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EX-31.02 - EXHIBIT - LV Futures Fund L.P.lvex3102.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 June 30, 2012 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
 
(855) 672-4468



(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

June 30, 2012



 
PART I. FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (Unaudited)
 
     
 
Statements of Financial Condition as of June 30, 2012 and December 31, 2011
2
     
 
Statements of Income and Expenses for the Three and Six Months Ended  June 30, 2012 and 2011
3
     
 
Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2012 and 2011
4
     
 
Notes to Financial Statements
  5-21
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22-31
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
31-46
     
Item 4.
Controls and Procedures
46-47
     
 
PART II. OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
48-56
     
Item 1A.
Risk Factors
56-58
     
Item 2.
Unregistered Sales of Securities and Use of Proceeds
58-60
     
Item 4.
Mine Safety Disclosures
60
     
Item 6.
Exhibits 
61



 
 

 

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

LV FUTURES FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
       
 
June 30,
 
December 31,
 
2012
 
2011
ASSETS
$
 
$
       
Investments in Affiliated Trading Companies:
     
Investment in TT II, LLC
14,530,761
 
14,111,867
Investment in WNT I, LLC
8,421,570
 
8,959,457
Investment in Chesapeake I, LLC
4,821,874
 
4,910,449
Investment in Rotella I, LLC
4,664,996
 
5,082,011
Investment in Kaiser I, LLC
3,790,875
 
10,573,213
Investment in GLC I, LLC
3,608,184
 
3,942,919
Investment in Augustus I, LLC
                                  3,188,665
 
                                 5,112,295
       
Total Investments in Affiliated Trading Companies, at fair value
  (cost $44,883,150 and $54,509,713, respectively)
                                43,026,925
 
                                52,692,211
       
Total Assets
43,026,925
 
52,692,211
       
LIABILITIES
     
       
Redemptions payable
1,114,182
 
3,250,987
       
Total Liabilities
1,114,182
 
3,250,987
       
PARTNERS’ CAPITAL
     
Class A (29,300.573 and 34,210.600 Units, respectively)
27,354,352
 
32,837,331
Class B (5,078.696 and 6,075.289 Units, respectively)
4,859,517
 
5,961,752
Class C (9,132.728 and 9,546.728 Units, respectively)
8,956,295
 
9,577,626
Class D (59.829 and 59.829 Units, respectively)
59,407
 
60,698
Class Z (663.198 and 957.352 Units, respectively)
683,172
 
1,003,817
       
Total Partners’ Capital
41,912,743
 
49,441,224
       
Total Liabilities and Partners’ Capital
43,026,925
 
52,692,211
       
NET ASSET VALUE PER UNIT
     
Class A
933.58
 
959.86
Class B
956.84
 
981.31
Class C
980.68
 
1,003.23
Class D
992.95
 
1,014.52
Class Z
1,030.12
 
1,048.53
       









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 June  30,
 
For the Six Months
 Ended June 30,
               
 
2012      
 
2011      
 
2012      
 
2011   
 
$          
 
$         
 
$         
 
$     
EXPENSES
             
Ongoing Placement Agent fees
191,216
 
271,341
 
399,470
 
561,804
General Partner fees
112,981
 
165,505
 
235,241
 
343,891
Administrative fees
45,192
 
66,201
 
94,096
 
137,556
               
Total Expenses
349,389
 
503,047
 
728,807
 
1,043,251
 
NET INVESTMENT LOSS
(349,389)
 
(503,047)
 
(728,807)
 
(1,043,251)
               
REALIZED/NET CHANGE IN UNREALIZED
             
 DEPRECIATION ON INVESTMENTS
             
Realized
(98,561)
 
889,004
 
(362,143)
 
1,298,770
Net change in unrealized depreciation
             
  on investments
(454,136)
 
(3,650,142)
 
(38,723)
 
(4,564,210)
               
Total Realized/Net Change in Unrealized
             
Depreciation on Investments
(552,697)
 
(2,761,138)
 
(400,866)
 
(3,265,440)
 
NET LOSS
(902,086)
 
(3,264,185)
 
(1,129,673)
 
(4,308,691)
               
NET LOSS ALLOCATION
             
Class A
(605,306)
 
(2,040,595)
 
(778,918)
 
(2,719,055)
Class B
(106,249)
 
(329,955)
 
(132,694)
 
(440,206)
Class C
(176,030)
 
(747,885)
 
(202,622)
 
(965,412)
Class D
(1,129)
 
(95,854)
 
(1,291)
 
(121,922)
Class Z
(13,372)
 
(49,896)
 
(14,148)
 
(62,096)
               
NET LOSS PER UNIT *
             
Class A
(20.75)
 
(53.53)
 
(26.28)
 
(70.58)
Class B
(20.04)
 
(53.22)
 
(24.47)
 
(69.21)
Class C
(19.27)
 
(52.89)
 
(22.55)
 
(67.79)
Class D
(18.87)
 
(52.70)
 
(21.57)
 
(67.03)
Class Z
(17.60)
 
(52.11)
 
(18.41)
 
(64.69)
               
 
Units 
 
Units 
 
Units 
 
Units 
WEIGHTED AVERAGE NUMBER
             
OF UNITS OUTSTANDING
             
Class A
30,719.052
 
38,379.592
 
32,191.420
 
38,981.516
Class B
5,468.567
 
6,656.018
 
5,754.039
 
7,157.511
Class C
9,132.728
 
14,315.005
 
9,244.673
 
15,113.206
Class D
59.829
 
1,818.843
 
59.829
 
1,818.843
Class Z
901.246
 
957.352
 
929.299
 
960.436

* 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 Six Months Ended June 30, 2012 and 2011
(Unaudited)

 
Class A  
 
Class B   
 
Class C   
 
Class D       
 
Class Z   
 
Total   
 
$  
 
$    
 
$    
 
$        
 
  $     
 
$    
Partners’ Capital,
                     
December 31,  2011
32,837,331
 
5,961,752
 
9,577,626
 
60,698
 
1,003,817
 
 49,441,224 
                       
Subscriptions
411,500
 
125,000
 
–    
 
–         
 
–         
 
  536,500    
                       
Net Loss
(778,918)
 
(132,694)
 
(202,622)
 
(1,291)
 
(14,148)
 
(1,129,673) 
                       
Redemptions
(5,115,561)
 
(1,094,541)
 
(418,709)
 
–         
 
(306,497)
 
(6,935,308)   
                       
Partners’ Capital,
                     
June 30, 2012
27,354,352
 
4,859,517
 
8,956,295
 
59,407
 
683,172
 
41,912,743
                       
Partners’ Capital,
                     
December 31, 2010
42,648,264
 
8,463,247
 
18,178,357
 
2,028,255
 
1,115,979
 
 72,434,102
                       
Subscriptions
2,393,226
 
596,880
 
673,500
 
–         
 
–         
 
  3,663,606
                       
Net Loss
(2,719,055)
 
(440,206)
 
(965,412)
 
(121,922)
 
(62,096)
 
(4,308,691)
                       
Redemptions
(5,263,887)
 
(1,991,119)
 
(4,262,079)
 
–         
 
(20,444)
 
(11,537,529)
                       
Partners’ Capital,
                     
June 30, 2011
37,058,548
 
6,628,802
 
13,624,366
 
1,906,333
 
1,033,439
 
60,251,488
                       
 
Class A
 
Class B   
 
Class C   
 
Class D  
 
Class Z   
 
Total     
 
Units
 
Units      
 
Units    
 
Units  
 
Units   
 
Units     
Beginning Units,
                     
December 31, 2011
34,210.600
 
6,075.289
 
9,546.728
 
59.829
 
957.352
 
  50,849.798
                       
Subscriptions
428.231
 
126.801
 
–   
 
–          
 
–         
 
  555.032
                       
Redemptions
(5,338.258)
 
(1,123.394)
 
(414.000)
 
–          
 
(294.154)            
 
   (7,169.806)      
                       
Ending Units,
                     
June 30, 2012
29,300.573
 
5,078.696
 
9,132.728
 
59.829
 
663.198
 
44,235.024      
                       
Beginning Units,
                     
December 31, 2010
39,904.989
 
7,784.920
 
16,438.640
 
1,818.843
 
975.359
 
    66,922.751
                       
Subscriptions
2,258.482
 
563.218
 
605.343
 
–          
 
–           
 
   3,427.043
                       
Redemptions
(5,037.073)
 
(1,836.015)
 
(3,918.963)
 
–          
 
(18.007)            
 
  (10,810.058)
                       
Ending Units,
                     
June 30, 2011
37,126.398
 
6,512.123
 
13,125.020
 
1,818.843
 
957.352
 
59,539.736

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

- 4 -

 
 

 

LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS

June 30, 2012

(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, 2011 (the “Form 10-K”).

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  commodities, domestic and foreign commodity futures contracts, forward contracts, foreign exchange commitments, options on physical commodities and futures contracts, spot (cash) commodities and currencies, exchange of futures contracts for physicals transactions, exchange of physicals for 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 in 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.”) acts as each Trading Company’s clearing commodity broker.  Morgan Stanley & Co. International plc (“MSIP”) acts as each Trading Company’s commodity broker to the extent it trades on the London Metal Exchange (collectively, MS&Co. and MSIP are referred to as the “Commodity Brokers”).  Each Trading Company’s over-the-counter foreign exchange spot, options, and forward contract counterparty is either 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.

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 net realized/net change in unrealized appreciation (depreciation) on investments on the Statements of Income and








- 6 -

 
 

 

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

Expenses.  The 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 June 30, 2012, 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.
Morgan Stanley Smith Barney Kaiser I, LLC
 
(“Kaiser I, LLC”)
 Kaiser Trading Group Pty. Ltd.
Morgan Stanley Smith Barney Rotella I, LLC
 
(“Rotella I, LLC”)
Rotella Capital Management, Inc.
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



The trading system style of each Trading Advisor is as follows:
Commodity Trading Advisor
Trading System Style
   
Chesapeake Capital Corporation
Systematic
GAM International Management Limited
Discretionary
GLC Ltd.
Discretionary
Kaiser Trading Group Pty. Ltd.
Systematic
Rotella Capital Management, Inc.
Systematic
Transtrend B.V.
Systematic
Winton Capital Management Limited
Systematic



- 7 -
 
 
 

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


Ceres Managed Futures LLC (“Ceres”), the general partner and commodity pool operator 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.

Prior to February 29, 2012, units of limited partnership interest (“Units”) of the Partnership were offered in four 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 received 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.  Effective February 29, 2012, Class B and Class C Units are no longer being offered to new investors.

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.

- 8 -

 
 

 

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


2.  Related Party Transactions
The cash held by each Trading Company may be on deposit with MSSB, MS&Co., and/or 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
 
Financial Highlights for three and six months ended June 30, 2012 and 2011 were as follows:
 
 
 Class A
 
   Class B
 
Class C
 
Class D
 
Class Z
 
           
PER UNIT OPERATING PERFORMANCE:
         
NET ASSET VALUE,
         
  APRIL 1, 2012:
$            954.33
$            976.88
$            999.95
$         1,011.82
$          1,047.72
           
NET OPERATING RESULTS:
         
   Net investment loss
     (8.18)
     (7.15)
     (6.06)
     (5.48)
     (3.70)
   Net realized/unrealized loss
          (12.57)
          (12.89)
          (13.21)
          (13.39)
          (13.90)
   Net loss
          (20.75)
          (20.04)
          (19.27)
          (18.87)
          (17.60)
           
NET ASSET VALUE,
         
 JUNE 30, 2012:
$            933.58
$            956.84
$            980.68
$            992.95
$         1,030.12
RATIOS TO AVERAGE NET ASSETS:
         
   Net investment loss  (1)  (2)
     -3.42%
     -2.92%
     -2.41%
     -2.16%
     -1.41%
   Partnership expenses (1) (2)
     3.42%
     2.92%
     2.41%
     2.16%
     1.41%
           
TOTAL RETURN:
     -2.17%
     -2.05%
     -1.93%
     -1.86%
     -1.68%
           
PER UNIT OPERATING PERFORMANCE:
         
NET ASSET VALUE,
         
  JANUARY 1, 2012:
$           959.86
$            981.31
$         1,003.23
$        1,014.52
 $         1,048.53
           
NET OPERATING RESULTS:
         
   Net investment loss
     (16.37)
     (14.29)
     (12.11)
     (10.96)
     (7.39)
   Net realized/unrealized loss
            (9.91)
          (10.18)
          (10.44)
          (10.61)
          (11.02)
   Net loss
          (26.28)
          (24.47)
          (22.55)
          (21.57)
          (18.41)
           
NET ASSET VALUE,
         
  JUNE 30, 2012:
$           933.58
$            956.84
$           980.68
$           992.95
$         1,030.12
RATIOS TO AVERAGE NET ASSETS:
         
   Net investment loss (1) (2)
     -3.42%
     -2.92%
     -2.41%
     -2.16%
     -1.41%
   Partnership expenses (1) (2)
     3.42%
     2.92%
     2.41%
     2.16%
     1.41%
           
TOTAL RETURN:
     -2.74%
     -2.49%
     -2.25%
     -2.13%
     -1.76%
           






- 10 -
 
 
 

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

 
 Class A
 
   Class B
 
Class C     
 
Class D      
 
Class Z       
 
           
PER UNIT OPERATING PERFORMANCE:
         
NET ASSET VALUE,
         
  APRIL 1, 2011:
$      1,051.70
$        1,071.14
$   1,090.93
$       1,100.79 
$  $    1,131.59 
           
NET OPERATING RESULTS:
         
   Net investment loss
     (8.94)   
              (7.77) 
                (6.55)
            (5.92)
             (3.97)
   Net realized/unrealized loss
           (44.59)
      (45.45) 
              (46.34)   
          (46.78)  
           (48.14)  
   Net loss
           (53.53)
       (53.22) 
              (52.89)
          (52.70)  
             (52.11)  
           
NET ASSET VALUE,
         
  JUNE 30, 2011:
$         998.17
$        1,017.92
$     1,038.04
$    1,048.09 
$   1,079.48 
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:
-5.09%     
-4.97%         
-4.85%         
-4.79%       
-4.61%       
           
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
      (18.02)    
            (15.67)
              (13.20) 
          (11.92)
             (7.97)
   Net realized/unrealized loss
           (52.56) 
      (53.54) 
              (54.59)   
          (55.11)   
           (56.72)  
   Net loss
           (70.58) 
       (69.21) 
              (67.79)
          (67.03)   
           (64.69)  
           
NET ASSET VALUE,
         
  JUNE 30, 2011:
$         998.17
$        1,017.92
$     1,038.04
$    1,048.09 
$   1,079.48 
RATIOS TO AVERAGE NET ASSETS:
         
   Net investment loss (1) (2)
-3.43%      
-2.93%         
-2.42%         
-2.17%       
-1.41%      
   Partnership expenses (1) (2)
 3.43%      
 2.93%         
 2.42%         
 2.17%       
 1.41%      
           
TOTAL RETURN:
-6.60%      
-6.37%        
-6.13%         
-6.01%       
-5.65%      
           


 
(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,

- 11 -
 
 
 

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

generally on a daily basis, and the unrealized gains and losses on open contracts (the difference between contract trade price and market price) are reported in the Trading Companies’ Statements of Financial Condition as a net unrealized gain or loss on open contracts.  The resulting net change in unrealized gains and losses is reflected in the net change in unrealized trading profit (loss) from one period to the next on the Trading Companies’ 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 from various exchanges.  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 input 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. 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 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

- 13 -

 
 

 

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


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
Effective January 1, 2012, the Partnership adopted Accounting Standards Update (“ASU”) 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in the accounting principles generally accepted in the United States of America (“U.S. GAAP”) and International Financial Reporting Standards (“IFRS”).  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 IFRS.  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.  This new guidance did not have a significant impact on the Partnership’s financial statements.

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

- 14 -
 
 
 

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

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.

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.






- 15 -
 
 
 

 

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

June 30, 2012
 
 
 
 
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
14,530,761
14,530,761
Investment in WNT I, LLC
8,421,570
8,421,570
Investment in Chesapeake I, LLC
4,821,874
4,821,874
Investment in Rotella I, LLC
4,664,996
4,664,996
Investment in Kaiser I, LLC
 3,790,875
 3,790,875
Investment in GLC I, LLC
3,608,184
3,608,184
Investment in Augustus I, LLC
3,188,665
3,188,665


December 31, 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 TT II, LLC
14,111,867
14,111,867
Investment in Kaiser I, LLC
10,573,213
10,573,213
Investment in WNT I, LLC
8,959,457
8,959,457
Investment in Augustus I, LLC
5,112,295
5,112,295
Investment in Rotella I, LLC
 5,082,011
 5,082,011
Investment in Chesapeake I, LLC
4,910,449
4,910,449
Investment in GLC I, LLC
3,942,919
3,942,919

During the period January 1, 2012 to June 30, 2012, there were no Level 3 assets and liabilities, and there were no transfers of assets or liabilities between Level 1 and Level 2.



- 16 -

 
 

 

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 U.S. GAAP.



At June 30, 2012, the Partnership’s investment in the Trading Companies represented approximately: TT II, LLC 33.75%; WNT I, LLC 19.60%; Kaiser I, LLC 8.80%; Chesapeake I, LLC 11.20%; Rotella I, LLC 10.85%; GLC I, LLC 8.40%; and Augustus I, LLC 7.40% of the total investments of the Partnership, respectively.



At December 31, 2011, the Partnership’s investment in the Trading Companies represented approximately: Kaiser I, LLC 20.05%; TT II, LLC 26.80%; Rotella I, LLC 9.65%; Augustus I, LLC 9.70%; GLC I, LLC 7.50%; Chesapeake I, LLC 9.30%  and WNT I, LLC 17.00% of the total investments of the Partnership, respectively.






- 17 -
 
 
 

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


The tables below represent summarized Income Statement information for the Trading Companies that the Partnership invests in for the three and six months ended June 30, 2012 and 2011, respectively, in accordance with Rule 3-09 of Regulation S-X, as follows:
 
 
For the Three Months
Ended June 30, 2012
 
 
Investment
Income/(Loss)
Net
  Investment Loss
 
Total Trading Results
 
Net
Income/(Loss)
 
 
    $
$
$
$
TT II, LLC
(7,840)
(3,788,113)
21,151,890
17,363,777
WNT I, LLC
(273)
(63,649)
    (540,047)
(603,696)
Chesapeake I, LLC
169
(84,135)
  (1,036,491)
(1,120,626)
Rotella I, LLC
(293)
(31,549)
     (237,996)
(269,545)
Kaiser I, LLC
(398)
(54,647)
515,658
461,011



 
For the Six Months
Ended June 30, 2012
 
 
Investment
Income/(Loss)
Net
  Investment Loss
 
Total Trading Results
 
Net
Income/(Loss)
 
 
    $
$
$
$
TT II, LLC
1,279
(6,505,317)
38,923,255
32,417,938
WNT I, LLC
(58)
(125,754)
(626,667)
(752,421)
Chesapeake I, LLC
622
(163,498)
(1,679,033)
(1,842,531)
Rotella I, LLC
(311)
(64,551)
(517,099)
(581,650)
Augustus I, LLC
(1,679)
(112,249)
704,646
592,397



For the Three Months Ended June 30, 2011
 
 
Investment Loss
Net
  Investment Loss
 
Total Trading Results
 
 
Net Loss
 
 
    $
$
$
$
Kaiser I, LLC
(6,514)
(269,958)
153,147         
  (116,811)      
TT II, LLC
(1,187)
(1,106,614)
(13,055,667)
(14,162,281)



For the Six Months
Ended June 30, 2011
 
 
Investment Loss
Net
  Investment Loss
 
Total Trading Results
 
 
Net Loss
 
 
$
$
$
$
Kaiser I, LLC
(11,684)
(539,005)
(337,957)
(876,962)
TT II, LLC
(662)
(1,397,735)
(13,500,315)
(14,898,050)





- 18 -
 
 
 

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

6.  Other Pronouncements
In December 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities”, which creates a new disclosure requirement about the nature of an entity’s rights of setoff and the related arrangements associated with its financial instruments and derivative instruments. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Partnership should also provide the disclosures retrospectively for all comparative periods presented.  The Partnership is currently evaluating the impact that the pronouncement would have on the financial statements. 

In October 2011, the FASB issued a proposed ASU intended to improve and converge financial reporting by setting forth consistent criteria for determining whether an entity is an investment company.  Under longstanding U.S. GAAP, investment companies carry all of their investments at fair value, even if they hold a controlling interest in another company.  The primary changes being proposed by the FASB relate to which entities would be considered investment companies as well as certain disclosure and presentation


- 19 -
 
 
 

 

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


requirements.  In addition to the changes to the criteria for determining whether an entity is an investment company, the FASB also proposes that an investment company be required to consolidate another investment company if it holds a controlling financial interest in the entity.  The Partnership will evaluate the impact that this proposed update would have on the financial statements once the pronouncement is issued.

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 FASB 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 would require recognition in the financial statements as of June 30, 2012 and December 31, 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 2011 tax years remain subject to examination by U.S. federal and most state tax authorities.  No income tax returns are currently under examination.


- 20 -
 
 
 

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


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.


































- 21 -

 
 
 

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


As of June 30, 2012, the percentage of assets allocated to each market sector was approximately as follows: Interest Rate 37.1%; Currency 18.0%; Equity 15.9%; and Commodity 29.0%.

Liquidity.  MS&Co. and its affiliates act as custodians of each Trading Company’s assets pursuant to customer agreements and foreign exchange customer agreements.  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.
- 22 -

 
 

 

There is no limitation on daily price movements 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.


- 23 -
 
 
 

 
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 six months ended June 30, 2012 and 2011, 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.

As of June 30, 2012 and March 31, 2012, the allocations between the Trading Companies were as follows:

Trading Company
 
 Allocation as of 6/30/2012
 
Allocation as of 3/31/2012
 
 
         
Augustus I, LLC
7.40%
7.80%
     
Chesapeake I, LLC
11.20%
11.10%
     
GLC I, LLC
8.40%
8.85%
     
Kaiser I, LLC
8.80%
12.85%
     
Rotella I, LLC
10.85%
10.20%
     
TT II, LLC
33.75%
30.55%
     
WNT I, LLC
19.60%
18.65%

The Partnership’s results of operations set forth in the financial statements on pages 2 through 21 of this report are prepared in accordance with U.S. GAAP, which require the use of certain accounting policies

- 24 -
 
 
 

 
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 appreciation (depreciation) on investments” for open contracts, and recorded as “Realized” when open positions are closed out.  The sum of these amounts constitutes the Trading Companies’ 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.

Ceres believes that, based on the nature of the operations of the Partnership, no assumptions relating to the application of critical accounting policies other than those presently used could reasonably affect reported amounts.


For the Three and Six Months Ended June 30, 2012
The Partnership recorded total realized/net change in unrealized depreciation on investments of $(552,697) and expenses totaling $349,389, resulting in a net loss of $902,086 for the three months ended June 30, 2012.  The Partnership’s net asset value per Unit by share Class is provided in the table below.
 
Share Class
NAV at 6/30/12         
NAV at 3/31/12     
     
A
 $933.58
 $954.33
B
 $956.84
 $976.88
C
$980.68
$999.95
D
$992.95
$1,011.82
Z
$1,030.12
$1,047.72


- 25 -
 
 
 

 
The most significant trading losses were incurred within the global stock index markets during April and May from long positions in U.S. and European equity index futures as prices declined amid an unexpected rise in the U.S. unemployment rate and weakening economic data from China and Europe. Within the energy sector, losses were recorded during May from long futures positions in crude oil and its related products as prices declined after crude stockpiles increased in the U.S., the world’s largest energy consumer. Additional losses were experienced in energies during June from short positions in natural gas futures as prices advanced to the highest level since January on forecasts of above-normal temperatures across the U.S. Within the currency markets, losses were recorded during June from short positions in the euro, Swedish krona, and Swiss franc versus the U.S. dollar as the value of these European currencies increased against the U.S. dollar after European Union leaders eased terms on Spanish bank loans and
moved towards resolving the region’s debt crisis. Losses were also incurred within the agricultural complex during June from short positions in corn futures as prices rose after inventories dropped and on speculation that hot, dry weather will increase stress on crops in the U.S. A portion of the Partnership’s losses during the quarter was offset by gains achieved within the global interest rate sector during April and May from long positions in European and U.S. fixed income futures as prices advanced after Standard & Poor’s cut Spain’s credit rating and Greece failed to form a unified government, adding to concern that central banks and politicians are failing to contain the European debt crisis. Within the metals markets, gains were experienced during May from short positions in silver futures as prices moved lower amid a rise in the value of the U.S. dollar, which diminished demand for the precious metal.









- 26 -
 
 
 

 
The Partnership recorded total realized/net change in unrealized depreciation on investments of $(400,866) and expenses totaling $728,807, resulting in a net loss of $1,129,673 for the six months ended June 30, 2012.  The Partnership’s net asset value per Unit by share Class is provided in the table below.
 
Share Class
NAV at 6/30/12  
NAV at 12/31/11  
     
A
 $933.58
 $959.86
B
 $956.84
 $981.31
C
$980.68
$1,003.23
D
$992.95
$1,014.52
Z
$1,030.12
$1,048.53

The most significant trading losses were incurred within the agricultural complex during January and June. In January, long positions in corn futures resulted in losses as prices fell sharply early in the month after favorable weather boosted crop prospects in South America. During June, newly established short positions in corn futures recorded losses as prices rose after inventories dropped and on speculation that hot, dry weather will increase stress on crops in the U.S. Within the currency markets, losses were experienced during March from long positions in the Australian dollar, New Zealand dollar, and South African rand versus the U.S. dollar as the value of these commodity-linked currencies fell against the U.S. dollar after concern over earnings in China reduced demand for higher-yielding currency assets. Additional currency losses were recorded in June from short positions in the euro, Swedish krona, and Swiss franc versus the U.S. dollar as the value of these European currencies increased against the U.S. dollar after European Union leaders eased terms on Spanish bank loans and moved towards resolving the region’s debt crisis. Within the global stock index sector, losses were incurred during April and May from long positions in U.S. and European equity index futures as prices rose on mounting concern about the European debt crisis. Losses were also recorded within the metals markets during March from long positions in gold and silver futures as prices moved lower amid a rise in the value of the U.S. dollar, which

- 27 -
 
 
 

 
reduced demand for the precious metals. Meanwhile, additional losses in metals trading were incurred during April from short positions in copper futures as prices advanced during the second half of the month after pending sales of U.S. homes rose more than forecast. Lastly, losses were experienced within the energy sector during May from long futures positions in crude oil and its related products as prices declined after crude stockpiles increased in the U.S., the world’s largest energy consumer. Additional losses were experienced in energies during June from short positions in natural gas futures as prices advanced to the highest level since January on forecasts of above-normal temperatures across the U.S. A portion of the Partnership’s losses for the first half of the year was offset by gains achieved within the global interest rate sector during April and May from long positions in European and U.S. fixed income futures as prices advanced after Standard & Poor’s cut Spain’s credit rating and Greece failed to form a unified government, adding to concern that central banks and politicians are failing to contain the European debt crisis.

For the Three and Six Months Ended June 30, 2011
The Partnership recorded total realized/net change in unrealized depreciation on investments of $(2,761,138) and expenses totaling $503,047, resulting in a net loss of $3,264,185 for the three months ended June 30, 2011.  The Partnership’s net asset value per Unit by share Class is provided in the table below.
 
 
Share Class
NAV at 6/30/11
NAV at 3/31/11
     
A
 $998.17
$1,051.70
B
$1,017.92
$1,071.14
C
$1,038.04
$1,090.93
D
$1,048.09
$1,100.79
Z
$1,079.48
$1,131.59


- 28 -
 
 
 

 
The most significant trading losses were incurred 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 on concern that energy demand may weaken. Within the agricultural complex, losses were recorded primarily in April from long positions in cotton futures as prices declined to a three-month low on concern demand may slow from China, the world’s biggest buyer of the fiber. Further losses were experienced during May due to long positions in coffee futures as prices moved lower on speculation production may increase in Brazil and Vietnam. Within the global stock index sector, losses were incurred primarily in May from long positions in European, U.S., and Pacific Rim equity index futures as prices declined after worse-than-expected economic reports and mounting worries over the European debt crisis stoked concern the global economic recovery is faltering. Losses were also experienced within the metals markets, primarily during May, due to long positions in silver futures as prices fell sharply from a 31-year high. Within the currency sector, small losses were recorded primarily during May due to long positions in the Australian dollar, Canadian dollar, and South African rand versus the U.S. dollar. A portion of the Partnership’s losses during the quarter 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, thereby boosting demand for the relative “safety” of government bonds.

The Partnership recorded total realized/net change in unrealized depreciation on investments of $(3,265,440) and expenses totaling $1,043,251, resulting in a net loss of $4,308,691 for the six months ended June 30, 2011.  The Partnership’s net asset value per Unit by share Class is provided in the table below.

- 29 -
 
 
 

 

Share Class
NAV at 6/30/11
NAV at 12/31/10
     
A
   $998.17
$1,068.75
B
$1,017.92
$1,087.13
C
$1,038.04
$1,105.83
D
$1,048.09
$1,115.12
Z
$1,079.48
$1,144.17

The most significant trading losses were incurred within the agricultural complex, 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. During May, long positions in coffee futures resulted in additional losses in this sector as prices moved lower on speculation production may increase in Brazil and Vietnam. 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 global stock prices declined. Within the currency markets, losses were incurred primarily in January from long positions in the Australian dollar, Japanese yen, and South African rand versus the U.S. dollar as the value of these currencies declined against the U.S. dollar amid optimism about the U.S. economy. During May, long positions in the Australian dollar, Canadian dollar, and South African rand versus the U.S. dollar resulted in losses. Losses were recorded within the global interest rate sector throughout a majority of the first four months of the year as concerns regarding the European debt crisis and mixed signs regarding an economic recovery in the U.S. resulted in volatile price movement and a lack of sustained trends. 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

- 30 -
 
 
 

 
slowing. Lastly, small 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.


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 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 and forward currency 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


- 31 -
 
 
 

 

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 as discussed under 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.



- 32 -
 
 
 

 
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.  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.

VaR is a measure of the maximum amount which each Trading Company could reasonably be expected to lose in a given market sector.  However, the inherent uncertainty of each Trading Company’s speculative trading and the recurrence in the markets traded by the Trading Companies of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated VaR of each Trading Company’s experience to date (i.e., “risk of ruin”).  In light of the

- 33 -
 
 
 

 

foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Trading Companies’ losses in any market sector will be limited to VaR or by the Trading Companies’ attempts to manage its market risk.

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 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 June 30, 2012, Chesapeake I, LLC’s total capitalization was $12,591,629.  The Partnership owned approximately 38% of Chesapeake I, LLC.
 
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$362,135
2.88%
     
Interest Rate
314,552
2.50%
     
Equity
312,290
2.48%
     
Commodity
1,054,495
8.37%
     
Total
$2,043,472
16.23%








- 34 -
 
 
 

 
                                                                     Three Months Ended June 30, 2012
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
402,617
234,377
299,216
Interest Rate
314,552
201,281
248,111
Equity
522,655
304,200
427,234
Commodity
1,055,816
730,279 
   837,198
* Average of month-end VaR


As of June 30, 2012, Kaiser I, LLC’s total capitalization was $9,081,419.  The Partnership owned approximately 42% of Kaiser I, LLC.
 
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$188,141
2.07%
     
Interest Rate
117,108
1.29%
     
Equity
  10,856
0.12%
     
Commodity
     51,975
0.57%
     
Total
$368,080
4.05%


                                   Three Months Ended June 30, 2012
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
419,518
36,249
151,689
Interest Rate
339,898
32,960
164,562
Equity
315,494
7,033
87,487
Commodity
137,073
6,379
47,442
* Average of month-end VaR
- 35 -
 
 
 

 

As of June 30, 2012, TT II, LLC’s total capitalization was $543,835,013. The Partnership owned approximately 3% of TT II, LLC.
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
   $18,475,030
3.40%
      
Interest Rate
     28,560,621
5.25%
     
Equity
     13,915,077
2.56%
     
Commodity
     20,785,327
3.82%
     
Total
$81,736,055
15.03%


                                   Three Months Ended June 30, 2012
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
20,682,234
8,600,405
16,037,729
Interest Rate
35,683,131
17,786,817
29,181,976
Equity
16,000,163 
10,045,008
12,545,511
Commodity
26,447,811
15,725,993
21,886,457
* Average of month-end VaR


As of June 30, 2012, Rotella I, LLC’s total capitalization was $6,547,947. The Partnership owned approximately 71% of Rotella I, LLC.





- 36 -
 
 
 

 
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
    $142,611
2.18%
     
Interest Rate
     155,543
2.38%
     
Equity
     192,236
2.94%
     
Commodity
      64,377
0.98%
     
Total
$554,767
8.48%


                                    Three Months Ended June 30, 2012
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
373,337
114,117
234,683
Interest Rate
247,481
147,141
183,205
Equity
310,387 
76,418  
157,337    
Commodity
164,621
54,654
 110,927
* Average of month-end VaR

As of June 30, 2012, Augustus I, LLC’s total capitalization was $9,687,048.  The Partnership owned approximately 33% of Augustus I, LLC.
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$460,240
4.75%
     
Interest Rate
          211,437
2.18%
     
Total
$671,677
6.93%





- 37 -
 
 
 

 
                                                Three Months Ended June 30, 2012
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
1,151,157
353,186
895,473
Interest Rate
218,604
19,305
84,259
* Average of month-end VaR

As of June 30, 2012, GLC I, LLC’s total capitalization was $9,226,505. The Partnership owned approximately 39% of GLC I, LLC.
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$332,094
3.60%
     
Interest Rate
          64,069
0.69%
     
Total
$396,163
4.29%


                                                                                  Three Months Ended June 30, 2012
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
   597,610
64,476
350,261
Interest Rate
386,741
11,928
101,091
* Average of month-end VaR

As of June 30, 2012, WNT I, LLC’s total capitalization was $11,820,803.  The Partnership owned approximately 71% of WNT I, LLC.


- 38 -
 
 
 

 
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$362,650
3.07%
     
Interest Rate
   555,243
4.70%
     
Equity
   155,512
1.32%
     
Commodity
     373,407
3.16%
     
Total
$1,446,812
12.25%


                                   Three Months Ended June 30, 2012
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
676,272
362,650
565,463
Interest Rate
687,293
256,907
544,955
Equity
402,254 
155,512 
283,789    
Commodity
404,546
314,053
362,533
* Average of month-end VaR

As of December 31, 2011, Chesapeake I, LLC’s total capitalization was $10,859,791.  The Partnership owned approximately 45% of Chesapeake I, LLC.

Primary Market
 
% of
Risk Category
VaR
Total Capitalization
     
Currency
$389,541
3.59%
     
Interest Rate
355,542
3.27%
     
Equity
158,814
1.46%
     
Commodity
  575,673
5.30%
     
Total
$1,479,570
13.62%


- 39 -
 
 
 

 
                              Twelve Months Ended December 31, 2011
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
459,497
143,547
252,159
Interest Rate
379,708
155,184
231,456
Equity
551,279
75,094 
306,229
Commodity
882,032
429,419
618,534

As of December 31, 2011, Kaiser I, LLC’s total capitalization was $27,734,037.  The Partnership owned approximately 38% of Kaiser I, LLC.
   
% of Total
Market Sector
VaR  
Capitalization
     
Currency
$6,147
  0.02%
     
Interest Rate
80,677
0.29%
     
Equity
   70,976   
   0.26%
     
Total
$157,800  
  0.57%




                              Twelve Months Ended December 31, 2011
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
816,769 
6,147
221,158
Interest Rate
498,385
229,132
Equity
886,068
182,840 
Commodity
389,614
144,118

As of December 31, 2011, TT II, LLC’s total capitalization was $476,615,913.  The Partnership owned approximately 3% of TT II, LLC.
 
- 40 -
 
 
 

 
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$9,977,318
2.09%
     
Interest Rate
14,916,316
3.13%
     
Equity
4,335,111
0.91%
     
Commodity
  17,904,472
3.76%
     
Total
$47,133,217
9.89%



                                Twelve Months Ended December 31, 2011
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
22,372,356 
688,683
7,090,978
Interest Rate
15,002,665  
398,638
5,207,746
Equity
9,307,243
778,042
2,729,767
Commodity
26,711,030
512,564
  9,752,503

As of December 31, 2011, Rotella I, LLC’s total capitalization was $6,960,774.  The Partnership owned approximately 73% of Rotella I, LLC.

   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$264,167
3.80%
     
Interest Rate
275,444
3.96%
     
Equity
113,818
1.64%
     
Commodity
  80,855
1.16%
     
Total
$734,284
10.56%

- 41 -
 
 
 

 
                              Twelve Months Ended December 31, 2011
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
819,044
78,222
255,710
Interest Rate
479,029
83,022
192,477
Equity
424,761
58,388
160,825
Commodity
268,327
49,937
138,984

As of December 31, 2011, Augustus I, LLC’s total capitalization was $12,936,533.  The Partnership owned approximately 40% of Augustus I, LLC.

   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$1,615,546
12.49%
     
Interest Rate
  162,443
1.26%
     
Total
$1,777,989
13.75%

                              Twelve Months Ended December 31, 2011
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
2,193,622
229,785
985,151
Interest Rate
433,616
11,222
118,598

As of December 31, 2011, GLC I, LLC’s total capitalization was $10,399,401.  The Partnership owned approximately 38% of GLC I, LLC.


- 42 -
 
 
 

 

   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$446,689
4.30%
     
Interest Rate
198,318
1.91%
     
Equity
  149,844
1.44%
     
Total
$794,851
7.65%

                             Twelve Months Ended December 31, 2011
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
620,871
2,036
167,011
Interest Rate
441,278
4,738
125,982
Equity
349,678
33,318
134,083
Commodity
13,017
 –
2,537

As of December 31, 2011, WNT I, LLC’s total capitalization was $12,271,476.  The Partnership owned approximately 73% of WNT I, LLC.

   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$300,739
2.45%
     
Interest Rate
297,714
2.43%
     
Equity
104,471
0.85%
     
Commodity
  231,173
1.88%
     
Total
$934,097
  7.61%


- 43 -
 
 
 

 
                              Twelve Months Ended December 31, 2011
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
429,467
90,742 
232,971
Interest Rate
409,363
136,938
212,095
Equity
512,198
49,529
204,206 
Commodity
679,393
87,985
294,411
* Average of month-end VaR.

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:
·  
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.


- 44 -
 
 
 

 

Non-Trading Risk
The Trading Companies have non-trading market risk on their foreign cash balances. These balances and any market risk they may represent are immaterial.

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.

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

- 45 -
 
 
 

 
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, 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 June 30, 2012.  The Partnership’s disclosure controls and procedures are designed to provide 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 June 30, 2012.

 
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.

- 46 -
 
 
 

 
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 1.  LEGAL PROCEEDINGS

Unless the context otherwise requires, for purposes of this section, the terms the “Company,” “we,” “us” and “our” mean Morgan Stanley and its consolidated subsidiaries. In addition to the matters described in the Form 10-K and those described below, in the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the entities that would otherwise be the primary defendants in such cases are bankrupt or in financial distress.

The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding the Company’s business, including, among other matters, accounting and operational matters, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.

The Company contests liability and/or the amount of damages as appropriate in each pending matter. Where available information indicates that it is probable a liability had been incurred at the date of the condensed consolidated financial statements and the Company can reasonably estimate the amount of that loss, the Company accrues the estimated loss by a charge to income.

In many proceedings, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount of any loss. The Company cannot predict with certainty if, how or

- 48 -
 
 
 

 
when such proceedings will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for proceedings that are in their early stages of development or where plaintiffs seek substantial or indeterminate damages. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters, determination of issues related to class certification and the calculation of damages, and by addressing novel or unsettled legal questions relevant to the proceedings in question, before a loss or additional loss or range of loss or additional loss can be reasonably estimated for any proceeding. Subject to the foregoing, the Company believes, based on current knowledge and after consultation with counsel, that the outcome of such proceedings will not have a material adverse effect on the consolidated financial condition of the Company, although the outcome of such proceedings could be material to the Company’s operating results and cash flows for a particular period depending on, among other things, the level of the Company’s revenues or income for such period.

Over the last several years, the level of litigation and investigatory activity focused on residential mortgage and credit crisis related matters has increased materially in the financial services industry. As a result, the Company expects that it may become the subject of increased claims for damages and other relief regarding residential mortgages and related securities in the future and, while the Company has identified below certain proceedings that the Company believes to be material, individually or collectively, there can be no assurance that additional material losses will not be incurred from residential mortgage claims that have not yet been notified to the Company or are not yet determined to be material.

The following developments have occurred with respect to certain matters previously reported in the Form 10-K or concern new actions that have been filed since December 31, 2011:

- 49 -
 
 
 

 
The Company
Residential Mortgage and Credit Crisis Related Matters.
Class Actions.
On March 26, 2012, defendants filed a renewed motion to dismiss the complaint in In re Morgan Stanley ERISA Litigation.


On April 24, 2012, the court presiding in In re Morgan Stanley Pass-Through Certificate Litigation denied defendants’ motion for reconsideration of its denial-in-part of defendants’ motion to dismiss the second amended complaint. On July 16, 2012, the court denied defendants’ motion to dismiss the third amended complaint.


Other Litigation.
On February 29, 2012, U.S. Bank National Association, in its capacity as Trustee (“U.S. Bank”), filed a summons with notice on behalf of Morgan Stanley Mortgage Loan Trust 2006-4SL and Mortgage Pass-Through Certificates, Series 2006-4SL (together, the “Trust”) against the Company. The summons with notice is styled Morgan Stanley Mortgage Loan Trust 2006-4SL, et al. v. Morgan Stanley Mortgage Capital Inc. and is pending in New York Supreme Court, New York County. The notice asserts claims for breach of contract and alleges, among other things, that the loans in the Trust, which had an original principal balance of approximately $303 million, breached various representations and warranties. The notice seeks, among other relief, an order requiring the Company to comply with the loan breach remedy procedures in the transaction documents, unspecified damages, and interest.


- 50 -
 
 
 

 
On March 5, 2012, the plaintiff in The Charles Schwab Corp. v. BNP Paribas Securities Corp., et al. filed a second amended complaint. On April 10, 2012, the Company filed a demurrer to certain causes of action in the amended complaint.


On March 12, 2012, the court presiding in Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc. et al. denied defendants’ motion to dismiss with respect to plaintiff’s standing to bring suit. Defendants sought interlocutory appeal from that decision on April 11, 2012. On April 26, 2012, the Company and other defendants filed a second motion to dismiss the amended complaints.

On March 9, 2012, in Federal Home Loan Bank of Boston v. Ally Financial, Inc. F/K/A GMAC LLC et al., the United States District Court for the District of Massachusetts denied plaintiff’s motion to remand the case to state court.

On March 20, 2012, the Company filed answers to the complaints in both cases styled Federal Deposit Insurance Corporation, as Receiver for Franklin Bank S.S.B v. Morgan Stanley & Company LLC F/K/A Morgan Stanley & Co. Inc., denying their allegations. On June 13, 2012, the Company removed Federal Deposit Insurance Corporation, as Receiver for Franklin Bank S.S.B v. Morgan Stanley & Company LLC F/K/A Morgan Stanley & Co. Inc. to the United States District Court for the Southern District of Texas. On June 21, 2012, the Company moved to transfer the action to the United States District Court for the Southern District of New York (the “SDNY”). On July 12, 2012, plaintiff moved to remand the action to Texas state court.


- 51 -
 
 
 

 
On April 25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against the Company and certain affiliates in the Superior Court of the State of New Jersey styled The Prudential Insurance Company of America, et al. v. Morgan Stanley, et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to plaintiffs of certain mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company was approximately $1 billion. The complaint raises claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud and tortious interference with contract and seeks, among other things, compensatory damages, punitive damages, rescission and rescissionary damages associated with plaintiffs’ purchases of such certificates.

On April 25, 2012, Metropolitan Life Insurance Company and certain affiliates filed a complaint against the Company and certain affiliates in the Supreme Court of the State of New York styled Metropolitan Life Insurance Company, et al. v. Morgan Stanley, et al. The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company was approximately $757 million. The complaint raises common law claims of fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation and seeks, among other things, rescission, compensatory and/or rescissionary damages, as well as punitive damages, associated with plaintiffs’ purchases of such certificates.


- 52 -
 
 
 

 
On May 1, 2012, Asset Management Fund d/b/a AMF Funds and certain of its affiliated funds filed a summons with notice against the Company in the Supreme Court of the State of New York, styled Asset Management Fund d/b/a AMF Funds et al v. Morgan Stanley et al. The notice alleges that defendants made material misrepresentations and omissions in the sale to plaintiffs of certain mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiffs was approximately $122 million. The notice identifies causes of action against the Company for, among other things, common-law fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation. The notice identifies the relief sought to include, among other things, monetary damages, punitive damages and rescission.

On May 4, 2012, the court in Abu Dhabi Commercial Bank v. Morgan Stanley & Co. Inc., et al. granted the Company’s motion to dismiss claims against the Company for breach of fiduciary duty and negligence, and denied the Company’s motion to dismiss claims against the Company for negligent misrepresentation. On July 2, 2012, plaintiffs filed supplemental disclosures with the Court alleging that they are seeking approximately $811 million in compensatory damages. Plaintiffs are also seeking punitive damages.

On May 4, 2012, the court in King County, Washington, et al. v. IKB Deutsche Industriebank AG, et al., granted the Company’s motion to dismiss claims against the Company for breach of fiduciary duty and negligence, and denied the Company’s motion to dismiss claims against the Company for negligent misrepresentation.



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On June 28, 2012, the court in Federal Home Loan Bank of Chicago v. Bank of America Securities LLC, et al. overruled defendants’ demurrer to plaintiff’s first amended complaint, which demurrer was limited to statute of limitations and statute of repose grounds.

On May 21, 2012, the Company filed a motion to dismiss the complaint in Western and Southern Life Insurance Company, et al. v, Morgan Stanley Mortgage Capital Inc., et al.


On July 13, 2012, the Company filed a motion to dismiss the complaint in Federal Housing Finance Agency, as Conservator v. Morgan Stanley et al. On May 11, 2012, plaintiff withdrew its motion to remand in that action as well as in Federal Housing Finance Agency as Conservator v. General Electric Company et al.


Other Matters.
On April 2, 2012, the Company entered into a Consent Order (“Order”) with the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) relating to the servicing of residential mortgage loans. The terms of the Order are substantially similar and, in many respects, identical to the orders entered into with the Federal Reserve Board by other large U.S. financial institutions. The Order, which is available on the Federal Reserve Board’s website, sets forth various allegations of improper conduct in servicing by Saxon, requires that the Company and its affiliates cease and desist such conduct, and requires that the Company, and its Board of Directors and affiliates, take various affirmative steps. The Order requires (i) the Company to engage an independent third-party consultant to conduct a review of certain foreclosure actions or proceedings that occurred or were pending between January 1, 2009 and

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December 31, 2010; (ii) the adoption of policies and procedures related to management of third parties used to outsource residential mortgage servicing, loss mitigation or foreclosure; (iii) a “validation report” from an independent third-party consultant regarding compliance with the Order for the first year; and (iv) submission of quarterly progress reports as to compliance with the Order by the Company’s Board of Directors. The Order also provides that the Company will be responsible for the payment of any civil money penalties or compensatory payments assessed by the Federal Reserve Board related to such alleged conduct, which penalties or payments have not yet been determined.

Commercial Mortgage Related Matter.
On January 25, 2011, the Company was named as a defendant in The Bank of New York Mellon Trust, National Association v. Morgan Stanley Mortgage Capital, Inc., a litigation pending in the SDNY. The suit, brought by a trustee of a series of commercial mortgage pass-through certificates, alleges that the Company breached certain representations and warranties with respect to an $81 million commercial mortgage loan that was originated and transferred to the trust by the Company. The complaint seeks, among other things, to have the Company repurchase the loan and pay additional monetary damages. On June 27, 2011, the court denied the Company’s motion to dismiss, but directed the filing of an amended complaint. On July 29, 2011, the Company filed its answer to the first amended complaint. Factual discovery concluded on June 18, 2012. The court has indicated that motions for summary judgment are due to be filed by September 21, 2012.

Shareholder Derivative Matter.
On March 22, 2012, the Appellate Division of the Supreme Court of the State of New York affirmed the dismissal of the complaint in Security, Police and Fire Professionals of America Retirement Fund, et al. v. John J. Mack et al.
- 55 -

 
 

 
China Matter.
As disclosed in February 2009, the Company uncovered actions initiated by an employee based in China in an overseas real estate subsidiary that appeared to have violated the Foreign Corrupt Practices Act. The Company terminated the employee, reported the activity to appropriate authorities and cooperated with the investigations by the United States Department of Justice (“DOJ”) and the United States Securities and Exchange Commission (“SEC”). On April 25, 2012, the DOJ announced that the former employee had pled guilty to certain criminal charges, and the SEC announced that it had brought certain civil charges against the former employee, which have been settled. On the same day, the DOJ and SEC announced that they will not take any action against the Company in connection with this matter.


Item 1A.  RISK FACTORS
In addition to the risk factors previously referenced in the Form 10-K, the risk factors below may also apply to an investment in the Partnership.

Trading Swaps Creates Distinctive Risks.  The Trading Advisors may trade in certain swaps.  Currently, swaps are not traded on exchanges and are not subject to the same type of government regulation as exchange markets.  As a result, many of the protections afforded to participants on organized exchanges and in a regulated environment are not available in connection with these transactions.  The swap markets are “principals’ markets,” in which performance with respect to a swap is the responsibility only of the counterparty to the contract, and not of any exchange or clearinghouse.  The Trading Companies are subject to the risk of the inability or refusal to perform with respect to swaps on the part of the counterparties, and until such time as these transactions are cleared or guaranteed by an

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exchange, the Trading Companies will be subject to the risk of counterparty default on their swaps.  In some swap transactions the counterparty may require a Trading Company to deposit collateral to support the Trading Company’s obligations under the swap agreement.  If the counterparty to such a swap defaults, the Trading Company would lose the net amount of payments that the Trading Company is contractually entitled to receive and could lose, in addition, any collateral deposits made with the counterparty.  There are no limitations on daily price movements in swaps.  Speculative position limits are not applicable to swaps.  Participants in the swap markets are not required to make continuous markets in the swaps they trade.

However, the regulation of swaps will be subject to substantial change under recently-enacted legislation and regulatory action.  These new requirements will alter the manner in which swaps will be traded.  Under the Dodd-Frank Act, many commodity swaps will be required to be cleared through clearing houses and executed on designated contract markets or swap execution facilities.  Security-based swaps will be subject to similar requirements as will apply to commodity swaps.  Additional regulatory requirements will apply to all swaps, whether subject to mandatory clearing or not.  These include margin, collateral and capital requirements, reporting obligations for certain swaps, speculative position limits, and other regulatory requirements.  Swaps which are not offered for clearing by a clearing house will continue to be able to be traded bi-laterally.  Such bi-lateral transactions will remain subject to many of the risks discussed in the preceding paragraph.




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Partnership Performance May Be Hindered by Increased Competition for Positions.  Assets in managed futures have grown from an estimated $300 million in 1980 to over $291 billion in 2011.  This has resulted in increased trading competition.  Since futures are traded in an auction-like market, the more competition there is for some contracts, the more difficult it is for the Partnership’s Trading Advisors to obtain the best prices for the Partnership.

You Will Not Have Access to the Partnership’s Positions and Must Rely on the General Partner to Monitor the Trading Advisors.  As a Limited Partner, you will not have access to the Trading Companies’ trade positions.  Consequently, you will not know whether the Trading Advisors are adhering to the Partnership’s trading policies and must rely on the ability of the General Partner to monitor trading and protect your investment.


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 June 30, 2012, was $112,808,874.  Since inception, the Partnership received $805,000 in consideration from the sale of Units to the General Partner.

Proceeds of net offering were used for the trading of commodity interests including futures contracts, options, and forward and swap contracts.

- 58 -
 
 
 

 
The following chart sets forth the purchases of redeemable Units by the Partnership.
 
 
 
 
 
 
 
 
Period
 
 
 
 
 
 
 
  (a) Total Number of
Redeemable Units
Purchased*
 
 
 
 
 
 
 
(b) Average
      Price Paid per
Redeemable Unit**
 
 
 
 
(c) Total Number Of
Redeemable Units
Purchased as part
Of Publicly
Announced
Plans or Programs
 
 
 
 
 
     (d) Maximum Number
      (or Approximate Dollar Value) of Redeemable Units that May Yet Be Purchased Under the
       Plans or Programs
Class A
       
April 1, 2012 – April 30, 2012
748.640
954.43
N/A
 N/A 
May 1, 2012 – May 31, 2012
767.814
979.30
N/A
N/A    
June 1, 2012 – June 30, 2012
   737.321
933.58
 N/A 
N/A
 
   2,253.775 
956.08 
   

 
 
 
 
 
 
 
 
Period
 
 
 
 
 
 
 
(a) Total Number of
Redeemable Units
Purchased*
 
 
 
 
 
 
 
(b) Average
   Price Paid per
Redeemable Unit**
 
 
 
 
(c) Total Number Of
Redeemable Units
Purchased as part
Of Publicly
Announced
Plans or Programs
 
 
 
     
 
 (d) Maximum Number
      (or Approximate Dollar Value) of Redeemable Units that May Yet Be Purchased Under the
       Plans or Programs
Class B
       
April 1, 2012 – April 30, 2012
466.184
977.39
N/A
 N/A 
May 1, 2012 – May 31, 2012
   –
   –
N/A
N/A
June 1, 2012 – June 30, 2012
236.184
956.84
 N/A 
N/A
 
702.368
970.48
   


 
 
 
 
 
 
 
 
Period
 
 
 
 
 
 
 
  
 
 (a) Total Number of
Redeemable Units
Purchased*
 
 
 
 
 
 
 
 
 
(b) Average
Price Paid per
Redeemable Unit**
 
 
 
 
 
 
(c) Total Number Of
Redeemable Units
Purchased as part
Of Publicly
Announced
Plans or Programs
 
 
 
  
 
 
 
    (d) Maximum Number
      (or Approximate Dollar Value) of Redeemable Units that May Yet Be Purchased Under the
       Plans or Programs
Class C
       
April 1, 2012 – April 30, 2012
   –
   –
N/A
 N/A
May 1, 2012 – May 31, 2012
    –
   –
N/A
 N/A
June 1, 2012 – June 30, 2012
         –            
       –                  
 N/A 
 N/A
 
         –           
       –                 
   
         





- 59 -
 
 
 

 
 
 
 
 
 
 
 
 
Period
 
 
 
 
 
 
(a) Total Number of
 Redeemable Units
 Purchased*
 
 
 
 
 
 
(b) Average
Price Paid per
Redeemable Unit**
 
 
 
(c) Total Number Of
Redeemable Units
Purchased as part
Of Publicly
Announced
Plans or Programs
 
 
 
 
      (d) Maximum Number
      (or Approximate Dollar Value) of Redeemable Units that May Yet Be Purchased Under the
       Plans or Programs
Class D
       
April 1, 2012 – April 30, 2012
   –
   –
N/A
 N/A
May 1, 2012 – May 31, 2012
   –
   –
N/A
N/A   
June 1, 2012 – June 30, 2012
         –            
       –                   
 N/A 
N/A      
 
         –           
       –                  
   
         

 
 
 
 
 
 
 
 
Period
 
 
 
 
 
 
(a) Total Number of
Redeemable Units
Purchased*
 
 
 
 
 
 
(b) Average
Price Paid per
Redeemable Unit**
 
 
 
(c) Total Number Of
Redeemable Units
Purchased as part
Of Publicly
Announced
Plans or Programs
 
 
 
 
      (d) Maximum Number
      (or Approximate Dollar Value) of Redeemable Units that May Yet Be Purchased Under the
       Plans or Programs
Class Z
       
April 1, 2012 – April 30, 2012
23.483
1,049.58
N/A
 N/A 
May 1, 2012 – May 31, 2012
54.162
1,078.68
N/A
N/A
June 1, 2012 – June 30, 2012
194.000
1,030.12
 N/A 
N/A
 
271.645
1,041.48
   

*
 
Generally, limited partners are permitted to redeem their Redeemable Units as of the end of each month on three business days’ notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnership’s business in connection with effecting redemptions for limited partners.
     
**
 
Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day.

Item 4.  MINE SAFETY DISCLOSURES
Not applicable.


 

 

 

 
 
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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
 
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.
 

 

 

 
- 61 -
 

 
 

 


 

 

 

 
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)
     
August 14, 2012
By:
/s/Damian George
   
Damian George
   
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.




















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