UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2011

 

Commission file number: 000-53639

 

SAGE FUND LIMITED PARTNERSHIP

Organized in Maryland

IRS Employer Identification No.:  52-1937296

 

c/o Steben & Company, Inc.
2099 Gaither Road, Suite 200
Rockville, Maryland 20850
Telephone: (240) 631-7600

 

Securities to be registered pursuant to Section 12(b) of the Act: NONE

 

Securities to be registered pursuant to Section 12(g) of the Act: Limited Partner Interests

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

 

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 this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer ¨	Accelerated Filer ¨
Non-Accelerated Filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

Aggregate market value of the voting and non-voting common equity held by non-affiliates: N/A.

 

 

Table of Contents

 

Part I
Item 1.	Business	3
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	9
Item 2.	Properties	9
Item 3.	Legal Proceedings	9
Item 4.	Mine Safety Disclosures	9
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	9
Item 6.	Selected Financial Data	10
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	16
Item 8.	Financial Statements and Supplementary Data	16
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	16
Item 9A.	Controls and Procedures	16
Item 9B.	Other Information	17
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	17
Item 11.	Executive Compensation	19
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	19
Item 13.	Certain Relationships and Related Transactions, and Director Independence	19
Item 14.	Principal Accountant Fees and Services	19
Part IV
Item 15.	Exhibits and Financial Statement Schedules	20
Signatures		22

 

 

PART I

 

ITEM 1. Business

 

Sage Fund Limited Partnership (“Fund”) is a Maryland limited partnership, formed on August 2, 1995, originally under the name Telesis Futures Fund Limited Partnership, which was changed to Sage Fund Limited Partnership on December 16, 1998. The Fund is actively managed, with speculative trading profits as its objective. Using a professional trading advisor, the Fund engages in the speculative trading of futures contracts and other financial instruments traded in the United States (U.S.) and internationally. The Fund primarily trades futures contracts within six major market sectors: stock indices, currencies, interest rate instruments, energy products, metals and agricultural commodities. The Fund does not currently trade forward currency contracts, forwards on other items, swaps or options contracts, but may do so in the future. The Fund began trading on January 5, 1996.

 

The Fund’s fiscal year ends each December 31, and the Fund will automatically terminate on December 31, 2025, unless terminated earlier as provided in the Second Amended and Restated Limited Partnership Agreement (“Partnership Agreement”). At December 31, 2011, the aggregate capitalization of the Fund was $50,177,955. The net asset value per unit of Class A limited partner interests (“Units”) as of December 31, 2011 was $1,883.90.

 

The Fund’s assets are allocated to Altis Partners (Jersey) Ltd. (“Trading Advisor”). While it is not currently the case, a portion of the Fund’s assets may be allocated to other investment funds or pools at the discretion of Steben & Company, Inc. (“General Partner”), in order to access the services of other trading advisors. The General Partner is responsible for selecting and monitoring the Trading Advisor, and it may add new trading advisors in the future and/or terminate the current Trading Advisor, and will, in general, allocate the Fund’s assets among trading advisors as it deems is in the best interests of the Fund.

 

The Fund maintains its margin deposits and reserves in cash, U.S. Treasury securities, U.S. and foreign government sponsored enterprise notes, registered U.S. money market funds, commercial paper, corporate notes and certificates of deposit in accordance with Commodity Futures Trading Commission (“CFTC”) rules. All interest income earned by the Fund accrues to the benefit of the Fund.

 

The Fund’s business constitutes only one segment for financial reporting purposes. The Fund does not engage in material operations in foreign countries (although it does trade on international futures markets), nor is a material portion of its revenues derived from foreign customers.

 

General Partner

 

Under the Partnership Agreement, management of all aspects of the Fund’s business and administration is carried out exclusively by the General Partner, a Maryland corporation organized in February 1989. The General Partner is registered with the CFTC as a commodity pool operator and introducing broker, and is also registered with the U.S. Securities and Exchange Commission (“SEC”) as an investment adviser and a broker dealer. The General Partner is a member of the National Futures Association (“NFA”) and the Financial Industry Regulatory Authority (“FINRA”).

 

The General Partner manages all aspects of the Fund’s business, including selecting and monitoring the Fund’s trading advisor(s); replacing the Trading Advisor if appropriate or adding other trading advisors; selecting the Fund’s futures broker(s), accountants and attorneys; computing the Fund’s net assets; reporting to limited partners; directing the investment of Fund excess margin monies in interest-bearing instruments and/or cash; and processing subscriptions and redemptions. The General Partner maintains office facilities for and furnishes administrative and clerical services to the Fund.

 

Trading Advisor

 

The Trading Advisor is registered with the CFTC as a commodity trading advisor and commodity pool operator, and is a member of the NFA. The Trading Advisor’s main office is located at Charles House, 2nd Floor, Charles Street, St. Helier, Jersey JE2 4SF, Channel Islands.

 

The Trading Advisor is regulated in the State of Jersey, Channel Islands by the Jersey Financial Services Commission. The Trading Advisor is wholly owned by its four principals. The Trading Advisor engages primarily in the management of futures, options on futures and foreign exchange trading accounts for qualified investors. At December 31, 2011, the Trading Advisor had total assets under management of approximately $1.4 billion, with approximately $1.4 billion in the Global Futures Portfolio (“Trading Program”).

 

 

The Trading Program participates in over 140 worldwide futures markets over multiple maturities. It is a systematic, automated trading program that builds on the principals’ market experience and employs a proprietary advanced asset allocator. The advanced asset allocator was specifically developed to manage portfolios of derivative instruments in a robust and scalable manner. The portfolio management technology combines original, traditional and contrasting investment techniques into one complete and comprehensive trading system. The Global Futures Portfolio is designed to participate in broad sectors of the world economy. The Trading Advisor trades in financial and commodity futures worldwide. Market sectors traded include energy products, metals, grains, livestock, currencies, stock indices and interest rate instruments. The Trading Advisor may also trade in foreign exchange forwards and option contracts. The Trading Advisor intends to generally employ a margin-to-equity ratio of approximately 10% to 35%, but such ratio may be higher or lower at certain times.

 

The on-going development of the Trading Advisor’s strategy is a continuous process, and the trading strategy may therefore be modified from time to time. The Fund will be notified of changes, additions or deletions to the trading strategy that are deemed to be material by the Trading Advisor. The trading strategies utilized by the Trading Advisor for the Fund may differ from those used with respect to other accounts managed by the Trading Advisor or its own accounts. Trading decisions require the exercise of judgment by the Trading Advisor.

 

Selling Agents

 

The General Partner acts as a selling agent for the Fund, and has entered into selling agreements with certain other broker dealers registered under the U.S. Securities Exchange Act of 1934, as amended (“1934 Act”), and members of FINRA, to act as additional selling agents with respect to the Units. Selling agents are selected to assist in the making of offers and sales of Units. The selling agents offer the Units on a “best efforts” basis.

 

Futures Broker

 

The Fund uses Newedge USA, LLC (“NUSA”) as its futures broker. The General Partner may, in its discretion, have the Fund utilize other futures brokers or forward and swap counterparties if it deems it to be in the best interest of the Fund.

 

Newedge Group was formed on January 2, 2008 as a joint venture by Société Générale and Calyon to combine the brokerage activities previously carried by their respective subsidiaries which comprised the Fimat Group and the Calyon Financial Group of affiliated entities. Newedge Group (UK Branch) is a branch of Newedge Group and lead regulated in France as a bank by the CECEI (Banque de France) and supervised by Commission Bancaire and the Autorité des Marchés Financiers for the conduct of investment services, and regulated by the Financial Services Authority for the conduct of business in the UK.

 

Cash Management

 

The Fund engaged J.P. Morgan Investment Management, Inc. and Principal Global Investors, LLC (collectively, the “Cash Managers”) to provide cash management services to the Fund. The Cash Managers manage the Fund’s cash and excess margin through investments in fixed income instruments, pursuant to investment parameters established by the General Partner. Prior to April 2011, the Fund used UBS Financial Services, Inc. (“UBS”) as its cash management securities broker. The General Partner may, in its discretion, have the Fund use other cash managers if it deems it to be in the best interest of the Fund.

 

 

Description of Current Charges

 

Charges		Amount
Trading Advisor Management Fee		The Trading Advisor receives a monthly management fee equal to 1/12th of 1%, based upon the assets under its management, payable in arrears.
Trading Advisor Incentive Fee		The Trading Advisor receives a quarterly incentive fee, payable in arrears, equal to 25% of any “Net New Trading Profits” generated by the Trading Advisor for the Fund.   Net New Trading Profits are calculated based on formulas defined in the Trading Advisor’s trading agreement. In determining Net New Trading Profits, any trading losses generated by the Trading Advisor for the Fund in prior periods are carried forward, so that the incentive fee is assessed only if and to the extent the profits generated by the Trading Advisor for the period exceed any losses from prior periods. The loss carry-forward is proportionally reduced if and to the extent the Fund reduces the amount of assets allocated to the Trading Advisor.
Brokerage Commissions and Trading Expenses		The Fund incurs brokerage commissions and trading expenses on U.S. futures exchanges currently at the rate of $2.94 to $27.84 per “round-turn” futures transaction (which includes NFA, execution, clearing and exchange fees). Brokerage commissions and trading expenses may be higher for trades executed on certain foreign exchanges. The Fund will also pay the bid-ask spread on foreign currency transactions. The Fund’s average brokerage commission and trading expense is $5.58 per round-turn transaction.
Cash Manager Fees		The Fund incurs a monthly cash manager fee, payable in arrears to the Cash Managers, equal to approximately 1/12th of 0.11% of the investments in securities and certificates of deposit.
General Partner Management Fee		The Fund incurs a monthly fee equal to 1/12th of 1.1% of the month-end net asset value of the Fund, payable in arrears.
General Partner 1% Allocation		Annually, the General Partner receives from the Fund 1% of any net income earned by the Fund.  Conversely, the General Partner pays to the Fund 1% of any net loss incurred by the Fund.
Selling Agent Fees		The General Partner charges a monthly selling agent fee equal to 1/12th of 3% of the month-end net asset value of the Fund, payable in arrears. The General Partner, in turn, pays selling agent fees to the respective selling agents. If selling agent fees are not paid to the selling agents, or if the General Partner was the selling agent, such portions of the selling agent fees are retained by the General Partner.
Administrative Expenses		The Fund reimburses the General Partner for actual monthly administrative expenses up to 1/12th of 0.75% of the Fund’s month-end net asset value, payable in arrears. However, expenses (other than extraordinary costs) that exceed 1% the average month-end net assets of the Fund are the responsibility of the General Partner.   Administrative expenses include accounting, audit, legal, salary and administrative costs incurred by the General Partner relating to marketing and administration of the Fund; such as, salaries and commissions of General Partner marketing personnel, administrative employee salaries and related costs.   The Fund may incur extraordinary expenses (including extraordinary legal and accounting fees), although none are anticipated.

 

Market Sectors

 

The Fund trades speculatively, through the allocation of its assets to the Trading Advisor, in the U.S. and international futures markets and may trade or hold forwards, swaps and options. Specifically, the Fund trades futures on interest rate instruments, stock indices, energy products, currencies, metals and agricultural commodities. The Fund does not currently trade currency forwards, forwards on other items, swaps or options contracts, but may do so in the future.

 

 

Market Types

 

The Fund trades on a variety of U.S. and international futures exchanges. As in the case of its market sector allocations, the Fund’s commitments to different types of markets -U.S. and non-U.S., regulated and non-regulated - differ substantially from time to time, as well as over time, and may change at any time if the Trading Advisor, with the approval of the General Partner, determines such change to be in the best interests of the Fund.

 

Conflicts of Interest

 

The General Partner and its principals have organized and are involved in other business ventures, and may have incentives to favor certain of these ventures over the Fund. The Fund will not share in the risks or rewards of such other ventures. However, such other ventures will compete for the General Partner’s and its principals’ time and attention, which might create other conflicts of interest. The Partnership Agreement does not require the General Partner to devote any particular amount of time to the Fund.

 

The General Partner or any of its affiliates or any person connected with it may invest in, directly or indirectly, or manage or advise other investment funds or accounts which invest in assets which may also be purchased or sold by the Fund. Neither the General Partner nor any of its affiliates nor any person connected with it is under any obligation to offer investment opportunities of which any of them becomes aware to the Fund or to account to the Fund in respect of (or share with the Fund or inform the Fund of) any such transaction or any benefit received by any of them from any such transaction, but will allocate such opportunities on an equitable basis between the Fund and other clients.

 

Incentive Fee to the Trading Advisor

 

Because the Trading Advisor is entitled to an incentive fee, the Trading Advisor may have an incentive to cause the Fund to make riskier or more speculative investments than it otherwise would.

 

Personal Trading

 

The Trading Advisor, the futures broker, the General Partner and the principals and affiliates thereof may trade commodity interests for their own account. In such trading, positions might be taken which are opposite those of the Fund, or that compete with the Fund’s trades.

 

Trades by the Trading Advisor and its Principals

 

The Trading Advisor and its principals may trade for their own accounts in addition to directing trading for client accounts. Therefore, the Trading Advisor and its principals may be deemed to have a conflict of interest concerning the sequence in which orders for transactions will be transmitted for execution. Additionally, a potential conflict may occur when the Trading Advisor and its principals, as a result of a neutral allocation system, testing a new trading system, trading their own proprietary account(s) more aggressively, or any other actions that would not constitute a violation of fiduciary duties, take positions in their own proprietary account(s) which are opposite, or ahead of, the position(s) taken for a client. Proprietary accounts, in trading a new or experimental system, may enter the same markets earlier than (either days before or on the same day) client accounts traded at the same or other futures commission merchants. Since the principals of the Trading Advisor trade futures and foreign exchange for their own accounts, there is potentially a conflict of interest between these principals and the Trading Advisor’s clients when allocating prices on trades that are executed by a futures commission merchant at multiple prices. In such instances, the Trading Advisor uses a non-preferential method of fill allocation. The clients of the Trading Advisor will not be permitted to inspect the personal trading records of the Trading Advisor or NUSA, or their respective principals, or the written policies relating to such trading. Client records are not available for inspection due to their confidential nature.

 

Effects of Speculative Position Limits

 

The CFTC and domestic exchanges have established speculative position limits on the maximum net long or net short futures position which any person, or group of persons, or group of persons acting in concert, may hold or control in particular futures contracts or options on futures traded on U.S. commodity exchanges. All commodity accounts owned or controlled by the Trading Advisor and its principals are combined for speculative position limits. Because speculative position limits allow the Trading Advisor and its principals to control only a limited number of contracts in any one commodity, the Trading Advisor and its principals are potentially subject to a conflict among the interests of all accounts the Trading Advisor and its principals control which are competing for shares of that limited number of contracts. There exists a conflict between the Trading Advisor’s interest in maintaining a smaller position in an individual client’s account in order to also provide positions in the specific commodity to other accounts under management and the personal accounts of the Trading Advisor and its principals. The General Partner does not believe, however, that the position limits are likely to impair the Trading Advisor’s trading for the Fund although it is possible the issue could arise in the future.

 

 

To the extent that position limits restrict the total number of commodity positions which may be held by the Fund and those other accounts, the Trading Advisor will allocate the orders equitably between the Fund and such other accounts. Similarly, where orders for the same commodity given on behalf of both the Fund and other accounts managed by the Trading Advisor cannot be executed in full, the Trading Advisor will equitably allocate between the Fund and such other accounts that portion of the total quantity able to be executed.

 

Other Activities of the Principals of the Trading Advisor

 

Certain principals of the Trading Advisor are currently engaged, and expect in the future to be engaged, in other activities, some of which may involve other business activities in the futures industry. In addition, each principal of the Trading Advisor may be engaged in trading for his own personal account. The principals will have a conflict of interest between their obligations to devote all of their attention to client accounts and their interests in engaging in other activities. However, the principals of the Trading Advisor intend to devote substantial attention to the operation and activities of the Trading Advisor consistent with the division of responsibilities among them as is described herein.

 

Operation of Other Commodity Pools

 

The General Partner currently operates three other commodity pools and might have an incentive to favor those pools over the Fund.

 

Fiduciary Responsibility of the General Partner

 

The General Partner has a fiduciary duty to the Fund to exercise good faith and fairness in all dealings affecting the Fund. If a limited partner believes this duty has been violated, he may seek legal relief under applicable law, for himself and other similarly situated partners, or on behalf of the Fund. However, it may be difficult for limited partners to obtain relief because of the changing nature of the law in this area, the vagueness of standards defining required conduct and the broad discretion given the General Partner in the Partnership Agreement and the exculpatory provisions therein.

 

Selling Agents

 

The receipt by the selling agents and their registered representatives of continued sales commissions for outstanding Units may give them an incentive to advise limited partners to remain investors in the Fund. These payments cease to the extent the limited partners withdraw from the Fund.

 

The General Partner Serving as Selling Agent

 

The General Partner also serves as a selling agent for the Fund. As a result, the fees and other compensation received by the General Partner as selling agent have not been independently negotiated.

 

Futures Broker

 

The futures broker affects transactions for customers (including public and private commodity pools), including the Fund, who may compete with the Fund’s transactions including with respect to priorities or order entry. Since the identities of the purchaser and seller are not disclosed until after the trade, it is possible that the futures broker could effect transactions for the Fund in which the other parties to the transactions are the futures broker’s officers, directors, employees, customers or affiliates. Such persons might also compete with the Fund in making purchases or sales of commodities without knowing that the Fund is also bidding on such commodities. Since orders are filled in the order in which they are received by a particular floor broker, transactions for any of such persons might be executed when similar trades for the Fund are not executed or are executed at less favorable prices. However, in entering orders for the Fund and other customer accounts, including with respect to priorities of order entry and allocations of executed trades, CFTC regulations prohibit a futures commission merchant from utilizing its knowledge of one customer’s trades for its own or its other customer’s benefit.

 

Regulations

 

The Fund is a registrant with the SEC pursuant to the 1934 Act. As a registrant, the Fund is subject to the regulations of the SEC and the reporting requirements of the 1934 Act. As a commodity pool, the Fund is subject to the regulations of the CFTC, an agency of the U.S. government, which regulates most aspects of the commodity futures industry; rules of the NFA, an industry self-regulatory organization; and the requirements of commodity exchanges where the Fund executes transactions. Additionally, the Fund is subject to the requirements of futures commission merchants, futures broker and Interbank market makers through which the Fund trades.

 

 

Under the Commodity Exchange Act (“CEAct”), commodity exchanges and commodity futures trading are subject to regulation by the CFTC. The NFA, a registered futures association under the CEAct, is the only non-exchange self-regulatory organization for commodity industry professionals. The CFTC has delegated to the NFA responsibility for the registration of commodity trading advisors, commodity pool operators, futures commission merchants, introducing brokers and their respective associated persons and floor brokers. The CEAct requires commodity pool operators, and commodity trading advisors and futures brokers or futures commission merchants such as the Fund’s futures broker, to be registered and to comply with various reporting and recordkeeping requirements. The General Partner and the Fund’s futures broker are members of the NFA. The CFTC may suspend a commodity pool operator’s or trading advisor’s registration if it finds that its trading practices tend to disrupt orderly market conditions, or as the result of violations of the CEAct or rules and regulations promulgated thereunder. In the event that the General Partner’s registration as a commodity pool operator were terminated or suspended, the General Partner would be unable to continue to manage the business of the Fund. Should the General Partner’s registration be suspended, termination of the Fund might result.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Reform Act”) was enacted in July 2010. The Reform Act includes provisions that comprehensively regulate the over-the-counter derivatives markets for the first time. The Reform Act will mandate that a substantial portion of over-the-counter derivatives must be executed in regulated markets and submitted for clearing to regulated clearinghouses. The mandates imposed by the Reform Act may result in the Fund bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees.

 

The Reform Act also amended the definition of eligible contract participant, and the CFTC has interpreted that definition in such a manner that the Fund may no longer be permitted to engage in forward currency transactions by directly accessing the interbank market. Rather, if and when the Reform Act’s new definition goes into effect, the Fund may be limited to engaging in retail forex transactions which could limit the Fund’s potential forward currency counterparties to futures commission merchants and retail foreign exchange dealers. Thus, limiting the Fund’s potential forward currency counterparties could lead to the Fund bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees. The retail forex markets could also be significantly less liquid than the interbank market. Moreover, the creditworthiness of the futures commission merchants and retail foreign exchange dealers with whom the Fund may be required to trade could be significantly weaker than the creditworthiness of the financial institutions with whom the Fund currently engages for its forward currency transactions. Although the impact of requiring the Fund to conduct forward currency transactions in the retail market could be substantial, the full scope is currently unknown and the ultimate effect could also be negligible.

 

Additionally, the CFTC and certain commodity exchanges have established limits on the maximum net long and net short positions which any person, including the Fund, may hold or control in particular commodities. Most exchanges also limit the maximum changes in futures contract prices that may occur during a single trading day. The Fund also trades in dealer markets for forward currency contracts, which are not regulated by the CFTC. Federal and state banking authorities do not regulate forward trading or forward dealers. In addition, the Fund trades on foreign commodity exchanges, which are not subject to regulation by any U.S. government agency. The CFTC adopted a separate position limits regime for 28 so-called “exempt” (i.e. metals and energy products) and agricultural futures and options contracts and their economically equivalent swap contracts, subject to a delayed implementation schedule. Position limits in spot months are 25% of the official estimated deliverable supply of the underlying commodity and in a non-spot month a percentage of the average open interest in all months for each contract. The General Partner believes that the proposed limits are sufficiently large that when implemented, they should not restrict the Fund’s trading strategy.

 

Competition

 

The Fund operates in a competitive environment in which it faces several forms of competition, including, without limitation, the following:

  

·

The Fund competes with other commodity pools and other investment vehicles for investors.

 

·

The Trading Advisor may compete with other traders in the markets in establishing or liquidating positions on behalf of the Fund.

 

 

Available Information

 

The Fund files Forms 10-K, 10-Q, 8-K, 3 and 4, as required, with the SEC. The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Additional information about the Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. Reports filed electronically with the SEC may be found at http://www.sec.gov.

 

Reports to Security Holders

 

None.

 

Enforceability of Civil Liabilities Against Foreign Persons

 

None.

 

Item 1A.

Risk Factors

 

A smaller reporting company, as defined by Rule 12b-2 of the 1934 Act, is not required to provide the information under this item.

 

Item 1B.

Unresolved Staff Comments

 

A smaller reporting company, as defined by Rule 12b-2 of the 1934 Act, is not required to provide the information under this item.

 

Item 2.

Properties

 

The Fund does not use any physical properties in the conduct of its business. Its assets currently consist of futures and other contracts, cash and fixed income instruments.

 

The General Partner’s principal business office is in Rockville, Maryland.

 

Item 3.

Legal Proceedings

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

There is no established public trading market for the Units of the Fund.

 

Units of the Fund are offered continuously through selling agents on a best-efforts basis at their month-end net asset value per unit. The minimum investment is $10,000. Currently, Units are offered on the first day of each month at the net asset value per unit on the last day of the preceding month. Units are issued as of the commencement of business on the first business day of each month.

 

Holders

 

As of February 29, 2012, there were 817 holders of Units of the Fund.

 

 

Dividends

 

The General Partner has sole discretion to determine what distributions, if any, the Fund will make to its limited partners. The General Partner has not made any distributions as of the date hereof.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

None.

 

Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities

 

There were no sales of unregistered securities of the Fund during the year ended December 31, 2011.

 

The proceeds from the sale of registered securities of the Fund are deposited in the Fund’s bank and brokerage accounts for the purpose of engaging in trading activities in accordance with the Fund’s trading policies and the Trading Advisor’s Trading Program.

 

Issuer Purchases of Equity Securities

 

Redemptions may be made by a limited partner as of the last trading day of any month at the net asset value of the redeemed Units (or portion thereof) on that date. Such requests should be made on a Request for Redemption Form, which must be received by the General Partner at least five business days before the end of the month in which the redemption is to occur. Partial redemptions must be for at least $1,000, unless such requirement is waived by the General Partner. In addition, the limited partner, if making a partial redemption, must maintain at least $10,000 or his original investment amount, whichever is less, in the Fund unless such requirement is waived by the General Partner. The redemption of Units has no impact on the value of Units that remain outstanding, and Units are not reissued once redeemed.

 

Redemptions of Units during the fourth quarter of 2011 were as follows:

 

		October				November				December				Total
A Units
Units redeemed			1,056.4212				330.0120				746.6409				2,133.0741
Average net asset value per unit		$	1,864.71			$	1,863.63			$	1,883.90			$	1,871.26

 

Item 6.

Selected Financial Data

 

A smaller reporting company, as defined by Rule 12b-2 of the 1934 Act, is not required to provide the information under this item.

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cash Management

 

Effective April 2011, the Fund engaged J.P. Morgan Investment Management, Inc. and Principal Global Investors, LLC (collectively, the “Cash Managers”) to provide cash management services to the Fund. The Fund’s objective in retaining the Cash Managers is to enhance the return on its assets not required to be held by the Fund’s brokers to support the Fund’s trading. There is no guarantee that the Cash Managers will achieve returns for the Fund, net of fees payable to the Cash Managers, in excess of the returns previously achieved through the General Partner’s efforts and/or available through the Fund’s brokers, or that the Cash Managers will avoid a loss of principal on amounts placed under their management.

 

Liquidity

 

At December 31, 2011, there are no known material trends, demands, commitments, events, or uncertainties at the present time that are reasonably likely to result in the Fund’s liquidity increasing or decreasing in any material way.

 

Capital Resources

 

The Fund intends to raise additional capital only through the sale of Units, and does not intend to raise any capital through borrowing. Due to the nature of the Fund’s business, the Fund does not contemplate making capital expenditures. The Fund does not have, nor does it expect to have, any capital assets. Redemptions, exchanges and sales of Units in the future will affect the amount of funds available for investments in futures contracts, forward currency contracts and other financial instruments in subsequent periods. It is not possible to estimate the amount, and therefore the impact, of future capital inflows and outflows related to the sale and redemption of Units. There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Fund’s capital resource arrangements at the present time.

 

 

Contractual Obligations

 

The Fund does not have any contractual obligations of the type contemplated by Item 303(a)(5) of Regulation S-K. The Fund’s sole business is trading futures contracts, both long (contracts to buy) and short (contracts to sell).

 

Results of Operations

 

The returns for the Fund for the years ended December 31, 2011 and 2010 were (31.05)% and 7.74%, respectively. Past performance is not indicative of expected future financial condition or results of operations. Further analysis of the trading gain and loss is provided below.

 

2011

 

January

 

The Fund finished 7.04% lower this month as losses from foreign currencies, equity indices and metals offset profits from agricultural commodities, energy products and interest rate instruments. The most significant losses came from the Fund’s positions in international currencies as several foreign exchange prices reversed direction in response to positive economic news in both the U.S. and Europe. Cross-currency trades in several markets, including the British pound/Japanese yen, euro/Australian dollar, and British pound/ Australian dollar all reversed and moved against the Fund’s positions during the month. In agricultural commodities, rising prices in cotton, corn and sugar contributed additional profits. In other sectors, results were mixed leading to flat performance in metals, interest rate instruments, energy products and equity indices.

 

February

 

The Fund finished 0.83% lower this month as losses from foreign currencies, interest rate instruments, equity indices and metals offset profits from agricultural commodities and energy products. The most significant losses came from the Fund’s positions in international currencies as several foreign exchange prices reversed direction from previous trends in both Europe and Japan. The most significant profits came from the Fund’s positions in energy as tensions in the Middle East, and especially in Libya, pushed oil prices higher benefiting the Funds’ long positions in that sector. In agricultural commodities, rising prices in cotton, corn and sugar contributed additional profits. In other sectors, results were mixed leading to flat performance in metals, interest rate instruments and equity indices. For the year the Fund was down 7.81% and for the last 12 months it was up 1.35%.

 

March

 

The Fund finished 8.29% lower this month with losses in agricultural commodities, energy, metals, and currencies offsetting profits from interest rate instruments. The most significant losses came from the agricultural commodities sector where prices in many cases fell sharply early in the month. Corn futures prices fell over 10% moving against the Fund’s long positions. Events in Japan and Libya sent energy prices significantly higher. The higher energy prices benefited the Fund’s long positions in that sector but losses from long positions in natural gas offset those profits leaving a net loss for the sector. The same global events also generated reversals in global stock indices, which went against the Fund’s long positions and generated losses. Although equity prices rebounded later in the month it wasn’t enough to offset the earlier losses. Prices in interest rate instruments were mixed this month with losses offsetting profits in that sector. For the year the Fund was down 15.46% and for the last 12 months it was down 10.51%.

 

April

 

The Fund finished 2.01% higher this month with profits from currencies, metals, and energy products offsetting losses from interest rate instruments, stock indices and agricultural commodities. The most significant profits came from the foreign exchange markets, where the Fund’s long positions benefited from significant price appreciation in the Australian dollar relative to several other currencies including the U.S. dollar. Precious metals, including silver and gold, continued to trend higher generating profits for the Fund, although a reversal in industrial metals offset some of those profits. Oil product prices also pushed higher which benefited the Fund’s long positions, but losses from natural gas dampened gains for the energy sector.

 

 

May

 

The Fund finished 7.28% lower this month with losses from energy products, foreign exchange, metals, equity indices and agricultural commodities offsetting profits from interest rate instruments. An abrupt sell-off in physical commodities early in the month sent energy and precious metals prices sharply lower. The most significant losses in these sectors came from long positions in light crude, Brent crude, silver and aluminum. Reports that Greece was considering leaving the euro zone sparked a flight to safety that drove global indices lower and interest rate instruments and the U.S. dollar sharply higher. While the market moves were profitable for the Fund’s long positions in interest rate instruments, they went against the Fund’s long positions in global indices and several foreign currencies which generated losses. In agricultural commodities, losses were mostly in coffee, corn and sugar.

 

June

 

The Fund finished 4.32% lower this month with losses in equity indices, energies, agricultural commodities and metals offsetting profits from currencies. Although the markets were relatively quiet during the month, concerns over Greece’s debt and the end of the Federal Reserve’s quantitative easing program weighed heavily in the news. A modest flight to quality sent equity prices lower and interest rate instruments higher for a second month in a row. The fall in equity prices went against the Fund’s long positions. Over the past several weeks, the Fund’s trading advisor has substantially reduced its long equity positions, reducing the impact. The most significant profits came from positions in foreign currencies, where the Fund’s short positions benefited from price depreciation in the British pound relative to several other major currencies. In commodities, improved supply coupled with weaker confidence in the global economy sent prices lower. The decline in commodity prices was led by a substantial drop in energies prices and agricultural commodities, both of which went against the Fund’s long positions.

 

July

 

The Fund finished 4.00% higher this month with profits in interest rate instruments, currencies, metals, agricultural commodities and energy products, offsetting losses from equity indices. The Fund’s most significant gains came from its long positions in interest rate instruments. Concerns over a weak U.S. economy and persistent debt issues in Europe helped push global bond prices higher, benefiting the Fund’s long positions. In metals, rising prices generated profits for the Fund’s long gold positions, while a weaker dollar benefited some of the Fund’s long positions in major foreign currencies, including the Swiss franc, Japanese yen and Australian dollar. Equity indices continued to move sideways without a strong trend, generating some losses. In the agricultural commodity sector, the Fund’s long positions in sugar profited from its sustained upward price trend for that commodity.

 

August

 

The Fund finished 6.36% lower this month with losses in currencies, equity indices, energy products, agricultural commodities and metals offsetting profits in interest rate instruments. The Fund’s gains for the month came from its positions in interest rate instruments. Persistent concerns over weak European and U.S. economies coupled with lingering debt concerns in Europe, pushed global bond prices higher, generating profits for the Fund’s long positions. In currencies, the largest losses came from sharp price swings in the British pound that went against the Fund’s positions. Following a sharp sell-off in equity markets during the first week of August, the Fund’s trading advisor exited their remaining long positions and went short. For the remainder of the month however, many equity markets bounced from their lows, moving against the Fund’s new positions that generated losses in that sector. In metals, the Fund generated significant profits from long positions in gold although those profits were offset by losses in industrial metals, especially copper.

 

September

 

The Fund finished 3.36% lower this month as profits from interest rate instruments, metals and energy products were offset by losses in agricultural commodities and currencies. Both the equity and interest rate sectors were impacted by concerns about the global economy and sovereign debt issues that are playing out in Europe and the U.S. By the end of the month, interest rates were lower, which generated profits for the Fund’s long positions in interest rate instruments. In metals, profits from short positions in industrial metals offset losses from long positions in precious metals. In agricultural commodities, a sell-off in soybean and corn prices generated losses for the Fund’s long positions. In currencies, sharp declines in the Swiss franc, Australian dollar, Euro and British pound went against the Funds positions, generating losses.

 

 

October

 

The Fund was down 5.22% for the month. October proved to be difficult month for the Fund in the face of a near sea change in market sentiment from a risk-averse to a risk-seeking mode. During the month, investors responded optimistically to the latest European plan to solve the Greek sovereign debt crisis. Furthermore, the Bank of England launched a new round of quantitative easing. Meanwhile, minutes from the latest Fed meeting revealed that members were open to a third round of quantitative easing as a backstop if economic growth should continue to falter. These developments led to sharp reversals across a broad range of markets during October, causing losses for the Fund’s largely bearish portfolio. In currency markets, a sudden surge in Eurozone optimism hurt the Fund’s long U.S. dollar-short European currency positions. In addition, the Bank of Japan intervened to weaken the yen on the last trading day of the month, hurting the Fund’s long positions. The Fund was, however, able to profit from a rally in the Australian dollar. In physical commodities, a rally in crude oil as well as in base metals caused losses for the Fund’s short positions. However, the Fund benefited from a rally in gold. The Fund’s long fixed income exposures were negatively impacted by a rotation out of bonds into other sectors. During the month, the Fund switched from a short to long net position in equities and generated a small profit in that sector as the S&P 500 Index recorded its largest monthly percentage gain since 1991.

 

November

 

November saw a rapid waning of investor enthusiasm for the European sovereign debt rescue package announced in the prior month. Attention turned to the possibility of an Italian default and doubts arose as to the ability of the European Financial Stability Facility to prevent a more widespread contagion. Markets thus reversed from “risk-on” in October to “risk-off” in early November, with global equities falling, bonds rallying and high-yield currencies depreciating as investors grew less tolerant of risk. However, at month-end the Federal Reserve, in conjunction with European and Asian central banks, intervened to provide a large liquidity injection into the financial system causing a sharp market rebound and yet another trend reversal in financial futures. Physical commodity futures proved to be somewhat uncorrelated to other sectors in November, providing profitable trends for the Fund. The Fund finished the month down 0.06%. Gains were generated in the physical commodities, particularly through short positions in natural gas and nickel. However, these were offset by losses in financial futures markets. In equities, early month declines in the U.S. indices hurt the Fund’s long positions. In foreign exchange markets, a long exposure to the high-yielding Australian dollar caused losses as investors shifted into perceived safe-haven currencies in the first half of the month. Lastly in interest rates, the month end credit easing by central banks went against the Fund’s short Eurodollar positions.

 

December

 

The European sovereign debt crisis continued to dominate headlines in December. A flight to safety by investors early in the month prompted the European Central Bank to cut its key policy interest rates by another 25 bps, following a similar move in November. In addition, the ECB provided European banks a record €489 billion in three-year loans to keep credit flowing in the region. The impact of this monetary easing was a further depreciation of the Euro, while also sparking a rally in European bond markets, and a small month-end rebound in global equities. The Fund posted a positive return of 1.09% in December, profiting from its short currency positions in the euro and long positions in European fixed income instruments. Equity sector returns were relatively flat for the month. In commodities, the Fund benefited from short positions in natural gas, as mild weather and excess supply depressed prices further. However, downturns in oil and gold, where the Fund was positioned long, led to offsetting losses.

 

2010

 

January

 

The Fund ended the month 2.57% lower as losses from global equity indices, energy products, and metals offset profits from interest rate instruments, agricultural commodities and currencies. The Fund’s most significant losses came from global equity indices. The sector reversed from an upward trend that began in March of 2009. The stock market experienced a sharp sell-off after investors reacted to the growing concern of weaker global economic growth and the U.S. administration’s announcement to limit speculative trading by banks. The reversal in equity prices went against the Fund’s long positions, which generated losses. China announced it was taking steps to limit bank lending in order to moderate its own growth. The news pushed commodity prices lower, especially in energy and industrial metals. The lower prices went against the Fund’s long positions in those sectors. Interest rate instrument prices were higher this month, which helped recover some of the losses the sector generated in last month’s trading.

 

February

 

The Fund posted positive gains in February of 0.58% as profits from interest rate instruments and currencies outweighed losses from agricultural commodities and energies. The most significant gains came from short-term interest rate instrument prices, which trended higher following news of the Greek debt crisis. This news also placed downward pressure on foreign currencies, especially the EU euro and British pound. The rise in interest rate instrument prices benefited the Funds’ long positions in that sector, while falling European currencies generated profits for the Fund’s short foreign currency positions. In agricultural commodities, declining prices went against the Fund’s long positions, including sugar, corn and soybeans.

 

  

March

 

The Fund finished 3.87% higher this month with profits in five of the six major market sectors. The Fund’s most significant gains came from the energy and equity indices. In equity indices, many global indices, including the S&P 500, reached their highest level since the third quarter of 2008. Although equity prices experienced a brief reversal between late January and early February, the Fund’s trading systems maintained long positions and profited from the upward trend that resumed during late February and March. In the energy sector, natural gas resumed a strong downward trend that benefited the Fund’s short natural gas positions, while crude oil prices climbed which benefited the Fund’s long oil positions. In the metals sector, the base metals including nickel, copper, aluminum and zinc all profited on rising prices.

 

April

 

The Fund ended the month up 0.30% as profits in energy, interest rate instruments and currencies offset losses in agricultural commodities, stock indices and metals. The most significant gains came from the energy sector. Oil prices continued to rise, which benefited the Fund’s long positions, while the Fund’s short positions in natural gas realized profits as prices trended lower. Rating agencies lowered credit ratings on sovereign debt for Greece, Portugal and Spain. In a flight to safety, U.S. Treasury prices and the U.S. dollar rallied while European currencies and debt instrument prices fell, generating profits for the Fund in each of those markets. U.S. equity markets continued to trend higher, but profits from those markets were offset by losses from long positions in foreign equity indices.

 

May

 

For the month, the Fund was down 3.99%. While disappointing, this wasn’t a surprise given the sharp turnaround in the global stock and bond markets caused by the sovereign debt crisis in Europe. Losses in energy and equity indices offset gains in interest rate instruments and metals. Long positions in the energy sector were responsible for the most significant losses as commodity prices fell on heightened concerns over the European debt crisis. U.S. Treasury instrument prices trended higher, while equity indices and energy prices fell in an apparent flight to safety. While the increase in the price of interest rate instruments was profitable for the Fund’s long positions, the sharp reversals in both energy and equities went against established upward trends in those markets, which generated losses. Base metal prices also reversed course, which resulted in a loss. Those losses, however, were tempered by gains in the Fund’s long positions in gold, aluminum and zinc.

 

June

 

For the month, the Fund was down 4.26% as profits in interest rate instruments were offset by losses in equity indices, currencies, and commodities. The Fund’s most significant gains came from long positions in the interest rate instrument sector as concerns over the sovereign debt crisis in Europe and slow economic growth in the U.S. continued to dominate market sentiment. U.S. Treasury yields and short-term interest rates fell, which also generated strong profits in the sector. Global indices continued to drift lower which went against the Fund’s long positions. Over the past several weeks, the Fund’s long equity index positions have been systematically reduced in response to the market downturn. In currencies, a sudden rise in the Euro and British Pound went against the Fund’s short positions generating losses.

 

July

 

For the month, the Fund was down 0.95% as profits from equity indices and interest rate instruments were offset by losses in commodities. The Fund’s most significant gains came from its long positions in interest rate instruments and global equity indices. Although there were some positive signs in global markets, including successful outcomes from stress tests at major European banks, the combination of government stimulus spending declining or ending in many countries along with slow economic growth, has renewed fears of deflation. Global interest rates continued to edge lower creating profits from rising interest rate instrument prices. U.S. equity prices enjoyed a modest rally this month, although global indices were more mixed. By the end of the month, the Fund netted profits in that sector. Precious metals reversed from last month’s highs, including gold which fell to a six-week low, going against the Fund’s long positions. Energy prices moved higher this month which went against the Fund’s short positions.

 

August

 

The Fund finished 6.89% higher this month with profits in interest rate instruments, energy, metals and currencies. The most significant gains came from long positions in interest rate instruments. Concerns over a weak U.S. economy, along with perceived threats of a “double-dip” recession, sent yields lower, including 10-year Treasury bonds and 10-year UK gilts which saw their lowest level since March 2009. Global stock indices continued to move sideways without strong trends. In the energy sector, the Fund’s short positions in natural gas profited from its sustained downward trend. The metals sector benefited from long positions in precious metals, including gold and platinum.

 

 

September

 

The Fund finished 2.13% higher this month with profits in equity indices, agricultural commodities, metals and currencies offsetting losses in interest rate instruments and energy. The most significant gains came from long positions in equity indices. Global equity prices continued to move higher in September which benefited the Fund’s positions. Both industrial and precious metals prices trended higher, generating profits for the Fund’s long positions in gold, silver and copper. Agricultural prices, especially cotton, soybeans and corn, continued to trend higher which added profits from the Fund’s long positions. Early in the month, interest rate instruments prices fell which generated early losses for the sector. However, prices rallied toward the end of the month after the Fed’s comments on quantitative easing. The late rally in interest rate instruments benefited the Fund’s long positions, but it was not enough to offset earlier losses. In the energy sector, the Fund’s short positions in natural gas profited from a sustained downward trend, but a sharp rise in crude oil went against the Fund’s short positions, resulting in a net loss for the sector.

 

October

 

The Fund finished higher in October by 4.64% with profits in four of the six major market sectors. The most significant gains came from long positions in global stock indices driven by upward trends in the DAX, S&P 500, Russell 2000 and FTSE 100. In currencies, the rise in the Japanese yen, Australian dollar, Mexican peso and New Zealand dollar were responsible for generating the most profits from that sector. The combination of rising Chinese agricultural imports, lower inventories and a weaker U.S. dollar helped push agricultural commodity prices higher, which benefited the Fund’s long positions. Corn prices climbed to 2-year high, soybeans reached their highest price since July 2008, and sugar prices hit a 30-year high. Precious metals also trended higher, adding additional profits from that sector.

 

November

 

The Fund finished lower in November by 4.19% as losses from interest rate instruments, currencies and agriculturals offset gains in metals and equity indices. The most significant losses came from the Fund’s long positions in interest rates, where price reversals caused by a rise in rates followed growing concerns over Irish sovereign debt in Europe and its threat to impact other EU nations including Portugal and Spain. In addition, there was a rise in short term U.S. interest rates that followed the Federal Reserve’s action of buying U.S. debt instruments in another round of quantitative easing. The net effect was that the fall in prices went against the Fund’s widely held long positions. The Irish debt crisis also pushed the euro lower relative to other foreign currencies, while the U.S. dollar reversed its downward direction. The sudden reversals in currencies went against the Fund’s positions, generating additional losses for the Fund. Metals, including gold, silver and copper, continued higher this month, generating profits for the Fund’s long positions.

 

December

 

Fund finished higher in December by 5.91% with most profits coming from the Fund’s positions in foreign currencies. Foreign currencies were profitable for the Fund, driven by trends in international cross currencies resulting from a decline in the euro and British pound combined with rising Australian dollar and Japanese yen prices. Strong upward trends in the metals markets also fueled profits for the Fund’s long positions in copper, silver, gold and aluminum. In agricultural commodities rising prices in coffee, soybeans, corn and sugar each contributed additional profits. Finally, there were some gains from the Fund’s long positions in equity indices as equity prices continued to trend higher for the past two quarters. Interest rate instrument prices went against the Fund’s long positions which generated losses.

 

Off-Balance Sheet Risk

 

The term “off-balance sheet risk” refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in future obligation or loss. The Fund trades in futures contracts and is therefore a party to financial instruments with elements of off-balance sheet market and credit risk. In entering into these contracts there exists a risk to the Fund, market risk, that such contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the futures interests positions of the Fund at the same time, and if the Trading Advisor was unable to offset futures interest positions of the Fund, the Fund could lose all of its assets and the limited partners would realize a 100% loss. The General Partner attempts to decrease market risk through maintenance of a margin-to-equity ratio that rarely exceeds 30%.

 

 

In addition to subjecting the Fund to market risk, upon entering into futures contracts there is a risk that the counterparty will not be able to meet its obligations to the Fund. The counterparty for futures contracts traded in the U.S. and on most foreign exchanges is the clearinghouse associated with such exchange. In general, clearinghouses are backed by the corporate members of the clearinghouse who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this risk. In cases where the clearinghouse is not backed by the clearing members, like some foreign exchanges, it is normally backed by a consortium of banks or other financial institutions.

 

The Fund invests in U.S. Treasury securities, U.S. and foreign government sponsored enterprise notes, commercial paper, corporate notes and certificates of deposit. Should an issuing entity default on its obligation to the Fund and such entity is not backed by the full faith and credit of the U.S. government, the Fund bears the risk of loss of the amount expected to be received. The Fund minimizes this risk by only investing in securities and certificates of deposit of firms with high quality debt ratings.

 

Significant Accounting Estimates

 

A summary of the Fund’s significant accounting policies are included in Note 1 to the Financial Statements.

 

The Fund’s most significant accounting policy is the valuation of its assets invested in U.S. and foreign futures contracts, and fixed income investments. The Fund’s futures contracts are exchange-traded, with the fair value of these contracts based on exchange settlement prices. The fair value of money market funds is based quoted market prices for identical shares. U.S. Treasury securities, which are stated at fair value based on quoted market prices for identical assets in an active market. Notes of U.S. and foreign government sponsored enterprises, as well as certificates of deposit commercial paper and corporate notes, are stated at fair value based on quoted market prices for similar assets in an active market. Given the valuation sources, there is little judgment or uncertainty involved in the valuation of these assets, and it is unlikely that materially different amounts would be reported under different valuation methodologies or assumptions.

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company, as defined by Rule 12b-2 of the 1934 Act, is not required to provide the information under this item.

 

Item 8.

Financial Statements and Supplementary Data

 

Financial statements meeting the requirements of Regulation S-X appear in Part IV of this report. A smaller reporting company, as defined by Rule 12b-2 of the 1934 Act, is not required to provide the supplementary data under this item.

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A.

Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The General Partner of the Fund, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Fund’s disclosure controls and procedures at December 31, 2011 (the “Evaluation Date”). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer of the General Partner concluded that, as of the Evaluation Date, the Fund’s disclosure controls and procedures were effective.

 

Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

The management of the General Partner is responsible for establishing and maintaining adequate internal control over financial reporting by the Fund.

 

 

The Fund’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S. The Fund’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Fund; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the U.S., and that receipts and expenditures of the Fund are being made only in accordance with authorizations of management of the Fund; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Fund’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of the Fund’s internal control over financial reporting as of December 31, 2011, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment, management concluded that, as of December 31, 2011, the Fund’s internal control over financial reporting is effective based on the criteria established in Internal Control-Integrated Framework.

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in internal control over financial reporting (as defined in the Rules 13a-15(f) and 15d-15(f) of the 1934 Act) that occurred during the Fund’s last fiscal quarter that has materially affected or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

Item 9B.

Other Information

 

None.

 

PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

 

The Fund itself has no directors or officers and has no employees. It is managed by the General Partner in its capacity as general partner. The Kenneth E. Steben Revocable Trust, dated January 29, 2008, (“Trust”) is the sole shareholder of the General Partner and Mr. Kenneth E. Steben is the sole trustee and beneficiary of the Trust. The principals, directors and executive officers of the General Partner are Kenneth E. Steben, Michael D. Bulley, Carl A. Serger, John H. Grady and Neil D. Menard. Their respective biographies are set forth below.

 

Kenneth E. Steben is the General Partner’s founder, President and Chief Executive Officer. Additionally, he is Chairman of the board of directors of the General Partner. Mr. Steben, born in January 1955, received his Bachelor’s Degree in Interdisciplinary Studies, with a concentration in Accounting in 1979 from Maharishi University of Management. Mr. Steben has been a licensed stockbroker since 1981 and a licensed commodities broker since 1983. Mr. Steben holds his Series 3, 5, 7, 24, 63 and 65 FINRA and NFA licenses. Mr. Steben has been a CFTC listed Principal, and registered as an Associated Person since March 15, 1989.

 

Michael D. Bulley is Senior Vice President of Research and Risk Management, and a Director. Mr. Bulley is a CAIA^SM designee and Member of the Chartered Alternative Investment Analyst Association^®. Mr. Bulley, born in October 1957, received his Bachelor’s Degree in Electrical Engineering from the University of Wisconsin – Madison in 1980 and his Master’s in Business Administration with a concentration in Finance from Johns Hopkins University in 1998. Mr. Bulley joined the General Partner in November 2002, and holds Series 3, 7, 28 and 30 FINRA licenses. Mr. Bulley has been a CFTC listed Principal and registered as an Associated Person of the General Partner since January 18, 2003.

 

Carl A. Serger is Chief Financial Officer and a Director. Mr. Serger joined the General Partner in December of 2009 and has been listed as a CFTC Principal of the General Partner since February 2, 2010. Mr. Serger, born in March of 1960, graduated cum laude from Old Dominion University with a BS in Business Administration and has a Technology Management Certification from the California Institute of Technology. Prior to joining the General Partner, Mr. Serger was the CFO and Senior Vice President of Operations of Peracon, Inc., a software platform for institutional commercial real estate transactions from November 2007 through November 2009. From July 2007 to November 2007, he acted as an independent consultant to start-up companies in the financial services and technology industries. From January 2007 to July 2007, Mr. Serger was the CFO, Senior Vice President and Treasurer of Ebix, Inc., an international software company serving the financial services and insurance industries. From October 2006 through December 2006, he was President of Finetre Corporation, a division of Ebix, Inc. From December 1999 until its October 2006 acquisition by Ebix, Inc., Mr. Serger was the CFO, Senior Vice President and Treasurer of Finetre Corporation, a financial technology platform company providing services to major brokerage firms, banks and insurance companies. Mr. Serger holds a Series 28 FINRA license.

 

 

John H. Grady is Chief Operating Officer, General Counsel, Chief Compliance Officer, and a Director. Mr. Grady joined the General Partner in December of 2009 and has been listed as a CFTC registered Principal and registered as an associated person of the General Partner since February 2010. Mr. Grady, born June 1961, received his JD from The University of Pennsylvania Law School in 1985 and received his Bachelor of Arts, magna cum laude, from Colgate University in 1982. Prior to joining the General Partner, Mr. Grady was President of Arcady Investment Consulting LLP, a consulting firm based in Philadelphia that served funds, advisers and brokerage firms from January 2009 to December 2009. Before that, Mr. Grady was a Senior Advisor to Coil Investment Group, a Norway-based investment firm from April 2008 to December 2008, and Chief Executive Officer of the Nationwide Funds Group from October 2006 to January 2008. From April 2004 to June 2006, Mr. Grady served as Chief Executive Officer of the Constellation Funds Group; prior to that, he was the Chief Operating Officer of Turner Investment Partners from February 2001 to March 2004. During the periods of June 2006 to October 2006 and February 2008 to April 2008, Mr. Grady was a consultant in a sole proprietorship. After graduating from law school, Mr. Grady was an attorney in private practice for over 15 years, and was a partner with Morgan, Lewis & Bockius LLP in the firm’s D.C. and Philadelphia offices from July 1993 to January 2001. Mr. Grady holds Series 3, 7, 24 and 63 FINRA licenses.

 

Neil D. Menard is Senior Vice President of Distribution. Mr. Menard, born in August 1967, graduated from Colby College in 1989 with a BA in political science. Prior to joining the General Partner in July of 2006, Mr. Menard was the Director of Sales for Engagement Systems, LLC, a strategic outsource solution for independent financial advisors from October 2004 to June 2006. From June 2003 to October 2004, Mr. Menard served as the Managing Director of New Business Development of SEI Investments Distribution Company. SEI is a provider of asset management, investment processing and investment operations solutions for institutional and personal wealth management. Mr. Menard created sales and selection systems for the new business development team and utilized these processes to select independent investment advisors for SEI. Mr. Menard holds his Series 3, 7, 24 and 63 FINRA and NFA licenses and is a General Securities Principal. Mr. Menard has been a CFTC listed Principal of the General Partner since July 6, 2006, and registered as an Associated Person of the General Partner since August 7, 2006.

 

Kenneth E. Steben Revocable Trust, dated January 29, 2008, has been a CFTC listed Principal of the General Partner since March 10, 2008. The Trust is the sole shareholder of the General Partner. Kenneth E. Steben is the sole beneficiary of the Trust and serves as its sole trustee. A biography of Mr. Steben is set forth above.

 

Since May 11, 1989, the General Partner has acted as a general partner to a Maryland limited partnership, Futures Portfolio Fund, Limited Partnership, an SEC registrant under the 1934 Act whose shares are privately offered. Since March 27, 2007, the General Partner has acted as a general partner of a Delaware limited partnership, Seneca Global Fund, L.P., whose units of limited partner interests are registered with the SEC pursuant to a public offering. Since March 1, 2011, Steben & Company, Inc. has acted as a manager of a Delaware limited liability company, Steben Institutional Fund LLC. Because the General Partner serves as the sole general partner or manager of these funds, the officers and directors of the General Partner effectively manage the respective funds.

 

Significant Employees

 

The General Partner is dependent on the services of Mr. Steben and key management personnel. If Mr. Steben’s services became unavailable, another principal of the firm or a new principal (whose experience cannot be known at this time) will need to take charge of the General Partner.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the U.S. Securities Exchange Act of 1934 requires that reports of beneficial ownership of limited partner interests and changes in such ownership be filed with the Securities and Exchange Commission by Section 16 “reporting persons.” The Fund is required to disclose in this Annual Report on Form 10-K each reporting person whom it knows to have failed to file any required reports under Section 16 (a) on a timely basis during the year ended December 31, 2011. During the year ended December 31, 2011, all reporting persons complied with all Section 16(a) filing requirements applicable to them.

 

 

Code of Ethics

 

The General Partner, on behalf of the Fund, has adopted a code of ethics, as of the period covered by this report, which applies to the Fund’s principal executive officer and principal financial officer or persons performing similar functions. A copy of the code of ethics is available without charge upon request by calling 240-631-7600.

 

Item 11.

Executive Compensation

 

The Fund does not itself have any officers, directors or employees. The managing officers of the General Partner are remunerated by the General Partner in their respective positions. The directors and managing officers of the General Partner receive no other compensation from the Fund. There are no compensation plans or arrangements relating to a change in control of either the Fund or the General Partner.

 

As compensation for its services in managing the Fund, the General Partner earns the following compensation:

 

§

General Partner Management Fee – the Fund incurs a fee equal to 1/12th of 1.1% of the Fund’s month-end net assets, payable in arrears. During 2011 and 2010, the General Partner earned $684,696 and $804,011, respectively, in General Partner management fees.

 

§

Selling Agent Fees – the Fund incurs selling agent fees equal to 1/12th of 3% of the outstanding month-end net asset value, payable in arrears. The General Partner pays the selling agent fees to the respective selling agents. If the selling agent fees are not paid to the selling agent, or the General Partner was the selling agent, such portions of the fees are retained by the General Partner. During 2011 and 2010, the General Partner earned $1,867,317 and $2,192,757, respectively, in Selling Agent fees.

 

Additionally, each year the General Partner receives from the Fund 1% of any net income earned by the Fund or pays to the Fund 1% of any net loss incurred by the Fund. For the year ended December 31, 2011, the General Partner paid to the Fund $248,763 for the General Partner 1% allocation. For the year ended December 31, 2010, the General Partner received $56,532 from the General Partner 1% allocation.

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  

As of February 29, 2012, no person or “group” is known to have been the beneficial owner of more than 5% of the Units.

 

As of February 29, 2012, the General Partner did not own any Units of the Fund. As of February 29, 2012, the directors and executive officers of the General Partner beneficially owned Units as follows:

 

Name		Units Owned				Value of Units				Percentage of Limited Partnership
Michael D. Bulley			49.2864			$	91,711			Less than 1%

 

The address of each director and officer is c/o Steben & Company, Inc., 2099 Gaither Road, Suite 200, Rockville, Maryland 20850.

 

There has been no change of control of the Fund.

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

  

See “Item 1. Business” for a description of the relationships between the General Partner, the Fund, the Trading Advisor, the futures broker and the Cash Managers. See “Item 11. Executive Compensation” and “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

 

Item 14.

Principal Accountant Fees and Services

 

The following table sets forth the fees billed to the Fund for professional audit services provided by McGladrey & Pullen, LLP, the Fund’s independent registered public accountant, for the audits of the Fund’s annual financial statements for the years ended December 31, 2011 and 2010, and fees billed for other professional services rendered by McGladrey & Pullen, LLP and RSM McGladrey, Inc. (an associated entity of McGladrey & Pullen, LLP, which McGladrey & Pullen acquired on December 1, 2011) during those years.

 

 

Fee Category		2011				2010
Audit fees(1)		$	75,000			$	82,600
Audit-related fees			—				—
Tax fees(2)			13,000				16,000
All other fees			—				—
Total fees		$	88,000			$	98,600

 

(1)

Audit fees consist of fees for professional services rendered for the audit of the Fund’s financial statements and review of financial statements included in the Fund’s quarterly reports, as well as services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements.

 

(2)

Tax fees consist of fees for the preparation of original tax returns.

 

The General Partner’s Board of Directors pre-approves all audit and permitted non-audit services of the Fund’s independent accountants, including all engagement fees and terms. The General Partner’s Board of Directors approved all the services provided by McGladrey & Pullen, LLP and RSM McGladrey, Inc. (collectively “McGladrey”) during 2011 and 2010 to the Fund described above. The General Partner’s Board of Directors has determined that the payments made to McGladrey for these services during 2011 and 2010 are compatible with maintaining that firm’s independence.

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

 

Financial Statements

 

Sage Fund Limited Partnership 

Report of Independent Registered Public Accounting Firm
Statements of Financial Condition as of December 31, 2011 and 2010
Condensed Schedule of Investments as of December 31, 2011
Condensed Schedule of Investments as of December 31, 2010
Statements of Operations for the Years Ended December 31, 2011 and 2010
Statements of Cash Flows for the Years Ended December 31, 2011 and 2010
Statements of Changes in Partners’ Capital (Net Asset Value) for the Years Ended December 31, 2011 and 2010
Notes to Financial Statements
Exhibits

 

 

The following exhibits are filed herewith or incorporated by reference.

 

Exhibit Number		Description of Document
1.1*		Form of Selling Agreement.
3.1*		Certificate of Limited Partnership of Sage Fund Limited Partnership.
3.2*		Second Amended and Restated Limited Partnership Agreement of Sage Fund Limited Partnership.
10.1*		Form of Subscription Agreement.
10.2**		Advisory Agreement by and among the Fund, the General Partner and Altis Partners (Jersey) Limited dated August 8, 2007.
10.3*		Amendment to Advisory Agreement by and among the Fund, the General Partner and Altis Partners (Jersey) Limited dated August 27, 2007.
10.4*		Futures Account Agreement dated January 21, 2001 by and among the Fund, the General Partner and Carr Futures Inc. (subsequently, Newedge USA, LLC).
10.5*		Corporate Cash Account Management Agreement dated September 25, 2007 by and among the Fund, the General Partner and UBS Financial Services, Inc.
31.01		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.02		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.01		Section 1350 Certification of Principal Executive Officer
32.02		Section 1350 Certification of Principal Financial Officer

 

*Filed with the Registrant’s Form 10 filed on April 27, 2009, and incorporated herein by reference.

**Filed with the Registrant’s Amendment No. 2 Form 10 filed on July 31, 2009, and incorporated herein by reference.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the General Partner of the Registrant in the capacities and on the date indicated.

 

Name		Title		Date
/s/ Kenneth E. Steben		President, Chief Executive Officer and
Kenneth E. Steben		Director of the General Partner		March 28, 2012
/s/ Carl A. Serger		Chief Financial Officer and Director of the
Carl A. Serger		General Partner		March 28, 2012
/s/ Michael D. Bulley		Senior Vice President, Research & Risk
Michael D. Bulley		Management and Director of the General Partner		March 28, 2012

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Sage Fund Limited Partnership
Dated March 28, 2012
	By:	Steben & Company, Inc.
		its General Partner
	By:	/s/ Kenneth E. Steben
	Name:	Kenneth E. Steben
	Title:	President, Chief Executive Officer and Director of the General Partner

 

 

Report of Independent Registered Public Accounting Firm

 

To the Partners of

Sage Fund Limited Partnership

 

We have audited the accompanying statements of financial condition, including the condensed schedules of investments, of Sage Fund Limited Partnership (the “Fund”) as of December 31, 2011 and 2010, and the related statements of operations, cash flows, and changes in partners’ capital (net asset value) for the years then ended. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sage Fund Limited Partnership as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

 

/s/ McGladrey & Pullen, LLP

 

Chicago, Illinois

March 28, 2012

 

 

Sage Fund Limited Partnership

Statements of Financial Condition

December 31, 2011 and 2010

 

		2011				2010
Assets
Equity in broker trading accounts
Cash		$	11,212,458			$	21,054,325
Net unrealized gain on open futures contracts			2,804,082				4,619,366
Interest receivable			720				5,265
Total equity in broker trading accounts			14,017,260				25,678,956
Cash and cash equivalents			1,790,492				52,810,375
Investments in securities, at fair value			32,329,643				-
Certificates of deposit, at fair value			3,602,740				-
General Partner 1% allocation receivable			248,763				-
Total assets		$	51,988,898			$	78,489,331
Liabilities and Partners’ Capital (Net Asset Value)
Liabilities
Trading Advisor management fee payable		$	43,046			$	64,642
Trading Advisor incentive fee payable			-				1,684
Commissions and other trading fees payable on open contracts			7,869				16,047
Cash Manager fees payable			13,033				-
General Partner management fee payable			47,429				70,774
General Partner 1% allocation payable			-				56,532
Selling Agent fees payable - General Partner			129,353				193,019
Administrative expenses payable - General Partner			32,403				44,012
Redemptions payable			1,406,594				424,209
Subscriptions received in advance			131,216				1,141,953
Total liabilities			1,810,943				2,012,872
Partners’ Capital (Net Asset Value)
Class A Interests – 26,635.2051 units and 27,991.7912 units outstanding at December 31, 2011 and 2010, respectively			50,177,955				76,476,459
Total liabilities and partners' capital (net asset value)		$	51,988,898			$	78,489,331

 

The accompanying notes are an integral part of these financial statements.

 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments

December 31, 2011

 

						Description						Fair Value				% of Partners’ Capital (Net Asset Value)
Investments in Securities
U.S. Treasury Securities
	Face Value			Maturity Date		Name			Yield1
$	225,000			3/8/12		U.S. Treasury Bill			0.20	%		$	224,993				0.45	%
	75,000			2/29/12		U.S. Treasury Note			0.88	%			75,323				0.15	%
	250,000			5/31/12		U.S. Treasury Note			4.75	%			255,824				0.51	%
	825,000			6/15/12		U.S. Treasury Note			1.88	%			832,458				1.66	%
	75,000			8/31/12		U.S. Treasury Note			0.38	%			75,228				0.15	%
	300,000			9/30/12		U.S. Treasury Note			0.38	%			300,861				0.60	%
	225,000			10/31/12		U.S. Treasury Note			3.88	%			233,413				0.47	%
	250,000			11/15/12		U.S. Treasury Note			1.38	%			253,112				0.50	%
	115,000			1/15/13		U.S. Treasury Note			1.38	%			117,159				0.23	%
	300,000			2/15/13		U.S. Treasury Note			1.38	%			305,554				0.61	%
	Total U.S. Treasury securities (cost:  $2,693,658)												2,673,925				5.33	%
U.S. Government Sponsored Enterprise Notes
	Face Value			Maturity Date		Name			Yield1
$	250,000			6/20/12		Federal Home Loan Bank			1.88	%			252,130				0.50	%
	250,000			6/27/12		Federal Home Loan Bank			0.25	%			250,098				0.50	%
	300,000			7/25/12		Federal Home Loan Bank			0.25	%			300,457				0.60	%
	250,000			8/10/12		Federal Home Loan Bank			0.35	%			250,183				0.50	%
	600,000			8/22/12		Federal Home Loan Bank			1.75	%			609,527				1.21	%
	200,000			10/5/12		Federal Home Loan Bank			0.31	%			200,147				0.40	%
	200,000			1/16/13		Federal Home Loan Bank			1.50	%			203,858				0.41	%
	400,000			1/9/13		Federal Home Loan Mortgage Corp.			1.38	%			407,242				0.81	%
	200,000			9/30/13		Federal Home Loan Mortgage Corp.			0.55	%			200,114				0.40	%
	200,000			7/30/12		Federal National Mortgage Assoc			1.13	%			202,018				0.40	%
	Total U.S. government sponsored enterprise notes (cost:  $2,881,896)												2,875,774				5.73	%
Foreign Government Sponsored Enterprise Notes
	Face Value			Maturity Date		Name			Yield1
$	200,000			1/23/12		African Development Bank			1.88	%			201,791				0.40	%
	200,000			3/21/12		European Investment Bank			4.63	%			204,235				0.41	%
	250,000			6/11/12		Soc. de Financement de l'Economie Fr			2.25	%			251,279				0.50	%
	Total foreign government sponsored enterprise notes (cost:  $667,015)												657,305				1.31	%
Commercial Paper
	Face Value			Maturity Date		Name			Yield1
U.S. Automobile
$	250,000			1/9/12		BMW US Capital, LLC			0.38	%			249,979				0.50	%
U.S. Banks
	200,000			2/15/12		Credit Suisse (USA), Inc.			0.45	%			199,888				0.40	%
	150,000			1/27/12		HSBC USA Inc.			0.20	%			149,966				0.30	%
	200,000			2/6/12		Union Bank NA			0.18	%			199,964				0.40	%

 

The accompanying notes are an integral part of these financial statements.

 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2011

 

						Description						Fair Value				% of Partners’ Capital (Net Asset Value)
Commercial Paper (continued)
	Face Value			Maturity Date		Name			Yield1
U.S. Beverages
$	250,000			2/2/12		Anheuser-Busch InBev Worldwide, Inc.			0.25	%		$	249,944				0.50	%
U.S. Charity
	240,000			1/25/12		The Salvation Army			0.10	%			239,984				0.48	%
U.S. Diversifed Financial Services
	200,000			1/18/12		American Honda Finance Corporation			0.17	%			199,984				0.40	%
	140,000			3/5/12		Caterpillar Financial Services Corporation			0.20	%			139,950				0.28	%
	200,000			2/27/12		ING (U.S.) Funding LLC			0.35	%			199,889				0.40	%
	150,000			1/19/12		National Rural Utilities Cooperative			0.07	%			149,995				0.30	%
	200,000			1/6/12		Nordea Inv. Mgmt North America, Inc.			0.32	%			199,991				0.40	%
	150,000			1/9/12		PACCAR Financial Corp.			0.08	%			149,997				0.30	%
	250,000			2/15/12		Private Export Funding Corporation			0.11	%			249,966				0.50	%
	151,000			1/13/12		River Fuel Trust 1			0.40	%			150,980				0.30	%
U.S. Energy
	250,000			1/12/12		Oglethorpe Power Corp.			0.17	%			249,987				0.50	%
	250,000			1/3/12		Pacific Gas and Electric Company			0.40	%			249,994				0.50	%
	250,000			1/11/12		The Southern Company			0.17	%			249,988				0.50	%
U.S. Insurance
	190,000			1/10/12		Metlife Funding, Inc.			0.09	%			189,996				0.38	%
U.S. Manufacturing
	250,000			1/5/12		Kellogg Company			0.19	%			249,995				0.50	%
U.S. Mining
	200,000			1/24/12		BHP Billiton Finance (USA)			0.13	%			199,983				0.40	%
Foreign Banks
	190,000			1/25/12		The Bank of Tokyo-Mitsubishi UFJ, Ltd.			0.29	%			189,963				0.38	%
	200,000			3/8/12		Oversea-Chinese Banking Corporation Ltd			0.53	%			199,803				0.40	%
Foreign Energy
	250,000			2/1/12		GDF Suez			0.19	%			249,959				0.50	%
	Total commercial paper (cost: $4,759,227)												4,760,145				9.52	%
Corporate Notes
	Face Value			Maturity Date		Name			Yield1
U.S. Aerospace
$	200,000			4/1/12		McDonnell Douglas			9.75	%			209,286				0.42	%
U.S. Agricultural
	200,000			8/13/12		Archer-Daniels-Midland			0.61	%			200,488				0.40	%
	200,000			9/15/12		Cargill			5.60	%			209,344				0.42	%

 

The accompanying notes are an integral part of these financial statements.

 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2011

 

						Description						Fair Value				% of Partners’ Capital (Net Asset Value)
Corporate Notes (continued)
	Face Value			Maturity Date		Name			Yield1
U.S. Banks
$	550,000			1/30/14		Bank of America Corporation			1.85	%		$	498,327				0.99	%
	200,000			7/27/12		BB&T Corporation			3.85	%			206,557				0.41	%
	550,000			4/1/14		Citigroup Inc.			1.30	%			520,101				1.04	%
	550,000			1/14/14		Credit Suisse AG (NY)			1.36	%			533,957				1.06	%
	100,000			1/15/12		Credit Suisse (USA), Inc.			6.50	%			103,179				0.21	%
	250,000			10/30/12		GMAC Inc.			1.75	%			253,966				0.51	%
	550,000			5/2/14		JPMorgan Chase & Co.			1.30	%			534,104				1.06	%
	275,000			4/29/13		Morgan Stanley			1.41	%			259,838				0.52	%
	550,000			1/9/14		Morgan Stanley			0.69	%			498,486				0.99	%
	250,000			11/1/12		The Bank of New York Mellon			4.95	%			261,274				0.52	%
	175,000			1/15/12		The Goldman Sachs Group, Inc.			6.60	%			180,555				0.36	%
	640,000			2/7/14		The Goldman Sachs Group, Inc.			1.44	%			599,631				1.20	%
	109,000			10/23/12		Wells Fargo & Company			5.25	%			113,904				0.23	%
	200,000			1/31/13		Wells Fargo & Company			4.38	%			210,370				0.42	%
U.S. Beverages
	50,000			7/14/14		Anheuser-Busch InBev Worldwide Inc.			0.76	%			49,842				0.10	%
	125,000			3/1/12		Coca-Cola Enterprises, Inc.			3.75	%			127,117				0.25	%
	380,000			8/15/13		Coca-Cola Enterprises, Inc.			5.00	%			411,323				0.82	%
U.S. Chemicals
	200,000			11/15/12		Praxair, Inc.			1.75	%			202,153				0.40	%
U.S. Computers
	550,000			4/1/14		Dell Inc.			0.97	%			554,627				1.11	%
	250,000			3/1/12		Hewlett-Packard Company			0.64	%			250,024				0.50	%
	275,000			5/30/14		Hewlett-Packard Company			0.92	%			266,109				0.53	%
	50,000			9/19/14		Hewlett-Packard Company			2.11	%			49,793				0.10	%
U.S. Consumer Products
	150,000			2/15/12		Kimberly-Clark Corporation			5.63	%			153,999				0.31	%
U.S. Diversified Financial Services
	250,000			6/29/12		American Honda Finance Corporation			0.68	%			249,940				0.50	%
	200,000			5/24/13		BlackRock, Inc.			0.81	%			200,049				0.40	%
	200,000			4/5/13		Caterpillar Financial Services Corporation			2.00	%			204,450				0.41	%
	55,000			4/1/14		Caterpillar Financial Services Corporation			0.66	%			55,022				0.11	%
	250,000			1/8/13		General Electric Capital Corporation			2.80	%			258,114				0.51	%
	550,000			1/15/14		HSBC Finance Corporation			0.65	%			507,421				1.01	%
	300,000			3/15/12		John Deere Capital Corporation			7.00	%			310,267				0.62	%
	275,000			10/1/12		John Deere Capital Corporation			5.25	%			288,190				0.57	%
	400,000			7/16/12		Massmutual Global Funding II			3.63	%			412,687				0.82	%
	250,000			2/15/12		Principal Life Global Funding I			6.25	%			257,380				0.51	%
	200,000			10/12/12		Toyota Motor Credit Corporation			0.59	%			200,339				0.40	%
U.S. Energy
	275,000			10/15/12		ConocoPhillips			4.75	%			285,969				0.57	%

 

The accompanying notes are an integral part of these financial statements.

 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2011

 

						Description						Fair Value				% of Partners’ Capital (Net Asset Value)
Corporate Notes (continued)
	Face Value			Maturity Date		Name			Yield1
U.S. Healthcare
$	290,000			3/1/14		Roche Holdings, Inc.			5.00	%		$	318,556				0.63	%
U.S. Insurance
	200,000			2/11/13		Berkshire Hathaway Inc.			0.88	%			200,914				0.40	%
	200,000			1/11/13		Metropolitan Life Global Funding I			2.50	%			204,784				0.41	%
	250,000			8/22/12		New York Life Global Funding			0.54	%			250,101				0.50	%
	250,000			12/14/12		New York Life Global Funding			2.25	%			253,581				0.51	%
	200,000			4/15/13		Pacific Life Global Funding			5.15	%			211,079				0.42	%
	200,000			6/25/12		Pricoa Global Funding I			4.63	%			203,339				0.41	%
	125,000			6/15/12		The Travelers Companies, Inc.			5.38	%			127,710				0.25	%
U.S. Manufacturing
	410,000			6/21/13		Danaher Corporation			0.82	%			410,700				0.82	%
U.S. Mining
	200,000			3/29/12		BHP Billiton Finance (USA)			5.13	%			204,825				0.41	%
U.S.  Multimedia
	150,000			12/1/14		The Walt Disney Company			0.88	%			150,808				0.30	%
U.S. Pharmaceuticals
	200,000			3/15/13		Pfizer Inc.			5.50	%			214,659				0.43	%
U.S. Retail
	500,000			7/18/14		Target Corporation			0.57	%			500,573				1.00	%
U.S. Steel
	100,000			12/1/12		Nucor Corporation			5.00	%			104,019				0.21	%
U.S. Telecommunications
	140,000			3/14/14		Cisco Systems, Inc.			0.79	%			139,953				0.28	%
	330,000			3/28/14		Verizon Communications Inc.			1.18	%			329,622				0.66	%
U.S. Transportation
	150,000			1/15/13		United Parcel Service, Inc.			4.50	%			159,292				0.32	%
Foreign Automotive
	550,000			4/1/14		Volkswagen International Finance N.V.			0.98	%			540,367				1.08	%
Foreign Banks
	550,000			1/10/14		BNP Paribas			1.29	%			508,863				1.01	%
	250,000			6/29/12		Commonwealth Bank of Australia			0.78	%			249,803				0.50	%
	550,000			3/17/14		Commonwealth Bank of Australia			1.29	%			541,445				1.08	%
	275,000			4/14/14		Danske Bank A/S			1.45	%			265,934				0.53	%
	250,000			8/3/12		HSBC Bank PLC			0.88	%			250,519				0.50	%
	250,000			1/18/13		HSBC Bank PLC			0.80	%			249,489				0.50	%
	300,000			1/13/12		ING Bank N.V.			1.03	%			300,655				0.60	%
	550,000			3/15/13		ING Bank N.V.			1.60	%			537,605				1.07	%
	250,000			6/17/13		KfW Bankengruppe			0.29	%			249,908				0.50	%
	250,000			6/15/12		National Australia Bank Limited			0.75	%			250,128				0.50	%
	350,000			2/4/13		Rabobank Nederland			0.58	%			350,232				0.70	%

 

The accompanying notes are an integral part of these financial statements.

 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2011

 

						Description						Fair Value				% of Partners’ Capital (Net Asset Value)
Corporate Notes (continued)
	Face Value			Maturity Date		Name			Yield1
Foreign Banks (continued)
$	350,000			12/12/12		Royal Bank of Canada			0.69	%		$	350,494				0.70	%
	200,000			5/11/12		The Royal Bank of Scotland			2.63	%			202,009				0.40	%
	270,000			7/26/13		The Toronto-Dominion Bank			0.60	%			269,910				0.54	%
	100,000			12/14/12		Westpac Banking Corporation			1.90	%			101,010				0.20	%
Foreign Energy
	525,000			3/10/12		BP Capital Markets P.L.C.			3.13	%			532,472				1.06	%
	175,000			3/25/13		Shell International Finance B.V.			1.88	%			179,136				0.36	%
Foreign Pharmaceuticals
	250,000			3/28/13		Sanofi			0.77	%			250,259				0.50	%
	260,000			3/28/14		Sanofi			0.88	%			259,661				0.52	%
	50,000			3/21/14		Teva Pharmaceutical Finance III BV			1.07	%			49,726				0.10	%
Foreign Telecommunications
	200,000			2/27/12		Vodafone Group Public Limited Company			0.79	%			200,172				0.40	%
Total corporate notes (cost:  $21,841,325)													21,362,494				42.62	%
Total investments in securities (cost:  $32,843,121)												$	32,329,643				64.51	%
Certificates of Deposit
	Face Value			Maturity Date		Name			Yield1
U.S. Banks
$	250,000			11/5/12		Canadian Imperial Bank of Commerce NY			0.64	%			250,239				0.50	%
	500,000			4/4/12		Deutsche Bank Aktiengesellschaft NY			0.45	%			501,218				1.00	%
	250,000			5/8/12		Nordea Bank Finland PLC NY			0.40	%			250,456				0.50	%
	200,000			11/13/12		Nordea Bank Finland PLC NY			0.65	%			199,168				0.40	%
	250,000			3/1/13		PNC Bank			0.63	%			248,172				0.49	%
	250,000			2/3/12		The Shizuoka Bank, Ltd. NY			0.49	%			250,234				0.50	%
	350,000			4/25/12		UBS AG USA			0.55	%			351,170				0.70	%
Foreign Government Sponsored Enterprise
	350,000			5/25/12		Caisse Amortissement de la Dette Socia			0.43	%			349,587				0.70	%
Foreign Banks
	250,000			1/17/12		The Bank of Nova Scotia			0.32	%			250,600				0.50	%
	200,000			6/11/12		The Bank of Nova Scotia			0.74	%			200,115				0.40	%
	250,000			1/17/12		The Bank of Tokyo-Mitsubishi UFJ, Ltd.			0.36	%			250,442				0.50	%
	500,000			5/3/12		Westpac Banking Corporation			0.40	%			501,339				1.00	%
Total certificates of deposit (cost:  $3,600,180)												$	3,602,740				7.19	%

  

The accompanying notes are an integral part of these financial statements.

 

 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2011

  

		Description			Fair Value				% of Partners’ Capital (Net Asset Value)
Open Futures Contracts
Long U.S. Futures Contracts
		Agricultural commodities		$	16,888				0.03	%
		Currencies			3,502				0.01	%
		Energy products			(65,917	)			(0.13	)%
		Interest rates			54,689				0.11	%
		Metals			(306,086	)			(0.61	)%
		Stock indices			12,697				0.03	%
Net unrealized loss on open long U.S. futures contracts					(284,227	)			(0.56	)%
Short U.S. Futures Contracts
		Agricultural commodities			95,886				0.19	%
		Currencies			95,107				0.19	%
		Energy products
		Natural gas (86 contracts, Feb '12 - Oct '12)			848,200				1.69	%
		Other			31,293				0.06	%
		Interest rates			(24,350	)			(0.05	)%
		Metals			252,249				0.50	%
		Stock indices			3,552				0.01	%
Net unrealized gain on open short U.S. futures contracts					1,301,937				2.59	%
Total U.S. futures contracts - net unrealized gain on open U.S. futures contracts					1,017,710				2.03	%
Long Foreign Futures Contracts
		Agricultural commodities			82,910				0.17	%
		Currencies			(21,637	)			(0.04	)%
		Energy products			6,598				0.01	%
		Interest rates2			648,438				1.29	%
		Metals			(128,177	)			(0.26	)%
		Stock indices			35,931				0.07	%
Net unrealized gain on open long foreign futures contracts					624,063				1.24	%

 

The accompanying notes are an integral part of these financial statements. 

  

 

 

 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2011

 

	Description		Fair Value				% of Partners’ Capital (Net Asset Value)
Short Foreign Futures Contracts
	Agricultural commodities		$	241,998				0.48	%
	Currencies2			733,774				1.46	%
	Energy products			33				0.00	%
	Interest rates			17,332				0.03	%
	Metals			171,249				0.34	%
	Stock indices			(2,077	)			(0.00	)%
Net unrealized gain on open short foreign futures contracts				1,162,309				2.31	%
Total foreign futures contracts - net unrealized gain on open foreign futures contracts				1,786,372				3.55	%
Net unrealized gain on open futures contracts			$	2,804,082				5.58	%

 

¹ Represents the annualized yield at date of purchase for discount securities, the stated coupon rate for coupon-bearing securities, or the stated interest rate for certificates of deposit.

 

² No individual futures contract position constituted one percent or greater of partners’ capital (net asset value). Accordingly, the number of contracts and expiration dates are not presented.

 

The accompanying notes are an integral part of these financial statements.

 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2010

 

	Description		Fair Value				% of Partners’ Capital (Net Asset Value)
Long U.S. Futures Contracts
	Agricultural commodities 1		$	1,268,992				1.66	%
	Currencies			458,322				0.60	%
	Energy products			608,067				0.80	%
	Interest rates			188,147				0.25	%
	Metals
	LME Copper U.S. (54 contracts, Jan 2011 - Apr 2011)			1,121,063				1.47	%
	Other 1			1,659,779				2.17	%
	Stock indices			12,632				0.02	%
Net unrealized gain on open long U.S. futures contracts				5,317,002				6.97	%
Short U.S. Futures Contracts
	Agricultural commodities			(183,030	)			(0.24	)%
	Currencies			(281,316	)			(0.37	)%
	Energy products 1			(1,150,945	)			(1.50	)%
	Interest rates			(59,969	)			(0.08	)%
	Metals
	LME Zinc U.S. (122 contracts, Jan 2011 - Apr 2011)			(898,888	)			(1.18	)%
	Other 1			(1,849,621	)			(2.42	)%
	Stock indices			1,800				0.00	%
Net unrealized loss on open short U.S. futures contracts				(4,421,969	)			(5.79	)%
Total U.S. futures contracts - net unrealized gain on open U.S. futures contracts				895,033				1.18	%
Long Foreign Futures Contracts
	Agricultural commodities			384,170				0.50	%
	Currencies			158,179				0.21	%
	Energy products			311,379				0.41	%
	Interest rates			27,862				0.04	%
	Metals			96,460				0.13	%
	Stock indices			(48,932	)			(0.06	)%
Net unrealized gain on open long foreign futures contracts				929,118				1.23	%

 

The accompanying notes are an integral part of these financial statements.

 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2010

 

	Description		Fair Value				% of Partners’  Capital (Net Asset  Value)
Short Foreign Futures Contracts
	Agricultural commodities		$	(65,886	)			(0.09	)%
	Currencies 1			3,036,326				3.97	%
	Interest rate			(225,376	)			(0.29	)%
	Stock indices			50,151				0.07	%
Net unrealized gain on open short foreign futures contracts				2,795,215				3.66	%
Total foreign futures contracts - net unrealized gain on open foreign futures contracts				3,724,333				4.89	%
Net unrealized gain on open futures contracts			$	4,619,366				6.07	%

 

¹ No individual futures contract position constituted one percent or greater of partners’ capital (net asset value). Accordingly, the number of contracts and expiration dates are not presented.

 

The accompanying notes are an integral part of these financial statements.

 

 

Sage Fund Limited Partnership

Statements of Operations

Years Ended December 31, 2011 and 2010

  

		2011				2010
Trading Gain (Loss) from Futures Trading
Net realized gain (loss)		$	(19,007,648	)		$	9,355,296
Net change in unrealized gain (loss)			(1,815,284	)			573,239
Brokerage commissions and trading expenses			(194,767	)			(218,886	)
Net gain (loss) from futures trading			(21,017,699	)			9,709,649
Net Investment Loss
Income (loss)
Interest income			532,806				229,575
Net realized and change in unrealized gain (loss) on securities and certificates of deposit			(706,135	)			12,622
Total income (loss)			(173,329	)			242,197
Expenses
Trading Advisor management fee			624,703				750,606
Trading Advisor incentive fee			-				1,684
Cash Manager fees			40,808				-
General Partner management fee			684,696				804,011
Selling Agent fees – General Partner			1,867,317				2,192,757
Administrative expenses – General Partner			939,228				884,217
General Partner 1% allocation			(248,763	)			56,532
Total expenses			3,907,989				4,689,807
Administrative expenses waived			(471,439	)			(334,653	)
Net total expenses			3,436,550				4,355,154
Net investment loss			(3,609,879	)			(4,112,957	)
Net Income (Loss)		$	(24,627,578	)		$	5,596,692

 

		Class A Units
		2011				2010
Increase (decrease) in net asset value per unit for the year		$	(848.20	)		$	196.16
Net income (loss) per unit		$	(867.89	)		$	196.42
(based on weighted average number of units outstanding during the year)
Weighted average number of units outstanding			28,376.2706				28,492.9034

 

The accompanying notes are an integral part of these financial statements.

 

 

Sage Fund Limited Partnership

Statements of Cash Flows

Years Ended December 31, 2011 and 2010

  

		2011				2010
Cash flows from operating activities
Net income (loss)		$	(24,627,578	)		$	5,596,692
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Net change in unrealized (gain) loss from futures trading			1,815,284				(573,239	)
Purchases of securities and certificates of deposit			(81,734,524	)			-
Proceeds from disposition of securities and certificates of deposit			45,096,006				8,087,756
Net realized and change in unrealized (gain) loss on securities and certificates of deposit			706,135				(12,622	)
Changes in
Interest receivable			4,545				(3,857	)
General Partner 1% allocation receivable/payable			(305,295	)			138,196
Trading Advisor management fee payable			(21,596	)			(58,774	)
Trading Advisor incentive fee payable			(1,684	)			1,684
Commissions and other trading fees payable on open contracts			(8,178	)			8,532
Cash Manager fees payable			13,033				-
Administrative expenses payable – General Partner			(11,609	)			(94,135	)
Selling Agent fees payable – General Partner			(63,666	)			9,166
General Partner management fee payable			(23,345	)			3,361
Net cash provided by (used in) operating activities			(59,162,472	)			13,102,760
Cash flows from financing activities
Subscriptions			8,437,623				5,432,137
Subscriptions received in advance			131,216				1,141,953
Redemptions			(10,268,117	)			(8,144,880	)
Net cash used in financing activities			(1,699,278	)			(1,570,790	)
Net increase (decrease) in cash and cash equivalents			(60,861,750	)			11,531,970
Cash and cash equivalents, beginning of year			73,864,700				62,332,730
Cash and cash equivalents, end of year		$	13,002,950			$	73,864,700
End of year cash and cash equivalents consists of
Cash in broker trading accounts		$	11,212,458			$	21,054,325
Cash and cash equivalents			1,790,492				52,810,375
Total end of year cash and cash equivalents		$	13,002,950			$	73,864,700
Supplemental disclosure of cash flow information
Prior year redemptions paid		$	424,209			$	199,956
Prior year subscriptions received in advance		$	1,141,953			$	767,147
Supplemental schedule of non-cash financing activities
Redemptions payable		$	1,406,594			$	424,209

 

The accompanying notes are an integral part of these financial statements.

 

 

Sage Fund Limited Partnership

Statements of Changes in Partners’ Capital (Net Asset Value)

Years Ended December 31, 2011 and 2010

 

		Units				Amount
Balance at December 31, 2009			28,805.7820			$	73,049,616
Net income							5,596,692
Subscriptions			2,486.6130				6,199,284
Redemptions			(3,300.6038	)			(8,369,133	)
Balance at December 31, 2010			27,991.7912				76,476,459
Net loss							(24,627,578	)
Subscriptions			4,122.0516				9,579,576
Redemptions			(5,478.6377	)			(11,250,502	)
Balance at December 31, 2011			26,635.2051			$	50,177,955

 

 

		Net Asset Value Per Unit
December 31, 2011		$	1,883.90
December 31, 2010		$	2,732.10
December 31, 2009		$	2,535.94

 

The accompanying notes are an integral part of these financial statements.

 

 

Sage Fund Limited Partnership

Notes to Financial Statements

 

1.

Organization and Summary of Significant Accounting Policies

 

Description of the Fund

 

Sage Fund Limited Partnership (“Fund”) is a Maryland limited partnership, which operates as a commodity investment pool that commenced operations on August 2, 1995. The Fund issues Class A units of limited partner interests (“Units”), which represent units of fractional undivided beneficial interest in and ownership of the Fund. The Fund will automatically terminate on December 31, 2025, unless terminated earlier as provided in the Second Amended and Restated Limited Partnership Agreement (“Partnership Agreement”).

 

The Fund uses a commodity trading advisor to engage in the speculative trading of futures contracts and other financial instruments traded in the United States (“U.S.”) and internationally. The Fund primarily trades futures contracts within six major market sectors: interest rates, stock indices, currencies, energy products, metals and agricultural commodities.

 

The Fund is a registrant with the U.S. Securities and Exchange Commission (“SEC”) pursuant to the U.S. Securities Exchange Act of 1934, as amended (“1934 Act”). As a registrant, the Fund is subject to the regulations of the SEC and the disclosure requirements of the 1934 Act. As a commodity pool, the Fund is subject to the regulations of the U.S. Commodity Futures Trading Commission (“CFTC”), an agency of the U.S. Government, which regulates most aspects of the commodity futures industry; rules of the National Futures Association (“NFA”), an industry self-regulatory organization; rules of Financial Industry Regulatory Authority (“FINRA”), an industry self-regulatory organization; and the requirements of commodity exchanges where the Fund executes transactions. Additionally, the Fund is subject to the requirements of its futures broker.

 

Steben & Company, Inc. (“General Partner”), is the general partner of the Fund and a Maryland corporation registered with the CFTC as a commodity pool operator and a commodities introducing broker, and is also registered with the SEC as a registered investment adviser and a broker dealer. The General Partner is a member of the NFA and FINRA. The General Partner manages all aspects of the Fund’s business and serves as one of the Fund’s selling agents.

 

Altis Partners (Jersey) Ltd. (“Trading Advisor”) is the sole trading advisor for the Fund. The Trading Advisor uses the Altis Global Futures Portfolio (“Trading Program”), a proprietary, systematic trading system that deploys multiple trading strategies utilizing derivatives that seek to identify and exploit directional moves in market behavior to a broad and diversified range of global markets.

 

Significant Accounting Policies

 

Accounting Principles

 

The Fund’s financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”).

 

Use of Estimates

 

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

 

Revenue Recognition

 

Futures contracts, investments in securities and certificates of deposit are recorded on a trade date basis, and gains or losses are realized when contracts/positions are liquidated. Realized gains and losses on investments in securities and certificates of deposit are determined on a specific identification basis and are included in net realized and change in unrealized gain (loss) in the statements of operations. Unrealized gains and losses on open contracts (the difference between contract trade price and fair value) are reported in the statements of financial condition as net unrealized gain or loss, as there exists a right of offset of any unrealized gains or losses. The difference between cost and the fair value of open investments in securities and certificates of deposit is reflected as unrealized gain or loss on investments in securities and certificates of deposit. Any change in net unrealized gain or loss on from the preceding period is reported in the statements of operations. Interest income earned on investments in securities, certificates of deposit and other cash and cash equivalent balances is recorded on an accrual basis.

 

Fair Value of Financial Instruments

 

Financial instruments are recorded at fair value, the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities recorded at fair value are classified within the fair value hierarchy based upon the level of judgment associated with the inputs used to measure their value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The levels of the fair value hierarchy are described below:

 

Level 1 – Fair value is based on unadjusted quoted prices for identical instruments in active markets. Financial instruments using Level 1 inputs include exchange-traded derivatives, money market funds and U.S. Treasury securities.

 

Level 2 – Fair value is based on quoted prices for similar instruments in active markets and inputs other than quoted prices that are observable for the financial instrument, such as interest rates and yield curves that are observable at commonly quoted intervals using a market approach. Financial instruments using Level 2 inputs include certificates of deposit, commercial paper, corporate notes and U.S. and foreign government sponsored enterprise notes.

 

Level 3 – Fair value is based on valuation techniques in which one or more significant inputs are unobservable. The Fund has no financial instruments valued using Level 3 inputs.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

 

The Fund assesses the classification of the instruments at each measurement date, and any transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Fund’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. For the years ended December 31, 2011 and 2010, there were no such transfers between levels.

 

A description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis follows.

 

The investments in money market funds, included in cash and cash equivalents in the statements of financial condition, and futures contracts, all of which are exchange-traded, are valued using quoted market prices for identical assets and are classified within Level 1.

 

U.S. Treasury securities are recorded at fair value based on bid and ask quotes for identical instruments. Commercial paper, certificates of deposit, corporate notes and U.S. and foreign government sponsored enterprise notes are recorded at fair value based on bid and ask quotes for similar, but not identical, instruments. Accordingly, U.S. Treasury securities are classified within Level 1, and commercial paper, certificate of deposits, corporate notes and U.S. and foreign government sponsored enterprise notes are classified within Level 2.

 

 

Cash and Cash Equivalents

 

Cash and cash equivalents may include cash, funds held in money market accounts or short-term investments with maturities of three months or less at the date of acquisition and that are not held for sale in the normal course of business. The Fund maintains deposits with financial institutions in amounts that exceed federally insured limits; however, the Fund does not believe it is exposed to any significant credit risk.

 

Brokerage Commissions and Trading Expenses

 

Brokerage commissions and trading expenses include brokerage and other trading fees, and are charged to expense when contracts are opened and closed.

 

Redemptions Payable

 

Redemptions payable represent redemptions that meet the requirements of the Fund and have been approved by the General Partner prior to period-end. These redemptions have been recorded using the period-end net asset value per Unit.

 

Income Taxes

The Fund prepares calendar year U.S. and applicable state and local tax returns. The Fund is not subject to federal income taxes as each partner is individually liable for his or her allocable share of the Fund’s income, expenses and trading gains or losses. The Fund evaluates the tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained “when challenged” or “when examined” by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense and asset or liability in the current year. Management has determined there are no material uncertain income tax positions through December 31, 2011. With few exceptions, the Fund is no longer subject to U.S. federal, or state and local income tax examinations by tax authorities for years before 2008.

 

Foreign Currency Transactions

 

The Fund has certain investments denominated in foreign currencies. The purchase and sale of investments, and income and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of investments held. Such fluctuations are included with the net realized and change in unrealized gain or loss on such investments in the statements of operations.

 

Reclassification

 

Certain reclassifications have been made in the 2010 financial statements and notes to conform to the 2011 presentation, without affecting previously reported partners’ capital (net asset value).

 

Recently Issued Accounting Pronouncement

 

In November 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance that requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This guidance is effective for annual and interim periods beginning on or after January 1, 2013. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Fund’s effective date is January 1, 2013. The adoption of this guidance is not expected to have a material impact on the financial position or results of operations.

 

  

2.

Fair Value Disclosures

 

The Fund’s assets and liabilities, measured at fair value on a recurring basis, are summarized in the following tables by the type of inputs applicable to the fair value measurements:

  

At December 31, 2011
		Level 1				Level 2				Total
Equity in broker trading accounts:
Net unrealized gain on open futures contracts*		$	2,804,082			$	—			$	2,804,082
Cash and cash equivalents:
Money market fund			1,273,215				—				1,273,215
Investments in securities:
U.S. Treasury securities*			2,673,925				—				2,673,925
U.S. government sponsored enterprise notes*			—				2,875,774				2,875,774
Foreign government sponsored enterprise notes*			—				657,305				657,305
Commercial paper*			—				4,760,145				4,760,145
Corporate notes*			—				21,362,494				21,362,494
Certificates of deposit*			—				3,602,740				3,602,740
Total		$	6,751,222			$	33,258,458			$	40,009,580

*See the condensed schedule of investments for further description.

 

At December 31, 2010
		Level 1				Level 2				Total
Equity in broker trading accounts:
Net unrealized gain on open futures contracts*		$	4,619,366			$	—			$	4,619,366
Cash and cash equivalents:
Money market fund			8,669				—				8,669
Total		$	4,628,035			$	—			$	4,628,035

*See the condensed schedule of investments for further description.

 

There were no Level 3 holdings at December 31, 2011 and 2010, or during the years then ended.

 

In addition to the financial instruments listed above, substantially all of the Fund’s other assets and liabilities are considered financial instruments and are reflected at fair value, or at carrying amounts that approximate fair value because of the short maturity of the instruments.

 

3.

Derivative Instruments Disclosures

 

The Fund’s derivative contracts are comprised of future contracts, none of which are designated as hedging instruments. At December 31, 2011 and 2010, the Fund’s futures contracts had the following impact on the statements of financial condition:

 

December 31, 2011		Derivative Assets and Liabilities, at fair value
Statements of Financial Condition Location		Assets				Liabilities				Net
Equity in broker trading accounts
Net unrealized gain on open futures contracts
Agricultural commodities		$	877,385			$	(439,703	)		$	437,682
Currencies			913,098				(102,352	)			810,746
Energy products			1,001,783				(181,576	)			820,207
Interest rates			798,597				(102,488	)			696,109
Metals			691,877				(702,642	)			(10,765	)
Stock indices			85,793				(35,690	)			50,103
Net unrealized gain on open futures contracts		$	4,368,533			$	(1,564,451	)		$	2,804,082

 

 

At December 31, 2011, there were 3,334 open futures contracts.

 

December 31, 2010		Derivative Assets and Liabilities, at fair value
Statements of Financial Condition Location		Assets				Liabilities				Net
Equity in broker trading accounts
Net unrealized gain on open futures contracts
Agricultural commodities		$	1,692,012			$	(287,766	)		$	1,404,246
Currencies			3,856,198				(484,687	)			3,371,511
Energy products			948,198				(1,179,697	)			(231,499	)
Interest rates			376,551				(445,887	)			(69,336	)
Metals			2,923,850				(2,795,057	)			128,793
Stock indices			174,685				(159,034	)			15,651
Net unrealized gain on open futures contracts		$	9,971,494			$	(5,352,128	)		$	4,619,366

 

At December 31, 2010, there were 5,918 open futures contracts.

 

For the years ended December 31, 2011 and 2010, the Fund’s futures contracts had the following impact on the statements of operations:

 

		2011								2010
Types of Exposure		Net realized gain (loss)				Net change in unrealized gain (loss)				Net realized gain (loss)				Net change in unrealized gain (loss)
Futures contracts
Agricultural commodities		$	(3,835,500	)		$	(966,564	)		$	2,048,515			$	583,936
Currencies			(4,232,456	)			(2,560,765	)			1,770,813				3,279,681
Energy products			(3,199,743	)			1,051,706				(4,308,346	)			177,961
Interest rates			3,356,308				765,445				8,126,210				(1,632,530	)
Metals			(3,778,514	)			(139,558	)			1,611,675				(1,268,916	)
Stock indices			(7,300,684	)			34,452				164,860				(566,893	)
Total futures contracts		$	(18,990,589	)		$	(1,815,284	)		$	9,413,727			$	573,239

 

For the years ended December 31, 2011 and 2010, the number of futures contracts closed was 38,052 and 37,677, respectively.

 

4.

General Partner

 

At December 31, 2011 and 2010, and for the years then ended, the General Partner did not maintain a capital balance in the Fund. During 2010, the beneficiary of the sole shareholder of the General Partner redeemed all of his investment of 21.5210 Units of the Fund.

 

The General Partner earns the following compensation:

 

§

General Partner management fee – the Fund incurs a monthly fee equal to 1/12th of 1.1% of the Fund’s month-end net asset value, payable in arrears.

 

§

Selling Agent fees – the Fund incurs a monthly fee equal to 1/12th of 3% of the Fund’s month-end net asset value, payable in arrears. The General Partner, in turn, pays selling agent fees to the respective selling agents. If selling agent fees are not paid to the selling agents, or if the General Partner was the selling agent, such portions of the selling agent fees are retained by the General Partner.

 

Pursuant to the terms of the Partnership Agreement, each year the General Partner receives from the Fund 1% of any net income earned by the Fund. Conversely, the General Partner pays to the Fund 1% of any net loss incurred by the Fund. Such amounts are reflected as General Partner 1% allocation receivable or payable in the statements of financial condition and as General Partner 1% allocation in the statements of operations.

 

 

5.

Trading Advisor and Cash Managers

 

The Fund has an agreement with the Trading Advisor, pursuant to which the Fund incurs a management fee, payable monthly to the Trading Advisor in arrears, equal to 1/12^th of 1% of allocated net assets (as defined in the advisory agreement) and an incentive fee, payable quarterly in arrears, equal to 25% of net new trading profits (as defined in the advisory agreement).

 

Effective April 2011, the Fund engaged J.P. Morgan Investment Management, Inc. and Principal Global Investors, LLC (collectively, the “Cash Managers”) to provide cash management services to the Fund. The Fund incurs monthly fees, payable in arrears to the Cash Managers, equal to approximately 1/12^th of 0.11% of the investments in securities and certificates of deposit.

 

6.

Deposits with Brokers

 

To meet margin requirements, the Fund deposits funds with its futures broker, subject to CFTC regulations and various exchange and broker requirements. The Fund earns interest income on its assets deposited with the broker. At December 31, 2011 and 2010, the Fund had margin deposit requirements of $6,284,545 and $12,546,070, respectively.

 

7.

Administrative Expenses

 

The Fund reimburses the General Partner for actual monthly administrative expenses paid to various third-party service providers, including the General Partner, up to 1/12^th of 0.75% of the Fund’s month-end net asset value, payable in arrears. Administrative expenses include accounting, audit, legal, salary and administrative costs incurred by the General Partner relating to marketing and administration of the Fund; such as, salaries and commissions of General Partner marketing personnel, administrative employee salaries and related costs. Pursuant to the terms of the Partnership Agreement, administrative expenses that exceed 1% of the average month-end net asset value are the responsibility of the General Partner.

 

For the years ended December 31, 2011 and 2010, actual administrative expenses exceeded the 1% administrative expense limitation of average month-end net asset value of the Fund by $315,510 and $151,467, respectively. Such amounts were included in Administrative expenses waived in the statements of operations.

 

Additionally, during the years ended December 31, 2011 and 2010, the General Partner voluntarily waived $155,929 and $183,186, respectively, of administrative expenses of the Fund. Such amounts were included in administrative expenses waived in the statements of operations.

 

At December 31, 2011 and 2010, $32,403 and $44,012, respectively, were payable to the General Partner for expenses incurred on behalf of the fund and not waived by the General Partner. Such amounts are presented as administrative expenses payable – General Partner in the statements of financial condition.

 

8.

Subscriptions, Distributions and Redemptions

 

Investments in the Fund are made by subscription agreement and must be received within five business days of the end of the month, subject to acceptance by the General Partner. The minimum investment is $10,000. Units are sold at the net asset value per Unit as of the close of business on the last day of the month in which the subscription is accepted. Investors whose subscriptions are accepted are admitted as limited partners as of the beginning of the month following the month in which their subscriptions were accepted. At December 31, 2011 and 2010, the Fund received advance subscriptions of $131,216 and $1,141,953, respectively, which were recognized as subscriptions to the Fund or returned, if applicable, subsequent to year-end.

 

The Fund is not required to make distributions, but may do so at the sole discretion of the General Partner. A limited partner may request and receive redemption of Units owned at the end of any month, subject to five business days’ prior written notice to the General Partner and in certain circumstances, restrictions in the Partnership Agreement.

 

The General Partner may require a limited partner to redeem from the Fund if the General Partner deems the redemption (a) necessary to prevent or correct the occurrence of a non-exempt prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended, or the Internal Revenue Code of 1986, as amended, (b) beneficial to the Fund, or (c) necessary to comply with applicable government or self-regulatory organization regulations.

 

 

9.

Trading Activities and Related Risks

 

The Fund engages in the speculative trading of futures contracts in the U.S. and internationally. Trading futures contracts exposes the Fund to both market risk, the risk arising from a change in the fair value of a contract, and credit risk, the risk of failure by another party to perform according to the terms of a contract.

 

Purchase and sale of futures contracts requires margin deposits with futures brokers. Additional deposits may be necessary for any loss of contract value. The Commodity Exchange Act (“CEAct”) requires a broker to segregate all customer transactions and assets from such broker’s proprietary activities. A customer’s cash and other property (for example, U.S. Treasury securities) deposited with a broker are considered commingled with all other customer funds subject to the broker’s segregation requirements. In the event of a broker’s insolvency, recovery may be limited to a pro-rata share of segregated funds available. It is possible that the recovered amount could be less than the total cash and other property deposited. The Fund utilizes Newedge USA, LLC as its futures broker.

 

For futures contracts, risks arise from changes in the fair value of the contracts. Theoretically, the Fund is exposed to a market risk equal to the value of futures contracts purchased and unlimited liability on such contracts sold short.

 

In addition to market risk, upon entering into commodity interest contracts there is a credit risk that the counterparty will not be able to meet its obligations to the Fund. The counterparty for futures and options on futures contracts traded in the U.S. and on most non-U.S. futures exchanges is the clearinghouse associated with such exchanges. In general, clearinghouses are backed by the corporate members of the clearinghouse who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearinghouse is not backed by the clearing members, like some non-U.S. exchanges, it is normally backed by a consortium of banks or other financial institutions. While the Fund trades only with those counterparties that it believes to be creditworthy, there can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Fund.

 

The Cash Managers manage the Fund’s cash and excess margin through investments in fixed income instruments, pursuant to investment parameters established by the General Partner. Prior to April 2011, the Fund used UBS Financial Services, Inc. as its cash management securities broker for the investment of some excess margin amounts into fixed income instruments.

 

The General Partner has established procedures to actively monitor market risk and minimize credit risk, although there can be no assurance that it will, in fact, succeed in doing so. The limited partners bear the risk of loss only to the extent of the fair value of their respective investments and, in specific circumstances, distributions and redemptions received.

 

Through its investments in debt securities and certificates of deposit, the Fund has exposure to U.S. and foreign enterprises. The following table presents the exposure at December 31, 2011.

 

Country or Region		U.S. Treasury Securities				Gov't Sponsored Enterprise Notes				Commercial Paper				Corporate Notes				Certificates of Deposit				Total				% of Partners' Capital (Net Asset Value)
United States		$	2,673,925			$	2,875,774			$	4,120,420			$	14,672,697			$	2,050,657			$	26,393,473				52.68	%
Netherlands			-				-				-				1,907,995				-				1,907,995				3.80	%
France			-				251,279				249,959				1,018,783				349,587				1,869,608				3.73	%
Australia			-				-				-				1,142,386				501,339				1,643,725				3.28	%
Great Britain			-				-				-				1,434,661				-				1,434,661				2.86	%
Canada			-				-				-				620,404				450,715				1,071,119				2.13	%
Japan			-				-				189,963				-				250,442				440,405				0.88	%
Sweden			-				-				-				265,934				-				265,934				0.53	%
Germany			-				-				-				249,908				-				249,908				0.50	%
Europe multi-national			-				204,235				-				-				-				204,235				0.41	%
Africa multi-national			-				201,791				-				-				-				201,791				0.40	%
Singapore			-				-				199,803				-				-				199,803				0.40	%
Netherland Antilles			-				-				-				49,726				-				49,726				0.10	%
Total		$	2,673,925			$	3,533,079			$	4,760,145			$	21,362,494			$	3,602,740			$	35,932,383				71.70	%

 

 

At December 31, 2010, the Fund had no investments in debt securities or certificates of deposit.

 

10.

Indemnifications

 

In the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, and which provide general indemnifications. The Fund’s maximum exposure under these arrangements cannot be estimated. However, the Fund believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for such indemnifications.

 

11.

Financial Highlights

 

The following information presents per unit operating performance data and other ratios for the years ended December 31, 2011 and 2010, assuming the unit was outstanding throughout the entire year:

 

		2011				2010
Per Unit Operating Performance
Net asset value per unit at beginning of year		$	2,732.10			$	2,535.94
Income (loss) from operations
Gain (loss) from futures trading (1)			(720.99	)			340.51
Net investment loss (1)			(127.21	)			(144.35	)
Total income (loss) from operations			(848.20	)			196.16
Net asset value per unit at end of year		$	1,883.90			$	2,732.10
Total return			(31.05	)%			7.74	%
Other Financial Ratios
Ratios to average net asset value
Expenses prior to Trading Advisor incentive fee and General Partner 1% allocation (2) (3)			5.91	%			5.94	%
Trading Advisor incentive fee (4)			0.00	%			0.00	%
General Partner 1% allocation			(0.40	)%			0.08	%
Total expenses			5.51	%			6.02	%
Net investment loss (2) (3)			(5.79	)%			(5.69	)%

 

Total returns are calculated based on the change in value of a unit during the year. An individual partner’s total returns and ratios may vary from the above total returns and ratios based on the timing of subscriptions and redemptions.

 

⁽¹⁾ The net investment loss per unit is calculated by dividing the net investment loss by the average number of units outstanding during the year. Gain (loss) from futures trading is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information. Such balancing amount may differ from the calculation of gain (loss) from futures trading per unit due to the timing of trading gains and losses during the year relative to the number of units outstanding.

 

⁽²⁾ All of the ratios under Other Financial Ratios for Units are computed net of voluntary and involuntary waivers of administrative expenses. For the years ended December 31, 2011 and 2010, the ratios are net of 0.76 % and 0.46%, respectively, of average net asset value relating to the waivers of administrative expenses. Both the nature and the amounts of the waivers are more fully explained in Note 7.

 

⁽³⁾ The net investment loss includes interest income and excludes realized and change in unrealized gain (loss) from futures trading activities as shown in the statements of operations. The total amount is then reduced by all expenses, excluding brokerage commissions, which are included in net gain (loss) from futures trading in the statements of operations. The resulting amount is divided by the average net asset value for the year.

 

⁽⁴⁾ Ratio represents less than 0.01% of the average net asset value.