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: equity indices, currencies, interest rate instruments, energy, 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, 2012, the aggregate capitalization of the Fund was $29,227,525. The net asset value per unit of Class A limited partner interests (“Units”) as of December 31, 2012 was $1,636.79.
The Fund has engaged Altis Partners (Jersey) Ltd. (“Trading Advisor”) as the trading advisor for all of the Fund’s assets. 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, 2012, the Trading Advisor had total assets under management of approximately $855 million, with approximately $791 million 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 .75%, based upon the assets under its management, payable in arrears. Prior to Dec 2012, the management fee was 1% per annum.
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% of the average month-end net assets of the Fund are the responsibility of the General Partner.
Administrative expenses represent accounting, audit, legal, salary and administrative costs incurred by the General Partner relating to marketing and administration of the Fund, including 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, equity indices, energy, 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 two 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.
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.
Item 1B.	Unresolved Staff Comments
None.
Item 2.
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.
Item 3.	Legal Proceedings
None.
Item 4.
Item 4.	Mine Safety Disclosures
Not applicable.
PART II
Item 5.
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. Currently, Units of the Fund are not offered for sale.
Holders
As of February 28, 2013, there were 510 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, 2012.
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 2012 were as follows:
Item 6.
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.
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, 2012, 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 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
Effective December 1, 2012, the Fund closed to new investments. The Fund will continue to trade its assets for existing limited partners, although it will be closed to additional investments.
Under a provision of the Fund’s Limited Partnership Agreement, the Fund would suspend trading in the event that net assets decline 50% or more from the highest net asset value per unit at the start of any fiscal year. The purpose of this policy is to provide downside protection to investors should the Fund experience an excessive decline. As of February 28, 2013, the estimated net asset value per unit of the Fund was $1,638.51. The net asset value of the Fund would need to decline another 13% from that point before the Fund would suspend trading and liquidate its positions.
The returns for the Fund for the years ended December 31, 2012 and 2011 were (13.12) % and (31.05)%, respectively. Past performance is not indicative of expected future financial condition or results of operations. Further analysis of the trading losses are provided below.
January
In January, markets responded positively to supportive monetary policy from central banks around the world. In the U.S., the Federal Reserve announced that it expected to keep interest rates low through 2014. Meanwhile, in Europe, the European Central Bank was expected to extend its Long-Term Refinancing Operations program by providing additional loans to the region’s banks later this year, beyond the nearly half trillion euros (approximately U.S. $650 billion) already distributed to banks in December. This improved the European credit environment, helping France, Italy and Spain to hold successful bond auctions at reduced yields and allowing them to shrug off Standard & Poor’s sovereign credit downgrades earlier in the month. Positive sentiment fueled by easy monetary policy led to a rally in global equities, industrial commodities, as well as short and medium term interest rate instruments. Among currencies, it also led to a decline in the U.S. dollar, a rebound in the euro, and a surge in commodity currencies.
The Fund realized small gains in currencies (primarily through long positions in the Australian dollar), as well as in equity indices, interest rates and energy. These gains were offset by losses from its short positions in base metals, including tin and aluminum, and from short exposure to precious metals, particularly platinum and silver, resulting in a loss of 1.31% for the month.
February
In February, markets were driven by continued monetary stimulus from central banks around the world. The European Central Bank extended an additional €529 billion (approximately $700 billion) in low interest 3-year loans to 800 of the region’s banks in the second round of its Long Term Refinancing Operation to shore up the balance sheets of the financial sector in Europe. Since December, the ECB has made over €1 trillion (approximately $1.3 trillion) in loans to Europe’s banking sector. Elsewhere, the Bank of Japan and the Bank of England implemented new rounds of quantitative easing in their respective markets. These actions encouraged a greater risk appetite among investors, driving up global equity indices. Meanwhile, the U.S. saw an improvement in labor market data, prompting a rise in U.S. bond yields. In the Middle East, the threat of oil supply disruptions from rising tensions over Iran’s nuclear program led to a rally in energy prices, with Brent crude prices exceeding $125 per barrel.
The Fund made gains in the energy sector, where it benefited from long positions in both in crude oil and oil-related products. The Fund also profited from its long exposure to equity indices, particularly in Europe and Japan. However, long positions in the fixed income sector caused losses as bonds in the UK and Australia sold off. The Fund also saw moderate declines in the agricultural and metals sectors. Overall, the Fund finished up 0.08% for the month.
March
In March, markets continued to price in a stronger economic growth outlook for the U.S. Following improved labor and consumption data, the Fed raised its forecast from “modest” to “moderate” growth. Investors interpreted this positive language as a signal that further Fed stimulus in the form of bond purchases was not necessary. As a result U.S. long-term bonds sold off sharply. Meanwhile U.S. equities continued to rally, with the S&P 500 enjoying its best quarter since the third quarter of 2009. Elsewhere, the attempt by Chinese authorities to limit domestic inflation through a gradual deceleration of economic growth had a negative impact on commodity currencies such as the Australian dollar. In energy markets, crude oil halted its six month rise due to softer prospective Chinese demand as well as an expected release of strategic oil reserves by the U.S., UK and France.
The Fund made gains in agricultural commodities such as coffee, and in energy through short positions in natural gas, where a supply glut and unusually warm weather led to continued price declines. However, the Fund suffered losses in fixed income, as bond prices declined mid-month in the U.S., Europe and Japan, hurting long positions. In currencies, long exposure to the weakening Australian dollar also detracted from performance. Overall, the Fund finished with a loss of 1.09% for the month.
April
April saw a reversal of the positive equity market sentiment that characterized much of the first quarter of 2012, with renewed worries over global growth and the European debt crisis. Both the U.S. and China reported slowing GDP growth for the first quarter. Meanwhile in Europe, the UK and Spain posted a second consecutive quarter of negative growth and thus joined Italy, Ireland, Portugal and Greece in falling into a double dip recession. The possibility of a Spanish default became the latest focus for sovereign bond investors, as the effectiveness of its fiscal austerity program came into doubt, with the unemployment rate rising to 24%.
The Fund saw profits in April from its long positions in interest rate instruments, as bond yields in major markets declined, with a global swing towards risk aversion. The Fund also made gains in the agricultural commodities sector, as soybeans continued their strong year-to-date rally due to a lack of rain in South America threatening the harvest. However, in the energy sector, losses were made in long positions in oil-related commodities and a short position in natural gas. Overall the Fund finished up 0.43% for the month.
May
In May, the escalating European debt crisis and weak U.S. and Chinese economic data led to a flight to safety in financial markets. In Greece, electoral gains by anti-austerity political parties stoked fears that the country might ultimately exit the Eurozone. Elsewhere, concerns grew over the health of Spain’s banks, as the already debt-laden Spanish government was forced to bail out the country’s third largest lender. Meanwhile, labor market conditions deteriorated in the U.S. and industrial production slowed in China. In response, investors sold global equities, energies and commodity currencies and sought the relative safe harbor of bonds and the U.S. dollar.
The Fund made its largest gains from long positions in global bond markets, as yields trended lower and prices moved higher. In addition, the Fund profited from a net short position in both industrial and precious metals. The Fund had some offsetting losses in long equity index and oil positions, before trimming and even reversing some of those exposures by month-end. Overall, the Fund finished May with a profit of 0.48%.
June
The risk appetite of global investors returned in June, as markets anticipated increased central bank intervention to spur weakening economic growth. In Europe, the risk of a splintering of the euro currency union subsided, as Greek parliamentary elections were won by political parties favoring a European bailout with austerity conditions attached, in effect keeping the country in the Eurozone. This was followed by a European summit meeting at month end where EU leaders agreed to ease conditions on loans to Spain and Italy, thereby stemming the surge in borrowing costs in those countries. In response, investors rotated from bonds into equities and sold off the U.S. dollar in favor of the euro and emerging market currencies.
During June, the Fund had most of its risk allocated to physical commodities. Losses primarily came from agricultural markets and energy. The Fund was positioned for a bearish trend in corn, but a drought and heat wave in the U.S. caused prices to spike. Short positions in natural gas also proved unprofitable, as reports of smaller than expected inventories led to a rebound in prices. In the financial futures markets, the Fund avoided significant losses despite strong trend reversals in the bond, currency and equity sectors. The Fund was able to make a positive return in equity indices through long positions in U.S. stock markets. In currencies, the Fund had a loss from its short euro exposure. Meanwhile performance was flat in bonds. Overall, the Fund finished June with a loss of 2.27%.
July
The Fund delivered positive returns in July, as more signs emerged of a faltering global economic recovery. U.S. labor market data continued to disappoint and Chinese growth weakened. Europe, however, remained the primary focus of investors. Spain’s credit conditions deteriorated, as the 10-year sovereign bond yield spiked as high as 7.75% during the month, its highest level since the inception of the euro. The European Central Bank (ECB) cut interest rates, but this did little to reverse the depreciation of the euro. The tide of negative sentiment was stanched only later in the month, when the ECB President vowed to use all necessary means to save the currency union. The largest contribution to the Fund came from the fixed income sector, where long positions profited from the ECB rate cut as well as market speculation of additional future central bank easing in Europe and the U.S. The Fund also made solid gains in currencies through its short euro exposure. Lastly, in the agricultural sector, the Fund profited from a surge in grain prices, as hot, dry weather in the U.S. damaged crop yields. Overall, the Fund finished the month with a gain of 6.51%.
August
In August, investor sentiment towards the future of the Eurozone turned from pessimistic to mildly optimistic. U.S. economic reports, including non-farm payroll data, also came in better than expected. These factors extended the rally in global equities, caused a rebound in the euro and prompted an initial sell-off in safe haven U.S. and German government bonds. As the month progressed, speculation mounted that global central banks would engage in further quantitative easing, which caused bonds to recover from their earlier declines. Rising tensions between Iran and Israel caused crude oil prices to climb, while the U.S. experienced its most widespread drought since 1956, leading to higher grain prices. During the month, the Fund gave back some of the profits it made in July. The Fund’s short positions in the euro and long positions in the Australian dollar suffered on market reversals. Metals were also a negative contributor, as mining strikes in South Africa caused a spike in platinum prices, hurting the Fund’s short position. The Fund did see gains in long equity and long oil exposures. However, the Fund finished the month with a net loss of 2.33%.
September
September saw an increase in the scale of global central bank intervention in an attempt to prevent further deterioration of economic growth. The European Central Bank announced a plan to buy unlimited amounts of government bonds of distressed countries such as Spain, in exchange for their accepting austerity reforms. Meanwhile in the U.S., the Federal Reserve announced “QE3”, a third round of quantitative easing, involving the purchase of $40 billion of agency backed mortgages each month for an indefinite period of time. In response, equities rallied worldwide, as did the euro, gold and industrial metals. There was a corresponding sell-off in perceived safe haven assets such as U.S. bonds and the U.S. dollar.
Coming into the month, the agricultural commodities had been in uptrends. However, grain prices corrected after their recent run-up, hurting the Fund’s long positions, after reports that the U.S. drought had not damaged crop yields as much as expected. September’s central bank announcements caused a rally in industrial metals, which hurt the Fund’s short positions. Among financial sector contracts, the “risk on” rally caused losses for the Fund’s long bond and short euro positions. Although the Fund’s long equity exposure did generate gains, these were not enough to offset declines elsewhere. Overall, the Fund finished with a net loss of 5.97%
October
October was characterized by trend reversals across a broad range of sectors. Weaker than expected corporate earnings prompted a selloff in U.S. equity markets as well as in global risk assets such as oil, industrial metals, and commodity-related currencies. In spite of this, safe haven assets such as bonds and gold did not rally and in fact declined, as investors pared back previous expectations over the scope and duration of quantitative easing by central banks.
Given the breadth of market reversals, October proved to be a difficult month for trend-following programs across the entire managed futures industry. The Fund was no exception and experienced losses that were spread across most sectors in the portfolio. The largest declines came from the Fund’s long metals positions in gold, nickel and lead, as wells as long bond positions in the U.S. and Europe. On the positive side, the Fund successfully navigated the reversal in U.S. stock indices and profited from long positions in non-U.S. equity markets. Overall, the Fund finished the month with a net loss of 4.20%.
November
As the U.S. election maintained the status quo in Washington, investor attention turned to the ability of a divided government to deal with the looming “fiscal cliff”. The year-end expiration of key tax cuts and automatic reduction in government expenditures, if unaddressed, could potentially cause a recession in 2013, according to the Congressional Budget Office. Global equities sold off over the first half of November as a result. However, sentiment recovered and stocks rebounded in the latter part of the month, as reports indicated some willingness on the part of Democrats and Republicans to compromise in budget talks.
In November, the Fund made gains in long positions in the fixed income sector as global bonds rallied on continued easy central bank monetary policy. The currency sector made a small profit from short positions in the Japanese yen, which depreciated on speculation of more aggressive money printing with a potential Liberal Democratic Party victory in the country’s upcoming election. However, the Fund saw losses due to price reversals in physical commodities. Base metals and crude oil prices rebounded from their downward trend on stronger Chinese industrial production data, while grain prices declined from their recent highs on higher than expected supply. Equity markets also proved difficult to trade during the month, as an early sell-off reversed sharply mid-month with a return of investor risk appetite. Overall, the Fund finished the month with a net loss of 3.05%.
December
In December, U.S. “fiscal cliff” negotiations dominated news headlines. Investors rotated from bonds into stocks on speculation the two U.S. political parties would ultimately reach a compromise budget deal by the end of the year. Meanwhile, in Japan, the Liberal Democratic Party (LDP) returned to power, pledging to lift the country out of a deflationary spiral with an aggressive fiscal stimulus plan and by pressuring the Bank of Japan to further weaken the yen.
The Fund benefited from the outcome of the Japanese election as a result of both a short position in the depreciating Japanese yen and a long position in the surging Nikkei stock index. However, the Fund saw losses across a range of physical commodities, particularly in grains, as weakening foreign demand for U.S. crops hurt prices. Elsewhere, the Fund benefited from its long exposure to global stock indices which rallied on optimism over U.S. budget talks, although these gains were offset by losses from the related decline in bond prices. Overall, the Fund finished the month with a net loss of .75%.
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.
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.
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.
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.
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
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, 2012 (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, 2012, 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, 2012, 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.
Item 9B.	Other Information
None.
PART III
Item 10.
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 majority 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, Neil D. Menard, Carl A. Serger and Francine Rosenberger. 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 CAIASM 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.
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.
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 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.
Francine Rosenberger is General Counsel. Ms. Rosenberger, born in October 1967, earned her Bachelor of Arts from Juniata College in 1989, and graduated magna cum laude, with a J.D., from The Columbus School of Law at Catholic University in 1995. Prior to joining the General Partner, Ms. Rosenberger was in the Investment Management practice at the law firm of K&L Gates from September 1995 until January 2013. At K&L Gates, Ms. Rosenberger specialized in the formation, structuring and operation of investment companies, ETFs, and commodity pools. She has been pending as a CFTC listed Principal of the General Partner since January 31, 2013.
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 majority 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. 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, 2012. During the year ended December 31, 2012, 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.
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.
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 2012 and 2011, the General Partner earned $444,579 and $684,696, 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 2012 and 2011, the General Partner earned $1,212,487 and $1,867,317, 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 years ended December 31, 2012 and 2011, the General Partner paid to the Fund $52,351 and $248,763, respectively, for the General Partner 1% allocation.
Item 12.
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
As of February 28, 2013, no person or “group” is known to have been the beneficial owner of more than 5% of the Units.
As of February 28, 2013, the General Partner did not own any Units of the Fund. As of February 28, 2013, the directors and executive officers of the General Partner beneficially owned Units as follows:
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.
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.
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 LLP (formerly known as 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, 2012 and 2011, and fees billed for other professional services rendered by McGladrey LLP and RSM McGladrey, Inc. (formerly an associated entity that McGladrey LLP acquired on December 1, 2011) (collectively “McGladrey”) during those years.
(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 during 2012 and 2011 to the Fund described above. The General Partner’s Board of Directors has determined that the payments made to McGladrey for these services during 2012 and 2011 are compatible with maintaining that firm’s independence.
PART IV
Item 15.
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, 2012 and
Condensed Schedule of Investments as of December 31, 2012
Condensed Schedule of Investments as of December 31, 2011
Statements of Operations for the Years Ended December 31, 2012 and 2011
Statements of Cash Flows for the Years Ended December 31, 2012 and 2011
Statements of Changes in Partners’ Capital (Net Asset Value) for the Years Ended December 31, 2012 and 2011
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 Director
March 28, 2013
Kenneth E. Steben
of the General Partner
/s/ Carl A. Serger
Chief Financial Officer and Director of the General Partner
March 28, 2013
Carl A. Serger
/s/ Michael D. Bulley
Senior Vice President, Research & Risk Management
March 28, 2013
Michael D. Bulley
and Director of the General Partner
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.
Dated March 28, 2013 Sage Fund Limited Partnership
By: Steben & Company, Inc.
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, 2012 and 2011, 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, 2012 and 2011, 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 LLP
Chicago, Illinois
March 28, 2013
Sage Fund Limited Partnership
Statements of Financial Condition
December 31, 2012 and 2011
The accompanying notes are an integral part of these financial statements.
Sage Fund Limited Partnership
Condensed Schedule of Investments
December 31, 2012
The accompanying notes are an integral part of these financial statements.
Sage Fund Limited Partnership
Condensed Schedule of Investments (continued)
December 31, 2012
The accompanying notes are an integral part of these financial statements.
Sage Fund Limited Partnership
Condensed Schedule of Investments (continued)
December 31, 2012
The accompanying notes are an integral part of these financial statements.
Sage Fund Limited Partnership
Condensed Schedule of Investments (continued)
December 31, 2012
The accompanying notes are an integral part of these financial statements.
Sage Fund Limited Partnership
Condensed Schedule of Investments (continued)
December 31, 2012
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
December 31, 2011
The accompanying notes are an integral part of these financial statements.
Sage Fund Limited Partnership
Condensed Schedule of Investments (continued)
December 31, 2011
The accompanying notes are an integral part of these financial statements.
Sage Fund Limited Partnership
Condensed Schedule of Investments (continued)
December 31, 2011
The accompanying notes are an integral part of these financial statements.
Sage Fund Limited Partnership
Condensed Schedule of Investments (continued)
December 31, 2011
The accompanying notes are an integral part of these financial statements.
Sage Fund Limited Partnership
Condensed Schedule of Investments (continued)
December 31, 2011
The accompanying notes are an integral part of these financial statements.
Sage Fund Limited Partnership
Condensed Schedule of Investments (continued)
December 31, 2011
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
Statements of Operations
Years Ended December 31, 2012 and 2011
The accompanying notes are an integral part of these financial statements.
Sage Fund Limited Partnership
Statements of Cash Flows
Years Ended December 31, 2012 and 2011
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, 2012 and 2011
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”). During 2012, the fund closed to new investments.
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 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, 2012 and 2011, 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, 2012. 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 2009.
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 2011 financial statements and notes to conform to the 2012 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:
*See the condensed schedule of investments for further description.
*See the condensed schedule of investments for further description.
There were no Level 3 holdings at December 31, 2012 and 2011, 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, 2012 and 2011, the Fund’s futures contracts had the following impact on the statements of financial condition:
At December 31, 2012, there were 3,629 open futures contracts.
At December 31, 2011, there were 3,334 open futures contracts.
For the years ended December 31, 2012 and 2011, the Fund’s futures contracts had the following impact on the statements of operations:
For the years ended December 31, 2012 and 2011, the number of futures contracts closed was 34,513 and 38,052, respectively.
4.General Partner
At December 31, 2012 and 2011, and for the years then ended, the General Partner did not maintain a capital balance in the Fund. During 2011, the beneficiary of the majority 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 1/12th of 0.75% 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). Prior to December 2012, the Trading Advisor management fee was 1% per annum.
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 1/12th 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, 2012 and 2011, the Fund had margin deposit requirements of $4,234,111 and $6,284,545, 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 1/12th 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, 2012 and 2011, actual administrative expenses exceeded the 1% administrative expense limitation of average month-end net asset value of the Fund by $505,953 and $315,510, respectively. Such amounts were included in Administrative expenses waived in the statements of operations.
Additionally, during the years ended December 31, 2012 and 2011, the General Partner voluntarily waived $101,255 and $155,929, respectively, of administrative expenses of the Fund. Such amounts were included in administrative expenses waived in the statements of operations.
At December 31, 2012 and 2011, $18,825 and $32,403, 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, 2012 and 2011, the Fund received advance subscriptions of $0 and $131,216, 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, 2012.
The following table presents the exposure at December 31, 2011.
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, 2012 and 2011, assuming the unit was outstanding throughout the entire year:
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. 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 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, 2012 and 2011, the ratios are net of 1.53% and 0.76%, 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 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 loss from futures trading in the statements of operations. The resulting amount is divided by the average net asset value for the year.
12.Subsequent Events
From January 1 to March 28, 2013, there were no contributions and $2,718,612 of redemptions from the Fund.