Polaris Futures Fund L.P. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Polaris Futures Fund L.P.	Financial_Report.xls
EX-32.02 - CERTIFICATION - Polaris Futures Fund L.P.	polarisex3202.htm
EX-32.01 - CERTIFICATION - Polaris Futures Fund L.P.	polarisex3201.htm
EX-31.02 - CERTIFICATION - Polaris Futures Fund L.P.	polarisex3102.htm
EX-31.01 - CERTIFICATION - Polaris Futures Fund L.P.	polarisex3101.htm
EX-10.01 - AMENDED RESTATED COMMODITY FUTURES CUSTOMER AGREEMENT - Polaris Futures Fund L.P.	agreement.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 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: 000-53115

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

	Delaware	20-8528957
	(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 September 30, 2013, 78,661.059 Limited Partnership Class A Units were outstanding, 14,890.580 Limited Partnership Class B Units were outstanding, 15,825.997 Limited Partnership Class C Units were outstanding, 5,095.602 Limited Partnership Class D Units were outstanding, 3,106.995 Limited Partnership Class Z Units were outstanding.

POLARIS FUTURES FUND L.P.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2013

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Statements of Financial Condition as of September 30, 2013 and December 31, 2012	2

	Statements of Income and Expenses for the Three and Nine Months Ended September 30, 2013 and 2012	3

	Statements of Changes in Partners’ Capital for the Nine Months Ended September 30, 2013 and 2012	4

	Notes to Financial Statements	5-19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20-30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30-45

Item 4.	Controls and Procedures	45-46

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	47-58

Item 1A.	Risk Factors	58

Item 2.	Unregistered Sales of Securities and Use of Proceeds	58-60

Item 4.	Mine Safety Disclosures	60

Item 6.	Exhibits	60-61

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

POLARIS FUTURES FUND L.P.

STATEMENTS OF FINANCIAL CONDITION

(Unaudited)


	September 30,	December 31,
	2013	2012
ASSETS	$	$

Investments in Affiliated Trading Companies:
Investment in BHM I, LLC	43,834,632	60,469,759
Investment in Altis I, LLC	27,476,873	34,093,815
Investment in Aspect I, LLC	19,721,074	29,322,751
Investment in Boronia I, LLC	11,741,563	12,952,476
Investment in AHL I, LLC	9,758,185	31,866,973
Investment in Kaiser I, LLC	9,492,711	–

Total Investments in Affiliated Trading Companies, at fair value (cost $142,256,607 and $188,455,666, respectively)	122,025,038	168,705,774

Total Assets	122,025,038	168,705,774

LIABILITIES

Redemptions payable	3,603,293	7,321,946

Total Liabilities	3,603,293	7,321,946

PARTNERS’ CAPITAL
Class A (78,661.059 and 100,367.279 Units, respectively)	77,711,660	103,514,417
Class B (14,890.580 and 18,803.813Units, respectively)	15,171,371	19,925,811
Class C (15,825.997 and 21,629.171Units, respectively)	16,629,458	23,548,722
Class D (5,095.602 and 8,745.602 Units, respectively)	5,436,990	9,650,670
Class Z (3,106.995 and 4,127.999 Units, respectively)	3,472,266	4,744,208

Total Partners’ Capital	118,421,745	161,383,828

Total Liabilities and Partners’ Capital	122,025,038	168,705,774

NET ASSET VALUE PER UNIT
Class A	987.93	1,031.36
Class B	1,018.86	1,059.67
Class C	1,050.76	1,088.75
Class D	1,066.99	1,103.49
Class Z	1,117.56	1,149.28

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

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POLARIS FUTURES FUND L.P.

STATEMENTS OF INCOME AND EXPENSES

(Unaudited)

	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2013	2012	2013	2012
	$	$	$	$
EXPENSES
Ongoing Placement Agent fees	549,818	807,232	1,820,328	2,585,884
General Partner fees	330,845	484,022	1,097,416	1,551,882
Administrative fees	88,625	88,625	265,875	265,876

Total Expenses	969,288	1,379,879	3,183,619	4,403,642

NET INVESTMENT LOSS	(969,288)	(1,379,879)	(3,183,619)	(4,403,642)

REALIZED/NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
Realized	(669,505)	645,952	(1,298,719)	2,042,779
Net change in unrealized depreciation
on investments	(3,217,282)	1,036,906	(481,677)	(7,954,800)

Total Realized/Net Change in Unrealized Depreciation on Investments	(3,886,787)	1,682,858	(1,780,396)	(5,912,021)

NET LOSS	(4,856,075)	302,979	(4,964,015)	(10,315,663)

NET LOSS ALLOCATION
Class A	(3,205,962)	97,448	(3,443,424)	(7,051,149)
Class B	(595,432)	50,713	(594,983)	(1,255,953)
Class C	(622,445)	91,918	(535,701)	(1,344,823)
Class D	(295,893)	34,463	(284,272)	(466,116)
Class Z	(136,343)	28,437	(105,635)	(197,622)

NET LOSS PER UNIT *
Class A	(38.23)	0.27	(43.43)	(59.95)
Class B	(38.11)	1.66	(40.81)	(57.11)
Class C	(37.94)	3.13	(37.99)	(54.10)
Class D	(37.83)	3.88	(36.50)	(52.52)
Class Z	(37.42)	6.27	(31.72)	(47.54)

	Units	Units	Units	Units
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING
Class A	84,390.400	113,817.707	90,924.633	117,606.988
Class B	15,607.511	21,556.637	16,926.500	23,117.843
Class C	16,624.151	25,286.385	18,316.221	27,177.006
Class D	7,555.385	8,874.060	8,344.503	8,874.060
Class Z	3,646.111	4,171.345	3,942.311	4,198.065

*Based on the change in net asset value per Unit.

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

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POLARIS FUTURES FUND L.P.

STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

For the Nine Months Ended September 30, 2013 and 2012

(Unaudited)

	Class A	Class B	Class C	Class D	Class Z	Total
	$	$	$	$	$	$
Partners’ Capital,
December 31, 2012	103,514,417	19,925,811	23,548,722	9,650,670	4,744,208	161,383,828

Subscriptions	2,433,658	154,313	–	–	187,950	2,775,921

Net Loss	(3,443,424)	(594,983)	(535,701)	(284,272)	(105,635)	(4,964,015)

Redemptions	(24,792,991)	(4,313,770)	(6,383,563)	(3,929,408)	(1,354,257)	(40,773,989)

Partners’ Capital,
September 30, 2013	77,711,660	15,171,371	16,629,458	5,436,990	3,472,266	118,421,745

Partners’ Capital,
December 31, 2011	134,606,952	29,596,967	38,388,320	10,541,476	5,285,893	218,419,608

Subscriptions	12,204,885	819,500	1,000,000	154,836	190,509	14,369,730

Net Loss	(7,051,149)	(1,255,953)	(1,344,823)	(466,116)	(197,622)	(10,315,663)

Redemptions	(20,534,027)	(6,114,393)	(10,118,251)	(148,089)	(329,149)	(37,243,909)

Partners’ Capital,
September 30, 2012	119,226,661	23,046,121	27,925,246	10,082,107	4,949,631	185,229,766

	Class A	Class B	Class C	Class D	Class Z	Total
	Units	Units	Units	Units	Units	Units
Beginning Units,
December 31, 2012	100,367.279	18,803.813	21,629.171	8,745.602	4,127.999	153,673.864

Subscriptions	2,339.819	143.686	–	–	163.298	2,646.803

Redemptions	(24,046.039)	(4,056.919)	(5,803.174)	(3,650.000)	(1,184.302)	(38,740.434)

Ending Units,
September 30, 2013	78,661.059	14,890.580	15,825.997	5,095.602	3,106.995	117,580.233

Beginning Units,
December 31, 2011	117,989.188	25,377.597	32,198.395	8,745.602	4,242.591	188,553.373

Subscriptions	10,760.694	701.229	831.469	128.458	153.692	12,575.542

Redemptions	(18,445.504)	(5,300.652)	(8,494.055)	(128.458)	(265.989)	(32,634.658)

Ending Units,
September 30, 2012	110,304.378	20,778.174	24,535.809	8,745.602	4,130.294	168,494.257

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

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS

September 30, 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 Polaris Futures Fund L.P. (“Polaris” or the “Partnership”). The financial statements and condensed notes herein should be read in conjunction with the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “Form 10-K”).

1. Organization

Polaris Futures Fund L.P. was formed on February 22, 2007, under the Delaware Revised Uniform Limited Partnership Act, as a multi-advisor commodity pool created to profit from the speculative trading of domestic commodities and foreign commodity futures contracts, forward contracts, foreign exchange commitments, options on physical commodities and futures contracts, spot (cash) commodities and currencies, exchange of futures contracts 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”).

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.

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership commenced trading operations on August 1, 2007, in accordance with the terms of its Limited Partnership Agreement (the “Limited Partnership Agreement”). Morgan Stanley Smith Barney LLC 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 acted as each Trading Company’s commodity broker to the extent it traded on the London Metal Exchange. 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 (depreciation) on investments on the Statements of Income and Expenses. The Partnership maintains sufficient cash balances on hand to satisfy ongoing operating expenses for the Partnership. As of September 30, 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 September 30, 2013, are as follows:

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Trading Company	Trading Advisor

Morgan Stanley Smith Barney Altis I, LLC
(“Altis I, LLC”)	Altis Partners (Jersey) Limited
Morgan Stanley Smith Barney Aspect I, LLC
(“Aspect I, LLC”)	Aspect Capital Limited
Morgan Stanley Smith Barney BHM I, LLC
(“BHM I, LLC”)	Blenheim Capital Management, L.L.C.
Morgan Stanley Smith Barney Boronia I, LLC
(“Boronia I, LLC”)	Boronia Capital Pty. Ltd.
Morgan Stanley Smith Barney AHL I, LLC
(“AHL I, LLC”)	Man-AHL (USA) Ltd.
Morgan Stanley Smith Barney Kaiser I, LLC
(“Kaiser I, LLC”)	Kaiser Trading Group Pty. Ltd. (“Kaiser”)

The trading system style of each Trading Advisor is as follows:

Commodity Trading Advisor	Trading System Style

Altis Partners (Jersey) Limited	Systematic
Aspect Capital Limited	Systematic
Blenheim Capital Management, L.L.C.	Discretionary
Boronia Capital Pty. Ltd.	Systematic
Man-AHL (USA) Ltd.	Systematic
Kaiser Trading Group Pty. Ltd.	Systematic

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 wholly-owned indirectly by Morgan Stanley. Prior to June 2013, Citigroup Inc. was the indirect minority owner of MSSBH. Morgan Stanley Wealth Management is a principal subsidiary of MSSBH. MS&Co. and MSCG are wholly-owned subsidiaries of Morgan Stanley.

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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.

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

2. Related Party Transactions

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,

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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.

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 partner’s Units as of the beginning of each month.

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. Financial Highlights

Financial Highlights for three and nine months ended September 30, 2013 and 2012 were as follows:

	Class A	Class B	Class C	Class D	Class Z

PER UNIT OPERATING PERFORMANCE:
NET ASSET VALUE,
JULY 1, 2013:	$ 1,026.16	$ 1,056.97	$ 1,088.70	$ 1,104.82	$ 1,154.98

NET OPERATING RESULTS:
Net investment loss	(8.29)	(7.24)	(6.11)	(5.51)	(3.63)
Net realized/unrealized loss	(29.94)	(30.87)	(31.83)	(32.32)	(33.79)
Net loss	(38.23)	(38.11)	(37.94)	(37.83)	(37.42)

NET ASSET VALUE,
SEPTEMBER 30, 2013:	$ 987.93	$ 1,018.86	$ 1,050.76	$ 1,066.99	$ 1,117.56
RATIOS TO AVERAGE NET ASSETS:
Net investment loss (1) (2)	-3.24%	-2.75%	-2.25%	-1.99%	-1.26%
Partnership expenses (1) (2)	3.24%	2.75%	2.25%	1.99%	1.26%

TOTAL RETURN:	-3.73%	-3.61%	-3.48%	-3.42%	-3.24%

PER UNIT OPERATING PERFORMANCE:
NET ASSET VALUE,
JANUARY 1, 2013:	$ 1,031.36	$ 1,059.67	$ 1,088.75	$ 1,103.49	$ 1,149.28

NET OPERATING RESULTS:
Net investment loss	(25.21)	(21.95)	(18.47)	(16.64)	(10.84)
Net realized/unrealized loss	(18.22)	(18.86)	(19.52)	(19.86)	(20.88)
Net loss	(43.43)	(40.81)	(37.99)	(36.50)	(31.72)

NET ASSET VALUE,
SEPTEMBER 30, 2013:	$ 987.93	$ 1,018.86	$ 1,050.76	$ 1,066.99	$ 1,117.56
RATIOS TO AVERAGE NET ASSETS:
Net investment loss (1) (2)	-3.25%	-2.75%	-2.25%	-2.00%	-1.25%
Partnership expenses (1) (2)	3.25%	2.75%	2.25%	2.00%	1.25%

TOTAL RETURN:	-4.21%	-3.85%	-3.49%	-3.31%	-2.76%

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

	Class A	Class B	Class C	Class D	Class Z

PER UNIT OPERATING PERFORMANCE:
NET ASSET VALUE,
JULY 1, 2012:	$ 1,080.62	$ 1,107.49	$ 1,135.01	$ 1,148.94	$ 1,192.10

NET OPERATING RESULTS:
Net investment loss	(8.73)	(7.54)	(6.29)	(5.64)	(3.58)
Net realized/unrealized gain	9.00	9.20	9.42	9.52	9.85
Net gain	0.27	1.66	3.13	3.88	6.27

NET ASSET VALUE,
SEPTEMBER 30, 2012:	$ 1,080.89	$ 1,109.15	$ 1,138.14	$ 1,152.82	$ 1,198.37
RATIOS TO AVERAGE NET ASSETS:
Net investment loss (1) (2)	-3.17%	-2.67%	-2.17%	-1.92%	-1.18%
Partnership expenses (1) (2)	3.17%	2.67%	2.17%	1.92%	1.18%

TOTAL RETURN:	0.02%	0.15%	0.28%	0.34%	0.53%

PER UNIT OPERATING PERFORMANCE:
NET ASSET VALUE,
JANUARY 1, 2012:	$ 1,140.84	$ 1,166.26	$ 1,192.24	$ 1,205.34	$ 1,245.91

NET OPERATING RESULTS:
Net investment loss	(26.77)	(23.11)	(19.23)	(17.20)	(10.87)
Net realized/unrealized loss	(33.18)	(34.00)	(34.87)	(35.32)	(36.67)
Net loss	(59.95)	(57.11)	(54.10)	(52.52)	(47.54)

NET ASSET VALUE,
SEPTEMBER 30, 2012:	$ 1,080.89	$ 1,109.15	$ 1,138.14	$ 1,152.82	$ 1,198.37
RATIOS TO AVERAGE NET ASSETS:
Net investment loss (1) (2)	-3.18%	-2.68%	-2.18%	-1.93%	-1.17%
Partnership expenses (1) (2)	3.18%	2.68%	2.18%	1.93%	1.17%

TOTAL RETURN:	-5.25%	-4.90%	-4.54%	-4.36%	-3.82%

(1) Annualized

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

4. Financial Instruments of the Trading Companies

The Trading Advisors trade Futures Interests on behalf of the Trading Companies. Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price. Futures Interests are open commitments until the 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

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

contract trade price and market price) are reported in the Trading Companies’ Statements of Financial Condition as net unrealized gain or loss on open contracts. The resulting net change in unrealized gains and losses is reflected in the net change in unrealized trading profit (loss) from one period to the next on the Trading Companies’ Statements of Income and Expenses. The fair value of exchange-traded futures, options and forward contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period. The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) of the last business day of the reporting period from various exchanges. The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options using as input the spot prices, interest rates, and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period. Risk arises from changes in the value of these contracts and the potential inability of counterparties to perform under the terms of the contracts. There are numerous factors which

may significantly influence the fair value of these contracts, including interest rate volatility.

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.

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

1)	a) One or more “underlyings” and b) one or more “notional amounts” or payment provisions or both;

2)	Requires no initial net investment or a smaller initial net investment than would be required for other types of contracts that would be expected to have a similar response relative to changes in market factors; and

3)	Terms that require or permit net settlement.

Generally, derivatives include futures, 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

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 non-exchange-traded forward currency contracts are settled upon termination of the contract. Gains and losses of off-exchange-traded forward currency options contracts are settled on an agreed upon settlement date. However, the

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Trading Companies are required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Trading Companies’ accounts with the counterparty.

5. Fair Value Measurements and Disclosures

Financial instruments are carried at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified and disclosed in the following three levels: Level 1 - unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2 – inputs other than unadjusted quoted market prices that are observable for the asset or liability, either directly or indirectly (including unadjusted quoted market prices for similar investments, interest rates 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.

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

September 30, 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 BHM I, LLC	–	43,834,632	–		43,834,632
Investment in Altis I, LLC	–	27,476,873	–		27,476,873
Investment in Aspect I, LLC	–	19,721,074	–		19,721,074
Investment in Boronia I, LLC	–	11,741,563	–		11,741,563
Investment in AHL I, LLC	–	9,758,185	–		9,758,185
Investment in Kaiser I, LLC	–	9,492,711	–		9,492,711

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 BHM I, LLC	–	60,469,759	–	60,469,759
Investment in Altis I, LLC	–	34,093,815	–	34,093,815
Investment in AHL I, LLC	–	31,866,973	–	31,866,973
Investment in Aspect I, LLC	–	29,322,751	–	29,322,751
Investment in Boronia I, LLC	–	12,952,476	–	12,952,476

During the period January 1, 2013 to September 30, 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.

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POLARIS 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 accounting principles generally accepted in the United States of America (“U.S. GAAP”).

At September 30, 2013, the Partnership’s investment in the Trading Companies represented approximately: BHM I, LLC 35.95%; Altis I, LLC 22.50%; AHL I, LLC 8.00%; Aspect I, LLC 16.15%; Boronia I, LLC 9.60%; and Kaiser I, LLC 7.80% of the total investments of the Partnership, respectively.

At December 31, 2012, the Partnership’s investment in the Trading Companies represented approximately: BHM I, LLC 35.85%; Aspect I, LLC 17.40%; Altis I, LLC 20.20%; Boronia I, LLC 7.65%; and AHL I, LLC 18.90% of the total investments of the Partnership, respectively.

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The tables below represent summarized Income Statement information for the Trading Companies that the Partnership invests in for the three and nine months ended September 30, 2013 and 2012, respectively, in accordance with Rule 3-09 of Regulation S-X, as follows:

For the Three Months Ended September 30, 2013	Investment Income/(Loss)	Net Investment Loss	Total Trading Results	Net Income/(Loss)
	$	$	$	$
BHM I, LLC	–	(1,663,715)	18,270,087	16,606,372
Altis I, LLC	–	(146,840)	(3,801,146)	(3,947,986)
Aspect I, LLC	–	(103,760)	(1,548,281)	(1,652,041)

For the Nine Months Ended September 30, 2013	Investment Income/(Loss)	Net Investment Loss	Total Trading Results	Net Income/(Loss)
	$	$	$	$
BHM I, LLC	–	(5,306,789)	11,380,596	6,073,807
Altis I, LLC	–	(450,202)	(1,331,474)	(1,781,676)
Aspect I, LLC	–	(352,514)	(1,367,561)	(1,720,075)
Boronia I, LLC	–	(3,220,183)	7,664,761	4,444,578

For the Three Months Ended September 30, 2012	Investment Loss	Net Investment Loss	Total Trading Results	Net (Income)Loss
	$	$	$	$
AHL I, LLC	–	(226,584)	618,035	391,451
Aspect I, LLC	–	(151,270)	(934,157)	(1,085,427)
BHM I, LLC	–	(1,923,755)	19,756,649	17,832,894
Altis I, LLC	–	(188,856)	(167,707)	(356,563)
Boronia I, LLC	–	(226,624)	111,549	(115,075)

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POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

For the Nine Months Ended September 30, 2012	Investment Loss	Net Investment Loss	Total Trading Results	Net Loss
	$	$	$	$
BHM I, LLC	(48,368)	(6,242,475)	2,057,898	(4,184,577)
AHL I, LLC	(4,768)	(731,231)	(1,702,409)	(2,433,640)

6. Other Pronouncements

In June 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-08, “Financial Services – Investments Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements”. ASU 2013-08 changes the approach to the investment company assessment, requires non-controlling ownership interests in other investment companies to be measured at fair value, and requires additional disclosures about the investment company’s status as an investment company. The amendments are effective for interim and annual reporting periods beginning after December 15, 2013. The Partnership is currently evaluating the impact this pronouncement would have on the financial statements.

7. Income Taxes

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

- 18 -

POLARIS FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

The guidance issued by FASB on income taxes clarifies the accounting for uncertainty in income taxes recognized in the Partnership's financial statements, and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken. The Partnership has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements as of September 30, 2013 and December 31, 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 2010 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 other than disclosed below.

Effective October 31, 2013, Ceres terminated the advisory agreement dated as of May 4, 2011, among AHL I, LLC, the General Partner and Man-AHL (USA) Ltd. (“Man-AHL”), pursuant to which Man-AHL traded a portion of the Partnership’s net assets in Futures Interests. Consequently, Man-AHL ceased all futures interest trading on behalf of AHL I, LLC (and, indirectly, the Partnership). The General Partner has

reallocated the net assets formerly allocated to Man-AHL among the remaining trading advisors of the Partnership.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As of September 30, 2013, the percentage of assets allocated to each market sector was approximately as follows: Interest Rate 12.1%; Currency 19.7%; Equity 19.9%; and Commodity 48.3%.

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 September 30, 2013, approximately 85.2% of the Partnership’s total investment exposure is futures contracts which are exchange-traded while approximately 14.8% 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.

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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 commitments 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 three and nine months ended September 30, 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 September 30, 2013 and June 30, 2013, the allocations between the Trading Companies were as follows:

Trading Company	Allocation as of 9/30/2013	Allocation as of 6/30/2013

AHL I, LLC	8.00%	10.25%
Altis I, LLC	22.50%	22.40%
Aspect I, LLC	16.15%	16.80%
BHM I, LLC	35.95%	34.80%
Boronia I, LLC	9.60%	8.60%
Kaiser I, LLC	7.80%	7.15%

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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 depreciation on investments” for open contracts, and recorded as “Realized” when open positions are closed out. The sum of these amounts constitutes the Trading Companies trading results. The fair value of a futures contract is the settlement price on the exchange on which that futures contract is traded on a particular day. The value of a foreign currency forward contract is based on the spot rate as of approximately 3:00 P.M. (E.T.) the close of the business day.

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

For the Three and Nine Months Ended September 30, 2013

The Partnership recorded total realized/net change in unrealized depreciation on investments of $(3,886,787) and expenses totaling $969,288, resulting in a net loss of $4,856,075 for the three months ended September 30, 2013. The Partnership’s net asset value per Unit by share Class is provided in the table below.

- 23 -

Share Class	NAV at 9/30/13	NAV at 6/30/13

A	987.93	$1,026.16
B	1,018.86	$1,056.97
C	1,050.76	$1,088.70
D	1,066.99	$1,104.82
Z	1,117.56	$1,154.98

During the third quarter, the Partnership posted a loss in net asset value per Unit as losses in metals, energies, global interest rates, currencies and global stock indices offset gains in agriculturals. The most significant losses were recorded within the metals sector from short positions in precious and industrial metals futures during August as industrial metals prices increased due to improving macro-economic data in China, while uncertainty over the fate of monetary stimulus programs in the U.S. bolstered the precious metals “safe haven” appeal. Further losses in metals were incurred in September from long positions in platinum futures. Additional losses were recorded in the energy sector during July and September from trading in crude oil and its distilled products futures. In July, losses were incurred from short heating oil and gasoil futures positions as new Middle East tensions, early month inventory draws, and favorable U.S. economic data all pushed crude oil and oil distillates prices higher. During September losses were incurred from long crude oil and gasoline futures as prices declined after tensions in the Mideast eased and amid concern of a shutdown of the U.S. government, which may reduce demand by the world’s largest oil consumer. In the global interest rate sector, losses were incurred primarily in September from short fixed income futures positions as prices rallied after European Central Bank President Mario Draghi announced that officials may consider injecting more stimulus into the banking system and after the U.S. Federal Reserve’s decision not to start tapering its quantitative easing program. Within the currency markets, losses were recorded in July and August from long positions in the euro versus the U.S. dollar as the relative value of the euro moved lower on speculation the U.S. would curtail its quantitative easing

- 24 -

program. Smaller losses were also experienced in July and August from long futures positions in Asian Pacific stock indices as prices declined amid a strengthening Japanese yen, as resources shares slid after China’s industrial profit indicated a deepening slowdown and in reaction to a possible U.S. military engagement against the Syrian government. A portion of the Partnership’s losses for the quarter was offset by gains achieved within the agriculturals sector during July and September from short soybean and corn futures positions as prices decreased due to favorable weather for planting and high crop yields.

The Partnership recorded total realized/net change in unrealized depreciation on investments of $(1,780,396) and expenses totaling $3,183,619, resulting in a net loss of $4,964,015 for the nine months ended September 30, 2013. The Partnership’s net asset value per Unit by share Class is provided in the table below.

Share Class	NAV at 9/30/13	NAV at 12/31/12

A	$987.93	$1,031.36
B	$1,018.86	$1,059.67
C	$1,050.76	$1,088.75
D	$1,066.99	$1,103.49
Z	$1,117.56	$1,149.28

During the first nine months of the year, the Partnership recorded a loss in net asset value per Unit as trading losses across the energy and global interest rate sectors were offset by trading gains in stock indices, metals, currencies and agriculturals. The most significant losses were incurred within the energy markets during February, June and September. During February, long futures positions in crude oil and its related products resulted in losses as prices fell sharply following news that the U.S. economy grew less than economists expected and manufacturing in China expanded less than forecast and contracted in Europe. Additional energy losses were experienced during June from short futures positions in crude oil

- 25 -

and its related products as prices rose after the Syrian conflict spurred concern that the flow of supplies from the Middle East may be disrupted. In September, losses were recorded in the energy sector from long crude oil and gasoline futures as prices declined after tensions in the Mideast eased and concern of a shutdown of the U.S. government, which may reduce demand by the world’s largest oil consumer. Within the global interest rate sector, losses were experienced during February from short positions in European and U.S. fixed income futures as prices rose on uncertainty about political stability in Europe due to a stalemate in the Italian elections. During May, long positions in U.S. and European fixed income futures resulted in additional losses as prices moved lower following a positive U.S. employment report, a rise in German sentiment, and following comments by Federal Reserve Chairman Bernanke that the U.S. central bank may taper it bond buying program. Additional losses were incurred in September from short fixed income futures positions as prices rallied after European Central Bank President Mario Draghi announced that officials may consider injecting more stimulus into the banking system and after the U.S. Federal Reserve’s decision not to start tapering its quantitative easing program. The Partnership’s losses during the first nine months of the year were offset by gains achieved 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. Additional gains were recorded in this sector during April and May from long positions in U.S. and European equity index futures as prices rose after gauges of U.S. leading economic indicators and consumer sentiment advanced more than estimated. Within the metals complex, gains were experienced in March through June from short positions in gold and silver futures as prices fell on fears Cyprus and other crisis-hit countries may be forced to sell their gold reserves and on speculation the U.S. Federal Reserve may scale back its monetary stimulus program. Within the

- 26 -

currency markets, gains were achieved during January from short positions in the Japanese yen versus the U.S. dollar, Canadian 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 recorded during May from short positions in the Australian dollar versus the U.S. dollar as the value of the Australian dollar declined after the Reserve Bank of Australia cut interest rates. Within the agricultural complex, gains were achieved during June, July and September from short soybean futures positions as prices decreased due to favorable weather for planting and high crop yields.

For the Three and Nine Months Ended September 30, 2012

The Partnership recorded total realized/net change in unrealized appreciation on investments of $1,682,858 and expenses totaling $1,379,879, resulting in net income of $302,979 for the three months ended September 30, 2012. The Partnership’s net asset value per Unit by share Class is provided in the table below.

Share Class	NAV at 9/30/12	NAV at 6/30/12

A	$1,080.89	$1,080.62
B	$1,109.15	$1,107.49
C	$1,138.14	$1,135.01
D	$1,152.82	$1,148.94
Z	$1,198.37	$1,192.10

The most significant trading gains were achieved within the metals markets during August and September from long positions in palladium and platinum futures as prices climbed higher amid concern that continued labor-related violence at mines in South Africa will curb supplies. Within the agricultural complex, gains were recorded during July and September from long futures positions in the soybean complex and corn after prices rose as a heat wave and drought in the U.S. Midwest threatened to limit

- 27 -

output. Within the global interest rate sector, gains were experienced during July from long positions in European and U.S. fixed income futures as prices advanced after reports revealed a decline in German service industries and slower-than-forecast growth in U.S. payrolls, fueling concern that the global economic recovery is slowing. Additional gains were achieved within the currency markets during July from short positions in the euro versus the Australian dollar, British pound, and Canadian dollar as the value of the euro declined against most of its currency counterparts after European Central Bank President Mario Draghi said the euro-zone still faces risks after policy makers cut interest rates to a record low. A portion of the Partnership’s gains during the quarter was offset by losses incurred within the energy

markets during July from short futures positions in crude oil and its related products as prices advanced on concern that instability in the Middle East will disrupt energy supplies. Within the global stock index sector, losses were experienced during July from long positions in Pacific Rim equity index futures as prices fell throughout a majority of the month on concern Asian corporate earnings are weakening.

The Partnership recorded total realized/net change in unrealized depreciation on investments of $(5,912,021) and expenses totaling $4,403,642, resulting in a net loss of $10,315,663 for the nine months ended September 30, 2012. The Partnership’s net asset value per Unit by share Class is provided in the table below.

Share Class	NAV at 9/30/12	NAV at 12/31/11

A	$1,080.89	$1,140.84
B	$1,109.15	$1,166.26
C	$1,138.14	$1,192.24
D	$1,152.82	$1,205.34
Z	$1,198.37	$1,245.91

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The most significant trading losses were incurred within the currency markets during March from long positions in the Australian dollar, South African rand, and New Zealand dollar versus the U.S. dollar as the value of these commodity-linked currencies fell against the U.S. dollar after concern over earnings in China reduced demand for higher-yielding currency assets. Further currency losses were recorded during August from long positions in the Australian dollar versus the euro, British pound, and Canadian dollar as the value of the Australian dollar fell against these currencies amid concern that a slowdown in China, Australia’s biggest trading partner, would hamper growth. Within the metals markets, losses were experienced during March from long positions in palladium and aluminum futures as prices moved lower on speculation of reduced demand from China, the world’s biggest metals purchaser. Additional losses were recorded within the metals sector during May from long positions in palladium and platinum futures as prices fell on concern that Europe’s worsening debt crisis and a slowing U.S. recovery signal weaker demand for metals. Within the global stock index sector, losses were experienced during April and May from long positions in U.S., European, and Japanese equity index futures as prices declined amid an unexpected rise in the U.S. unemployment rate and weakening economic data from China and Europe. A portion of the Partnership’s losses during the first nine months of the year was offset by gains recorded within the global interest rate markets during April and May from long positions in European and U.S. fixed income futures as prices advanced after Standard & Poor’s cut Spain’s credit rating and Greece failed to form a unified government, adding to concern that central banks and politicians are failing to contain the European debt crisis. During July, long positions in European and U.S. fixed income futures resulted in gains as prices climbed higher on concern that the global economic recovery is slowing. Within the energy markets, gains were experienced during January from short positions in natural gas futures as prices dropped amid ample inventories and mild weather across the U.S. Additional gains were

- 29 -

experienced in this market sector during February from long futures positions in crude oil and its related products as prices increased on concerns over inventory levels and rising tensions in the Middle East.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Introduction

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

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

the contract.

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

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

The Partnership’s and the Trading Companies’ past performance are no guarantee of their future results. Any attempt to numerically quantify the Trading Companies’ market risk is limited by the uncertainty of

their speculative trading. The Trading Companies’ speculative trading and use of leverage may cause future losses and volatility (i.e., “risk of ruin”) that far exceed the Trading Companies’ experiences to date as discussed under the "Trading Companies’ Value at Risk in Different Market Sectors" section and significantly exceed the Value at Risk (“VaR”) tables disclosed below.

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

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

- 31 -

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 (“Exchange Act”)). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

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

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

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

- 32 -

Exchange maintenance margin requirements have been used by the Trading Companies as the measure of its VaR. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95% - 99% of any one-day interval. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to VaR.

The Trading Companies’ Value at Risk in Different Market Sectors

As of September 30, 2013, Altis I, LLC’s total capitalization was $30,511,007. The Partnership owned approximately 90% of Altis I, LLC.

September 30, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$659,934	2.16

Interest Rate	739,584	2.42

Equity	1,175,990	3.85

Commodity	2,967,325	9.73

Total	$5,542,833	18.16

Three Months Ended September 30, 2013

Market Sector	High VaR $	Low VaR $	Average VaR* $
Currency	904,593	469,142	683,040
Interest Rate	1,256,841	725,913	1,088,227
Equity	1,175,990	192,007	644,857
Commodity	3,692,461	611,643	3,256,201

* Average of month-end VaR.

- 33 -

As of September 30, 2013, Aspect I, LLC’s total capitalization was $21,545,988. The Partnership owned approximately 92% of Aspect I, LLC.

September 30, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$800,736	3.72

Interest Rate	646,241	3.00

Equity	839,947	3.90

Commodity	813,993	3.78

Total	$3,100,917	14.40

Three Months Ended September 30, 2013

Market Sector	High VaR $	Low VaR $	Average VaR* $
Currency	885,038	425,898	716,408
Interest Rate	910,406	452,755	653,946
Equity	839,947	272,249	527,864
Commodity	1,296,657	106,276	998,955

* Average of month-end VaR.

As of September 30, 2013, BHM I, LLC’s total capitalization was $342,286,050. The Partnership owned approximately 13% of BHM I, LLC.

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September 30, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$2,520,738	0.74

Interest Rate	1,083,411	0.32

Equity	230,280	0.07

Commodity	29,834,757	8.72

Total	$33,669,186	9.85

Three Months Ended September 30, 2013

Market Sector	High VaR $	Low VaR $	Average VaR* $
Currency	2,520,738	–	801,502
Interest Rate	1,443,246	6,625	490,871
Equity	1,486,188	39,860	699,615
Commodity	32,101,957	2,319,518	28,987,182

* Average of month-end VaR.

As of September 30, 2013, Boronia I, LLC’s total capitalization was $60,339,342. The Partnership owned approximately 19% of Boronia I, LLC.

September 30, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$2,139,936	3.55

Interest Rate	479,812	0.80

Equity	2,147,815	3.56

Commodity	2,247,307	3.72

Total	$7,014,870	11.63

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Three Months Ended September 30, 2013

Market Sector	High VaR $	Low VaR $	Average VaR* $
Currency	3,730,692	1,059,291	2,247,289
Interest Rate	3,815,651	402,139	1,443,451
Equity	3,726,192	657,967	2,073,424
Commodity	3,621,705	618,970	2,559,999

* Average of month-end VaR.

As of September 30, 2013, AHL I, LLC’s total capitalization was $10,671,591. The Partnership owned approximately 91% of AHL I, LLC.

September 30, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$782,753	7.33

Interest Rate	162,846	1.53

Equity	492,476	4.61

Commodity	259,795	2.43

Total	$1,697,870	15.90

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Three Months Ended September 30, 2013

Market Sector	High VaR $	Low VaR $	Average VaR* $
Currency	1,556,974	535,067	1,131,290
Interest Rate	291,373	130,518	213,326
Equity	674,005	295,633	475,099
Commodity	684,362	53,069	537,235

* Average of month-end VaR.

As of September 30, 2013, Kaiser I, LLC’s total capitalization was $49,905,568. The Partnership owned approximately 19% of Kaiser I, LLC.

September 30, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$2,425,682	4.86

Interest Rate	1,850,324	3.71

Equity	2,896,185	5.80

Commodity	258,430	0.52

Total	$7,430,621	14.89

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Three Months Ended September 30, 2013

Market Sector	High VaR $	Low VaR $	Average VaR* $
Currency	5,404,277	305,142	1,367,336
Interest Rate	4,218,857	338,208	1,330,711
Equity	5,507,126	849,816	2,568,819
Commodity	1,479,103	38,500	543,031

* Average of month-end VaR.

As of December 31, 2012, Altis I, LLC’s total capitalization was $38,434,878. The Partnership owned approximately 89% of Altis I, LLC.

December 31, 2012

		% of Total
Market Sector	VaR	Capitalization

Currency	$992,856	2.58

Interest Rate	1,365,410	3.55

Equity	1,274,537	3.32

Commodity	1,903,385	4.95

Total	$5,536,188	14.40

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Twelve Months Ended December 31, 2012

Market Sector	High VaR	Low VaR	Average VaR*
	$	$	$
Currency	2,077,225	349,925	929,590
Interest Rate	2,353,079	1,007,877	1,599,447
Equity	1,274,537	222,343	611,707
Commodity	3,585,044	1,679,294	2,444,140

* Average of month-end VaR.

As of December 31, 2012, Aspect I, LLC’s total capitalization was $31,833,661. The Partnership owned approximately 92% of Aspect I, LLC.

December 31, 2012

		% of Total
Market Sector	VaR	Capitalization

Currency	$2,193,535	6.89

Interest Rate	754,804	2.37

Equity	1,238,616	3.89

Commodity	900,415	2.83

Total	$5,087,370	15.98

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Twelve Months Ended December 31, 2012

Market Sector	High VaR	Low VaR	Average VaR*
	$	$	$
Currency	2,503,702	595,850	1,849,965
Interest Rate	2,239,108	571,826	1,216,933
Equity	1,258,252	358,290	780,810
Commodity	1,689,731	789,145	1,346,887

* Average of month-end VaR.

As of December 31, 2012, BHM I, LLC’s total capitalization was $400,129,363. The Partnership owned approximately 15% of BHM I, LLC.

December 31, 2012

		% of Total
Market Sector	VaR	Capitalization

Currency	$2,353,158	0.59

Interest Rate	340,639	0.09

Commodity	18,985,549	4.74

Total	$21,679,346	5.42

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Twelve Months Ended December 31, 2012

Market Sector	High VaR	Low VaR	Average VaR*
	$	$	$
Currency	12,680,962	259,639	7,283,125
Interest Rate	6,703,240	182,760	2,834,140
Equity	4,200,350	–	1,260,633
Commodity	37,860,223	15,628,562	26,432,348

* Average of month-end VaR.

As of December 31, 2012, Boronia I, LLC’s total capitalization was $14,155,117. The Partnership owned approximately 92% of Boronia I, LLC.

December 31, 2012

		% of Total
Market Sector	VaR	Capitalization

Currency	$251,044	1.77

Interest Rate	258,654	1.83

Equity	443,259	3.13

Commodity	557,636	3.94

Total	$1,510,593	10.67

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Twelve Months Ended December 31, 2012

Market Sector	High VaR	Low VaR	Average VaR*
	$	$	$
Currency	1,581,065	178,935	701,779
Interest Rate	1,458,139	117,908	474,250
Equity	1,495,820	194,485	549,594
Commodity	1,417,780	270,960	706,600

* Average of month-end VaR.

As of December 31, 2012, AHL I, LLC’s total capitalization was $34,717,173. The Partnership owned approximately 92% of AHL I, LLC.

December 31, 2012

		% of Total
Market Sector	VaR	Capitalization

Currency	$3,812,072	10.98

Interest Rate	1,570,321	4.52

Equity	1,881,179	5.42

Commodity	623,273	1.80

Total	$7,886,845	22.72

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Twelve Months Ended December 31, 2012

Market Sector	High VaR	Low VaR	Average VaR*
	$	$	$
Currency	4,684,324	1,177,741	2,835,886
Interest Rate	1,778,562	607,098	1,326,426
Equity	1,913,269	333,281	951,747
Commodity	1,744,246	506,474	1,006,776

* 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.

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Non-Trading Risk

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

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

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

Qualitative Disclosures Regarding Primary Trading Risk Exposures

The following qualitative disclosures regarding the Partnership’s market risk exposures – except for (A) those disclosures that are statements of historical fact and (B) the descriptions of how the Partnership manages its primary market risk exposures – constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Partnership’s primary market risk exposures, as well as the strategies used and to be used by Ceres and the Trading Advisors for managing such exposures, are subject to numerous uncertainties, contingencies and

risks, any one of which could cause the actual results of the Partnership’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid

- 44 -

markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation, and many other factors could result in material losses, as well as in material changes to the risk exposures and the risk management strategies of the Partnership.

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

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the management of Ceres, Ceres’ President (Ceres’ principal executive officer) and Chief Financial Officer (Ceres’ principal financial officer) have evaluated the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 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, summarized and reported within the time period specified in the applicable rules and forms. Based on this evaluation, the President and Chief Financial Officer of Ceres have concluded that the disclosure controls and procedures of the Partnership were effective at September 30, 2013.

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Changes in Internal Control over Financial Reporting

There have been no changes during the period covered by this quarterly report in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)

that have materially affected or are reasonably likely to materially affect the Partnership’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

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

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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.

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

On June 1, 2011, Morgan Stanley & Co. Incorporated converted from a Delaware corporation to a Delaware limited liability company. As a result of that conversion, Morgan Stanley & Co. Incorporated is now named Morgan Stanley & Co. LLC (“MS&Co.”).

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, which include current descriptions of material litigation and material proceedings

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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 Securities and Exchange Commission (“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 2012, 2011, 2010, 2009, and 2008.

MS&Co. is a Delaware corporation 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 June 2, 2009, Morgan Stanley executed a final settlement with the Office of the New York State Attorney General (“NYAG”) in connection with its investigation relating to the sale of auction-rate securities (“ARS”). Morgan Stanley agreed, among other things to: (1) repurchase at par illiquid ARS that were purchased by certain retail clients prior to February 13, 2008; (2) pay certain retail clients that sold ARS below par the difference between par and the price at which the clients sold the securities; (3) arbitrate, under special procedures, claims for consequential damages by certain retail clients; (4) refund refinancing fees to certain municipal issuers of ARS; and (5) pay a total penalty of $35 million. On August

- 49 -

13, 2008, Morgan Stanley reached an agreement in principle on substantially the same terms with the Office of the Illinois Secretary of State, Securities Department (on behalf of a task force of other states under the auspices of the North American Securities Administrators Association) that would settle their investigations into the same matters.

On June 5, 2012, the Company consented to and became the subject of an Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act, as amended, Making Findings and Imposing Remedial Sanctions by the Commodity Futures Trading Commission (“CFTC”) to resolve allegations related to the failure of a salesperson to comply with exchange rules that prohibit off-exchange futures transactions unless there is an Exchange for Related Position (EFRP). Specifically, the CFTC found that from April 2008 through October 2009, the Company violated Section 4c(a) of the Commodity Exchange Act and Commission Regulation 1.38 by executing, processing and reporting numerous off-exchange futures trades to the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT) as EFRPs in violation of CME and CBOT rules because those trades lacked the corresponding and related cash, over-the-counter (“OTC”) swap, OTC option, or other OTC derivative position. In addition, the CFTC found that the Company violated CFTC Regulation 166.3 by failing to supervise the handling of the trades at issue and failing to have adequate policies and procedures designed to detect and deter the violations of the Act and Regulations. Without admitting or denying the underlying allegations and without adjudication of any issue of law or fact, the Company accepted and consented to entry of findings and the imposition of a cease and desist order, a fine of $5,000,000, and undertakings related to public statements, cooperation and payment of the fine. The Company entered into corresponding and related settlements with the CME and CBOT in which the CME found that the Company violated CME Rules

- 50 -

432.Q and 538 and fined the Company $750,000 and CBOT found that the Company violated CBOT Rules 432.Q and 538 and fined the Company $1,000,000.

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 of 1933, as amended, and overruled defendants’ demurrers with respect to all other claims. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $326 million, and the certificates had incurred actual losses of approximately $4 million. Based on currently available information, the Company believes it could incur a loss for this action up to the difference between the $326 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.

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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 $263 million. Plaintiff filed amended complaints on October 14, 2011, which raise claims under the Massachusetts Uniform Securities Act and seek, among other things, to rescind the plaintiff’s purchase of such certificates. Defendants’ motions to dismiss the amended complaints, with respect to plaintiff’s standing to bring suit and for failure to state a claim upon which relief can be granted were denied in March and October 2012, respectively. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $105 million, and the certificates had incurred actual losses of approximately $109 million. Based on currently available information, the Company believes it could incur a loss for these actions of up to the difference between the $105 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 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., which is

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pending in the Supreme Court of the State of New York, New York County (“Supreme Court of NY, NY County”). 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.

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

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of such certificates. On March 24, 2011, the court granted plaintiff leave to file an amended complaint. The defendants’ motion to dismiss the amended complaint was denied on September 19, 2012. The Company filed its answer on December 21, 2012.

At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $98 million and certain certificates had incurred actual losses of approximately $1 million. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $98 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 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

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in May 2015. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $119 million, and the certificates had incurred actual losses of approximately $1 million. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $119 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, 2011, defendants removed the action to the United States District Court for the Southern District of New York. 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 September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $2.8 billion, and the certificates had incurred actual losses of approximately $68 million. Based on currently available information, the Company believes it could incur a loss in this action up to

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the difference between the $2.8 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, Metropolitan Life Insurance Company and certain affiliates filed a complaint against the Company and certain affiliates in the Supreme Court of NY styled Metropolitan Life Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on June 29, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company was approximately $758 million. The amended complaint raises common law claims of fraud, fraudulent inducement, and aiding and abetting fraud and seeks, among other things, rescission, compensatory and/or rescissionary damages, as well as punitive damages, associated with plaintiffs’ purchases of such certificates. On September 21, 2012, the Company filed a motion to dismiss the amended complaint, which was granted in part and denied in part on July 16, 2013. Defendants filed a notice of appeal of that decision on August 16, 2013. Following that decision, the total amount of certificates allegedly sponsored, underwritten and/or sold by the Company was approximately $656 million. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates remaining at issue in this case was approximately $324 million, and the certificates incurred actual losses of approximately $35 million. Based on currently available information, the Company believes it could incur a loss up to the difference between the $324 million

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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 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 March 15, 2013, defendants’ motion to dismiss was denied. At September 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $663 million, and the certificates had not yet incurred actual losses. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $663 million unpaid

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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.

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.

Item 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

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

The aggregate proceeds of securities sold in all share Classes to the limited partners through September 30, 2013 was $338,873,128. The Partnership received $2,317,000 in consideration from the sale of Units to the General Partner.

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

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The following charts set forth the purchases of Units by the Partnership.

Period	(a) Total Number of Units Purchased*	(b) Average Price Paid per Unit**	(c) Total Number of Units Purchased as part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs
Class A
July 1, 2013 – July 31, 2013	(3,700.862)	1,021.46	N/A	N/A
August 1, 2013 – August 31, 2013	(3,084.020)	997.79	N/A	N/A
September 1, 2013 – September 30, 2013	(2,576.891)	987.93	N/A	N/A
	(9,361.773)	1,004.43

Period	(a) Total Number of Units Purchased*	(b) Average Price Paid per Unit**	(c) Total Number of Units Purchased as part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs
Class B
July 1, 2013 – July 31, 2013	–	–	N/A	N/A
August 1, 2013 – August 31, 2013	(205.138)	1,028.62	N/A	N/A
September 1, 2013 – September 30, 2013	(578.686)	1,018.86	N/A	N/A
	(783.824)	1,021.41

Period	(a) Total Number of Units Purchased*	(b) Average Price Paid per Unit**	(c) Total Number of Units Purchased as part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs
Class C
July 1, 2013 – July 31, 2013	(1,129.254)	1,084.61	N/A	N/A
August 1, 2013 – August 31, 2013	(619.730)	1,060.39	N/A	N/A
September 1, 2013 – September 30, 2013	–	–	N/A	N/A
	(1,748.984)	1,076.03

Period	(a) Total Number of Units Purchased*	(b) Average Price Paid per Unit**	(c) Total Number of Units Purchased as part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs
Class D
July 1, 2013 – July 31, 2013	–	–	N/A	N/A
August 1, 2013 – August 31, 2013	(3,650.000)	1,076.55	N/A	N/A
September 1, 2013 – September 30, 2013	–	–	N/A	N/A
	(3,650.000)	1,076.55

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Period			(a) Total Number of Units Purchased*	(b) Average Price Paid per Unit**	(c) Total Number of Units Purchased as part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs
Class Z
July 1, 2013 – July 31, 2013			(56.023)	1,151.61	N/A	N/A
August 1, 2013 – August 31, 2013			(148.000)	1,126.85	N/A	N/A
September 1, 2013 – September 30, 2013			(420.499)	1,117.56	N/A	N/A
			(624.522)	1,122.82

	*	Generally, limited partners are permitted to redeem their 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 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 Units are effected as of the last day of each month at the net asset value per Unit as of that day.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 6. EXHIBITS

10.01

Commodity Futures Customer Agreement, between Morgan Stanley & Co. LLC and the Funds listed on Appendix A thereto dated as of November 12, 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

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101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Document

101.PRE*

XBRL Taxonomy Extension Presentation Document

101.DEF*

XBRL Taxonomy Extension Definition Document

Notes to Exhibits List

* Submitted electronically herewith.

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

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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.

	Polaris Futures Fund L.P.
	(Registrant)

	By:	Ceres Managed Futures LLC
		(General Partner)

November 14, 2013	By:	/s/Alice Lonero
		Alice Lonero
		Chief Financial Officer

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

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Attached files

Polaris Futures Fund L.P. Reports

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