10-Q 1 p10q0907.txt 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 September 30, 2007 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 333-108629 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 is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non- accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 Part 1 - FINANCIAL INFORMATION Item 1. Financial Statements. The reviewed financial statements for the Registrant for the nine months ended September 30, 2007 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. NuWave Investment Corp. is the sole commodity trading advisor of the Fund. 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 sole 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 Fund assets will 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 futures commission merchants (brokers) who 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 Futures Commission Merchant or Merchants that hold 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 third quarter, 2007 until August 31, 2007, the fixed costs of operation were a management fee of a percentage based on the rate of trading assigned by NuWave and approved by the General Partner of up to 2.5% annually and a quarterly incentive fee of 20% paid to the commodity trading advisor, a quarterly incentive fee of up to 3% paid to the general partner, fixed annual brokerage commissions of 6%, an annual continuing service fee of 3%, and accounting and legal fees that must be paid before the limited partners may earn a profit on their investment. Effective September 1, 2007, the management fee to NuWave Investment Corp. was increased from up to 2.5% annually to up to 3.25% annually. The fee continues to be based on the rate of trading assigned by NuWave and approved by the General Partner. Correspondingly, the corporate General Partner lowered its incentive fee from 3.0% to 0.5%. This change allows the commodity trading advisor increased flexibility in trading on behalf of the Fund. The Fund does not intend 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. The Registrant will in the future offer Units for sale to the public until the balance, as of September 30, 2007 of $47,035,707 in face amount of registered Units are sold. As of September 30, 2007, of the $50,000,000 in Units registered, $2,964,293 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. 2 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 approximately 97% 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 results after payment and accrual of expenses for the first nine months of 2007, for financial reporting purposes, was a profit (loss) of $(436,643) [$(313.53) per Unit], and for all other purposes, including subscriptions and redemptions, was a profit (loss) of $(426,971) [$(153.53) per Unit]. The Fund has restated its results after payment and accrual of expenses for the first nine months of 2006, for financial reporting purposes, which was a loss of $(69,516) [$(34,756.00) per Unit], and for all other purposes, including subscriptions and redemptions, which was a profit (loss) of $0 [$0 per Unit]. In its third quarter 2006 10-Q, the Fund had deferred its offering and organizational costs and reported that it had no results (i.e., no profit or loss). Losses are now reported for this period because offering and organizational costs have been expensed. Subsequent to the commencement of business, 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. 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. Item 4. 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. As of the end of the period covered by this report, the General Partner of the Fund, under the actions of its sole principal, Mr. Michael Pacult, carried out an evaluation of the effectiveness of the design and operation of the Fund's disclosure controls and procedures as contemplated by Rule 13a-15(e) or 15d- 15(e) of the Securities Exchange Act of 1934, as amended. Based on and as of the date of that evaluation, Mr. Pacult concluded that the Fund's disclosure controls and procedures are effective, in all material respects, in timely alerting them to material information relating to the Fund required to be included in the reports required to be filed or submitted by the Fund with the SEC under the Exchange Act. 3 Internal Control over Financial Reporting Each month, the general partner reviews the profit and loss statements for the month and once approved each partner is sent a statement to disclose total Fund performance and the amount in the partner's capital account. Checks are paid for expenses only upon approval of invoices submitted to the general partner or pursuant to standing authorizations for periodic fixed expenses. Payment of a redemption is only upon receipt of a request form signed by the person with authority over the limited partner's account. The general partner balances the daily account information with the monthly compilation and financial statements prepared by the independent CPA. There was no change in the General Partner's internal control over financial reporting applicable to the Fund identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred in the quarter ended September 30, 2007 that has materially affected, or is 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 FCM, the IB or any of their Affiliates, directors or officers, except against the FCM, MF Global Inc., as described below. At any given time, MF Global Inc. ("MFG"), formerly known as Man Financial Inc ("MFI"), 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 partnership. 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 Report that MFG would deem material for purposes of Part 4 of the Regulations of the Commodity Futures Trading Commission, except as follows: MFI has been 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"). The Receiver's claims for damages are not quantified in the Complaint, but are believed to be substantial. MFI has informed the general partner that in acting as executing and clearing broker for PAAF it was not responsible for its losses, that it has denied the material allegations of the complaint, that it has brought in third party defendants (one of which has been made a primary defendant), that it will move for summary judgment and will otherwise vigorously defend the litigation. The Receiver and MFG are in active settlement discussions in an attempt to resolve the matter before trial. Further, the outcome of the Litigation should not materially affect MFG or its ability to perform as a clearing broker. The Commodity Futures Trading Commission ("CFTC") is also investigating the events involving PAAF's losses and MFG's relationship to PAAF. To date, the CFTC has not brought any action against the MFG. On February 20, 2007, MFI 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. Neither of the above events will interfere with the ability of the FCM to perform its duties on behalf of the Fund. 4 Item 1A. Risk Factors There have been no material changes from risk factors as previously disclosed in the Fund's Form 10-K, as amended. 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 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 September 30, 2007, 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: November 19, 2007 5 Providence Select Fund, Limited Partnership Index to the Financial Statements Page Report of Independent Registered Public Accounting Firm F-2 Financial Statements Statements of Assets and Liabilities as of September 30, 2007 and December 31, 2006 F-3 Schedule of Investments - Cash and Securities - September 30, 2007 F-4 Schedules of Investments - Futures Contracts - September 30, 2007 F-5 Statements of Operations for the Three Months Ended September 30, 2007 and 2006 F-6 Statements of Changes in Net Assets for the Three Months Ended September 30, 2007 and 2006 F-7 Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006 F-8 Notes to Financial Statements F-9 - F-17 Affirmation of Commodity Pool Operator F-18 F-1 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 September 30, 2007, and the related statements of operations for the three months and nine months ended September 30, 2007 and 2006, changes in net assets and cash flows for the nine months ended September 30, 2007 and 2006. These financial statements are the responsibility of the Fund's management. We conducted our reviews 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 reviews, 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 standards of the Public Company Accounting Oversight Board (United States), the statement of assets and liabilities of PROVIDENCE SELECT FUND, LIMITED PARTNERSHIP as of December 31, 2006 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 August 20, 2007, 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, 2006 is fairly stated, in all material respects, in relation to the statement of assets and liabilities from which it has been derived. As discussed in Note 10 to the financial statements, the three months ended and nine months ended September 30, 2006 financial statements have been restated to correct a misstatement. /s/ Jordan, Patke & Associates, Ltd. Jordan, Patke & Associates, Ltd. Lincolnshire, Illinois November 19, 2007 300 Village Green Drive, Suite 210 * Lincolnshire, Illinois 60069 Phone: (847) 913-5400 * Fax: (847) 913-5435 F-2 Providence Select Fund, Limited Partnership Statements of Assets and Liabilities September 30, December 31, 2007 2006 (A Review) Assets Investments Equity in commodity futures trading accounts: Cash and cash equivalents $2,285,170 $- Cash denominated in foreign currencies 135,253 - Net unrealized gain on open futures contracts 60,461 - Total brokerage cash equivalents and investments 2,480,884 - Cash 19,402 304 Interest receivable 7,145 - Prepaid continuing service fee 52,759 - Total assets 2,560,190 304 Liabilities Accrued expenses 4,657 7,076 Due to related parties 275,666 256,746 Accounts payable 12,237 - Accrued management fees 15,125 - Redemptions payable 12,662 - Prepaid subscriptions 5,000 - Total Liabilities 325,347 263,822 Net assets $2,234,843 $(263,518) Analysis of Net Assets Limited partners $2,212,643 $(131,759) General partner 22,200 (131,759) Net assets (equivalent to $753.67 and $(131,759.00) per unit) $2,234,843 $(263,518) Partnership units outstanding Limited partners units outstanding 2,935.84 1.00 General partner units outstanding 29.46 1.00 Total partnership units outstanding 2,965.30 2.00
The accompanying notes are an integral part of the financial statements. F-3 Providence Select Fund, Limited Partnership (A Delaware Limited Partnership) Schedule of Investments - Cash and Securities September 30, 2007 (A Review) Fair Value Description Local Currency U.S. Dollars Percent Cash and cash equivalents in trading accounts: Cash denominated in U. S. Dollars: United States Markets 2,285,170 $2,285,170 94.41% Total cash denominated in U. S. Dollars 2,285,170 94.41% Total cash and cash equivalents denominated in U.S. Dollars 2,285,170 94.41% Cash denominated in foreign currency: Euro Markets - Euro 83,095 118,534 4.90% British Pound Markets - GBP 15,420 31,536 1.30% Australian Dollar Markets - AUD 29,664 26,342 1.09% Hong Kong Dollar Markets - HKD (497,426) (64,010) -2.64% Japanese Yen Markets - JPY 2,622,500 22,851 0.94% Total cash denominated in foreign currency 135,253 5.59% Total cash and cash equivalents $2,420,423 100%
The accompanying notes are an integral part of the financial statements. F-4 Providence Select Fund, Limited Partnership (A Delaware Limited Partnership) Schedule of Investments - Futures Contracts September 30, 2007 (A Review) Fair Value Description Expiration Date Contracts Local Currency USD Net unrealized gain (loss) on open futures contracts US Dollar denominated commodity futures positions held long: LME Aluminum Nov 2007 1 (6,271) $(6,271) LME Copper Nov 2007 1 19,622 19,622 LME Copper Dec 2007 1 3,565 3,565 LME Aluminum Nov 2007 2 3,390 3,390 LME Aluminum Oct 2007 4 (31,089) (31,089) LME Copper Oct 2007 1 6,713 6,713 CBOT Wheat Dec 2007 1 2,800 2,800 CBOT 10 Year Treasury Note Dec 2007 11 3,047 3,047 CMX Gold Dec 2007 10 48,480 48,480 CSC Coffee Dec 2007 6 (5,719) (5,719) IMM Austrailian Dollar Dec 2007 2 5,860 5,860 IMM Canadian Dollar Dec 2007 2 6,330 6,330 IMM Euro FX Dec 2007 9 50,681 50,681 NYC Cotton Dec 2007 2 (1,370) (1,370) IMM Euro Dollar Dec 2007 44 28,913 28,913 CBOT Soybeans Nov 2007 7 34,263 34,263 NY Heating Oil Nov 2007 4 (903) (903) NY Light Crude Nov 2007 1 6,520 6,520 NYM RBOB Gas Nov 2007 8 8,375 8,375 Total United States Commodity Futures Positions 183,207 183,207 Austrailian Dollar denominated commodity futures positions held long: SFE 10 Year Treasury Bond Dec 2007 6 (14,276) (12,677) Total Austrailian Dollar commodity futures positions held long (14,276) (12,677) Euro denominated commodity futures positions held long: DTB DAX Index Dec 2007 1 2,838 4,048 EURX E-Bund Dec 2007 4 (4,220) (6,020) LIF 3 Month Euribor Mar 2008 46 (15,313) (21,843) Total Euro commodity futures positions held long (16,695) (23,815) British Pound denominated commodity futures positions held long: LIF Long Gilt Dec 2007 8 (160) (327) LIF 3M STG IR Mar 2008 3 813 1,662 Total British commodity futures positions held long 653 1,334 Total commodity futures positions held long 148,049 US Dollar denominated commodity futures positions held short: LME Aluminum Nov 2007 1 (51) (51) LME Copper Nov 2007 1 (23,572) (23,572) LME Aluminum Nov 2007 3 1,022 1,022 LME Aluminum Oct 2007 4 8,146 8,146 LME Copper Oct 2007 1 (18,843) (18,843) LME Aluminum Dec 2007 1 (3,206) (3,206) CME Cattle Dec 2007 4 (1,040) (1,040) CMX Silver Dec 2007 1 (5,750) (5,750) IMM E-mini S&P 500 Dec 2007 5 (10,113) (10,113) CSC Sugar Mar 2008 6 (2,632) (2,632) NY Natural Gas Nov 2007 3 2,860 2,860 Total US Dollar commodity futures positions held short (53,179) (53,179) Australian Dollar denominated commodity futures positions held short: SFE SPI 200 Dec 2007 1 (7,350) (6,527) Total Australian Dollar commodity futures positions held short (7,350) (6,527) Euro denominated commodity futures positions held short: MONEP CAC40 Index Oct 2007 5 (605) (863) Total Euro commodity futures positions held short (605) (863) British Pound denominated commodity futures positions held short: NEW FTSE 100 Dec 2007 3 255 522 Total British Pound commodity futures positions held short 255 522 Hong Kong Dollar denominated commodity futures positions held short: HK Hang Seng Oct 2007 4 (140,200) (18,041) Total Hong Kong Dollar commodity futures positions held short (140,200) (18,041) Hong Kong Dollar denominated commodity futures positions held short: SMX NIKKEI Dec 2007 2 (1,090,000) (9,498) Total Hong Kong Dollar commodity futures positions held short (1,090,000) (9,498) Total commodity futures positions held short (87,586) Net unrealized gain on open futures contracts $60,461
The accompanying notes are an integral part of the financial statements. F-5 Providence Select Fund, Limited Partnership Statements of Operations For the Three and Nine Months Ended September 30, 2007 and 2006 (A Review) (Restated) (Restated) Three Months Ended September 30, Nine months Ended September 30, 2007 2006 2007 2006 Investment income Interest income $27,120 $- $44,209 $- Total investment income 27,120 - 44,209 - Expenses Commission expense to affiliates 33,324 - 57,595 - Commission expense to broker 3,191 - 3,904 - Management fees 15,125 - 25,878 - Continuing service fees 19,891 - 34,280 - Incentive fees - - 26,851 - Professional accounting and legal fees 22,199 22,497 101,069 69,380 Other operating and administrative expenses 415 61 4,976 136 Total expenses 94,145 22,558 254,553 69,516 Net investment (loss) (67,025) (22,558) (210,344) (69,516) Realized and unrealized gain (loss) from investments and foreign currency Net realized (loss) from: Investments (125,191) - (79,895) - Foreign currency transactions (263,490) - (206,866) - Net realized (loss) from investments and foreign currency transactions (388,681) - (286,761) - Net increase (decrease) in unrealized appreciation (depreciation) from: Investments 107,756 - 130,027 - Translation of assets and liabilities in foreign currencies (79,429) - (69,565) - Net increase in unrealized appreciation from investments and translation of assets and liabilities in foreign currencies 28,327 - 60,462 - Net (loss) on investments and foreign currency (360,354) - (226,299) - Net (decrease) in net assets resulting from operations $(427,379) $(22,558) $(436,643) $(69,516) Net (loss) per unit for a unit outstanding throughout the entire period Limited partner $(107.10) $(11,279.00) $(313.53) $(34,758.00) General partner $(107.10) $(11,279.00) $(313.53) $(34,758.00)
The accompanying notes are an integral part of the financial statements. F-6 Providence Select Fund, Limited Partnership Statement of Changes in Net Assets (A Review) (Restated) Nine Months Ended September 30, 2007 2006 Increase (decrease) in net assets from operations: Net investment (loss) $(210,344) $(69,516) Net realized (loss) from investments and foreign currency transactions (286,761) - Net increase in unrealized appreciation from investments and translation of assets and liabilities in foreign currencies 60,462 - Net decrease in net assets resulting from operations (436,643) (69,516) Capital contributions from partners 2,962,293 - Distributions to partners (27,289) - Total increase (decrease) in net assets 2,498,361 (69,516) Net assets at the beginning of the period (263,518) (123,990) Net assets at the end of the period $2,234,843 $(193,506)
The accompanying notes are an integral part of the financial statements. F-7 Providence Select Fund, Limited Partnership Statements of Cash Flows (A Review) (Restated) Nine Months Ended September 30, 2007 2006 Cash Flows from Operating Activities Net (decrease) in net assets resulting from operations $(436,643) $(69,516) Adjustments to reconcile net income to net cash (used in) operating activities: Changes in operating assets and liabilities: Unrealized (depreciation) on investments (60,461) - (Increase) in interest receivable (7,145) - (Increase) in prepaid continuing service fee (52,759) - Increase in accrued management and incentive fees 15,125 - Increase in accounts payable 12,237 - (Decrease) in accrued expenses (2,419) - Net cash (used in) operating activities (532,065) (69,516) Cash Flows from Financing Activities Increase in prepaid subscriptions 5,000 - Due to related parties 18,920 69,395 Proceeds from sale of units, net of sales commissions 2,962,293 - Partner redemptions (14,627) - Net cash provided by financing activities 2,971,586 69,395 Net increase (decrease) in cash and cash equivalents 2,439,521 (121) Cash at the beginning of the period 304 381 Cash at the end of the period $2,439,825 $260
The accompanying notes are an integral part of the financial statements. F-8 Providence Select Fund, Limited Partnership Nine Months Ended September 30, 2007 and 2006 (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. The CTA is NuWave Investment Corp., which 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. The Partnership was in the development stage prior to March 2, 2007 and its efforts until then were principally devoted to organizational activities. 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 and its General Partners are also 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 General Partners are also subject to the rules of the National Futures Association that regulate commodity pool operators and the requirements of various commodity exchanges where the Fund executes transactions. Additionally, the Fund is subject to the terms of the contracts it has entered with the futures commission merchants and rules of the 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. 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 will capitalize all offering and organizational costs until after the twelfth month following the commencement of business, at which time the costs will be amortized. The commencement of business was contingent upon the sale of at least $1,030,000 of partnership interests. 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, after the twelfth month following the commencement of business. These reimbursement amounts have accumulated to $273,745 as of September 30, 2007 and $256,746 as of December 31, 2006, respectively. Consequently, as of September 30, 2007 and December 31, 2006, the Net Asset Value and Net Asset Value per Unit for financial reporting purposes and for all other purposes are as follows: Balance Per Unit Calculation September 30, December 31, September 30, December 31, 2007 2006 2007 2006 Net Asset Value for financial reporting purposes $2,234,843 $(263,518) $753.67 $(131,759.00) Adjustment for initial offering costs 79,876 79,876 26.94 39,938.00 Adjustment for other offering costs and organizational expenses 195,315 185,642 65.87 92,821.00 Net Asset Value for all other purposes $2,510,034 $2,000 $846.48 $1,000.00 Number of units 2,965.30 2.00
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-9 Providence Select Fund, Limited Partnership Nine Months Ended September 30, 2007 and 2006 (A Review) 2. Significant Accounting Polices, Continued Revenue Recognition - Forward contracts, futures and other investments are recorded on the trade date and are reflected in the statement of operations at the difference between the original contract amount and the market value on the last business day of the reporting period. Market value of forward contracts, futures and other investments is based upon exchange or other applicable closing quotations related to the specific positions. Interest income is recognized when it is earned. Use of Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles 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 is not required to provide a provision for income taxes. Income tax attributes that arise from its operations are passed directly to the individual partners. The Fund may be subject to state and local taxes in jurisdictions in which it operates. Statement of Cash Flows - For purposes of the Statement of Cash Flows, the Fund considers only money market funds to be cash equivalents. Net cash provided by operating activities includes no cash payments for interest or income taxes for the nine months ending September 30, 2007 and 2006. There were no cash equivalents as of September 30, 2007 and December 31, 2006. 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 Company 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. 3. General Partner Duties The responsibilities of the General Partner, include all aspects of the management of the Fund. Specifically, they perform the duties of a commodity pool operator as that term is defined in the Commodity Exchange Act, 7 USC 1, et seq. They employ the commodity trading advisors to direct the trading and investment activity of the Fund, which include, if appropriate, to suspend all trading, to execute and to file all necessary legal documents, statements and certificates of the Fund, to retain independent public accountants to audit the Fund, to employ attorneys to represent the Fund, to review the brokerage commission rates to determine reasonableness, to maintain the tax status of the Fund as a limited partnership, to maintain a current list of the names, addresses and numbers of units owned by each Limited Partner and to take such other actions as deemed necessary or desirable to manage the business of the Partnership. The Corporate General Partner has contributed $29,050 in cash for deposit to the capital of the Fund for a General Partnership interest in the Partnership. F-10 Providence Select Fund, Limited Partnership Nine Months Ended September 30, 2007 and 2006 (A Review) 3. General Partner Duties, Continued 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 are transferred to the Fund's account on the first business day of the month after the subscription is accepted. Interest earned on the subscription funds accrues to the account of the investor. Redemptions - A limited partner may request that 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 are generally 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. There is 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 fee after the twelfth month. F-11 Providence Select Fund, Limited Partnership Nine Months Ended September 30, 2007 and 2006 (A Review) 5. Fees The Fund is charged the following fees: Until September 1, 2007, a monthly management fee was paid to the CTA based on the rate of trading assigned by the CTA and approved by the General Partner of up to 2.5% (annual rate) of the Fund's net assets allocated to the CTA to trade. As of September 1, 2007, such management fee was increased to up to 3.25% annually. The Fund pays the Corporate General Partner a fixed brokerage commission of 6%, 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, until September 1, 2007, up to a 3% quarterly incentive fee was paid to the Corporate General Partner. As of September 1, 2007, the quarterly incentive fee to the Corporate General Partner was reduced to up to 0.5%. "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. 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-12 Providence Select Fund, Limited Partnership Nine Months Ended September 30, 2007 and 2006 (A Review) 6. Related Party Transactions, Continued "Due to related parties" at September 30, 2007 and December 31, 2006 were amounts payable to White Oak Financial Services, Inc., Ashley Capital Management, Inc., Futures Investment Company, and Michael Pacult, president of Futures Investment Company, White Oak Financial Services, Inc. and Ashley Capital Management, Inc. The balances result from two types of transactions: Loans from related parties: Loans from related parties consist of offering, organizational and operating costs paid by the related parties on behalf of the Fund and cash advances. These amounts bear no interest or due dates and are unsecured. The balances are usually paid back within a year from the start of trading or when the Fund is financially capable of repaying the advance. 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 September 30, 2007 and December 31, 2006 were $1,921 and $0, respectively. Continuing service fee - The Fund pays Futures Investment Company a continuing service fee. Continuing service fees prepaid to Futures Investment Company amounted to $52,759 and $0 at September 30, 2007 and December 31, 2006, respectively. The following amounts were due to related parties as of September 30, 2007 and December 31, 2006: September 30, December 31, 2007 2006 Futures Investment Company $81,104 $64,105 Ashley Capital Management, Inc. 62,355 62,355 Michael Pacult 46,650 46,650 White Oak Financial Services, Inc. 85,557 83,636 Due to related parties $275,666 $256,746 The following commissions expense and continuing service fees were included in Statement of Operations: Nine Months Ended September 30, 2007 2006 White Oak Financial Services, Inc. - commissions $57,595 $- Futures Investment Company - continuing service fee $34,280 $- 7. Partnership Unit Transactions As of September 30, 2007 and 2006 partnership units were valued at $753.67 and $(85,474.00), respectively. Transactions in partnership units were as follows: Units Amount 2007 2006 2007 2006 Limited Partner Units Subscriptions 2,966.04 1.00 $2,935,243 $- Redemptions (31.20) - (27,289) - Net income for the nine months ended 9/30 - - (436,336) (34,758) Offering costs - - (127,216) - Total 2,934.84 1.00 2,344,402 (34,758) General Partner Units Subscriptions 28.46 1.00 27,050 - Redemptions - - - Net income for the nine months ended 9/30 - - (307) (34,758) Offering costs - - 127,216 - Total 28.46 1.00 153,959 (34,758) Total Units Subscriptions 2,994.50 2.00 2,962,293 - Redemptions (31.20) - (27,289) - Net income for the nine months ended 9/30 - - (436,643) (69,516) Offering costs - - - - Total 2,963.30 2.00 $2,498,361 $(69,516)
F-13 Providence Select Fund, Limited Partnership Nine Months Ended September 30, 2007 and 2006 (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 September 30, 2007 was $2,285,170, which equals approximately 101.5% of Net Asset Value. Cash exceeded Net Asset Value because of accrued expenses and partner redemptions at September 30, 2007. Cash payments for these expenses are expected to be made prior to the end of the next quarter. 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 $37,281,315 on long positions at September 30, 2007. 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 on open commodity futures contracts at September 30, 2007 were $60,461. Open contracts generally mature within three months of September 30, 2007. The latest maturity for open futures contracts is in March, 2008. However, the Fund intends to close all contracts prior to maturity. 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-14 Providence Select Fund, Limited Partnership Nine Months Ended September 30, 2007 and 2006 (A Review) 9. Concentrations The Fund maintains all of its initial subscription deposits with a commercial financial institution. In the event of the financial institution's insolvency, recovery of Fund deposits may be limited to account insurance or other protection afforded deposits by the institution. 10. Restatement and Correction of an Error We have restated our financial statements and other financial information contained in our Quarterly Report on Form 10-Q for the period ended September 30, 2006 to correct our accounting for the treatment of offering and organizational costs. The accompanying financial statements were restated only to reflect the adjustments described below. The SEC has requested revision of the Registrant's financial statements to expense reimbursable organizational costs in accordance with SOP 98-5 and reflect reimbursable offering costs as a reduction to partnership capital as of the initial effective date of the offering, September 12, 2005. Upon completion of our investigation and analysis of this request, on August 2, 2007, our management concluded that we would amend our previously filed Annual Report on Form 10-K for the year ended December 31, 2006 and our previously filed Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 to comply with the request of the SEC. The Audit Committee of our Board of Directors, composed of the sole director, owner and principal of the corporate general partner, Mr. Michael Pacult, who is also the individual general partner, ratified the decision to amend our previously filed reports on August 2, 2007. These changes are for financial reporting purposes only. For all other purposes, including determining the Net Asset Value per Unit for subscription and redemption purposes, the Fund will not reimburse the offering costs until after the twelfth month following the commencement of business. Accordingly, we do not believe the change is material to the limited partners of the Fund. We are restating our previously issued financial statements in accordance with the guidance provided in SFAS 154, Accounting Changes and Error Corrections. The following table sets forth the effects of the restatement on certain line items within our previously reported financial statements: F-15 Providence Select Fund, Limited Partnership Nine Months Ended September 30, 2007 and 2006 (A Review) 10. Restatement and Correction of an Error, con't. Three Months Ended September 30, 2006 Nine Months Ended September 30, 2006 As previously As previously reported Adjustments Restated reported Adjustments Restated Statement of Operations Professional accounting and legal fees $- $22,497 $22,497 $- $69,380 $69,380 Other operating and administrative expenses - 61 61 - 136 136 Total expenses - 22,558 22,558 - 69,516 69,516 Net investment (loss) - (22,558) (22,558) - (69,516) (69,516) Net (decrease) in net assets from operations - (22,558) (22,558) - (69,516) (69,516) Net (loss) per unit - (11,279.00) (11,279.00) - (34,758.00) (34,758.00) Statement of Changes in Net Assets Net assets at the beginning of the year 2,000 (125,990) (123,990) Net assets at the end of the year 2,000 (195,506) (193,506) Statement of Cash Flows Net (decrease) in net assets resulting from operations - (69,516) (69,516) Changes in operating assets and liabilities: Decrease in reimbursable syndication costs 15 (15) - (Increase) in prepaid operating expense (136) 136 - Net cash provided by operating activities (121) (69,395) (69,516) Cash flows from financing activities: Increase in due to related parties - 69,395 69,395 Net cash provided by financing activities - 69,395 69,395 Reimbursable syndication costs paid by and owed to related parties $69,395 $(69,395) $-
F-16 Providence Select Fund, Limited Partnership For the Three and Nine Months Ended September 30, 2007 and 2006 (A Review) 11. Financial Highlights Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Performance per Unit Net unit value, beginning of period $860.77 $(85,474.00) $(131,759.00) $(61,995.00) Net realized and unrealized (losses) on commodity transactions (90.30) - (162.49) - Investment and other income 6.80 - 31.74 - Expenses (1) (23.59) (11,279.00) (182.78) (34,758.00) (Decrease) related to operations (107.10) (11,279.00) (313.53) (34,758.00) Reallocation of initial offering costs - - 132,826.20 - Net increase (decrease) for the period (107.10) (11,279.00) 132,512.67 (34,758.00) Net unit value, end of period $753.67 $(96,753.00) $753.67 $(96,753.00) Net assets, end of period (000) 2,235 (264) 2,235 (264) Total return (3) -22.28% 13.20% -9.92% 56.07% Ratio to average net assets (4) Investment and other income 1.39% 0.00% 4.40% 0.00% Expenses (2) 4.66% -12.38% 24.93% -44.71%
(1) Includes brokerage commissions (2) Excludes brokerage commissions (3) Not annualized (4) Annualized for all periods F-17 Providence Select Fund, Limited Partnership Affirmation of the Commodity Pool Operator For the Three and Nine Months Ended September 30, 2007 and 2006 (A Review) ***************************************************************************** To the best of the knowledge and belief of the undersigned, the information contained in this report is accurate and complete. /s/ Michael Pacult November 19, 2007 Michael Pacult Date President, White Oak Financial Services, Inc. General Partner Providence Select Fund, Limited Partnership F-18