Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - Polaris Futures Fund L.P. | Financial_Report.xls |
EX-31.01 - EXHIBIT - Polaris Futures Fund L.P. | polarisex3101.htm |
EX-32.02 - EXHIBIT - Polaris Futures Fund L.P. | polarisex3202.htm |
EX-31.02 - EXHIBIT - Polaris Futures Fund L.P. | polarisex3102.htm |
EX-32.01 - EXHIBIT - Polaris Futures Fund L.P. | polarisex3201.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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: 000-53115
POLARIS FUTURES FUND L.P.
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(Exact name of registrant as specified in its charter)
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Delaware
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20-8528957
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Ceres Managed Futures LLC
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522 Fifth Avenue, 14th Floor
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New York, NY
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10036
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code
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(855) 672-4468
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(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
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Accelerated filer o
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Non-accelerated filer x
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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
POLARIS FUTURES FUND L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2012
PART I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements (Unaudited)
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|
Statements of Financial Condition as of September 30, 2012 and December 31, 2011
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2
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Statements of Income and Expenses for the Three and Nine Months Ended September 30, 2012 and 2011
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3
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Statements of Changes in Partners’ Capital for the Nine Months Ended September 30, 2012 and 2011
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4
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|
Notes to Financial Statements
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5-21
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|
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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22-31
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Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
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31-44
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Item 4.
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Controls and Procedures
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44-45
|
PART II. OTHER INFORMATION
|
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Item 1.
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Legal Proceedings
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46-49
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Item 1A.
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Risk Factors
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49-50
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Item 2.
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Unregistered Sales of Securities and Use of Proceeds
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50-51
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Item 4.
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Mine Safety Disclosures
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52
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Item 5.
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Other Information Information
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52-53
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Item 6.
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Exhibits
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53
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
POLARIS FUTURES FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30,
|
December 31,
|
||
2012
|
2011
|
||
ASSETS
|
$
|
$
|
|
Investments in Affiliated Trading Companies:
|
|||
Investment in BHM I, LLC
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66,141,668
|
76,958,099
|
|
Investment in Altis I, LLC
|
37,293,046
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41,215,261
|
|
Investment in AHL I, LLC
|
36,103,474
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36,925,484
|
|
Investment in Aspect I, LLC
|
30,756,685
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39,678,211
|
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Investment in Boronia I, LLC
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18,080,987
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29,266,131
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Total Investments in Affiliated Trading Companies, at fair value
(cost $201,661,048 and $229,373,574, respectively)
|
188,375,860
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224,043,186
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|
Total Assets
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188,375,860
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224,043,186
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LIABILITIES
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|||
Redemptions payable
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3,146,094
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5,623,578
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|
Total Liabilities
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3,146,094
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5,623,578
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|
PARTNERS’ CAPITAL
|
|||
Class A (110,304.378 and 117,989.188 Units, respectively)
|
119,226,661
|
134,606,952
|
|
Class B (20,778.174 and 25,377.597 Units, respectively)
|
23,046,121
|
29,596,967
|
|
Class C (24,535.809 and 32,198.395 Units, respectively)
|
27,925,246
|
38,388,320
|
|
Class D (8,745.602 and 8,745.602 Units, respectively)
|
10,082,107
|
10,541,476
|
|
Class Z (4,130.294 and 4,242.591 Units, respectively)
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4,949,631
|
5,285,893
|
|
Total Partners’ Capital
|
185,229,766
|
218,419,608
|
|
Total Liabilities and Partners’ Capital
|
188,375,860
|
224,043,186
|
|
NET ASSET VALUE PER UNIT
|
|||
Class A
|
1,080.89
|
1,140.84
|
|
Class B
|
1,109.15
|
1,166.26
|
|
Class C
|
1,138.14
|
1,192.24
|
|
Class D
|
1,152.82
|
1,205.34
|
|
Class Z
|
1,198.37
|
1,245.91
|
The accompanying notes are an integral part of these financial statements.
- 2 -
POLARIS FUTURES FUND L.P.
STATEMENTS OF INCOME AND EXPENSES
(Unaudited)
For the Three Months
Ended September 30,
|
For the Nine Months
Ended September 30,
|
||||||
2012
|
2011
|
2012
|
2011
|
||||
$
|
$
|
$
|
$
|
||||
EXPENSES
|
|||||||
Ongoing Placement Agent fees
|
807,232
|
1,004,687
|
2,585,884
|
2,888,501
|
|||
General Partner fees
|
484,022
|
615,916
|
1,551,882
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1,786,218
|
|||
Administrative fees
|
88,625
|
153,979
|
265,876
|
560,759
|
|||
Total Expenses
|
1,379,879
|
1,774,582
|
4,403,642
|
5,235,478
|
|||
NET INVESTMENT LOSS
|
(1,379,879)
|
(1,774,582)
|
(4,403,642)
|
(5,235,478)
|
|||
REALIZED/NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON
|
|||||||
INVESTMENTS
|
|||||||
Realized
|
645,952
|
590,275
|
2,042,779
|
7,729,638
|
|||
Net change in unrealized appreciation (depreciation)
|
|||||||
on investments
|
1,036,906
|
(6,571,520)
|
(7,954,800)
|
(33,042,297)
|
|||
Total Realized/Net Change in
Unrealized Appreciation (Depreciation) on Investments
|
1,682,858
|
(5,981,245)
|
(5,912,021)
|
(25,312,659)
|
|||
NET INCOME (LOSS)
|
302,979
|
(7,755,827)
|
(10,315,663)
|
(30,548,137)
|
|||
NET INCOME (LOSS) ALLOCATION
|
|||||||
Class A
|
97,448
|
(4,920,276)
|
(7,051,149)
|
(18,557,751)
|
|||
Class B
|
50,713
|
(1,042,425)
|
(1,255,953)
|
(3,915,904)
|
|||
Class C
|
91,918
|
(1,308,683)
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(1,344,823)
|
(6,101,660)
|
|||
Class D
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34,463
|
(331,205)
|
(466,116)
|
(1,308,557)
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|||
Class Z
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28,437
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(153,238)
|
(197,622)
|
(664,265)
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|||
NET INCOME (LOSS) PER UNIT *
|
|||||||
Class A
|
0.27
|
(39.88)
|
(59.95)
|
(168.82)
|
|||
Class B
|
1.66
|
(39.11)
|
(57.11)
|
(167.05)
|
|||
Class C
|
3.13
|
(38.30)
|
(54.10)
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(165.15)
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|||
Class D
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3.88
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(37.87)
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(52.52)
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(164.13)
|
|||
Class Z
|
6.27
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(36.52)
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(47.54)
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(160.94)
|
|||
Units
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Units
|
Units
|
Units
|
||||
WEIGHTED AVERAGE NUMBER
|
|||||||
OF UNITS OUTSTANDING
|
|||||||
Class A
|
113,817.707
|
116,725.786
|
117,606.988
|
106,900.522
|
|||
Class B
|
21,556.637
|
24,823.132
|
23,117.843
|
22,654.665
|
|||
Class C
|
25,286.385
|
36,801.540
|
27,177.006
|
37,081.763
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|||
Class D
|
8,874.060
|
8,745.602
|
8,874.060
|
8,101.454
|
|||
Class Z
|
4,171.345
|
4,233.419
|
4,198.065
|
4,038.649
|
*Based on the change in net asset value per Unit.
The accompanying notes are an integral part of these financial statements.
- 3 -
POLARIS FUTURES FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
For the Nine Months Ended September 30, 2012 and 2011
(Unaudited)
Class A
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Class B
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Class C
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Class D
|
Class Z
|
Total
|
||||||
$
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$
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$
|
$
|
$
|
$
|
||||||
Partners’ Capital,
|
|||||||||||
December 31, 2011
|
134,606,952
|
29,596,967
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38,388,320
|
10,541,476
|
5,285,893
|
218,419,608
|
|||||
Subscriptions
|
12,204,885
|
819,500
|
1,000,000
|
154,836
|
190,509
|
14,369,730
|
|||||
Net Loss
|
(7,051,149)
|
(1,255,953)
|
(1,344,823)
|
(466,116)
|
(197,622)
|
(10,315,663)
|
|||||
Redemptions
|
(20,534,027)
|
(6,114,393)
|
(10,118,251)
|
(148,089)
|
(329,149)
|
(37,243,909)
|
|||||
Partners’ Capital,
|
|||||||||||
September 30, 2012
|
119,226,661
|
23,046,121
|
27,925,246
|
10,082,107
|
4,949,631
|
185,229,766
|
|||||
Partners’ Capital,
|
|||||||||||
December 31, 2010
|
128,430,583
|
27,180,755
|
55,652,694
|
4,392,721
|
5,353,929
|
221,010,682
|
|||||
Subscriptions
|
42,687,214
|
10,765,893
|
3,919,143
|
7,982,114
|
982,808
|
66,337,172
|
|||||
Net Loss
|
(18,557,751)
|
(3,915,904)
|
(6,101,660)
|
(1,308,557)
|
(664,265)
|
(30,548,137)
|
|||||
Redemptions
|
(10,432,998)
|
(3,272,195)
|
(8,533,455)
|
–
|
(164,272)
|
(22,402,920)
|
|||||
Partners’ Capital,
|
|||||||||||
September 30, 2011
|
142,127,048
|
30,758,549
|
44,936,722
|
11,066,278
|
5,508,200
|
234,396,797
|
|||||
Class A
|
Class B
|
Class C
|
Class D
|
Class Z
|
Total
|
||||||
Units
|
Units
|
Units
|
Units
|
Units
|
Units
|
||||||
Beginning Units,
|
|||||||||||
December 31, 2011
|
117,989.188
|
25,377.597
|
32,198.395
|
8,745.602
|
4,242.591
|
188,553.373
|
|||||
Subscriptions
|
10,760.694
|
701.229
|
831.469
|
128.458
|
153.692
|
12,575.542
|
|||||
Redemptions
|
(18,445.504)
|
(5,300.652)
|
(8,494.055)
|
(128.458)
|
(265.989)
|
(32,634.658)
|
|||||
Ending Units,
|
|||||||||||
September 30, 2012
|
110,304.378
|
20,778.174
|
24,535.809
|
8,745.602
|
4,130.294
|
168,494.257
|
|||||
Beginning Units,
|
|||||||||||
December 31, 2010
|
93,726.780
|
19,502.516
|
39,260.116
|
3,072.942
|
3,651.080
|
159,213.434
|
|||||
Subscriptions
|
32,571.808
|
8,014.441
|
2,837.281
|
5,672.660
|
687.284
|
49,783.474
|
|||||
Redemptions
|
(8,002.326)
|
(2,441.954)
|
(6,216.732)
|
–
|
(118.973)
|
(16,779.985)
|
|||||
Ending Units,
|
|||||||||||
September 30, 2011
|
118,296.262
|
25,075.003
|
35,880.665
|
8,745.602
|
4,219.391
|
192,216.923
|
The accompanying notes are an integral part of these financial statements.
- 4 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
September 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 Polaris Futures Fund L.P. (“Polaris” 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
Polaris Futures Fund L.P. was formed on February 22, 2007, under the Delaware Revised Uniform Limited Partnership Act, as a multi-advisor commodity pool created to profit from the speculative trading of domestic commodities 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 on 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”).
The Partnership allocates substantially all of its assets to multiple affiliated Trading Companies, each of which allocates substantially all of its assets to the trading program of an unaffiliated commodity trading advisor which makes investment decisions for each respective Trading Company.
- 5 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Partnership commenced trading operations on August 1, 2007, in accordance with the terms of its Limited Partnership Agreement (the “Limited Partnership Agreement”). Morgan Stanley Smith Barney LLC serves as the placement agent to the Partnership. As of September 26, 2012, Morgan Stanley Smith Barney LLC, is doing business as Morgan Stanley Wealth Management. 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 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 September 30, 2012, are as follows:
- 6 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Trading Company
|
Trading Advisor
|
Morgan Stanley Smith Barney Altis I, LLC
|
|
(“Altis I, LLC”)
|
Altis Partners (Jersey) Limited
|
Morgan Stanley Smith Barney Aspect I, LLC
|
|
(“Aspect I, LLC”)
|
Aspect Capital Limited (“Aspect”)
|
Morgan Stanley Smith Barney BHM I, LLC
|
|
(“BHM I, LLC”)
|
Blenheim Capital Management, L.L.C.
|
Morgan Stanley Smith Barney Boronia I, LLC
|
|
(“Boronia I, LLC”)
|
Boronia Capital Pty. Ltd.
|
Morgan Stanley Smith Barney AHL I, LLC
|
|
(“AHL I, LLC”)
|
Man-AHL (USA) Ltd.
|
The trading system style of each Trading Advisor is as follows:
Commodity Trading Advisor
|
Trading System Style
|
Altis Partners (Jersey) Limited
|
Systematic
|
Aspect Capital Limited
|
Systematic
|
Blenheim Capital Management, L.L.C.
|
Discretionary
|
Boronia Capital Pty. Ltd.
|
Systematic
|
Man-AHL (USA) Ltd.
|
Systematic
|
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. Morgan Stanley Wealth Management is a principal subsidiary of MSSBH. MS&Co., MSIP, and MSCG are wholly-owned subsidiaries of Morgan Stanley.
Ceres may reallocate the Partnership’s assets to the different Trading Companies at its sole discretion.
- 7 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Prior to February 1, 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 1, 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.
2. Related Party Transactions
The cash held by each Trading Company is on deposit in commodity brokerage accounts with Morgan Stanley. MS&Co. pays each Trading Company interest income on 100% of its average daily equity maintained in cash in the Trading Companies’ accounts during each month 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 these interest payments, daily funds do not include monies owed to each Trading
- 8 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Company on or with respect to futures, forwards, or options contracts that have not been received. MS&Co. and Ceres will retain any interest earned in excess of the interest paid to the Trading Companies. Currently, the Trading Companies’ remaining excess cash is invested by MS&Co. in permitted investments.
The Partnership pays monthly administrative fees and general partner fees to Ceres. The Partnership pays to Morgan Stanley Wealth Management 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 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Financial Highlights
Financial Highlights for three and nine months ended September 30, 2012 and 2011 were as follows:
Class A
|
Class B
|
Class C
|
Class D
|
Class Z
|
|
PER UNIT OPERATING PERFORMANCE:
|
|||||
NET ASSET VALUE,
|
|||||
JULY 1, 2012:
|
$ 1,080.62
|
$ 1,107.49
|
$ 1,135.01
|
$ 1,148.94
|
$ 1,192.10
|
NET OPERATING RESULTS:
|
|||||
Net investment loss
|
(8.73)
|
(7.54)
|
(6.29)
|
(5.64)
|
(3.58)
|
Net realized/unrealized gain
|
9.00
|
9.20
|
9.42
|
9.52
|
9.85
|
Net gain
|
0.27
|
1.66
|
3.13
|
3.88
|
6.27
|
NET ASSET VALUE,
|
|||||
SEPTEMBER 30, 2012:
|
$ 1,080.89
|
$ 1,109.15
|
$ 1,138.14
|
$ 1,152.82
|
$ 1,198.37
|
RATIOS TO AVERAGE NET ASSETS:
|
|||||
Net investment loss (1) (2)
|
-3.17%
|
-2.67%
|
-2.17%
|
-1.92%
|
-1.18%
|
Partnership expenses (1) (2)
|
3.17%
|
2.67%
|
2.17%
|
1.92%
|
1.18%
|
TOTAL RETURN:
|
0.02%
|
0.15%
|
0.28%
|
0.34%
|
0.53%
|
PER UNIT OPERATING PERFORMANCE:
|
|||||
NET ASSET VALUE,
|
|||||
JANUARY 1, 2012:
|
$ 1,140.84
|
$ 1,166.26
|
$ 1,192.24
|
$ 1,205.34
|
$ 1,245.91
|
NET OPERATING RESULTS:
|
|||||
Net investment loss
|
(26.77)
|
(23.11)
|
(19.23)
|
(17.20)
|
(10.87)
|
Net realized/unrealized loss
|
(33.18)
|
(34.00)
|
(34.87)
|
(35.32)
|
(36.67)
|
Net loss
|
(59.95)
|
(57.11)
|
(54.10)
|
(52.52)
|
(47.54)
|
NET ASSET VALUE,
|
|||||
SEPTEMBER 30, 2012:
|
$ 1,080.89
|
$ 1,109.15
|
$ 1,138.14
|
$ 1,152.82
|
$ 1,198.37
|
RATIOS TO AVERAGE NET ASSETS:
|
|||||
Net investment loss (1) (2)
|
-3.18%
|
-2.68%
|
-2.18%
|
-1.93%
|
-1.17%
|
Partnership expenses (1) (2)
|
3.18%
|
2.68%
|
2.18%
|
1.93%
|
1.17%
|
TOTAL RETURN:
|
-5.25%
|
-4.90%
|
-4.54%
|
-4.36%
|
-3.82%
|
- 10 -
POLARIS 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,
|
|||||
JULY 1, 2011:
|
$ 1,241.33
|
$ 1,265.77
|
$ 1,290.69
|
$ 1,303.22
|
$ $ 1,341.97
|
NET OPERATING RESULTS:
|
|||||
Net investment loss
|
(10.31)
|
(8.90)
|
(7.42)
|
(6.67)
|
(4.29)
|
Net realized/unrealized loss
|
(29.57)
|
(30.21)
|
(30.88)
|
(31.20)
|
(32.23)
|
Net loss
|
(39.88)
|
(39.11)
|
(38.30)
|
(37.87)
|
(36.52)
|
NET ASSET VALUE,
|
|||||
SEPTEMBER 30, 2011:
|
$ 1,201.45
|
$ 1,226.66
|
$ 1,252.39
|
$ 1,265.35
|
$ 1,305.45
|
RATIOS TO AVERAGE NET ASSETS:
|
|||||
Net investment loss (1) (2)
|
-3.22%
|
-2.73%
|
-2.23%
|
-1.98%
|
-1.24%
|
Partnership expenses (1) (2)
|
3.22%
|
2.73%
|
2.23%
|
1.98%
|
1.24%
|
TOTAL RETURN:
|
-3.21%
|
-3.09%
|
-2.97%
|
-2.91%
|
-2.72%
|
PER UNIT OPERATING PERFORMANCE:
|
|||||
NET ASSET VALUE,
|
|||||
JANUARY 1, 2011:
|
$ 1,370.27
|
$ 1,393.71
|
$ 1,417.54
|
$ 1,429.48
|
$ $ 1,466.39
|
NET OPERATING RESULTS:
|
|||||
Net investment loss
|
(32.62)
|
(28.21)
|
(23.75)
|
(21.30)
|
(13.96)
|
Net realized/unrealized loss
|
(136.20)
|
(138.84)
|
(141.40)
|
(142.83)
|
(146.98)
|
Net loss
|
(168.82)
|
(167.05)
|
(165.15)
|
(164.13)
|
(160.94)
|
NET ASSET VALUE,
|
|||||
SEPTEMBER 30, 2011:
|
$ 1,201.45
|
$ 1,226.66
|
$ 1,252.39
|
$ 1,265.35
|
$ 1,305.45
|
RATIOS TO AVERAGE NET ASSETS:
|
|||||
Net investment loss (1) (2)
|
-3.32%
|
-2.82%
|
-2.32%
|
-2.07%
|
-1.32%
|
Partnership expenses (1) (2)
|
3.32%
|
2.82%
|
2.32%
|
2.07%
|
1.32%
|
TOTAL RETURN:
|
-12.32%
|
-11.99%
|
-11.65%
|
-11.48%
|
-10.98%
|
(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 -
POLARIS 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 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.
- 12 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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
- 13 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 non-exchange-traded forward currency contracts are settled upon termination of the contract. Gains and losses of off-exchange-traded forward currency options contracts are settled upon an agreed upon settlement date. However, the Trading Companies are required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Trading Companies’ accounts with the counterparty.
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.
- 14 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Financial instruments are carried at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified and disclosed in the following three levels: Level 1 - unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2 – inputs other than unadjusted quoted market prices that are observable for the asset or liability, either directly or indirectly (including unadjusted quoted market prices for similar investments, interest rates, credit risk); and Level 3 - unobservable inputs for the asset or liability (including the Partnership’s own assumptions used in determining the fair value of investments).
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of the factors specific to the investment.
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 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 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 BHM I, LLC
|
–
|
66,141,668
|
–
|
66,141,668
|
|||
Investment in Altis I, LLC
|
–
|
37,293,046
|
–
|
37,293,046
|
|||
Investment in AHL I, LLC
|
–
|
36,103,474
|
–
|
36,103,474
|
|||
Investment in Aspect I, LLC
|
–
|
30,756,685
|
–
|
30,756,685
|
|||
Investment in Boronia I, LLC
|
–
|
18,080,987
|
–
|
18,080,987
|
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 BHM I, LLC
|
–
|
76,958,099
|
–
|
76,958,099
|
|
Investment in Altis I, LLC
|
–
|
41,215,261
|
–
|
41,215,261
|
|
Investment in Aspect I, LLC
|
–
|
39,678,211
|
–
|
39,678,211
|
|
Investment in AHL I, LLC
|
–
|
36,925,484
|
–
|
36,925,484
|
|
Investment in Boronia I, LLC
|
–
|
29,266,131
|
–
|
29,266,131
|
During the period January 1, 2012 to September 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.
The Partnership’s assets identified as “Investments in Affiliated Trading Companies” reflected on the Statements of Financial Condition represent 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
- 16 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 September 30, 2012, the Partnership’s investment in the Trading Companies represented approximately: BHM I, LLC 35.10%; Altis I, LLC 19.80%; AHL I, LLC 19.15%; Aspect I, LLC 16.35%; and Boronia I, LLC 9.60% of the total investments of the Partnership, respectively.
At December 31, 2011, the Partnership’s investment in the Trading Companies represented approximately: BHM I, LLC 34.35%; Aspect I, LLC 17.70%; Altis I, LLC 18.40%; Boronia I, LLC 13.05%; and AHL I, LLC 16.50% of the total investments of the Partnership, respectively.
The tables below represent summarized Income Statement information for the Trading Companies that the Partnership invests in for the three and nine months ended September 30, 2012 and 2011, respectively, in accordance with Rule 3-09 of Regulation S-X, as follows:
- 17 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended September 30, 2012
|
Investment
Loss
|
Net
Investment Loss
|
Total Trading Results
|
Net
(Income)Loss
|
$
|
$
|
$
|
$
|
|
AHL I, LLC
|
–
|
(226,584)
|
618,035
|
391,451
|
Aspect I, LLC
|
–
|
(151,270)
|
(934,157)
|
(1,085,427)
|
BHM I, LLC
|
–
|
(1,923,755)
|
19,756,649
|
17,832,894
|
Altis I, LLC
|
–
|
(188,856)
|
(167,707)
|
(356,563)
|
Boronia I, LLC
|
–
|
(226,624)
|
111,549
|
(115,075)
|
For the Nine Months Ended September 30, 2012
|
Investment
Loss
|
Net
Investment Loss
|
Total Trading Results
|
Net Loss
|
$
|
$
|
$
|
$
|
|
BHM I, LLC
|
(48,368)
|
(6,242,475)
|
2,057,898
|
(4,184,577)
|
AHL I, LLC
|
(4,768)
|
(731,231)
|
(1,702,409)
|
(2,433,640)
|
For the Three Months Ended September 30, 2011
|
Investment
Income/(Loss)
|
Net
Investment Loss
|
Total Trading Results
|
Net
Income/(Loss)
|
$
|
$
|
$
|
$
|
|
Altis I, LLC
|
530
|
(193,266)
|
(2,473,042)
|
(2,666,308)
|
Aspect I, LLC
|
(308)
|
(964,425)
|
5,259,405
|
4,294,980
|
AHL I, LLC
|
1,488
|
(470,244)
|
2,283,695
|
1,813,451
|
BHM I, LLC
|
(19,396)
|
(2,147,827)
|
(59,690,597)
|
(61,838,424)
|
For the Nine Months Ended September 30, 2011
|
Investment Loss
|
Net
Investment Loss
|
Total Trading Results
|
Net Loss
|
$
|
$
|
$
|
$
|
|
Altis I, LLC
|
(2,984)
|
(655,022)
|
(13,667,236)
|
(14,322,258)
|
BHM I, LLC
|
(27,873)
|
(5,078,434)
|
(84,720,205)
|
(89,798,639)
|
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
- 18 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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. In August 2012, the FASB updated the proposed ASU to state that entities regulated under the Investment Company Act of 1940 should qualify to be investment companies within the proposed investment company guidance. The
- 19 -
POLARIS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 September 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 2009 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 -
POLARIS 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 September 30, 2012, the percentage of assets allocated to each market sector was approximately as follows: Interest Rate 30.7%; Currency 16.7%; Equity 12.1%; and Commodity 40.5%.
Liquidity. MS&Co. and its affiliates act as custodians of each Trading Company’s assets pursuant to customer agreements and foreign exchange customer agreement. The Partnership allocates substantially all of its assets to multiple Trading Companies. Such assets are deposited in the Trading Companies’ trading accounts with MS&Co. or its affiliates. The funds in such accounts are available for margin and are used to engage in Futures Interest trading pursuant to instructions provided by the Trading Advisors. The assets are held in either non-interest bearing bank accounts or in securities and instruments permitted by the Commodity Futures Trading Commission for investment of customer segregated or secured funds. Since the Partnership’s sole purpose is to trade Futures Interests indirectly through the investment in the Trading Companies, it is expected that the Trading Companies will continue to own such liquid assets for margin purposes.
The Trading Companies’ investment in Futures Interests may, from time to time, be illiquid. Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as “daily price fluctuation limits” or “daily limits.” Trades may not be executed at prices beyond the daily limit. If the price for a particular futures or options contract has increased or decreased by an amount equal to the daily limit, positions in that futures or options contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. These market conditions could prevent the Trading Companies from promptly liquidating their futures or options contracts and result in restrictions on redemptions.
- 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 nine months ended September 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 September 30, 2012 and June 30, 2012, the allocations between the Trading Companies were as follows:
Trading Company
|
Allocation as of 9/30/2012
|
Allocation as of 6/30/2012
|
AHL I, LLC
|
19.15%
|
19.10%
|
Altis I, LLC
|
19.80%
|
20.10%
|
Aspect I, LLC
|
16.35%
|
16.10%
|
BHM I, LLC
|
35.10%
|
35.50%
|
Boronia I, LLC
|
9.60%
|
9.20%
|
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 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.
- 24 -
The difference between their original contract value and fair value is recorded on the Statements of Income and Expenses as “Net change in unrealized 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 Nine Months Ended September 30, 2012
The Partnership recorded total realized/net change in unrealized appreciation on investments of $1,682,858 and expenses totaling $1,379,879, resulting in net income of $302,979 for the three months ended September 30, 2012. The Partnership’s net asset value per Unit by share Class is provided in the table below.
Share Class
|
NAV at 9/30/12
|
NAV at 6/30/12
|
A
|
$1,080.89
|
$1,080.62
|
B
|
$1,109.15
|
$1,107.49
|
C
|
$1,138.14
|
$1,135.01
|
D
|
$1,152.82
|
$1,148.94
|
Z
|
$1,198.37
|
$1,192.10
|
- 25 -
The most significant trading gains were achieved within the metals markets during August and September from long positions in palladium and platinum futures as prices climbed higher amid concern continued labor-related violence at mines in South Africa will curb supplies. Within the agricultural complex, gains were recorded during July and September from long futures positions in the soybean complex and corn after prices rose as a heat wave and drought in the U.S. Midwest threatened to limit output. Within the global interest rate sector, gains were experienced during July from long positions in European and U.S. fixed income futures as prices advanced after reports revealed a decline in German service industries and slower-than-forecast growth in U.S. payrolls, fueling concern the global economic recovery is slowing. Additional gains were achieved within the currency markets during July from short positions in the euro versus the Australian dollar, British pound, and Canadian dollar as the value of the euro declined against most of its currency counterparts after European Central Bank President Mario Draghi said the euro-zone still faces risks after policy makers cut interest rates to a record low. A portion of the Partnership’s gains during the quarter was offset by losses incurred within the energy markets during July from short futures positions in crude oil and its related products as prices advanced on concern that instability in the Middle East will disrupt energy supplies. Within the global stock index sector, losses were experienced during July from long positions in Pacific Rim equity index futures as prices fell throughout a majority of the month on concern Asian corporate earnings are weakening.
The Partnership recorded total realized/net change in unrealized depreciation on investments of $(5,912,021) and expenses totaling $4,403,642, resulting in a net loss of $10,315,663 for the nine months ended September 30, 2012. The Partnership’s net asset value per Unit by share Class is provided in the table below.
- 26 -
Share Class
|
NAV at 9/30/12
|
NAV at 12/31/11
|
A
|
$1,080.89
|
$1,140.84
|
B
|
$1,109.15
|
$1,166.26
|
C
|
$1,138.14
|
$1,192.24
|
D
|
$1,152.82
|
$1,205.34
|
Z
|
$1,198.37
|
$1,245.91
|
The most significant trading losses were incurred within the currency markets during March from long positions in the Australian dollar, South African rand, and New Zealand dollar 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. Further currency losses were recorded during August from long positions in the Australian dollar versus the euro, British pound, and Canadian dollar as the value of the Australian dollar fell against these currencies amid concern a slowdown in China, Australia’s biggest trading partner, would hamper growth. Within the metals markets, losses were experienced during March from long positions in palladium and aluminum futures as prices moved lower on speculation of reduced demand from China, the world’s biggest metals purchaser. Additional losses were recorded within the metals sector during May from long positions in palladium and platinum futures as prices fell on concern Europe’s worsening debt crisis and a slowing U.S. recovery signal weaker demand for metals. Within the global stock index sector, losses were experienced during April and May from long positions in U.S., European, and Japanese equity index futures as prices declined amid an unexpected rise in the U.S. unemployment rate and weakening economic data from China and Europe. A portion of the Partnership’s losses during the first nine months of the year was offset by gains recorded within the global interest rate markets 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 central banks and politicians are failing to contain
- 27 -
the European debt crisis. During July, long positions in European and U.S. fixed income futures resulted in gains as prices climbed higher on concern the global economic recovery is slowing. Within the energy markets, gains were experienced during January from short positions in natural gas futures as prices dropped amid ample inventories and mild weather across the U.S. Additional gains were experienced in this market sector during February from long futures positions in crude oil and its related products as prices increased on concerns over inventory levels and rising tensions in the Middle East.
For the Three and Nine Months Ended September 30, 2011
The Partnership recorded total realized/net change in unrealized depreciation on investments of $(5,981,245) and expenses totaling $1,774,582, resulting in a net loss of $7,755,827 for the three months ended September 30, 2011. The Partnership’s net asset value per Unit by share Class is provided in the table below.
Share Class
|
NAV at 9/30/11
|
NAV at 6/30/11
|
A
|
$1,201.45
|
$1,241.33
|
B
|
$1,226.66
|
$1,265.77
|
C
|
$1,252.39
|
$1,290.69
|
D
|
$1,265.35
|
$1,303.22
|
Z
|
$1,305.45
|
$1,341.97
|
The most significant trading losses were recorded within the metals markets, primarily during August, from long futures positions in aluminum, copper, and zinc as prices declined after a report revealed U.S. manufacturing slowed more than estimated. Additional losses were incurred in September due to long futures positions in aluminum, palladium, and copper as prices continued to fall after fears of a “double dip” recession in the U.S. and Europe along with inflationary pressures in China spurred speculation global demand for metals may weaken. Within the agricultural complex, losses were experienced
- 28 -
primarily during September from long futures positions in corn and soybeans as prices declined on speculation that Europe’s sovereign debt crisis may hinder the global economy, reducing demand for the grains. Within the currency markets, losses were recorded primarily during August due to long positions in the South African rand, Canadian dollar, and Australian dollar versus the U.S. dollar as the value of the U.S. dollar was boosted higher against these currencies by “safe haven” demand following central bank intervention in the Japanese yen. During September, long positions in the New Zealand dollar and Australian dollar versus the U.S. dollar resulted in losses as the value of these “commodity currencies” moved lower in tandem with declining commodity prices. Losses were also recorded within the global stock index sector, primarily during July and August, from long positions in European and U.S. equity index futures as prices dropped in response to the European credit crisis and Standard & Poor’s downgrade of the United States’ sovereign credit rating. Within the energy markets, losses were incurred primarily during August due to long futures positions in crude oil and its related products at the beginning of the month as crude oil futures prices fell on concern energy demand may falter amid slowing economic growth in the U.S. and a deepening debt crisis in Europe. A portion of the Partnership’s losses for the quarter was offset by gains achieved within the global interest rate sector due to long positions in European, U.S., and Australian fixed income futures as prices advanced higher throughout the majority of the quarter due to concern about the European sovereign debt crisis and a faltering global economy.
The Partnership recorded total realized/net change in unrealized depreciation on investments of $(25,312,659) and expenses totaling $5,235,478, resulting in a net loss of $30,548,137 for the nine months ended September 30, 2011. The Partnership’s net asset value per Unit by share Class is provided in the table below.
- 29 -
Share Class
|
NAV at 9/30/11
|
NAV at 12/31/10
|
A
|
$1,201.45
|
$1,370.27
|
B
|
$1,226.66
|
$1,393.71
|
C
|
$1,252.39
|
$1,417.54
|
D
|
$1,265.35
|
$1,429.48
|
Z
|
$1,305.45
|
$1,466.39
|
The most significant trading losses were incurred in the metals markets, primarily during May and June, from long positions in aluminum futures as prices fell after China restricted bank lending, spurring speculation anti-inflation policies may slow growth in the world’s second-biggest economy and biggest purchaser of base metals. During August and September, long futures positions in aluminum, copper, and zinc resulted in losses as prices declined after a report revealed U.S. manufacturing slowed more than estimated, as well as a result of inflationary pressures in China. Within the agricultural complex, losses were incurred primarily during March due to long positions in cocoa futures as prices fell on signs the political turmoil that hampered exports may be easing in the Ivory Coast, the world’s biggest producer of cocoa. In June, long positions in wheat futures resulted in losses as prices fell. During September, long futures positions in corn and soybeans also resulted in losses as prices declined on speculation that Europe’s sovereign debt crisis may hinder the global economy, reducing demand for the grains. Within the global stock index markets, losses were incurred primarily during March from long positions in Japanese and European 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. Additional losses were experienced in this sector during May and June from long positions in U.S., European, and Pacific Rim equity index futures. Losses were recorded within the currency markets, primarily during January, due to 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 following the release of minutes from the
- 30 -
previous month’s U.S. Federal Reserve meeting that showed optimism about the U.S. economy. Additional losses were incurred during August due to long positions in the South African rand, Canadian dollar, and Australian dollar versus the U.S. dollar as the value of the U.S. dollar was boosted higher against these currencies by “safe haven” demand following central bank intervention in the Japanese yen. Within the energy markets, losses were incurred primarily during May due to long futures positions in crude oil and its related products as prices moved lower after signs the global economic recovery is slowing spurred concern that energy demand may weaken. A portion of the Partnership’s losses during the first nine months of the year was offset by gains recorded within the global interest rate sector from long positions in European, U.S., and Australian fixed income futures as prices advanced higher throughout the majority of the third quarter due to concern about the European sovereign debt crisis and a faltering global economy.
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.
- 31 -
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 option 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.
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
- 32 -
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.
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.
- 33 -
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 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 September 30, 2012, Altis I, LLC’s total capitalization was $42,164,638. The Partnership owned approximately 88% of Altis I, LLC.
- 34 -
% of Total
|
||
Market Sector
|
VaR
|
Capitalization
|
Currency
|
$997,387
|
2.37%
|
Interest Rate
|
1,501,189
|
3.56%
|
Equity
|
766,858
|
1.82%
|
Commodity
|
2,173,075
|
5.15%
|
Total
|
$5,438,509
|
12.90%
|
Three Months Ended September 30, 2012
Market Sector
|
High VaR
$
|
Low VaR
$
|
Average VaR*
$
|
Currency
|
1,038,630
|
590,913
|
850,518
|
Interest Rate
|
2,353,079
|
1,401,334
|
1,943,657
|
Equity
|
997,443
|
245,479
|
607,114
|
Commodity
|
3,585,044
|
2,131,576
|
2,587,604
|
* Average of month-end VaR
As of September 30, 2012, Aspect I, LLC’s total capitalization was $33,463,279. The Partnership owned approximately 92% of Aspect I, LLC.
% of Total
|
||
Market Sector
|
VaR
|
Capitalization
|
Currency
|
$2,496,188
|
7.46%
|
Interest Rate
|
955,003
|
2.85%
|
Equity
|
1,081,388
|
3.23%
|
Commodity
|
1,222,178
|
3.65%
|
Total
|
$5,754,757
|
17.19%
|
- 35 -
Three Months Ended September 30, 2012
Market Sector
|
High VaR
$
|
Low VaR
$
|
Average VaR*
$
|
Currency
|
2,496,294
|
836,587
|
1,719,573
|
Interest Rate
|
1,421,736
|
852,678
|
1,251,321
|
Equity
|
1,120,929
|
358,290
|
699,328
|
Commodity
|
1,610,274
|
1,222,178
|
1,403,693
|
* Average of month-end VaR
As of September 30, 2012, BHM I, LLC’s total capitalization was $431,586,232. The Partnership owned approximately 15% of BHM I, LLC.
% of Total
|
||
Market Sector
|
VaR
|
Capitalization
|
Currency
|
$10,952,410
|
2.54%
|
Interest Rate
|
6,125,958
|
1.42%
|
Commodity
|
26,888,375
|
6.23%
|
Total
|
$43,966,743
|
10.19%
|
Three Months Ended September 30, 2012
Market Sector
|
High VaR
$
|
Low VaR
$
|
Average VaR*
$
|
Currency
|
11,061,700
|
259,639
|
5,838,760
|
Interest Rate
|
6,255,317
|
362,880
|
3,334,609
|
Equity
|
1,960,000
|
–
|
681,844
|
Commodity
|
28,239,460
|
17,748,256
|
23,940,721
|
* Average of month-end VaR
- 36 -
As of September 30, 2012, Boronia I, LLC’s total capitalization was $20,976,187. The Partnership owned approximately 86% of Boronia I, LLC.
% of Total
|
||
Market Sector
|
VaR
|
Capitalization
|
Currency
|
$503,527
|
2.40%
|
Interest Rate
|
507,244
|
2.42%
|
Equity
|
479,958
|
2.29%
|
Commodity
|
605,921
|
2.89%
|
Total
|
$2,096,650
|
10.00%
|
Three Months Ended September 30, 2012
Market Sector
|
High VaR
$
|
Low VaR
$
|
Average VaR*
$
|
Currency
|
1,216,716
|
343,636
|
637,200
|
Interest Rate
|
804,882
|
117,908
|
406,135
|
Equity
|
847,677
|
287,865
|
553,340
|
Commodity
|
1,013,209
|
338,659
|
557,336
|
* Average of month-end VaR
As of September 30, 2012, AHL I, LLC’s total capitalization was $39,617,671. The Partnership owned approximately 91% of AHL I, LLC.
- 37 -
% of Total
|
||
Market Sector
|
VaR
|
Capitalization
|
Currency
|
$3,249,793
|
8.20%
|
Interest Rate
|
1,285,097
|
3.24%
|
Equity
|
1,400,552
|
3.54%
|
Commodity
|
855,630
|
2.16%
|
Total
|
$6,791,072
|
17.14%
|
Three Months Ended September 30, 2012
Market Sector
|
High VaR
$
|
Low VaR
$
|
Average VaR*
$
|
Currency
|
3,251,845
|
1,399,175
|
2,325,602
|
Interest Rate
|
1,635,464
|
1,170,322
|
1,333,393
|
Equity
|
1,499,262
|
456,249
|
797,759
|
Commodity
|
1,596,926
|
855,630
|
1,112,504
|
* Average of month-end VaR
As of December 31, 2011, Altis I, LLC’s total capitalization was $44,933,798. The Partnership owned approximately 92% of Altis I, LLC.
% of Total
|
||
Market Sector
|
VaR
|
Capitalization
|
Currency
|
$1,875,342
|
4.17%
|
Interest Rate
|
1,105,452
|
2.46%
|
Equity
|
615,687
|
1.37%
|
Commodity
|
2,558,812
|
5.69%
|
Total
|
$6,155,293
|
13.69%
|
- 38 -
Twelve Months Ended December 31, 2011
Market Sector
|
High VaR
$
|
Low VaR
$
|
Average VaR*
$
|
Currency
|
2,792,197
|
646,419
|
1,225,379
|
Interest Rate
|
1,406,044
|
264,672
|
672,790
|
Equity
|
1,442,388
|
239,597
|
567,305
|
Commodity
|
3,702,594
|
397,539
|
1,780,544
|
* Average of month-end VaR
As of December 31, 2011, Aspect I, LLC’s total capitalization was $43,105,632. The Partnership owned approximately 92% of Aspect I, LLC.
% of Total
|
||
Market Sector
|
VaR
|
Capitalization
|
Currency
|
$692,921
|
1.61%
|
Interest Rate
|
1,945,302
|
4.51%
|
Equity
|
592,182
|
1.37%
|
Commodity
|
1,442,422
|
3.35%
|
Total
|
$4,672,827
|
10.84%
|
Twelve Months Ended December 31, 2011
Market Sector
|
High VaR
$
|
Low VaR
$
|
Average VaR*
$
|
Currency
|
1,759,872
|
318,386
|
713,414
|
Interest Rate
|
2,534,049
|
375,025
|
1,295,950
|
Equity
|
734,213
|
91,192
|
393,469
|
Commodity
|
1,442,422
|
202,412
|
960,825
|
* Average of month-end VaR
- 39 -
As of December 31, 2011, BHM I, LLC’s total capitalization was $455,454,128. The Partnership owned approximately 17% of BHM I, LLC.
% of Total
|
||
Market Sector
|
VaR
|
Capitalization
|
Currency
|
$11,805,110
|
2.59%
|
Interest Rate
|
354,263
|
0.08%
|
Equity
|
135,000
|
0.03%
|
Commodity
|
21,344,468
|
4.69%
|
Total
|
$33,638,841
|
7.39%
|
Twelve Months Ended December 31, 2011
Market Sector
|
High VaR
$
|
Low VaR
$
|
Average VaR*
$
|
Currency
|
11,968,638
|
37,598
|
2,182,917
|
Interest Rate
|
6,674,377
|
77,306
|
2,622,385
|
Equity
|
3,312,598
|
–
|
337,667
|
Commodity
|
35,677,615
|
10,694,579
|
23,741,783
|
* Average of month-end VaR
As of December 31, 2011, Boronia I, LLC’s total capitalization was $35,661,551. The Partnership owned approximately 82% of Boronia I, LLC.
- 40 -
% of Total
|
||
Market Sector
|
VaR
|
Capitalization
|
Currency
|
$1,247,428
|
3.50%
|
Interest Rate
|
816,557
|
2.29%
|
Equity
|
544,308
|
1.53%
|
Commodity
|
1,310,591
|
3.68%
|
Total
|
$3,918,884
|
11.00%
|
Twelve Months Ended December 31, 2011
Market Sector
|
High VaR
$
|
Low VaR
$
|
Average VaR*
$
|
Currency
|
1,744,634
|
239,349
|
598,361
|
Interest Rate
|
1,290,916
|
212,487
|
460,040
|
Equity
|
1,195,287
|
181,959
|
615,749
|
Commodity
|
1,754,554
|
326,346
|
868,819
|
* Average of month-end VaR
As of December 31, 2011, AHL I, LLC’s total capitalization was $40,404,870. The Partnership owned approximately 91% of AHL I, LLC.
% of Total
|
||
Market Sector
|
VaR
|
Capitalization
|
Currency
|
$1,576,689
|
3.90%
|
Interest Rate
|
918,934
|
2.27%
|
Equity
|
616,527
|
1.53%
|
Commodity
|
888,869
|
2.20%
|
Total
|
$4,001,019
|
9.90%
|
- 41 -
Twelve Months Ended December 31, 2011
Market Sector
|
High VaR
$
|
Low VaR
$
|
Average VaR*
$
|
Currency
|
3,691,865
|
747,027
|
1,408,406
|
Interest Rate
|
1,366,666
|
291,291
|
715,416
|
Equity
|
899,058
|
161,311
|
412,818
|
Commodity
|
888,869
|
205,912
|
476,472
|
* 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.
|
- 42 -
Non-Trading Risk
The Trading Companies have non-trading market risk on their foreign cash balances not needed for margin. These balances and any market risk they may represent are immaterial.
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
- 43 -
markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation, and many other factors could result in material losses, as well as in material changes to the risk exposures and the risk management strategies of the Partnership.
Investors must be prepared to lose all or substantially all of their investment in the Partnership.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the management of Ceres, Ceres’ President (Ceres’ principal executive officer) and Chief Financial Officer (Ceres’ principal financial officer) have evaluated the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 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 September 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)
- 44 -
that have materially affected or are reasonably likely to materially affect the Partnership’s internal control over financial reporting.
Limitations on the Effectiveness of Controls
Any control system, no matter how well designed and operated, can provide reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
- 45 -
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, those described in the Partnership’s Quarterly Report on Form 10-Q for the quarterly period ending June 30, 2012 (the “Second Quarter Form 10-Q”), 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.
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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 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.
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The following developments have occurred with respect to certain matters previously reported in the Form 10-K or the Second Quarter Form 10-Q or concern new actions that have been filed since the Second Quarter Form 10-Q:
The Company
Residential Mortgage and Credit Crisis Related Matters.
Class Actions.
On September 12, 2012, the Company filed its answer to the third amended complaint in In re Morgan Stanley Pass-Through Certificates Litigation. On September 20, 2012, the plaintiffs filed a motion seeking to expand the offerings at issue in the litigation, relying on recent precedent from the United States Court of Appeals for the Second Circuit (“Second Circuit”). Defendants have opposed the motion. If the motion is granted, plaintiffs will be purporting to represent investors who purchased approximately $7.82 billion in mortgage pass through certificates issued in 2006 by thirteen trusts.
Other Litigation.
On August 17, 2012, the court in Abu Dhabi Commercial Bank, et al. v. Morgan Stanley & Co. Inc., et al. granted the Company’s motion for summary judgment with respect to the plaintiffs’ fraud claim, denied the Company’s motion for summary judgment with respect to the plaintiffs’ aiding and abetting fraud claim, and ordered plaintiffs to show cause why the negligent misrepresentation claim should not be dismissed. The court dismissed all or part of the claims of three of the fifteen plaintiffs based on lack of standing or reliance and plaintiffs have moved for reconsideration of the dismissal. On September 17, 2012, plaintiffs filed expert reports with the court alleging that they are seeking $713 million in compensatory damages on behalf of all fifteen plaintiffs. On October 5, 2012, the court ruled that plaintiffs
- 48 -
sufficiently showed cause as to why the negligent misrepresentation claim against the Company should not be dismissed.
On October 2, 2012, the court in Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc. et al. denied, in substantial part, defendants’ motion to dismiss plaintiff’s amended complaints.
On October 11, 2012, defendants filed motions to dismiss the amended complaint in Federal Home Loan Bank of Boston v. Ally Financial, Inc. F/K/A GMAC LLC et al.
Item 1A. RISK FACTORS
There have been no material changes from the risk factors previously referenced in Part II, Item 1A, Risk Factors in the Partnership’s Report on Form 10-Q for the quarter ended June 30, 2012, and under Part I, Item 1A, Risk Factors in the Form 10-K, other than set forth below.
Speculative position and trading limits may reduce profitability.
The CFTC and U.S. exchanges have established speculative position limits on the maximum net long or net short positions which any person may hold or control in particular futures and options on futures. The trading instructions of an advisor may have to be modified, and positions held by the Partnership may have to be liquidated in order to avoid exceeding these limits. Such modification or liquidation could adversely affect the operations and profitability of the Partnership by increasing transaction costs to liquidate positions and foregoing potential profits.
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In October 2011, the CFTC adopted new rules governing position limits. In September 2012, these rules were vacated by the United States District Court for the District of Columbia and remanded to the CFTC for further consideration. It is possible, nevertheless, that these rules may take effect in some form via re-promulgation or a successful appeal by the CFTC of the District Court’s ruling. The vacated rules established position limits on certain futures contracts and any economically equivalent futures, options and swaps.
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 through September 30, 2012 was $334,710,742. The Partnership received $2,317,000 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.
The following charts set 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
|
||||
July 1, 2012 – July 31, 2012
|
1,351.007
|
1,108.07
|
N/A
|
N/A
|
August 1, 2012 – August 31, 2012
|
2,230.455
|
1,101.77
|
N/A
|
N/A
|
September 1, 2012 – September 30, 2012
|
1,993.113
|
1,080.89
|
N/A
|
N/A
|
5,574.575
|
1,095.83
|
- 50 -
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
|
||||||||
July 1, 2012 – July 31, 2012
|
102.806
|
1,136.09
|
N/A
|
N/A
|
||||
August 1, 2012 – August 31, 2012
|
557.309
|
1,130.10
|
N/A
|
N/A
|
||||
September 1, 2012 – September 30, 2012
|
368.244
|
1,109.15
|
N/A
|
N/A
|
||||
1,028.359
|
1,123.20
|
|||||||
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
|
||||||||
July 1, 2012 – July 31, 2012
|
48.048
|
1,164.80
|
N/A
|
N/A
|
||||
August 1, 2012 – August 31, 2012
|
522.293
|
1,159.14
|
N/A
|
N/A
|
||||
September 1, 2012 – September 30, 2012
|
382.406
|
1,138.14
|
N/A
|
N/A
|
||||
952.747
|
1,151.00
|
|||||||
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
|
||||||||
July 1, 2012 – July 31, 2012
|
–
|
–
|
N/A
|
N/A
|
||||
August 1, 2012 – August 31, 2012
|
–
|
–
|
N/A
|
N/A
|
||||
September 1, 2012 – September 30, 2012
|
128,458
|
1,152.82
|
N/A
|
N/A
|
||||
128,458
|
1,152.82
|
|||||||
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
|
||||||||
July 1, 2012 – July 31, 2012
|
46.702
|
1,224.37
|
N/A
|
N/A
|
||||
August 1, 2012 – August 31, 2012
|
37.564
|
1,219.45
|
N/A
|
N/A
|
||||
September 1, 2012 – September 30, 2012
|
–
|
1,198.37
|
N/A
|
N/A
|
||||
84.266
|
1,222.18
|
|||||||
*
|
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.
|
- 51 -
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
The registrant does not have a board of directors. The registrant’s general partner, Ceres Managed Futures LLC, is managed by a board of directors.
Effective November 14, 2012, Mr. Damian George was appointed a director of Ceres.
Damian George, age 45, has been a Director of the General Partner since November 2012. Since June 2012, Mr. George has been the Chief Financial Officer and a principal of the General Partner and is an associate member of the National Futures Association. Since August 2009, Mr. George has been employed by Morgan Stanley Smith Barney LLC (“Morgan Stanley Smith Barney”), a financial services firm, where his responsibilities include oversight of budgeting, finance and Sarbanes-Oxley testing for the Alternative Investments–Managed Futures group. Since August 2009, Mr. George has been registered as an associated person of Morgan Stanley Smith Barney. From November 2005 through July 2009, Mr. George was employed by Citi Alternative Investments, a division of Citigroup Inc. (“Citigroup”), a financial services firm, which administered Citigroup’s hedge fund and fund of funds business, where he served as Director and was responsible for budgeting, finance and Sarbanes-Oxley testing for the Hedge Fund Management group. From November 2004 through July 2009, Mr. George was registered as an associated person of Citigroup Global Markets Inc. Mr. George earned his Bachelor of Science degree in Accounting in May 1989 from Fordham University and his Master of Business Administration degree in
- 52 -
International Finance in February 1998 from Fordham University. Mr. George is a Certified Public Accountant.
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.
- 53 -
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.
Polaris Futures Fund L.P.
|
||
(Registrant)
|
||
By:
|
Ceres Managed Futures LLC
|
|
(General Partner)
|
||
November 14, 2012
|
By:
|
/s/Damian George
|
Damian George
|
||
Chief Financial Officer and Director
|
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.
- 54 -