | ) | 5,826,322 | (16,454,021 | ) | 2,605,489 | ||||||||||
Subscriptions Limited Partners |
5,420,000 | 2,494,500 | 27,515,530 | 39,097,697 | ||||||||||||
Redemptions Limited Partners |
(16,716,119 | ) | (6,525,987 | ) | (36,986,121 | ) | (38,291,324 | ) | ||||||||
Distribution of interest income to feeder funds |
(4,364 | ) | (45,847 | ) | (41,918 | ) | (109,312 | ) | ||||||||
Net increase (decrease) in Partners capital |
(18,515,722 | ) | 1,748,988 | (25,966,530 | ) | 3,302,550 | ||||||||||
Partners Capital, beginning of period |
161,473,863 | 172,765,822 | 168,924,671 | 171,212,260 | ||||||||||||
Partners Capital, end of period |
$ | 142,958,141 | $ | 174,514,810 | $ | 142,958,141 | $ | 174,514,810 | ||||||||
Net asset
value per unit (90,157.9131 and 103,297.2785
units outstanding at September 30, 2011 and 2010, respectively) |
$ | 1,585.64 | $ | 1,659.47 | $ | 1,585.64 | $ | 1,659.47 | ||||||||
Net income (loss) per unit* |
$ | (81.40 | ) | $ | 54.96 | $ | (168.99 | ) | $ | 20.07 | ||||||
Weighted average units outstanding |
92,936.6932 | 107,459.7102 | 95,124.3753 | 109,912.6875 | ||||||||||||
*Based on change in net asset value per unit.
10
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
2. Financial Highlights:
Changes in the net asset value per unit for the
three and nine months ended September 30, 2011 and 2010 were as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net realized and unrealized gains (losses) * |
$ | (57.22 | ) | $ | 22.50 | $ | (131.67 | ) | $ | (23.57 | ) | |||||
Interest income |
0.03 | 0.27 | 0.27 | 0.64 | ||||||||||||
Expenses ** |
(6.11 | ) | (9.60 | ) | (22.24 | ) | (26.07 | ) | ||||||||
Increase
(decrease) for the period |
(63.30 | ) | 13.17 | (153.64 | ) | (49.00 | ) | |||||||||
Net asset
value per unit, beginning of period |
970.35 | 1,009.44 | 1,060.69 | 1,071.61 | ||||||||||||
Net asset
value per unit, end of period |
$ | 907.05 | $ | 1,022.61 | $ | 907.05 | $ | 1,022.61 | ||||||||
* | Includes Partnership brokerage fees and clearing fees allocated from the Master. | |
** | Excludes Partnership brokerage fees and clearing fees allocated from the Master. |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Ratios to
average net assets:*** |
||||||||||||||||
Net
investment income (loss) before allocation to Special Limited
Partner**** |
(7.7 | )% | (8.6 | )% | (8.1 | )% | (8.2 | )% | ||||||||
Operating
expenses |
7.7 | % | 8.7 | % | 8.2 | % | 8.3 | % | ||||||||
Allocation
to Special Limited Partner |
| % | | % | | % | | % | ||||||||
Total expenses |
7.7 | % | 8.7 | % | 8.2 | % | 8.3 | % | ||||||||
Total return: |
||||||||||||||||
Total return
before allocation to Special Limited Partner |
(6.5 | )% | 1.3 | % | (14.5 | )% | (4.6 | )% | ||||||||
Allocation
to Special Limited Partner |
| % | | % | | % | | % | ||||||||
Total return
after allocation to Special Limited Partner |
(6.5 | )% | 1.3 | % | (14.5 | )% | (4.6 | )% | ||||||||
*** | Annualized (except for allocation to Special Limited Partner, if applicable). | |
**** | Interest income allocated from the Master less total expenses. |
The above ratios may vary for individual investors based on the timing of capital transactions
during the period. Additionally, these ratios are calculated for the limited partner class using
the limited partners share of income, expenses and average net assets.
11
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
Financial Highlights of the Master:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net realized and unrealized gains (losses) * |
$ | (81.20 | ) | $ | 54.65 | $ | (168.81 | ) | $ | 19.86 | ||||||
Interest income |
0.05 | 0.43 | 0.46 | 1.01 | ||||||||||||
Expenses ** |
(0.25 | ) | (0.12 | ) | (0.64 | ) | (0.80 | ) | ||||||||
Increase (decrease) for the period |
(81.40 | ) | 54.96 | (168.99 | ) | 20.07 | ||||||||||
Distribution of interest income to feeder funds |
(0.05 | ) | (0.43 | ) | (0.46 | ) | (1.01 | ) | ||||||||
Net asset value per unit, beginning of period |
1,667.09 | 1,604.94 | 1,755.09 | 1,640.41 | ||||||||||||
Net asset value per unit, end of period |
$ | 1,585.64 | $ | 1,659.47 | $ | 1,585.64 | $ | 1,659.47 | ||||||||
* | Includes clearing fees. | |
** | Excludes clearing fees. |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Ratios to average net assets:*** |
||||||||||||||||
Net
investment income (loss)**** |
(0.6 | )% | (0.2 | )% | (0.5 | )% | (0.3 | )% | ||||||||
Operating expenses |
0.6 | % | 0.3 | % | 0.5 | % | 0.3 | % | ||||||||
Total return |
(4.9 | )% | 3.4 | % | (9.6 | )% | 1.2 | % | ||||||||
*** | Annualized. | |
**** | Interest income less total expenses. |
The above ratios may vary for individual investors based on the timing of capital transactions
during the period. Additionally, these ratios are calculated for the limited partner class using
the limited partners share of income, expenses and average net assets.
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments
and derivative commodity instruments. The Partnership invests substantially all of its assets through a master/feeder structure.
The Partnerships pro-rata share of the results of the Masters trading activities are shown
in the Statements of Income and Expenses and Changes in Partners Capital.
The customer agreements between the Partnership and CGM and the Master and CGM give the
Partnership and the Master, respectively, the legal right to net unrealized gains and losses on
open futures and forward contracts. The Master nets, for financial reporting purposes, the
unrealized gains and losses on open futures and on open forward contracts on the Statements of Financial
Condition.
Brokerage fees are calculated as a percentage of the Partnerships adjusted net asset value on
the last day of each month and are affected by trading performance and redemptions.
12
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
All of the commodity interests owned by the
Master are held for trading purposes.
The monthly average number of futures contracts traded during the
three months ended September 30,
2011 and 2010 were 5,624 and 7,768, respectively. The monthly average number of futures contracts
traded during
the nine months ended September 30, 2011 and 2010 were 6,795 and
6,938, respectively. The monthly average
number of metals forward contracts traded during the three months ended September 30, 2011 and 2010 were
467 and 295, respectively. The monthly average number of metals forward contracts traded during the
nine months ended September 30, 2011 and 2010 were 383 and 354, respectively. The monthly average
notional values of currency forward contracts during the three months ended September 30, 2011 and 2010
were $1,154,021,697 and $925,235,870 respectively. The monthly average notional values of currency
forward contracts during the nine months ended September 30, 2011 and 2010 were $1,267,573,181 and
$926,280,132 respectively.
The following tables
indicate the gross fair values of derivative instruments of futures and forward contracts as separate assets and
liabilities as of September 30, 2011 and December 31, 2010.
September 30, 2011 | ||||
Assets |
||||
Futures Contracts |
||||
Currencies |
$ | 177,357 | ||
Energy |
1,237,719 | |||
Grains |
1,559,321 | |||
Indices |
461,699 | |||
Interest Rates U.S. |
34,581 | |||
Interest Rates Non-U.S. |
103,365 | |||
Metals |
325,827 | |||
Softs |
64,553 | |||
Total unrealized appreciation on open futures contracts |
$ | 3,964,422 | ||
Liabilities |
||||
Futures Contracts |
||||
Currencies |
$ | (21,436 | ) | |
Energy |
(609,580 | ) | ||
Grains |
(1,020,436 | ) | ||
Indices |
(814,804 | ) | ||
Interest Rates U.S. |
(395,928 | ) | ||
Interest Rates Non-U.S. |
(710,700 | ) | ||
Livestock |
(110,294 | ) | ||
Metals |
(200,616 | ) | ||
Softs |
(39,082 | ) | ||
Total unrealized depreciation on open futures contracts |
$ | (3,922,876 | ) | |
Net unrealized appreciation on open futures contracts |
$ | 41,546 | * | |
Assets |
||||
Forward Contracts |
||||
Currencies |
$ | 8,472,749 | ||
Metals |
1,747,824 | |||
Total unrealized appreciation on open forward contracts |
$ | 10,220,573 | ||
Liabilities |
||||
Forward Contracts |
||||
Currencies |
$ | (8,924,774 | ) | |
Metals |
(576,938 | ) | ||
Total unrealized depreciation on open forward contracts |
$ | (9,501,712 | ) | |
Net unrealized appreciation on open forward contracts |
$ | 718,861 | ** | |
* | This amount is in Net unrealized appreciation on open futures contracts on the Masters Statements of Financial Condition. | |
** | This amount is in Net unrealized appreciation on open forward contracts on the Masters Statements of Financial Condition. |
13
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
December 31, 2010 | ||||
Assets
|
||||
Futures Contracts
|
||||
Currencies
|
$ | 406,727 | ||
Energy
|
333,430 | |||
Grains
|
560,664 | |||
Indices
|
184,453 | |||
Interest Rates U.S.
|
145,320 | |||
Interest Rates
Non-U.S.
|
71,168 | |||
Livestock
|
9,485 | |||
Metals
|
778,969 | |||
Softs
|
297,786 | |||
Total unrealized appreciation on open futures contracts
|
$ | 2,788,002 | ||
Liabilities
|
||||
Futures Contracts
|
||||
Currencies
|
$ | (17,627 | ) | |
Energy
|
(79,144 | ) | ||
Grains
|
(35,025 | ) | ||
Indices
|
(628,146 | ) | ||
Interest Rates U.S.
|
(146,104 | ) | ||
Interest Rates
Non-U.S.
|
(411,957 | ) | ||
Metals
|
(7,875 | ) | ||
Softs
|
(32,550 | ) | ||
Total unrealized depreciation on open futures contracts
|
$ | (1,358,428 | ) | |
Net unrealized appreciation on open futures contracts
|
$ | 1,429,574 | * | |
Assets
|
||||
Forward Contracts
|
||||
Currencies
|
$ | 6,906,040 | ||
Metals
|
653,412 | |||
Total unrealized appreciation on open forward contracts
|
$ | 7,559,452 | ||
Liabilities
|
||||
Forward Contracts
|
||||
Currencies
|
$ | (5,591,385 | ) | |
Metals
|
(149,021 | ) | ||
Total unrealized depreciation on open forward contracts
|
$ | (5,740,406 | ) | |
Net unrealized appreciation on open forward contracts
|
$ | 1,819,046 | ** | |
* | This amount is in Net unrealized appreciation on open futures contracts on the Masters Statements of Financial Condition. | |
** | This amount is in Net unrealized appreciation on open forward contracts on the Masters Statements of Financial Condition. |
The following tables indicate the trading gains and losses, by market sector, on derivative
instruments for the three and nine months ended September 30, 2011 and
2010.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Sector | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Currencies
|
$ | (4,536,448 | ) | $ | 2,843,763 | $ | (7,418,499 | ) | $ | 2,015,271 | ||||||
Energy
|
(1,518,029 | ) | (423,279 | ) | (3,856,203 | ) | (3,570,420 | ) | ||||||||
Grains
|
(645,132 | ) | (280,747 | ) | (1,119,101 | ) | (900,830 | ) | ||||||||
Indices
|
(7,646,494 | ) | (2,848,678 | ) | (10,890,374 | ) | (8,673,065 | ) | ||||||||
Interest Rates U.S.
|
3,507,703 | 3,597,053 | 6,282,928 | 6,207,599 | ||||||||||||
Interest Rates Non-U.S.
|
1,614,720 | 335,741 | (334,473 | ) | 8,579,930 | |||||||||||
Livestock
|
(205,464 | ) | 43,716 | (579,109 | ) | 246,086 | ||||||||||
Metals
|
3,021,624 | 2,024,030 | 2,764,970 | 445,341 | ||||||||||||
Softs
|
(593,866 | ) | 628,638 | (707,191 | ) | (1,415,157 | ) | |||||||||
Total
|
$ | (7,001,386 | ) *** | $ | 5,920,237 | *** | $ | (15,857,052 | ) *** | $ | 2,934,755 | *** | ||||
*** | This amount is in Total trading results on the Masters Statements of Income and Expenses and Changes in Partners Capital. |
14
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
4. Fair Value Measurement:
Partnerships Investments. The Partnership values its investment in the Master at its net
asset value per unit as calculated by the Master. The Master values its investments as described in
Note 2 of the Masters notes to the annual financial statements as of December 31, 2010.
Partnerships Fair Value
Measurements. Fair value is defined 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 under current market conditions. The
fair value hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to fair
values derived from unobservable inputs (Level 3). The
level in the fair value hierarchy within which the fair value
measurement in its entirety falls shall be determined based on
the lowest level input that is significant to the fair value
measurement in its entirety.
GAAP also requires the need to use judgment in determining if a
formerly active market has become inactive and in determining
fair values when the market has become inactive. Management has
concluded that based on available information in the
marketplace, there has not been a significant decrease in the
volume and level of activity in the Partnerships
Level 2 assets.
The Partnership will separately present purchases, sales,
issuances and settlements in its reconciliation of
Level 3 fair value measurements (i.e., to present such items
on a gross basis rather than on a net basis), and make
disclosures regarding the level of disaggregation and the inputs
and valuation techniques used to measure fair value for
measurements that fall within either Level 2 or
Level 3 of the fair value hierarchy as required under GAAP.
The
Partnership values its investment in the Master where there are no other rights or obligations
inherent within the ownership interest held by the Partnership based on the end of the day net
asset value of the Master (Level 2). The value of the Partnerships investment in the Master
reflects its proportional interest in the Master. As of and for the periods ended September 30, 2011
and December 31, 2010, the Partnership did not hold any
derivative instruments that were based on
unadjusted quoted prices in active markets for identical assets (Level 1) or priced at fair value
using unobservable inputs through the application of managements assumptions and internal
valuation pricing models (Level 3).
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Significant Other | Unobservable | ||||||||||||||
for Identical | Observable Inputs | Inputs | ||||||||||||||
September 30, 2011 | Assets (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Investment
in Master |
$ | 22,884,185 | $ | | $ | 22,884,185 | $ | | ||||||||
Net fair value |
$ | 22,884,185 | $ | | $ | 22,884,185 | $ | | ||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable Inputs | Unobservable | ||||||||||||||
December 31, 2010 | Assets (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Investment in Master |
$ | 38,570,051 | $ | | $ | 38,570,051 | $ | | ||||||||
Net fair value |
$ | 38,570,051 | $ | | $ | 38,570,051 | $ | | ||||||||
15
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
Masters Investments. All commodity interests of the Master (including derivative financial
instruments and derivative commodity instruments) are held for trading purposes. The commodity
interests are recorded on trade date and open contracts are recorded at fair value (as described
below) at the measurement date. Investments in commodity interests denominated in foreign
currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement
date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on
open contracts are included as a component of equity in trading account on the Statements of
Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from
the preceding period are reported in the Statements of Income and Expenses and Changes in Partners
Capital.
Masters Fair Value Measurements. Fair
value is defined 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 under
current market conditions. The fair value hierarchy gives the
highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1) and the
lowest priority to fair values derived from unobservable inputs
(Level 3). The level in the fair value hierarchy within
which the fair value measurement in its entirety falls shall be
determined based on the lowest level input that is significant
to the fair value measurement in its entirety. Management has
concluded that based on available information in the
marketplace, the Masters Level 1 assets and
liabilities are actively traded.
GAAP also requires the need to use judgment in determining if a
formerly active market has become inactive and in determining
fair values when the market has become inactive. Management has
concluded that based on available information in the
marketplace, there has not been a significant decrease in the
volume and level of activity in the Masters Level 2
assets and liabilities.
The Master will separately present purchases, sales, issuances
and settlements in its reconciliation of Level 3 fair
value measurements (i.e., to present such items on a gross
basis rather than on a net basis), and make disclosures
regarding the level of disaggregation and the inputs and
valuation techniques used to measure fair value for measurements
that fall within either Level 2 or Level 3 of the fair
value hierarchy as required under GAAP.
The Master considers prices for exchange-traded commodity futures, forwards and options
contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1).
The values of non-exchange-traded forwards, swaps and certain options contracts for which market
quotations are not readily available are priced by broker-dealers that derive fair values for those
assets from observable inputs (Level 2). As of and for the periods ended September 30, 2011 and
December 31, 2010, the Master did not hold any derivative
instruments that were priced at fair value
using unobservable inputs through the application of managements assumptions and internal
valuation pricing models (Level 3).
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable Inputs | Unobservable | ||||||||||||||
September 30, 2011 | Assets (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Futures |
$ | 3,964,422 | $ | 3,964,422 | $ | | $ | | ||||||||
Forwards |
10,220,573 | 1,747,824 | 8,472,749 | | ||||||||||||
Total assets |
14,184,995 | 5,712,246 | 8,472,749 | | ||||||||||||
Liabilities |
||||||||||||||||
Futures |
$ | 3,922,876 | $ | 3,922,876 | $ | | $ | | ||||||||
Forwards |
9,501,712 | 576,938 | 8,924,774 | | ||||||||||||
Total liabilites |
13,424,588 | 4,499,814 | 8,924,774 | | ||||||||||||
Net fair value |
$ | 760,407 | $ | 1,212,432 | $ | (452,025 | ) | $ | | |||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable Inputs | Unobservable | ||||||||||||||
December 31, 2010* | Assets (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Futures |
$ | 2,788,002 | $ | 2,788,002 | $ | | $ | | ||||||||
Forwards |
7,559,452 | 653,412 | 6,906,040 | | ||||||||||||
Total assets |
10,347,454 | 3,441,414 | 6,906,040 | | ||||||||||||
Liabilities |
||||||||||||||||
Futures |
$ | 1,358,428 | $ | 1,358,428 | $ | | $ | | ||||||||
Forwards |
5,740,406 | 149,021 | 5,591,385 | | ||||||||||||
Total
liabilities |
7,098,834 | 1,507,449 | 5,591,385 | | ||||||||||||
Net fair value |
$ | 3,248,620 | $ | 1,933,965 | $ | 1,314,655 | $ | | ||||||||
* | The amounts have been reclassified from the December 31, 2010 prior year financial statements to conform to current year presentation. |
16
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
5. Financial Instrument Risks:
In the normal course of business, the Partnership, through its investment in the Master,
is party to financial instruments with off-balance sheet risk, including derivative financial
instruments and derivative commodity instruments. These financial instruments may include forwards,
futures, options and swaps, whose values are based upon an underlying asset, index, or reference
rate, and generally represent future commitments to exchange currencies or cash balances, or to
purchase or sell other financial instruments at specific terms at specified future dates, or, in
the case of derivative commodity instruments, to have a reasonable possibility to be settled in
cash, through physical delivery or with another financial instrument. These instruments may be
traded on an exchange or over-the-counter (OTC). Exchange-traded instruments are standardized and include futures and
certain forwards and option contracts. OTC contracts are negotiated between contracting parties and
include certain forwards and option contracts. Each of these instruments is subject to various
risks similar to those related to the underlying financial instruments including market and credit
risk. In general, the risks associated with OTC contracts are greater than those associated with
exchange-traded instruments because of the greater risk of default by the counterparty to an OTC
contract.
The risk to the limited partners that have purchased interests
in the Partnership is limited to the amount of their capital
contributions to the Partnership and their share of the
Partnerships assets and undistributed profits. This
limited liability is a result of the organization of the
Partnership as a limited partnership under New York law.
Market risk is the potential for changes in the value of the financial instruments traded by
the Partnership/Master due to market changes, including interest and foreign exchange rate
movements and fluctuations in commodity or security prices. Market risk is directly impacted by the
volatility and liquidity in the markets in which the related underlying assets are traded. The
Partnership/Master is exposed to a market risk equal to the value of futures and forward contracts
purchased and unlimited liability on such contracts sold short.
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to
perform according to the terms of a contract. The Partnerships/Masters risk of loss in the event
of a counterparty default is typically limited to the amounts recognized in the Statements of
Financial Condition and is not represented by the contract or notional amounts of the instruments. The
Partnerships/Masters risk of loss is reduced through the use of legally enforceable master
netting agreements with counterparties that permit the Partnership/Master to offset unrealized
gains and losses and other assets and liabilities with such counterparties upon the occurrence of
certain events. The Partnership/Master has credit risk and
concentration risk as CGM or a CGM affiliate is the sole
counterparty or broker with respect to the
Partnerships/Masters assets. Credit risk CGM or a CGM
affiliate is with respect to exchange-traded instruments is reduced to the extent that, through CGM,
the Partnerships/Masters counterparty is an exchange or clearing organization.
The General Partner monitors and attempts to control the Partnerships/Masters risk exposure
on a daily basis through financial, credit and risk management monitoring systems, and accordingly,
believes that it has effective procedures for evaluating and limiting the credit and market risks
to which the Partnership/Master may be subject. These monitoring systems generally allow the
General Partner to statistically analyze actual trading results with risk-adjusted performance
indicators and correlation statistics. In addition, online monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin requirements, gain and loss
transactions and collateral positions.
The majority of these instruments mature within one year of the inception date. However, due
to the nature of the Partnerships/Masters business, these instruments may not be held to
maturity.
17
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
6. Critical Accounting Policies
Use of Estimates. The preparation of financial statements and accompanying notes in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, income and expenses, and related disclosures of contingent assets and
liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.
Partnerships Investments. The Partnership values its investment in the Master at its net
asset value per unit as calculated by the Master. The Master values its investments as described in
Note 2 of the Masters notes to the annual financial statements as of December 31, 2010.
Partnerships and Masters Fair Value Measurements. Fair value is defined 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 under current market conditions. The fair value
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable
inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in
its entirety falls shall be determined based on the lowest level input that is significant to the
fair value measurement in its entirety. Management has concluded that
based on available information in the marketplace, the Masters
Level 1 assets and liabilities are actively traded.
GAAP
also requires the need to use judgment in determining if a formerly active market has
become inactive and in determining fair values when the market has become inactive. Management has
concluded that based on available information in the marketplace, there has not been a significant
decrease in the volume and level of activity in the
Partnerships and the Masters Level 2 assets and liabilities.
The
Partnership will separately present purchases, sales, issuances and
settlements in its
reconciliation of Level 3 fair value measurements (i.e. to present such items on a gross basis
rather than on a net basis), and make disclosures regarding the level of disaggregation and the
inputs and valuation techniques used to measure fair value for measurements that fall within either
Level 2 or Level 3 of the fair value hierarchy as required under GAAP.
The
Partnership values investments in the Master where there are no other rights or obligations
inherent within the ownership interest held by the Partnership based on the end of the day net
asset value of the Master (Level 2). The value of the Partnerships investment in the Master
reflects its proportional interest in the Master. As of and for the
periods ended September 30, 2011
and December 31, 2010, the Partnership did not hold any
derivative instruments that were based
on unadjusted quoted prices in active markets for identical assets (Level 1) or priced at fair
value using unobservable inputs through the application of managements assumptions and internal
valuation pricing models (Level 3).
The Master considers prices for exchange-traded commodity futures, forwards and options
contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1).
The values of non-exchange-traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers
that derive fair values for those assets from observable inputs (Level 2). As of and for the periods
ended September 30, 2011 and December 31, 2010, the Master did not hold any derivative instruments that
were priced at fair value using unobservable inputs through the application of managements
assumptions and internal valuation pricing models (Level 3).
Futures Contracts. The Master trades futures contracts. A futures contract is a firm
commitment to buy or sell a specified quantity of investments, currency or a standardized amount of
a deliverable grade commodity, at a specified price on a specified future date, unless the contract
is closed before the delivery date or if the delivery quantity is something where physical delivery
cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments
(variation margin) may be made or received by the Master each business day, depending on the
daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains
or losses by the Master. When the contract is closed, the Master records a realized gain or loss
equal to the difference between the value of the contract at the time it was opened and the value
at the time it was closed. Transactions in futures contracts require participants to make
both initial margin deposits of cash or other assets and variation margin deposits, through the
futures broker, directly with the exchange on which the contracts are
traded. Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are
included in the Statements of Income and Expenses and Changes in Partners Capital.
18
Table of Contents
Fairfield Futures Fund L.P. II
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
Forward
Foreign Currency Contracts. Forward foreign currency contracts are those contracts where the
Master agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price
on an agreed future date. Forward foreign currency contracts are valued daily, and the Masters net equity
therein, representing unrealized gain or loss on the contracts as measured by the difference
between the forward foreign exchange rates at the dates of entry into the contracts and the forward
rates at the reporting date, is included in the Statements of
Financial Condition. Net realized gains
(losses) and changes in net unrealized gains (losses) on foreign currency contracts are recognized in
the period in which the contract is closed or the changes occur, respectively, and are included in
the Statements of Income and Expenses and Changes in Partners Capital.
The Master does not isolate that portion of the results of operations arising from the effect
of changes in foreign exchange rates on investments from fluctuations from changes in market prices
of investments held. Such fluctuations are included in net gain (loss) on investments in the
Statements of Income and Expenses and Changes in Partners Capital.
London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange
(LME) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead,
nickel, tin or zinc. LME contracts traded by the Master are cash settled based on prompt dates
published by the LME. Payments (variation margin) may be made or received by the Master each
business day, depending on the daily fluctuations in the value of the underlying contracts, and are
recorded as unrealized gains or losses by the Master. A contract is considered offset when all long
positions have been matched with a like number of short positions
settling on the same prompt date. When the contract is closed at the prompt date,
the Master records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Transactions in
LME contracts require participants to make both initial margin deposits of cash or other assets and
variation margin deposits, through the broker, directly with the LME.
Net realized gains (losses) and changes in net unrealized gains (losses) on metal contracts are included in
the Statements of Income and Expenses and Changes in Partners Capital.
Income Taxes. Income taxes have not been provided as each partner is individually liable for
the taxes, if any, on its share of the Partnerships income and expenses.
GAAP provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial
statements and requires the evaluation of tax positions taken or
expected to be taken in the course of preparing the
Partnerships financial statements to determine whether the
tax positions are more-likely-than-not to be
sustained by the applicable tax authority. Tax positions with
respect to tax at the Partnership level not deemed to meet the
more-likely-than-not threshold would be recorded as
a tax benefit or expense in the current year. The General
Partner concluded that no provision for income tax is required
in the Partnerships financial statements.
The Partnership files U.S. federal and various state and
local tax returns. No income tax returns are currently under
examination. Generally, the 2008 through 2010 tax years remain
subject to examination by U.S. federal and most state tax
authorities. Management does not believe that there are any
uncertain tax positions that require recognition of a tax
liability.
Subsequent Events. The General Partner evaluates events that occur after the balance sheet
date but before financial statements are filed. The General Partner has
assessed the subsequent events through the date of filing and
has determined that there were no subsequent events requiring
adjustment of or disclosure in the financial statements.
Recent
Accounting Pronouncements. In May 2011, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update
(ASU) 2011-04, Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and
International Financial Reporting Standards (IFRS). The
amendments within this ASU change the wording used to describe many
of the requirements in U.S. GAAP for measuring fair value and for
disclosing information about fair value measurement to eliminate unnecessary
wording differences between U.S. GAAP and IFRS. However, some of the
amendments clarify the FASBs intent about the application of
existing fair value measurement requirements and
other amendments change a particular principle or
requirement for measuring fair value or for disclosing information
about fair value measurements. The ASU is effective for annual and
interim periods beginning after December 15, 2011 for public entities.
This new guidance is not expected to have a material impact on the
Partnerships financial statements.
In October 2011, FASB issued a proposed ASU intended to improve and converge financial reporting by setting forth
consistent criteria for determining whether an entity is an investment company. Under longstanding U.S. GAAP, investment
companies carry all of their investments at fair value, even if they hold a controlling interest in another company. The
primary changes being proposed by the FASB relate to which entities would be considered investment companies as well as
certain disclosure and presentation requirements. In addition to the changes to the criteria for determining whether an
entity is an investment company, the FASB also proposes that an investment company consolidate another investment company
if it holds a controlling financial interest in the entity. The Partnership is currently evaluating the impact that this
proposed update would have on the financial statements.
Net
Income (Loss) per unit. Net income (loss) per unit is calculated in
accordance with investment company guidance. See Note 2, Financial Highlights.
19
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Liquidity and Capital Resources
The Partnership does not engage in sales of goods or services. Its only assets are its
investment in the Master and cash. The Master does not engage in sales of goods or services.
Because of the low margin deposits normally required in commodity futures trading, relatively small
price movements may result in substantial losses to the Partnership, through its investment in the
Master. While substantial losses could lead to a material decrease in liquidity, no such
illiquidity occurred in the third quarter of 2011.
The Partnerships capital consists of capital contributions of the partners, as increased or
decreased by income(loss) from investment in the Master on trading and by expenses, interest income,
redemptions of Redeemable Units and distributions of profits, if any.
For the nine months ended September 30, 2011, Partnership capital
decreased 41.4% from $37,956,902 to $22,258,684.
This decrease was attributable to a net loss from operations of
$4,644,848 coupled with redemptions of 11,112.9898
Redeemable Units totaling $10,928,370, and redemptions of 132.4321
General Partner unit equivalents totaling $125,000. Future redemptions can impact the amount of funds available for investment in
the Master in subsequent periods.
The Masters capital consists of the capital contributions of the partners as increased or
decreased by gains or losses on trading and by expenses, interest income, redemptions of units and
distribution of profits, if any.
For the nine months ended September 30, 2011, the Masters capital
decreased 15.4% from $168,924,671 to $142,958,141.
This decrease was attributable to a net loss from
operations of $16,454,021 coupled with redemptions
of 21,577.0692 units totaling $36,986,121 and distribution
of interest income to feeder funds totaling $41,918 which was
partially offset by the additional subscriptions of 15,486.7403 units
totaling $27,515,530.
Future redemptions can impact the amount of funds
available for investment in commodity contract positions in subsequent periods.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period.
Management believes that the estimates utilized in preparing the
financial statements are reasonable. Actual results could differ from those estimates. The Partnerships significant accounting policies are described in detail in Note 6 of the Financial Statements.
The Partnership records all investments at fair value in its financial statements, with changes in fair value reported as a component of net realized and change in net unrealized trading gain (loss) in the Statements of Income and Expenses and Changes in Partners Capital.
20
Table of Contents
Results of Operations
During
the Partnerships third quarter of 2011, the net asset value per unit decreased
6.5% from $970.35 to $907.05 as compared to an increase of 1.3% in the
third quarter of 2010. The
Partnership, through its investment in the Master, experienced a net trading loss before brokerage
fees and related fees in the third quarter of 2011 of $1,112,290. Losses were primarily
attributable to the Masters trading of commodity futures in currencies, energy, grains, indices,
livestock and softs and were partially offset by gains in U.S. and non- U.S. interest
rates and metals. The Partnership, through its investment in the Master, experienced a net trading gain before
brokerage fees and related fees in the third quarter of 2010 of
$1,427,645. Gains were primarily
attributable to the Masters trading of commodity futures in
currencies, U.S. and non- U.S. interest rates, livestock, metals and softs and
were partially offset by losses in energy, grains and
indices.
The most significant losses were
incurred in the global stock index markets, primarily during July and August, due to long positions in European and U.S.
equity index futures as prices dropped amid Standard & Poors downgrade of the United States sovereign credit rating and
concern about the European sovereign debt crisis. Within the currency sector, losses were experienced primarily during
August from long positions in the Swiss franc versus the U.S. dollar as the value of the Swiss franc declined on
speculation that the Swiss National Bank would seek to curb the currencys climb in value. Additional losses were incurred
in this sector during September from long positions in the Australian dollar, New Zealand dollar, and Canadian dollar versus
the U.S. dollar as the value of these commodity currencies moved lower in tandem with declining commodity prices. Within
the energy markets, losses were recorded primarily during August and September from long futures positions in crude oil and
its related products as prices fell on concern energy demand may falter amid slowing economic growth in the U.S. and a
deepening debt crisis in Europe. Losses were incurred within the agricultural complex, primarily during September, due to
long futures positions in corn and soybeans as prices declined on speculation that Europes sovereign debt crisis may
hinder the global economy, reducing demand for the grains. A portion of the Partnerships losses for the quarter was offset
by gains achieved within the global interest rate sector, primarily during July and August, due to long futures positions
in European and U.S. fixed-income futures as prices advanced higher due to concern about the European sovereign debt crisis
and a faltering global economy. Within the metals complex, gains were recorded primarily during July and August from long
positions in gold futures after prices reached a record high as escalating concern that the global economy is slowing
boosted demand for the precious metal.
During
the Partnerships nine months ended September 30, 2011, the net asset value per unit
decreased 14.5% from $1,060.69 to $907.05 as compared to a decrease
of 4.6% for the nine months ended
September 30, 2010. The Partnership, through its investment in the Master, experienced a net trading
loss before brokerage fees and related fees in the nine months ended
September 30, 2011 of $2,715,826.
Losses were primarily attributable to the Masters trading of commodity futures in currencies, energy,
grains, indices, non- U.S. interest rates, livestock and softs and were partially offset by gains in U.S. interest rates and metals. The Partnership, through its investment in the Master, experienced a net
trading gain before brokerage fees and related fees in the nine
months ended September 30, 2010 of
$508,583. Gains were primarily attributable to the trading of commodity futures in currencies,
U.S. and non- U.S. interest rates, livestock and metals and were partially offset by losses in energy, grains, softs and indices.
Within the global stock index
markets, losses were incurred primarily during March, May, July, and August. During March, long positions in European,
U.S., and Pacific Rim equity index futures resulted in losses as prices moved sharply lower after the tsunami and
subsequent nuclear plant disaster in Japan spurred concern about global economic growth. Additional losses were experienced
within this sector during May from long positions in U.S., European, and Pacific Rim equity index futures as prices
declined on worse-than-expected economic reports and mounting worries over the European debt crisis. During July and
August, long positions in European and U.S. equity index futures
resulted in losses as prices dropped amid Standard &
Poors downgrade of the United States sovereign credit rating and ongoing concern about the European sovereign debt crisis.
Within the currency sector, losses were recorded primarily during January from long positions in the Japanese yen,
Australian dollar, South African rand, and Canadian dollar versus the U.S. dollar as the value of these currencies declined
against the U.S. dollar on optimism about the U.S. economy. Further losses were incurred during May from long positions in
the Australian dollar, Canadian dollar, and South African rand versus the U.S. dollar as the value of
these commodity currencies fell in tandem with declining commodity prices. During August, long positions in the Swiss
franc versus the U.S. dollar resulted in additional currency losses as the value of the Swiss franc declined on speculation
that the Swiss National Bank would seek to curb the currencys climb in value. Losses were also experienced within the
energy markets, primarily during May and June, from long futures positions in crude oil and its related products as prices
moved lower amid signs the global economic recovery is slowing. In the agricultural complex, losses were incurred primarily
during April due to long positions in cotton futures as prices declined on concern that demand may slow from China, the
worlds biggest buyer of the fiber. A portion of the Partnerships losses during the first nine months of the year was
offset by gains achieved within the interest rate sector, primarily during May, from long positions in U.S.
fixed-income futures as prices increased following reports that showed the U.S. economy grew less than forecast and
U.S. jobless claims unexpectedly rose. Additional gains were recorded within this sector during July and August due to
long futures positions in European and U.S. fixed-income futures as prices advanced higher due to concern about the
European sovereign debt crisis and a faltering global economy. Within the metals sector, gains were experienced primarily
during February from long positions in silver futures as prices extended a rally to a 30-year high. Additional gains were
recorded within this sector during April due to long futures positions in silver and gold as silver futures prices advanced
to a 31-year high and gold futures prices reached an all-time high. In July and August, long positions in gold futures
resulted in gains after prices reached a new record high as escalating concern that the global economy is slowing boosted
demand for the precious metal.
21
Table of Contents
Commodity futures markets are highly volatile. Broad and rapid price
fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase the possibility
for profit or loss. The profitability of the Partnership (and the Master) depends on the existence of major
price trends and the ability of the Advisor to correctly identify those price trends. Price trends
are influenced by, among other things, changing supply and demand relationships, weather,
governmental, agricultural, commercial and trade programs and policies, national and international
political and economic events, and changes in interest rates. To the extent that market trends exist
and the Advisor is able to identify them, the Partnership/Master expects to increase capital
through operations.
Interest income on 80% of the Partnerships daily average equity allocated to it by the Master,
was earned at a 30-day U.S. Treasury bill rate
determined weekly by CGM based on the average non-competitive yield on 3-month U.S. Treasury
bills maturing in 30 days. Interest income allocated from the Master
for the three and nine months ended September 30, 2011
decreased by $10,099 and $16,502 respectively, as compared to the
corresponding periods in 2010. The decrease in interest income
is primarily due to lower U.S. Treasury bill rates and lower average
net assets during the three
and nine months ended September 30, 2011 as
compared to the corresponding periods in 2010. Interest earned by the Partnership will
increase the net asset value of the Partnership. The amount of interest income earned by the
Partnership depends upon the average daily equity in the Partnerships/Masters account and upon
interest rates over which neither
the Partnership/Master nor CGM has control.
Brokerage fees are calculated as a percentage of the Partnerships adjusted net asset value on
the last day of each month and are affected by trading performance and redemptions.
Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values.
Brokerage fees for the three and nine months ended September 30, 2011
decreased by $175,379 and $277,376, respectively, as compared to the
corresponding periods in 2010. The decrease in brokerage fees is due
to lower average net assets during the three and nine months ended September 30, 2011
as compared to the corresponding periods in 2010.
Management fees are calculated as a percentage of the Partnerships adjusted net asset value
as of the end of each month and are affected by trading performance
and redemptions.
Management fees for the three and nine months ended September 30, 2011
decreased by $78,069 and $124,449, respectively, as compared to the
corresponding periods in 2010. The decrease in management fees is
due to lower average net assets during the three and nine months
ended September 30, 2011 as compared to the corresponding periods in 2010.
Administrative fees are paid to the General Partner for administering the business and affairs
of the Partnership. These fees are calculated as a percentage of the Partnerships adjusted net
asset value as of the end of each month and are affected by trading
performance and
redemptions. Administrative fees for the three and nine months
ended September 30, 2011 decreased by $19,517 and $31,113, respectively,
as compared to the corresponding periods in 2010. The decrease in
administrative fees is due to lower average net assets during the
three and nine months ended September 30, 2011 as compared to the
corresponding periods in 2010.
Special Limited Partner profit share allocations are based on the new trading profits
generated by the Advisor at the end of the quarter, as defined in the management agreement among
the Partnership, the General Partner and the Advisor. There were no
profit share allocations made
for the three and nine months ended September 30, 2011 and 2010. The Advisor will not be allocated a profit share
until the Advisor recovers the net loss incurred and earns additional new trading
profits for the Partnership.
In allocating substantially all of the assets of the Partnership to the Master, the General
Partner considers the Advisors past performance, trading style, volatility of markets traded and
fee requirements. The General Partner may modify or terminate the allocation of assets to the
Advisor at any time.
22
Table of Contents
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
All of the Partnerships assets are subject to the risk of trading loss through its investment
in the Master. The Master is a speculative commodity pool. The market sensitive instruments held by
the Master are acquired for speculative trading purposes, and all or
substantially all of the Partnerships assets are subject to the
risk of trading loss through its investment in the Master. Unlike an operating company, the risk of market
sensitive instruments is integral, not incidental, to the Masters and the Partnerships main line of business.
The risk to the limited partners that have purchased interests in the Partnership is limited
to the amount of their capital contributions to the Partnership and their share of the
Partnerships assets and undistributed profits. This limited liability is a result of the
organization of the Partnership as a limited partnership under New
York law.
Market movements result in frequent changes in the fair market value of the Masters open
positions and, consequently, its earnings and cash balances. The Masters market risk is influenced
by a wide variety of factors, including the level and volatility of interest rates, exchange rates,
equity price levels, the market value of financial instruments and contracts, the diversification
effects among the Masters open contracts and the liquidity of the markets in which it trades.
The Master rapidly acquires and liquidates both long and short positions in a wide range of
different markets. Consequently, it is not possible to predict how a particular future market
scenario will affect performance, and the Masters past performance is not necessarily indicative
of its future results.
Value
at Risk is a measure of the maximum amount which the Master could reasonably be expected
to lose in a given market sector. However, the inherent uncertainty of the Masters speculative
trading and the recurrence in the markets traded by the Master of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the indicated Value at
Risk or the Masters experience to date (i.e., risk of ruin). In light of the foregoing, as well
as the risks and uncertainties intrinsic to all future projections, the inclusion of the
quantification in this section should not be considered to constitute any assurance or
representation that the Masters losses in any market sector will be limited to Value at Risk or by
the Masters attempts to manage its market risk.
Exchange maintenance margin requirements have been used by the Master as the measure of its
Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum
losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any
one-day interval. Maintenance margin has been used rather than the more generally available initial
margin, because initial margin includes a credit risk component, which is not relevant to Value at
Risk.
23
Table of Contents
Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk
sensitive instruments. The following tables indicate the trading Value at Risk associated with the
Masters open positions by market category as of September 30, 2011
and December 31, 2010, and the highest, lowest and
average values during the three months ended September 30, 2011 and
the twelve months ended December 31, 2010. All open position trading risk
exposures of the Master have been included in calculating the figures set forth below. There has
been no material change in the trading Value at Risk information previously disclosed in the
Partnerships Annual Report on Form 10-K for the year ended
December 31, 2010.
As
of September 30, 2011, the Masters total capitalization was
$142,958,141 and the Partnership
owned approximately 16.0% of the Master. The Partnership invests substantially all of its assets in
the Master. The Masters Value at Risk as of September 30, 2011 was as follows:
September 30, 2011
Three Months Ended September 30, 2011 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 4,902,891 | 3.43 | % | $ | 14,715,746 | $ | 4,054,432 | $ | 9,021,925 | ||||||||||
Energy |
1,644,645 | 1.15 | % | 1,710,689 | 805,479 | 1,414,892 | ||||||||||||||
Grains |
517,966 | 0.36 | % | 672,995 | 330,409 | 467,824 | ||||||||||||||
Indices |
1,318,348 | 0.92 | % | 7,570,579 | 1,264,457 | 2,684,660 | ||||||||||||||
Interest Rates U.S. |
489,000 | 0.34 | % | 1,656,700 | 443,080 | 972,817 | ||||||||||||||
Interest Rates Non-U.S. |
2,457,971 | 1.72 | % | 3,388,979 | 1,112,934 | 2,050,874 | ||||||||||||||
Livestock |
67,200 | 0.05 | % | 127,950 | 2,400 | 32,800 | ||||||||||||||
Metals |
1,136,889 | 0.80 | % | 1,714,134 | 955,310 | 1,315,587 | ||||||||||||||
Softs |
307,192 | 0.21 | % | 414,872 | 161,005 | 297,674 | ||||||||||||||
Total |
$ | 12,842,102 | 8.98 | % | ||||||||||||||||
* Average
month-end Values at Risk.
As of December 31, 2010, the Masters total capitalization was $168,924,671 and the Partnership
owned approximately 22.8% of the Master. The Partnership invests substantially all of its assets in
the Master. The Masters Value at Risk as of December 31, 2010 was as follows:
December 31, 2010
Twelve Months Ended December 31, 2010 | ||||||||||||||||||||
% of Total | High | Low | Average* | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk | |||||||||||||||
Currencies |
$ | 6,192,975 | 3.67 | % | $ | 11,364,239 | $ | 996,231 | $ | 5,226,199 | ||||||||||
Energy |
1,048,521 | 0.62 | % | 1,989,347 | 236,269 | 1,000,222 | ||||||||||||||
Grains |
448,450 | 0.26 | % | 964,687 | 124,875 | 411,118 | ||||||||||||||
Indices |
5,301,813 | 3.14 | % | 13,726,706 | 1,137,775 | 5,507,221 | ||||||||||||||
Interest Rates U.S. |
161,600 | 0.10 | % | 2,021,410 | 68,806 | 1,014,515 | ||||||||||||||
Interest Rates Non-U.S. |
1,209,918 | 0.72 | % | 4,305,447 | 749,055 | 2,006,426 | ||||||||||||||
Livestock |
40,000 | 0.02 | % | 106,400 | 800 | 50,304 | ||||||||||||||
Metals |
1,012,127 | 0.60 | % | 1,771,142 | 494,357 | 993,963 | ||||||||||||||
Softs |
258,565 | 0.15 | % | 1,144,148 | 85,988 | 385,351 | ||||||||||||||
Total |
$ | 15,673,969 | 9.28 | % | ||||||||||||||||
* | Annual average of month-end Values at Risk. |
24
Table of Contents
Item 4. | Controls and Procedures |
The Partnerships disclosure controls and procedures are designed to ensure that information
required to be disclosed by the Partnership on the reports that it files or submits under the
Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and
reported within the time periods expected in the SECs rules and forms. Disclosure controls
and procedures include controls and procedures designed to ensure that information required to be
disclosed by the Partnership in the reports it files is accumulated and communicated to management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the General
Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.
The General Partner is responsible for ensuring that there is an adequate and effective process for
establishing, maintaining and evaluating disclosure controls and procedures for the Partnerships
external disclosures.
The General Partners CEO and CFO have evaluated the effectiveness of the Partnerships
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of September 30, 2011 and, based on that evaluation, the
General Partners CEO and CFO have concluded that, at
that date, the Partnerships disclosure controls and procedures were effective.
The Partnerships internal control over financial reporting is a process under the supervision
of the General Partners CEO and CFO to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance with GAAP. These
controls include policies and procedures that:
| pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; |
| provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and (ii) the Partnerships receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and |
| provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material effect on the financial statements. |
There were no changes in the Partnerships internal control over financial reporting process
during the fiscal quarter ended September 30, 2011 that materially affected, or are reasonably likely
to materially affect, the Partnerships internal control over financial reporting.
25
Table of Contents
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
The following information
supplements and amends the discussion set forth under Part I, Item 3
Legal Proceedings in the Partnerships Annual
Report on Form 10-K for the fiscal year ended December 31, 2010, as updated by the Partnerships Quarterly Reports
on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011.
Subprime-Mortgage Related Actions
On October 19, 2011, the SEC and Citigroup announced a
settlement, subject to judicial approval, in connection with the SECs investigation into the structuring and sale of
CDOs. Pursuant to the proposed settlement, CGM agreed to pay $160 million in disgorgement, $30 million in prejudgment
interest, and a civil penalty of $95 million relating to CGs role in the structuring and sale of the Class V Funding
III CDO transaction. Additional information relating to this matter is publicly available in court filings under the
docket number 11 Civ. 7387 (S.D.N.Y.) (Rakoff, J.).
26
Table of Contents
Item 1A. | Risk Factors |
There have been no material changes to the risk factors set forth under Part I, Item 1A.
Risk Factors in the Partnerships Annual Report on Form 10-K for the fiscal year ended December
31, 2010, as updated by the Partnerships Quarterly Reports on Form 10-Q for the quarters ended March 31,
2011 and June 30, 2011.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The
Partnership no longer offers Redeemable Units for sale.
The following chart sets forth the purchases of Redeemable Units by the Partnership.
(d) Maximum Number | ||||||||||||||||||
(or Approximate | ||||||||||||||||||
(c) Total Number | Dollar Value) of | |||||||||||||||||
(b) Average | of Redeemable Units | Redeemable Units that | ||||||||||||||||
(a) Total Number | Price Paid | Purchased as Part | May Yet Be | |||||||||||||||
of Redeemable | per Redeemable | of Publicly Announced | Purchased Under the | |||||||||||||||
Period | Units Purchased* | Unit** | Plans or Programs | Plans or Programs | ||||||||||||||
July 1,
2011 July 31, 2011 |
1,400.5226 | $ | 996.96 | N/A | N/A | |||||||||||||
August 1,
2011 August 31, 2011 |
1,465.8287 | $ | 943.88 | N/A | N/A | |||||||||||||
September
1, 2011 September 30, 2011 |
646.1159 | $ | 907.05 | N/A | N/A | |||||||||||||
3,512.4672 | $ | 958.27 | N/A | N/A | ||||||||||||||
* Generally, limited partners are permitted to redeem their Redeemable Units as of the end of
each month on three business days notice to the General Partner. Under certain circumstances, the General
Partner can compel redemption, although to date the General Partner has not exercised this right.
Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the
ordinary course of the Partnerships business in connection with effecting redemptions for
limited partners.
** Redemptions of Redeemable Units are effected as of the last day of each month at the net
asset value per Redeemable Unit as of that day.
Item 3. | Defaults Upon Senior Securities None. |
Item 4. | [Removed and Reserved] |
Item 5. | Other Information None. |
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Item 6. | Exhibits |
3.1 | Limited Partnership Agreement (filed as Exhibit 3.1 to the Registration Statement on Form 10 filed on April 29, 2005 and incorporated herein by reference). | ||
3.2 | Certificate of Limited Partnership of the Partnership as filed in the office of the Secretary of State of the State of New York (filed as Exhibit 3.1 to the Registration Statement on Form 10 filed on April 29, 2005 and incorporated herein by reference). |
(a) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of New York, dated September 21, 2005 (filed as Exhibit 3.2A to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | ||
(b) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of New York, dated September 19, 2008 (filed as Exhibit 3.2B to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | ||
(c) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of New York, dated September 28, 2009 (filed as Exhibit 99.1 to the Form 8-K filed on September 30, 2009 and incorporated herein by reference). | ||
(d) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of New York, dated June 29, 2010 (filed as Exhibit 3.2(d) to the Form 8-K filed on July 2, 2010 and incorporated herein by reference). | ||
(e) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 2, 2011 (filed as Exhibit 3.1 to the Form 8-K filed on September 7, 2011 and incorporated herein by reference). |
10.1 | Customer Agreement between the Partnership and CGM (filed as Exhibit 10.2 to the Registration Statement on Form 10 filed on April 29, 2005 and incorporated herein by reference). | ||
10.2 | Form of Subscription Agreement (filed as Exhibit 10.4 to the Partnerships Form 10 filed on April 29, 2005 and incorporated herein by reference). | ||
10.3 | Escrow Instructions relating to escrow of subscription funds (filed as Exhibit 10.3 to the Registration Statement on Form 10 filed on April 29, 2005 and incorporated herein by reference). | ||
10.4 | Agency Agreement among the Partnership, the General Partner and CGM (filed as Exhibit 10.3 to the Registration Statement on Form 10 filed on April 29, 2005 and incorporated herein by reference). |
(a) | Joinder Agreement among the Partnership, the General Partner, CGM and Morgan Stanley Smith Barney LLC, dated June 1, 2009 (filed as Exhibit 10 to the Form 10-Q filed on August 14, 2009 and incorporated herein by reference). |
10.5 | Management Agreement among the Partnership, the General Partner and Graham (filed as Exhibit 10.1 to the Registration Statement on Form 10 filed on April 29, 2005 and incorporated herein by reference). |
(a) | Letter extending the Management Agreement between the General Partner and Graham for 2010 (filed as Exhibit 10.4(a) to the Form 10-K filed March 31, 2011 and incorporated herein by reference). |
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director)
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification (Certification of
Chief Financial Officer)
Exhibit 32.1 Section 1350 Certification (Certification of President and Director)
Exhibit 32.2 Section 1350 Certification (Certification of Chief Financial Officer)
101.INS | XBRL Instance Document. | ||
101.SCH | XBRL Taxonomy Extension Schema Document. | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FAIRFIELD FUTURES FUND L.P. II
By:
|
Ceres Managed Futures LLC |
|||
(General Partner) | ||||
By:
|
/s/ Walter Davis |
|||
Walter Davis President and Director |
Date: November 14, 2011
By:
|
/s/ Brian Centner |
|||
Brian Centner Chief Financial Officer (Principal Accounting Officer) |
Date: November 14, 2011
29