Attached files

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EX-10.1 - ADVISORY AGREEMENT - LV Futures Fund L.P.lvex101.htm
EXCEL - IDEA: XBRL DOCUMENT - LV Futures Fund L.P.Financial_Report.xls
EX-10.2 - AMENDMENT NO. 1 TO THE ADVISORY AGREEMENT - LV Futures Fund L.P.lvex102.htm
EX-10.3 - AMENDMENT NO. 1 TO THE ADVISORY AGREEMENT - CHESAPEAKE - LV Futures Fund L.P.lvex103.htm
EX-31.01 - EXHIBIT - LV Futures Fund L.P.lvex3101.htm
EX-32.01 - EXHIBIT - LV Futures Fund L.P.lvex3201.htm
EX-31.02 - EXHIBIT - LV Futures Fund L.P.lvex3102.htm
EX-32.02 - EXHIBIT - LV Futures Fund L.P.lvex3202.htm


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

FORM 10-Q

x           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013 or

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

Commission File Number: 000-53114

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

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

Registrant’s telephone number, including area code
 
(855) 672-4468



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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No o

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

Yes x  No o

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

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

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

As of March 31, 2013, 21,480.350 Limited Partnership Class A Redeemable Units were outstanding, 4,141.422 Limited Partnership Class B Redeemable Units were outstanding, 5,875.956 Limited Partnership Class C Redeemable Units were outstanding, 405.437 Limited Partnership Class Z Redeemable Units were outstanding.

 
 

 




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

March 31, 2013



 
PART I. FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (Unaudited)
 
     
 
Statements of Financial Condition as of March 31, 2013 and December 31, 2012
2
     
 
Statements of Income and Expenses for the Quarters Ended  March 31, 2013 and 2012
3
     
 
Statements of Changes in Partners’ Capital for the Quarters Ended March 31, 2013 and 2012
4
     
 
Notes to Financial Statements
  5-19
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20-26
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26-42
     
Item 4.
Controls and Procedures
42-43
     
 
PART II. OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
44-52
     
Item 1A.
Risk Factors
53
     
Item 2.
Unregistered Sales of Securities and Use of Proceeds
53-55
     
Item 4.
Mine Safety Disclosures
55
     
Item 6.
Exhibits 
55-56



 
 

 

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

LV FUTURES FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
       
 
March 31,     
 
December 31,     
 
2013           
 
2012            
ASSETS
$               
 
$               
       
Investments in Affiliated Trading Companies:
     
Investment in TT II, LLC
8,742,588
 
12,246,448
Investment in WNT I, LLC
5,603,083
 
7,072,401
Investment in Rotella I, LLC
4,167,179
 
3,383,788
Investment in Augustus I, LLC
4,066,117
 
2,433,314
Investment in Chesapeake I, LLC
3,567,732
 
4,408,930
Investment in Boronia I, LLC
2,382,995
 
Investment in Kaiser I, LLC
2,165,392
 
3,186,918
Investment in GLC I, LLC
 
2,359,140
       
Total Investments in Affiliated Trading Companies, at fair value
  (cost $32,420,039 and $37,798,976, respectively)
30,695,086
 
35,090,939
       
Total Assets
30,695,086
 
35,090,939
       
LIABILITIES
     
       
Redemptions payable
1,234,224
 
2,004,495
       
Total Liabilities
1,234,224
 
2,004,495
       
PARTNERS’ CAPITAL
     
Class A (21,480.350 and 23,931.981Units, respectively)
19,523,248
 
21,372,186
Class B (4,141.422 and 4,141.422 Units, respectively)
3,872,438
 
3,800,182
Class C (5,875.956 and 7,860.274 Units, respectively)
5,652,412
 
7,410,939
Class D (0 and 23.012 Units, respectively)
 
22,006
Class Z (405.437 and 483.374 Units, respectively)
412,764
 
481,131
       
Total Partners’ Capital
29,460,862
 
33,086,444
       
Total Liabilities and Partners’ Capital
30,695,086
 
35,090,939
       
NET ASSET VALUE PER UNIT
     
Class A
908.89
 
893.04
Class B
935.05
 
917.60
Class C
961.96
 
942.83
Class D
 
956.28
Class Z
1,018.07
 
995.36
       









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

- 2 -

 
 

 

LV FUTURES FUND L.P.
STATEMENTS OF INCOME AND EXPENSES
(Unaudited)

 
For the Quarters Ended March 31,
       
 
2013  
 
2012  
 
$     
 
$   
EXPENSES
     
Ongoing Placement Agent fees
136,152
 
208,254
General Partner fees
80,300
 
122,260
Administrative fees
32,120
 
48,904
       
Total Expenses
248,572
 
379,418
       
NET INVESTMENT LOSS
(248,572)
 
(379,418)
       
REALIZED/NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS
     
Realized
(153,643)
 
(263,582)
Net change in unrealized appreciation on investments
983,084
 
415,413
       
Total Realized/Net Change in Unrealized Appreciation on Investments
829,441
 
151,831
       
NET INCOME (LOSS)
580,869
 
(227,587)
       
NET INCOME (LOSS) ALLOCATION
     
Class A
373,760
 
(173,612)
Class B
72,256
 
(26,445)
Class C
125,023
 
(26,592)
Class D
116
 
(162)
Class Z
9,714
 
(776)
       
NET INCOME (LOSS) PER UNIT*
     
Class A
15.85
 
(5.53)
Class B
17.45
 
(4.43)
Class C
19.13
 
(3.28)
Class D
5.04
 
(2.70)
Class Z
22.71
 
(0.81)
       
 
Units
 
Units
WEIGHTED AVERAGE NUMBER
     
OF UNITS OUTSTANDING
     
Class A
23,215.336
 
33,663.789
Class B
4,141.422
 
6,039.511
Class C
7,261.764
 
9,356.618
Class D
23.012
 
59.829
Class Z
456.529
 
957.352

* Based on change in net asset value per Unit except for Class D Units.

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

- 3 -

 
 

 


LV FUTURES FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
For the Quarters Ended March 31, 2013 and 2012
(Unaudited)

 
Class A
 
Class B
 
Class C
 
Class D
 
Class Z
 
Total   
 
$      
 
$      
 
$     
 
$     
 
  $    
 
$     
Partners’ Capital,
                     
December 31,  2012
21,372,186
 
3,800,182
 
7,410,939
 
22,006
 
481,131
 
 33,086,444
                       
Subscriptions
–     
 
–     
 
–     
 
–    
 
22,122
 
   22,122
                       
Net Income
373,760
 
72,256
 
125,023
 
116
 
9,714
 
 580,869
                       
Redemptions
(2,222,698)
 
–   
 
(1,883,550)
 
(22,122)
 
(100,203)
 
(4,228,573)
                       
Partners’ Capital,
                     
March 31, 2013
19,523,248
 
3,872,438
 
5,652,412
 
–    
 
412,764
 
29,460,862
                       
Partners’ Capital,
                     
December 31, 2011
32,837,331
 
5,961,752
 
9,577,626
 
60,698
 
1,003,817
 
 49,441,224
                       
Subscriptions
178,000
 
125,000
 
–    
 
–    
 
     –    
 
   303,000
                       
Net Loss
(173,612)
 
(26,445)
 
(26,592)
 
(162)
 
(776)
 
 (227,587)
                       
Redemptions
(2,960,768)
 
(412,907)
 
(418,709)
 
–    
 
(23,583)
 
(3,815,967)
                       
Partners’ Capital,
                     
March 31, 2012
29,880,951
 
5,647,400
 
9,132,325
 
60,536
 
979,458
 
45,700,670
                       
 
Class A
 
Class B
 
Class C
 
Class D
 
Class Z
 
Total
 
Units
 
Units
 
Units
 
Units
 
Units
 
Units
Beginning Units,
                     
December 31, 2012
23,931.981
 
4,141.422
 
7,860.274
 
23.012
 
483.374
 
  36,440.063
                       
Subscriptions
–    
 
–      
 
–    
 
–    
 
22.063
 
 22.063
                       
Redemptions
(2,451.631)
 
–      
 
(1,984.318)
 
(23.012)
 
(100.000)
 
(4,558.961)
                       
Ending Units,
                     
March 31, 2013
21,480.350
 
4,141.422
 
5,875.956
 
–    
 
405.437
 
31,903.165
                       
Beginning Units,
                     
December 31, 2011
34,210.600
 
6,075.289
 
9,546.728
 
59.829
 
957.352
 
  50,849.798
                       
Subscriptions
184.907
 
126.801
 
–      
 
–     
 
–  
 
311.708
                       
Redemptions
(3,084.483)
 
(421.026)
 
(414.000)
 
–          
 
(22.509)
 
(3,942.018)
                       
Ending Units,
                     
March 31, 2012
31,311.024
 
5,781.064
 
9,132.728
 
59.829
 
934.843
 
47,219.488

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

- 4 -

 
 

 

LV FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS

March 31, 2013

(Unaudited)

The unaudited financial statements contained herein include, in the opinion of management, all adjustments necessary for a fair presentation of the financial condition and results of operations of LV Futures Fund L.P. (“LV” or the “Partnership”).  The financial statements and condensed notes herein should be read in conjunction with the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “Form 10-K”).

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

 
 
- 5 -

 
 

 

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

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

The Partnership commenced trading operations on August 1, 2007, in accordance with the terms of its Limited Partnership Agreement (the “Limited Partnership Agreement”).  Morgan Stanley Smith Barney LLC  is doing business as Morgan Stanley Wealth Management (“Morgan Stanley Wealth Management”) and   serves as placement agent to the Partnership.  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 realized/net change in unrealized appreciation on investments on the Statements of Income and Expenses.






- 6 -

 
 

 

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

The Partnership maintains sufficient cash balances on hand to satisfy ongoing operating expenses for the Partnership.  As of March 31, 2013 and December 31, 2012, the Partnership’s cash balances were zero.

The Trading Companies and their trading advisors (each individually, a “Trading Advisor” or collectively, the “Trading Advisors”) for the Partnership at March 31, 2013, are as follows:

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



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



- 7 -
 
 
 

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


Ceres Managed Futures LLC (“Ceres” or the “General Partner”), 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. (“Citigroup”).  Morgan Stanley expects to purchase, subject to regulatory approvals, Citigroup’s remaining interest in MSSBH.  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.

Units of limited partnership interest (“Units”) of the Partnership are offered in two classes in a private placement pursuant to Regulation D under the Securities Act of 1933, as amended.  Depending on the aggregate amount invested in the Partnership, limited partners receive class A 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.  Class B and Class C Units are no longer being offered to new investors but continue to be offered to existing Class B and Class C investors.

On March 1, 2013, the remaining Class D Units were converted to Class Z Units at the discretion of the General Partner.  As of March 31, 2013, there were no Class D Units outstanding.
- 8 -
 
 
 

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




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.

Effective January 1, 2013, Boronia was added as a trading advisor to the Partnership.

Ceres terminated the advisory agreement with Morgan Stanley Smith Barney GLC I, LLC (“GLC I, LLC”) pursuant to which GLC I, LLC traded a portion of the Trading Company’s (and, indirectly, the Partnership’s) assets in Futures Interest.  GLC I, LLC terminated operations on January 31, 2013.  Consequently GLC I, LLC ceased all Futures Interests trading on behalf of the Trading Company (and indirectly, the Partnership).

2.  Related Party Transactions
Cash held by each Trading Company is on deposit in commodity brokerage accounts with Morgan Stanley.  Monthly, 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.  When the effective rate is less than zero, no interest is earned.  For purposes of such interest payments, daily funds do not include monies due to each Trading Company on Futures Interests that have not been received.  MS&Co. and Ceres will retain any excess interest not paid to the Trading Companies in permitted investments.
- 9 -

 
 

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

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.


 
3.  Financial Highlights
 

 
Financial Highlights for quarters ended March 31, 2013 and 2012 were as follows:
 
 Class A
 
   Class B
 
Class C
 
Class D
 
Class Z
 
           
PER UNIT OPERATING PERFORMANCE:
         
NET ASSET VALUE,
         
  JANUARY 1, 2013:
$         893.04
$            917.60
$   942.83
$         956.28 
  $       995.36 
           
NET OPERATING RESULTS:
         
   Net investment loss
      (7.65)
                (6.71)
                (5.72)
              (3.46)
                 (3.52)
   Net realized/unrealized gain
         23.50
           24.16
                 24.85
                 8.50
                 26.23
   Net income
             15.85
           17.45 
                 19.13
                5.04
                 22.71
           
NET ASSET VALUE,
         
 MARCH 31, 2013:
$        908.89
$           935.05
$     961.96
$       961.32 (3)
$      $    1,018.07 
RATIOS TO AVERAGE NET ASSETS:
         
   Net investment loss  (1)  (2)
-3.45%
-2.94%
  -2.44%
-2.22%
-1.42%
   Partnership expenses (1) (2)
 3.45%
 2.94%
  2.44%
 2.22%
 1.42%
           
TOTAL RETURN:
1.77%
1.90%
 2.03%
0.53%
2.28%
           
PER UNIT OPERATING PERFORMANCE:
         
NET ASSET VALUE,
         
  JANUARY 1, 2012:
$        959.86
$           981.31
$   1,003.23
$       1,014.52 
   $    1,048.53 
           
NET OPERATING RESULTS:
         
   Net investment loss
     (8.19)
               (7.15)
                (6.05)
            (5.48)
             (3.69)
   Net realized/unrealized gain
          2.66
            2.72
                  2.77
               2.78
              2.88
   Net loss
             (5.53)
          (4.43) 
                 (3.28)
            (2.70)
             (0.81)
           
NET ASSET VALUE,
         
  MARCH 31, 2012:
$         954.33
$          976.88
$        999.95
$   1,011.82 
$   1,047.72 
RATIOS TO AVERAGE NET ASSETS:
         
   Net investment loss (1) (2)
-3.42%
-2.92%
  -2.41%
-2.16%
           -1.41%
   Partnership expenses (1) (2)
 3.42%
 2.92%
  2.41%
 2.16%
  1.41%
           
TOTAL RETURN:
-0.58%
-0.45%
 -0.33%
-0.27%
-0.08%

 
(1) Annualized
 

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

 
(3) This amount represents March 1, 2013, net asset value per Unit prior to conversion from Class D to Class Z Units.  There were
 
    no Class D Units outstanding at March 31, 2013.
- 10 -
 
 
 

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

4.  Financial Instruments of the Trading Companies
The Trading Advisors trade Futures Interests on behalf of the Trading Companies.  Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price.  Futures Interests are open commitments until settlement date, at which time they are realized.  They are valued at fair value, generally on a daily basis, and the unrealized gains and losses on open contracts (the difference between contract trade price and market price) are reported in the Trading Companies’ Statements of Financial Condition as a net unrealized gain or loss on open contracts.  The resulting net change in unrealized gains and losses is reflected in the net change in unrealized trading profit (loss) from one period to the next on the Trading Companies’ Statements of Income and Expenses.  The fair value of exchange-traded futures, options and forward contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period.  The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) of the last business day of the reporting period from various exchanges.  The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options, using as input the spot prices, interest rates, and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period.  Risk arises from changes in the value of these contracts and the potential inability of counterparties to perform under the terms of the contracts.  There are numerous factors which may significantly influence the fair value of these contracts, including interest rate volatility.





- 11 -
 
 
 

 
LV 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 fair value of off-exchange-traded contracts is based on the fair value quoted by the counterparty.

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, forward, 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

- 12 -

 
 

 

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




or volatility of interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Trading Companies’ open positions, and consequently in their earnings, whether realized or unrealized, and cash flow.  Gains and losses on open positions of exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are settled daily through variation margin.  Gains and losses on off-exchange-traded forward currency contracts are settled upon termination of the contract. Gains and losses on off-exchange-traded forward currency options contracts are settled upon an agreed upon settlement date.  However, the 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 Financial Accounting Standards Board (“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.

- 13 -
 
 
 

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

This new guidance did not have a significant impact on the Partnership’s financial statements.

Financial instruments are carried at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  Assets and liabilities carried at 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 and 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.


- 14 -
 
 
 

 

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

March 31, 2013
 
 
 
 
Assets
Unadjusted               
Quoted Prices in    
Active Markets for   
  Identical Assets    
        (Level 1)           
 
                             Significant Other
                           Observable
                               Inputs
                                  (Level 2)
 
  Significant       
   Unobservable   
     Inputs          
   (Level 3)       
 
 
 
 
                                                            Total
   
                                     $
 
                $
Investment in TT II, LLC
8,742,588
8,742,588
Investment in WNT I, LLC
5,603,083
5,603,083
Investment in Rotella I, LLC
4,167,179
4,167,179
Investment in Augustus I, LLC
4,066,117
4,066,117
Investment in Chesapeake I, LLC
3,567,732
3,567,732
Investment in Boronia I, LLC
2,382,995
2,382,995
Investment in Kaiser I, LLC
2,165,392
2,165,392


December 31, 2012
 
 
 
 
Assets
Unadjusted                  
Quoted Prices in          
Active Markets for      
  Identical Assets       
        (Level 1)          
 
                                     Significant Other
                                     Observable
                                       Inputs
                                       (Level 2)
 
Significant         
   Unobservable    
     Inputs         
   (Level 3)      
 
 
 
 
      Total       
   
                                               $
 
                                            $
Investment in TT II, LLC
12,246,448
12,246,448
Investment in WNT I, LLC
7,072,401
7,072,401
Investment in Chesapeake I, LLC
4,408,930
4,408,930
Investment in Rotella I, LLC
3,383,788
3,383,788
Investment in Kaiser I, LLC
3,186,918
3,186,918
Investment in Augustus I, LLC
2,433,314
2,433,314
Investment in GLC I, LLC
2,359,140
2,359,140

During the period January 1, 2013 to March 31, 2013, and the twelve months ended December 31, 2012, there were no Level 3 assets and liabilities, and there were no transfers of assets or liabilities between Level 1 and Level 2.


- 15 -

 
 

 

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

The Partnership’s assets identified as “Investments in Affiliated Trading Companies” reflected on the Statements of Financial Condition 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 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 March 31, 2013, the Partnership’s investment in the Trading Companies represented approximately: TT II, LLC 28.50%; WNT I, LLC 18.25%; Kaiser I, LLC 7.05%; Chesapeake I, LLC 11.60%; Rotella I, LLC 13.60%; Boronia I, LLC 7.75%; and Augustus I, LLC 13.25% of the total investments of the Partnership, respectively.

At December 31, 2012, the Partnership’s investment in the Trading Companies represented approximately: Kaiser I, LLC 9.10%; TT II, LLC 34.90%; Rotella I, LLC 9.65%; Augustus I, LLC 6.95%; GLC I, LLC 6.70%; Chesapeake I, LLC 12.55%  and WNT I, LLC 20.15% of the total investments of the Partnership, respectively.






- 16 -
 
 
 

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


The tables below represent summarized Income Statement information for the Trading Companies that the Partnership invests in for the quarters ended March 31, 2013 and 2012, respectively, in accordance with Rule 3-09 of Regulation S-X, as follows:
For the Three Months Ended March 31, 2013
 
 
Investment
Income/(Loss)
Net
  Investment Loss
 
Total Trading Results
 
Net
Income
 
 
    $   
$
$
$
TT II, LLC
  (2,775,159)
  4,973,168
  2,198,009
WNT I, LLC
  (67,182)
         580,503
 513,321
Chesapeake I, LLC
  (41,934)
   499,105
 457,171
Rotella I, LLC
  (38,133)
     271,945
         233,812
Augustus I, LLC
(113,227)
     612,049
         498,822

For the Three Months Ended March 31, 2012
 
 
Investment
Income/(Loss)
Net
  Investment Loss
 
Total Trading Results
 
Net
Income/(Loss)
 
 
    $
$
$
$
TT II, LLC
  9,119
 (2,717,204)
   17,771,365
   15,054,161
WNT I, LLC
    215
  (62,105)
         (86,620)
 (148,725)
Kaiser I, LLC
 (2,694)
(107,566)
 (242,613)
   (350,179)
Chesapeake I, LLC
     453
  (79,363)
      (642,542)
 (721,905)
Rotella I, LLC
     (18)
  (33,002)
        (279,103)
         (312,105)
GLC I, LLC
   (180)
  (53,055)
       776,396
         723,341
Augustus I, LLC
                                  (586)                               
  (57,951)
        700,762
         642,811


6.  Other Pronouncements
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



- 17 -
 
 
 

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

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 guide.  The Partnership will evaluate the impact that this proposed update would have on the financial statements once the pronouncement is issued.

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

The guidance issued by the FASB on income taxes clarifies the accounting for uncertainty in income taxes recognized in the Partnership's financial statements, and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken.  The Partnership has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements as of March 31, 2013 and December 31,

- 18 -
 
 
 

 

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



2012.  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 2012 tax years remain subject to examination by U.S. federal and most state tax authorities.  No income tax returns are currently under examination.

8.  Subsequent Events

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


 




- 19 -
 
 
 

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


As of March 31, 2013, the percentage of assets allocated to each market sector was approximately as follows:  Interest Rate 30.0%; Currency 24.0%; Equity 21.3%; and Commodity 24.7%.

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

The Trading Companies’ investment in Futures Interests may, from time to time, be illiquid.  Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as “daily price fluctuation limits” or “daily limits.”  Trades may not be executed at prices beyond the daily limit.  If the price for a particular futures or options contract has increased or decreased by an amount equal to the daily limit, positions in that futures or options contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit.  Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading.  These market conditions could prevent the Trading Companies from promptly liquidating their futures or options contracts and result in restrictions on redemptions.
 
- 20 -

 
 

 

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.

As of March 31, 2013, approximately 76.16% of the Partnership’s total investment exposure is futures contracts which are exchange-traded while approximately 23.84% is forward contracts which are off-exchange traded.

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.

- 21 -
 
 
 

 
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.

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 quarters ended March 31, 2013 and 2012, 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 March 31, 2013 and December 31, 2012, the allocations between the Trading Companies were as follows:
 
Trading Company
 
Allocation as of 3/31/2013                
 
Allocation as of 12/31/2012               
     
Augustus I, LLC
13.25%
6.95%
Chesapeake I, LLC
11.60%
12.55%
Kaiser I, LLC
 7.05%
9.10% 
Rotella I, LLC
13.60%
9.65% 
TT II, LLC
  28.50%
34.90%
WNT I, LLC
18.25%
20.15%
Boronia I, LLC
7.75%
GLC I, LLC
6.70%



- 22 -
 
 
 

 

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


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


For the Quarter Ended March 31, 2013
The Partnership recorded total realized/net change in unrealized appreciation on investments of $829,441 and expenses totaling $248,572, resulting in net income of $580,869 for the quarter ended March 31, 2013.  The Partnership’s net asset value per Unit by share Class is provided in the table below.
 
Share Class
NAV at 3/31/13       
NAV at 12/31/12      
     
A
 $908.89
 $893.04
B
 $935.05
 $917.60
C
$961.96
$942.83
D*
–               
$956.28
Z
$1,018.07
$995.36

* Class D Units were converted to Class Z Units on March 1, 2013 at the discretion of the General Partner.
- 23 -
 
 
 

 
During the first quarter, the Partnership posted a gain in net asset value per Unit as gains in stock indices and currencies offset losses in interest rates, agriculturals, metals, and energies.

The most significant gains were recorded within the global stock index markets during January from long positions in U.S., Pacific Rim, and European equity index futures as prices moved higher after German business confidence improved, economic reports in the U.S. and China beat estimates, and a weaker yen boosted Japan’s exports. Within the currency markets, gains were achieved primarily during January from short positions in the Japanese yen versus the U.S. dollar, euro, and Australian dollar as the value of the yen declined on speculation the Bank of Japan will ease monetary policy further. Additional currency gains were experienced during March from long positions in the Mexican peso versus the U.S. dollar as the value of the peso moved higher after a gain in U.S. retail sales boosted the outlook for Mexican exports.

A portion of the Partnership’s gains for the quarter was offset by losses incurred within the global interest rate sector during January from long positions in U.S. and European fixed income futures as prices fell amid positive economic reports and after European Central Bank President Mario Draghi said the euro-area economy should gradually recover this year. Within the agricultural complex, losses were experienced during January from short positions in corn futures as prices advanced on concern that drier weather will deplete soil moisture in South America and increase stress on crops. Within the metals markets, losses were recorded during January from long positions in gold and silver futures as prices dropped amid speculative-based selling. Losses were also incurred within the energy sector, primarily during February, from long futures positions in crude oil and its related products as prices fell sharply

- 24 -
 
 
 

 
following news that the U.S. economy grew less than economists expected and manufacturing expanded less than forecast in China and contracted in Europe.

For the Quarter Ended March 31, 2012
The Partnership recorded total realized/net change in unrealized appreciation on investments of $151,831 and expenses totaling $379,418, resulting in a net loss of $227,587 for the quarter ended March 31, 2012.  The Partnership’s net asset value per Unit by share Class is provided in the table below.
Share Class
NAV at 3/31/12       
NAV at 12/31/11      
     
A
 $954.33
 $959.86
B
 $976.88
 $981.31
C
$999.95
$1,003.23
D
$1,011.82
$1,014.52
Z
$1,047.72
$1,048.53

During the first quarter, the Partnership posted a loss in net asset value per Unit as losses in interest rates, agriculturals, currencies, and metals offset profits in energies and stock indices.

The most significant losses were incurred within the global interest rate sector in February and March from long positions in U.S., European, and Australian fixed-income futures as prices fell amid optimism that Greece would receive a second bailout and after the U.S. Federal Reserve upwardly revised its U.S. economic outlook. Within the agricultural complex, losses were recorded during January from long positions in corn futures as prices fell sharply early in the month after favorable weather boosted crop prospects in South America. Within the currency markets, losses were experienced during March from long positions in the Australian dollar, New Zealand dollar, and South African rand versus the U.S. dollar as the value of these commodity-linked currencies fell against the U.S. dollar after concern over earnings

- 25 -
 
 
 

 
in China reduced demand for higher-yielding currency assets. Within the metals sector, losses were recorded in January from short futures positions in nickel, zinc, and aluminum as base metals prices advanced on speculation demand will be supported by economic expansion in the U.S. and an easing credit policy in China. Additional losses were incurred in this sector during March from long positions in gold and silver futures as prices moved lower amid a rise in the value of the U.S. dollar, which reduced demand for the precious metals.

A portion of the Partnership’s losses for the quarter was offset by gains recorded within the energy markets during January and March 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 Brent crude oil, RBOB (unleaded) gasoline, and heating oil as prices increased on concerns over inventory levels and rising tensions in the Middle East. Within the global stock index sector, gains were achieved during February from long positions in European, U.S., and Pacific Rim equity index futures as prices rose amid positive economic news, including a better-than-expected U.S. employment report and an expansion in manufacturing in China, Europe, and the U.S. Prices continued to advance after China cut banks’ reserve requirements to fuel lending and buoy growth.

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

- 26 -
 
 
 

 
speculative trading purposes, and substantially all of the respective Trading Companies’ assets are subject to the risk of trading loss.  Unlike an operating company, the risk of market-sensitive instruments is integral, not incidental, to the Trading Companies’ main line of business.

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

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.
- 27 -
 
 
 

 
The Partnership’s and the Trading Companies’ past performance are no guarantee of their future results.  Any attempt to numerically quantify the Trading Companies’ market risk is limited by the uncertainty of their speculative trading.  The Trading Companies’ speculative trading and use of leverage may cause future losses and volatility (i.e., “risk of ruin”) that far exceed the Trading Companies’ experiences to date as discussed under the “Trading Companies’ Value at Risk in Different Market Sectors” section and significantly exceed the Value at Risk (“VaR”) tables disclosed below.

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


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.



- 28 -
 
 
 

 
The Trading Companies’ risk exposure in the market sectors traded by the Trading Advisors is estimated below in terms of VaR.  Please note that the VaR model is used to quantify market risk for historic reporting purposes only and is not utilized by either Ceres or the Trading Advisors in their daily risk management activities.

VaR is a measure of the maximum amount which each Trading Company could reasonably be expected to lose in a given market sector.  However, the inherent uncertainty of each Trading Company’s speculative trading and the recurrence in the markets traded by the Trading Companies of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated VaR of each Trading Company’s experience to date (i.e., “risk of ruin”).  In light of the
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 March 31, 2013, Chesapeake I, LLC’s total capitalization was $9,807,595.  The Partnership owned approximately 36% of Chesapeake I, LLC.
- 29 -
 
 
 

 
March 31, 2013
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$283,438
2.89%
     
Interest Rate
119,546
1.22%
     
Equity
684,798
6.98%
     
Commodity
     781,637
7.97%
     
Total
$1,869,419
19.06%

                                                                                 Three Months Ended March 31, 2013
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
$404,917
$280,828
$329,127
Interest Rate
$335,583 
$114,832
$184,386 
Equity
 $825,593
  $682,846
$733,093 
Commodity
$881,948
  $736,691
$773,885 
* Average of month-end VaR

As of March 31, 2013, Kaiser I, LLC’s total capitalization was $54,153,886.  The Partnership owned approximately 4% of Kaiser I, LLC.
 
                                        March 31, 2013
   
% of Total
Market Sector
VaR
Capitalization
     
Interest Rate
   $1,480,299
2.73%
     
Equity
1,325,797
2.45%
     
Commodity
1,735,143
3.20%
     
Total
     752,500
1.39%
     
 
$5,293,739
9.77%
- 30 -
 
 
 

 
                                            Three Months Ended March 31, 2013
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
$4,361,334
$59,272
$1,229,750
Interest Rate
$2,802,605
$2,475
  $1,190,202
Equity
$5,056,226
$129,192
$1,663,162 
Commodity
$752,500
$351,382 
* Average of month-end VaR

As of March 31, 2013, TT II, LLC’s total capitalization was $504,344,390. The Partnership owned approximately 2% of TT II, LLC.
 
                                        March 31, 2013
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$12,969,591
2.57%
     
Interest Rate
19,582,270  
3.88%
     
Equity
13,947,014
2.77%
     
Commodity
     22,304,877
4.42%
     
Total
$68,803,752
13.64%

                                               Three Months Ended March 31, 2013
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
$23,589,123
 $12,796,114
$17,166,802
Interest Rate
 $19,582,270  
$5,302,156
 $11,861,420 
Equity
$18,642,142   
$13,946,776
   $16,845,749   
Commodity
$30,704,157
$19,088,022
$24,441,811
* Average of month-end VaR
- 31 -
 
 
 

 
As of March 31, 2013, Rotella I, LLC’s total capitalization was $6,022,369. The Partnership owned approximately 69% of Rotella I, LLC.
 
                                         March 31, 2013
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$171,442
2.85%
     
Interest Rate
233,178 
3.87%
     
Equity
294,574
4.89%
     
Commodity
     99,180
1.65%
     
Total
$798,374
13.26%


                                            Three Months Ended March 31, 2013
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
$400,639 
$91,751
$228,778
Interest Rate
$413,332
$88,454
$199,779
Equity
$486,506 
$251,543 
$357,302
Commodity
$210,965
$52,671   
 $142,686
* Average of month-end VaR

As of March 31, 2013, Augustus I, LLC’s total capitalization was $14,653,461.  The Partnership owned approximately 28% of Augustus I, LLC.



- 32 -
 
 
 

 
                                        March 31, 2013
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$325,256
2.22%
     
Interest Rate
  11,403  
0.08%
     
Total
$336,659
2.30%

                                                         Three Months Ended March 31, 2013
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
$1,219,145
$243,718
$464,922
Interest Rate
$21,453
$2,736 
* Average of month-end VaR

As of March 31, 2013, Boronia I, LLC’s total capitalization was $64,146,436. The Partnership owned approximately 4% of Boronia I, LLC.
 
                                        March 31, 2013
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$765,227
1.19%
     
Interest Rate
2,599,697
4.05%
     
Equity
2,381,128
3.71%
     
Commodity
  3,949,248
6.16%
     
Total
$9,695,300
15.11%






- 33 -
 
 
 

 
                                                                                            Three Months Ended March 31, 2013
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
$4,212,750  
$251,044
$2,380,667
Interest Rate
$3,733,911
$258,654
$1,595,283
Equity
$5,076,611
$443,259
$2,540,429 
Commodity
 $4,896,991
$557,636
  $3,378,150 
* Average of month-end VaR

As of March 31, 2013, WNT I, LLC’s total capitalization was $8,053,250.  The Partnership owned approximately 70% of WNT I, LLC.
 
                                        March 31, 2013
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$349,221
4.34%
     
Interest Rate
220,938
2.74%
     
Equity
385,840
4.79%
     
Commodity
  154,445
1.92%
     
Total
$1,110,444
13.79%

                                            Three Months Ended March 31, 2013
Market Sector
High VaR
$
Low VaR
$
Average VaR*
$
Currency
$528,259 
$347,912
$421,791
Interest Rate
$305,078
$82,398
$152,733
Equity
$482,073
$375,511
$416,613
Commodity
$189,518
$130,318
  $150,159
* Average of month-end VaR
- 34 -
 
 
 

 
The Partnership terminated trading in GLC I, LLC as of January 31, 2013.
 
                               One Month Ended January 31, 2013
Market Sector
High VaR
Low VaR
Average VaR*
Currency
$537,816
$216,075
Interest Rate
  $92,337
$31,779 
Equity
$87,534
$28,864 

As of December 31, 2012, Chesapeake I, LLC’s total capitalization was $11,573,391.  The Partnership owned approximately 38% of Chesapeake I, LLC.
 
                                          December 31, 2012
Primary Market
 
% of
Risk Category
VaR
Total Capitalization
     
Currency
$404,917
3.50%
     
Interest Rate
335,583
2.90%
     
Equity
785,203
6.78%
     
Commodity
  881,948
7.62%
     
Total
$2,407,651
20.80%


                                        Twelve Months Ended December 31, 2012
Market Sector
High VaR
Low VaR
Average VaR*
Currency
$460,983
$227,842
$344,791
Interest Rate
$421,156
$201,281
$320,623
Equity
$795,284
$158,395
$476,526 
Commodity
 $1,106,623
$576,110
 $912,448

As of December 31, 2012, Kaiser I, LLC’s total capitalization was $7,455,921.  The Partnership owned approximately 43% of Kaiser I, LLC.
 
- 35 -
 
 
 

 
                December 31, 2012
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$23,049
0.31%
     
Interest Rate
3,459 
0.05%
     
Equity
129,192
1.73%
     
Total
$155,700
2.09%

                                        Twelve Months Ended December 31, 2012
Market Sector
High VaR
Low VaR
Average VaR*
Currency
$521,285 
$258
$138,683
Interest Rate
$399,602
$121,015
Equity
$856,581
$139,546 
Commodity
$137,073
$37,418 

As of December 31, 2012, TT II, LLC’s total capitalization was $510,360,229.  The Partnership owned approximately 2% of TT II, LLC.
 
                                     December 31, 2012
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$23,189,886
4.54%
     
Interest Rate
19,215,839
3.77%
     
Equity
17,602,639
3.45%
     
Commodity
  22,355,094
4.38%
     
Total
$82,363,458
16.14%



- 36 -
 
 
 

 
                                        Twelve Months Ended December 31, 2012
Market Sector
High VaR
Low VaR 
Average VaR*
Currency
$41,325,209
$8,600,405 
$21,558,410
Interest Rate
$35,683,131 
$8,280,746 
$22,479,992
Equity
  $20,130,770   
$4,231,868
$12,999,235
Commodity
$26,447,811
 $11,600,669
$18,814,310

As of December 31, 2012, Rotella I, LLC’s total capitalization was $4,795,730.  The Partnership owned approximately 71% of Rotella I, LLC.
 
                                  December 31, 2012
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$191,053
3.98%
     
Interest Rate
136,189 
2.84%
     
Equity
288,745
6.02%
     
Commodity
         52,671
1.10%
     
Total
$668,658
13.94%









- 37 -
 
 
 

 
                                        Twelve Months Ended December 31, 2012
 
Market Sector
High VaR
Low VaR
Average VaR*
Currency
$373,337
$109,557
$235,656
Interest Rate
$373,496
 $85,246
$205,973
Equity
$449,114
 $65,648
$230,244
Commodity
$182,129
 $33,706
 $112,448


As of December 31, 2012, Augustus I, LLC’s total capitalization was $8,493,083.  The Partnership owned approximately  29% of Augustus I, LLC.
 
                                  December 31, 2012
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$243,718
2.87%
     
Total
 $243,718
2.87%

                                        Twelve Months Ended December 31, 2012
Market Sector
High VaR
Low VaR
Average VaR*
Currency
$2,984,508
$242,834
$868,132
Interest Rate
$222,112 
 $73,876  
Equity
$1,000,000  
$5,571   

As of December 31, 2012, GLC I, LLC’s total capitalization was $7,173,981.  The Partnership owned approximately 33% of GLC I, LLC.


- 38 -
 
 
 

 
                                  December 31, 2012
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
   $521,574
7.27%
     
Interest Rate
       92,337
1.29%
     
Equity
      76,130
0.54%
     
Total
   $690,041
9.10%



                                     Twelve Months Ended December 31, 2012
Market Sector
High VaR
Low VaR
Average VaR*
Currency
$915,618
$64,476
$521,537
Interest Rate
$386,741 
$93,360 
Equity
$2,045,803  
$91,432  
Commodity
$236,250 
$1,354  

As of December 31, 2012, WNT I, LLC’s total capitalization was $10,023,479.  The Partnership owned approximately 71% of WNT I, LLC.
 
                                   December 31, 2012
   
% of Total
Market Sector
VaR
Capitalization
     
Currency
$528,259
5.27%
     
Interest Rate
305,078 
3.04%
     
Equity
482,073 
4.81%
     
Commodity
       168,941
1.69%
     
Total
$1,484,351   
14.81%

- 39 -
 
 
 

 
                                        Twelve Months Ended December 31, 2012
Market Sector
High VaR
Low VaR
Average VaR*
Currency
  $676,272
$316,730
$470,415
Interest Rate
$687,293
$225,412
$469,729
Equity
$504,132
$89,555
$306,720
Commodity
$442,465
$165,035
$346,418
* 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.
- 40 -
 
 
 

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

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

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

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

- 41 -
 
 
 

 
factors could result in material losses, as well as in material changes to the risk exposures and the risk management strategies of the Partnership.

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

Item 4.  CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the management of Ceres, at the time this quarterly report was filed, Ceres’ President (Ceres’ principal executive officer) and Chief Financial Officer (Ceres’ principal financial officer) have evaluated the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2013.  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 March 31, 2013.

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

- 42 -
 
 
 

 
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.



















- 43 -

 
 

 

PART II.  OTHER INFORMATION
Item 1.  LEGAL PROCEEDINGS

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

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

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


- 44 -
 
 
 

 
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.

MS&Co. is a wholly-owned, indirect subsidiary of Morgan Stanley, a Delaware holding company.  Morgan Stanley files periodic reports with the Securities and Exchange Commission as required by the Securities Exchange Act of 1934, which include current descriptions of material litigation and material proceedings and investigations, if any, by governmental and/or regulatory agencies or self-regulatory organizations concerning Morgan Stanley and its subsidiaries, including MS&Co.  As a consolidated subsidiary of Morgan Stanley, MS&Co. does not file its own periodic reports with the SEC that contain descriptions of material litigation, proceedings and investigations.  As a result, we refer you to the “Legal Proceedings” section of Morgan Stanley’s SEC 10-K filings for fiscal years 2012, 2011, 2010, 2009, and 2008.

- 45 -
 
 
 

 
MS&Co. is a Delaware limited liability company with its main business office located at 1585 Broadway, New York, New York 10036.  Among other registrations and memberships, MS&Co. is registered as a futures commission merchant and is a member of the National Futures Association.

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

On March 15, 2010, the Federal Home Loan Bank of San Francisco filed two complaints against the Company and other defendants in the Superior Court of the State of California. These actions are styled Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al., and Federal Home Loan Bank of San Francisco v. Deutsche Bank Securities Inc. et al., respectively. Amended complaints filed on June 10, 2010 allege that defendants made untrue statements and material omissions in connection with the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by the Company in these cases was approximately $704 million and $276 million, respectively. The complaints raise claims under both the federal securities laws and California law and seek, among other things, to rescind the plaintiff's purchase of such certificates.  On July 29, 2011 and September 8, 2011, the court presiding over both actions sustained defendants' demurrers with respect to claims brought under the Securities Act, and overruled defendants' demurrers with respect to all other claims. At March 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $356 million, and the certificates had incurred actual losses of approximately $1.7 million. Based on currently available information, the Company believes it could incur a loss up to the difference between the

- 46 -
 
 
 

 
$356 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

 
On July 9, 2010 and February 11, 2011, Cambridge Place Investment Management Inc. filed two separate complaints against the Company and other defendants in the Superior Court of the Commonwealth of Massachusetts, both styled Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., et al. The complaints assert claims on behalf of certain clients of plaintiff's affiliates and allege that defendants made untrue statements and material omissions in the sale of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company or sold to plaintiff's affiliates' clients by the Company in the two matters was approximately $344 million. The complaints raise claims under the Massachusetts Uniform Securities Act and seek, among other things, to rescind the plaintiff's purchase of such certificates.  On October 14, 2011, plaintiffs filed an amended complaint in each action. On November 22, 2011, defendants filed a motion to dismiss the amended complaints. On March 12, 2012, the court denied defendants' motion to dismiss with respect to plaintiff's standing to bring suit. Defendants sought interlocutory appeal from that decision on April 11, 2012. On April 26, 2012, defendants filed a second motion to dismiss for failure to state a claim upon which relief can be granted, which the court denied, in substantial part, on October 2, 2012. Based on currently available information, the Company believes it could incur a loss for these actions of up to the difference between the as yet undetermined unpaid balance
 

 
- 47 -
 
 
 

 
 
of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
 
On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against the Company, which is styled China Development Industrial Bank v. Morgan Stanley & Co. Incorporated et al. and is pending in the Supreme Court of the State of New York, New York County (“Supreme Court of NY”). The complaint relates to a $275 million credit default swap referencing the super senior portion of the STACK 2006-1 CDO. The complaint asserts claims for common law fraud, fraudulent inducement and fraudulent concealment and alleges that the Company misrepresented the risks of the STACK 2006-1 CDO to CDIB, and that the Company knew that the assets backing the CDO were of poor quality when it entered into the credit default swap with CDIB. The complaint seeks compensatory damages related to the approximately $228 million that CDIB alleges it has already lost under the credit default swap, rescission of CDIB's obligation to pay an additional $12 million, punitive damages, equitable relief, fees and costs. On February 28, 2011, the court presiding over this action denied the Company's motion to dismiss the complaint and on March 21, 2011, the Company appealed that order.  On July 7, 2011, the appellate court affirmed the lower court's decision denying the motion to dismiss. Based on currently available information, the Company believes it could incur a loss of up to approximately $240 million plus pre- and post-judgment interest, fees and costs.
 


- 48 -
 
 
 

 
On October 15, 2010, the Federal Home Loan Bank of Chicago filed a complaint against the Company and other defendants in the Circuit Court of the State of Illinois styled Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation et al. The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans.  The total amount of certificates allegedly sold to plaintiff by the Company in this action was approximately $203 million.  The complaint raises claims under Illinois law and seeks, among other things, to rescind the plaintiff's purchase of such certificates. On March 24, 2011, the court granted plaintiff leave to file an amended complaint. On May 27, 2011, defendants filed a motion to dismiss the amended complaint, which motion was denied on September 19, 2012. The Company filed its answer on December 21, 2012. At March 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this case was approximately $103 million and certain certificates had incurred actual losses of approximately $700,000. Based on currently available information, the Company believes it could incur a loss up to the difference between the $103 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
 
On July 18, 2011, the Western and Southern Life Insurance Company and certain affiliated companies filed a complaint against the Company and other defendants in the Court of Common Pleas in Ohio, styled Western and Southern Life Insurance Company, et al. v. Morgan Stanley Mortgage Capital Inc., et al. An amended complaint was filed on April 2, 2012 and alleges that defendants made untrue statements and

- 49 -
 
 
 

 
material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of the certificates allegedly sold to plaintiffs by the Company was approximately $153 million. The amended complaint raises claims under the Ohio Securities Act, federal securities laws, and common law and seeks, among other things, to rescind the plaintiffs' purchases of such certificates. On May 21, 2012, the Company filed a motion to dismiss the amended complaint, which motion was denied on August 3, 2012. The court has set a trial date of November 2013. At March 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this case was approximately $122 million, and the certificates had incurred actual losses of approximately $55,000. Based on currently available information, the Company believes it could incur a loss up to the difference between the $122 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus post-judgment interest, fees and costs. The Company may be entitled to an offset for interest received by the plaintiff prior to a judgment.
 

On September 2, 2011, the Federal Housing Finance Agency (“FHFA”), as conservator for Fannie Mae and Freddie Mac, filed 17 complaints against numerous financial services companies, including the Company. A complaint against the Company and other defendants was filed in the Supreme Court of NY, styled Federal Housing Finance Agency, as Conservator v. Morgan Stanley et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to Fannie Mae and Freddie Mac of residential mortgage pass-through certificates with an original unpaid balance of approximately $11 billion. The complaint raises claims under federal and state securities laws and common law and seeks, among other things, rescission and compensatory and punitive damages. On September 26,

- 50 -
 
 
 

 
2011, defendants removed the action to the United States District Court for the Southern District of New York and on October 26, 2011, the FHFA moved to remand the action back to the Supreme Court of NY. On May 11, 2012, plaintiff withdrew its motion to remand. On July 13, 2012, the Company filed a motion to dismiss the complaint, which motion was denied in large part on November 19, 2012. Trial is currently scheduled to begin in January 2015. At March 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $2.87 billion, and the certificates had incurred actual losses of approximately $54 million. Based on currently available information, the Company believes it could incur a loss up to the difference between the $2.87 billion unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On April 25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against the Company and certain affiliates in the Superior Court of the State of New Jersey styled The Prudential Insurance Company of America, et al. v. Morgan Stanley, et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company is approximately $1 billion. The complaint raises claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud and tortious interference with contract and seeks, among other things, compensatory damages, punitive damages, rescission and rescissionary damages associated with plaintiffs' purchases of such certificates. On October 16, 2012, plaintiffs filed an

- 51 -
 
 
 

 
amended complaint which, among other things, increases the total amount of the certificates at issue by approximately $80 million, adds causes of action for fraudulent inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey RICO statute, and includes a claim for treble damages. On January 23, 2013, defendants filed a motion to dismiss the amended complaint, which was denied on March 15, 2013. At March 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $598 million, and the certificates had not yet incurred actual losses. Based on currently available information, the Company believes it could incur a loss up to the difference between the $598 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On August 25, 2008, the Company and two ratings agencies were named as defendants in a purported class action related to securities issued by a structured investment vehicle called Cheyne Finance PLC and Cheyne Finance LLC (together, the “Cheyne SIV”). The case was styled Abu Dhabi Commercial Bank, et al. v. Morgan Stanley & Co. Inc., et al. The complaint alleged, among other things, that the ratings assigned to the securities issued by the Cheyne SIV were false and misleading, including because the ratings did not accurately reflect the risks associated with the subprime residential mortgage backed securities held by the Cheyne SIV. The plaintiffs asserted allegations of aiding and abetting fraud and negligent misrepresentation relating to approximately $852 million of securities issued by the Cheyne SIV.  On April 24, 2013, the parties reached an agreement to settle the case, and on April 26, 2013, the court dismissed the action with prejudice. The settlement does not cover certain claims that were previously dismissed.

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Item 1A.  RISK FACTORS
There have been no material changes from the risk factors previously referenced in the Partnership’s Report on Form 10-K for the fiscal year ended December 31, 2012.

Item 2.  UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

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

The aggregate proceeds of securities sold in all share Classes to the limited partners, from inception through March 31, 2013, was $112,915,978.  Since inception, the Partnership received $805,000 in consideration from the sale of Units to the General Partner.

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


The following chart sets forth the purchases of redeemable Units by the Partnership.
 
 
 
 
 
 
 
Period
 
 
 
 
 
     (a) Total Number
    of Redeemable Units
        Purchased*
 
 
 
 
 
(b) Average
Price Paid per
Redeemable Unit**
 
 
(c) Total Number Of
Redeemable Units
Purchased as part
Of Publicly
Announced
Plans or Programs
 
 
      (d) Maximum Number
      (or Approximate Dollar Value) of Redeemable Units that May Yet Be Purchased Under the
       Plans or Programs
Class A
       
January 1, 2013 – January 31, 2013
(803.555)
910.89
N/A
 N/A
February 1, 2013 – February 28, 2013
(551.241)
895.88
N/A
N/A
March 1, 2013 – March 31, 2013
 (1,096.835)
908.89
 N/A
N/A
 
 (2,451.631)
906.62
   














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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
       
January 1, 2013 – January 31, 2013
       –    
       –    
    N/A
 N/A
February 1, 2013 – February 28, 2013
       –    
       –    
N/A
N/A
March 1, 2013 – March 31, 2013
       –    
       –    
 N/A 
N/A
 
       –    
       –    
   

 
 
 
 
 
 
 
 
Period
 
 
 
 
 
 
(a) Total Number
of Redeemable
Units Purchased*
 
 
 
 
 
 
(b) Average
Price Paid
 per Redeemable Unit**
 
 
 
(c) Total Number Of
Redeemable Units
Purchased as part
Of Publicly
Announced
Plans or Programs
 
 
 
 
     (d) Maximum Number
      (or Approximate Dollar Value) of Redeemable Units that May Yet Be Purchased Under the
       Plans or Programs
Class C
       
January 1, 2013 – January 31, 2013
       –    
       –    
N/A
 N/A
February 1, 2013 – February 28, 2013
   (1,737.609)
947.41
N/A
N/A   
March 1, 2013 – March 31, 2013
   (246.709)
961.96
 N/A 
N/A      
 
  (1,984.318)  
949.22
   
 
 
 
 
 
 
 
 
 
 
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
       
January 1, 2013 – January 31, 2013
   –
   –
N/A
 N/A
February 1, 2013 – February 28, 2013
   –
   –
N/A
N/A   
March 1, 2013 – March 31, 2013
(23.012)
961.32
 N/A 
N/A      
 
(23.012)
961.32
   

 
 
 
 
 
 
 
 
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
       
January 1, 2013 – January 31, 2013
   –
   –
N/A
 N/A
February 1, 2013 – February 28, 2013
 (100.000)
   1,001.85
N/A
N/A    
March 1, 2013 – March 31, 2013
       –     
       –    
 N/A 
N/A      
 
(100.000)
   1,001.85
   

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

Item 4.  MINE SAFETY DISCLOSURES
Not applicable.



Item 6.  EXHIBITS
10.1
Advisory Agreement among Morgan Stanley Managed Futures GMF I, LLC, Demeter Management Corporation and Grinham Managed Futures Pty. Ltd, dated April 1, 2008.
 
10.2
Amendment No. 1 to the Advisory Agreement among the General Partner, Morgan Stanley Smith Barney Boronia I, LLC and Boronia Capital Pty. Ltd., dated January 1, 2013.
 
10.3
Amendment No. 1 to the Advisory Agreement among the General Partner, Morgan Stanley Smith Barney Chesapeake Diversified I, LLC and Chesapeake Capital Corporation, dated January 24, 2013.
 
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
 
- 55 -
 
 
 

 
 
 
 
 
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.
 

 

 

 

 
 

 

 

 

 

 
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SIGNATURE



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




 
LV Futures Fund L.P.
 
(Registrant)
     
 
By:
Ceres Managed Futures LLC
   
(General Partner)
     
May 14, 2013
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.




















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