Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - FUTURES PORTFOLIO FUND L.P.Financial_Report.xls
EX-32.02 - SECTION 1350 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - FUTURES PORTFOLIO FUND L.P.v306788_ex32-02.htm
EX-31.01 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - FUTURES PORTFOLIO FUND L.P.v306788_ex31-01.htm
EX-31.02 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - FUTURES PORTFOLIO FUND L.P.v306788_ex31-02.htm
EX-32.01 - SECTION 1350 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - FUTURES PORTFOLIO FUND L.P.v306788_ex32-01.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2011

 

Commission file number: 000-50728

 

FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP

 

Organized in Maryland IRS Employer Identification No.:  52-1627106

 

c/o Steben & Company, Inc.

2099 Gaither Road, Suite 200

Rockville, Maryland 20850

Telephone: (240) 631-7600

 

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

 

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

 

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

 

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

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

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

 

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

 

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

 

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

 

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

 

 
 

 

Table of Contents

 

Part I
Item 1. Business 3
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 12
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Mine Safety Disclosures 13
     
Part II
     
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 24
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 27
Item 9A. Controls and Procedures 28
Item 9B. Other Information 28
     
Part III
     
Item 10. Directors, Executive Officers, and Corporate Governance 28
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners and Management 31
Item 13. Certain Relationships and Related Transactions 31
Item 14. Principal Accountant Fees and Services 31
     
Part IV
     
Item 15. Exhibits, Financial Statement Schedules 32
Signatures   33

 

 
 

 

PART I

 

 Item 1. Business  

 

Futures Portfolio Fund, Limited Partnership (“Fund”) is a Maryland limited partnership, formed on May 11, 1989. Using professional trading advisors, the Fund engages in the speculative trading of futures contracts, forward currency contacts and other financial instruments traded in the United States (“U.S.”) and internationally. The Fund primarily trades futures contracts within six major market sectors: stock indices, currencies, interest rate instruments, energy products, metals and agricultural commodities. The Fund began trading on January 2, 1990.

 

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 Third Amended and Restated Limited Partnership Agreement (“Partnership Agreement”). At December 31, 2011, the aggregate capitalization of the Fund was $1,482,656,104, consisting of Class A interest of $872,169,401 and Class B interest of $610,486,703. The net asset value per limited partner interests (“Units”) of the Class A Units was $4,527.45 and Class B Units was $6,147.29 at December 31, 2011.

 

The Fund’s assets are allocated among professional commodity trading advisors (“Trading Advisors”). Portions of the Fund’s assets may be allocated to other investment funds or pools at the discretion of Steben & Company, Inc. (“General Partner”). The General Partner is responsible for selecting and monitoring the Trading Advisors, and it may add new Trading Advisors in the future, terminate the current Trading Advisors, and will, in general, allocate and reallocate the Fund’s assets among the Trading Advisors as it deems is in the best interests of the Fund.

 

During 2011, the Fund made investments of $90 million in the Steben Institutional Fund LLC (SIF), whose manager is the General Partner. Presently, the Fund is the only member in SIF. Similar to the Fund, SIF uses professional trading advisors to engage in the speculative trading of futures and forward currency contracts traded in the U.S. and internationally. SIF trades within the same market sectors at the Fund, stock indices, currencies, interest rate instruments, energy products, metals and agricultural commodities. SIF commenced trading on March 1, 2011.

 

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, certificates of deposit and corporate notes 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 the Fund’s trading advisors; allocating the Fund’s assets among them; possibly investing a portion of the Fund’s assets in other investment pools; selecting the Fund’s futures broker(s), accountants and attorneys; computing the Fund’s net assets; reporting to limited partners; directing the allocation of excess margin monies; and processing subscriptions and redemptions. The General Partner maintains office facilities for and furnishes administrative and clerical services to the Fund. There have been no material administrative, civil or criminal actions within the past five years against the General Partner or its principals, and no such actions currently are pending.

 

3
 

 

Trading Advisors

 

As of March 1, 2012, the Trading Advisors of the Fund and the allocation of the Fund’s trading level are reflected as follows:

 

   % of Total Allocations 
Altis Partners (Jersey), Ltd   5%
Aspect Capital, Ltd   9%
BlueCrest Capital Management LLP   20%
Estlander & Partners Ltd.   9%
Lynx Asset Management   6%
PGR Capital LLP   6%
Quantitative Investment Management, LLC   10%
Sunrise Capital Partners, LLC   3%
Transtrend BV   13%
Winton Capital Management, Ltd.   19%

 

These allocations are subject to change at the General Partner’s sole discretion.

 

An objective of the Fund’s multi-manager approach is to reduce the Fund’s volatility without sacrificing overall rates of return. The General Partner may, from time to time, adjust the amount of assets allocated to each Trading Advisor, add new Trading Advisors, terminate Trading Advisors or replace Trading Advisors without prior notice to investors. Trading Advisors are selected by the General Partner based on their performance histories and other factors.

 

Selling Agents

 

The General Partner acts as a selling agent for the Fund. The General Partner has and intends to continue to appoint certain other broker-dealers registered under the Securities Exchange Act of 1934, as amended (“1934 Act”), and members of FINRA, to act as additional selling agents with respect to Class A and B Units. Selling agents are selected to assist in the making of offers and sales of Class A and B Units. Including the General Partner, the Fund currently has approximately 100 selling agents. The selling agents are not required to purchase any Class A and B Units, or sell any specific number or dollar amount of Class A and B Units, instead use their best efforts to sell such Units. Where the General Partner acts as the selling agent it retains the selling agent fees.

 

Futures Brokers and Forward Currency Counterparties

 

The Fund’s futures trading is currently conducted with Newedge USA, LLC (“NUSA”) and J.P. Morgan Securities LLC (“JPMS”). NUSA is a subsidiary of Newedge Group, SA. 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, which is owned 50% each by Calyon and Société Générale, is a société anonyme governed by French law. Newedge UK Finance Limited (NEUK), one of the Fund’s forward currency counterparties, is a wholly-owned subsidiary of Newedge Group, incorporated in England and Wales, and regulated by the Financial Services Authority for the conduct of business in the UK. JPMS is an indirect, wholly-owned subsidiary of JPMorgan Chase & Co., one of the largest bank holding companies in the U.S.

 

UBS AG is another of the fund’s forward currency counterparties. UBS AG is a global financial services company operating in more than 50 countries. The General Partner may, in its discretion, have the Fund use other futures brokers, swap or forward currency counterparties if it deems it to be in the best interest of the Fund.

 

Cash Managers

 

The Fund has engaged J.P. Morgan Investment Management (“JPMIM”) and Principal Global Investors, LLC (“PGI” and, together with JPMIM, the “Cash Managers”) to provide cash management services to the Fund. The Cash Managers will manage the Fund’s cash and excess margin through investments in fixed income instruments, pursuant to investment parameters established by the General Partner.

 

4
 

 

Description of Current Charges

 

Charges Amount
Trading Advisor Management Fees

Each class of Units incurs monthly trading advisor management fees, payable monthly or quarterly in arrears, to the Trading Advisors (based upon the assets under their management), equal to:

§ BlueCrest Capital Management, LLP: 1/12th of 2%

§ Quantitative Investment Management, LLC: 0%

§ Transtrend BV: 1/12th of 1%

§ Winton Capital Management, Ltd: 1/12th of 1.5%

§ Other Trading Advisors*: 1/12th of 0.5% to 2%

 

*Individual Trading Advisors represent less than 10% allocation of the Fund’s trading level.

Trading Advisor Incentive Fees

Each class of Units incurs quarterly trading advisor incentive fees, payable in arrears to the Trading Advisors, for any “Net New Trading Profits” generated on the portion of the Fund the respective Trading Advisor manages, equal to:

§ BlueCrest Capital Management, LLP              20%

§ Quantitative Investment Management, LLC    30%

§ Transtrend BV                                                  25%

§ Winton Capital Management Ltd.                    20%

§ Other Trading Advisors*:                            10% to 25%

 

*Individual Trading Advisors represent less than 10% allocation of the Fund’s trading level.

 

Net New Trading Profits are calculated based on formulas defined in each Trading Advisor’s trading agreement. In determining Net New Trading Profits, any trading losses generated by the respective 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 Expenses The Fund incurs brokerage commissions and expenses on U.S. futures exchanges at the approximate rate of $1.40 to $27.48, with an average of $3.90 per “round-turn” futures transaction (includes NFA, execution, clearing and exchange fees). Brokerage commissions and expenses may be higher for trades executed on certain foreign exchanges.
Cash Manager Fees Each class of Units 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 Each class of Units incurs a monthly General Partner management fee equal to 1/12th of 1.75% of Fund net assets at the end of each month, payable in arrears. The General Partner may pay a portion of its monthly management fee on an ongoing basis to selected agents who have sold Units, in return for their provision of ongoing services to limited partners.
General Partner 1 percent allocation The General Partner receives an annual allocation of 1% of any increase (or decrease) in the Fund’s net asset value, without regard to subscriptions and redemptions.
Selling Agent Fees and Broker Dealer Servicing Fees The General Partner charges monthly selling agent fees and broker dealer servicing fees, equal to 1/12th of 2% of the month-end net asset value for Class A Units and 1/12th of 0.2% of the month-end net asset value for Class B Units, payable in arrears. The General Partner, in turn, pays selling agent fees and broker dealer servicing fees to the respective selling agents. If selling agent fees are not paid to the selling agents, or the General Partner was the selling agent, such portions of the selling agent fees are retained by the General Partner.
Administrative Fee Each class of Units incur a monthly General Partner administrative fee equal to 1/12th of 0.45% of Fund net assets at the end of each month, payable in arrears. This fee compensates the General Partner for a portion of its actual monthly administrative expenses incurred in administering the Fund. The administrative expenses include all accounting, audit, legal, administrative, marketing and offering expenses, and other back office expenses related to the administration of the Fund.

 

5
 

 

Market Sectors

 

The Fund trades speculatively, through the allocation of its assets to Trading Advisors, in U.S. and international futures markets, and may trade or hold futures, forwards, swaps or options. Specifically, the Fund trades futures on interest rate instruments, stock indices, energy products, currencies, metals and agricultural commodities. The Fund also trades forward currency contracts and may trade options, swaps and other forwards other than currencies 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 a Trading Advisor, with the approval of the General Partner, determines such change to be in the best interests of the Fund.

 

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 brokers 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, commodity trading advisors and futures brokers or futures commission merchants such as the Fund’s futures brokers to be registered and to comply with various reporting and recordkeeping requirements. The General Partner and the Fund’s futures brokers 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 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, dissolution 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.

 

6
 

 

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 Advisors 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-Q, 10-K, 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 Reference Room may be obtained by calling the SEC at (800) SEC-0330. Reports filed electronically with the SEC may be found at http://www.sec.gov.

 

Reports to Security Holders

 

None.

 

Enforceability of Civil Liabilities Against Foreign Persons

 

None.

 

Item 1A. Risk Factors 

 

No Limitations on Trading Policies

 

The Fund’s Partnership Agreement places no limitation on the trading policies the General Partner may pursue for the Fund.

 

Potential Increase in Leverage

 

The General Partner may increase the leverage used with a particular Trading Advisor by the use of notional funds. Notional funds are used when a Trading Advisor is instructed to trade an account according to its trading system under the assumption that the account is larger than the actual cash or securities on hand. This additional leverage, while creating additional profit potential which the General Partner feels may be appropriate with certain Trading Advisors in light of the Fund’s multi-trader diversification, also increases the risk of loss to the Fund.

 

Volatility

 

The volatility of the Fund is expected to be similar to what it has been in the past, although it could be more or less volatile in the future depending upon the volatility of the market, the success of the Trading Advisors and the level of notional funding used by the General Partner in its allocations to the Trading Advisors.

 

7
 

 

Liquidity

 

Although the Fund offers monthly redemptions, the Fund may delay payment if special circumstances require, such as a market emergency that prevents the liquidation of commodity positions or a delay or default in payment to the Fund by a futures broker or a counterparty.

 

Complex Fee Structure

 

Allocation to more than one Trading Advisor makes the Fund’s fee structure more complex which in turn could diminish the Fund’s profit potential.

 

Fund Expenses Will Be Substantial

 

The Fund is obligated to pay brokerage expenses, selling agent and management fees to the General Partner and various Trading Advisors and other administrative fees, regardless of whether it realizes profits. The Fund will need to make substantial trading profits to avoid depletion of its assets from these expenses.

 

Reliance on General Partner

 

The Fund’s success depends significantly on the General Partner’s ability to select Trading Advisors.

 

Dependence on Key Personnel

 

The General Partner is dependent on the services of Mr. Kenneth E. 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) would need to take charge of the General Partner.

 

Reliance on the Trading Advisors

 

The Fund’s success depends largely on the ability of its Trading Advisors. There can be no assurance that their trading methods will produce profits (or not generate losses). Past performance is not necessarily indicative of future results.

 

Reliance on Futures Brokers’ Financial Condition

 

If one of the futures brokers becomes insolvent, the Fund might incur a loss of all or a portion of the funds it had deposited directly or indirectly with such futures broker. There is no government insurance for commodity brokerage accounts. Such a loss could occur if one of the futures brokers unlawfully failed to segregate its customers’ funds or if a customer failed to pay a deficiency in its account.

 

Use of Cash Managers

 

A significant percentage of the Fund’s assets not placed as margin with the futures brokers are managed by the Cash Managers. Using investment guidelines established by the General Partner, the Cash Managers invest the excess margin in U.S. Treasury securities, U.S. and foreign government sponsored enterprise notes, commercial paper, corporate notes and certificates of deposit. Although these investments are considered to be high quality, some of the securities purchased are neither guaranteed by the U.S. government nor supported by the full faith and credit of the U.S. government. There is some risk that a security issuer may fail to pay the interest and principal in a timely manner, or that negative perceptions about the issuer’s ability to make such payments will cause the price of these instruments to decline in value.

 

Investment in Other Investment Pools

 

Currently, the Fund has an investment in Steben Institutional Fund LLC (SIF). SIF incurs trading advisor management and incentive fees, cash manager fees, as well as reimburses its manager for operating expenses incurred on its behalf. The Fund may invest in other pools. The Fund expects to be liable to those pools (e.g., limited partners), only for the amount of its investment plus any undistributed profits. However, there can be no assurance in this regard, and the Fund might invest as a general partner if the situation warranted, and thus be liable for additional amounts.

 

Investment in pools (or similar investment vehicles), as distinguished from direct participation in the markets, has several potential disadvantages. Those investments may increase the Fund’s expenses, since the Fund will have to pay its pro rata share of the expenses borne by the investors in the pools, and the pools may have higher expenses. The Fund will generally be a minority investor in those pools and thus lack control over the pools. The pools might (a) change trading policies, strategies and trading advisors without prior notice to the Fund; (b) substantially restrict the ability of their investors to withdraw their capital from the pools; (c) be new ventures with little or no operating history; (d) be general rather than limited partnerships, thus increasing the Fund’s liability; and/or (e) use aggressive leveraging policies.

 

8
 

 

Use of Electronic Trading

 

The Trading Advisors may use electronic trading while implementing their strategies on behalf of the Fund. Electronic trading differs from traditional methods of trading. Electronic system transactions are subject to the rules and regulations of the exchanges offering the system or listing the specific contracts. Attributes of electronic trading may vary widely among the various electronic trading systems with respect to order requirements, processes and administration. There may also be differences regarding conditions for access and reasons for termination and limitations on the types of orders that may be placed into the system. These factors may present various risk factors with respect to trading on or using a specific system. Electronic trading systems may also possess particular risks related to system access, varying response times and security procedures. Internet enabled systems may also have additional risks associated with service providers and the delivery and monitoring of electronic communications.

 

Electronic trading may also be subject to risks associated with system or component failure. In the event of system or component failure, it is possible that a Trading Advisor may not be able to initiate new orders, fill existing orders or modify or cancel orders that were previously entered, as well as exit existing positions. System or component failure may also result in loss of orders or order priority. Some contracts offered on an electronic trading system may also be traded electronically and through open outcry during the same trading hours. Exchanges offering an electronic trading system which lists contracts may have implemented rules to limit their liability, the liability of futures brokers, as well as software and communication system vendors and the damages that may be collected for system inoperability and delays. These limitations of liability provisions may vary among the various exchanges.

 

Changes in Trading Strategies

 

The trading strategies of the Trading Advisors are continually developing. The Trading Advisors are free to make any changes in their trading strategies, without notice, if they feel that doing so will be in the Fund’s best interest. The General Partner will notify the limited partners of any such changes that the General Partner considers material. Changes in commodities or the markets traded shall not be deemed a change in trading strategy.

 

Disadvantages of Periodic Incentive Fees

 

Because the Trading Advisor incentive fees (if any) are paid on a quarterly basis, they could receive incentive fees for a period even though their trading for the year was unprofitable. Once an incentive fee is paid, the Trading Advisors retain the fee regardless of their subsequent performance, but no new incentive fees will be paid until after all previous losses have been recovered.

 

Disadvantages of Multi-Trader Structure

 

The Fund’s use of multiple Trading Advisors to conduct its trading has several potential disadvantages. Each Trading Advisor is paid incentive fees solely on the basis of its trading for the Fund. The Fund, therefore, could have periods in which it pays fees to one or more Trading Advisors even though the Fund, as a whole, has a loss for the period (because the losses incurred by the Fund from unprofitable Trading Advisors exceed the profits earned by the Fund from profitable Trading Advisors).

 

Because the Trading Advisors trade independently of each other, they may establish offsetting positions for the Fund. For example, one Trading Advisor may sell 12 March wheat contracts at the same time another Trading Advisor buys 12 March wheat contracts. The net effect for the Fund will be the incurring of two brokerage commissions without the potential for earning a profit (or incurring a loss).

 

Under certain unusual circumstances, the Fund might have to direct a Trading Advisor to liquidate positions in order to generate funds needed to meet margin calls, to fund the redemption of Units, or to permit the reallocation of funds to another Trading Advisor. Such liquidations could disrupt the Trading Advisor’s trading system or method.

 

9
 

 

Disadvantages of Replacing Trading Advisors

 

The General Partner has the authority to reallocate the Fund’s assets among the Trading Advisors, terminate Trading Advisors and allocate assets to new Trading Advisor(s), or invest the Fund’s assets in other investment funds or commodity pools.

 

Trading Advisors generally have to “make up” previous trading losses incurred by the Fund on portions of the Fund the Trading Advisors are managing, before they can earn an incentive fee. However, a Trading Advisor might terminate its services to the Fund or the General Partner might decide to replace a Trading Advisor when it has such a loss carry-forward. The Fund might have to pay a new Trading Advisor higher advisory fees than are currently being paid to the current Trading Advisor. In addition, the Fund would lose the potential benefit of not having to pay the Trading Advisor an incentive fee during the time that the Trading Advisor was generating profits that made up for the prior losses. The replacement Trading Advisor would “start from scratch,” that is, the Fund would have to pay a new Trading Advisor an incentive fee for each dollar of profit it generated for the Fund, regardless of the Fund’s previous experience.

 

Limited Partners Do Not Participate in Management

 

Limited partners are not entitled to participate in the management of the Fund or the conduct of its business.

 

Non-Transferability of Units

 

Investors may acquire Units only for investment and not for resale, and the Units are transferable only with the General Partner’s consent, provided that the economic benefits of ownership of a limited partner may be transferred or assigned without the consent of the General Partner. There will be no resale market for the Units. However, limited partners may redeem all or (subject to certain limitations) any portion of their Units at the end of any month, on five business days’ written notice to the General Partner.

 

Possible Adverse Effect of Large Redemptions

 

The Trading Advisors’ trading strategies could be disrupted by large redemptions by limited partners. For example, such redemptions could require the Trading Advisors to prematurely liquidate futures positions they had established for the Fund.

 

Mandatory Redemptions

 

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 nonexempt 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 the Investment Company Act of 1940.

 

Indemnification

 

The Fund is required to indemnify the General Partner, the Trading Advisors and the futures brokers, and their affiliates, against various liabilities they may incur in providing services to the Fund, provided the indemnified party met the standard of conduct specified in the applicable indemnification clause. The Fund’s indemnification obligations could require the Fund to make substantial indemnification payments.

 

Termination of Fund

 

The Fund will automatically terminate on December 31, 2025, unless terminated earlier as provided in the Partnership Agreement. For example, the General Partner can withdraw on 60 days’ prior written notice, and such a withdrawal could result in termination of the Fund. The General Partner has no present intention of withdrawing and intends to continue the Fund business as long as it believes that it is in the best interest of all Partners to do so. In addition, certain events may occur which could result in early termination.

 

Lack of Regulation

 

The Fund is not an investment company under the federal securities laws. Thus, limited partners will not have the benefits of federal regulation of investment companies. In addition, this offering is not registered with the SEC or any state.

 

10
 

 

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 Fees to the Trading Advisors

 

The Trading Advisors are entitled to incentive fees, therefore the Trading Advisors may have an incentive to cause the Fund to make riskier or more speculative investments than it otherwise would.

 

Personal Trading

 

The Trading Advisors, the futures brokers, 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 Advisors and their Principals

 

The Trading Advisors and their principals may trade for their own accounts in addition to directing trading for client accounts. Therefore, the Trading Advisors and their 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 Advisors and their 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 Advisors trade futures and foreign exchange for their own accounts, there is potentially a conflict of interest between these principals and the Trading Advisors’ clients when allocating prices on trades that are executed by a futures commission merchant at multiple prices. In such instances, the Trading Advisors use a non-preferential method of fill allocation. The clients of the Trading Advisors will not be permitted to inspect the personal trading records of the Trading Advisors, NUSA, JPMS, 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 Advisors and their principals are combined for speculative position limits. Because speculative position limits allow the Trading Advisors and their principals to control only a limited number of contracts in any one commodity, the Trading Advisors and their principals are potentially subject to a conflict among the interests of all accounts the Trading Advisors and their principals control which are competing for shares of that limited number of contracts. There exists a conflict between the Trading Advisors’ 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 Advisors and their principals. The General Partner does not believe, however, that the position limits are likely to impair the Trading Advisors’ trading for the Fund, although it is possible the issue could arise in the future.

 

11
 

 

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 Advisors 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 Advisors cannot be executed in full, the Trading Advisors 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 Advisors

 

Certain principals of the Trading Advisors 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 Advisors 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 Advisors intend to devote substantial attention to the operation and activities of the Trading Advisors consistent with the division of responsibilities among them as is described herein.

 

Operation of Other Commodity Pools

 

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

 

Fiduciary Responsibility of the General Partner

 

The General Partner has a fiduciary duty to the Fund to exercise good faith and fairness in all dealings affecting the Fund. If a limited partner believes this duty has been violated, he/she may seek legal relief under applicable law, for himself/herself 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 and/or servicing fees 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 Brokers

 

The futures brokers affect 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 brokers could effect transactions for the Fund in which the other parties to the transactions are the futures brokers’ 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.

  

Item 1B.  Unresolved Staff Comments 

 

Not Applicable.

 

 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 high grade fixed income instruments.

 

12
 

 

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

 

Item 3. Legal Proceedings

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Neither Class A nor B Units of the Fund are publicly traded. Both Class A and B Units may be transferred or redeemed subject to the conditions imposed by the Partnership Agreement.

 

Class A and B Units are being offered continuously by selling agents on a best-efforts basis at subsequent closing dates at a price equal to the net asset value per unit as of the close of business on each applicable closing date, which is the first business day of each month. The minimum investment is $10,000.

 

Holders

 

As of February 29, 2012, there were 12,602 and 7,748 holders of Class A and B Units of the Fund, respectively.

 

Dividends

 

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

 

Securities Authorized for Issuance under Equity Compensation Plans

 

No Units were authorized for issuance under equity compensation plans.

 

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

 

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

 

The proceeds of the sale of registered securities 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 Advisors’ trading programs.

 

Issuer Purchases of Equity Securities.

 

Class A and B Units are eligible for redemption on a continuous basis at subsequent closing dates at a price equal to the net asset value per unit as of the close of business on each applicable closing date, which is the last business day of each month. Redemptions may be made by a limited partner as of the last business day of any month at the net asset value on such redemption date of the redeemed Units (or portion thereof) on that date, on five business days’ prior written notice to the General Partner. Partial redemptions must be for at least $1,000, unless such requirement is waived by the General Partner. In addition, if making a partial redemption, the limited partner 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.

 

13
 

 

Redemptions of Class A and B Units during the fourth quarter 2011 were as follows: 

 

   October   November   December   Total 
Class A Units                    
Units redeemed   924.9299    3,445.6687    3,057.8402    7,428.4388 
Average net asset value per unit  $4,443.52   $4,463.87   $4,527.45   $4,487.51 
                     
Class B Units                    
Units redeemed   585.2192    955.8637    1,333.3922    2,874.4751 
Average net asset value per unit  $6,015.43   $6,051.99   $6,147.29   $6,088.75 

 

 Item 6. Selected Financial Data 

 

The following selected consolidated financial data of the Fund as of and for the years ended December 31, 2011, 2010, 2009, 2008 and 2007 is derived from the consolidated financial statements that have been audited by McGladrey & Pullen, LLP, the Fund’s independent registered public accountant. This financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and with the Fund’s consolidated financial statements and notes thereto, included elsewhere in this Annual Report on Form 10-K.

 

   For the Year Ended December 31, 
   2011   2010   2009   2008   2007 
Income Statement Items                         
Net gain (loss) from trading  $(46,536,177)  $182,134,426   $(1,321,770)  $261,554,585   $45,735,396 
Interest income and net loss from trading of investments in securities and certificates of deposit   (2,821,909)   3,119,900    4,484,279    19,068,236    26,770,478 
Net total expenses   (84,954,757)   (84,518,180)   (66,508,237)   (94,568,427)   (47,724,348)
Net income (loss)  $(134,312,843)  $100,736,146   $(63,345,728)  $186,054,394   $24,781,526 
                          
Balance Sheet Items                         
Total assets  $1,527,648,938   $1,457,657,150   $1,109,264,003   $899,233,549   $562,253,689 
Total partners’ capital (net asset value)  $1,482,656,104   $1,401,627,694   $1,057,734,905   $832,985,264   $545,106,985 
                          
Class A Units                         
Net asset value per unit  $4,527.45   $4,985.84   $4,668.87   $5,018.96   $3,867.65 
Increase (decrease) in net asset value per unit  $(458.39)  $316.97   $(350.09)  $1,151.31   $142.06 
Total return   (9.19)%   6.79%   (6.98)%   29.77%   3.81%
                          
Class B Units                         
Net asset value per unit  $6,147.29   $6,650.67   $6,118.04   $6,460.05   $4,891.11 
Increase (decrease) in net asset value per unit  $(503.38)  $532.63   $(342.01)  $1,568.94   $263.30 
Total return   (7.57)%   8.71%   (5.29)%   32.08%   5.69%

 

Results from past periods are not necessarily indicative of results that may be expected for any future period.

 

The following supplementary summarized quarterly data are presented for the three-months ended March 31, June 30, September 30 and December 31, 2011 and 2010.

 

   March 31, 2011   March 31, 2010 
   Class A   Class B   Class A   Class B 
Net income (loss)  $(18,400,103)  $(9,333,572)  $14,838,449   $10,301,774 
Increase (decrease) in net asset value per unit   (102.88)   (108.24)   87.12    142.04 
Net asset value per unit   4,882.96    6,542.43    4,755.99    6,260.08 
Ending net asset value   872,614,597    564,946,618    45,880,303    413,165,763 

 

14
 

 

   June 30, 2011   June 30, 2010 
   Class A   Class B   Class A   Class B 
Net income (loss)  $(55,753,170)  $(34,122,905)  $(42,843,931)  $(22,781,078)
Increase (decrease) in net asset value per unit   (292.21)   (364.41)   (264.90)   (322.43)
Net asset value per unit   4,590.75   6,178.02    4,491.09    5,937.65 
Ending net asset value   871,728,629    571,502,385    729,331,259    22,890,183 

 

   September 30, 2011   September 30, 2010 
   Class A   Class B   Class A   Class B 
Net income  $23,551,117   $18,196,165   $36,757,542   $24,613,436 
Increase in net asset value per unit   122.01    192.39    217.95    316.09 
Net asset value per unit   4,712.76    6,370.41    4,709.04    6,253.74 
Ending net asset value   926,663,416    621,340,342    786,763,948    483,696,598 

 

   December 31, 2011   December 31, 2010 
   Class A   Class B   Class A   Class B 
Net income (loss)  $(36,771,373)  $(21,679,002)  $47,567,365   $32,282,589 
Increase (decrease) in net asset value per unit   (185.31)   (223.12)   276.80    396.93 
Net asset value per unit   4,527.45    6,147.29    4,985.84    6,650.67 
Ending net asset value   872,169,401    610,486,703    858,255,331    543,372,363 

 

 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

 

Cash Management

 

Effective April 1, 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.

 

Prior to April 1, 2011, the Fund used UBS Financial Services, Inc. and Bank of America Merrill Lynch as its cash management securities brokers.

 

Liquidity

 

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

 

Capital Resources

 

The Fund intends to raise additional capital through the continued sale of Units offered pursuant to the offering, and does not intend to raise 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 investment in futures contracts, etc. in subsequent periods. It is not possible to estimate the amount, and therefore the impact, of future inflows and outflows funds 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 and forward currency contracts, both long (contracts to buy) and short (contracts to sell).

 

15
 

 

Results of Operations

 

The returns for each Class of Units for the years ended December 31, 2011, 2010, and 2009 were:

 

Class of Units  2011   2010   2009 
Class A   (9.19)%   6.79%   (6.98)%
Class B   (7.57)%   8.71%   (5.29)%

 

Past performance is no guarantee of future results. Monthly analysis of the trading gains and losses is provided below.

 

2011

 

January

 

A Units of the Fund were down 1.42% for the month of January and B Units were down 1.27%. The Fund finished lower this month as losses from foreign currencies, interest rate instruments and metals offset profits from energy products, equity indices and agricultural commodities. The most significant losses came from the Fund’s positions in international currencies as several 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 equity indices, the Fund saw profits from its long positions in both European and U.S. indices. In interest rates, mixed performance among contracts led to a loss in that sector. Gold prices retreated this month generating losses for the Fund’s long positions, while rising prices in cotton, corn and sugar contributed additional profits in agricultural commodities.

 

February

 

A Units of the Fund were up 2.16% for the month of February and B Units were up 2.31%. The Fund finished higher this month as profits from energy products, equity indices, metals, agricultural commodities and currencies offset losses in interest rate instruments. The most significant profits came from the Fund’s positions in energy products as tensions in the Middle East, and especially in Libya, pushed oil prices higher benefiting the Funds’ long positions in that sector. Global equity prices were volatile this month, but finished higher by the end of the month which added profits from the Fund’s long positions. Both industrial and precious metals prices trended higher, as did agricultural commodity prices. The rising prices from all three of these sectors generated profits for the Fund’s long positions. Prices were mixed in interest rate instruments, with losses offsetting profits in that sector.

 

March

 

A Units of the Fund were down 2.75% for the month of March and B Units were down 2.61%. The Fund finished lower this month with losses in equity indices, agricultural commodities, interest rate instruments and metals. The most significant profits came from the energy markets as events in Japan and Libya sent energy prices sharply higher benefiting the Fund’s long positions. The same global events also generated reversals in global stock indices that went against the Fund’s long positions. Although equity prices rebounded later in the month it wasn’t enough to offset the earlier losses. Agricultural commodity prices led by corn, sugar and cocoa, experienced significant volatility this month. Prices generally moved against the Fund’s long positions generating losses. Prices in interest rate instruments and foreign currencies were mixed this month with losses offsetting profits in that sector.

 

April

 

A Units of the Fund were up 3.58% for the month of April and B Units were up 3.73%. The Fund finished higher this month with profits from currencies, metals, stock indices and energy products offsetting losses from interest rate instruments 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.

 

16
 

 

May

 

A Units of the Fund were down 5.65% for the month of May and B Units were down 5.52%. The Fund finished 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 products 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

 

A Units of the Fund were down 3.80% for the month of June and B Units were down 3.65%. The Fund finished lower this month with losses in equity indices, energy products, agricultural commodities, metals and currencies offsetting profits from interest rate instruments. The markets were relatively quiet during the month, although 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 the second month in a row. While the rise in interest rate instrument prices benefited the Fund, the fall in equity prices went against the Fund’s long positions. Over the past several weeks, the Fund’s trading advisors reduced their long equity positions, reducing the impact. In commodities, improved supply coupled with weaker confidence in the global economy sent prices lower. The decline in commodity prices was led by a drop in energies prices and agricultural commodities, both of which went against the Fund’s long positions.

 

July

 

A Units of the Fund were up 4.31% for the month and B Units were up 4.47%. The Fund finished higher this month with profits in interest rate instruments, metals, currencies 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 the Fund’s long positions in major foreign currencies, especially the Swiss franc, Japanese yen and Australian dollar. Equity indices continued to move sideways without a strong trend, generating some losses. In the energy sector, the Fund’s short positions in natural gas profited from the sustained downward trend in natural gas prices.

 

August

 

A Units of the Fund were down 1.56% for the month of August and B Units were down 1.42%. The Fund finished lower this month with losses in currencies, equity indices and energy products offsetting profits in interest rate instruments. Metals and agricultural commodities were essentially unchanged for the month. The Fund’s most significant gains 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 a sharp sell-off in the Australian dollar in the first week of the month that went against the Fund’s long positions. Following a sharp sell-off in equity markets during the first week of August, the Fund’s trading advisors 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

 

A Units of the Fund were down 0.03% for the month of September and B Units were up 0.12%. The Fund finished the month virtually un-changed, as profits from interest rate instruments, equities and metals were offset by losses from agricultural commodities, energy products and currencies. The Fund’s most significant gains came from its long positions in interest rate instruments. 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, stocks and interest rates were lower, which generated profits for the Fund’s long positions in interest rate instruments and its short positions in equity indices. In metals, profits from short positions in industrial metals offset losses from long positions in precious metals. In agricultural commodities, as well as the energy sector, the Fund’s long positions generated losses as the prices for many of the physical commodities declined during the month.

 

17
 

 

October

 

A Units of the Fund were down 5.71% for the month and B Units were down 5.57%. 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 QE3 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. The largest declines came in currency markets where a sudden surge in Eurozone optimism hurt the Fund’s long US 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. Finally, the Fund’s long fixed income-short equity exposures were negatively impacted by a rotation from bonds into stocks, as the S&P 500 Index recorded its largest monthly percentage gain since 1991.

 

November

 

A Units of the Fund were up 0.46% for the month and B Units were up 0.61%. 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 with positive net performance. Gains were made in commodities, particularly in short natural gas and short soybean positions. However, these were partially offset by losses in equities and currencies where managers were whipsawed by macro-driven market reversals. The fixed income sector generated only modest gains as profits early in the month from the Fund’s long bond exposures were eroded by a rise in yields in the last week, particularly in Japanese government bonds.

 

December

 

A Units of the Fund were up 1.42% for the month and B Units were up 1.57%. 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 3-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 in December, profiting from its short currency positions in the Euro and long positions in European fixed income instruments. Equity sector returns were relatively flat for the month. In commodities, the Fund benefited from short positions in natural gas, as mild weather and excess supply depressed prices further. However, downturns in oil and gold, where the Fund was positioned long, led to offsetting losses.

 

2010

 

January

 

A Units of the Fund were down 4.56% for the month of January and B Units were down 4.42%. The Fund ended the month lower as losses from global equity indices, energy products, metals and currencies offset profits from interest rate instruments and agricultural commodities. The Fund’s most significant losses came from global equity indices. The sector reversed from an upward trend that began in March of 2009. The stock market experienced a sharp sell-off after investors reacted to the growing concern of weaker global economic growth and the decision by the U.S. government to limit speculative trading by banks. This price reversal went against the Fund’s long positions, which generated losses. China announced it was taking steps to limit bank lending in order to moderate its own growth. The news pushed commodity prices lower, especially in energy products and industrial metals. The lower prices went against the Fund’s long positions in those sectors. Interest rate instrument prices were higher this month, which helped recover some of the losses the sector generated in last month’s trading.

 

18
 

 

February

 

A Units of the Fund were up 1.63% for the month of February and B Units were up 1.78%. The Fund posted positive gains in February as profits from interest rate instruments and currencies outweighed losses from agricultural commodities and energies. The most significant gains came from short-term interest rate instrument prices, which trended higher following news of the Greek debt crisis. This news also placed downward pressure on foreign currencies, especially the EU euro and British pound. The rise in interest rate instrument prices benefited the Funds’ long positions in that sector, while falling European currencies generated profits for the Fund’s short foreign currency positions. In agricultural commodities, declining prices went against the Fund’s long positions, including sugar, corn and soybeans.

 

March

 

A Units of the Fund were up 5.02% for the month of March and B Units were up 5.18%. The Fund finished higher this month with profits in five of the six major market sectors. The Fund’s most significant gains came from equity indices where prices continued to trend higher. Many of the global indices, including the S&P 500, reached their highest level since the third quarter of 2008. Although equity prices experienced a brief reversal between late January and early February, the Fund’s systematic trading systems maintained long positions and profited from the upward trend that resumed during late February and March. In the energy sector, natural gas resumed a strong downward trend that benefited the Fund’s short natural gas positions, while crude oil prices climbed which benefited the Fund’s long oil positions. In the metals sector, the base metals including nickel, copper, aluminum and zinc all profited on rising prices.

 

April

 

A Units of the Fund were up 1.48% for the month of April and B Units were up 1.63%. The Fund finished higher this month as profits in energy products, interest rate instruments and currencies offset losses in agricultural commodities, equity indices and metals. The most significant gains came from the energy sector. Oil prices continued to rise, which benefited the Fund’s long positions, while the Fund’s short positions in natural gas realized profits as prices trended lower. Rating agencies lowered credit ratings on sovereign debt for Greece, Portugal and Spain. In a flight to safety, U.S. treasury prices and the U.S. dollar rallied while European currencies and debt instrument prices fell, generating profits for the Fund in each of those markets. U.S. equity markets continued to trend higher, but profits from those markets were offset by losses from long positions in foreign equity indices.

 

May

 

A Units of the Fund were down 6.38% for the month of May and B Units were down 6.25%. While disappointing, this wasn’t a surprise given the sharp turnaround in the global stock and bond markets caused by the sovereign debt crisis in Europe. Losses in energy products and equity indices offset gains in interest rate instruments and metals. Long positions in the energy sector were responsible for the most significant losses as commodity prices fell on heightened concerns over the European debt crisis. U.S. Treasury instrument prices trended higher, while stock indices and energy prices fell in an apparent flight to safety. While the increase in the price of interest rate instruments was profitable for the Fund’s long positions, the sharp reversals in both energy products and equities went against established upward trends in those markets, which generated losses. Base metal prices also reversed course, which resulted in a loss. Those losses, however, were tempered by gains in the Fund’s long positions in gold, aluminum and zinc.

 

June

 

A Units of the Fund were down 0.60% for the month of June and B Units were down 0.45%. The Fund finished lower this month as profits in interest rate instruments were offset by losses in equity indices, currencies, and commodities. The Fund’s most significant gains came from long positions in the interest rate instrument sector as concerns over the sovereign debt crisis in Europe and slow economic growth in the U.S. continued to dominate market sentiment. U.S. Treasury yields and short-term interest rates fell, which also generated strong profits in the sector. Global indices continued to drift lower which went against the Fund’s long positions. Over the past several weeks, the Fund’s long equity index positions have been systematically reduced in response to the market downturn. In currencies, a sudden rise in the euro and British Pound went against the Fund’s short positions generating losses.

 

July

 

A Units of the Fund were down 1.55% for the month and B Units were down 1.40%. The Fund finished lower this month as profits from interest rate instruments were offset by losses in commodities and global equity indices. The Fund’s most significant gains came from its long positions in the interest rate instrument sector. Although there were some positive signs in global markets, including successful outcomes from stress tests at major European banks, the combination of government stimulus spending declining or ending in many countries along with slow economic growth, has renewed fears of deflation. Global interest rates continued to edge lower creating profits from rising interest rate instrument prices. Precious metals reversed from last month’s highs, including gold which fell to a six-week low, going against the Fund’s long positions. Although U.S. equity prices enjoyed a modest rally this month, global indices were mixed. By the end of the month, the Fund netted losses in the sector.

 

19
 

 

August

 

A Units of the Fund were up 3.62% for the month and B Units were up 3.78%. The Fund finished higher this month led by profits in interest rate instruments, energy products, metals and currencies. The most significant gains came from long positions in interest rate instruments. Concerns over a weak U.S. economy, along with perceived threats of a “double-dip” recession, sent yields lower, including 10-year Treasury bonds and 10-year UK gilts, which saw their lowest level since March 2009. Global stock indices continued to move sideways without strong trends. In the energy sector, the Fund’s short positions in natural gas profited from its sustained downward trend. The metals sector benefited from long positions in precious metals, including gold and platinum.

 

September

 

A Units of the Fund were up 2.78% for the month and B Units were up 2.93%. The Fund finished higher this month with profits in equity indices, agricultural commodities, metals and currencies offsetting losses in interest rate instruments and energy products. The most significant gains came from long positions in equity indices. Global equity prices continued to move higher in September which benefited the Fund’s positions. Both industrial and precious metals prices trended higher, generating profits for the Fund’s long positions in gold, silver and copper. The U.S. dollar trended lower against several foreign currencies, with the Australian dollar generating the most profits in the sector. Early in the month, interest rate instruments prices fell which generated early losses for the sector. However, prices rallied toward the end of the month after the Fed’s comments on quantitative easing. The late rally in interest rate instruments benefited the Fund’s long positions, but it was not enough to offset earlier losses. In the energy sector, the Fund’s short positions in natural gas profited from a sustained downward trend, but a sharp rise in crude oil went against the Fund’s short positions, resulting in a net loss for that sector.

 

October

 

A Units of the Fund were up 4.12% for the month and B Units were up 4.27%. The Fund finished higher this month with profits in four of the six major market sectors. The most significant gains came from long positions in global stock indices driven by upward trends in the DAX, S&P 500, Russell 2000 and FTSE 100. In currencies, the rise in the Japanese yen, Australian dollar, Mexican peso and New Zealand dollar were responsible for generating the most profits from that sector. The combination of rising Chinese agricultural imports, lower inventories and a weaker U.S. dollar helped push agricultural commodity prices higher, which benefited the Fund’s long positions. Corn prices climbed to 2-year high, soybeans reached their highest price since July 2008, and sugar prices hit a 30-year high. Precious metals also trended higher, adding additional profit’s from that sector.

 

November

 

A Units of the Fund were down 3.18% for the month and B Units were down 3.04%. The Fund finished lower this month as losses from interest rate instruments, currencies and agriculturals offset gains in metals. The most significant losses came from the Fund’s long positions in interest rate instruments, where rice reversals caused by a rise in rates followed growing concerns over Irish sovereign debt in Europe and its threat to impact other EU nations including Portugal and Spain. In addition, there was a rise in short term U.S. interest rates that followed the Federal Reserve’s action of buying U.S. debt instruments in another round of quantitative easing. The net effect was that the fall in prices went against the Fund’s widely held long positions. The Irish debt crisis also pushed the euro lower relative to other foreign currencies, while the U.S. dollar reversed its downward direction. The sudden reversals in currencies went against the Fund’s positions, generating additional losses for the Fund. Metals, including gold, silver and copper, continued higher this month, generating profits for the Fund’s long positions.

 

December

 

A Units of the Fund were up 5.03% for the month and B Units were up 5.19%. The Fund finished higher this month with profits from all sectors with the exception of interest rate instruments. The most significant gains came from the Fund’s long positions in equity indices as equity prices continued to trend higher for the past two quarters. Foreign currencies were profitable for the Fund, driven by trends in international cross currencies resulting from a decline in the euro and British pound combined with rising Australian dollar and Japanese yen prices. Strong upward price trends in the metals markets also fueled profits for the Fund’s long positions in copper, silver, gold and aluminum. In agricultural commodities rising prices in coffee, soybeans, corn and sugar each contributed additional profits. Interest rate instrument prices went against the Fund’s long positions which generated losses.

 

20
 

 

2009

 

January

 

A Units of the Fund were up 0.61% for the month of January 2009 and B Units were up 0.76%. January ended with the Fund realizing profits in five out of nine market sectors. In contrast to the trends of the last few months, many of the markets traded by the Fund were directionless. General optimism after the Obama transition along with government intervention into the world’s financial markets seemed to dampen the steady declines in equity prices experienced in recent quarters. The energy sector was profitable, driven by gains from crude oil and natural gas, whose prices continued to decline on slowing demand and rising inventory levels. Similarly, industrial metals such as aluminum, nickel and zinc also declined due to inventory build-ups, benefiting the Fund’s short positions. In foreign currencies, the U.S. dollar strengthened as risk adverse investors continued to seek the perceived safety of the U.S. currency. Interest rate instruments edged lower during the month which went against the Fund’s long bond positions.

 

February

 

A Units of the Fund were down 0.11% for the month of February 2009 and B Units were up 0.04%.The Fund ended the month essentially flat as most markets continued to trade within relatively narrow price ranges. Global equity markets continued to decline amid further weak economic data and a deepening recession. This decline benefited the Fund’s short positions in equity indices. The energy sector finished with modest profits from short positions in natural gas and heating oil. Agricultural commodities were profitable, despite some losses from a sharp reversal in cocoa markets. Foreign currencies experienced losses this month due to the weakening of the Japanese yen relative to the U.S. dollar. The yen rose about 30% between August 2008 and the start of February, then switched direction against the U.S. dollar and other major currencies.

 

March

 

A Units of the Fund were down 3.09% for the month of March 2009 and B Units were down 2.95%. During March prices moved against established trends and the Fund’s positions. After equity markets reached a new 12 year low, markets reversed and showed some signs of recovery. The rising equity indices, including the S&P 500, DAX and Nikkei 225 Index, moved against the Fund’s short positions, resulting in losses for the Fund. The U.S. dollar fell sharply following the U.S. Treasury Department’s announcement that it planned to repurchase toxic assets, in an effort to help stimulate bank lending. Most foreign currencies strengthened against the U.S. dollar moving against the Fund’s short foreign currency positions. In the interest rate instrument markets, prices settled higher adding some profit to the Fund’s long positions in that sector.

 

April

 

A Units of the Fund were down 1.94% for the month of April 2009 and B Units were down 1.79%. The Fund finished lower in April as most markets continued to move within narrow trading ranges without exhibiting any significant trends. One exception was in the energy sector where natural gas prices continued in a downward trend generating profits for the Fund’s short positions. A rally in global equities that began in March continued through April. The rising equity prices generated profits for the Fund’s long positions in this sector which helped to offset losses from other sectors. The Fund’s biggest losses came from interest rate instruments, where prices in medium to long term bonds fell, which went against the Fund’s long positions. Industrial metals prices rose toward the end of the month, with aluminum and nickel moving against the Fund’s short positions creating some losses. Agricultural commodities ended flat for the month.

 

May

 

A Units of the Fund were up 1.41% for the month of May 2009 and B Units were up 1.56%. The Fund finished higher this month as profits realized from equity indices, foreign currencies, interest rate instruments, metals and agricultural commodities offset losses incurred in the energy sector. The Fund’s largest profits came from long positions in equity indices which continued to trend higher during the month. The most significant losses derived from the energy sector, which saw sharp price movements in natural gas that went against the Fund’s short positions. The Fund’s long positions in crude oil generated profits that helped reduce losses experienced from natural gas contracts. Interest rate instruments were mixed as rising prices on short term interest rate instruments were profitable, while a sell-off in longer term fixed income markets went against the Fund’s long positions. Profits in foreign currencies came from the Fund’s long positions in the Australian dollar, Swiss franc and South African rand.

 

21
 

 

June

 

A Units of the Fund were down 3.01% for the month of June 2009 and B Units were down 2.87%. The Fund finished lower in June as gains in equity indices, energies, foreign currencies and agricultural commodities were offset by losses from interest rate instruments and metals. The most significant losses occurred in the Fund’s short-term interest rate positions, where prices reversed from previous longer term trends. A sharp sell-off in Eurodollar, short sterling and euribor contracts was fueled by speculation that global central banks may begin to increase short-term interest rates to counteract potential inflationary pressures. The sudden drop in interest rate instrument prices went against the Fund’s long positions. Also in interest rates, weaker than expected forecasts for Japan’s economy sent Japanese government bond (JGB) prices higher, which was a reversal from the price trend in that market. The higher prices generated losses in the Fund’s short JGB positions. Commodity markets rallied during the month which benefited the Fund’s long positions in agricultural commodities, but resulted in losses for short positions in the metals sector. Long positions in the energies were profitable as oil prices made new highs for the year.

 

July

 

A Units of the Fund were down 0.72% for the month of July 2009 and B Units were down 0.57%. Profits from equity indices, metals and foreign currencies were not sufficient to offset losses from energy products and agricultural commodities. Equity markets were volatile as they initially fell early in the month in response to poor economic data in the U.S. By mid-month increased optimism about the global economy pushed equity markets to eight month highs. The rising global equity prices generated profits for the Fund’s long positions. The Fund’s long positions in base metals, including aluminum, nickel and copper, benefited from upward trends in those markets that also generated profits. In energy markets heating oil and gasoline prices continued to move sideways and generated losses for the Fund’s positions in this sector.

 

August

 

A Units of the Fund were up 1.41% for the month of August 2009 and B Unit’s were up 1.56%. It was a positive month for the Fund as all major sectors posted a profit with the exception of currencies. Performance was led by the Fund’s long positions in equity indices as further signs of economic recovery pushed equity prices higher. Globally, central banks indicated that near-term interest rate hikes were unlikely. In response, prices of short term interest rate instruments increased which benefited the Fund’s long positions. Price increases in sugar, wheat and corn contracts generated profits for the Fund’s long positions in agricultural commodities. Due to a drop in global supply, sugar prices hit a 28-year high as heavy rains in India and Brazil dampened inventory. Weak demand and increased production continued to send natural gas prices lower. Natural gas prices have fallen 84% in the last 13 months, which generated profits for the Fund’s short positions. Long positions in gasoline and crude oil were also profitable.

 

September

 

A Units of the Fund were up 1.98% for the month of September 2009 and B Unit’s were up 2.13%. It was a positive month for the Fund as profits from interest rate instruments, foreign currencies and metals offset losses in the energy sector. Performance was led by the Fund’s long positions in interest rate instruments. Prices in both short-term instruments and long-term bonds have been trending higher since mid-August as central banks continue to signal that interest rates will remain low. The foreign currency sector generated profits as long positions in foreign currencies and short positions in the U.S. dollar were profitable. The USD declined to a twelve-month low versus the euro and an eight-month low versus the yen. In the energy sector, natural gas rallied over 30% from a seven year low despite strong inventory data. The sudden increase in gas prices went against the Fund’s short positions, generating losses for the Fund.

 

22
 

 

October

 

A Units of the Fund were down 3.22% for the month of October 2009 and B Units were down 3.08%. It was a negative month for the Fund as losses from equity indices, interest rates, currencies and agricultural sectors offset modest profits realized from positive performance in metals and energies. The early weeks of the month were characterized by rising global equity and commodity prices and a declining US dollar, which generated profits for the Fund positions in their respective sectors. However, in the final week of October, uncertainty over global economic growth and central bank policies led to sharp price reversals in several market sectors. Falling prices in global indices went against the Fund’s long positions, while the sudden rise in the US dollar generated losses for the Fund’s long positions in several foreign currencies, including the Canadian dollar, British pound and Japanese yen. Agricultural commodity prices also reversed course, including sugar, corn, soybeans and wheat, which generated losses. Rising metals prices were the most profitable trades for the Fund, led by gold, zinc and copper. Rising crude oil prices benefited the Fund’s long positions.

 

November

 

A Units of the Fund were up 4.83% for the month of November 2009 and B Units were up 4.99%. It was a positive month as profits were realized from all six market sectors. The largest profits came from the interest rate sector. Here, the Fund’s long positions in long- and short-term interest rate instruments benefited from upward price trends. Within the sector, the Fund’s long positions in eurodollars were most profitable. In metals, long positions in gold and silver generated the most significant profits as a weaker dollar pushed precious and base metal prices higher, including gold, which hit an all-time high. Global equity prices trended higher, which generated profits for long positions in that sector, including the S&P 500, NASDAQ, FTSE and Japanese Topix indices.

 

December

 

A Units of the Fund were down 4.93% for the month of December 2009 and B Units were down 4.78%. The Fund finished lower this month as losses from interest rate instruments, energy products, foreign currencies and metals offset profits from equity indices and agricultural commodities. The Fund’s most significant losses came from its long positions in interest rate instruments. Early in the month, short-term interest rates rose suddenly on speculation that the Federal Reserve might speed up its timetable for increasing its target rate. In the energy sector, a long downward trend in natural gas prices unexpectedly reversed. Natural gas prices hit an 11-month high as government data showed lower than expected U.S. inventories. This sharp price increase went against the Fund’s short natural gas positions, which resulted in a loss. In equity indices, the Fund generated profits from its long positions as the stock market rally that began in early March continued through December.

 

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 and forward currency 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 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 commodity trading advisors were 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 minimizes market risk through diversification of the portfolio allocations to multiple trading advisors, and maintenance of a margin-to-equity ratio that rarely exceeds 30%.

 

In addition to subjecting the Fund to market risk, upon entering into futures and forward currency 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, as is the case with some foreign exchanges, it is normally backed by a consortium of banks or other financial institutions.

 

In the case of forward currency contracts, which are traded on the interbank market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a group of financial institutions, thus there may be a greater counterparty risk. The General Partner utilized only those counterparties that it believes to be creditworthy for the Fund. All positions of the Fund are valued each day on a mark-to-market basis. There can be no assurance, however, that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Fund.

 

23
 

The Fund invests in U.S. Treasury securities, U.S. and foreign government sponsored enterprise notes, certificates of deposit, commercial paper and corporate notes. 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 consolidated financial statements.

 

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

 

Item 7A.Quantitative and Qualitative Disclosures about Market Risk

 

Introduction

 

The Fund is a speculative commodity pool. The market-sensitive instruments held by it are acquired for speculative trading purposes, and all or a substantial amount of the Fund's assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Fund's main line of business.

 

Market movements result in frequent changes in the fair value of the Fund's open positions and, consequently, in its earnings and cash flow. The Fund's market risk is influenced by a wide variety of factors, including the level and volatility of exchange rates, interest rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Fund's open positions and the liquidity of the markets in which it trades.

 

The Fund rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Fund's past performance cannot be relied on as indicative of its future results.

 

Standard of Materiality

 

Materiality as used in this section, "Quantitative and Qualitative Disclosures about Market Risk," is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, and multiplier features of the Fund's market sensitive instruments.

 

Quantifying the Fund’s Trading Value at Risk

 

The following quantitative disclosures regarding the Fund's market risk exposures contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

 

Value at Risk is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Fund's speculative trading and the recurrence in the markets traded by the Fund to market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Fund's experience to date (i.e., "risk of ruin"). Risk of ruin is defined to be no more than a 5% chance of losing 20% or more on a monthly basis. In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the Fund's losses in any market sector will be limited to Value at Risk or by the Fund's attempts to manage its market risk.

 

24
 

 

The Fund's risk exposure in the various market sectors traded by the Fund’s Trading Advisors is quantified below in terms of Value at Risk. Due to mark-to-market accounting, any loss in the fair value of the Fund's open positions is directly reflected in the Fund's earnings.

 

Exchange margin requirements have been used by the Fund as the measure of its Value at Risk. Margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95% - 99% of any one-day interval. The margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.

 

In the case of market sensitive instruments that are not exchange-traded (includes currencies, certain energy products and metals), the margin requirements required by the forward counterparty is used as Value at Risk.

 

In quantifying the Fund's Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been aggregated to determine each trading category's aggregate Value at Risk. The diversification effects resulting from the fact that the Fund's positions are rarely, if ever, 100% positively correlated, have not been reflected.

 

Value at Risk as calculated herein may not be comparable to similarly titled measures used by others.

 

The Fund’s Trading Value at Risk in Different Market Sectors

 

The following table indicates the trading Value at Risk associated with the Fund's open positions by market sector at December 31, 2011 and 2010. All open position trading risk exposures of the Fund have been included in calculating the figures set forth below. At December 31, 2011 and 2010, the Fund's total capitalization was $1,482,656,104 and $1,401,627,694, respectively.

 

   December 31, 
   2011   2010 
       % of Total       % of Total 
Market Sector  Value at Risk   Capitalization   Value at Risk   Capitalization 
                 
Agricultural commodities  $14,326,308    0.97%  $17,909,018    1.28%
Currencies   39,181,399    2.64    52,897,225    3.77 
Energy products   16,421,733    1.11    24,625,833    1.76 
Interest rates   67,417,861    4.55    18,406,255    1.31 
Metals   22,681,640    1.53    16,124,426    1.15 
Single stock futures   1,582,289    0.11    35,438    0.00 
Stock indices   29,852,293    2.01    47,021,043    3.35 
Total  $191,463,523    12.92%  $177,019,238    12.62%

 

Material Limitations on Value at Risk as an Assessment of Market Risk

 

The face value of the market sector instruments held by the Fund is typically many times the applicable margin requirement (margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Fund. The magnitude of the Fund's open positions creates a risk of ruin not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions - unusual, but historically recurring from time to time - could cause the Fund to incur severe losses over a short period of time. The foregoing Value at Risk tables, as well as the past performance of the Fund, gives no indication of this risk of ruin.

 

25
 

 

Non-Trading Risk

 

The Fund has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as the market risk they represent) are immaterial to the Fund as a whole. The Fund also has non-trading market risk as a result of investing a substantial portion of its available assets in U.S. Treasury securities, U.S. government sponsored enterprise notes, commercial paper, corporate notes and certificates of deposit. Although these investments are considered to be high quality, some of the securities purchased are neither guaranteed by the U.S. government nor supported by the full faith and credit of the U.S. government. There is some risk that a security issuer may fail to pay the interest and principal in a timely manner, or that negative perceptions about the issuer’s ability to make such payments will cause the price of these instruments to decline in value.

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regarding the Fund's market risk exposures - except for those disclosures that are statements of historical fact and the descriptions of how the Fund manages its primary market risk exposures - constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, (“1933 Act”) and Section 21E of the Securities Exchange Act of 1934, (“1934 Act”). The Fund's primary market risk exposures as well as the strategies used and to be used by the Fund’s Trading Advisors for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Fund's risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Fund's current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Fund.

 

The following were the primary trading risk exposures of the Fund as of December 31, 2011 and 2010, by market sector.

 

Agricultural Commodities

 

The Fund’s primary agricultural exposure is due to price movements in agricultural commodities, which are often directly affected by severe or unexpected weather conditions as well as other factors. The Fund's agricultural exposure is primarily to cotton, coffee, cocoa, rubber, corn, soybeans, sugar and wheat.

 

Currencies

 

The Fund's currency risk exposure is due to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Fund trades various currencies, including cross-rates (i.e., positions between two currencies other than the U.S. dollar). The General Partner does not anticipate that the risk profile of the Fund's currency sector will change significantly in the future.

 

Energy Products

 

The Fund's primary energy market exposure is due to gas and oil price movements, often resulting from political developments, ongoing conflicts or production disruptions in the Middle East and other oil producing nations. Crude oil, heating oil, unleaded gas and natural gas are the dominant energy market exposures of the Fund. Oil and gas prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.

 

Interest Rate Instruments

 

Interest rate risk is a significant market exposure of the Fund. Interest rate movements directly affect the price of the sovereign bond futures positions held by the Fund and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Fund's profitability. The Fund's primary interest rate exposure is to interest rate fluctuations in the U.S., Japan, Great Britain, the European Economic Union, Sweden, Canada, Australia and New Zealand. The General Partner anticipates that interest rates fluctuations will remain the primary market exposure of the Fund for the foreseeable future.

 

Metals

 

The Fund's metals market exposure is primarily due to fluctuations in the price of aluminum, copper, gold, silver, nickel, platinum, lead and zinc.

 

26
 

 

Single Stock Futures

 

The Fund has a very small exposure to Single Stock Futures (“SSF”). The Fund’s SSF exposure is primarily due to adverse price movements in the underlying stock.

 

Stock Indices

 

The Fund's primary equity exposure is due to equity price risk in many countries other than the U.S. Additionally, the Fund bears the risk that static markets would not cause major market changes but would make it difficult for the Fund to avoid being "whipsawed" into numerous small losses. The stock index futures traded by the Fund are limited to futures on broadly based indices. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major Australian, Canadian, European, Hong Kong, Japanese and U.S. indices.

 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following were the significant non-trading risk exposures of the Fund as of December 31, 2011 and 2010.

 

Foreign Currency Balances

 

The Fund's primary foreign currency balances are in euros, Japanese yen, British pounds, Australian dollars, Hong Kong dollars and Canadian dollars. The Fund controls the non-trading risk of these balances by regularly converting these balances back into dollars (no less frequently than once a week).

 

U.S. Treasury Securities, U.S. and Foreign Government Sponsored Enterprise Notes, Commercial Paper, Corporate Notes and Certificates of Deposit

 

Monies in excess of margin requirements are invested in fixed income instruments, including U.S. Treasury securities, U.S. and foreign government sponsored enterprise notes, commercial paper, corporate notes and certificates of deposit. Fluctuations in prevailing interest rates could cause immaterial mark-to-market gains or losses on the Fund's investments; although substantially all of these investments are held to maturity.

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

The means by which the Fund and the Fund’s Trading Advisors, severally, attempt to manage the risk of the Fund's open positions is essentially the same in all market sectors traded. The Fund’s Trading Advisors apply risk management policies to their respective trading which generally limit the total exposure that may be taken. In addition, the Trading Advisors generally follow proprietary diversification guidelines (often formulated in terms of the balanced volatility between markets and correlated groups).

 

The Fund is unaware of any (i) anticipated known demands, commitments or capital expenditures; (ii) material trends, favorable or unfavorable, in its capital resources; or (iii) trends or uncertainties that will have a material effect on operations. From time to time, certain regulatory agencies have proposed increased margin requirements on futures contracts. Because the Fund generally will use a small percentage of assets as margin, the Fund does not believe that any increase in margin requirements, as proposed, will have a material effect on the Fund's operations.

 

Item 8.Financial Statements and Supplementary Data

 

Financial statements meeting the requirements of Regulation S-X appear in Part IV of this report. The supplementary financial information specified by Item 302 of Regulation S-K is included in this report under the heading "Selected Financial Data" above.

 

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

None.

 

27
 

 

Item 9A.Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

Management’s Annual Report on Internal Control over Financial Reporting

 

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

 

The Fund’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. 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 United States, 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 consolidated financial statements.

 

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

 

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

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in internal control over financial reporting that occurred during the year ended December 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

Item 9B.Other Information

 

None.

 

PART III

 

Item 10.Directors, Executive Officers and Corporate Governance

 

Directors and Executive Officers

 

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

 

28
 

 

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.

 

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

 

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

 

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

 

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

 

Since February 29, 2004, Steben & Company, Inc. has acted as general partner to another Maryland limited partnership, Sage Fund Limited Partnership, an SEC registrant under the 1934 Act whose shares are privately offered. Since March 27, 2007, Steben & Company, Inc. has acted as general partner of a Delaware limited partnership, Seneca Global Fund, L.P., whose units of limited partner interests are registered with the SEC pursuant to a public offering. Since March 1, 2011, Steben & Company, Inc. has acted as a manager of a Delaware limited liability company, Steben Institutional Fund LLC. Because Steben & Company, Inc. serves as the sole general partner or manager of these funds, the officers and directors of Steben & Company, Inc. effectively manage the respective funds.

 

29
 

 

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) would need to take charge of the General Partner.

 

Family Relationships

 

None.

 

Business Experience

 

See “Item 10. Directors, Executive Officers and Corporate Governance” above.

 

Involvement in Certain Legal Proceedings

 

None.

 

Promoters and Control Persons

 

Not applicable.

 

Section 16 (A) Beneficial Ownership Reporting Compliance

 

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

 

Code of Ethics

 

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

 

Item 11.Executive Compensation

 

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

 

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

 

§General Partner Management Fee – the Fund incurs a monthly fee on Class A and B Units equal to 1/12th of 1.75% of the month-end net asset value of the Class A and B Units, payable in arrears. Prior to December 1, 2010, the General Partner management fee was 1.95%. During 2011, 2010 and 2009, the General Partner earned $26,123,720, $23,477,737 and $18,920,212, respectively, in General Partner management fees.

 

§Selling Agent Fees – the Class A Units incur a monthly fee equal to 1/12th of 2% of the month-end net asset value of the Class A Units and such amounts are included in Selling Agent fees – General Partner in the consolidated statements of operations. The General Partner, in turn, pays the selling agent fee to the respective selling agents. If there is no designated selling agent or the General Partner was the selling agent, such portions of the selling agent fee are retained by the General Partner.

 

30
 

 

§Broker Dealer Servicing Fees – the Class B Units incur a monthly fee equal to 1/12th of 0.20% of the month-end net asset value of the Class B Units and such amounts are included in Selling Agent fees – General Partner in the consolidated statements of operations. The General Partner, in turn, pays the fee to the respective selling agents. If there is no designated selling agent or the General Partner was the selling agent, such portions of the broker dealer servicing fee are retained by the General Partner. During 2011, 2010 and 2009, the General Partner earned $19,182,712, $16,206,868 and $13,294,827, respectively, in Selling Agent and Broker Dealer Servicing Fees.

 

Additionally, each year the General Partner receives from the Fund 1% of any net income earned by the Fund or pays to the Fund 1% of any net loss incurred by the Fund. For the year ended December 31, 2011, the General Partner paid the Fund $1,356,695 for the General Partner 1% allocation. For the year ended December 31, 2010, the General Partner received from the Fund $1,017,537 for the General Partner 1% allocation. For the year ended December 31, 2009, the General Partner paid the Fund $639,856 for the General Partner 1% allocation.

 

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The Fund has no officers or directors as its affairs are managed by the General Partner. Set forth in the table below is information regarding the beneficial ownership of the officers and directors of the Fund’s General Partner at February 29, 2012. There are no securities authorized for issuance under an equity compensation plan.

 

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

 

At February 29, 2012, the General Partner did not own any Units. At February 29, 2012, the directors, executive officers and principals of the General Partner beneficially owned Class B Units as follows: 

 

           Percentage of  
Name  Units Owned   Value of Units   Limited Partnership 
John H. Grady   57.8938   $359,279    0.02%
Kenneth E. Steben   39.6245    245,903    0.02%
Michael D. Bulley   15.9425    98,936    0.01%
Carl A. Serger   7.9253    49,183    0.00%
Neil D. Menard   4.3721    27,133    0.00%
Total directors and executive officers of the General Partner as a group   125.7582   $780,434    0.05%

 

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 in control of the Fund.

 

Item 13.Certain Relationships and Related Transactions, and Director Independence

 

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

 

Item 14.Principal Accountant Fees and Services

 

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

 

31
 

 

Fee Category  2011   2010 
Audit fees(1)  $185,000   $185,000 
Audit-related fees        
Tax fees(2)   41,000    50,000 
All other fees        
Total fees  $226,000   $235,000 

 

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

(2)Tax fees consist of fees for the preparation of original tax returns.

 

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

 

PART IV

 

Item 15.Exhibits and Financial Statement Schedules

 

Consolidated Financial Statements

 

Futures Portfolio Fund, Limited Partnership

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Financial Condition as of December 31, 2011 and 2010

Consolidated Condensed Schedule of Investments as of December 31, 2011

Consolidated Condensed Schedule of Investments as of December 31, 2010

Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009

Consolidated Statements of Changes in Partners’ Capital (Net Asset Value) for the Years Ended December 31, 2011, 2010 and 2009

Notes to Consolidated Financial Statements

 

Financial statement schedules not included in this Form 10-K have been omitted for the reason that they are not required or are not applicable or that equivalent information has been included in the financial notes or statements thereto.

 

Exhibits.

 

The following exhibits are filed herewith or incorporated by reference.

 

Exhibit Number Description of Document
   
1.1* Form of Selling Agreement.
   
3.1* Maryland Certificate of Limited Partnership.
   
4.1* Limited Partnership Agreement.
   
10.1* Form of Subscription Agreement.
   
16.1* Letter regarding change in certifying accountant.
   
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
   

 

 

 

* Incorporated by reference to the corresponding exhibit to the Registrant’s registration statement (File no. 000-50728) filed on April 29, 2004 on Form 10 under the 1934 Act, as amended.

 

32
 

 

SIGNATURES

 

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

 

Name Title

Date

 

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

 

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

 

Dated March 28, 2012 Futures Portfolio 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

 

33
 

 

Report of Independent Registered Public Accounting Firm

 

To the Partners of

Futures Portfolio Fund, Limited Partnership

 

We have audited the accompanying consolidated statements of financial condition, including the consolidated condensed schedule of investments, of Futures Portfolio Fund, Limited Partnership (the “Fund”), as of December 31, 2011 and 2010, and the related consolidated statements of operations, cash flows, and changes in partners’ capital (net asset value) for each of the three years in the period ended December 31, 2011. These consolidated financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated 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 the 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 presentation. We believe that our audits provide a reasonable basis for our opinion.

 

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

 

  /s/ McGladrey & Pullen, LLP

 

Chicago, Illinois

March 28, 2012

 

F-1
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Statements of Financial Condition

December 31, 2011 and 2010

 

   2011   2010 
Assets          
Equity in broker trading accounts          
Cash  $371,351,829   $426,420,669 
Net unrealized gain on open futures contracts   38,413,627    52,816,088 
Net unrealized gain on open forward currency contracts   271,390    8,559,334 
Interest receivable   4,449    67,580 
Total equity in broker trading accounts   410,041,295    487,863,671 
Cash and cash equivalents   24,490,690    292,250,426 
Investments in securities, at fair value   996,835,815    677,543,053 
Certificates of deposit, at fair value   94,924,443     
General Partner 1% allocation receivable   1,356,695     
Total assets  $1,527,648,938   $1,457,657,150 
           
Liabilities and Partners’ Capital (Net Asset Value)          
Liabilities          
Trading Advisor management fees payable  $2,061,196   $2,266,651 
Trading Advisor incentive fees payable       13,050,625 
Commissions and other trading fees payable on open contracts   202,327    141,733 
Cash Manager fees payable   364,930     
General Partner management fee payable   2,199,413    2,067,522 
General Partner 1% allocation payable       1,017,537 
Selling Agent fees payable – General Partner   1,585,090    1,535,969 
Administrative expenses payable – General Partner   576,321    531,847 
Redemptions payable   22,127,237    11,807,236 
Subscriptions received in advance   15,876,320    23,610,336 
Total liabilities   44,992,834    56,029,456 
Partners’ Capital (Net Asset Value)          
Class A Interests – 192,640.4151 units and 172,138.6872 units outstanding at December 31, 2011 and 2010, respectively   872,169,401    858,255,331 
Class B Interests – 99,309.8890 units and 81,701.8729 units outstanding at December 31, 2011 and 2010, respectively   610,486,703    543,372,363 
Total partners' capital (net asset value)   1,482,656,104    1,401,627,694 
Total liabilities and partners' capital (net asset value)  $1,527,648,938   $1,457,657,150 

  

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

 

F-2
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments

December 31, 2011

 

       Description    Fair Value     % of
Partners'
Capital
(Net Asset
Value)
 
Investments in Securities                 
U.S. Treasury Securities                
 Face Value   Maturity Date  Name  Yield1          
$9,000,000   3/8/12  US Treasury Bills  0.20 %  $8,999,688    0.61%
 2,000,000   3/8/12  US Treasury Bills  0.12 %   1,999,930    0.13%
 1,250,000   2/29/12  US Treasury Notes  0.88 %   1,255,377    0.08%
 500,000   3/31/12  US Treasury Notes  4.50 %   511,073    0.03%
 9,700,000   4/30/12  US Treasury Notes  4.50 %   9,914,187    0.67%
 3,000,000   5/31/12  US Treasury Notes  4.75 %   3,069,885    0.21%
 11,750,000   6/15/12  US Treasury Notes  1.88 %   11,856,216    0.80%
 500,000   7/15/12  US Treasury Notes  1.50 %   507,236    0.03%
 500,000   7/31/12  US Treasury Notes  0.63 %   502,856    0.03%
 925,000   8/31/12  US Treasury Notes  0.38 %   927,811    0.06%
 7,500,000   9/30/12  US Treasury Notes  0.38 %   7,521,537    0.51%
 9,825,000   10/31/12  US Treasury Notes  3.88 %   10,192,371    0.69%
 800,000   11/15/12  US Treasury Notes  1.38 %   809,958    0.05%
 4,600,000   11/30/12  US Treasury Notes  0.50 %   4,616,745    0.31%
 5,670,000   1/15/13  US Treasury Notes  1.38 %   5,776,455    0.39%
 7,000,000   2/15/13  US Treasury Notes  1.38 %   7,129,595    0.48%
 2,500,000   4/15/13  US Treasury Notes  1.75 %   2,558,934    0.17%
 Total U.S. Treasury securities (cost:  $78,729,280)         78,149,854     5.25%
                  
U.S. Government Sponsored Enterprise Notes               
 Face Value   Maturity Date  Name  Yield1          
$1,160,000   5/28/13  Federal Farm Credit Bank  0.28 %   1,160,902    0.08%
 500,000   4/2/12  Federal Home Loan Bank  0.17 %   500,071    0.03%
 3,500,000   5/18/12  Federal Home Loan Bank  1.13 %   3,517,884    0.24%
 4,500,000   6/20/12  Federal Home Loan Bank  1.88 %   4,538,326    0.31%
 250,000   6/27/12  Federal Home Loan Bank  0.25 %   250,098    0.02%
 400,000   7/25/12  Federal Home Loan Bank  0.25 %   400,609    0.03%
 6,800,000   8/10/12  Federal Home Loan Bank  0.35 %   6,804,988    0.46%
 6,400,000   8/22/12  Federal Home Loan Bank  1.75 %   6,501,618    0.44%
 5,250,000   8/28/12  Federal Home Loan Bank  0.44 %   5,254,569    0.35%
 3,800,000   10/5/12  Federal Home Loan Bank  0.31 %   3,802,799    0.26%
 3,250,000   1/16/13  Federal Home Loan Bank  1.50 %   3,312,699    0.22%
 3,000,000   3/27/13  Federal Home Loan Bank  1.00 %   3,033,171    0.20%
 300,000   8/23/13  Federal Home Loan Bank  0.70 %   300,856    0.02%
 6,700,000   1/9/13  Federal Home Loan Mortgage Corp.  1.38 %   6,821,306    0.46%
 3,250,000   8/22/13  Federal Home Loan Mortgage Corp.  0.60 %   3,258,171    0.22%
 7,300,000   9/23/13  Federal Home Loan Mortgage Corp.  0.55 %   7,301,980    0.49%
 5,300,000   9/30/13  Federal Home Loan Mortgage Corp.  0.55 %   5,303,028    0.36%
 5,000,000   10/25/13  Federal Home Loan Mortgage Corp.  0.60 %   5,006,190    0.34%
 4,250,000   7/30/12  Federal National Mortgage Association  1.13 %   4,292,881    0.29%
 14,500,000   10/30/12  Federal National Mortgage Association  0.50 %   14,542,565    0.98%
 Total U.S. government sponsored enterprise notes (cost:  $86,007,781)      85,904,711     5.80%

 

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

 

F-3
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2011 

 

        Description     Fair Value    % of
Partners'
Capital
(Net Asset
Value) 
 
Foreign Government Sponsored Enterprise Notes               
 Face Value   Maturity Date  Name  Yield1            
$2,800,000   1/23/12  African Development Bank  1.88 %  $2,825,080    0.19%
 3,200,000   3/21/12  European Investment Bank  4.63 %   3,267,754    0.22%
 1,000,000   6/11/12  Soc. de Financement de l'Economie Francaise  2.25 %   1,005,116    0.07%
  Total foreign government sponsored enterprise notes (cost: $7,208,542)      7,097,950    0.48%
                
Commercial Paper              
 Face Value   Maturity Date  Name  Yield1            
U.S. Automobile                
$3,500,000   1/9/12  BMW US Capital, LLC  0.38 %   3,499,704    0.24%
 260,000   1/19/12  BMW US Capital, LLC  0.40 %   259,948    0.02%
  U.S. Banks                      
 3,400,000   2/15/12  Credit Suisse (USA), Inc.  0.45 %   3,398,088    0.23%
 200,000   3/19/12  Goldman Sachs Group, Inc.  0.55 %   199,762    0.01%
 4,250,000   1/27/12  HSBC USA Inc.  0.20 %   4,249,031    0.29%
 3,300,000   1/27/12  National Australia Funding (Delaware) Inc.  0.28 %   3,299,357    0.22%
 250,000   1/4/12  Standard Chartered Bank  0.20 %   249,995    0.02%
 4,000,000   2/8/12  Standard Chartered Bank  0.36 %   3,998,480    0.27%
 250,000   2/6/12  Union Bank, National Association  0.18 %   249,955    0.02%
U.S. Beverages                   
 2,550,000   2/2/12  Anheuser-Busch InBev Worldwide Inc.  0.25 %   2,549,433    0.17%
 250,000   3/5/12  The Coca-Cola Company  0.20 %   249,933    0.02%
U.S. Charity                   
 4,000,000   1/19/12  The Salvation Army  0.12 %   3,999,760    0.27%
 200,000   1/25/12  The Salvation Army  0.10 %   199,987    0.01%
U.S. Computers                   
 3,550,000   1/9/12  Hewlett-Packard Company  0.45 %   3,549,645    0.24%
U.S. Diversified Financial Services                 
 3,200,000   1/6/12  American Honda Finance Corporation  0.20 %   3,199,911    0.22%
 250,000   2/8/12  American Honda Finance Corporation  0.27 %   249,894    0.02%
 200,000   2/27/12  Caterpillar Financial Services Corporation  0.07 %   199,978    0.01%
 3,300,000   3/5/12  Caterpillar Financial Services Corporation  0.20 %   3,298,827    0.22%
 4,000,000   1/11/12  General Electric Capital Corporation  0.14 %   3,999,978    0.27%
 260,000   1/6/12  ING (U.S.) Funding LLC  0.25 %   259,995    0.02%
 4,000,000   2/27/12  ING (U.S.) Funding LLC  0.35 %   3,997,783    0.27%
 2,000,000   1/6/12  National Rural Utilities Coop.  0.09 %   1,999,975    0.13%
 3,000,000   1/6/12  Nordea Investment Mgmt North America, Inc.  0.32 %   2,999,867    0.20%
 4,000,000   1/24/12  PACCAR Financial Corp.  0.07 %   3,999,821    0.27%
 250,000   2/15/12  Private Export Funding Corporation  0.11 %   249,966    0.02%
 3,232,000   1/13/12  River Fuel Company #2, Inc.  0.28 %   3,231,698    0.22%
 250,000   1/13/12  River Fuel Trust 1  0.35 %   249,967    0.02%
 3,400,000   1/20/12  Toyota Motor Credit Corporation  0.20 %   3,399,641    0.23%

 

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

 

F-4
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2011 

 

       Description    Fair Value      % of
Partners'
Capital
(Net Asset
Value)
 
Commercial Paper (continued)                 
Face Value   Maturity Date  Name   Yield1             
U.S. Energy                        
$4,000,000   1/4/12  NextEra Energy Capital Holdings, Inc.  0.46%  $3,999,847     0.27 %
 280,000   1/11/12  NextEra Energy Capital Holdings, Inc.  0.50%   279,965     0.02 %
 4,300,000   1/12/12  Oglethorpe Power Corporation  0.17%   4,299,777     0.29 %
 3,500,000   1/4/12  The Southern Company  0.15%   3,499,956     0.24 %
 260,000   1/11/12  The Southern Company  0.17%   259,988     0.02 %
 250,000   1/4/12  Questar Corporation  0.18%   249,996     0.02 %
 3,300,000   1/20/12  Questar Corporation  0.25%   3,299,565     0.22 %
U.S. Food                        
 4,250,000   1/5/12  Kellogg Company  0.19%   4,249,910     0.29 %
U.S. Insurance                    
 3,240,000   1/10/12  Metlife Funding, Inc.  0.07%   3,239,927     0.22 %
 3,500,000   2/13/12  New York Life Capital Corporation  0.13%   3,499,457     0.24 %
U.S. Manufacturing                   
 3,350,000   1/23/12  Emerson Electric Co.  0.07%   3,349,857     0.23 %
U.S. Mining                    
 3,000,000   1/17/12  BHP Billiton Finance (USA) Limited  0.16%   2,999,787     0.20 %
 250,000   1/24/12  BHP Billiton Finance (USA) Limited  0.13%   249,979     0.02
U.S. Telecommunication                   
 4,000,000   1/3/12  Verizon Communications Inc.  0.37%   3,999,918     0.27 %
Foreign Banks                    
 3,750,000   2/7/12  Australia and New Zealand Banking Group  0.25%   3,749,036     0.25 %
 4,250,000   1/25/12  Bank of Tokyo-Mitsubishi UFJ, Ltd.  0.29%   4,249,178     0.29 %
 3,200,000   1/17/12  Commonwealth Bank of Australia  0.30%   3,199,473     0.22 %
 3,000,000   1/23/12  DNB Bank ASA  0.37%   2,999,413     0.20 %
 4,000,000   1/12/12  John Deere Credit Inc. (Canada)  0.10%   3,999,878     0.27 %
 4,250,000   1/17/12  Mizuho Funding LLC  0.20%   4,249,622     0.29 %
 4,300,000   3/8/12  Oversea-Chinese Banking Corp.  0.53%   4,295,759     0.29 %
 4,000,000   1/27/12  Sumitomo Mitsui Banking Corp.  0.24%   3,999,307     0.27 %
Foreign Energy                    
 4,000,000   1/11/12  GDF Suez  0.21%   3,999,767     0.27 %
 4,350,000   1/3/12  Pacific Gas and Electric Company  0.40%   4,349,903     0.29 %
 270,000   1/4/12  BP Capital Markets P.L.C.  0.23%   269,995     0.02 %
 1,100,000   1/17/12  BP Capital Markets P.L.C.  0.28%   1,099,853     0.07 %
 3,000,000   2/21/12  BP Capital Markets P.L.C.  0.26%   2,998,895     0.20 %
Foreign Government Sponsored Enterprise                
 3,750,000   2/14/12  Corporacion Andina de Fomento  0.33%   3,748,485     0.25 %
Foreign Healthcare                    
 250,000   1/10/12  Covidien International Finance S.A.  0.21%   249,987     0.02 %
 3,000,000   2/10/12  Covidien International Finance S.A.  0.25%   2,999,167     0.20 %

 

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

 

F-5
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2011

 

       Description    Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
Commercial Paper (continued)           
Face Value   Maturity Date  Name  Yield1          
Foreign Telecommunication                
$4,000,000   2/16/12  Telstra Corporation Limited  0.23 %  $3,998,824    0.27%
 Total commercial paper (cost:  $153,184,421)      153,224,850    10.37
               
Corporate Notes              
Face Value   Maturity Date  Name  Yield1            
U.S. Aerospace                   
$2,937,000   4/1/12  McDonnell Douglas Corporation  9.75 %   3,073,320    0.21%
 4,275,000   11/20/12  Boeing  1.88 %   4,328,732    0.29%
 1,750,000   2/15/13  Boeing  5.13 %   1,868,615    0.13%
U.S. Agriculture                   
 5,850,000   8/13/12  Archer-Daniels-Midland Company  0.61 %   5,864,274    0.40%
U.S. Apparel                   
 2,325,000   8/23/13  V.F. Corporation  1.25 %   2,332,109    0.16%
U.S. Automotive                   
 1,000,000   9/14/12  PACCAR Inc  1.72 %   1,009,200    0.07%
U.S. Banks                   
 15,000,000   1/30/14  Bank of America  1.85 %   13,590,732    0.92%
 7,602,000   7/27/12  BB&T Corporation  3.85 %   7,851,227    0.53%
 4,000,000   12/28/12  Citibank, N.A.  1.75 %   4,061,719    0.27%
 10,000,000   4/1/14  Citigroup Inc.  1.30 %   9,456,391    0.64%
 6,525,000   7/2/12  Credit Suisse AG (NY)  3.45 %   6,709,392    0.45%
 10,000,000   1/14/14  Credit Suisse AG (NY)  1.36 %   9,708,314    0.65%
 7,000,000   10/30/12  GMAC Inc.  1.75 %   7,111,043    0.48%
 5,200,000   12/19/12  GMAC Inc.  2.20 %   5,302,977    0.36%
 10,000,000   5/2/14  JPMorgan Chase & Co.  1.30 %   9,710,982    0.65%
 3,600,000   6/15/12  KeyBank National Association  3.20 %   3,654,879    0.25%
 2,800,000   6/20/12  Morgan Stanley  1.95 %   2,824,234    0.19%
 4,500,000   4/29/13  Morgan Stanley  1.41 %   4,251,895    0.29%
 10,000,000   1/9/14  Morgan Stanley  0.69 %   9,063,376    0.61%
 190,000   3/23/12  Bank of New York Mellon  0.67 %   189,954    0.01%
 5,000,000   7/28/14  Bank of New York Mellon  0.69 %   4,922,138    0.33%
 10,074,000   1/15/12  Goldman Sachs  6.60 %   10,399,589    0.70%
 1,200,000   2/14/12  Goldman Sachs  5.30 %   1,228,911    0.08%
 13,855,000   2/7/14  Goldman Sachs  1.44 %   12,981,083    0.88%
 4,200,000   10/26/12  U.S. Bank National Association  0.64 %   4,212,590    0.28%
 3,000,000   2/23/12  UBS AG (USA)  1.60 %   3,008,944    0.20%
 1,230,000   3/1/12  Wachovia Corporation  0.68 %   1,231,092    0.08%
 250,000   5/1/13  Wachovia Corporation  2.20 %   255,174    0.02%
 5,250,000   10/23/12  Wells Fargo & Company  5.25 %   5,486,217    0.37%
 5,800,000   1/31/13  Wells Fargo & Company  4.38 %   6,100,740    0.41%

 

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

 

F-6
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2011

 

    Description    Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
Corporate Notes (continued)              
 Face Value   Maturity Date  Name  Yield1            
U.S. Beverages                   
$5,000,000   3/26/13  Anheuser-Busch InBev Worldwide Inc.  1.30 %  $5,025,140    0.34%
 2,350,000   1/27/14  Anheuser-Busch InBev Worldwide Inc.  0.97 %   2,358,879    0.16%
 4,000,000   7/14/14  Anheuser-Busch InBev Worldwide Inc.  0.76 %   3,987,398    0.27%
 1,275,000   3/1/12  Coca-Cola Enterprises, Inc.  3.75 %   1,296,595    0.09%
 6,101,000   8/15/13  Coca-Cola Enterprises, Inc.  5.00 %   6,603,898    0.45%
 1,000,000   7/31/12  PepsiAmericas, Inc.  5.75 %   1,054,245    0.07%
U.S. Chemicals                   
 250,000   8/15/12  Monsanto Company  7.38 %   266,699    0.02%
 2,645,000   11/15/12  Praxair, Inc.  1.75 %   2,673,474    0.18%
U.S. Computers                   
 9,000,000   4/1/14  Dell Inc.  0.97 %   9,075,707    0.61%
 3,663,000   3/1/12  Hewlett-Packard Company  5.25 %   3,751,128    0.25%
 100,000   7/1/12  Hewlett-Packard Company  6.50 %   105,970    0.01%
 2,800,000   5/24/13  Hewlett-Packard Company  0.79 %   2,774,702    0.19%
 4,500,000   5/30/14  Hewlett-Packard Company  0.92 %   4,354,514    0.29%
 3,850,000   9/19/14  Hewlett-Packard Company  2.11 %   3,834,096    0.26%
 750,000   6/15/12  IBM  0.58 %   750,291    0.05%
 550,000   10/15/13  IBM  6.50 %   614,082    0.04%
U.S. Construction                   
 3,420,000   5/21/13  Caterpillar Inc.  0.65 %   3,426,993    0.23%
U.S. Consumer Products                   
 4,250,000   8/15/14  Procter & Gamble  0.70 %   4,281,968    0.29%
 335,000   2/15/12  Kimberly-Clark Corporation  5.63 %   343,930    0.02%
U.S. Diversified Financial Services                
 4,300,000   6/29/12  American Honda Finance Corporation  0.68 %   4,298,974    0.29%
 1,950,000   11/7/12  American Honda Finance Corporation  0.81 %   1,955,395    0.13%
 2,110,000   4/2/13  American Honda Finance Corporation  4.63 %   2,208,666    0.15%
 1,500,000   12/10/12  BlackRock, Inc.  2.25 %   1,522,241    0.10%
 6,335,000   5/24/13  BlackRock, Inc.  0.81 %   6,336,536    0.43%
 250,000   3/15/12  Caterpillar Financial Services Corporation  4.70 %   255,581    0.02%
 2,510,000   4/5/13  Caterpillar Financial Services Corporation  2.00 %   2,565,847    0.17%
 1,600,000   4/1/14  Caterpillar Financial Services Corporation  0.66 %   1,600,652    0.11%
 7,400,000   10/22/12  Citigroup Funding Inc.  1.88 %   7,528,418    0.51%
 1,350,000   12/10/12  Citigroup Funding Inc.  2.25 %   1,376,843    0.09%
 100,000   1/15/12  Credit Suisse (USA), Inc.  6.50 %   103,179    0.01%
 5,555,000   12/28/12  General Electric Capital Corporation  2.63 %   5,689,174    0.38%
 3,800,000   1/8/13  General Electric Capital Corporation  2.80 %   3,923,331    0.26%
 3,400,000   6/19/13  General Electric Capital Corporation  1.16 %   3,404,289    0.23%
 1,000,000   4/7/14  General Electric Capital Corporation  1.01 %   979,780    0.07%
 10,000,000   1/15/14  HSBC Finance Corporation  0.65 %   9,225,830    0.62%
 5,509,000   3/15/12  John Deere Capital Corporation  7.00 %   5,697,541    0.38%

 

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

 

F-7
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2011

 

          Description     Fair Value     % of
Partners'
Capital
(Net Asset
Value)
 
Corporate Notes (continued)                      
  Face Value     Maturity Date   Name   Yield1                  
U.S. Diversified Financial Services (continued)                        
$ 4,500,000     10/1/12   John Deere Capital Corporation   5.25 %   $ 4,715,832       0.32 %
  1,250,000     12/17/12   John Deere Capital Corporation   4.95 %     1,304,601       0.09 %
  157,000     1/15/13   John Deere Capital Corporation   5.10 %     167,771       0.01 %
  6,960,000     7/16/12   Massmutual Global Funding II   3.63 %     7,180,759       0.48 %
  3,714,000     9/27/13   Massmutual Global Funding II   1.07 %     3,699,264       0.25 %
  1,750,000     12/17/12   PACCAR Financial Corp.   1.95 %     1,773,748       0.12 %
  6,517,000     4/5/13   PACCAR Financial Corp.   0.72 %     6,514,016       0.44 %
  3,828,000     2/15/12   Principal Life Global Funding I   6.25 %     3,941,005       0.27 %
  3,800,000     1/15/13   Principal Life Global Funding I   5.25 %     4,045,006       0.27 %
  5,000,000     4/14/14   SSIF Nevada, Limited Partnership   1.10 %     4,932,841       0.33 %
  3,300,000     10/12/12   Toyota Motor Credit Corporation   0.59 %     3,305,595       0.22 %
U.S. Energy                           
  4,171,000     1/15/12   Duke Energy Carolinas, LLC   6.25 %     4,297,840       0.29 %
  2,191,000     10/15/12   NSTAR Electric Company   4.88 %     2,284,590       0.15 %
  1,305,000     10/31/12   Northern Natural Gas Company   5.38 %     1,365,910       0.09 %
  4,500,000     10/15/12   ConocoPhillips   4.75 %     4,679,495       0.32 %
  4,275,000     12/13/13   Occidental Petroleum Corporation   1.45 %     4,352,225       0.29 %
U.S. Food                          
  410,000     6/1/12   Cargill, Incorporated   6.38 %     421,678       0.03 %
  4,725,000     9/15/12   Cargill, Incorporated   5.60 %     4,945,756       0.33 %
U.S. Healthcare                           
  7,743,000     3/1/14   Roche Holdings, Inc.   5.00 %     8,505,438       0.57 %
U.S. Insurance                           
  100,000     1/13/12   Berkshire Hathaway Finance Corporation   0.52 %     100,123       0.01 %
  1,280,000     4/15/12   Berkshire Hathaway Finance Corporation   4.00 %     1,303,645       0.09 %
  1,980,000     1/10/14   Berkshire Hathaway Finance Corporation   0.72 %     1,972,533       0.13 %
  250,000     2/10/12   Berkshire Hathaway Inc.   1.40 %     251,602       0.02 %
  9,750,000     2/11/13   Berkshire Hathaway Inc.   0.88 %     9,794,548       0.66 %
  650,000     5/30/12   Jackson National Life Global Funding   6.13 %     665,616       0.04 %
  350,000     5/8/13   Jackson National Life Global Funding   5.38 %     369,064       0.02 %
  250,000     7/12/12   MetLife Institutional Funding II   0.79 %     250,691       0.02 %
  5,750,000     4/4/14   MetLife Institutional Funding II   1.27 %     5,755,701       0.39 %
  1,000,000     3/15/12   Metropolitan Life Global Funding I   0.80 %     999,812       0.07 %
  7,360,000     9/17/12   Metropolitan Life Global Funding I   2.88 %     7,517,339       0.51 %
  2,800,000     1/11/13   Metropolitan Life Global Funding I   2.50 %     2,866,978       0.19 %
  3,374,000     1/25/13   Monumental Global Funding III   0.59 %     3,328,634       0.22 %
  7,050,000     8/22/12   New York Life Global Funding   0.54 %     7,052,852       0.48 %
  1,550,000     10/16/12   New York Life Global Funding   5.25 %     1,624,441       0.11 %
  5,140,000     12/14/12   New York Life Global Funding   2.25 %     5,213,628       0.35 %
  1,250,000     5/9/13   New York Life Global Funding   4.65 %     1,318,922       0.09 %

 

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

 

F-8
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2011

 

   Description    Fair Value   % of
Partners'
Capital
(Net
Asset
Value)
 
Corporate Notes (continued)            
 Face Value   Maturity Date  Name  Yield1            
U.S. Insurance (continued)                   
$4,610,000   4/15/13  Pacific Life Global Funding  5.15 %  $4,865,363    0.33%
 250,000   1/30/12  Pricoa Global Funding I  0.53 %   250,111    0.02%
 4,500,000   6/25/12  Pricoa Global Funding I  4.63 %   4,575,136    0.31%
 2,450,000   6/26/12  Pricoa Global Funding I  0.70 %   2,441,886    0.16%
 650,000   10/18/12  Pricoa Global Funding I  5.40 %   676,870    0.05%
 105,000   12/14/12  Principal Life Income Fundings  5.30 %   109,546    0.01%
U.S. Internet                   
 3,000,000   5/19/14  Google Inc.  1.25 %   3,049,524    0.21%
U.S. Manufacturing                   
 9,035,000   6/21/13  Danaher Corporation  0.82 %   9,050,435    0.61%
 8,000,000   6/16/14  Eaton Corporation  0.89 %   8,000,738    0.54%
U.S. Media                   
 422,000   3/1/12  Walt Disney Company  6.38 %   434,768    0.03%
 3,700,000   12/1/14  Walt Disney Company  0.88 %   3,719,927    0.25%
U.S. Mining                   
 250,000   3/29/12  BHP Billiton Finance (USA) Limited  5.13 %   256,031    0.02%
U.S. Pharmaceutical                   
 4,275,000   2/10/14  Novartis Capital Corporation  4.13 %   4,643,002    0.31%
 250,000   3/15/13  Pfizer Inc.  5.50 %   268,324    0.02%
U.S. Retail                   
 9,075,000   7/18/14  Target Corporation  0.57 %   9,085,393    0.61%
 4,500,000   2/3/14  Wal-Mart Stores, Inc.  3.00 %   4,795,144    0.32%
 4,775,000   4/15/14  Wal-Mart Stores, Inc.  1.63 %   4,896,448    0.33%
U.S. Semiconductor                   
 950,000   6/15/12  National Semiconductor Corporation  6.15 %   975,883    0.07%
 4,275,000   5/15/13  Texas Instruments Incorporated  0.64 %   4,287,137    0.29%
U.S. Steel                   
 1,579,000   12/1/12  Nucor Corporation  5.00 %   1,642,453    0.11%
U.S. Telecommunications                   
 2,250,000   3/14/14  Cisco Systems, Inc.  0.79 %   2,249,238    0.15%
 5,700,000   3/28/14  Verizon Communications Inc.  1.18 %   5,693,477    0.38%
U.S. Transportation                   
 5,850,000   1/15/13  United Parcel Service, Inc.  4.50 %   6,212,402    0.42%
Foreign Automotive                   
 10,370,000   4/1/14  Volkswagen International Finance N.V.  0.98 %   10,188,377    0.69%
Foreign Banks                   
 2,900,000   12/21/12  ANZ National (Int'l) Limited  2.38 %   2,951,973    0.20%
 10,000,000   1/10/14  BNP Paribas  1.29 %   9,252,056    0.62%
 5,250,000   1/12/12  Commonwealth Bank of Australia  2.40 %   5,311,297    0.36%
 3,000,000   6/29/12  Commonwealth Bank of Australia  0.78 %   2,997,638    0.20%

 

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

 

F-9
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2011

 

 

      Description     Fair Value     % of
Partners'
Capital
(Net Asset
Value)
 
Corporate Notes (continued)                      
  Face Value      Maturity Date     Name   Yield1                   
 Foreign Banks (continued)                    
$ 10,000,000     3/17/14   Commonwealth Bank of Australia   1.29 %   $ 9,844,450       0.66 %
  5,000,000     4/14/14   Danske Bank A/S   1.45 %     4,835,163       0.33 %
  1,150,000     8/3/12   HSBC Bank PLC   0.88 %     1,152,390       0.08 %
  4,300,000     1/18/13   HSBC Bank PLC   0.80 %     4,291,209       0.29 %
  4,150,000     5/15/13   HSBC Bank PLC   0.89 %     4,121,105       0.28 %
  7,225,000     1/13/12   ING Bank N.V.   1.03 %     7,240,784       0.49 %
  9,000,000     3/15/13   ING Bank N.V.   1.60 %     8,797,179       0.59 %
  1,000,000     6/9/14   ING Bank N.V.   1.94 %     959,030       0.06 %
  5,000,000     6/17/13   KfW Bankengruppe   0.29 %     4,998,167       0.34 %
  3,080,000     2/1/12   National Australia Bank Limited   0.68 %     3,082,733       0.21 %
  4,930,000     6/15/12   National Australia Bank Limited   0.75 %     4,932,531       0.33 %
  1,000,000     11/16/12   National Australia Bank Limited   2.35 %     1,013,797       0.07 %
  5,000,000     4/11/14   National Australia Bank Limited   1.11 %     4,962,409       0.33 %
  5,000,000     2/4/13   Rabobank Nederland   0.58 %     5,003,317       0.34 %
  6,850,000     12/12/12   Royal Bank of Canada   0.69 %     6,859,674       0.46 %
  5,250,000     3/8/13   Royal Bank of Canada   0.69 %     5,253,531       0.35 %
  5,250,000     9/14/12   Svenska Handelsbanken AB (publ)   2.88 %     5,344,511       0.36 %
  250,000     3/30/12   Royal Bank of Scotland   1.50 %     250,768       0.02 %
  4,600,000     5/11/12   Royal Bank of Scotland   2.63 %     4,646,211       0.31 %
  6,660,000     7/26/13   Toronto-Dominion Bank   0.60 %     6,657,777       0.45 %
  1,940,000     11/1/13   Toronto-Dominion Bank   0.89 %     1,946,884       0.13 %
  1,100,000     12/14/12   Westpac Banking Corporation   1.90 %     1,111,112       0.07 %
  9,750,000     3/31/14   Westpac Banking Corporation   1.31 %     9,778,684       0.66 %
Foreign Energy                           
  10,200,000     3/10/12   BP Capital Markets P.L.C.   3.13 %     10,345,153       0.70 %
  5,250,000     11/7/13   BP Capital Markets P.L.C.   5.25 %     5,672,336       0.38 %
  5,146,000     3/25/13   Shell International Finance B.V.   1.88 %     5,267,570       0.36 %
Foreign Pharmaceutical                           
  6,000,000     9/15/12   AstraZeneca PLC   5.40 %     6,302,758       0.43 %
  8,065,000     3/28/13   Sanofi   0.77 %     8,073,367       0.54 %
  4,280,000     3/28/14   Sanofi   0.88 %     4,274,412       0.29 %
  10,000,000     3/21/14   Teva Pharmaceutical Finance III BV   1.07 %     9,945,168       0.67 %
Foreign Telecommunication                       
  2,750,000     2/27/12   Vodafone Group Public Limited Company   0.79 %     2,752,365       0.19 %
  Total corporate notes (cost:  $683,232,715)            672,458,450       45.34 %
                             
Total investments in securities (cost:  $1,008,362,739)         $ 996,835,815       67.24 %

 

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

  

F-10
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2011

 

     Description    Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
Certificates of Deposit                   
 Face Value   Maturity Date  Name  Yield1            
U.S. Banks                   
$300,000   2/17/12  Barclays Bank PLC (NY)  0.47 %  $300,581    0.02%
 250,000   4/26/12  Canadian Imperial Bank of Commerce (NY)  0.37 %   249,983    0.02%
 4,750,000   11/5/12  Canadian Imperial Bank of Commerce (NY)  0.64 %   4,754,513    0.32%
 5,950,000   4/4/12  Deutsche Bank Aktiengesellschaft (NY)  0.45 %   5,964,488    0.40%
 5,000,000   3/5/12  Mizuho Corporate Bank, Ltd. (NY)  0.48 %   5,001,707    0.34%
 2,000,000   2/6/12  Nordea Bank Finland PLC (NY)  0.38 %   2,003,377    0.14%
 1,000,000   5/8/12  Nordea Bank Finland PLC (NY)  0.40 %   1,001,824    0.07%
 7,600,000   11/13/12  Nordea Bank Finland PLC (NY)  0.65 %   7,568,387    0.51%
 4,650,000   4/5/12  Norinchukin Bank (NY)  0.55 %   4,655,368    0.31%
 6,250,000   3/1/13  PNC Bank, National Association  0.63 %   6,204,312    0.42%
 5,250,000   2/3/12  Shizuoka Bank, Ltd. (NY)  0.49 %   5,254,920    0.35%
 6,900,000   5/3/12  Westpac Banking Corporation (NY)  0.40 %   6,918,477    0.47%
 2,650,000   6/21/12  Westpac Banking Corporation (NY)  0.41 %   2,654,894    0.18%
Foreign Banks                   
 2,250,000   10/3/13  Bank of Montreal  0.82 %   2,254,624    0.15%
 4,500,000   1/17/12  Bank of Nova Scotia  0.32 %   4,510,802    0.30%
 4,600,000   6/11/12  Bank of Nova Scotia  0.74 %   4,602,636    0.31%
 2,600,000   10/18/12  Bank of Nova Scotia  0.70 %   2,608,055    0.18%
 2,000,000   11/20/12  Bank of Nova Scotia  0.74 %   2,003,035    0.14%
 5,050,000   1/17/12  Bank of Tokyo-Mitsubishi UFJ, Ltd.  0.36 %   5,058,937    0.34%
 2,500,000   3/5/12  Norinchukin Bank  0.54 %   2,500,737    0.17%
 1,750,000   4/2/12  Rabobank Nederland  0.37 %   1,750,115    0.12%
 250,000   3/15/13  Royal Bank of Canada  2.25 %   255,138    0.02%
 5,000,000   6/1/12  Sumitomo Mitsui Banking Corporation  0.65 %   5,001,388    0.34%
 5,250,000   1/24/12  Svenska Handelsbanken AB  0.38 %   5,253,930    0.35%
Foreign Government Sponsored Enterprise                
 6,600,000   5/25/12  Caisse Amortissement de la Dette Socia  0.43 %   6,592,215    0.44%
 Total certificates of deposit (cost:  $94,910,523)      $94,924,443    6.41%

 

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

 

F-11
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2011

 

 Description    Fair Value     % of
Partners'
Capital
(Net Asset
Value) 
 
Open Futures Contracts             
Long U.S. Futures Contracts             
  Agricultural commodities  $ 427,903   0.03%
  Currencies    2,763,257   0.19%
  Energy products    123,077   0.01%
  Interest rates    5,715,227   0.39%
  Metals    (8,991,504)  (0.61)%
  Single stock futures    36,323   0.00%
  Stock indices     422,180   0.03%
Net unrealized gain on open long U.S. futures contracts    496,463   0.04
            
Short U.S. Futures Contracts             
  Agricultural commodities    (3,414,866)  (0.23)%
  Currencies    3,441,210   0.23%
  Energy products    7,238,690   0.49%
  Interest rates    (1,544,262)  (0.10)%
  Metals    6,509,575   0.44%
  Single stock futures    (16,613)  (0.00)%
  Stock indices    175,914   0.01%
Net unrealized gain on open short U.S. futures contracts    12,389,648  0.84
            
Total U.S. Futures Contracts - Net unrealized gain on open U.S. futures contracts    12,886,111  0.88
            
Long Foreign Futures Contracts             
  Agricultural commodities    196,300   0.01%
  Currencies    (18,010)  (0.00)%
  Energy products    31,956   0.00%
  Interest rates2    18,859,653   1.27%
  Metals    (164,515)  (0.01)%
  Stock indices    1,196,625   0.08%
Net unrealized gain on open long foreign futures contracts    20,102,009  1.35

 

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

 

F-12
 

 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2011

 

  Description  Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
Short Foreign Futures Contracts              
  Agricultural commodities  $824,214   0.06
  Currencies   3,635,127   0.25
  Energy products   13,933   0.00
  Interest rates   (234,143)  (0.02 )% 
  Metals   677,586   0.05
  Stock indices   508,790   0.03
Net unrealized gain on open short foreign futures contracts   5,425,507   0.37
           
Total foreign futures contracts - net unrealized gain on open foreign futures contracts   25,527,516   1.72
           
Net unrealized gain on open futures contracts  $38,413,627   2.60
           
Open Forward Currency Contracts              
U.S. Forward Currency Contracts              
   Long  $1,455,228   0.10
   Short   (973,780)  (0.07 )% 
Net unrealized gain on open U.S. forward currency contracts   481,448   0.03
           
Foreign Forward Currency Contracts              
   Long   (1,593,950)  (0.11 )% 
   Short   1,383,892   0.09
Net unrealized loss on open foreign forward currency contracts   (210,058)  (0.02 )% 
           
Net unrealized gain on open forward currency contracts  $271,390   0.01

  

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 or forward currency 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 consolidated financial statements.

 

F-13
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2010

 

      Description   Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
Investments in Securities                   
U.S. Treasury Security                   
  Face Value  Maturity Date  Name   Yield1            
80,000,000  1/13/11  U.S. Treasury Bill   0.25%  $79,993,333   5.71 %
  U.S. Treasury security (cost: $79,805,000)         79,993,333   5.71
                         
U.S. Government Sponsored Enterprise Note                
  Face Value  Maturity Date  Name   Yield1            
75,132,000  3/23/11  Federal Home Loan Mortgage Corporation   0.27%  $75,086,357   5.36
  U.S. government sponsored enterprise note (cost: $75,000,707)        75,086,357   5.36
Commercial Paper                   
  Face Value  Maturity Dates  Name   Yield1            
U.S. Banks                      
60,000,000  5/24/11  Barclays US Funding LLC   0.57%  $59,864,150   4.27
  22,158,000  8/19/11  UBS Finance (Delaware) LLC   0.49%   22,088,633   1.58
U.S. Diversified Financial Services                   
  74,107,000  5/27/11  ING (U.S.) Funding LLC   0.57%   73,935,689   5.27
  32,000,000  5/16/11  Toyota Motor Credit Corporation   0.39%   31,953,200   2.28
Foreign Banks                      
  55,000,000  1/28/11  Commonwealth Bank of Australia   0.36%   54,985,150   3.92
  35,000,000  1/31/11  HSBC Finance Corp.   0.60%   34,982,500   2.50
  67,521,000  4/13/11  HSBC Finance Corp.   0.63%   67,400,475   4.81
Foreign Consumer Products                   
  75,000,000  2/7/11  Reckitt Benckiser Treasury Services PLC   0.32%   74,975,334   5.35
Foreign Energy                      
  102,508,000  4/1/11-7/11/11  Shell International Finance B.V.   0.53%-0.69%   102,278,232   7.30
  Total commercial paper (cost:  $521,448,130)        522,463,363   37.28
                  
  Total investments in securities (cost:  $676,253,837)       $677,543,053   48.35

 

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

 

F-14
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2010

 

  Description  Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
Open Futures Contracts           
Long U.S. Futures Contracts           
  Agricultural commodities  $13,165,181   0.94
  Currencies   7,670,918   0.55
  Energy products   11,760,545   0.84
  Interest rates   1,052,750   0.08
  Metals 2   27,501,487   1.96
  Single stock futures   7,816   0.00
  Stock indices   1,703,171   0.12
Net unrealized gain on open long U.S. futures contracts   62,861,868   4.49
           
Short U.S. Futures Contracts           
  Agricultural commodities   (1,237,450)  (0.09 )% 
  Currencies   (1,511,655)  (0.11 )% 
  Energy products   (5,384,762)  (0.38 )% 
  Interest rates   (841,009)  (0.06 )% 
  Metals 2   (17,274,015)  (1.23 )% 
  Stock indices   121,975   0.01
Net unrealized loss on open short U.S. futures contracts   (26,126,916)  (1.86 )% 
           
Total U.S. futures contracts - net unrealized gain on open U.S. futures contracts   36,734,952   2.63
           
Long Foreign Futures Contracts           
  Agricultural commodities   1,367,853   0.10
  Currencies   948,518   0.07
  Energy products   1,142,528   0.08
  Interest rates   1,539,476   0.11
  Metals   353,032   0.03
  Stock indices   (541,376)  (0.04 )% 
Net unrealized gain on open long foreign futures contracts   4,810,031   0.35
           
Short Foreign Futures Contracts           
   Agricultural commodities   (228,077)  (0.02 )% 
   Currencies   12,849,530   0.92
   Interest rates   (1,594,631)  (0.11 )% 
   Stock indices   244,283   0.02
Net unrealized gain on open short foreign futures contracts   11,271,105   0.81
           
Total foreign futures contracts - net unrealized gain on open foreign futures contracts   16,081,136   1.16
           
Net unrealized gain on open futures contracts  $52,816,088   3.79

 

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

 

F-15
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Condensed Schedule of Investments (continued)

December 31, 2010

 

  Description  Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
Open Forward Currency Contracts           
U.S. Forward Currency Contracts           
  Long  $2,498,957   0.18 %
  Short   229,704   0.02
Net unrealized gain on open U.S. forward currency contracts   2,728,661   0.20
               
Foreign Forward Currency Contracts           
  Long   537,826   0.04
  Short   5,292,847   0.38
Net unrealized gain on open foreign forward currency contracts   5,830,673   0.42
               
Net unrealized gain on open forward currency contracts  $8,559,334   0.62

 

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 or forward currency 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 consolidated financial statements.

 

F-16
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Statements of Operations

Years Ended December 31, 2011, 2010 and 2009

 

   2011   2010   2009 
Trading Gain (Loss) from Futures and Forwards               
Net realized gain (loss)  $(19,473,968)  $135,714,953   $23,148,928 
Net change in unrealized gain (loss)   (22,690,405)   49,800,401    (21,714,702)
Brokerage commissions and trading expenses   (4,371,804)   (3,380,928)   (2,755,996)
Net gain (loss) from futures and forwards trading   (46,536,177)   182,134,426    (1,321,770)
                
Net Investment Loss               
Income (loss)               
Interest income   11,686,695    1,275,110    1,810,461 
Net realized and change in unrealized loss on securities and certificates of deposit   (14,508,604)   1,844,790    2,673,818 
Total income (loss)   (2,821,909)   3,119,900    4,484,279 
Expenses               
Trading Advisor management fees   23,433,566    17,963,623    14,548,153 
Trading Advisor incentive fees   9,895,806    18,108,464    14,005,308 
Cash Manager fees   851,317         
General Partner management fee   26,123,720    23,477,737    18,920,212 
Selling Agent fees – General Partner   19,182,712    16,206,868    13,294,827 
General Partner 1% allocation   (1,356,695)   1,017,537    (639,856)
Administrative expenses – General Partner   6,824,331    9,612,707    8,789,611 
Total expenses   84,954,757    86,386,936    68,918,255 
Administrative expenses waived       (1,868,756)   (2,410,018)
Net total expenses   84,954,757    84,518,180    66,508,237 
Net investment loss   (87,776,666)   (81,398,280)   (62,023,958)
Net Income (Loss)  $(134,312,843)  $100,736,146   $(63,345,728)

 

   2011   2010   2009 
   Class A   Class B   Class A   Class B   Class A   Class B 
Increase (decrease) in net asset value per unit for the year  $(458.39)  $(503.38)  $316.97   $532.63   $(350.09)  $(342.01)
                               
Net income (loss) per unit (based on weighted average number of units outstanding during the year)  (468.10  (512.15  349.19   622.25   (354.49  (339.13
                               
Weighted average number of units outstanding   186,655.9584    91,650.8857    161,284.3651    71,380.8863    128,033.3107    52,957.8978 

 

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

 

F-17
 

 

Futures Portfolio Fund, Limited Partnership

Consolidated Statements of Cash Flows

Years Ended December 31, 2011, 2010 and 2009

 

   2011   2010   2009 
Cash flows from operating activities               
Net income (loss)  $(134,312,843)  $100,736,146   $(63,345,728)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities               
Net change in unrealized (gain) loss from futures and forwards trading   22,690,405    (49,800,401)   21,714,702 
Purchases of securities and certificates of deposit   (2,717,763,460)   (1,212,846,181)   (272,119,196)
Proceeds from disposition of securities and certificates of deposit   2,289,037,651    644,662,567    528,187,995 
Net realized and change in unrealized (gain) loss on securities and certificates of deposit   14,508,604    (1,844,790)   (2,673,818)
Changes in               
Interest receivable   63,131    (53,938)   14,431 
General Partner 1% allocation receivable/payable   (2,374,232)   1,657,393    (2,519,193)
Trading Advisor management fees payable   (205,455)   (96,858)   871,471 
Trading Advisor incentive fees payable   (13,050,625)   11,605,667    (17,326,646)
Commissions and other trading fees payable on open contracts   60,594    24,306    57,113 
Cash Manager fees payable   364,930         
General Partner management fee payable   131,891    335,284    357,495 
Selling Agent fees payable – General Partner   49,121    316,839    248,046 
Administrative expenses payable – General Partner   44,474    (1,204,309)   422,677 
Net cash provided by (used in) operating activities   (540,755,814)   (506,508,275)   193,889,349 
                
Cash flows from financing activities               
Subscriptions   323,789,875    309,875,178    348,606,260 
Subscriptions received in advance   15,876,320    23,610,336    37,057,961 
Redemptions   (121,738,957)   (97,826,979)   (95,038,858)
Net cash provided by financing activities   217,927,238    235,658,535    290,625,363 
                
Net increase (decrease) in cash and cash equivalents   (322,828,576)   (270,849,740)   484,514,712 
Cash and cash equivalents, beginning of year   718,671,095    989,520,835    505,006,123 
Cash and cash equivalents, end of year  $395,842,519   $718,671,095   $989,520,835 
                
End of year cash and cash equivalents consists of               
Cash in broker trading accounts  $371,351,829   $426,420,669   $318,300,203 
Cash and cash equivalents   24,490,690    292,250,426    671,220,632 
Total end of year cash and cash equivalents  $395,842,519   $718,671,095   $989,520,835 
                
Supplemental disclosure of cash flow information               
Prior year redemptions paid  $11,807,236   $5,857,719   $10,448,411 
Prior year subscriptions received in advance  $23,610,336   $37,057,961   $29,937,275 
                
Supplemental schedule of non-cash financing activities               
Redemptions payable  $22,127,237   $11,807,236   $5,857,719 

 

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

 

F-18
 

 

Futures Portfolio Fund, Limited Partnership

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

Years Ended December 31, 2011, 2010 and 2009

 

   Class A Interests   Class B Interests     
   Units   Amount   Units   Amount   Total 
Balance at December 31, 2008   108,989.0639   $547,011,351    44,268.0740   $285,973,913   $832,985,264 
Net loss        (45,386,080)        (17,959,648)   (63,345,728)
Subscriptions   49,772.8589    241,416,577    21,781.4765    137,126,958    378,543,535 
Redemptions   (9,863.1044)   (47,570,031)   (6,803.8627)   (42,878,135)   (90,448,166)
Transfers   (1,446.7298)   (7,037,288)   1,116.8667    7,037,288     
Balance at December 31, 2009   147,452.0886    688,434,529    60,362.5545    369,300,376    1,057,734,905 
Net income        56,319,425         44,416,721    100,736,146 
Subscriptions   37,815.9537    174,841,854    28,178.4636    172,091,285    346,933,139 
Redemptions   (11,895.8661)   (55,629,713)   (7,770.4883)   (48,146,783)   (103,776,496)
Transfers   (1,233.4890)   (5,710,764)   931.3431    5,710,764     
Balance at December 31, 2010   172,138.6872    858,255,331    81,701.8729    543,372,363    1,401,627,694 
Net loss        (87,373,529)        (46,939,314)   (134,312,843)
Subscriptions   40,067.8247    192,617,898    24,019.5573    154,782,313    347,400,211 
Redemptions   (17,269.7094)   (80,670,341)   (8,114.4415)   (51,388,617)   (132,058,958)
Transfers   (2,296.3874)   (10,659,958)   1,702.9003    10,659,958     
Balance at December 31, 2011   192,640.4151   $872,169,401    99,309.8890   $610,486,703   $1,482,656,104 

 

Net Asset Value per Unit 
   Class A   Class B 
December 31, 2011  $4,527.45   $6,147.29 
December 31, 2010   4,985.84    6,650.67 
December 31, 2009   4,668.87    6,118.04 

 

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

 

F-19
 

 

Futures Portfolio Fund, Limited Partnership

Notes to Consolidated Financial Statements

 

1.Organization and Summary of Significant Accounting Policies

 

Description of the Fund

 

Futures Portfolio Fund, Limited Partnership (“Fund”) is a Maryland limited partnership, which operates as a commodity investment pool that commenced trading operations on January 2, 1990. The Fund issues units of limited partner interests (“Units”) in two classes, Class A and Class B, 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 Third Amended and Restated Limited Partnership Agreement (“Partnership Agreement”).

 

The Fund uses commodity trading advisors to engage in the speculative trading of futures contracts, forward currency contracts and other financial instruments traded in the United States (“U.S.”) and internationally.

 

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 the futures brokers and interbank market makers through which the Fund trades.

 

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 advisor 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.

 

The two classes of Units in the Fund differ only in the selling agent and broker dealer servicing fees applicable to each class. Class A Units are subject to a 2% per annum selling agent fee and class B Units are subject to a 0.2% per annum broker dealer servicing fee.

 

During 2011, the Fund made investments totaling $90 million in the Steben Institutional Fund LLC (“SIF”), whose manager is the General Partner. Presently, the Fund is the only member in SIF. Similar to the Fund, SIF uses professional commodity trading advisors to engage in the speculative trading of futures and forward currency contracts traded in the U.S. and internationally. SIF trades within six major market sectors: stock indices, currencies, interest rate instruments, energy products, metals and agricultural commodities. SIF commenced trading on March 1, 2011. SIF incurs trading advisor management and incentive fees, as well as reimburses its manager for operating expenses incurred on its behalf.

 

Significant Accounting Policies

 

Accounting Principles

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

 

Consolidation

The accompanying consolidated financial statements include the accounts of the Fund and SIF, for which the Fund is the sole member. All material intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

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

 

F-20
 

 

Revenue Recognition

Futures, options on futures, forward currency 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 consolidated statements of operations. Unrealized gains and losses on open contracts (the difference between contract trade price and fair value) are reported in the consolidated statements of financial condition as net unrealized gain or loss, as there exists a right of offset of any unrealized gains or losses. The difference between cost and the fair value of open investments in securities and certificates of deposit is reflected as unrealized gain or loss on investments in securities and certificates of deposit. Any change in net unrealized gain or loss on from the preceding period is reported in the consolidated 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 three 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 utilizing Level 1 inputs include futures contracts, U.S. Treasury securities and money market funds.

 

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 utilizing Level 2 inputs include forward currency contracts, commercial paper, certificates of deposit, corporate notes and U.S. and foreign government sponsored enterprise notes.

 

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

 

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

 

The Fund assesses the classification of the instruments at each measurement date, and any transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Fund’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. For the years ended December 31, 2011, 2010 and 2009, 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.

 

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.

 

The investment in a money market fund, included in cash and cash equivalents in the consolidated 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. The fair values of forward currency contracts are based upon third-party quoted dealer values on the interbank market and are classified within Level 2.

 

F-21
 

 

Cash and Cash Equivalents

Cash and cash equivalents may include cash, funds held in money market accounts and 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 are in excess of 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 year end. These redemptions have been recorded using the year 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 examined by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense and asset or liability in the current year. Management has determined there are no material uncertain income tax positions through December 31, 2011. With few exceptions, the Fund is no longer subject to U.S. federal, or state and local income tax examinations by tax authorities for years before 2008.

 

Foreign Currency Transactions

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

 

Reclassification

Certain amounts in the 2010 and 2009 consolidated financial statements have been reclassified to conform to the 2011 presentation without affecting previously reported partners’ capital (net asset value).

 

Recently Issued Accounting Pronouncement

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

 

F-22
 

 

2.Fair Value Disclosures

 

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

 

At December 31, 2011    
   Level 1   Level 2   Total 
Equity in broker trading accounts:               
Net unrealized gain on open futures contracts*  $38,413,627   $   $38,413,627 
Net unrealized gain on open forward currency contracts*       271,390    271,390 
Cash and cash equivalents:               
Money market fund   5,760,099        5,760,099 
Investments in securities:               
U.S. Treasury securities*   78,149,854        78,149,854 
U.S. government sponsored enterprise notes*       85,904,711    85,904,711 
Foreign government sponsored enterprise notes*       7,097,950    7,097,950 
Commercial paper*       153,224,850    153,224,850 
Corporate notes*       672,458,450    672,458,450 
Certificates of deposit*       94,924,443    94,924,443 
Total  $122,323,580   $1,013,881,794   $1,136,205,374 

*See the consolidated condensed schedule of investments for further description.

 

At December 31, 2010    
   Level 1   Level 2   Total 
Equity in broker trading accounts:               
Net unrealized gain on open futures contracts*  $52,816,088   $   $52,816,088 
Net unrealized gain on open forward currency contracts*       8,559,334    8,559,334 
Cash and cash equivalents:               
Money market fund   24,004,531        24,004,531 
Investments in securities:               
U.S. Treasury securities*   79,993,333        79,993,333 
U.S. government sponsored enterprise notes*       75,086,357    75,086,357 
Commercial paper*       522,463,363    522,463,363 
Total  $156,813,952   $606,109,054   $762,923,006 

*See consolidated condensed schedule of investments for further description.

 

There were no Level 3 holdings at December 31, 2011, 2010 and 2009, 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.

 

F-23
 

 

3.Derivative Instruments Disclosures

 

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

 

December 31, 2011  Derivative Assets and Liabilities, at fair value 
Consolidated Statements of Financial Condition Location  Assets   Liabilities   Net 
Equity in broker trading accounts                
Net unrealized gain on open futures contracts               
Agricultural commodities  $4,907,935   $(6,874,384)  $(1,966,449)
Currencies   11,500,940    (1,679,356)   9,821,584 
Energy products   9,356,447    (1,948,791)   7,407,656 
Interest rates   27,554,583    (4,758,108)   22,796,475 
Metals   12,182,871    (14,151,729)   (1,968,858)
Single stock futures   55,232    (35,522)   19,710 
Stock indices   4,557,650    (2,254,141)   2,303,509 
Net unrealized gain on open futures contracts  $70,115,658   $(31,702,031)  $38,413,627 
                
Net unrealized gain on open forward currency contracts  $5,681,721   $(5,410,331)  $271,390 

 

At December 31, 2011, there were 92,423 open futures contracts and 1,716 open forward currency contracts.

 

December 31, 2010  Derivative Assets and Liabilities, at fair value 
Consolidated Statements of Financial Condition Location  Assets   Liabilities   Net 
Equity in broker trading accounts               
Net unrealized gain on open futures contracts               
Agricultural commodities  $14,891,065   $(1,823,558)  $13,067,507 
Currencies   22,299,654    (2,342,343)   19,957,311 
Energy products   13,712,837    (6,194,526)   7,518,311 
Interest rates   4,677,106    (4,520,520)   156,586 
Metals   28,204,597    (17,624,093)   10,580,504 
Single stock futures   7,816        7,816 
Stock indices   5,266,979    (3,738,926)   1,528,053 
Net unrealized gain on open futures contracts  $89,060,054   $(36,243,966)  $52,816,088 
                
Net unrealized gain on open forward currency contracts  $13,258,364   $(4,699,030)  $8,559,334 

 

At December 31, 2010, there were 61,017 open futures contracts and 2,529 open forward currency contracts.

 

F-24
 

 

For the years ended December 31, 2011, 2010 and 2009, the Fund’s futures and forwards contracts had the following impact on the consolidated statements of operations:

 

   2011   2010 
Types of Exposure  Net realized
gain (loss)
   Net change 
in unrealized
gain (loss)
   Net realized
gain (loss)
   Net change 
in unrealized
gain (loss)
 
Futures contracts                    
Agricultural commodities  $(34,695,326)  $(15,033,956)  $19,562,007   $8,749,637 
Currencies   (32,166,401)   (10,135,727)   15,515,295    19,022,122 
Energy products   (25,551,459)   (110,655)   (46,673,673)   6,175,730 
Interest rates   167,808,332    22,639,889    122,081,872    5,370,949 
Metals   3,697,021    (12,549,362)   22,112,677    6,629,891 
Single stock futures   (290,206)   11,894    122,094    15,572 
Stock indices   (99,853,027)   775,456    (1,026,460)   (7,151,848)
Total futures contracts   (21,051,066)   (14,402,461)   131,693,812    38,812,053 
                     
Forward currency contracts   2,146,988    (8,287,944)   4,284,176    10,988,348 
                     
Total futures and forward currency contracts  $(18,904,078)  $(22,690,405)  $135,977,988   $49,800,401 

 

   2009 
Types of Exposure  Net realized
gain (loss)
   Net change 
in unrealized
gain (loss)
 
Futures contracts          
Agricultural commodities  $(3,268,855)  $1,792,584 
Currencies   (8,204,223)   (266,564)
Energy products   (43,882,399)   (592,475)
Interest rates   6,159,982    (25,979,362)
Metals   19,636,364    (3,836,342)
Single stock futures   (91,179)   (7,756)
Stock indices   60,210,817    8,401,268 
Total futures contracts   30,560,507    (20,488,647)
           
Forward currency contracts   (7,450,916)   (1,226,055)
           
Total futures and forward currency contracts  $23,109,591   $(21,714,702)

 

For the years ended December 31, 2011, 2010 and 2009, the number of futures contracts closed was 1,100,279, 768,063 and 591,093, respectively, and the number of forward currency contracts closed was 47,969, 42,586 and 35,256, respectively.

 

4.General Partner

 

At December 31, 2011, 2010 and 2009, and for the years then ended, the General Partner did not maintain a capital balance in the Fund; however, the beneficiary of the sole shareholder of the General Partner had the following investment:

 

Class B Units  2011   2010   2009 
Units Owned   39.6245    39.6245    30.9315 
Value of Units  $243,583   $263,529   $189,240 

 

F-25
 

 

During 2010, the beneficiary of the sole shareholder of the General Partner purchased an additional 8.6930 units for $54,964.

 

The General Partner earns the following compensation:

 

§General Partner Management Fee – the Fund incurs a monthly fee on Class A and Class B Units equal to 1/12th of 1.75% of the month-end net asset value of the Class A and Class B Units, payable in arrears. Prior to December 1, 2010, the General Partner management fee was 1.95% per annum.

 

§Selling Agent Fees – the Class A Units incur a monthly fee equal to 1/12th of 2% of the month-end net asset value of the Class A Units and such amounts are included in Selling Agent fees – General Partner in the consolidated statements of operations. The General Partner, in turn, pays the selling agent fee to the respective selling agents. If there is no designated selling agent or the General Partner was the selling agent, such portions of the selling agent fee are retained by the General Partner.

 

§Broker Dealer Servicing Fees – the Class B Units incur a monthly fee equal to 1/12th of 0.2% of the month-end net asset value of the Class B Units and such amounts are included in Selling Agent fees – General Partner in the consolidated statements of operations. The General Partner, in turn, pays the fee to the respective selling agents. If there is no designated selling agent or the General Partner was the selling agent, such portions of the broker dealer servicing fee are retained by the General Partner.

 

§Administrative Expenses – the Fund incurs a monthly fee equal to 1/12th of 0.45% of the month-end net asset value of the fund, payable in arrears to the General Partner. The General Partner, in turn, pays the administrative expenses of the Fund. See Note 7 for additional information regarding administrative expenses. Prior to December 1, 2010, the Fund would reimburse the General Partner for actual monthly administrative expenses paid to various third-party service providers, including the General Partner, up to 1/12th of 0.65% of the Fund’s month-end net asset value. In addition, SIF incurs administrative fees of 1/12th of 0.15% of the month-end net asset value of the fund, payable in arrears to the General Partner. Such fees amount to less than 0.01% per annum of the Fund’s net asset value.

 

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 consolidated statements of financial condition and as General Partner 1% allocation in the consolidated statements of operations.

 

5.Trading Advisors and Cash Managers

 

The Fund has advisory agreements with various commodity trading advisors, pursuant to which the Fund incurs a monthly advisor management fee that ranges from 0% to 2% per annum of allocated net assets (as defined in each respective advisory agreement), paid monthly or quarterly in arrears. Additionally, the Fund incurs advisor incentive fees, payable quarterly in arrears, ranging from 10% to 30% of net new trading profits (as defined in each respective advisory agreement).

 

Effective April, 1, 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 brokers, subject to CFTC regulations and various exchange and broker requirements. The Fund earns interest income on its assets deposited with brokers. At December 31, 2011 and 2010, the Fund had margin deposit requirements of $175,593,513 and $150,261,236, respectively.

 

F-26
 

 

7.Administrative Expenses

 

Effective December 1, 2010, the Fund incurs a monthly administrative fee equal to 1/12th of 0.45% of the Fund’s month-end net asset value. Prior to December 1, 2010, the Fund would reimburse the General Partner for actual monthly administrative expenses paid to various third-party service providers, including the General Partner, up to 1/12th of 0.65% of the Fund’s month-end net asset value. 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 of the Fund are the responsibility of the General Partner. All of the administrative expenses were below the 1% administrative expense limitation.

 

For the years ended December 31, 2011, 2010 and 2009, the Fund incurred administrative fees or expenses as follows:

 

   2011   2010   2009 
Administrative fee  $6,824,331   $531,847   $ 
Administrative expense reimbursement       9,080,860    8,789,611 
Total administrative expenses   6,828,331    9,612,707    8,789,611 
Administrative expenses voluntarily waived       (1,868,756)   (2,410,018)
Total administrative expenses  $6,824,331   $7,743,951   $6,379,593 

 

At December 31, 2011 and 2010, $576,321 and $531,847, respectively, were payable to the General Partner for administrative expenses. Such amounts are presented as administrative expenses payable – General Partner in the consolidated 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 Class A or Class B Unit as of the close of business on the last day of the month in which the subscription is accepted. Investors whose subscriptions are accepted are admitted as limited partners as of the beginning of the month following the month in which their subscriptions were accepted. At December 31, 2011 and 2010, the Fund received advance subscriptions of $15,876,320 and $23,610,336, respectively, which were recognized as subscriptions to the Fund or returned, if applicable, subsequent to period-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 Class A or Class B 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 other self-regulatory organization regulations.

 

9.Trading Activities and Related Risks

 

The Fund engages in the speculative trading of futures, options and over-the-counter contracts, including forward currency contracts traded in the U.S. and internationally. Trading in derivatives 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 the 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 (or none of) the total cash and other property deposited. The Fund uses Newedge USA, LLC and JP Morgan Securities, LLC as its futures brokers and Newedge UK Financial Limited and UBG AG as its forward currency counterparties.

 

F-27
 

 

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 and forward currency 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 a 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.

 

In the case of forward currency contracts, which are traded on the interbank or other institutional market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a clearinghouse backed by a group of financial institutions; thus there likely will be greater counterparty credit risk. 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 Fund trades forward currency contracts in unregulated markets between principals and assumes the risk of loss from counterparty non-performance. Accordingly, the risks associated with forward currency contracts are generally greater than those associated with exchange-traded contracts because of the greater risk of counterparty default. Additionally, the trading of forward currency contracts typically involves delayed cash settlement.

 

The Fund has a portion of its assets on deposit with interbank market makers and other financial institutions in connection with its trading of forward currency contracts and its cash management activities. In the event of an interbank market maker’s or financial institution’s insolvency, recovery of Fund assets on deposit may be limited to account insurance or other protection afforded such deposits.

 

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. Fluctuations in prevailing interest rates could cause mark-to-market losses on the Fund’s fixed income instruments. Prior to April 2011, the Fund used UBS Financial Services, Inc. and Bank of America Merrill Lynch as its cash management securities brokers for the investment of some excess margin amounts into short-term fixed income instruments.

 

F-28
 

 

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

 

Country or Region  U.S.
Treasury
Securities
   Gov't
Sponsored
Enterprise
Notes
   Commercial
Paper
   Corporate Notes   Certificates
of Deposit
   Total   % of
Partners'
Capital (Net
Asset Value)
 
United States  $78,149,854   $85,904,711   $98,768,308   $482,040,564   $52,532,831   $797,396,268    53.81%
Australia   -    -    10,947,333    43,034,651    -    53,981,984    3.64%
Great Britain   -    -    4,368,743    42,486,268    -    46,855,011    3.16%
Canada   -    -    3,999,878    20,717,866    16,234,290    40,952,034    2.76%
Netherlands   -    -    -    37,456,257    1,750,115    39,206,372    2.64%
France   -    1,005,116    3,999,767    21,599,835    6,592,215    33,196,933    2.24%
Japan   -    -    12,498,107    -    12,561,062    25,059,169    1.69%
Netherland Antilles   -    -    4,349,903    9,945,168    -    14,295,071    0.96%
Sweden   -    -    -    5,344,511    5,253,930    10,598,441    0.71%
Germany   -    -    -    4,998,167    -    4,998,167    0.34%
Denmark   -    -    -    4,835,163    -    4,835,163    0.33%
Singapore   -    -    4,295,759    -    -    4,295,759    0.29%
South America multi-national   -    -    3,748,485    -    -    3,748,485