Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - LV Futures Fund L.P.Financial_Report.xls
EX-31.01 - EXHIBIT - LV Futures Fund L.P.lvex3101.htm
EX-32.01 - EXHIBIT - LV Futures Fund L.P.lvex3201.htm
EX-31.02 - EXHIBIT - LV Futures Fund L.P.lvex3102.htm
EX-32.02 - EXHIBIT - LV Futures Fund L.P.lvex3202.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011 or

o           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________to__________________

Commission File Number: 000-53114

 
LV FUTURES FUND L.P.
 
 
(Exact name of registrant as specified in its charter)
 

 
Delaware
 
20-8529012
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
       
Ceres Managed Futures LLC
   
522 Fifth Avenue, 14th Floor
   
New York, NY
 
10036
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code
 
(212) 296-1999



(Former name, former address and former fiscal year, if changed since last report)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x  No o

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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes 0  No T


 
 

 




LV FUTURES FUND L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2011



 
PART I. FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (Unaudited)
 
     
 
Statements of Financial Condition as of September 30, 2011 and December 31, 2010
2
     
 
Statements of Income and Expenses for the Three and Nine Months Ended  September 30, 2011 and 2010
3
     
 
Statements of Changes in Partners’ Capital for the Nine Months Ended September 30, 2011 and 2010
4
     
 
Notes to Financial Statements
  5-19
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20-30
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
30-46
     
Item 4.
Controls and Procedures
46-47
     
 
PART II. OTHER INFORMATION
 
     
Item 1A.
Risk Factors
48
     
Item 2.
Unregistered Sales of Securities and Use of Proceeds
48
     
Item 6.
Exhibits
48-49



 
 

 

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

LV FUTURES FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 
September 30,
 
December 31,
 
2011
 
2010
ASSETS
$
 
$
       
Investments in Affiliated Trading Companies:
     
Investment in Kaiser I, LLC
16,026,564 
 
16,075,963 
Investment in TT II, LLC
14,398,343 
 
16,437,221 
Investment in WNT I, LLC
9,525,161 
 
Investment in Rotella I, LLC
5,248,041 
 
10,837,728 
Investment in Augustus I, LLC
4,915,911 
 
6,683,266 
Investment in Chesapeake I, LLC
4,420,695 
 
5,057,606 
Investment in GLC I, LLC
3,944,555 
 
5,960,750 
Investment in DKR I, LLC
 
11,198,986 
       
Total Investments in Affiliated Trading Companies, at fair value
  (cost $60,108,470 and $68,408,357, respectively)
58,479,270 
 
72,251,520 
       
Receivable from Affiliated Trading Companies
 
1,162,507 
Subscriptions receivable
 
553,442 
       
Total Assets
58,479,270 
 
73,967,469 
       
LIABILITIES
     
       
Redemptions payable
2,044,410 
 
913,541 
Payable to Affiliated Trading Companies
 
619,826 
       
Total Liabilities
2,044,410 
 
1,533,367 
       
PARTNERS’ CAPITAL
     
Class A (36,796.467 and 39,904.989 Units, respectively)
35,878,067 
 
42,648,264 
Class B (6,339.245 and 7,784.920 Units, respectively)
6,311,237 
 
8,463,247 
Class C (11,177.974 and 16,438.640 Units, respectively)
11,362,942 
 
18,178,357 
Class D* (1,818.843 and 1,818.843 Units, respectively)
1,868,028 
 
2,028,255 
Class Z (957.352 and 975.359 Units, respectively)
1,014,586 
 
1,115,979 
       
Total Partners’ Capital
56,434,860 
 
72,434,102 
       
Total Liabilities and Partners’ Capital
58,479,270 
 
73,967,469 
       
NET ASSET VALUE PER UNIT
     
Class A
975.04 
 
1,068.75 
Class B
995.58 
 
1,087.13 
Class C
1,016.55 
 
1,105.83 
Class D*
1,027.04 
 
1,115.12 
Class Z
1,059.78 
 
1,144.17 

* Class D Units were issued beginning on March 1, 2009.

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

- 2 -

 
 

 

LV FUTURES FUND L.P.
STATEMENTS OF INCOME AND EXPENSES
(Unaudited)
       
 
For the Three Months
Ended September  30,
 
For the Nine Months
 Ended September 30,
               
 
2011
 
2010
 
2011
 
2010
 
$
 
$
 
$
 
$
EXPENSES
             
Ongoing Placement Agent fees
249,346 
 
308,416 
 
811,150 
 
916,766 
General Partner fees
151,257 
 
203,351 
 
495,148 
 
604,703 
Administrative fees
60,503 
 
81,340 
 
198,059 
 
241,881 
               
Total Expenses
461,106 
 
593,107 
 
1,504,357 
 
1,763,350 
 
NET INVESTMENT LOSS
(461,106)  
 
(593,107)  
 
(1,504,357)  
 
(1,763,350) 
               
REALIZED/NET CHANGE IN UNREALIZED
             
 APPRECIATION (DEPRECIATION) ON INVESTMENTS
             
Realized
40,962 
   
629,169 
 
1,339,732 
 
436,699 
Net change in unrealized appreciation
  (depreciation) on investments
(908,153) 
 
2,023,687 
 
(5,472,363) 
 
(133,258) 
               
Total Realized/Net Change in Unrealized
             
Appreciation (Depreciation) on Investments
(867,191)  
 
2,652,856 
 
(4,132,631) 
 
303,441 
 
NET INCOME (LOSS)
(1,328,297) 
 
2,059,749 
 
(5,636,988) 
 
 (1,459,909) 
               
NET INCOME (LOSS) ALLOCATION
             
Class A
(855,641) 
 
1,000,858 
 
(3,574,696) 
 
(886,694) 
Class B
(141,856) 
 
220,185 
 
(582,062) 
 
(184,767) 
Class C
(273,642) 
 
480,068 
 
(1,239,054) 
 
(215,051) 
Class D
(38,305) 
 
324,401 
 
(160,227) 
 
(165,834) 
Class Z
(18,853) 
 
34,237 
 
(80,949) 
 
(7,563) 
               
NET INCOME (LOSS) PER UNIT *
             
Class A
(23.13) 
 
24.14 
 
(93.71) 
 
(23.64) 
Class B
(22.34) 
 
25.79 
 
(91.55) 
 
(20.03) 
Class C
(21.49) 
 
27.47 
 
(89.28) 
 
(16.32) 
Class D
(21.05) 
 
28.32 
 
(88.08) 
 
(14.42) 
Class Z
(19.70) 
 
30.97 
 
(84.39) 
 
(8.58) 
               
 
Units
 
Units
 
Units
 
Units
WEIGHTED AVERAGE NUMBER
             
OF UNITS OUTSTANDING
             
Class A
37,360.709 
 
41,919.118 
 
38,435.310 
 
40,564.563 
Class B
6,475.594 
 
9,032.802 
 
6,927.708 
 
8,829.195 
Class C
12,926.330 
 
17,257.378 
 
14,376.237 
 
16,353.281 
Class D
1,818.843 
 
11,454.637 
 
1,818.843 
 
11,434.913 
Class Z
957.352 
 
1,121.551 
 
959.397 
 
1,089.991 

* Based on change in net asset value per Unit.

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

– 3 –

 
 

 


LV FUTURES FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
For the Nine Months Ended September 30, 2011 and 2010 (Unaudited)

 
Class A
 
Class B
 
Class C
 
Class D
 
Class Z
 
Total
 
$
 
$
 
$
 
$
 
  $
 
$
Partners’ Capital,
                     
December 31, 2010
42,648,264 
 
8,463,247 
 
18,178,357 
 
2,028,255  
 
1,115,979 
 
       72,434,102
                        
Subscriptions
3,685,695 
 
801,607 
 
673,500 
 
 
 
 5,160,802
                       
Net Loss
(3,574,696) 
 
(582,062) 
 
(1,239,054) 
 
                      (160,227)
 
(80,949) 
 
   (5,636,988)
                       
Redemptions
(6,881,196) 
 
(2,371,555) 
 
(6,249,861) 
 
 
  (20,444) 
 
  (15,523,056)
                       
Partners’ Capital,
                     
September 30, 2011
35,878,067 
 
6,311,237 
 
11,362,942 
 
                      1,868,028
 
1,014,586 
 
    56,434,860
                       
Partners’ Capital,
                     
December 31, 2009
39,684,890 
 
8,492,803 
 
16,633,598 
 
12,265,562  
 
1,069,141 
 
    78,145,994
                       
Subscriptions
8,735,108 
 
2,204,427 
 
4,511,828 
 
                   65,000
 
170,000 
 
    15,686,363
                       
Net Loss
(886,694) 
 
(184,767) 
 
(215,051) 
 
                      (165,834)
 
(7,563) 
 
    (1,459,909)
                       
Redemptions
(5,251,158) 
 
(1,743,009) 
 
(3,013,643) 
 
 (10,233,117)  
 
  (121,482) 
 
   (20,362,409)
                       
Partners’ Capital,
                     
September 30, 2010
42,282,146  
 
8,769,454 
 
17,916,732 
 
                      1,931,611
 
1,110,096 
 
    72,010,039
                       
 
Class A
 
Class B
 
Class C
 
Class D
 
Class Z
 
Total
 
Units
 
Units
 
Units
 
Units
 
Units
 
Units
Beginning Units,
                     
December 31, 2010
39,904.989 
 
7,784.920 
 
16,438.640 
 
1,818.843
 
975.359 
 
       66,922.751
                       
Subscriptions
3,549.588 
 
761.970 
 
605.343 
 
 
 
     4,916.901
                       
Redemptions
(6,658.110) 
 
(2,207.645) 
 
(5,866.009) 
 
 
  (18.007) 
 
  (14,749.771)
                       
Ending Units,
                     
September 30, 2011
36,796.467 
 
6,339.245 
 
11,177.974 
 
                    1,818.843
 
957.352 
 
    57,089.881
                       
                       
Beginning Units,
                     
December 31, 2009
37,990.609 
 
8,032.706 
 
15,543.827 
 
11,394.809
 
975.295 
 
   73,937.246
                       
Subscriptions
8,632.297 
 
2,136.045 
 
4,341.951 
 
                        59.828
 
157.826 
 
   15,327.947
                       
Redemptions
(5,208.724) 
 
(1,714.193) 
 
(2,883.554) 
 
  (9,635.794)
 
(112.480) 
 
  (19,554.745)
                       
Ending Units,
                     
September 30, 2010
41,414.182 
 
8,454.558 
 
17,002.224 
  
1,818.843
 
1,020.641 
 
    69,710.448


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

- 4 -

 
 

 

LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS

September 30, 2011

(Unaudited)

The unaudited financial statements contained herein include, in the opinion of management, all adjustments necessary for a fair presentation of the financial condition and results of operations of LV Futures Fund L.P. (“LV” or the “Partnership”).  The financial statements and condensed notes herein should be read in conjunction with the Partnership’s Annual Report on Form 10-K for the fiscal year ending December 31, 2010.

1.  Organization
LV Futures Fund L.P. was formed on February 22, 2007, under the Delaware Revised Uniform Limited Partnership Act, as a multi-advisor commodity pool created to profit from the speculative trading of domestic and foreign futures contracts, forward contracts, foreign exchange commitments, options on physical commodities and futures contracts, spot (cash) commodities and currencies, exchange of futures contracts on physicals transactions and futures contracts transactions, and any rights pertaining thereto (collectively, “Futures Interests”) (refer to Note 4. Financial Instruments of the Trading Companies) through its investments in affiliated trading companies (each a “Trading Company”, or collectively the “Trading Companies”).  LV is one of the partnerships in the Managed Futures Multi-Strategy Profile Series, comprised of LV and Meritage Futures Fund L.P. (collectively, the “Profile Series”).

 
 



- 5 -

 
 

 

LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership allocates substantially all of its assets to multiple affiliated Trading Companies, each of which allocates substantially all of its assets to the trading program of an unaffiliated commodity trading advisor which makes investment decisions for each respective Trading Company.

The Partnership commenced trading operations on August 1, 2007, in accordance with the terms of its Limited Partnership Agreement (the “Limited Partnership Agreement”).  The non-clearing commodity broker for each Trading Company is Morgan Stanley Smith Barney LLC (“MSSB”).  Morgan Stanley & Co. LLC (“MS&Co.”) (formerly, Morgan Stanley & Co. Incorporated) acts as each Trading Company’s clearing commodity broker, except that Morgan Stanley Smith Barney Kaiser I, LLC (“Kaiser I, LLC”) uses Newedge USA, LLC (“Newedge”).  Morgan Stanley & Co. International plc (“MSIP”) acts as each Trading Company’s commodity broker to the extent it trades on the London Metal Exchange (except for Kaiser I, LLC, which uses Newedge) (collectively, MS&Co., MSIP, and Newedge are referred to as the “Commodity Brokers”).  Each Trading Company’s over-the-counter foreign exchange spot, options, and forward contract counterparty are MS&Co. and/or Morgan Stanley Capital Group Inc. (“MSCG”) to the extent a Trading Company trades options on over-the-counter foreign currency forward contracts (except that Newedge serves in such capacity with respect to Kaiser I, LLC).

The financial statements of the Partnership have been prepared using the “Fund of Funds” approach and accordingly all revenue and expense information from the Trading Companies is reflected as a total realized/net change in unrealized appreciation (depreciation) on investments on the Statements of Income and Expenses.  The


- 6 -

 
 

 

LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Partnership maintains sufficient cash balances on hand to satisfy ongoing operating expenses for the Partnership. The Trading Companies and their trading advisors (each individually, a “Trading Advisor” or collectively, the “Trading Advisors”) for the Partnership at September 30, 2011, are as follows:

Trading Company
Trading Advisor
   
Morgan Stanley Smith Barney Augustus I, LLC
 
  (“Augustus I, LLC”)
GAM International Management Limited
Morgan Stanley Smith Barney Chesapeake Diversified I, LLC
 
  (“Chesapeake I, LLC”)
Chesapeake Capital Corporation
Morgan Stanley Smith Barney GLC I, LLC
 
(“GLC I, LLC”)
GLC Ltd.
Kaiser I, LLC
 Kaiser Trading Group Pty. Ltd.                                                                                
Morgan Stanley Smith Barney Rotella I, LLC
 
(“Rotella I, LLC”)
Rotella Capital Management, Inc. (“Rotella”)
Morgan Stanley Smith Barney TT II, LLC
 
(“TT II, LLC”)
Transtrend B.V.
Morgan Stanley Smith Barney WNT I, LLC
 
(“WNT I, LLC”)
Winton Capital Management Limited



Ceres Managed Futures LLC (“Ceres”), the general partner of the Partnership and the trading manager of each Trading Company, is a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC (“MSSBH”).  MSSBH is majority-owned indirectly by Morgan Stanley and minority-owned indirectly by Citigroup Inc. MSSB is the principal subsidiary of MSSBH.  MS&Co., MSIP, and MSCG are wholly-owned subsidiaries of Morgan Stanley.

Ceres may reallocate the Partnership’s assets to the different Trading Companies at its sole discretion.






- 7 -
 
 
 

 
LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


Units of limited partnership interest (“Units”) of the Partnership are being offered in four share classes in a private placement pursuant to Regulation D under the Securities Act of 1933, as amended.  Depending on the aggregate amount invested in the Partnership, limited partners receive class A, B, C or D Units in the Partnership  (each a “Class” and collectively the “Classes”).  Certain limited partners who are not subject to the ongoing placement agent fee are deemed to hold Class Z Units.  Ceres received Class Z Units with respect to its investment in the Partnership.

Ceres is not required to maintain any investment in the Partnership, and may withdraw any portion of its interest in the Partnership at any time, as permitted by the Limited Partnership Agreement.  In addition, Class Z shares are only being offered to certain individuals affiliated with Morgan Stanley at Ceres’ sole discretion.  Class Z Unit holders are not subject to paying the ongoing placement agent fee.

On August 18, 2011, Ceres notified DKR Fusion Management L.P. (“DKR”) that the Advisory Agreement dated as of April 30, 2007, and any amendments or revisions subsequently made thereto, among Morgan Stanley Smith Barney DKR Fusion I, LLC (“DKR I, LLC” or the “Trading Company), the General Partner and DKR (the “DKR Advisory Agreement”), pursuant to which DKR traded a portion of the Trading Company’s (and, indirectly, the Partnership’s) assets in futures interests, will be terminated effective August 31, 2011.




-  8 -

 
 

 

LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)



Consequently, DKR ceased all futures interest trading on behalf of the Trading Company (and, indirectly, the Partnership) effective August 31, 2011.

Effective July 1, 2011, the monthly management fee rate payable by the Partnership to Rotella was reduced from a monthly fee rate equal to 1/12 of 2%  (a 2% annual rate) to a monthly fee rate equal to 1/12 of 1% (a 1% annual rate).
 
 
2.  Related Party Transactions
The cash held by each Trading Company is on deposit with MSSB, MS&Co., and MSIP in futures interest trading accounts to meet margin requirements as needed.  MSSB pays each Trading Company at each month end interest income on 100% of its average daily funds held at MSSB.  Assets deposited with MS&Co. and MSIP as margin are credited with interest income at a rate approximately equivalent to what MS&Co. and MSIP pay or charge other customers on such assets deposited as margin.  Assets not deposited as margin with MS&Co. and MSIP are credited with interest income at a rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate less 0.15% during such month but in no event less than zero.  For purposes of such interest
payments, net assets do not include monies owed to each Trading Company on Futures Interests. MSSB and MS&Co. will retain any excess interest not paid to each Trading Company.



The Partnership pays monthly administrative fees and general partner fees to Ceres.  The Partnership pays to MSSB ongoing placement agent fees on a monthly basis equal to a percentage of the net asset value of a limited partners’ Units as of the beginning of each month.

- 9 -
 
 
 

 
LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


 
3.  Financial Highlights
 
Changes in the net asset value per Unit for three and nine months ended September 30, 2011 and 2010 were as follows:
 
 Class A
 
   Class B
 
Class C
 
Class D
 
Class Z
 
           
PER UNIT OPERATING PERFORMANCE:
         
NET ASSET VALUE,
         
  JULY 1, 2011:
$         998.17
$        1,017.92
$        1,038.04
  $       1,048.09 
  $  $    1,079.48 
           
NET OPERATING RESULTS:
         
   Net investment loss
 (8.52)          
           (7.41)
               (6.26)
            (5.66)
              (3.80)
   Net realized/unrealized loss
              (14.61)
            (14.93)
              (15.23)
           (15.39)
            (15.90)
   Net loss
              (23.13)
            (22.34)
              (21.49)
           (21.05)
            (19.70)
           
NET ASSET VALUE,
         
 SEPTEMBER 30, 2011:
$          975.04
$         995.58
$        1,016.55
$    1,027.04 
$   1,059.78 
RATIOS TO AVERAGE NET ASSETS:
         
   Net investment loss  (1)  (2)
-3.37%
-2.88%
-2.38%           
-2.13%        
-1.39%                 
   Partnership expenses (1) (2)
 3.37%
 2.88%
 2.38%          
 2.13%        
 1.39%                 
           
TOTAL RETURN:
-2.32%
-2.19%
-2.07%          
-2.01%       
-1.82%              
           
PER UNIT OPERATING PERFORMANCE:
         
NET ASSET VALUE,
         
  JANUARY 1, 2011:
$        1,068.75
$          1,087.13
$          1,105.83
    $       1,115.12 
     $  $    1,144.17 
           
NET OPERATING RESULTS:
         
   Net investment loss
(26.55)
                (23.12)
              (19.50)
           (17.58)
          (11.77)
   Net realized/unrealized loss
               (67.16)
             (68.43)
               (69.78)
               (70.50)
          (72.62)
   Net loss
            (93.71)
             (91.55) 
               (89.28)
           (88.08)
          (84.39)
           
NET ASSET VALUE,
         
  SEPTEMBER 30, 2011:
$         975.04
$           995.58
$         1,016.55
$   1,027.04 
$     1,059.78 
RATIOS TO AVERAGE NET ASSETS:
         
   Net investment loss (1) (2)
-3.41%
-2.91%
      -2.41%
-2.16%     
-1.40%
   Partnership expenses (1) (2)
 3.41%
 2.91%
       2.41%
 2.16%     
 1.40%
           
TOTAL RETURN:
-8.77%
-8.42%
       -8.07%
-7.90%     
-7.38%
           





- 10 -
 
 
 

 
LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

PER UNIT OPERATING PERFORMANCE:
         
NET ASSET VALUE,
         
  JULY 1, 2010:
$         996.82
$        1,011.46
$         1,026.32
  $       1,033.67 
  $  $    1,056.67 
           
NET OPERATING RESULTS:
         
   Net investment loss
  (8.44)          
            (7.30) 
                (6.14)
            (5.54)
             (3.69)
   Net realized/unrealized gain
                32.58
              33.09 
                 33.61
            33.86
             34.66
   Net gain
             24.14
              25.79 
                 27.47
            28.32
             30.97
           
NET ASSET VALUE,
         
  SEPTEMBER 30, 2010:
$       1,020.96
$        1,037.25
$         1,053.79
$    1,061.99 
$   1,087.64 
RATIOS TO AVERAGE NET ASSETS:
         
   Net investment loss  (1) (2)
-3.37%
-2.88%
-2.38%
-2.13%       
-1.39%               
   Partnership expenses (1) (2)
 3.37%
 2.88%
 2.38%
 2.13%        
 1.39%              
           
TOTAL RETURN:
2.42%
2.55%
2.68%
2.74%      
2.93%           
           
PER UNIT OPERATING PERFORMANCE:
         
NET ASSET VALUE,
         
  JANUARY 1, 2010:
$      1,044.60
$        1,057.28
$           1,070.11
      $       1,076.41 
          $    1,096.22 
           
NET OPERATING RESULTS:
         
   Net investment loss
(25.92)      
                (22.42)
               (18.80)
             (16.97)
          (11.28)
   Net realized/unrealized gain
                  2.28
                2.39 
                   2.48
                    2.55
              2.70
   Net loss
           (23.64)
             (20.03) 
                (16.32)
             (14.42)
            (8.58)
           
NET ASSET VALUE,
         
  SEPTEMBER 30, 2010:
$      1,020.96
$        1,037.25
$          1,053.79
$   1,061.99 
$      1,087.64 
RATIOS TO AVERAGE NET ASSETS:
         
   Net investment loss (1) (2)
-3.41%
-2.91%
        -2.41%
-2.16%
-1.40%
   Partnership expenses (1) (2)
 3.41%
 2.91%
         2.41%
 2.16%
 1.40%
           
TOTAL RETURN:
-2.26%
-1.89%
        -1.53%
-1.34%
-0.78%

 
(1) Annualized
 
(2) Does not include the expenses of the Trading Companies in which the Partnership invests.

4.  Financial Instruments of the Trading Companies
The Trading Advisors trade Futures Interests on behalf of the Trading Companies.  Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price.  Futures Interests are open commitments until settlement date, at which time they are realized.  They are valued at fair value, generally on a daily basis, and the unrealized gains and losses on open contracts (the difference between contract trade

- 11 -
 
 
 

 
LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


price and market price) are reported in the Statements of Financial Condition as a net unrealized gain or loss on open contracts.  The resulting net change in unrealized gain and loss is reflected in the net change in unrealized trading profit (loss) on open contracts from one period to the next on the Statements of Income and Expenses.  The fair value of exchange-traded futures, options and forward contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period.  The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) of the last business day of the reporting period.  The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options, using as inputs, the spot prices, interest rates, and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period.  Risk arises from changes in the value of these contracts and the potential inability of counterparties to perform under the terms of the contracts.  There are numerous factors which may significantly influence the fair value of these contracts, including interest rate volatility.


The fair value of exchange-traded contracts is based on the settlement price quoted by the exchange on the day with respect to which fair value is being determined.  If an exchange-traded contract could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange, the settlement price
will be equal to the settlement price on the first subsequent day on which the contract could be liquidated.




- 12 -
 
 
 

 

LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Trading Companies’ contracts are accounted for on a trade-date basis and marked to market on a daily basis. A derivative is defined as a financial instrument or other contract that has all three of the following characteristics:

1)  
a) One or more “underlyings” and b) one or more “notional amounts” or payment provisions or both;
2)  
Requires no initial net investment or a smaller initial net investment than would be required for other types of contracts that would be expected to have a similar response relative to changes in market factors; and
3)  
Terms that require or permit net settlement.

Generally, derivatives include futures, forwards, swaps or options contracts, and other financial instruments with similar characteristics such as caps, floors, and collars.

The futures, forwards and options traded by the Trading Advisors on behalf of the Trading Companies involve varying degrees of related market risk.  Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Trading Companies’ open positions, and consequently in their earnings, whether realized or unrealized, and cash flow.  Gains and losses on open positions of exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are settled daily through variation margin.  Gains and losses on off-exchange-traded forward currency contracts


- 13 -
 
 
 

 
LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

are settled upon termination of the contract. Gains and losses on off-exchange-traded forward currency options contracts are settled upon an agreed upon settlement date.  However, the Trading Companies are required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Trading Companies’ accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co.

5.  Fair Value Measurements and Disclosures
Financial instruments are carried at fair value, which is 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 carried at fair value are classified and disclosed in the following three levels: Level 1 - unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2 - inputs other than unadjusted quoted market prices that are observable for the asset or liability, either directly or indirectly (including unadjusted quoted market prices for similar investments, interest rates, credit risk); and Level 3 - unobservable inputs for the asset or liability (including the Partnership’s own assumptions used in determining the fair value of investments).

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

- 14 -

 
 

 

LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)




The Partnership’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.

September 30, 2011
 
 
 
 
Assets
          Unadjusted
             Quoted Prices in
               Active Markets for
                Identical Assets
                         (Level 1)
 
                Significant Other
                    Observable
                         Inputs
                       (Level 2)
 
  Significant
   Unobservable
     Inputs
   (Level 3)
 
 
 
 
                 Total
   
 $
 
                $
Investment in Kaiser I, LLC
16,026,564 
16,026,564    
Investment in TT II, LLC
14,398,343 
14,398,343    
Investment in WNT I, LLC
9,525,161 
9,525,161    
Investment in Rotella I, LLC
5,248,041 
5,248,041    
Investment in Augustus I, LLC
4,915,911 
4,915,911    
Investment in Chesapeake I, LLC
4,420,695 
4,420,695    
Investment in GLC I, LLC
3,944,555 
3,944,555    

December 31, 2010
 
 
 
 
Assets
           Unadjusted
               Quoted Prices in
                    Active Markets for
                   Identical Assets
                         (Level 1)
 
                       Significant Other
                      Observable
                           Inputs
                          (Level 2)
 
Significant
   Unobservable
     Inputs
   (Level 3)
 
 
 
 
     Total
   
   $
 
 $
Investment in TT II, LLC
16,437,221
16,437,221
Investment in Kaiser I, LLC
16,075,963
16,075,963
Investment in DKR I, LLC
11,198,986
11,198,986
Investment in Rotella I, LLC
10,837,728
10,837,728
Investment in Augustus I, LLC
 6,683,266
 6,683,266
Investment in GLC I, LLC
5,960,750
5,960,750
Investment in Chesapeake I, LLC
5,057,606
5,057,606



- 15 -

 
 

 

LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership’s assets identified as “Investments in Affiliated Trading Companies” reflected on the Statements of Financial Condition represents the net asset value of the Partnership’s pro rata share of each Trading Company.  The net assets of each Trading Company are equal to the total assets of the Trading Company (including, but not limited to all cash and cash equivalents, accrued interest and amortization of original issue discount, and the fair value of all open Futures Interests contract positions and other assets) less all liabilities of the Trading Company (including, but not limited to, brokerage commissions that would be payable upon the closing of open Futures Interest positions, management fees, incentive fees, and extraordinary expenses), determined in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).



At September 30, 2011, the Partnership’s investment in the Trading Companies represented approximately: Kaiser I, LLC 28.40%; TT II, LLC 25.50%; WNT I, LLC 16.90%; Rotella I, LLC 9.30%; Augustus I, LLC 8.70%; GLC I, LLC 7.00%; and Chesapeake I, LLC 7.85% of LV’s Partners’ Capital, respectively.



At December 31, 2010, the Partnership’s investment in the Trading Companies represented approximately: Kaiser I, LLC 22.25%; TT II, LLC 22.75%; Rotella I, LLC 15.00%; Augustus I, LLC 9.25%; GLC I, LLC 8.25%; Chesapeake I, LLC 7.00%  and DKR I, LLC 15.50% of LV’s Partners’ Capital, respectively.


The tables below represent summarized Income Statement information for the Trading Companies that the Partnership invests in for the three and nine months ended September 30, 2011 and 2010, respectively, in accordance with Rule 3-09 of Regulation S-X, as follows:



- 16 -
 
 
 

 
LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

For the Three Months Ended September 30, 2011
 
 
Investment
Income/(Loss)
Net
  Investment Loss
 
Total Trading Results
 
 
Net
Income/(Loss)
 
 
    $
$
$
$
Augustus I, LLC
(281)
(67,894)
(977,466)
(1,045,360)
Chesapeake I, LLC
      (1,850)
  (67,139)
(1,384,433)
(1,451,572)
DKR I, LLC
  4,199
(614,534)
 6,405,194
  5,790,660
GLC I, LLC
(1,413)
(61,183)
(1,296,312)
 (1,357,495)
Rotella I, LLC
(14,537)
(79,119)
580,578
  501,459
TT II, LLC
 (7,424)
(2,263,834)
(14,676,082)
(16,939,916)
WNT I, LLC
     155
(204,807)
   980,965
     776,158


For the Nine Months
Ended September 30, 2011
 
 
 
Investment Loss
Net
  Investment Loss
 
Total Trading Results
 
 
Net
Loss
 
 
$
$
$
$
Kaiser I, LLC
      (19,723)
(807,990)
   312,990
(495,000)
TT II, LLC
  (8,086)
  (3,661,569)
 (28,176,397)
 (31,837,966)

For the Three Months Ended September 30, 2010
 
 
Investment
Income/(Loss)
Net
  Investment Loss
 
Total Trading Results
 
Net
Income/(Loss)
 
 
    $
$
$
$
Chesapeake I, LLC
(18,067)
 (142,467)
1,906,981
1,764,514
DKR I, LLC
     147
(160,265)
1,153,045
   992,780
GLC I, LLC
    (375)
  (98,654)
  (351,154)
   (449,808)
Kaiser I, LLC
          221
(288,671)
    84,283
  (204,388)
Rotella I, LLC
 (4,187)
(140,975)
    (25,539)
   (166,514)
TT II, LLC
 (1,038)
(282,144)
3,147,691
2,865,547


For the Nine Months Ended September 30, 2010
 
 
Investment
Income/(Loss)
Net
  Investment Loss
 
Total Trading Results
 
Net
Income/(Loss)
 
 
$
$
$
$
DKR I, LLC
     (348)
(520,407)
   832,141
   311,734
Chesapeake I, LLC
(39,791)
 (566,505)
(2,859,366)
  (3,425,871)
GLC I, LLC
    152
 (310,651)
  (1,951,612)
 (2,262,263)
Kaiser I, LLC
          439
(871,515)
 2,177,402
1,305,887
Rotella I, LLC
 (6,888)
 (388,995)
  (342,754)
   (731,749)
TT II, LLC
 (2,971)
(857,439)
 5,243,227
 4,385,788

6.  Other Pronouncements
In May 2011, FASB issued Accounting Standards Update (“ASU”) 2011-04, “Amendments to Achieve

- 17 -
 
 
 

 
LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRSs”).” The amendments within this ASU change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to eliminate unnecessary wording differences between U.S. GAAP and IFRSs. However, some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The ASU is effective for annual and interim periods beginning after December 15, 2011 for public entities.  This new guidance is not expected to have a material impact on the Partnership’s financial statements.

7.  Income Taxes
No provision for income taxes has been made in the accompanying financial statements, as limited partners are individually responsible for reporting income or loss based upon their respective share of the Partnership’s revenues or expenses for income tax purposes.  The Partnership files U.S. federal and state tax returns.

The guidance issued by the Financial Accounting Standards Board on income taxes clarifies the accounting for uncertainty in income taxes recognized in the Partnership's financial statements, and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken.  The Partnership has concluded that there are no significant uncertain tax positions that

- 18 -

 
 

 

LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

would require recognition in the financial statements as of September 30, 2011.  If applicable, the Partnership recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statements of Income and Expenses.  Generally, the 2008 through 2010 tax years remain subject to examination by U.S. federal and most state tax authorities.  No income tax returns are currently under examination.


8.  Subsequent Events

Management of Ceres performed its evaluation of subsequent events through the date of filing, and has determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements other than these disclosed below.

Effective October 31, 2011, State Street Bank and Trust Company (“State Street”) ceased to serve as the administrator to the Partnership and each Trading Company.  Effective November 1, 2011, the administrative services previously provided by State Street are provided by Morgan Stanley Smith Barney.












- 19 -


 
 

 
 
 
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Liquidity.  MS&Co. and its affiliates act as custodians of each Trading Company’s assets pursuant to customer agreements and foreign exchange customer agreement.  The Partnership allocates substantially all of its assets to multiple Trading Companies. Such assets are deposited in the Trading Companies’ trading accounts with MS&Co. or its affiliates.  The funds in such accounts are available for margin and are used to engage in Futures Interest trading pursuant to instructions provided by the Trading Advisors.  The assets are held in either non-interest bearing bank accounts or in securities and instruments permitted by the Commodity Futures Trading Commission for investment of customer segregated or secured funds.  Since the Partnership’s sole purpose is to trade Futures Interests indirectly through the investment in the Trading Companies, it is expected that the Trading Companies will continue to own such liquid assets for margin purposes.

The Trading Companies’ investment in Futures Interests may, from time to time, be illiquid.  Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as “daily price fluctuation limits” or “daily limits.”  Trades may not be executed at prices beyond the daily limit.  If the price for a particular futures or options contract has increased or decreased by an amount equal to the daily limit, positions in that futures or options contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit.  Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading.  These market conditions could prevent the Trading Companies from promptly liquidating their futures or options contracts and result in restrictions on redemptions.



- 20 -

 
 

 

There is no limitation on daily price moves in trading forward contracts on foreign currencies.  The markets for some world currencies have low trading volume and are illiquid, which may prevent the Trading Companies from trading in potentially profitable markets or prevent the Trading Companies from promptly liquidating unfavorable positions in such markets, subjecting them to substantial losses.  Either of these market conditions could result in restrictions on redemptions.  For the periods covered by this report, illiquidity has not materially affected the Partnership’s assets.

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

Capital Resources.  The Partnership 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 Interests in subsequent periods.  It is not possible to estimate the amount, and therefore the impact, of future inflows and outflows of Units.

There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to the Partnership’s capital resource arrangements at the present time.

Off-Balance Sheet Arrangements and Contractual Obligations.  The Partnership does not have any off-balance sheet arrangements, nor does it have contractual obligations or commercial commitment to make future payments that would affect its liquidity or capital resources.


- 21 -
 
 
 

 
Results of Operations
General.  The Partnership’s results depend on the Trading Advisors and the ability of each Trading Advisor’s trading program to take advantage of price movements in the futures, forward and options markets.  The following presents a summary of the Partnership’s operations for the three and nine month periods ended September 30, 2011 and 2010, and a general discussion of its trading activities during each period.  It is important to note, however, that the Trading Advisors trade in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the Trading Advisors or will be profitable in the future.  Consequently, the results of operations of the Partnership are difficult to discuss other than in the context of the Trading Advisors’ trading activities on behalf of the Partnership during the period in question.  Past performance is no guarantee of future results.

The Partnership’s results of operations set forth in the financial statements on pages 2 through 19 of this report are prepared in accordance with U.S. GAAP, which requires the use of certain accounting policies that affect the amounts reported in these financial statements, including the following:  the contracts the Trading Companies trade are accounted for on a trade-date basis and marked to market on a daily basis.  The difference between their original contract value and fair value is recorded on the Statements of Income and Expenses as “Net change in unrealized gain (loss)” for open contracts, and recorded as “Realized trading gain (loss)” when open positions are closed out.  The sum of these amounts constitutes the Trading Company’s trading results.  The fair value of a futures contract is the settlement price on the exchange on which that futures contract is traded on a particular day.  The value of a foreign currency forward contract is based on the spot rate as of approximately 3:00 P.M. (E.T.) the close of the business day.


- 22 -
 
 
 

 
For the Three and Nine Months Ended September 30, 2011
The Partnership recorded total realized/net change in unrealized depreciation on investments of $(867,191) and expenses totaling $461,106, resulting in a net loss of $1,328,297 for the three months ended September 30, 2011.  The Partnership’s net asset value per Unit by share Class is provided in the table below.
Share Class
NAV at 9/30/11
NAV at 6/30/11
     
A
   $975.04
   $998.17
B
   $995.58
$1,017.92
C
$1,016.55
$1,038.04
D
$1,027.04
$1,048.09
Z
$1,059.78
$1,079.48

The most significant trading losses were incurred within the currency markets, primarily during August, from long positions in the Australian dollar, Canadian dollar, and Mexican peso versus the U.S. dollar as the value of the U.S. dollar was boosted higher against these currencies by “safe haven” demand following central bank intervention in the Japanese yen and amid concerns related to the European debt crisis. Additional losses were recorded in this sector during September due to long positions in the Australian dollar, Canadian dollar, and New Zealand dollar versus the U.S. dollar as the value of these “commodity currencies” moved lower in tandem with declining commodity prices. Within the global stock index sector, losses were experienced primarily during July and August from long positions in European and U.S. equity index futures as prices dropped in response to the European debt crisis and Standard & Poor’s downgrade of the United States’ sovereign credit rating. Within the agricultural complex, losses were incurred primarily during September from long futures positions in corn and soybeans as prices declined on speculation that Europe’s sovereign debt crisis may hinder the global economy, reducing demand for the grains. Losses were recorded within the energy markets, primarily during August, due to long futures positions in crude oil and its related products as prices fell on concern energy demand may falter amid slowing economic growth in the U.S. and a deepening

- 23 -
 
 
 

 
debt crisis in Europe. Within the metals markets, losses were incurred primarily during September from long futures positions in silver and gold as prices reversed lower amid a rise in the value of the U.S. dollar, which reduced demand for the precious metals. A portion of the Partnership’s losses during the quarter was offset by gains achieved within the global interest rate sector from long positions in European, U.S., and Australian fixed income futures as prices advanced higher throughout the majority of the quarter due to concern about the European sovereign debt crisis and a faltering global economy.

The Partnership recorded total realized/net change in unrealized depreciation on investments of $(4,132,631) and expenses totaling $1,504,357, resulting in a net loss of $5,636,988 for the nine months ended September 30, 2011.  The Partnership’s net asset value per Unit by share Class is provided in the table below.
Share Class
NAV at 9/30/11
NAV at 12/31/10
     
A
   $975.04
$1,068.75
B
   $995.58
$1,087.13
C
$1,016.55
$1,105.83
D
$1,027.04
$1,115.12
Z
$1,059.78
$1,144.17

The most significant trading losses were incurred within the currency markets, primarily during May, from long positions in the Australian dollar, Canadian dollar, and South African rand versus the U.S. dollar as the value of these “commodity currencies” fell in tandem with declining commodity prices. During August, long positions in the Australian dollar, Canadian dollar, and Mexican peso versus the U.S. dollar resulted in losses as the value of the U.S. dollar was boosted higher against these currencies by “safe haven” demand following central bank intervention in the Japanese yen. Within the agricultural complex, losses were recorded primarily during March from long positions in corn futures as prices fell after a U.S. Department of Agriculture report revealed increasing world stockpiles and declining U.S. exports of the crop. Additional losses were incurred in this sector during September from long futures positions in corn and soybeans as prices declined on

- 24 -
 
 
 

 
speculation that Europe’s sovereign debt crisis may hinder the global economy, reducing demand for the grains. Within the global stock index markets, losses were experienced primarily in March from long positions in European and Pacific Rim equity index futures as prices reversed lower amid concern that the natural disaster and subsequent nuclear crisis in Japan was going to threaten the global economic recovery. Further losses were recorded during May from long positions in European, U.S., and Pacific Rim equity index futures as prices declined on concern the global economic recovery was faltering. Additional losses were experienced during July and August from long positions in European and U.S. equity index futures as prices dropped in response to the European debt crisis and Standard & Poor’s downgrade of the United States’ sovereign credit rating. Losses were also recorded within the energy markets, primarily during May and June, due to long futures positions in crude oil and its related products as prices moved lower amid signs the global economic recovery is slowing. Lastly, losses were incurred within the metals sector, primarily during May, due to long positions in silver futures as prices fell sharply from a 31-year high. Further losses were recorded within this sector during September from long futures positions in silver and gold as prices reversed lower amid a rise in the value of the U.S. dollar, which reduced demand for the precious metals. A portion of the Partnership’s losses for the first nine months of the year was offset by gains achieved within the global interest rate sector, primarily during May, from long positions in U.S. fixed-income futures as prices increased following reports that showed the U.S. economy grew less than forecast and U.S. jobless claims unexpectedly rose. Additional gains were recorded during the majority of the third quarter from long positions in European, U.S., and Australian fixed income futures as prices advanced higher due to aforementioned concern about the European sovereign debt crisis and a faltering global economy.







- 25 -
 
 
 

 
For the Three and Nine Months Ended September 30, 2010
The Partnership recorded total realized/net change in unrealized appreciation on investments of $2,652,856 and expenses totaling $593,107, resulting in net income of $2,059,749 for the three months ended September 30, 2010.  The Partnership’s net asset value per Unit by share Class is provided in the table below.
Share Class
NAV at 9/30/10
NAV at 6/30/10
     
A
$1,020.96
   $996.82
B
$1,037.25
$1,011.46
C
$1,053.79
$1,026.32
D
$1,061.99
$1,033.67
Z
$1,087.64
$1,056.67

The most significant trading gains of approximately 1.7% were recorded in the global interest rate sector, primarily during July and August. In July, gains were achieved from long positions in U.S. fixed-income futures as prices rose on speculation that the U.S. Federal Reserve might resume purchases of U.S. Treasuries if the economy slows. During August, long positions in European, U.S., and Australian fixed-income futures achieved gains as prices climbed higher due to concern that European governments might struggle to repay their debt, while reports added to evidence that Chinese economic growth might be slowing. Prices continued to move higher after reports on manufacturing in the New York region, U.S. home-builder confidence, and Japanese Gross Domestic Product fueled worries over the global economy and spurred demand for the relative “safety” of government bonds. Within the metals markets, gains of approximately 0.9% were experienced primarily during September from long positions in gold and silver futures as prices rose amid increased demand for the precious metals as an alternative investment due to a drop in the value of the U.S. dollar. Additional gains were recorded from long futures positions in copper and aluminum as prices moved higher after industrial output beat analyst estimates in China, the world’s biggest metals user. In the agricultural complex, gains of approximately 0.9% were achieved primarily during September due to long

- 26 -
 
 
 

 
positions in corn futures after prices advanced to the highest level in almost two years as freezing weather threatened crops in China and Canada and a prolonged drought slowed planting in Russia. Additional gains were experienced from long positions in cotton futures as prices increased on signs that global demand might outpace limited supplies. Gains of approximately 0.6% were recorded within the currency markets, primarily during September, from long positions in the Australian dollar versus the U.S. dollar as the value of the Australian dollar appreciated to a 26-month high against the U.S. dollar amid speculation that the Reserve Bank of Australia might raise interest rates in October. Further gains were achieved from long positions in the Swiss franc, euro, and South African rand versus the U.S. dollar as the value of the U.S. dollar fell against these currencies amid renewed optimism regarding the global economic recovery, which reduced demand for the U.S. dollar as a “safe haven” currency. Smaller gains of approximately 0.2% were achieved within the energy markets, primarily during August, from short positions in natural gas futures as prices declined after rising U.S. jobless claims fueled concern that energy demand might begin to wane. Furthermore, prices of natural gas futures dropped to an 11-month low after a U.S. Energy Department report showed that U.S. stockpiles rose more than forecast. A portion of the Partnership’s gains for the quarter was offset by losses of approximately 0.5% incurred within the global stock index markets, primarily during July, from short positions in European and U.S. equity index futures as prices were pressured higher amid unexpected growth in Europe’s manufacturing and service industries, rising U.K. retail sales, and positive U.S. corporate earnings reports. Additional losses were recorded during August due to newly established long positions in European, U.S., and Pacific Rim equity index futures as prices fell after the U.S. Federal Reserve said the pace of economic recovery was likely to be “more modest” than forecast and a report revealed U.S. productivity unexpectedly fell in the second quarter.


- 27 -
 
 
 

 
The Partnership recorded total realized/net change in unrealized appreciation on investments of $303,441 and expenses totaling $1,763,350, resulting in a net loss of $1,459,909 for the nine months ended September 30, 2010.  The Partnership’s net asset value per Unit by share Class is provided in the table below.

Share Class
NAV at 9/30/10
NAV at 12/31/09
     
A
$1,020.96
$1,044.60
B
$1,037.25
$1,057.28
C
$1,053.79
$1,070.11
D
$1,061.99
$1,076.41
Z
$1,087.64
$1,096.22

The most significant trading losses of approximately 2.5% were experienced in the global stock index sector, primarily during January, May, July, and August. During January, long positions in U.S., European, and Pacific Rim equity index futures incurred losses as prices reversed sharply lower amid disappointing U.S. corporate earnings reports, concerns regarding U.S. President Barack Obama’s proposed limits on risk-taking by banks, and speculation that China might raise interest rates. Losses were recorded in these markets during May as prices once again moved lower on growing concerns that Greece’s sovereign debt crisis might begin to spread throughout Europe. Prices then continued to fall throughout May due to uncertainty regarding policy actions in Europe and the impact on global economic growth. During July, newly established short positions in European and U.S. equity index futures resulted in losses as prices were pressured higher amid unexpected growth in Europe’s manufacturing and service industries, rising U.K. retail sales, and positive U.S. corporate earnings reports. Additional losses were recorded during August due to newly established long positions in European, U.S., and Pacific Rim equity index futures as prices fell after the U.S. Federal Reserve said the pace of economic recovery was likely to be “more modest” than forecast and a report revealed U.S. productivity unexpectedly fell in the second quarter. Within the energy markets, losses of approximately 1.5% were incurred primarily during January, May, and June from long futures positions in crude oil and its

- 28 -
 
 
 

 
related products. During January, prices in these markets declined due to reports of increased U.S. inventories, as well as on speculation that China’s economic activity and energy demand might ease. Prices also dropped during May and June amid worries that Europe’s aforementioned debt troubles might weaken global energy demand. Additional losses were experienced during July due to short positions in natural gas futures as prices rose after reports showed a smaller-than-forecast inventory increase due to above-average temperatures in the U.S. In the agricultural sector, losses of approximately 0.7% were experienced primarily during February from long positions in sugar futures as prices reversed lower on speculation that Brazil, the world’s largest sugar producer, might increase exports and record high prices might dissuade purchases. Smaller losses were recorded from long futures positions in cocoa as prices fell during May amid news that cocoa processing, an indication of demand, was far below levels of two years ago. A portion of the Partnership’s losses for the first nine months of the year was offset by gains of approximately 6.6% achieved within the global interest from long positions in U.S., European, and Japanese fixed-income futures. Prices in this sector increased during the first quarter on concerns that lending restrictions in China, possible reductions in U.S. stimulus measures, and Greece’s fiscal struggles might stifle the global economic rebound, thereby boosting demand for the relative “safety” of government bonds. Prices were then pressured higher during the second quarter amid an unexpected drop in U.S. consumer confidence, increased regulatory scrutiny of the financial industry, and the growing European debt crisis. During the third quarter, prices continued to climb higher due to concern that European governments might struggle to repay their debt and Chinese economic growth might be slowing. Within the metals complex, gains of approximately 0.8% were experienced primarily during March from long futures positions in nickel, copper, aluminum, and zinc as prices rose after China indicated it might boost state reserves of base metals this year. During September, long positions in gold and silver futures resulted in gains as prices rose amid increased demand for the precious metals as an

- 29 -
 
 
 

 
alternative investment due to a drop in the value of the U.S. dollar. Additional gains were recorded in September from long futures positions in copper and aluminum as prices moved higher after industrial output beat analyst estimates in China, the world’s biggest metals user. Lastly, gains of approximately 0.2% were achieved within the currency markets, primarily during March, from long positions in the Mexican peso and Canadian dollar versus the U.S. dollar as the value of these currencies moved higher against the U.S. dollar after signs of a continued global economic recovery caused investors to increase their risk appetite for higher-yielding currencies. During September, gains were achieved from long positions in the Australian dollar versus the U.S. dollar as the value of the Australian dollar appreciated to a 26-month high against the U.S. dollar amid speculation that the Reserve Bank of Australia might raise interest rates in October.

 
 
Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Introduction
All of the Partnership’s assets are subject to the risk of trading loss through its investments in the Trading Companies, each of which invests substantially all of its assets in the trading program of an unaffiliated Trading Advisor. The market-sensitive instruments held by the Trading Companies are acquired for speculative trading purposes, and substantially all of the respective Trading Companies’ assets are subject to the risk of trading loss.  Unlike an operating company, the risk of market-sensitive instruments is integral, not incidental, to the Trading Companies’ main line of business.

The futures, forwards and options traded by the Trading Companies involve varying degrees of related market risk.  Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities.  These factors result in frequent changes in the

- 30 -
 
 
 

 
fair value of the Trading Companies’ open positions, and consequently in their earnings, whether realized or unrealized, and cash flow.  Gains and losses on open positions of exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are settled daily through variation margin.  Gains and losses on off-exchange-traded forward currency contracts and forward currency options contracts are settled upon termination of the contract.  However, the Trading Companies are required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Trading Companies’ accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MSSB for the benefit of MS&Co.

The total market risk of the respective Trading Companies may increase or decrease as it is influenced by a wide variety of factors, including, but not limited to, the diversification among the Trading Companies’ open positions, the volatility present within the markets, and the liquidity of the markets.

The face value of the market sector instruments held by the Trading Companies is typically many times the applicable margin requirements.  Margin requirements generally range between 2% and 15% of contract face value.  Additionally, the use of leverage causes the face value of the market sector instruments held by the Trading Companies typically to be many times the total capitalization of the Trading Companies.

The Partnership’s and the Trading Companies’ past performance are no guarantee of their future results.  Any attempt to numerically quantify the Trading Companies’ market risk is limited by the uncertainty of their speculative trading.  The Trading Companies’ speculative trading and use of leverage may cause future losses and volatility (i.e., “risk of ruin”) that far exceed the Trading Companies’ experiences to date disclosed under

- 31 -
 
 
 

 
the “Trading Companies’ Value at Risk in Different Market Sectors” section and significantly exceed the Value at Risk (“VaR”) tables disclosed below.

Limited partners will not be liable for losses exceeding the current net asset value of their investment.


Quantifying the Trading Companies’ Trading Value at Risk
The following quantitative disclosures regarding the Trading Companies’ market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

The Trading Companies account for open positions on the basis of fair value accounting principles. Any loss in the market value of the Trading Companies’ open positions is directly reflected in the Trading Companies’ earnings and cash flow.

The Trading Companies’ risk exposure in the market sectors traded by the Trading Advisors is estimated below in terms of VaR.  Prior to June 30, 2011, VaR for a particular market sector was estimated by Ceres using a model based upon historical simulation (with a confidence level of 99%) which involved constructing a distribution of hypothetical daily changes in the value of a trading portfolio.  The VaR model took into account linear exposures to risks including equity and commodity prices, interest rates, foreign exchange rates, and correlation among these variables.  The hypothetical daily changes in the value of a Trading

- 32 -
 
 
 

 
Company’s portfolio were based on daily percentage changes observed in key market indices or other market factors (“market risk factors”) to which the portfolio was sensitive. The one-day 99% confidence level of the Trading Companies’ VaR corresponded to the reliability of the expectations that the Trading Company’s trading losses in one day will not exceed the maximum loss indicated by the VaR.  The 99% one-day confidence level is not an indication of probability of such losses, nor does VaR typically represent the worst case outcome. Ceres used approximately four years of daily market data and re-valued its portfolio for each of the historical market moves that occurred over this period. This enabled Ceres to generate a distribution of daily “simulated profit and loss” outcomes.
 
 
The Trading Companies’ VaR computations were based on the risk representation of the underlying benchmark for each instrument or contract and did not distinguish between exchange and non-exchange dealer-based instruments.  They were also not based on exchange and/or dealer-based maintenance margin requirements.  VaR models, including the models used by Morgan Stanley and Ceres, are continually evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve. Please note that the VaR model is used to quantify market risk for historic reporting purposes only and is not utilized by either Ceres or the Trading Advisors in their daily risk management activities. Please further note that VaR as described above may not be comparable to similarly-titled measures used by other entities.

Beginning with the third quarter 2011, exchange maintenance margin requirements have been used by the Trading Companies as the measure of its VaR.  Maintenance margin requirements are set by exchanges to


- 33 -
 
 
 

 
equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95% - 99% of any one-day interval.  Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to VaR.


The Trading Companies’ Value at Risk in Different Market Sectors
As of September 30, 2011, Chesapeake I, LLC’s total capitalization was $9,749,976.  The Partnership owned approximately 45% of Chesapeake I, LLC.
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$343,578
3.52%
     
Interest Rate
$306,865
3.15%
     
Equity
$148,344
1.52%
     
Commodity
$431,554
4.43%
     
Total
$1,230,341
12.62%

Three Months Ended September 30, 2011
 
High
Low
Average
Market Sector
VaR
VaR
VaR *
       
Currency
$459,497
$305,749
$352,620
       
Interest Rate
$322,663
$174,115
$255,076
       
Equity
$440,509
$75,094
$226,953
       
Commodity
$782,444
$431,554
$641,475


As of September 30, 2011, Kaiser I, LLC’s total capitalization was $39,505,667.  The Partnership owned approximately 41% of Kaiser I, LLC.

- 34 -
 
 
 

 
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$385,048
0.97%
     
Interest Rate
$375,251
0.95%
     
Equity
$156,646
0.40%
     
Commodity
$243,540
 0.62%
     
Total
$1,160,485
2.94%

Three Months Ended September 30, 2011
 
High
Low
Average
Market Sector
VaR
VaR
VaR *
       
Currency
$502,767
$16,765
$246,917
       
Interest Rate
$488,093
$255,818
       
Equity
$886,068
$214,141
       
Commodity
$389,614
$196,935

As of September 30, 2011, TT II, LLC’s total capitalization was $418,937,575.  The Partnership owned approximately 3% of TT II, LLC.
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$5,685,937
1.36%
     
Interest Rate
$7,686,157
1.83%
     
Equity
$3,235,024
0.77%
     
Commodity
$8,256,922
1.97%
     
Total
$24,864,040
5.93%





- 35 -
 
 
 

 
Three Months Ended September 30, 2011
 
High
Low
Average
Market Sector
VaR
VaR
VaR *
       
Currency
$22,372,356
$3,660,330
$13,443,197
       
Interest Rate
$10,161,497
$3,032,740
$5,588,026
       
Equity
$9,307,243
$1,321,801
$5,048,513
       
Commodity
$26,711,030
$7,742,656
$16,758,176

As of September 30, 2011, Rotella I, LLC’s total capitalization was $7,415,899.  The Partnership owned approximately 71% of Rotella I, LLC.
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$177,839
2.40%
     
Interest Rate
 $293,941
3.96%
     
Equity
$83,224
1.12%
     
Commodity
$114,164
1.54%
     
Total
$669,168
9.02%

Three Months Ended September 30, 2011
 
High
Low
Average
Market Sector
VaR
VaR
VaR *
       
Currency
$819,044
$86,001
$377,337
       
Interest Rate
$479,029
$252,469
$315,851
       
Equity
$424,761
$58,388
$168,547
       
Commodity
$246,410
$49,937
$124,055



- 36 -
 
 
 

 
As of September 30, 2011, Augustus I, LLC’s total capitalization was $12,655,028.  The Partnership owned approximately 39% of Augustus I, LLC.
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$1,407,431
11.12%
     
Interest Rate
      $90,881
0.72%
     
Total
$1,498,312
11.84%

Three Months Ended September 30, 2011
 
High
Low
Average
Market Sector
VaR
VaR
VaR *
       
Currency
$2,193,622
$1,407,431
$1,651,049
       
Interest Rate
$263,146
$90,045
$167,857

As of September 30, 2011, GLC I, LLC’s total capitalization was $10,576,586.  The Partnership owned approximately 37% of GLC I, LLC.
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$10,194
0.10%
     
Interest Rate
$415,400
3.93%
     
Equity
$206,284
1.95%
     
Total
$631,878
5.98%











- 37 -
 
 
 

 
Three Months Ended September 30, 2011
 
High
Low
Average
Market Sector
VaR
VaR
VaR *
       
Currency
$380,216
$2,036
$142,192
       
Interest Rate
$419,552
$4,738
$164,301
       
Equity
$349,678
$33,318
$166,622
       
Commodity
$27,906
$0
$5,074

As of September 30, 2011, WNT I, LLC’s total capitalization was $13,463,949.  The Partnership owned approximately 71% of WNT I, LLC.  Effective June 1, 2011, WNT I, LLC was added as a Trading Company.
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$96,430
0.72%
     
Interest Rate
$251,771
1.87%
     
Equity
$62,540
0.46%
     
Commodity
$186,152
1.38%
     
Total
$596,893
4.43%


Three Months Ended September 30, 2011
 
High
Low
Average
Market Sector
VaR
VaR
VaR *
       
Currency
$277,640
$96,430
$209,433
       
Interest Rate
$409,363
$251,771
$321,289
       
Equity
$208,513
$62,540
$143,060
       
Commodity
$275,727
$132,645
$208,889


* Average of month-end VaR.

- 38 -
 
 
 

 
As of December 31, 2010, Chesapeake I, LLC’s total capitalization was $15,637,106.  The Partnership owned approximately 32% of Chesapeake I, LLC.

Chesapeake I, LLC
 
   December 31, 2010
Primary Market Risk Category
VaR
   
Interest Rate
(1.05)%
Currency
  (0.81)
Equity
(3.50)
Commodity
(5.49)
Aggregate Value at Risk
(7.91)%

As of December 31, 2010, Kaiser I, LLC’s total capitalization was $40,014,468.  The Partnership owned approximately 40% of Kaiser I, LLC.

Kaiser I, LLC
 
   December 31, 2010
Primary Market Risk Category
VaR
   
Interest Rate
(0.02)% 
Currency
(0.02)
Equity
(0.44)
Commodity
(0.11)
Aggregate Value at Risk
(0.47)%  

As of December 31, 2010, TT II, LLC’s total capitalization was $43,741,623.  The Partnership owned approximately 38% of TT II, LLC.




- 39 -
 
 
 

 
TT II, LLC
 
    December 31, 2010
Primary Market Risk Category
VaR         
   
Interest Rate
(0.32)% 
Currency
(1.68)
Equity
(1.89)
Commodity
(2.31)
Aggregate Value at Risk
(5.18)% 

As of December 31, 2010, Rotella I, LLC’s total capitalization was $17,749,030.  The Partnership owned approximately 61% of Rotella I, LLC.
Rotella I, LLC
 
  December 31, 2010
Primary Market Risk Category
VaR
   
Interest Rate
(0.71)%  
Currency
(1.64)
Equity
(3.39)
Commodity
(2.15)
Aggregate Value at Risk
(5.83)%  


As of December 31, 2010, Augustus I, LLC’s total capitalization was $18,443,353.  The Partnership owned approximately 36% of Augustus I, LLC.

Augustus I, LLC
 
      December 31, 2010
Primary Market Risk Category
VaR
   
Interest Rate
(0.35)%  
Currency
(1.12)
Aggregate Value at Risk
(1.26)%  



As of December 31, 2010, GLC I, LLC’s total capitalization was $17,534,046.  The Partnership owned approximately 34% of GLC I, LLC.

- 40 -
 
 
 

 
GLC I, LLC
 
     December 31, 2010
Primary Market Risk Category
VaR
   
Interest Rate
(0.30)%  
Currency
 (0.83)
Equity
 (1.12)
Aggregate Value at Risk
(1.82)%  

As of December 31, 2010, DKR I, LLC’s total capitalization was $11,198,986.  The Partnership owned 100% of DKR I, LLC.  Effective August 31, 2011, DKR I, LLC was terminated as a Trading Advisor to the Partnership.

DKR I, LLC
 
 
 December 31, 2010
Primary Market Risk Category
VaR
   
Interest Rate
(0.55)%  
Currency
(1.93)
Equity
(1.23)
Commodity
(4.38)
Aggregate Value at Risk
(6.97)%  

The VaR for a market category represents the one-day downside risk for the aggregate exposures associated with this market category.  The Aggregate Value at Risk listed above represents the VaR of the respective Trading Companies’ open positions across all the market categories, and can be less than the sum of the VaRs for all such market categories due to the diversification benefit across asset classes.



- 41 -
 
 
 

 
Because the business of the Trading Companies is the speculative trading of futures, forwards and options, the composition of their trading portfolio can change significantly over any given time period, or even within a
single trading day.  Such changes could positively or negatively materially impact market risk as measured by VaR.

The tables below supplement the quarter-end VaR set forth above by presenting the Trading Companies’ high, low, and average VaR, as a percentage of total net assets for the four quarter-end reporting periods from January 1, 2010 through December 31, 2010.

December 31, 2010
Chesapeake I, LLC
Primary Market Risk Category
 
 High
 
Low                              
 
Average       
       
Interest Rate
(2.17)%  
(1.01)%
(1.40)%  
Currency
(1.09)
(0.49)
(0.84)
Equity
(3.82)
(2.15)     
(3.11)
Commodity
(6.43)
(2.25)
(4.48)
Aggregate Value at Risk
(7.91)%  
(2.88)%
(6.39)%  


DKR I, LLC
Primary Market Risk Category
 
High          
 
Low                      
 
Average              
       
Interest Rate
(1.29)%
(0.55)%
(0.94)%  
Currency
(1.93)
(0.61)
(1.45)
Equity
(1.23)
(0.39)
(0.71)
Commodity
(4.38)
(0.47)
(2.19)
Aggregate Value at Risk
(6.97)%
(1.56)%
(3.59)%  



Kaiser I, LLC
Primary Market Risk Category
 
High          
 
Low                           
 
Average               
       
Interest Rate
(0.76)%  
    (0.02)%
(0.38)%  
Currency
(0.27)
(0.02)
(0.18)
Equity
(1.44)
(0.27)
(0.79)
Commodity
(0.19)
(0.11)
(0.16)
Aggregate Value at Risk
(1.40)%  
(0.47)%
(0.92)%  

- 42 -
 
 
 

 
Augustus I, LLC
Primary Market Risk Category
 
High           
 
Low                      
 
Average         
       
Interest Rate
(0.71)%
(0.35)%
(0.51)% 
Currency
(1.69)
(1.07)
(1.31)
Aggregate Value at Risk
(1.85)% 
(1.26)%
(1.54)% 



TT II, LLC
Primary Market Risk Category
 
High      
 
Low                            
 
Average              
       
Interest Rate
(1.15)% 
(0.32)%
(0.79)%  
Currency
(2.29)
(0.67)
(1.70)
Equity
(3.55)
(0.25)
(2.17)
Commodity
(2.31)
(0.53)
(1.79)
Aggregate Value at Risk
(6.84)%  
(1.03)%
(4.72)%  



Rotella I, LLC
Primary Market Risk Category
 
High      
 
Low                                  
 
Average          
       
Interest Rate
(0.92)% 
(0.56)%
(0.76)%  
Currency
(1.64)
(0.55)
(1.10)
Equity
(4.23)
(0.62)
(2.79)
Commodity
(2.15)
(0.38)
(1.46)
Aggregate Value at Risk
(6.27)%  
(1.27)%
(4.51)%  



GLC I, LLC
Primary Market Risk Category
 
High
 
Low                             
 
Average              
       
Interest Rate
(0.88)% 
   –   %
(0.42)%  
Currency
(1.53)
(0.37)
(0.88)
Equity
(1.12)
(0.43)
(0.80)
Aggregate Value at Risk
(1.82)%  
(0.76)%
(1.34)%  




Limitations on Value at Risk as an Assessment of Market Risk
VaR models permit estimation of a portfolio’s aggregate market risk exposure, incorporating a range of varied market risks, reflect risk reduction due to portfolio diversification or hedging activities, and can cover a wide range of portfolio assets.  However, VaR risk measures should be viewed in light of the methodology’s limitations, which include, but may not be limited to the following:

- 43 -
 
 
 

 
·  
past changes in market risk factors will not always result in accurate predictions of the distributions and correlations of future market movements;
·  
changes in portfolio value caused by market movements may differ from those of the VaR model;
·  
VaR results reflect past market fluctuations applied to current  trading positions while future risk depends on future positions;
·  
VaR using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or hedged within one day; and
·  
the historical market risk factor data used for VaR estimation may provide only limited insight into losses that could be incurred under certain unusual market movements.

In addition, the VaR tables above, as well as the past performance of the Partnership and the Trading Companies, give no indication of the Partnership’s potential “risk of ruin.”

The VaR tables provided present the results of the Partnership’s VaR for each of the Trading Companies’ market risk exposures at September 30, 2011 and market risk exposures and on an aggregate basis at December 31, 2010, and for the three months from July 1, 2011 through September 30, 2011 and twelve months from January 1, 2010 through December 31, 2010.   VaR is not necessarily representative of the Trading Companies’ historic risk, nor should it be used to predict the Partnership or the Trading Companies’ future financial performance or their ability to manage or monitor risk. There can be no assurance that the Trading Companies’ actual losses on a particular day will not exceed the VaR amounts indicated above or that such losses will not occur more than once in 100 trading days.








- 44 -

 
 

 
Non-Trading Risk
The Trading Companies have non-trading market risk on their foreign cash balances not needed for margin. These balances and any market risk they may represent are immaterial.



The Trading Companies also maintain a substantial portion of their available assets in unrestricted cash at MSSB; as of September 30, 2011, such amount was equal to:
·  
approximately 77% of Kaiser I, LLC’s net assets.
·  
approximately 92% of TT II, LLC’s net assets.
·  
approximately 91% of Rotella I, LLC’s net assets.
·  
approximately 99% of Augustus I, LLC’s net assets.
·  
approximately 94% of GLC I, LLC’s net assets.
·  
approximately 87% of Chesapeake I, LLC’s net assets.
·  
approximately 96% of WNT I, LLC’s net assets.

A decline in short-term interest rates would result in a decline in the Trading Companies’ cash management income.  This cash flow risk is not considered to be material.

Materiality, as used throughout this section, is based on an assessment of reasonably possible market movements and any associated potential losses, taking into account the leverage, optionality, and multiplier features of the Trading Companies’ market-sensitive instruments, in relation to the Trading Companies’ net assets.



- 45 -
 
 
 

 
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership’s market risk exposures – except for (A) those disclosures that are statements of historical fact and (B) the descriptions of how the Partnership manages its primary market risk exposures – constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  The Partnership’s primary market risk exposures, as well as the strategies used and to be used by Ceres and the Trading Advisors for managing such exposures, are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership’s risk controls to differ materially from the objectives of such strategies.  Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation, and many other factors could result in material losses, as well as in material changes to the risk exposures and the risk management strategies of the Partnership.

Investors must be prepared to lose all or substantially all of their investment in the Partnership.

Item 4.   CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the management of Ceres, at the time this quarterly report was filed, Ceres’ President (Ceres’ principal executive officer) and Chief Financial Officer (Ceres’ principal financial officer) have evaluated the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2011.  The Partnership’s disclosure controls and procedures are designed to provide

- 46 -
 
 
 

 
reasonable assurance that information the Partnership is required to disclose in the reports that the Partnership files or submits under the Exchange Act are recorded, processed and summarized and reported within the time period specified in the applicable rules and forms.  Based on this evaluation, the President and Chief Financial Officer of Ceres have concluded that the disclosure controls and procedures of the Partnership were effective at September 30, 2011.

 
Changes in Internal Control over Financial Reporting
There have been no changes during the period covered by this quarterly report in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect the Partnership’s internal control over financial reporting .

Limitations on the Effectiveness of Controls

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








- 47 -

 
 

 

PART II.  OTHER INFORMATION
Item 1A.  RISK FACTORS

There have been no material changes from the risk factors previously referenced in the Partnership’s Report on Form 10-K for the fiscal year ended December 31, 2010.

 
 
Item 2.  UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

Units of the Partnership are sold to persons and entities who are accredited investors as the term is defined in Rule 501(a) of Regulation D.

The aggregate proceeds of securities sold in all share Classes to the limited partners, from inception through September 30, 2011, was $111,469,874.  Since inception, the Partnership received $805,000 in consideration from the sale of Units to the General Partner.


Item 6.  EXHIBITS
31.01*
Certification of President of Ceres Managed Futures LLC, the general partner of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.02*
Certification of Chief Financial Officer of Ceres Managed Futures LLC, the general partner of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.01*
Certification of President of Ceres Managed Futures LLC, the general partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.02*
Certification of Chief Financial Officer of Ceres Managed Futures LLC, the general partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS*
XBRL Instance Document
 
101.SCH*
XBRL Taxonomy Extension Schema Document
 
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
- 48 -
 
 
 
 
 

 
 
 
 
101.LAB*
XBRL Taxonomy Extension Label Document
 
101.PRE*
XBRL Taxonomy Extension Presentation Document
 
101.DEF*
XBRL Taxonomy Extension Definition Document
 

 
 
Notes to Exhibits List
 
 
* Submitted electronically herewith.
 
 
Pursuant to applicable securities laws and regulations, the Partnership is deemed to have complied with the reporting obligation relating to the submission of interactive data files in Exhibit 101 to this report and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Partnership has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
- 49 -
 

 
 

 


 

 

 

 
SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




 
LV Futures Fund L.P.
 
(Registrant)
     
 
By:
Ceres Managed Futures LLC
   
(General Partner)
     
November 14, 2011
By:
/s/Brian Centner
   
Brian Centner
   
Chief Financial Officer




The General Partner which signed the above is the only party authorized to act for the registrant.  The registrant has no principal executive officer, principal financial officer, controller, or principal accounting officer and has no Board of Directors.




















- 50 -