HSAX PARTNERS, L.P. FINANCIAL STATEMENTS December 31, 2011

Transcription

1 FINANCIAL STATEMENTS December 31, 2011

2 CONTENTS REPORT OF INDEPENDENT ACCOUNTANTS 1 STATEMENTS OF FINANCIAL CONDITION 2 SCHEDULES OF INVESTMENTS 3/9 STATEMENTS OF INCOME 10 STATEMENT OF CHANGES IN PARTNERS' CAPITAL 11 STATEMENTS OF CASH FLOWS 12 NOTES TO FINANCIAL STATEMENTS 13/18

3 DECOSIMO CERTIFIED PUBLIC ACCOUNTANTS Joseph Decosimo and Company, PLLC Suite Two Union Square Chattanooga, TN REPORT OF INDEPENDENT ACCOUNTANTS To the Partners HSAX Partners, L.P. Park City, Utah We have audited the accompanying statements of financial condition of HSAX Partners, L.P., including the schedules of investments, as of December 31, 2011 and 2010, and the related statements of income, changes in partners' capital and cash flows for the year ended December 31, 2011, and the period from February 18, 2010 through December 31, These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HSAX Partners, L.P. as of December 31, 2011 and 2010, and the results of its operations, changes in its partners' capital and its cash flows for the year ended December 31, 2011, and the period from February 18, 2010 through December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Chattanooga, Tennessee March 14,

4 STATEMENTS OF FINANCIAL CONDITION December 31, 2011 and ASSETS Investments in securities, at fair value (cost of $2,404,177 for 2011 and $1,911,283 for 2010) $ 2,392,129 $ 1,905,590 Investments in derivative contracts, at fair value (cost of $77,986 for 2011 and $159,231 for 2010) 48, ,901 Equity in broker trading account - futures contracts - Cash and cash equivalents 60,661 - Variation margin on open futures contracts (806) - Total equity in broker trading account - futures contracts 59,855 - Cash and cash equivalents 671, ,887 Due from broker for investments sold 2,312, ,878 TOTAL ASSETS $ 5,484,847 $ 2,809,256 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Securities sold short, at fair value (proceeds of $29,248 for 2011 and $138,353 for 2010) $ 29,794 $ 138,360 Investments in derivative contracts sold short, at fair value (proceeds of $19,696 for 2011 and $23,308 for 2010) 13,566 21,580 Management fees payable 2, Accrued expenses 7,039 - Withdrawals 30,000 - Due to broker for investments purchased 2,031, ,244 Total liabilities 2,113, ,539 PARTNERS' CAPITAL 3,370,970 2,271,717 TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 5,484,847 $ 2,809,256 2

5 SCHEDULE OF INVESTMENTS December 31, 2011 INVESTMENTS IN SECURITIES % of Fair Partners' Shares Cost Value Capital COMMON STOCK United States Aerospace & Defense Products & Services $ 124,673 $ 123, % Appliances 23,331 23, Biotechnology 43,518 33, Catalog & Mail Order Houses 60,852 60, Communication Equipment 15,365 14, Diversified Electronics 40,750 38, Independent Oil & Gas Apache Corporation 2, , , Other 67,360 60, Total Independent Oil & Gas 322, , Industrial Metals & Minerals 32,333 33, Internet Information Providers 32,492 32, Medical Appliances & Equipment 73,712 74, Networking & Communication Devices 41,432 40, Oil & Gas Equipment & Services Schlumberger Limited 4, , , Oil & Gas Pipelines 5,322 5, Oil & Gas Refining & Marketing Hess Corporation 6, , , Other 73,333 80, Total Oil & Gas Refining & Marketing 411, , Processed & Packaged Goods Mead Johnson 3, , , Other 24,141 25, Total Processed & Packaged Goods 248, ,

6 SCHEDULE OF INVESTMENTS December 31, 2011 INVESTMENTS IN SECURITIES - continued % of Fair Partners' Shares Cost Value Capital COMMON STOCK - continued United States - continued Security & Protection Services $ 14,612 $ 10, % Semiconductor - Specialized 10,272 10, Specialty Chemicals 73,148 72, Staffing & Outsourcing Services 23,291 19, Toys & Games 80,983 79, Total United States 1,983,537 1,971, Canada Textile - Apparel Clothing 13,171 13, Switzerland Oil & Gas Equipment & Services 43,038 43, Total Common Stock 2,039,746 2,029, DEBT SECURITIES Mortgages EXCHANGE-TRADED FUNDS SPDR Gold 1, , , Other 134, , Total Exchange-Traded Funds 364, , TOTAL INVESTMENTS IN SECURITIES $ 2,404,177 $ 2,392, % INVESTMENTS IN DERIVATIVE CONTRACTS United States Call options purchased Biotechnology $ 9,625 $ 94 - % Exchange Traded Fund 2,510 3, Independent Oil & Gas 8,220 6, Index Fund 6,744 4, Medical Appliances & Equipment 10,051 8, Oil & Gas Refining & Marketing 2,697 1, ,847 24,

7 SCHEDULE OF INVESTMENTS December 31, 2011 % of Fair Partners' Cost Value Capital INVESTMENTS IN DERIVATIVE CONTRACTS - continued United States Put options purchased Exchange Traded Funds $ 15,277 $ 13, % Oil & Gas Pipelines 12,756 2, Processed & Packaged Goods 5,055 4, Total United States 33,088 20, Canada Independent Oil & Gas 5,051 3, INVESTMENTS IN DERIVATIVE CONTRACTS $ 77,986 $ 48, % SECURITIES SOLD SHORT Proceeds Fair Value % of Partners' Capital COMMON STOCK Residential Construction $ 9,898 $ 10, % Resorts & Casinos 19,350 19, TOTAL SECURITIES SOLD SHORT $ 29,248 $ 29, % INVESTMENTS IN DERIVATIVE CONTRACTS SOLD SHORT Call options written United States Biotechnology $ 29 $ 94 - % Exchange Traded Funds 1,380 1, Internet Information Providers 1,879 1, ,288 3,

8 SCHEDULE OF INVESTMENTS December 31, 2011 Proceeds Fair Value % of Partners' Capital INVESTMENTS IN DERIVATIVE CONTRACTS SOLD SHORT - continued Put options written United States Appliances $ 295 $ % Catalog & Mail Order Houses 2,439 1, Drug Manufacturers - Major 1, Exchange Traded Funds 1,449 1, Independent Oil & Gas Medical Appliances & Equipment Money Center Banks Personal Products Processed & Packaged Goods 5,386 3, Resorts & Casinos Restaurants Semiconductor - Broad Line Shipping 1,380 1, Technical & System Software Telecom Services - Domestic Total United States 15,828 9, Bermuda Property & Casualty Insurance ,408 10, TOTAL INVESTMENTS IN DERIVATIVE CONTRACTS SOLD SHORT $ 19,696 $ 13, % 6

9 SCHEDULE OF INVESTMENTS December 31, 2010 % of Fair Partners' Shares Cost Value Capital INVESTMENTS IN SECURITIES COMMON STOCK United States Business Services Visa, Inc. 4,901 $ 345,361 $ 344, % Communication Equipment 52,162 48, Discount, Variety Stores 26,772 26, Diversified Computer Systems Hewlett-Packard Company 6, , , Diversified Electronic American Semiconductor Corp. 7, , , Investment Brokerage - National 4,357 4, Medical Appliances & Equipment 66,092 65, Multimedia & Graphics Software 9,767 9, Oil & Gas Equipment & Services 6,307 6, Personal Computers Dell Computers 11, , , Regional Airlines 13,469 12, Semiconductor - Broad Line 52,424 52, Semiconductor - Integrated Circuits MEMC Electronic Materials Inc. 13, , , Surety & Title Insurance 53,618 59, Total United States 1,399,342 1,399, Israel Carbonation Distribution 68,553 66, Total Common Stock 1,467,895 1,465, DEBT SECURITIES Mortgages EXCHANGE-TRADED FUNDS Brazil Consumer ETF 9,762 10,

10 SCHEDULE OF INVESTMENTS December 31, 2010 INVESTMENTS IN SECURITIES - continued % of Fair Partners' Shares Cost Value Capital PUBLICLY TRADED MUTUAL FUNDS Financial Invesco Van Kampen Trust for Investment Grade Municipals 12,900 $ 175,784 $ 172, % Invesco Van Kampen Municipal Opportunity Trust 7,600 99,095 99, Invesco Van Kampen California Value Municipal Income Trust 6,496 73,434 73, Invesco Van Kampen Trust for Insured Municipals 3,924 47,530 47, Invesco Van Kampen Advantage Municipal Income Trust II 3,300 37,568 37, , , TOTAL INVESTMENTS IN SECURITIES $ 1,911,283 $ 1,905, % INVESTMENTS IN DERIVATIVE CONTRACTS Call options purchased Biotechnology $ 9,625 $ 8, % Business Services 2,310 2, Diversified Computer Systems 9,422 6, Networking & Communication Devices 5,171 5, Personal Computers 75,208 59, Semiconductor - Integrated Circuits 16,852 18, Surety & Title Insurance 12,531 33, , , Put options purchased Biotechnology 9,720 5, Business services 18,392 17, ,112 23, TOTAL INVESTMENTS IN DERIVATIVE CONTRACTS $ 159,231 $ 158, % 8

11 SCHEDULE OF INVESTMENTS December 31, 2010 % of Fair Partners' Shares Proceeds Value Capital SECURITIES SOLD SHORT COMMON STOCK Application Software Microsoft Corp 5,000 $ 138,353 $ 138, % INVESTMENTS IN DERIVATIVE CONTRACTS SOLD SHORT Call options written Business Services $ 3,295 $ 2, % Put options written Aerospace/Defense Products & Services 940 1, Apparel Stores Business Services 15,351 15, Management Services 1,539 1, Medical Appliances & Equipment 1, Semiconductor - Broad Line Semiconductor Integrated Circuits ,013 19, TOTAL INVESTMENTS IN DERIVATIVE CONTRACTS SOLD SHORT $ 23,308 $ 21, % 9

12 STATEMENTS OF INCOME Year Ended December 31, 2011 and Period from February 18, 2010 through December 31, INCOME Dividends $ 36,187 $ 11,734 Other 6, ,946 11,996 OPERATING EXPENSES Professional fees 14,050 - Management fees 15,503 2,019 Interest expense 2,782 2,868 Other 8,249-40,584 4,887 NET INVESTMENT INCOME 2,362 7,109 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on sale of securities (74,621) 295,941 Net realized gain on derivative contracts 248, ,093 Net realized loss on futures contracts (39,340) - Net change in unrealized loss on securities (6,895) (5,700) Net change in unrealized gain (loss) on derivative contracts (24,325) 1,398 Net change in unrealized loss on futures contracts (806) - NET GAIN ON INVESTMENTS 102, ,732 NET INCOME $ 105,243 $ 480,841 10

13 STATEMENT OF CHANGES IN PARTNERS' CAPITAL Year Ended December 31, 2011 and Period from February 18, 2010 through December 31, 2010 General Partner and Affiliates Limited Partners Total Partners' contributions $ 1,575,876 $ 350,000 $ 1,925,876 Partners' withdrawals (135,000) - (135,000) Net income 420,979 59, ,841 Performance allocation 9,212 (9,212) - BALANCE - December 31, ,871, ,650 2,271,717 Partners' contributions - 1,528,221 1,528,221 Partners' withdrawals (454,211) (80,000) (534,211) Net income 149,760 (44,517) 105,243 Performance allocation 2,393 (2,393) - BALANCE - December 31, 2011 $ 1,569,009 $ 1,801,961 $ 3,370,970 11

14 STATEMENTS OF CASH FLOWS Year Ended December 31, 2011 and Period from February 18, 2010 through December 31, OPERATING ACTIVITIES Net income $ 105,243 $ 480,841 Adjustments to reconcile net income to net cash flows from operating activities - Net purchase of investments (864,844) (1,496,532) Net proceeds from securities sold short 54, ,079 Increase in deposit with broker - futures (59,855) - Net realized loss (gain) on sale of securities 74,621 (295,941) Net realized gain on derivative contracts (248,868) (182,093) Net realized loss on futures contracts 39,340 - Net change in unrealized loss on securities 6,895 5,700 Net change in unrealized loss (gain) on derivative contracts 24,325 (1,398) Changes in operating assets and liabilities - Accrued expenses 7,039 - Management fees payable 1, Net cash flows from operating activities (859,504) (1,283,989) FINANCING ACTIVITIES Partners' contributions 1,528,221 1,925,876 Partners' withdrawals (504,211) (135,000) Net cash flows from financing activities 1,024,010 1,790,876 NET CHANGE IN CASH AND CASH EQUIVALENTS 164, ,887 CASH AND CASH EQUIVALENTS - beginning of period 506,887 - CASH AND CASH EQUIVALENTS - end of period $ 671,393 $ 506,887 12

15 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies and practices followed by the Partnership are as follows: DESCRIPTION OF BUSINESS - HSAX Partners, L.P. was organized as a Delaware limited partnership on January 15, 2010, to operate as a private investment partnership. The Partnership commenced operations on February 18, 2010, and will continue from year to year, unless dissolved pursuant to the terms of the partnership agreement or by operation of law. HSAX & Co., LLC serves as the general partner. The Partnership s investment objective is to maximize return on capital with a diversified non-leveraged long and short portfolio. The Partnership views its capital as its inventory, seeking to find that equilibrium between the most efficient inventory turnover and maximum return on investment. BASIS OF PRESENTATION - The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. INVESTMENTS - Investments are stated at fair value which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Generally accepted accounting principles establish a fair value hierarchy which 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). Inputs are broadly defined as assumptions market participants would use in pricing an asset or liability. The Partnership s investments and securities sold short consist entirely of securities that are valued at the last sales prices in active markets for identical securities and are classified within Level 1 of the fair value hierarchy. There were no transfers between levels for 2011 and Purchases and sales of securities are reported on a trade-date basis. Cost for computing realized gains and losses is computed when securities are sold based on the specific identification method. Unrealized gain or loss is the difference between cost and fair value of investment securities' positions held at the measurement date. Dividends on investment securities purchased and sold short are recognized as of the "ex-dividend" date and interest is recognized on the accrual basis. SECURITIES SOLD SHORT - Securities sold short represent obligations of the Partnership to deliver the specified securities and, thereby, create a liability to repurchase the securities in the market at the prevailing prices. The ultimate obligation to satisfy securities sold short may exceed the amount recognized in the statements of financial condition. CASH AND CASH EQUIVALENTS - The Partnership considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. 13

16 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. INCOME TAXES - No provision for income taxes is reflected in the financial statements since the tax effects of the Partnership's income or loss are passed through to the individual partners. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the morelikely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. As of December 31, 2011, the Partnership has not recognized liabilities for uncertain tax positions or associated interest and penalties. The Partnership files a federal income tax return. The Partnership is subject to tax examinations by taxing authorities for tax years 2011 and CONCENTRATIONS OF CREDIT RISK - In the normal course of business, substantially all of the Partnership s securities transactions, money balances and security positions are transacted with the Partnership s broker, TradeStation Securities with J.P. Morgan Clearing Corp. serving as custodian and clearing agent. The Partnership is subject to credit risk to the extent any broker with which it conducts business is unable to fulfill contractual obligations on its behalf. The Partnership s management monitors the financial condition of such brokers and does not anticipate any losses from these counter parties. DUE TO/FROM BROKER - Amounts due from broker may be restricted to the extent that they serve as deposits for securities sold short. Amounts due to broker represent margin borrowings that are collateralized by certain marketable securities. SUBSEQUENT EVENTS - The Partnership has evaluated subsequent events for potential recognition and disclosure through March 14, 2012, the date the financial statements were available to be issued. NOTE 2 - DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, the Partnership utilizes derivative contracts in connection with its proprietary trading activities. Investments in derivative contracts are subject to additional risks that can result in a loss of all or part of an investment. The Partnership s derivative activities and exposure to derivative contracts are classified by the following primary underlying risks: commodity price and equity price risks. In addition to its primary underlying risks, the Partnership is also subject to additional counterparty risk due to inability of its counterparties to meet the terms of their contracts. 14

17 NOTES TO FINANCIAL STATEMENTS NOTE 2 - DERIVATIVE FINANCIAL INSTRUMENTS - continued OPTIONS PURCHASING - When the Partnership purchases an option, an amount equal to the premium paid for the option by the Partnership is recorded as an asset and is subsequently adjusted to the current fair value of the option purchased. Premiums paid from purchasing options that expire are treated by the Partnership on the expiration date as realized losses. The difference between the premium and the amount received on effecting a closing sale transaction, including brokerage commissions, is also treated as a realized loss or, if the premium is less than the amount received on effecting a closing sale transaction, including brokerage commissions, as a realized gain. If a call option is exercised, the premium is added to the cost basis of the underlying securities purchased. If a put option is exercised, the premium paid is subtracted from the proceeds of the sale of the underlying security in determining if the Partnership has a realized gain or loss. As a purchaser of an option, the Partnership's maximum exposure to loss is the amount of the premium paid. The Partnership purchases options frequently to enhance and leverage returns on situations where the Partnership may be reluctant to expose significant capital to volatile situations. Options are sometimes used in hedging strategies as well. Options purchased are valued at their last sales prices in active markets for identical contracts and are classified within Level 1 of the fair value hierarchy. Options purchased are included in the derivative contracts line item on the statements of financial condition and are disclosed by type on the schedules of investments. OPTIONS WRITING - When the Partnership writes an option, an amount equal to the premium received by the Partnership is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Partnership on the expiration date as realized gains. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or, if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Partnership has realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Partnership. The Partnership, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. A covered writer of a call option owns the underlying securities and therefore gives up the opportunity to profit from an increase in the fair value of the underlying securities to a point higher than the exercise price of the option outstanding, but retains the risk of loss if the fair value of the securities declines. The Partnership writes put options frequently specifically selling nearmonth puts at price points in securities that they would be willing to buy at those prices. The Partnership does not employ this strategy to generate income although this is frequently the result of it as they often do not get to put the stock. Call options are written on stocks the Partnership owns to enhance returns. The Partnership rarely writes naked covered calls. Options written are valued at their last sales prices in active markets for identical contracts and are classified within Level 1 of the fair value hierarchy. Options written are included in the derivatives contracts sold short line item in the statements of financial condition and are disclosed by type on the schedules of investments. Both the realized and unrealized gains and losses on derivative contracts are identified separately in the statements of income. 15

18 NOTES TO FINANCIAL STATEMENTS NOTE 2 - DERIVATIVE FINANCIAL INSTRUMENTS - continued Option contract transactions for 2011 and 2010, were as follows: Number of Contracts Premiums Received (Paid) Equity price risk 2011 Options written 6,882 $ 640,359 Options purchased 9,636 $ (1,869,439) 2010 Options written 4,132 $ 222,494 Options purchased 6,967 $ (756,302) FUTURES CONTRACTS - The Partnership may use futures contracts to gain exposure to, or hedge against, changes in the value of equities and commodities, interest rates or foreign currencies. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. The purchase and sale of futures contracts require margin deposits with a Futures Commission Merchant (FCM). Subsequent payments (variation margin) are made or received by the Partnership each day, depending on the daily fluctuations in the value of the contract and are recorded for financial statement purposes as unrealized gains or losses by the Partnership. Futures contracts provide reduced counterparty risk to the Partnership since futures are exchanged-traded; and the exchange's clearinghouse, as the counterparty to all exchange-traded futures, guarantees the futures against default. The Commodity Exchange Act required an FCM to segregate all customer transactions and assets from the FCM's proprietary activities. A customer's cash and other equity deposited with an FCM are considered commingled with all other customer funds subject to the FCM's segregated requirements. In the event of an FCM's insolvency, recovery may be limited to the Partnership's pro rata share of segregated customer funds available. It is possible that the recovery amount could be less than the total cash and other equity deposited. Open futures contracts purchased as of December 31, 2011, consist of: Number of Contracts Fair Value Notional Amount Commodity price risk MAR 12 CBT $5 MN DOW 4 $ 215 $ 61,088 16

19 NOTES TO FINANCIAL STATEMENTS NOTE 2 - DERIVATIVE FINANCIAL INSTRUMENTS - continued Open futures contracts sold as of December 31, 2011, consist of: Number of Contracts Fair Value Notional Amount Commodity price risk FEB 12 NYL MINI GOLD 2 $ 591 $ 104,036 There were no futures contracts traded in NOTE 3 - LIMITED PARTNERSHIP AGREEMENT In accordance with the limited partnership agreement, profits and losses of the Partnership are allocated to the partners according to their respective interests in the Partnership. The limited partnership agreement provides for an annual management fee of 2.0% per annum of limited partners' capital. Management fees are paid monthly in advance to the general partner and are prorated to reflect any capital withdrawals and contributions which occur during a month. The general partner may, in its sole discretion, enter into arrangements with limited partners under which the management fee is reduced, waived or calculated differently with respect to such limited partners, including, without limitation, limited partners that are members, affiliates or employees of the general partner, members of the immediate families of such persons and trusts or other entities for their benefit, or limited partners that make a substantial investment or otherwise are determined by the general partner in its sole discretion to represent a strategic relationship. Management fees totaled $15,503 and $2,019 for 2011 and 2010, respectively. The general partner shall receive a performance allocation in an amount equal to 20% of the net capital appreciation allocated to each limited partner during each calendar year, but only to the extent that such profits exceed such partner's high water mark. The total performance allocation to the general partner totaled $2,393 and $9,212 for 2011 and 2010, respectively. Limited partners will generally be permitted to make withdrawals of capital as of the close of business on the last day of each month, provided the withdrawing partner notifies the general partner not less than 30 days in advance of the applicable withdrawal date of its intent to make a withdrawal. Contributions are accepted as of the first business day of any calendar month. The general partner absorbed professional fees for the Partnership totaling $12,000 and $9,900 for 2011 and 2010, respectively. 17

20 NOTES TO FINANCIAL STATEMENTS NOTE 4 - FINANCIAL HIGHLIGHTS Financial highlights for the limited partner interests are as follows: Total return before performance allocation 6.06 % % Performance allocation (1.13) (4.88) Total return 4.93 % % Ratio of operating expenses to average limited partners' capital (annualized for 2010) 2.04 % 0.96 % Ratio of performance allocation to average limited partners' capital Ratio of expenses and performance allocation to average limited partners' capital 2.23 % 3.76 % Ratio of net investment income to average limited partners' capital (annualized for 2010) 0.64 % 0.11% Financial highlights are based on the limited partners' share of income, expenses and average partners' capital. The total return and ratios are calculated for the limited partners taken as a whole, exclusive of general partner affiliates. An individual investor's return and ratios will vary based on the timing of capital transactions and variations in management fees and performance allocation arrangements from those set forth in the limited partnership agreement. The net investment income ratio does not include the effects of the performance allocation. 18