Trading Activities and Related Risks

6 Months Ended

Jun. 30, 2013

Trading Activities And Related Risks

9.	Trading Activities and Related Risks

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

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

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

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

The Cash Managers manage the Fund’s cash and excess margin through investments in fixed income instruments, pursuant to investment parameters established by the General Partner.

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

Through its investments in debt securities and certificates of deposit, the Fund has exposure to U.S. and foreign enterprises. The following table presents the exposure at June 30, 2013:

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	$	6,042,599	$	300,724	$	749,913	$	4,246,996	$	651,341	$	11,991,573		50.64	%
Japan		—		—		149,961		—		251,323		401,284		1.69	%
Denmark		—		—		—		276,499		—		276,499		1.17	%
Canada		—		—		—		270,261		—		270,261		1.14	%
Netherlands		—		—		—		247,507		—		247,507		1.04	%
Multi-national		—		—		—		200,308		—		200,308		0.85	%
Singapore		—		—		200,000		—		—		200,000		0.84	%
Great Britain		—		—		—		52,860		—		52,860		0.22	%
Total	$	6,042,599	$	300,724	$	1,099,874	$	5,294,431	$	902,664	$	13,640,292		57.59	%

The following table presents the exposure at December 31, 2012:

Country or Region	U.S. Treasury Securities		Gov’t Sponsored Enterprise Notes		Commercial Paper		Corporate Notes		Certificates of Deposit		Total		% of Partners’ Capital (Net Asset Value)
United States	$	2,296,497	$	703,895	$	1,554,754	$	8,466,152	$	1,402,838	$	14,424,136		49.35	%
Netherlands		—		—		—		1,279,032		—		1,279,032		4.38	%
France		—		—		249,995		511,182		—		761,177		2.60	%
Canada		—		—		199,980		472,198		—		672,178		2.30	%
Japan		—		—		—		251,728		250,581		502,309		1.72	%
Great Britain		—		—		249,843		250,423		—		500,266		1.71	%
Denmark		—		—		—		271,404		—		271,404		0.93	%
Germany		—		—		—		250,032		—		250,032		0.86	%
Multi-national		—		—		—		200,456		—		200,456		0.69	%
Netherland Antilles		—		—		—		50,211		—		50,211		0.17	%
Total	$	2,296,497	$	703,895	$	2,254,572	$	12,002,818	$	1,653,419	$	18,911,201		64.71	%

SAGE FUND LP 10-Q