10-Q 1 v756938_10q.htm FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

Commission file number: 000-53639

 

SAGE FUND LIMITED PARTNERSHIP

 

Organized in Maryland IRS Employer Identification No.:  52-1937296

 

c/o Steben & Company, Inc.

2099 Gaither Road, Suite 200

Rockville, Maryland 20850

(240) 631-7600

 

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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨  
Non-accelerated filer ¨ Smaller Reporting Company x  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

 
 

 

Part I: Financial Information

Item 1. Financial Statements

 

Sage Fund Limited Partnership

Statements of Financial Condition

September 30, 2012 (Unaudited) and December 31, 2011 (Audited)

 

   September 30,
2012
   December 31,
2011
 
Assets          
Equity in broker trading accounts          
Cash  $12,080,453   $11,212,458 
Net unrealized gain (loss) on open futures contracts   (566,187)   2,804,082 
Interest receivable   743    720 
Total equity in broker trading accounts   11,515,009    14,017,260 
Cash and cash equivalents   1,642,399    1,790,492 
Investments in securities, at fair value   22,051,958    32,329,643 
Certificates of deposit, at fair value   1,852,454    3,602,740 
General Partner 1% allocation receivable   24,513    248,763 
Total assets  $37,086,333   $51,988,898 
           
Liabilities and Partners’ Capital (Net Asset Value)          
Liabilities          
Trading Advisor management fee payable  $30,743   $43,046 
Commissions and other trading fees payable on open contracts   10,327    7,869 
Cash Manager fees payable   8,006    13,033 
General Partner management fee payable   33,876    47,429 
Selling Agent fees payable - General Partner   92,388    129,353 
Administrative expenses payable - General Partner   23,147    32,403 
Redemptions payable   494,817    1,406,594 
Subscriptions received in advance   11,213    131,216 
Total liabilities   704,517    1,810,943 
Partners’ Capital (Net Asset Value)          
Class A Interests – 20,489.1820 units and 26,635.2051 units outstanding at September 30, 2012 and December 31, 2011, respectively   36,381,816    50,177,955 
Total liabilities and partners' capital (net asset value)  $37,086,333   $51,988,898 

 

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

 

1
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments

September 30, 2012

(Unaudited)

 

                  % of 
                  Partners' 
                  Capital 
                  (Net Asset 
       Description   Fair Value   Value) 
INVESTMENTS IN SECURITIES               
U.S . Treasury Securities               
 Face Value   Maturity Date  Name   Yield 1           
$25,000   11/15/12  U.S. Treasury Note   1.38%  $25,168    0.07%
 365,000   1/15/13  U.S. Treasury Note   1.38%   367,378    1.01%
 500,000   2/28/13  U.S. Treasury Note   0.63%   501,268    1.38%
 100,000   5/31/13  U.S. Treasury Note   3.50%   103,376    0.28%
 300,000   7/31/13  U.S. Treasury Note   3.38%   309,651    0.85%
 250,000   9/30/13  U.S. Treasury Note   0.13%   249,835    0.69%
 300,000   11/15/13  U.S. Treasury Note   0.50%   301,551    0.83%
 300,000   12/31/13  U.S. Treasury Note   0.13%   299,778    0.82%
Total U.S. Treasury securities (cost: $2,166,521)        2,158,005    5.93%
                        
U.S . Government Sponsored Enterprise Notes               
 Face Value   Maturity Date  Name   Yield 1           
$200,000   9/4/14  Federal Home Loan Bank   0.45%   200,070    0.55%
 400,000   1/9/13  Federal Home Loan Mortgage Corp.   1.38%   402,575    1.10%
 300,000   8/9/13  Federal National Mortgage Assoc.   0.50%   300,960    0.83%
Total U.S. government sponsored enterprise notes (cost: $908,331)        903,605    2.48%
                        
U.S . Commercial Paper               
 Face Value   Maturity Date  Name   Yield 1           
Automotive                  
$200,000   10/4/12  BMW US Capital, LLC   0.15%   199,998    0.55%
 170,000   11/15/12  Toyota Motor Credit Corp.   0.18%   169,962    0.47%
Banks                  
 120,000   11/5/12  Credit Suisse (USA), Inc.   0.21%   119,976    0.33%
 150,000   11/20/12  HSBC USA Inc.   0.30%   149,939    0.41%
 200,000   10/26/12  The Bank of Tokyo-Mitsubishi UFJ, Ltd. (NY)   0.23%   199,969    0.55%
 200,000   10/12/12  UBOC   0.29%   199,983    0.55%
Charity               
 150,000   12/10/12  The Salvation Army   0.18%   149,948    0.41%
Energy                  
 250,000   10/9/12  Devon Energy Corp.   0.25%   249,986    0.69%
 150,000   10/1/12  Motiva Enterprises LLC   0.17%   150,000    0.41%
 250,000   10/10/12  ONEOK, Inc.   0.40%   249,975    0.69%
Mining                  
 200,000   10/1/12  BHP Billiton Finance (USA) Limited   0.15%   200,000    0.55%
Total U.S. commercial paper (cost: $2,039,377)        2,039,736    5.61%
                        
Foreign Commercial Paper               
 Face Value   Maturity Date  Name   Yield 1           
Banks                  
$200,000   11/13/12  Oversea-Chinese Banking Corp. Ltd   0.19%   199,954    0.55%
Consumer Products                  
 250,000   4/8/13  Reckitt Benckiser PLC   0.80%   249,545    0.69%

 

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

 

2
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

September 30, 2012

(Unaudited)

 

                  % of 
                  Partners' 
                  Capital 
                  (Net Asset 
       Description   Fair Value   Value) 
Foreign Commercial Paper (continued)               
 Face Value   Maturity Date  Name   Yield 1           
Diversified Financial Services               
$250,000   10/5/12  John Deere Bank SA   0.18%  $249,996    0.69%
Energy                  
 250,000   10/30/12  GDF Suez   0.25%   249,950    0.68%
Total foreign commercial paper (cost: $947,809)        949,445    2.61%
                        
Total commercial paper (cost: $2,987,185)        2,989,181    8.22%
                        
U.S . Corporate Notes              
 Face Value   Maturity Date  Name   Yield 1           
Aerospace                  
$500,000   12/2/13  United Technologies Corporation   0.69%   502,267    1.39%
Automotive                  
 250,000   7/31/15  Daimler Finance North America LLC   1.30%   251,524    0.69%
Banks                  
 350,000   1/30/14  Bank of America Corporation   1.87%   353,663    0.97%
 180,000   4/1/14  Citigroup Inc.   1.39%   180,447    0.50%
 250,000   10/30/12  GMAC Inc.   1.75%   252,143    0.69%
 275,000   5/2/14  JPMorgan Chase & Co.   1.14%   277,083    0.76%
 550,000   1/9/14  Morgan Stanley   0.76%   543,617    1.49%
 250,000   11/1/12  The Bank of New York Mellon   4.95%   256,133    0.70%
 100,000   2/7/14  The Goldman Sachs Group, Inc.   1.44%   100,172    0.28%
 309,000   5/1/13  Wachovia Corporation   5.50%   325,204    0.89%
Beverages                  
 50,000   7/14/14  Anheuser-Busch InBev Worldwide Inc.   0.82%   50,378    0.14%
 380,000   8/15/13  Coca-Cola Enterprises, Inc.   5.00%   397,490    1.10%
Biotechnology                  
 100,000   12/1/14  Gilead Sciences, Inc.   2.40%   104,198    0.29%
Chemical                  
 200,000   11/15/12  Praxair, Inc.   1.75%   201,636    0.55%
Computers                  
 200,000   4/1/14  Dell Inc.   1.06%   202,072    0.56%
 275,000   5/30/14  Hewlett-Packard Company   0.82%   272,956    0.75%
 50,000   9/19/14  Hewlett-Packard Company   1.93%   50,632    0.14%
Diversified Financial Services               
 250,000   5/8/14  American Honda Finance Corporation   0.89%   250,916    0.69%
 200,000   8/11/15  American Honda Finance Corporation   1.00%   200,515    0.55%
 200,000   5/24/13  BlackRock, Inc.   0.73%   200,638    0.55%
 200,000   4/5/13  Caterpillar Financial Services Corporation   2.00%   203,721    0.56%
 55,000   4/1/14  Caterpillar Financial Services Corporation   0.75%   55,358    0.15%
 250,000   4/7/14  General Electric Capital Corporation   1.09%   251,723    0.69%
 200,000   1/15/14  HSBC Finance Corporation   0.71%   199,048    0.55%
 275,000   10/1/12  John Deere Capital Corporation   5.25%   282,221    0.78%
 160,000   4/3/13  John Deere Capital Corporation   4.50%   166,951    0.46%
 150,000   6/30/13  NYSE Euronext   4.80%   156,587    0.43%

 

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

 

3
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

September 30, 2012

(Unaudited)

 

                  % of 
                  Partners' 
                  Capital 
                  (Net Asset 
       Description   Fair Value   Value) 
U.S . Corporate Notes (continued)               
 Face Value   Maturity Date  Name   Yield 1           
Diversified Financial Services (continued)               
$250,000   6/5/14  PACCAR Financial Corp.   0.66%  $250,752    0.69%
 200,000   10/12/12  Toyota Motor Credit Corporation   0.66%   200,315    0.55%
 150,000   10/11/13  Toyota Motor Credit Corporation   0.91%   150,923    0.41%
 275,000   2/17/15  Toyota Motor Credit Corporation   1.00%   278,314    0.76%
Energy                  
 275,000   10/15/12  ConocoPhillips   4.75%   281,432    0.77%
 100,000   4/15/13  PSEG Power LLC   2.50%   102,256    0.28%
Healthcare                  
 290,000   3/1/14  Roche Holdings, Inc.   5.00%   308,719    0.85%
Insurance                  
 200,000   2/11/13  Berkshire Hathaway Inc.   0.87%   200,680    0.55%
 200,000   1/11/13  Metropolitan Life Global Funding I   2.50%   202,209    0.56%
 250,000   12/14/12  New York Life Global Funding   2.25%   252,648    0.69%
 200,000   4/15/13  Pacific Life Global Funding   5.15%   209,734    0.58%
Manufacturing                  
 410,000   6/21/13  Danaher Corporation   0.63%   410,857    1.14%
Media                  
 150,000   12/1/14  The Walt Disney Company   0.88%   152,005    0.42%
 100,000   7/1/13  Time Warner Cable Inc.   6.20%   105,779    0.29%
Pharmaceuticals                  
 100,000   2/12/15  Express Scripts Holding Company   2.10%   102,871    0.28%
 100,000   3/1/13  McKesson Corporation   5.25%   102,369    0.28%
 200,000   3/15/13  Pfizer Inc.   5.50%   205,231    0.56%
Retail                  
 250,000   7/18/14  Target Corporation   0.63%   251,274    0.69%
 150,000   8/1/13  Walgreen Co.   4.88%   156,509    0.43%
 100,000   3/13/14  Walgreen Co.   0.90%   100,163    0.28%
Steel                  
 100,000   12/1/12  Nucor Corporation   5.00%   102,353    0.28%
Telecommunication                  
 225,000   2/13/15  AT&T Inc.   0.88%   227,169    0.62%
 140,000   3/14/14  Cisco Systems, Inc.   0.64%   140,647    0.39%
 330,000   3/28/14  Verizon Communications Inc.   0.97%   332,576    0.91%
 150,000   3/15/13  Verizon Virginia Inc.   4.63%   153,068    0.42%
Transportation                  
 200,000   1/15/13  United Parcel Service, Inc.   4.50%   204,340    0.56%
Total U.S. corporate notes (cost: $11,562,014)        11,474,486    31.54%
                        
Foreign Corporate Notes               
 Face Value   Maturity Date  Name   Yield 1           
Automotive                  
$550,000   4/1/14  Volkswagen International Finance N.V.   1.07%   553,676    1.52%

 

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

 

4
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

September 30, 2012

(Unaudited)

 

                  % of 
                  Partners' 
                  Capital 
                  (Net Asset 
       Description   Fair Value   Value) 
Foreign Corporate Notes (continued)               
 Face Value   Maturity Date  Name   Yield 1           
Banks                  
$200,000   6/28/13  Bank of Montreal   2.13%  $203,771    0.56%
 275,000   1/10/14  BNP Paribas   1.36%   275,971    0.76%
 275,000   4/14/14  Danske Bank A/S   1.51%   272,987    0.75%
 250,000   1/18/13  HSBC Bank PLC   0.86%   250,747    0.69%
 550,000   3/15/13  ING Bank N.V.   1.44%   552,108    1.52%
 250,000   6/17/13  KfW Bankengruppe   0.23%   250,038    0.69%
 350,000   2/4/13  Rabobank Nederland   0.59%   350,289    0.96%
 250,000   7/29/13  Royal Bank of Canada   2.10%   254,526    0.70%
 270,000   7/26/13  The Toronto-Dominion Bank   0.63%   270,822    0.74%
 100,000   12/14/12  Westpac Banking Corporation   1.90%   100,853    0.28%
Energy                  
 175,000   3/25/13  Shell International Finance B.V.   1.88%   176,432    0.48%
Multinational                  
 200,000   8/1/13  International Finance Corporation   0.33%   200,481    0.55%
Pharmaceutical                  
 250,000   3/28/13  Sanofi   0.56%   250,437    0.69%
 260,000   3/28/14  Sanofi   0.67%   261,217    0.72%
 250,000   3/17/15  Takeda Pharmaceutical Co Ltd   1.03%   252,050    0.69%
 50,000   3/21/14  Teva Pharmaceutical Finance III BV   0.88%   50,276    0.14%
Total foreign corporate notes (cost: $4,530,911)        4,526,681    12.44%
                
Total corporate notes (cost: $16,092,925)        16,001,167    43.98%
                        
Total investments in securities (cost: $22,154,962)       $22,051,958    60.61%
                        
CERTIFICATES OF DEPOSIT               
U.S . Certificates of Deposit               
 Face Value   Maturity Date  Name   Yield 1           
Banks                  
$250,000   7/26/13  Branch Banking and Trust Company   0.48%  $250,273    0.69%
 150,000   7/25/13  Credit Suisse Group AG (NY)   0.94%   150,213    0.40%
 250,000   3/1/13  Mizuho Corporate Bank, Ltd. (NY)   0.46%   250,187    0.69%
 250,000   2/8/13  Norinchukin Bank (NY)   0.52%   250,283    0.69%
 250,000   3/1/13  PNC Bank, National Association   0.52%   250,271    0.69%
 250,000   2/11/13  The Bank of Tokyo-Mitsubishi UFJ, Ltd. (NY)   0.49%   250,260    0.69%
Total U.S. certificates of deposit (cost: $1,399,630)        1,401,487    3.85%
                        
Foreign Certificates of Deposit               
 Face Value   Maturity Date  Name   Yield 1           
Banks                  
$250,000   12/3/12  Sumitomo Mitsui Banking Corp.   0.49%   250,496    0.69%
 200,000   9/16/13  The Bank of Nova Scotia   0.57%   200,471    0.55%
Total foreign certificates of deposit (cost: $450,244)        450,967    1.24%
                        
Total certificates of deposit (cost: $1,849,874)       $1,852,454    5.09%

 

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

 

5
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

September 30, 2012

(Unaudited)

 

              % of 
              Partners' 
              Capital 
              (Net Asset 
       Description  Fair Value   Value) 
OPEN FUTURES CONTRACTS          
Long U.S . Futures Contracts          
        Agricultural commodities  $(162,135)   (0.45)%
        Currencies   (39,945)   (0.11)%
        Energy   98,144    0.27%
        Equity indices   (35,971)   (0.10)%
        Interest rate instruments2   363,587    1.00%
        Metals2   488,180    1.34%
Net unrealized gain on open long U.S. futures contracts   711,860    1.95%
                   
Short U.S . Futures Contracts          
        Agricultural commodities   (74,877)   (0.21)%
        Currencies   (5,895)   (0.02)%
        Energy   (63,667)   (0.17)%
        Interest rate instruments   (22,969)   (0.06)%
        Metals          
        LM E Aluminum (93 contracts, Oct 2012 - Dec 2012)   (471,344)   (1.30)%
        Other 2   (842,841)   (2.32)%
Net unrealized loss on open short U.S. futures contracts   (1,481,593)   (4.08)%
                   
Total U.S. futures contracts - net unrealized loss on open U.S. futures contracts   (769,733)   (2.13)%
                   
Long Foreign Futures Contracts          
        Agricultural commodities   (40,201)   (0.11)%
        Currencies   (19,774)   (0.05)%
        Energy   (15,351)   (0.04)%
        Equity indices   (68,465)   (0.19)%
        Interest rate instruments   351,219    0.97%
        Metals   109,081    0.30%
Net unrealized gain on open long foreign futures contracts   316,509    0.88%

 

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

 

6
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

September 30, 2012

(Unaudited)

 

              % of 
              Partners' 
              Capital 
              (Net Asset 
       Description  Fair Value   Value) 
Short Foreign Futures Contracts          
        Agricultural commodities  $(69,245)   (0.19)%
        Currencies   44,728    0.12%
        Energy   (1,277)   (0.00)%
        Equity indices   (2,824)   (0.01)%
        Interest rate instruments   (38,561)   (0.11)%
        Metals   (45,784)   (0.13)%
Net unrealized loss on open short foreign futures contracts   (112,963)   (0.32)%
                   
Total foreign futures contracts - net unrealized gain on open foreign futures contracts   203,546    0.56%
                   
Net unrealized loss on open futures contracts  $(566,187)   (1.57)%

 

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 financial statements.

 

7
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments

December 31, 2011

(Audited)

 

       Description   Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
INVESTMENTS IN SECURITIES               
U.S. Treasury Securities               
 Face Value   Maturity Date  Name   Yield1           
$225,000   3/8/12  U.S. Treasury Bill   0.20%  $224,993    0.45%
 75,000   2/29/12  U.S. Treasury Note   0.88%   75,323    0.15%
 250,000   5/31/12  U.S. Treasury Note   4.75%   255,824    0.51%
 825,000   6/15/12  U.S. Treasury Note   1.88%   832,458    1.66%
 75,000   8/31/12  U.S. Treasury Note   0.38%   75,228    0.15%
 300,000   9/30/12  U.S. Treasury Note   0.38%   300,861    0.60%
 225,000   10/31/12  U.S. Treasury Note   3.88%   233,413    0.47%
 250,000   11/15/12  U.S. Treasury Note   1.38%   253,112    0.50%
 115,000   1/15/13  U.S. Treasury Note   1.38%   117,159    0.23%
 300,000   2/15/13  U.S. Treasury Note   1.38%   305,554    0.61%
Total U.S. Treasury securities (cost:  $2,693,658)        2,673,925    5.33%
                        
U.S. Government Sponsored Enterprise Notes               
 Face Value   Maturity Date  Name   Yield1           
$250,000   6/20/12  Federal Home Loan Bank   1.88%   252,130    0.50%
 250,000   6/27/12  Federal Home Loan Bank   0.25%   250,098    0.50%
 300,000   7/25/12  Federal Home Loan Bank   0.25%   300,457    0.60%
 250,000   8/10/12  Federal Home Loan Bank   0.35%   250,183    0.50%
 600,000   8/22/12  Federal Home Loan Bank   1.75%   609,527    1.21%
 200,000   10/5/12  Federal Home Loan Bank   0.31%   200,147    0.40%
 200,000   1/16/13  Federal Home Loan Bank   1.50%   203,858    0.41%
 400,000   1/9/13  Federal Home Loan Mortgage Corp.   1.38%   407,242    0.81%
 200,000   9/30/13  Federal Home Loan Mortgage Corp.   0.55%   200,114    0.40%
 200,000   7/30/12  Federal National Mortgage Assoc.   1.13%   202,018    0.40%
Total U.S. government sponsored enterprise notes (cost:  $2,881,896)        2,875,774    5.73%
                        
Foreign Government Sponsored Enterprise Notes               
 Face Value   Maturity Date  Name   Yield1           
$200,000   1/23/12  African Development Bank   1.88%   201,791    0.40%
 200,000   3/21/12  European Investment Bank   4.63%   204,235    0.41%
 250,000   6/11/12  Soc. de Financement de l'Economie Fr.   2.25%   251,279    0.50%
Total foreign government sponsored enterprise notes (cost:  $667,015)        657,305    1.31%
                
Total government sponsored enterprise notes (cost:  $3,548,911)        3,533,079    7.04%
                        
U.S. Commercial Paper              
 Face Value   Maturity Date  Name   Yield1           
Automotive                  
$250,000   1/9/12  BMW US Capital, LLC   0.38%   249,979    0.50%
Banks                  
 200,000   2/15/12  Credit Suisse (USA), Inc.   0.45%   199,888    0.40%
 150,000   1/27/12  HSBC USA Inc.   0.20%   149,966    0.30%
 200,000   2/6/12  Union Bank NA   0.18%   199,964    0.40%

 

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

 

8
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2011

(Audited)

 

       Description   Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
U.S. Commercial Paper (continued)               
 Face Value   Maturity Date  Name   Yield1           
Beverages               
$250,000   2/2/12  Anheuser-Busch InBev Worldwide, Inc.   0.25%  $249,944    0.50%
Charity                  
 240,000   1/25/12  The Salvation Army   0.10%   239,984    0.48%
Diversifed Financial Services               
 200,000   1/18/12  American Honda Finance Corporation   0.17%   199,984    0.40%
 140,000   3/5/12  Caterpillar Financial Services Corporation   0.20%   139,950    0.28%
 200,000   2/27/12  ING (U.S.) Funding LLC   0.35%   199,889    0.40%
 150,000   1/19/12  National Rural Utilities Cooperative   0.07%   149,995    0.30%
 200,000   1/6/12  Nordea Inv. Mgmt North America, Inc.   0.32%   199,991    0.40%
 150,000   1/9/12  PACCAR Financial Corp.   0.08%   149,997    0.30%
 250,000   2/15/12  Private Export Funding Corporation   0.11%   249,966    0.50%
 151,000   1/13/12  River Fuel Trust 1   0.40%   150,980    0.30%
Energy                  
 250,000   1/12/12  Oglethorpe Power Corp.   0.17%   249,987    0.50%
 250,000   1/3/12  Pacific Gas and Electric Company   0.40%   249,994    0.50%
 250,000   1/11/12  The Southern Company   0.17%   249,988    0.50%
Insurance                  
 190,000   1/10/12  Metlife Funding, Inc.   0.09%   189,996    0.38%
Manufacturing                  
 250,000   1/5/12  Kellogg Company   0.19%   249,995    0.50%
Mining                  
 200,000   1/24/12  BHP Billiton Finance (USA)   0.13%   199,983    0.40%
Total U.S. commercial paper (cost:  $4,119,677)        4,120,420    8.24%
                        
Foreign Commercial Paper               
 Face Value   Maturity Date  Name   Yield1           
Banks                  
$190,000   1/25/12  The Bank of Tokyo-Mitsubishi UFJ, Ltd.   0.29%   189,963    0.38%
 200,000   3/8/12  Oversea-Chinese Banking Corporation Ltd   0.53%   199,803    0.40%
Energy                  
 250,000   2/1/12  GDF Suez   0.19%   249,959    0.50%
Total foreign commercial paper (cost: $639,550)        639,725    1.28%
                
Total commercial paper (cost:  $4,759,227)        4,760,145    9.52%
                        
U.S. Corporate Notes               
 Face Value   Maturity Date  Name   Yield1           
Aerospace                  
$200,000   4/1/12  McDonnell Douglas   9.75%   209,286    0.42%
Agricultural                  
 200,000   8/13/12  Archer-Daniels-Midland   0.61%   200,488    0.40%
 200,000   9/15/12  Cargill   5.60%   209,344    0.42%
Banks                  
 550,000   1/30/14  Bank of America Corporation   1.85%   498,327    0.99%
 200,000   7/27/12  BB&T Corporation   3.85%   206,557    0.41%
 550,000   4/1/14  Citigroup Inc.   1.30%   520,101    1.04%

 

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

 

9
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2011

(Audited)

 

       Description   Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
U.S. Corporate Notes (continued)               
 Face Value   Maturity Date  Name   Yield1           
Banks (continued)               
$550,000   1/14/14  Credit Suisse AG (NY)   1.36%  $533,957    1.06%
 100,000   1/15/12  Credit Suisse (USA), Inc.   6.50%   103,179    0.21%
 250,000   10/30/12  GMAC Inc.   1.75%   253,966    0.51%
 550,000   5/2/14  JPMorgan Chase & Co.   1.30%   534,104    1.06%
 275,000   4/29/13  Morgan Stanley   1.41%   259,838    0.52%
 550,000   1/9/14  Morgan Stanley   0.69%   498,486    0.99%
 250,000   11/1/12  The Bank of New York Mellon   4.95%   261,274    0.52%
 175,000   1/15/12  The Goldman Sachs Group, Inc.   6.60%   180,555    0.36%
 640,000   2/7/14  The Goldman Sachs Group, Inc.   1.44%   599,631    1.20%
 109,000   10/23/12  Wells Fargo & Company   5.25%   113,904    0.23%
 200,000   1/31/13  Wells Fargo & Company   4.38%   210,370    0.42%
Beverages                  
 50,000   7/14/14  Anheuser-Busch InBev Worldwide Inc.   0.76%   49,842    0.10%
 125,000   3/1/12  Coca-Cola Enterprises, Inc.   3.75%   127,117    0.25%
 380,000   8/15/13  Coca-Cola Enterprises, Inc.   5.00%   411,323    0.82%
Chemicals                  
 200,000   11/15/12  Praxair, Inc.   1.75%   202,153    0.40%
Computers                  
 550,000   4/1/14  Dell Inc.   0.97%   554,627    1.11%
 250,000   3/1/12  Hewlett-Packard Company   0.64%   250,024    0.50%
 275,000   5/30/14  Hewlett-Packard Company   0.92%   266,109    0.53%
 50,000   9/19/14  Hewlett-Packard Company   2.11%   49,793    0.10%
Consumer Products                  
 150,000   2/15/12  Kimberly-Clark Corporation   5.63%   153,999    0.31%
Diversified Financial Services                  
 250,000   6/29/12  American Honda Finance Corporation   0.68%   249,940    0.50%
 200,000   5/24/13  BlackRock, Inc.   0.81%   200,049    0.40%
 200,000   4/5/13  Caterpillar Financial Services Corporation   2.00%   204,450    0.41%
 55,000   4/1/14  Caterpillar Financial Services Corporation   0.66%   55,022    0.11%
 250,000   1/8/13  General Electric Capital Corporation   2.80%   258,114    0.51%
 550,000   1/15/14  HSBC Finance Corporation   0.65%   507,421    1.01%
 300,000   3/15/12  John Deere Capital Corporation   7.00%   310,267    0.62%
 275,000   10/1/12  John Deere Capital Corporation   5.25%   288,190    0.57%
 400,000   7/16/12  Massmutual Global Funding II   3.63%   412,687    0.82%
 250,000   2/15/12  Principal Life Global Funding I   6.25%   257,380    0.51%
 200,000   10/12/12  Toyota Motor Credit Corporation   0.59%   200,339    0.40%
Energy                      
 275,000   10/15/12  ConocoPhillips   4.75%   285,969    0.57%
Healthcare                  
 290,000   3/1/14  Roche Holdings, Inc.   5.00%   318,556    0.63%
Insurance                  
 200,000   2/11/13  Berkshire Hathaway Inc.   0.88%   200,914    0.40%
 200,000   1/11/13  Metropolitan Life Global Funding I   2.50%   204,784    0.41%
 250,000   8/22/12  New York Life Global Funding   0.54%   250,101    0.50%

 

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

 

10
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2011

(Audited)

 

       Description   Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
U.S. Corporate Notes (continued)               
 Face Value   Maturity Date  Name   Yield1           
Insurance (continued)               
$250,000   12/14/12  New York Life Global Funding   2.25%  $253,581    0.51%
 200,000   4/15/13  Pacific Life Global Funding   5.15%   211,079    0.42%
 200,000   6/25/12  Pricoa Global Funding I   4.63%   203,339    0.41%
 125,000   6/15/12  The Travelers Companies, Inc.   5.38%   127,710    0.25%
Manufacturing                  
 410,000   6/21/13  Danaher Corporation   0.82%   410,700    0.82%
Mining                  
 200,000   3/29/12  BHP Billiton Finance (USA)   5.13%   204,825    0.41%
Media                  
 150,000   12/1/14  The Walt Disney Company   0.88%   150,808    0.30%
Pharmaceuticals                  
 200,000   3/15/13  Pfizer Inc.   5.50%   214,659    0.43%
Retail                  
 500,000   7/18/14  Target Corporation   0.57%   500,573    1.00%
Steel                  
 100,000   12/1/12  Nucor Corporation   5.00%   104,019    0.21%
Telecommunications                  
 140,000   3/14/14  Cisco Systems, Inc.   0.79%   139,953    0.28%
 330,000   3/28/14  Verizon Communications Inc.   1.18%   329,622    0.66%
Transportation                  
 150,000   1/15/13  United Parcel Service, Inc.   4.50%   159,292    0.32%
Total U.S. corporate notes (cost:  $15,045,153)        14,672,697    29.27%
                        
Foreign Corporate Notes               
 Face Value   Maturity Date  Name   Yield1           
Automotive               
$550,000   4/1/14  Volkswagen International Finance N.V.   0.98%   540,367    1.08%
Banks                  
 550,000   1/10/14  BNP Paribas   1.29%   508,863    1.01%
 250,000   6/29/12  Commonwealth Bank of Australia   0.78%   249,803    0.50%
 550,000   3/17/14  Commonwealth Bank of Australia   1.29%   541,445    1.08%
 275,000   4/14/14  Danske Bank A/S   1.45%   265,934    0.53%
 250,000   8/3/12  HSBC Bank PLC   0.88%   250,519    0.50%
 250,000   1/18/13  HSBC Bank PLC   0.80%   249,489    0.50%
 300,000   1/13/12  ING Bank N.V.   1.03%   300,655    0.60%
 550,000   3/15/13  ING Bank N.V.   1.60%   537,605    1.07%
 250,000   6/17/13  KfW Bankengruppe   0.29%   249,908    0.50%
 250,000   6/15/12  National Australia Bank Limited   0.75%   250,128    0.50%
 350,000   2/4/13  Rabobank Nederland   0.58%   350,232    0.70%
 350,000   12/12/12  Royal Bank of Canada   0.69%   350,494    0.70%
 200,000   5/11/12  The Royal Bank of Scotland   2.63%   202,009    0.40%
 270,000   7/26/13  The Toronto-Dominion Bank   0.60%   269,910    0.54%
 100,000   12/14/12  Westpac Banking Corporation   1.90%   101,010    0.20%
Energy                  
 525,000   3/10/12  BP Capital Markets P.L.C.   3.13%   532,472    1.06%
 175,000   3/25/13  Shell International Finance B.V.   1.88%   179,136    0.36%

 

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

 

11
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2011

(Audited)

 

       Description   Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
Foreign Corporate Notes (continued)               
 Face Value   Maturity Date  Name   Yield1           
Pharmaceuticals                  
$250,000   3/28/13  Sanofi   0.77%  $250,259    0.50%
 260,000   3/28/14  Sanofi   0.88%   259,661    0.52%
 50,000   3/21/14  Teva Pharmaceutical Finance III BV   1.07%   49,726    0.10%
Telecommunications                  
 200,000   2/27/12  Vodafone Group Public Limited Company   0.79%   200,172    0.40%
Total foreign corporate notes (cost:  $6,796,172)        6,689,797    13.35%
                
Total corporate notes (cost:  $21,841,325)        21,362,494    42.62%
                
Total investments in securities (cost:  $32,843,121)       $32,329,643    64.51%
                        
CERTIFICATES OF DEPOSIT               
U.S. Certificates of Deposit               
 Face Value   Maturity Date  Name   Yield1           
Banks                  
$250,000   11/5/12  Canadian Imperial Bank of Commerce NY   0.64%  $250,239    0.50%
 500,000   4/4/12  Deutsche Bank Aktiengesellschaft NY   0.45%   501,218    1.00%
 250,000   5/8/12  Nordea Bank Finland PLC NY   0.40%   250,456    0.50%
 200,000   11/13/12  Nordea Bank Finland PLC NY   0.65%   199,168    0.40%
 250,000   3/1/13  PNC Bank   0.63%   248,172    0.49%
 250,000   2/3/12  The Shizuoka Bank, Ltd. NY   0.49%   250,234    0.50%
350,000   4/25/12  UBS AG USA   0.55%   351,170    0.70%
Total U.S. certificates of deposit (cost:  $2,049,630)        2,050,657    4.09%
                        
Foreign Certificates of Deposit               
 Face Value   Maturity Date  Name   Yield1           
Banks                  
$250,000   1/17/12  The Bank of Nova Scotia   0.32%   250,600    0.50%
 200,000   6/11/12  The Bank of Nova Scotia   0.74%   200,115    0.40%
 250,000   1/17/12  The Bank of Tokyo-Mitsubishi UFJ, Ltd.   0.36%   250,442    0.50%
 500,000   5/3/12  Westpac Banking Corporation   0.40%   501,339    1.00%
Government Sponsored Enterprise              
 350,000   5/25/12  Caisse Amortissement de la Dette Socia   0.43%   349,587    0.70%
Total foreign certificates of deposit (cost:  $1,550,550)        1,552,083    3.10%
                
Total certificates of deposit (cost:  $3,600,180)       $3,602,740    7.19%
                        
OPEN FUTURES CONTRACTS               
Long U.S. Futures Contracts               
        Agricultural commodities       $16,888    0.03%
        Currencies        3,502    0.01%
        Energy        (65,917)   (0.13)%
        Equity indices        12,697    0.03%
        Interest rate instruments        54,689    0.11%
        Metals        (306,086)   (0.61)%
Net unrealized loss on open long U.S. futures contracts        (284,227)   (0.56)%

 

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

 

12
 

 

Sage Fund Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2011

(Audited)

 

       Description  Fair Value   % of
Partners'
Capital
(Net Asset
Value)
 
OPEN FUTURES CONTRACTS (continued)          
Short U.S. Futures Contracts          
        Agricultural commodities  $95,886    0.19%
        Currencies   95,107    0.19%
        Energy          
       Natural gas (86 contracts, Feb '12 - Oct '12)   848,200    1.69%
        Other   31,293    0.06%
        Equity indices   3,552    0.01%
        Interest rate instruments   (24,350)   (0.05)%
        Metals   252,249    0.50%
Net unrealized gain on open short U.S. futures contracts   1,301,937    2.59%
                   
Total U.S. futures contracts - net unrealized gain on open U.S. futures contracts   1,017,710    2.03%
                   
Long Foreign Futures Contracts          
        Agricultural commodities   82,910    0.17%
        Currencies   (21,637)   (0.04)%
        Energy   6,598    0.01%
        Equity indices   35,931    0.07%
        Interest rate instruments2   648,438    1.29%
        Metals   (128,177)   (0.26)%
Net unrealized gain on open long foreign futures contracts   624,063    1.24%
                   
Short Foreign Futures Contracts          
        Agricultural commodities   241,998    0.48%
        Currencies2   733,774    1.46%
        Energy   33    0.00%
        Equity indices   (2,077)   (0.00)%
        Interest rate instruments   17,332    0.03%
        Metals   171,249    0.34%
Net unrealized gain on open short foreign futures contracts   1,162,309    2.31%
                   
Total foreign futures contracts - net unrealized gain on open foreign futures contracts   1,786,372    3.55%
                   
Net unrealized gain on open futures contracts  $2,804,082    5.58%

 

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

 

2 No individual futures 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 financial statements.

 

13
 

 

Sage Fund Limited Partnership

Statements of Operations

For the Three and Nine Months Ended September 30, 2012 and 2011

(Unaudited)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2012   2011   2012   2011 
Loss from Futures Trading                    
Net realized gain (loss)  $885,634   $(5,835,071)  $2,378,888   $(18,366,925)
Net change in unrealized gain (loss)   (1,186,337)   3,460,263    (3,370,270)   (851,082)
Brokerage commissions and trading expenses   (33,918)   (28,133)   (85,406)   (167,181)
Net loss from futures trading   (334,621)   (2,402,941)   (1,076,788)   (19,385,188)
                     
Net Investment Loss                    
Income                    
Interest income   119,648    163,259    370,076    375,674 
Net realized and change in unrealized gain (loss) on securities and certificates of deposit   16,299    (418,989)   175,503    (523,197)
Total income   135,947    (255,730)   545,579    (147,523)
Expenses                    
Trading Advisor management fee   99,182    151,889    324,319    494,055 
Cash Manager fees   8,125    12,196    26,609    34,201 
Selling Agent fees   295,102    452,207    970,326    1,475,753 
Administrative expenses – General Partner   228,526    210,418    734,367    732,756 
General Partner management fee   108,204    165,810    355,786    541,110 
General Partner 1% allocation   (7,832)   (35,540)   (24,513)   (224,475)
Total expenses   731,307    956,980    2,386,894    3,053,400 
Administrative expenses waived   (154,591)   (97,143)   (491,275)   (363,063)
Net total expenses   576,716    859,837    1,895,619    2,690,337 
Net investment loss   (440,769)   (1,115,567)   (1,350,040)   (2,837,860)
Net Loss  $(775,390)  $(3,518,508)  $(2,426,828)  $(22,223,048)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2012   2011   2012   2011 
Decrease in net asset value per Unit  $(39.55)  $(122.99)  $(108.24)  $(764.63)
                     
Net loss per Unit
(based on weighted average number of units outstanding)
  $(37.15)  $(121.82)  $(106.01)  $(772.92)
                     
Weighted average number of Units outstanding   20,869.2278    28,883.7701    22,892.3466    28,752.0515 

 

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

 

14
 

 

Sage Fund Limited Partnership

Statements of Cash Flows

For the Nine Months Ended September 30, 2012 and 2011

(Unaudited)

 

   Nine Months Ended September 30, 
   2012   2011 
Cash flows from operating activities          
Net loss  $(2,426,828)  $(22,223,048)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities          
Net change in unrealized loss from futures trading   3,370,270    851,082 
Purchases of securities and certificates of deposit   (43,156,884)   (68,825,894)
Proceeds from disposition of securities and certificates of deposit   55,360,357    31,819,954 
Net realized and change in unrealized (gain) loss on securities and certificates of deposit   (175,503)   523,197 
Changes in          
Interest receivable   (23)   4,349 
General Partner 1% allocation receivable/payable   224,250    (281,007)
Due to affiliate       15,228 
Trading Advisor management fee payable   (12,303)   33,563 
Trading Advisor incentive fee payable       (1,684)
Commissions and other trading fees payable on open contracts   2,458    (9,322)
Cash Manager fees payable   (5,027)   19,788 
General Partner management fee payable   (13,553)   (18,406)
Selling Agent fees payable – General Partner   (36,965)   (50,197)
Administrative expenses payable – General Partner   (9,256)   (8,235)
Net cash provided by (used in) operating activities   13,120,993    (58,150,632)
           
Cash flows from financing activities          
Subscriptions   623,697    7,840,448 
Subscriptions received in advance   11,213    128,214 
Redemptions   (13,036,001)   (6,689,151)
Net cash provided by (used in) financing activities   (12,401,091)   1,279,511 
           
Net increase (decrease) in cash and cash equivalents   719,902    (56,871,121)
Cash and cash equivalents, beginning of period   13,002,950    73,864,700 
Cash and cash equivalents, end of period  $13,722,852   $16,993,579 
           
End of period cash and cash equivalents consists of          
Cash in broker trading accounts  $12,080,453   $15,064,095 
Cash and cash equivalents   1,642,399    1,929,484 
Total end of period cash and cash equivalents  $13,722,852   $16,993,579 
           
 Supplemental disclosure of cash flow information          
Prior period redemptions paid  $1,406,594   $424,209 
Prior period subscriptions received in advance  $131,216   $1,141,953 
           
 Supplemental schedule of non-cash financing activities          
Redemptions payable  $494,817   $994,023 

 

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

 

15
 

 

Sage Fund Limited Partnership

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

For the Nine Months Ended September 30, 2012 and 2011

(Unaudited)

 

   Units   Amount 
Nine Months Ended September 30, 2012          
Balance at December 31, 2011   26,635.2051   $50,177,955 
Net loss        (2,426,828)
Subscriptions   405.6334    754,913 
Redemptions   (6,551.6565)   (12,124,224)
Balance at September 30, 2012   20,489.1820   $36,381,816 
           
Nine Months Ended September 30, 2011          
Balance at December 31, 2010   27,991.7912   $76,476,459 
Net loss        (22,223,048)
Subscriptions   3,805.0198    8,982,401 
Redemptions   (3,345.5636)   (7,258,965)
Balance at September 30, 2011   28,451.2474   $55,976,847 

 

   Net Asset
Value Per
Unit
 
     
September 30, 2012  $1,775.66 
December 31, 2011   1,883.90 
September 30, 2011   1,967.47 
December 31, 2010   2,732.10 

 

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

 

16
 

 

 

Sage Fund Limited Partnership

Notes to Financial Statements

(Unaudited)

 

1.Organization and Summary of Significant Accounting Policies

 

Description of the Fund

 

Sage Fund Limited Partnership (“Fund”) is a Maryland limited partnership, which operates as a commodity investment pool that commenced operations on August 2, 1995. The Fund issues Class A units of limited partner interests (“Units”), which represent units of fractional undivided beneficial interest in and ownership of the Fund. The Fund will automatically terminate on December 31, 2025, unless terminated earlier as provided in the Second Amended and Restated Limited Partnership Agreement (“Partnership Agreement”). The Fund will cease to accept new subscriptions after November 30, 2012.

 

The Partnership Agreement provides that if the Fund’s net asset value per Unit declines to 50% or less of the highest net asset value per Unit at the start of any fiscal year, the Fund will suspend trading and liquidate its securities and commodity interest positions. If trading is suspended, the General Partner will inform each limited partner of the suspension and any limited partner may, at that time, elect to withdraw from the Fund before trading is resumed. At September 30, 2012, the net asset value per Unit of the Fund was $1,775.66, which is a decline of 38% from the net asset value per Unit on January 1, 2009, the highest net asset value per Unit of any fiscal year, of $2,847.19.

 

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

 

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

 

Steben & Company, Inc. (“General Partner”), is the general partner of the Fund and a Maryland corporation registered with the CFTC as a commodity pool operator and a commodities introducing broker, and is also registered with the SEC as a registered investment 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.

 

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

 

Significant Accounting Policies

 

Accounting Principles

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

 

Use of Estimates

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

 

Revenue Recognition

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

 

17
 

 

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 a fair value hierarchy based upon the level of judgment associated with the inputs used to measure their value. This fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The levels of the fair value hierarchy are described below:

 

§ Level 1 – Fair value is based on unadjusted quoted prices for identical instruments in active markets.  Financial instruments using Level 1 inputs include futures contracts, money market funds and U.S. Treasury securities.
     
§ Level 2 – Fair value is based on quoted prices for similar instruments in active markets and inputs other than quoted prices that are observable for the financial instrument, such as interest rates and yield curves that are observable at commonly quoted intervals using a market approach.  Financial instruments using Level 2 inputs include certificates of deposit, commercial paper, corporate notes and U.S. and foreign government sponsored enterprise notes.
     
§ Level 3 – Fair value is based on valuation techniques in which one or more significant inputs are unobservable.  The Fund has no financial instruments valued using Level 3 inputs.

  

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

 

The Fund assesses the classification of the instruments at each measurement date, and any transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Fund’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. For the nine months ended September 30, 2012 and 2011, there were no such transfers between levels.

 

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

 

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

 

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

 

Cash and Cash Equivalents

Cash and cash equivalents may include cash, 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 period-end. These redemptions have been recorded using the period-end net asset value per Unit.

 

18
 

 

Income Taxes

The Fund prepares calendar year U.S. and applicable state and local tax returns. The Fund is not subject to federal income taxes as each partner is individually liable for his or her allocable share of the Fund’s income, expenses and trading gains or losses. The Fund evaluates the tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained “when challenged” or “when examined” by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense and asset or liability in the current year. Management has determined there are no material uncertain income tax positions through September 30, 2012. With few exceptions, the Fund is no longer subject to U.S. or state and local income tax examinations by tax authorities for years before 2009.

 

Foreign Currency Transactions

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

 

Reclassification

Certain reclassifications have been made in the 2011 financial statements and notes to conform to the 2012 presentation, without affecting previously reported partners’ capital (net asset value).

 

Recently Issued Accounting Pronouncement

In May 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance to converge the fair value measurement guidance in GAAP and International Financial Reporting Standards.  This new guidance clarifies the application of existing fair value measurement requirements, changes a particular principle of fair value measurement, and requires additional fair value disclosures.  The amendments are to be applied prospectively and are effective for annual periods beginning after December 15, 2011. The Fund is currently evaluating the effect that the provisions of this guidance will have on the Fund’s financial statements.

 

In November 2011, the 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 the Fund’s annual and interim periods beginning January 1, 2013.  When effective, the Fund will provide the disclosures required by those amendments retrospectively for all comparative periods presented.  The adoption of this guidance is not expected to have a material impact on the financial position or results of operations.

 

2.Fair Value Disclosures

 

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

 

At September 30, 2012            
   Level 1   Level 2   Total 
Equity in broker trading accounts:               
Net unrealized loss on open futures contracts*  $(566,187)  $   $(566,187)
Cash and cash equivalents:               
Money market fund   706,775        706,775 
Investments in securities:               
U.S. Treasury securities*   2,158,005        2,158,005 
U.S. government sponsored enterprise notes*       903,605    903,605 
Commercial paper*       2,989,181    2,989,181 
Corporate notes*       16,001,167    16,001,167 
Certificates of deposit*       1,852,454    1,852,454 
Total  $2,298,593   $21,746,407   $24,045,000 

*See the condensed schedule of investments for further description.

 

19
 

 

At December 31, 2011            
   Level 1   Level 2   Total 
Equity in broker trading accounts:               
Net unrealized gain on open futures contracts*  $2,804,082   $   $2,804,082 
Cash and cash equivalents:               
Money market fund   1,273,215        1,273,215 
Investments in securities:               
U.S. Treasury securities*   2,673,925        2,673,925 
U.S. government sponsored enterprise notes*       2,875,774    2,875,774 
Foreign government sponsored enterprise notes*       657,305    657,305 
Commercial paper*       4,760,145    4,760,145 
Corporate notes*       21,362,494    21,362,494 
Certificates of deposit*       3,602,740    3,602,740 
Total  $6,751,222   $33,258,458   $40,009,680 

*See the condensed schedule of investments for further description.

 

There were no Level 3 holdings at September 30, 2012 or December 31, 2011, or during the periods then ended.

 

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

 

3.Derivative Instruments Disclosures

 

The Fund’s derivative contracts are comprised of future contracts, none of which are designated as hedging instruments. At September 30, 2012, the Fund’s derivative contracts had the following impact on the statements of financial condition:

 

   Derivative Assets and Liabilities, at fair value 
Statements of Financial Condition Location  Assets   Liabilities   Net 
Equity in broker trading accounts               
Net unrealized gain (loss) on open futures contracts               
Agricultural commodities  $258,721   $(605,179)  $(346,458)
Currencies   136,115    (157,001)   (20,886)
Energy   152,016    (134,167)   17,849 
Equity indices   17,880    (125,140)   (107,260)
Interest rate instruments   742,066    (88,790)   653,276 
Metals   763,116    (1,525,824)   (762,708)
Net unrealized gain (loss) on open futures contracts  $2,069,914   $(2,636,101)  $(566,187)

 

At September 30, 2012, there were 4,473 open futures contracts. For the three and nine months ended September 30, 2012, the Fund’s derivative contracts had the following impact on the statements of operations:

 

   Three Months Ended   Nine Months Ended 
   September 30, 2012   September 30, 2012 
       Net change       Net change 
   Net realized   in unrealized   Net realized   in unrealized 
Types of Exposure  gain (loss)   gain (loss)   gain (loss)   gain (loss) 
Futures contracts                    
Agricultural commodities  $(106,782)  $(436,781)  $180,352   $(784,141)
Currencies   478,292    (200,873)   669,783    (831,632)
Energy   (307,168)   384,169    1,376,993    (802,358)
Equity indices   486,209    (237,403)   404,685    (157,363)
Interest rate instruments   283,136    174,882    897,169    (42,833)
Metals   58,438    (870,331)   (1,150,297)   (751,943)
Total futures contracts  $892,125   $(1,186,337)  $2,378,685   $(3,370,270)

 

20
 

 

For the three and nine months ended September 30, 2012, the number of futures contracts closed were 7,019 and 16,947, respectively. At December 31, 2011, the Fund’s derivative contracts had the following impact on the statements of financial condition:

 

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

 

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

 

For the three and nine months ended September 30, 2011, the Fund’s derivative contracts had the following impact on the statements of operations:

 

   Three Months Ended   Nine Months Ended 
   September 30, 2011   September 30, 2011 
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  $(2,182,224)  $733,531   $(4,082,916)  $(608,668)
Currencies   (1,534,265)   (927,086)   (3,474,814)   (3,446,469)
Energy   (1,282,467)   1,126,486    (3,252,855)   1,179,374 
Equity indices   (2,408,576)   (20,693)   (6,891,484)   49,845 
Interest rate instruments   2,717,854    1,219,634    2,842,720    1,427,244 
Metals   (1,152,741)   1,328,391    (3,503,808)   547,592 
Total futures contracts  $(5,842,419)  $3,460,263   $(18,363,157)  $(851,082)

 

For the three and nine months ended September 30, 2011, the number of futures contracts closed was 5,885 and 33,390, respectively.

 

4.General Partner

 

At September 30, 2012 and December 31, 2011, and for the periods then ended, the General Partner did not maintain a capital balance in the Fund.

 

The General Partner earns the following compensation:

 

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

 

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

 

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

 

21
 

 

 

5.Trading Advisor and Cash Managers

 

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

 

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

 

6.Deposits with Brokers

 

To meet margin requirements, the Fund deposits funds with its futures broker, subject to CFTC regulations and various exchange and broker requirements. The Fund earns interest income on its assets deposited with the broker. At September 30, 2012 and December 31, 2011, the Fund had margin requirements of $5,141,400 and $6,284,545, respectively.

 

7.Administrative Expenses

 

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

 

For the three months ended September 30, 2012 and 2011, actual administrative expenses exceeded the 1% administrative expense limitation of average month-end net asset value of the Fund by $129,945 and $59,385, respectively. For the nine months ended September 30, 2012 and 2011, actual administrative expenses exceeded the 1% administrative expense limitation of average month-end net asset value of the Fund by $410,244 and $239,832, respectively. Such amounts were included in Administrative expenses waived in the statements of operations.

 

Additionally, during the three months ended September 30, 2012 and 2011, the General Partner voluntarily waived $24,646 and $37,758, respectively, of administrative expenses of the Fund. During the nine months ended September 30, 2012 and 2011, the General Partner voluntarily waived $81,031 and $123,231, respectively, of administrative expenses of the Fund. Such amounts were included in Administrative expenses waived in the statements of operations.

 

At September 30, 2012 and December 31, 2011, $23,147 and $32,403, respectively, were payable to the General Partner for expenses incurred on behalf of the fund and not waived by the General Partner. Such amounts are presented as administrative expenses payable – General Partner in the statements of financial condition.

 

8.Subscriptions, Distributions and Redemptions

 

Generally, investments in the Fund are made by subscription agreement and must be received within five business days of the end of the month, subject to acceptance by the General Partner. The minimum investment is $10,000. Units are sold at the net asset value per Unit as of the close of business on the last day of the month in which the subscription is accepted. Investors whose subscriptions are accepted are admitted as limited partners as of the beginning of the month following the month in which their subscriptions were accepted. At September 30, 2012 and December 31, 2011, the Fund received advance subscriptions of $11,213 and $131,216, respectively, which were recognized as subscriptions to the Fund or returned, if applicable, subsequent to month-end.

 

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

 

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

22
 

 

After November 30, 2012, the Fund will cease to accept new subscriptions. The cessation was implemented due to the expiration of the Fund’s confidential offering memorandum on November 30, 2012.

 

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. Prior to April 2011, the Fund used UBS Financial Services, Inc. as its cash management securities broker for the investment of some excess margin amounts into fixed income instruments.

 

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

 

Through its investments in debt securities and certificates of deposit, the Fund has exposure to U.S. and foreign enterprises. The following table presents the exposure at September 30, 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  $2,158,005   $903,605   $2,039,736   $11,474,486   $1,401,487   $17,977,319    49.39%
Netherlands   -    -    -    1,632,505    -    1,632,505    4.49%
France   -    -    249,950    787,625    -    1,037,575    2.85%
Canada   -    -    -    729,119    200,471    929,590    2.56%
Japan   -    -    -    252,050    250,496    502,546    1.38%
Great Britain   -    -    249,545    250,747    -    500,292    1.38%
Denmark   -    -    -    272,987    -    272,987    0.75%
Germany   -    -    -    250,038    -    250,038    0.69%
Luxumburg   -    -    249,996    -         249,996    0.69%
Multinational   -    -    -    200,481         200,481    0.55%
Singapore   -    -    199,954    -    -    199,954    0.55%
Australia   -    -    -    100,853    -    100,853    0.28%
Netherland Antilles   -    -    -    50,276    -    50,276    0.14%
Total  $2,158,005   $903,605   $2,989,181   $16,001,167   $1,852,454   $23,904,412    65.70%

 

23
 

 

The following table presents the exposure at December 31, 2011.

 

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

 

10.Indemnifications

 

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

 

11.Interim Financial Statements

 

The statements of financial condition, including the condensed schedule of investments, at September 30, 2012, the statements of operations for the three and nine months ended September 30, 2012 and 2011, the statements of cash flows and changes in partners’ capital (net asset value) for the nine months ended September 30, 2012 and 2011, and the accompanying notes to the financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP may be omitted pursuant to such rules and regulations. In the opinion of management, such financial statements and accompanying disclosures reflect all adjustments, which were of a normal and recurring nature, necessary to present fairly the financial position at September 30, 2012, results of operations for the three and nine months ended September 30, 2012 and 2011, and cash flows and changes in partners’ capital (net asset value) for the nine months ended September 30, 2012 and 2011. The results of operations for the three and nine months ended September 30, 2012 and 2011 are not necessarily indicative of the results to be expected for the full year or any other period. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Fund’s Form 10-K as filed with the SEC

 

24
 

 

 

12.Financial Highlights

 

The following information presents per unit operating performance data and other financial ratios for the three and nine months ended September 30, 2012 and 2011, assuming the unit was outstanding throughout the entire period:

 

   Three Months Ended
 September 30,
   Nine Months Ended
September 30,
 
   2012   2011   2012   2011 
Per Unit Operating Performance                
Net asset value per Unit at beginning of period  $1,815.21   $2,090.46   $1,883.90   $2,732.10 
Loss from operations                    
Loss from trading(1)   (18.43)   (84.37)   (49.27)   (665.93)
Net investment loss(1)   (21.12)   (38.62)   (58.97)   (98.70)
Total loss from operations   (39.55)   (122.99)   (108.24)   (764.63)
                     
Net asset value per Unit at end of period  $1,775.66   $1,967.47   $1,775.66   $1,967.47 
                     
Total return (5)   (2.18)%   (5.88)%   (5.75)%   (27.99)%
                     
Other Financial Ratios                    
Ratios to average net asset value                    
Expenses prior to General Partner 1% allocation (2) (3) (4)   6.04%   6.00%   6.02%   5.91%
General Partner 1% allocation (5)   (0.02)%   (0.06)%   (0.06)%   (0.34)%
Total expenses   6.02%   5.94%   5.96%   5.57%
                     
Net investment loss (2) (3) (4) (6)   (4.64)%   (7.71)%   (4.31)%   (6.20)%

 

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

 

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

 

(2) All of the ratios under Other Financial Ratios for Units are computed net of voluntary and involuntary waivers of administrative expenses. For the three months ended September 30, 2012 and 2011, the ratios are net of 1.60% and 0.65%, respectively, and for the nine months ended September 30, 2012 and 2011 the ratios are net of 1.54% and 0.74%, respectively, of average net asset value relating to the waivers of administrative expenses. Both the nature and the amounts of the waivers are more fully explained in Note 7.

 

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

 

(4) Ratios have been annualized.

 

(5) Ratios have not been annualized.

 

(6) Ratio excludes General Partner 1% allocation.

  

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Liquidity

 

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

 

Capital Resources

 

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

 

25
 

 

Closing the Fund to New Subscriptions

 

Effective November 30, 2012, the General Partner will close the Fund to new subscriptions. The Fund will continue to trade its assets for existing limited partners, although it will be closed to additional investments.

 

Results of Operations

 

The returns for Units for the nine months ended September 30, 2012 and 2011 were (5.75)% and (27.99)%, respectively. Past performance is not necessarily indicative of future results. Further analysis of futures trading gains and losses is provided below.

 

2012

 

January

In January, markets responded positively to supportive monetary policy from central banks around the world. In the U.S., the Federal Reserve announced that it expected to keep interest rates low through 2014. Meanwhile, in Europe, the European Central Bank was expected to extend its Long-Term Refinancing Operations program by providing additional loans to the region’s banks later this year, beyond the nearly half trillion euros (approximately U.S. $650 billion) already distributed to banks in December. This improved the European credit environment, helping France, Italy and Spain to hold successful bond auctions at reduced yields and allowing them to shrug off Standard & Poor’s sovereign credit downgrades earlier in the month. Positive sentiment fueled by easy monetary policy led to a rally in global equities, industrial commodities, as well as short and medium term interest rate instruments. Among currencies, it also led to a decline in the U.S. dollar, a rebound in the euro, and a surge in commodity currencies.

 

The Fund realized small gains in currencies (primarily through long positions in the Australian dollar), as well as in equity indices, interest rates and energy. These gains were offset by losses from its short positions in base metals, including tin and aluminum, and from short exposure to precious metals, particularly platinum and silver, resulting in a loss of 1.31% for the month.

 

February

In February, markets were driven by continued monetary stimulus from central banks around the world. The European Central Bank extended an additional €529 billion (approximately $700 billion) in low interest 3-year loans to 800 of the region’s banks in the second round of its Long Term Refinancing Operation to shore up the balance sheets of the financial sector in Europe. Since December, the ECB has made over €1 trillion (approximately $1.3 trillion) in loans to Europe’s banking sector. Elsewhere, the Bank of Japan and the Bank of England implemented new rounds of quantitative easing in their respective markets. These actions encouraged a greater risk appetite among investors, driving up global equity indices. Meanwhile, the U.S. saw an improvement in labor market data, prompting a rise in U.S. bond yields. In the Middle East, the threat of oil supply disruptions from rising tensions over Iran’s nuclear program led to a rally in energy prices, with Brent crude prices exceeding $125 per barrel.

 

The Fund made gains in the energy sector, where it benefited from long positions in both in crude oil and oil-related products. The Fund also profited from its long exposure to equity indices, particularly in Europe and Japan. However, long positions in the fixed income sector caused losses as bonds in the UK and Australia sold off. The Fund also saw moderate declines in the agricultural and metals sectors. Overall, the Fund finished up 0.08% for the month.

 

March

In March, markets continued to price in a stronger economic growth outlook for the U.S. Following improved labor and consumption data, the Fed raised its forecast from “modest” to “moderate” growth. Investors interpreted this positive language as a signal that further Fed stimulus in the form of bond purchases was not necessary. As a result U.S. long-term bonds sold off sharply. Meanwhile U.S. equities continued to rally, with the S&P 500 enjoying its best quarter since the third quarter of 2009. Elsewhere, the attempt by Chinese authorities to limit domestic inflation through a gradual deceleration of economic growth had a negative impact on commodity currencies such as the Australian dollar. In energy markets, crude oil halted its six month rise due to softer prospective Chinese demand as well as an expected release of strategic oil reserves by the U.S., UK and France.

 

The Fund made gains in agricultural commodities such as coffee, and in energy through short positions in natural gas, where a supply glut and unusually warm weather led to continued price declines. However, the Fund suffered losses in fixed income, as bond prices declined mid-month in the U.S., Europe and Japan, hurting long positions. In currencies, long exposure to the weakening Australian dollar also detracted from performance. Overall, the Fund finished with a loss of 1.09% for the month.

 

26
 

 

April  

April saw a reversal of the positive equity market sentiment that characterized much of the first quarter of 2012, with renewed worries over global growth and the European debt crisis. Both the U.S. and China reported slowing GDP growth for the first quarter. Meanwhile in Europe, the UK and Spain posted a second consecutive quarter of negative growth and thus joined Italy, Ireland, Portugal and Greece in falling into a double dip recession. The possibility of a Spanish default became the latest focus for sovereign bond investors, as the effectiveness of its fiscal austerity program came into doubt, with the unemployment rate rising to 24%.

 

The Fund saw profits in April from its long positions in interest rate instruments, as bond yields in major markets declined, with a global swing towards risk aversion. The Fund also made gains in the agricultural commodities sector, as soybeans continued their strong year-to-date rally due to a lack of rain in South America threatening the harvest. However, in the energy sector, losses were made in long positions in oil-related commodities and a short position in natural gas. Overall the Fund finished up 0.43% for the month.

 

May

In May, the escalating European debt crisis and weak U.S. and Chinese economic data led to a flight to safety in financial markets. In Greece, electoral gains by anti-austerity political parties stoked fears that the country might ultimately exit the Eurozone. Elsewhere, concerns grew over the health of Spain’s banks, as the already debt-laden Spanish government was forced to bail out the country’s third largest lender. Meanwhile, labor market conditions deteriorated in the U.S. and industrial production slowed in China. In response, investors sold global equities, energies and commodity currencies and sought the relative safe harbor of bonds and the U.S. dollar.

 

The Fund made its largest gains from long positions in global bond markets, as yields trended lower and prices moved higher. In addition, the Fund profited from a net short position in both industrial and precious metals. The Fund had some offsetting losses in long equity index and oil positions, before trimming and even reversing some of those exposures by month-end. Overall, the Fund finished May with a profit of 0.48%.

 

June

The risk appetite of global investors returned in June, as markets anticipated increased central bank intervention to spur weakening economic growth. In Europe, the risk of a splintering of the euro currency union subsided, as Greek parliamentary elections were won by political parties favoring a European bailout with austerity conditions attached, in effect keeping the country in the Eurozone. This was followed by a European summit meeting at month end where EU leaders agreed to ease conditions on loans to Spain and Italy, thereby stemming the surge in borrowing costs in those countries. In response, investors rotated from bonds into equities and sold off the U.S. dollar in favor of the euro and emerging market currencies.

 

During June, the Fund had most of its risk allocated to physical commodities. Losses primarily came from agricultural markets and energy. The Fund was positioned for a bearish trend in corn, but a drought and heat wave in the U.S. caused prices to spike. Short positions in natural gas also proved unprofitable, as reports of smaller than expected inventories led to a rebound in prices. In the financial futures markets, the Fund avoided significant losses despite strong trend reversals in the bond, currency and equity sectors. The Fund was able to make a positive return in equity indices through long positions in U.S. stock markets. In currencies, the Fund had a loss from its short euro exposure. Meanwhile performance was flat in bonds. Overall, the Fund finished June with a loss of 2.27%.

 

July

The Fund delivered positive returns in July, as more signs emerged of a faltering global economic recovery. U.S. labor market data continued to disappoint and Chinese growth weakened. Europe, however, remained the primary focus of investors. Spain’s credit conditions deteriorated, as the 10-year sovereign bond yield spiked as high as 7.75% during the month, its highest level since the inception of the euro. The European Central Bank (ECB) cut interest rates, but this did little to reverse the depreciation of the euro. The tide of negative sentiment was stanched only later in the month, when the ECB President vowed to use all necessary means to save the currency union. The largest contribution to the Fund came from the fixed income sector, where long positions profited from the ECB rate cut as well as market speculation of additional future central bank easing in Europe and the U.S. The Fund also made solid gains in currencies through its short euro exposure. Lastly, in the agricultural sector, the Fund profited from a surge in grain prices, as hot, dry weather in the U.S. damaged crop yields. Overall, the Fund finished the month with a gain of 6.51%.

 

August

In August, investor sentiment towards the future of the Eurozone turned from pessimistic to mildly optimistic. U.S. economic reports, including non-farm payroll data, also came in better than expected. These factors extended the rally in global equities, caused a rebound in the euro and prompted an initial sell-off in safe haven U.S. and German government bonds. As the month progressed, speculation mounted that global central banks would engage in further quantitative easing, which caused bonds to recover from their earlier declines. Rising tensions between Iran and Israel caused crude oil prices to climb, while the U.S. experienced its most widespread drought since 1956, leading to higher grain prices. During the month, the Fund gave back some of the profits it made in July. The Fund’s short positions in the euro and long positions in the Australian dollar suffered on market reversals. Metals were also a negative contributor, as mining strikes in South Africa caused a spike in platinum prices, hurting the Fund’s short position. The Fund did see gains in long equity and long oil exposures. However, the Fund finished the month with a net loss 2.33%.

 

27
 

 

September

September saw an increase in the scale of global central bank intervention in an attempt to prevent further deterioration of economic growth. The European Central Bank announced a plan to buy unlimited amounts of government bonds of distressed countries such as Spain, in exchange for their accepting austerity reforms. Meanwhile in the U.S., the Federal Reserve announced “QE3”, a third round of quantitative easing, involving the purchase of $40 billion of agency backed mortgages each month for an indefinite period of time. In response, equities rallied worldwide, as did the euro, gold and industrial metals. There was a corresponding sell-off in perceived safe haven assets such as U.S. bonds and the U.S. dollar.

 

Coming into the month, the agricultural commodities had been in uptrends. However, grain prices corrected after their recent run-up, hurting the Fund’s long positions, after reports that the U.S. drought had not damaged crop yields as much as expected. September’s central bank announcements caused a rally in industrial metals, which hurt the Fund’s short positions. Among financial sector contracts, the “risk on” rally caused losses for the Fund’s long bond and short euro positions. Although the Fund’s long equity exposure did generate gains, these were not enough to offset declines elsewhere. Overall, the Fund finished with a net loss of 5.97%

 

2011

 

January

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

 

February

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

 

March

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

 

April

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

 

28
 

 

May

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

 

June

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

 

July

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

 

August

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

 

September

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

 

Off-Balance Sheet Risk

 

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

 

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

 

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

 

Significant Accounting Estimates

 

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

 

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

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required.

 

Item 4. Controls and Procedures

 

The General Partner, 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 September 30, 2012 (the “Evaluation Date”). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer of the General Partner concluded that, as of the Evaluation Date, the Fund’s disclosure controls and procedures were effective.

 

There has been no change in internal control over financial reporting that occurred during the period ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

Part II: Other Information

 

Item 1. Legal Proceedings.

 

None.

 

Item 1A. Risk Factors.

 

Not required.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no sales of unregistered securities of the Fund during the nine months ended September 30, 2012. Under the Fund’s Partnership Agreement, limited partners may redeem their Units at the end of each calendar month at the then current month-end net asset value per Unit. Redemptions of Units during the third quarter of 2012 were as follows:

 

   July   August   September   Total 
                 
Units redeemed   230.9399    317.4972    278.6664    827.1035 
Average net asset value per Unit  $1,933.40   $1,888.40   $1,775.66   $1,862.98 

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

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Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

  

Item 6. Exhibits

 

The following exhibits are filed herewith of incorporated by reference.

 

Exhibit No. Description of Exhibit
1.1* Form of Selling Agreement.
3.1* Certificate of Limited Partnership of Sage Fund Limited Partnership.
3.2* Second Amended and Restated Limited Partnership Agreement of Sage Fund Limited Partnership.
10.1* Form of Subscription Agreement.
10.2** Advisory Agreement by and among the Fund, the General Partner and Altis Partners (Jersey) Limited dated August 8, 2007.
10.3* Amendment to Advisory Agreement by and among the Fund, the General Partner and Altis Partners (Jersey) Limited dated August 27, 2007.
10.4* Futures Account Agreement dated January 21, 2001 by and among the Fund, the General Partner and Carr Futures Inc. (subsequently, Newedge USA, LLC).
10.5* Corporate Cash Account Management Agreement dated September 25, 2007 by and among the Fund, the General Partner and UBS Financial Services, Inc.
31.01 Certification of Chief Executive Officer of the General Partner in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
31.02 Certification of Chief Financial Officer of the General Partner in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
32.01 Certification of Chief Executive Officer of the General Partner in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
32.02 Certification of Chief Financial Officer of the General Partner in accordance with Section 906 of the Sarbanes-Oxley Act of 2002

 

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

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

 

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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.

 

Dated November 14, 2012 Sage Fund Limited Partnership
   
  By: Steben & Company, Inc.
  General Partner
   
  By: /s/ Kenneth E. Steben
  Name: Kenneth E. Steben
  Title: President, Chief Executive Officer and Director of the General Partner
  (Principal Executive Officer)
   
  By:  /s/ Carl A. Serger
  Name: Carl A. Serger
  Title: Chief Financial Officer and Director of the General Partner
  (Principal Financial and Accounting Officer)

 

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