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

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Meritage Futures Fund L.P.	Financial_Report.xls
EX-32.01 - CERTIFICATION - Meritage Futures Fund L.P.	meritage3201.htm
EX-31.02 - CERTIFICATION - Meritage Futures Fund L.P.	meritage3102.htm
EX-32.02 - CERTIFICATION - Meritage Futures Fund L.P.	meritage3202.htm
EX-31.01 - CERTIFICATION - Meritage Futures Fund L.P.	meritage3101.htm
EX-10.01 - ALTERNATIVE INVESTMENT PLACEMENT AGENT AGREEMENT - Meritage Futures Fund L.P.	meritage1001.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2014 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: 000-53113

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

	Delaware	20-8529352
	(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 June 30, 2014, 17,155.647 Limited Partnership Class A Units were outstanding, 1,884.501 Limited Partnership Class B Units were outstanding, 770.786 Limited Partnership Class C Units were outstanding, 375.510 Limited Partnership Class Z Units were outstanding.

MERITAGE FUTURES FUND L.P.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

June 30, 2014

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Statements of Financial Condition as of June 30, 2014 and December 31, 2013	2

	Statements of Income and Expenses for the Three and Six Months Ended June 30, 2014 and 2013	3

	Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2014 and 2013	4

	Notes to Financial Statements	5-21

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22-31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32-52

Item 4.	Controls and Procedures	52-53

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	54-64

Item 1A.	Risk Factors	66

Item 2.	Unregistered Sales of Securities and Use of Proceeds	66-68

Item 4.	Mine Safety Disclosures	68

Item 5.	Other Information	68-69

Item 6.	Exhibits	69-70

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MERITAGE FUTURES FUND L.P.

STATEMENTS OF FINANCIAL CONDITION

(Unaudited)


	June 30,	December 31,
	2014	2013
ASSETS	$	$

Investments in Affiliated Trading Companies:
Investment in BHM I, LLC	3,230,113	4,348,325
Investment in Boronia I, LLC	3,164,056	2,418,474
Investment in Augustus I, LLC	2,198,315	2,199,151
Investment in TT II, LLC	2,193,627	3,143,193
Investment in Rotella I, LLC	2,147,699	1,945,710
Investment in Altis I, LLC	2,112,679	2,575,826
Investment in Aspect I, LLC	1,216,250	1,640,522
Investment in Kaiser I, LLC	–	1,905,973
Investment in WNT I, LLC	–	1,765,749

Total Investments in Affiliated Trading Companies, at fair value (cost $16,558,382 and $23,365,914, respectively)	16,262,739	21,942,923

Receivable from Affiliated Trading Companies	2,558,667	–

Total Assets	18,821,406	21,942,923

LIABILITIES

Redemptions payable	333,458	636,091

Total Liabilities	333,458	636,091

PARTNERS’ CAPITAL
Class A (17,155.647 and 19,452.230 Units, respectively)	15,575,269	17,545,441
Class B (1,884.501 and 2,464.672 Units, respectively)	1,771,190	2,295,673
Class C (770.786 and 1,123.476 Units, respectively)	749,954	1,080,593
Class Z (375.510 and 375.510 Units, respectively)	391,535	385,125

Total Partners’ Capital	18,487,948	21,306,832

Total Liabilities and Partners’ Capital	18,821,406	21,942,923

NET ASSET VALUE PER UNIT
Class A	907.88	901.98
Class B	939.87	931.43
Class C	972.97	961.83
Class Z	1,042.67	1,025.61

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

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MERITAGE FUTURES FUND L.P.

STATEMENTS OF INCOME AND EXPENSES

(Unaudited)

	For the Three Months Ended June 30,		For the Six Months Ended June 30,

	2014	2013	2014	2013
	$	$	$	$
EXPENSES
Ongoing Placement Agent fees	86,685	120,526	184,150	249,330
General Partner fees	46,259	64,792	98,642	134,236
Administrative fees	18,503	25,916	39,456	53,694

Total Expenses	151,447	211,234	322,248	437,260

NET INVESTMENT LOSS	(151,447)	(211,234)	(322,248)	(437,260)

NET REALIZED/CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION ) ON
INVESTMENTS
Net realized loss	(474,848)	(360,423)	(744,081)	(746,540)
Net change in unrealized appreciation (depreciation) on investments	1,439,122	139,186	1,127,348	1,145,780

Total Net Realized Loss/Change in
Unrealized Appreciation (Depreciation) on Investments	964,274	(221,237)	383,267	399,240

NET INCOME (LOSS)	812,827	(432,471)	61,019	(38,020)

NET INCOME (LOSS) ALLOCATION
Class A	683,529	(364,030)	54,285	(42,390)
Class B	77,249	(42,475)	3,176	(2,491)
Class C	33,592	(19,271)	(2,852)	3,211
Class Z	18,457	(6,695)	6,410	3,650

NET INCOME (LOSS) PER UNIT *
Class A	38.53	(16.69)	5.90	(4.17)
Class B	40.99	(15.99)	8.44	(1.94)
Class C	43.58	(15.23)	11.14	0.42
Class Z	49.15	(13.56)	17.06	5.53

	Units	Units	Units	Units
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING
Class A	17,889.595	23,029.151	18,655.153	23,961.155
Class B	1,884.501	2,795.234	2,121.584	2,820.680
Class C	770.786	1,264.799	946.157	1,413.598
Class Z	375.510	493.816	375.510	526.509

* 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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MERITAGE FUTURES FUND L.P.

STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

For the Six Months Ended June 30, 2014 and 2013

(Unaudited)

	Class A	Class B	Class C	Class Z	Total
	$	$	$	$	$
Partners’ Capital,
December 31, 2013	17,545,441	2,295,673	1,080,593	385,125	21,306,832

Subscriptions	454,535	—	—	—	454,535

Net Income (Loss)	54,285	3,176	(2,852)	6,410	61,019

Redemptions	(2,478,992)	(527,659)	(327,787)	—	(3,334,438)

Partners’ Capital,
June 30, 2014	15,575,269	1,771,190	749,954	391,535	18,487,948

Partners’ Capital,
December 31, 2012	23,194,332	2,669,850	1,658,891	595,249	28,118,322

Subscriptions	323,054	—	—	—	323,054

Net Income (Loss)	(42,390)	(2,491)	3,211	3,650	(38,020)

Redemptions	(3,160,881)	(148,338)	(442,627)	(93,743)	(3,845,589)

Partners’ Capital,
June 30, 2013	20,314,115	2,519,021	1,219,475	505,156	24,557,767

	Class A	Class B	Class C	Class Z	Total
	Units	Units	Units	Units	Units
Beginning Units,
December 31, 2013	19,452.230	2,464.672	1,123.476	375.510	23,415.888

Subscriptions	504.285	—	—	—	504.285

Redemptions	(2,800.868)	(580.171)	(352.690)	—	(3,733.729)

Ending Units,
June 30, 2014	17,155.647	1,884.501	770.786	375.510	20,186.444

Beginning Units,
December 31, 2012	25,408.249	2,846.410	1,721.285	585.054	30,560.998

Subscriptions	349.691	—	—	—	349.691

Redemptions	(3,402.833)	(155.235)	(456.486)	(91.238)	(4,105.792)

Ending Units,
June 30, 2013	22,355.107	2,691.175	1,264.799	493.816	26,804.897

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

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS

June 30, 2014

(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 Meritage Futures Fund L.P. (“Meritage” 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, 2013 (the “Form 10-K”).

1. Organization

The Partnership 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 the Partnership’s investments in its affiliated trading companies (each, a “Trading Company” or collectively, the “Trading Companies”). Meritage is one of the partnerships in the Managed Futures Multi-Strategy Profile Series, comprised of Meritage and LV Futures Fund L.P. (collectively, the “Profile Series”).

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Partnership invests substantially all of its assets in multiple affiliated Trading Companies, each of which allocates substantially all of its assets to the trading program of an unaffiliated commodity trading advisor (each, a “Trading Advisor” or collectively, the “Trading Advisors”) which makes investment decisions for each respective Trading Company.

The Partnership commenced trading operations on August 1, 2007, in accordance with the terms of its Limited Partnership Agreement (the “Limited Partnership Agreement”). Morgan Stanley Smith Barney LLC is doing business as Morgan Stanley Wealth Management (“Morgan Stanley Wealth Management”) and serves as the placement agent to the Partnership. Morgan Stanley & Co. LLC (“MS&Co.”) acts as each Trading Company’s clearing commodity broker. Each Trading Company’s over-the-counter (“OTC”) 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 OTC foreign currency forward contracts.

The financial statements of the Partnership have been prepared using the “Fund of Funds” approach and accordingly all revenue and expense information from the Trading Companies is reflected as a total net realized/change in unrealized appreciation 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 June 30, 2014 and December 31, 2013, the Partnership’s cash balances were zero.

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Trading Companies and their Trading Advisors for the Partnership at June 30, 2014, are as follows:

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 Augustus I, LLC
(“Augustus I, LLC”)	GAM International Management 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 Rotella I, LLC
(“Rotella I, LLC”)	Rotella Capital Management, Inc.
Morgan Stanley Smith Barney TT II, LLC
(“TT II, LLC”)	Transtrend B.V.

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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
GAM International Management Limited	Discretionary
Rotella Capital Management, Inc.	Systematic
Transtrend B.V.	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. Morgan Stanley Wealth Management is a principal subsidiary of MSSBH. MS&Co. and MSCG are wholly-owned subsidiaries of Morgan Stanley.

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

Units of limited partnership interest (“Units”) of the Partnership are offered in two classes in a private placement pursuant to Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). 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

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

respect to its investment in the Partnership. As of June 30, 2014 and December 31, 2013, there were no Class D Units outstanding. Class B and Class C Units are no longer being offered to new investors but continue to be offered to existing Class B and Class C investors.

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 Units are only being offered to certain individuals affiliated with Morgan Stanley at Ceres’ sole discretion. Class Z Unit holders are not subject to paying the ongoing placement agent fee.

Effective June 30, 2014, Ceres terminated the advisory agreement among the General Partner, Kaiser Trading Group Pty. Ltd. and Morgan Stanley Smith Barney Kaiser I, LLC (“Kaiser I, LLC”) pursuant to which Kaiser I, LLC traded a portion of the Trading Company’s (and, indirectly, the Partnership’s) assets in Futures Interests. Consequently, Kaiser I, LLC ceased all Futures Interests trading on behalf of the Trading Company (and, indirectly, the Partnership).

2. Related Party Transactions

Cash held by each Trading Company is on deposit in commodity brokerage accounts with Morgan Stanley. Monthly, MS&Co. pays each Trading Company interest income on 100% of its average daily equity maintained in cash in the Trading Companies’ accounts during each month at a rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate less 0.15% during such month but in no

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

event less than zero. When the effective rate is less than zero, no interest is earned. For purposes of such interest payments, daily funds do not include monies due to each Trading Company on Futures Interests that have not been received. MS&Co. will retain any excess interest not paid to the Trading Companies.

The Partnership and the Trading Companies pay Ceres or its affiliates a monthly administrative fee. The Partnership pays monthly general partner fees to Ceres. The Partnership pays ongoing placement agent fees to Morgan Stanley Wealth Management 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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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. Financial Highlights

Financial Highlights for three and six months ended June 30, 2014 and 2013 were as follows:

	Class A	Class B	Class C	Class Z

PER UNIT OPERATING PERFORMANCE:
NET ASSET VALUE,
APRIL 1, 2014:	$ 869.35	$ 898.88	$ 929.39	$ 993.52

NET OPERATING RESULTS:
Net investment loss	(7.46)	(6.58)	(5.63)	(3.52)
Net realized/unrealized gain	45.99	47.57	49.21	52.67
Net income	38.53	40.99	43.58	49.15

NET ASSET VALUE,
JUNE 30, 2014:	$ 907.88	$ 939.87	$ 972.97	$ 1,042.67
RATIOS TO AVERAGE NET ASSETS:
Net investment loss (1) (2)	-3.41%	-2.91%	-2.41%	-1.40%
Partnership expenses (1) (2)	3.41%	2.91%	2.41%	1.40%

TOTAL RETURN:	4.43%	4.56%	4.69%	4.95%

PER UNIT OPERATING PERFORMANCE:
NET ASSET VALUE,
JANUARY 1, 2014:	$ 901.98	$ 931.43	$ 961.83	$ 1,025.61

NET OPERATING RESULTS:
Net investment loss	(15.04)	(13.29)	(11.37)	(7.07)
Net realized/unrealized gain	20.94	21.73	22.51	24.13
Net income	5.90	8.44	11.14	17.06

NET ASSET VALUE,
JUNE 30, 2014:	$ 907.88	$ 939.87	$ 972.97	$ 1,042.67
RATIOS TO AVERAGE NET ASSETS:
Net investment loss (1) (2)	-3.43%	-2.93%	-2.42%	-1.41%
Partnership expenses (1) (2)	3.43%	2.93%	2.42%	1.41%

TOTAL RETURN:	0.65%	0.91%	1.16%	1.66%

(1) Annualized

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

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

	Class A	Class B	Class C	Class Z

PER UNIT OPERATING PERFORMANCE:
NET ASSET VALUE,
APRIL 1, 2013:	$ 925.39	$ 952.02	$ 979.40	$ 1,036.52

NET OPERATING RESULTS:
Net investment loss	(7.92)	(6.96)	(5.93)	(3.66)
Net realized/unrealized gain	(8.77)	(9.03)	(9.30)	(9.90)
Net loss	(16.69)	(15.99)	(15.23)	(13.56)

NET ASSET VALUE,
JUNE 30, 2013:	$ 908.70	$ 936.03	$ 964.17	$ 1,022.96
RATIOS TO AVERAGE NET ASSETS:
Net investment loss (1) (2)	-3.41%	-2.91%	-2.41%	-1.40%
Partnership expenses (1) (2)	3.41%	2.91%	2.41%	1.40%

TOTAL RETURN:	-1.80%	-1.68%	-1.56%	-1.31%

PER UNIT OPERATING PERFORMANCE:
NET ASSET VALUE,
JANUARY 1, 2013:	$ 912.87	$ 937.97	$ 963.75	$ 1,017.43

NET OPERATING RESULTS:
Net investment loss	(15.77)	(13.83)	(11.80)	(7.27)
Net realized/unrealized gain	11.60	11.89	12.22	12.80
Net income (loss)	(4.17)	(1.94)	0.42	5.53

NET ASSET VALUE,
JUNE 30, 2013:	$ 908.70	$ 936.03	$ 964.17	$ 1,022.96
RATIOS TO AVERAGE NET ASSETS:
Net investment loss (1) (2)	-3.43%	-2.92%	-2.43%	-1.41%
Partnership expenses (1) (2)	3.43%	2.92%	2.43%	1.41%

TOTAL RETURN:	-0.46%	-0.21%	0.04%	0.54%

(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,

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

generally on a daily basis, and the unrealized gains and losses on open contracts (the difference between contract trade price and market price) are reported in the Trading Companies’ Statements of Financial Condition as net unrealized gain or loss on open contracts. The resulting net change in unrealized gains and losses is reflected in the net change in unrealized trading profit (loss) from one period to the next on the Trading Companies’ Statements of Income and Expenses. The fair value of exchange-traded futures, options and forward contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period. The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) on 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 Trading Companies may buy or write put and call options through listed exchanges and the over-the-counter market. The buyer of an option has the right to purchase (in the case of a call option) or sell (in the case of a put option) a specified quantity of a specific Futures Interests on the underlying asset at a

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

specified price prior to or on a specified expiration date. The writer of an option is exposed to the risk of loss if the fair value of a Futures Interests on the underlying asset declines (in the case of a put option) or increases (in the case of a call option). The writer of an option can never profit by more than the premium paid by the buyer but can potentially lose an unlimited amount.

Premiums received/premiums paid from writing/purchasing options are recorded as liabilities/assets on the Trading Companies’ Statements of Financial Condition. The difference between the fair value of an option and the premiums received/premiums paid is treated as an unrealized gain or loss within the Statements of Income and Expenses.

The fair value of an exchange-traded contract 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 an off-exchange-traded contract is based on the fair value quoted by the counterparty.

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

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 off-exchange-traded forward currency contracts are settled upon termination of the contract. Gains and losses on off-exchange-traded forward currency options contracts are settled on an agreed-upon settlement date. However, the Trading Companies are required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Trading Companies’ accounts with the counterparty.

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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.

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.

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

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	—	3,230,113	—	3,230,113
Investment in Boronia I, LLC	—	3,164,056	—	3,164,056
Investment in Augustus I, LLC	—	2,198,315	—	2,198,315
Investment in TT II, LLC	—	2,193,627	—	2,193,627
Investment in Rotella I, LLC	—	2,147,699	—	2,147,699
Investment in Altis I, LLC	—	2,112,679	—	2,112,679
Investment in Aspect I, LLC	—	1,216,250	—	1,216,250

December 31, 2013

Assets	Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
		$		$
Investment in BHM I, LLC	—	4,348,325	—	4,348,325
Investment in TT II, LLC	—	3,143,193	—	3,143,193
Investment in Altis I, LLC	—	2,575,826	—	2,575,826
Investment in Boronia I, LLC	—	2,418,474	—	2,418,474
Investment in Augustus I, LLC	—	2,199,151	—	2,199,151
Investment in Rotella I, LLC	—	1,945,710	—	1,945,710
Investment in Kaiser I, LLC	—	1,905,973	—	1,905,973
Investment in Morgan Stanley Smith Barney WNT I, LLC (“WNT I, LLC”)	—	1,765,749	—	1,765,749
Investment in Aspect I, LLC	—	1,640,522	—	1,640,522

During the period from January 1, 2014 to June 30, 2014, and the twelve months ended December 31, 2013, 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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MERITAGE 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 June 30, 2014, the Partnership’s investment in the Trading Companies represented approximately: BHM I, LLC 19.80%; Boronia I, LLC 19.50%; TT II, LLC 13.50%; Altis I, LLC 13.00%; Augustus I, LLC 13.50%; Rotella I, LLC 13.20 %; and Aspect I, LLC 7.50% of the total investments of the Partnership, respectively.

At December 31, 2013, the Partnership’s investment in the Trading Companies represented approximately: Kaiser I, LLC, 8.70%; TT II, LLC 14.30%; Aspect I, LLC 7.50%; WNT I, LLC 8.05%; Augustus I, LLC 10.00%; BHM I, LLC 19.80%; Altis I, LLC 11.75%; Boronia I, LLC 11.00%; and Rotella I, LLC 8.90% of the total investments of the Partnership, respectively.

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The tables below represent summarized Income Statement information for the Trading Companies that the Partnership invests in for the three and six months ended June 30, 2014 and 2013, respectively, in accordance with Rule 3-09 of Regulation S-X:

For the Three Months Ended June 30, 2014	Investment Income/(Loss)	Net Investment Loss	Total Trading Results	Net Income
	$	$	$	$
BHM I, LLC	–	(1,760,772)	32,554,765	30,793,993

For the Six Months Ended June 30, 2014	Investment Income/(Loss)	Net Investment Loss	Total Trading Results	Net Income (Loss)
	$	$	$	$
TT II, LLC	–	(3,949,405)	27,119,914	23,170,509
Altis I, LLC	–	(174,279)	(987,178)	(1,161,457)
BHM I, LLC	–	(3,347,787)	48,170,301	44,822,514
Aspect I, LLC	–	(125,199)	(91,693)	(216,892)
Kaiser I, LLC	–	(868,868)	(5,469,979)	(6,338,847)
Rotella I, LLC	–	(109,742)	279,546	169,804
Boronia I, LLC	–	(2,107,035)	4,116,309	2,009,274
WNT I, LLC	–	(28,791)	(86,452)	(115,243)

For the Three Months Ended June 30, 2013	Investment Income/(Loss)	Net Investment Loss	Total Trading Results	Net Income (Loss)
	$	$	$	$
AHL I, LLC	–	(111,291)	(1,190,509)	(1,301,800)
Altis I, LLC	–	(152,370)	1,429,101	1,276,731
BHM I, LLC	–	(1,814,083)	(13,128,583)	(14,942,666)
Boronia I, LLC	–	(1,623,230)	6,619,435	4,996,205
Kaiser I, LLC	–	(1,392,739)	5,502,270	4,109,531
TT II, LLC	–	(2,781,052)	(13,700,057)	(16,481,109)

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MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

For the Six Months Ended June 30, 2013	Investment Income/(Loss)	Net Investment Loss	Total Trading Results	Net Income (Loss)
	$	$	$	$
BHM I, LLC	–	(3,643,074)	(6,889,491)	(10,532,565)
TT II, LLC	–	(5,556,211)	(8,726,889)	(14,283,100)
Altis I, LLC	–	(303,362)	2,469,672	2,166,310
AHL I, LLC	–	(258,035)	98,572	(159,463)
WNT I, LLC	–	(99,714)	487,531	387,817
Aspect I, LLC	–	(248,754)	180,720	(68,034)
Kaiser I, LLC	–	(1,913,887)	6,543,598	4,629,711
Chesapeake I, LLC	–	(83,655)	204,061	120,406
Rotella I, LLC	–	(72,525)	45,182	(27,343)
Boronia I, LLC	–	(2,408,803)	7,018,033	4,609,230
Augustus I, LLC	–	(179,786)	571,830	392,044

6. Investment Company Status

Effective January 1, 2014, the Partnership adopted Accounting Standards Update (“ASU”) 2013-08, “Financial Services — Investment 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. ASU 2013-08 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of this ASU did not have a material impact on the Partnership’s financial statements. Based on management’s assessment, the Partnership has been deemed to be an investment company since inception. It has all of the fundamental and typical characteristics of an investment company.

- 20 -

MERITAGE FUTURES FUND L.P.

NOTES TO FINANCIAL STATEMENTS (CONCLUDED)

7. Income Taxes

No provision for income taxes has been made in the accompanying financial statements, as limited partners are individually responsible for reporting income or loss based upon their respective share of the

Partnership’s revenues and expenses for income tax purposes. The Partnership files U.S. federal and state tax returns.

The guidance issued by the Financial Accounting Standards Board (the “FASB”) on income taxes clarifies the accounting for uncertainty in income taxes recognized in the Partnership's financial statements, and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken. The Partnership has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements as of June 30, 2014 and December 31, 2013. 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 2013 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.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

As of June 30, 2014, the percentage of assets allocated to each market sector was approximately as follows: Interest Rate 11.23%; Currency 36.79%; Equity 19.75%; and Commodity 32.23%.

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 Interests trading pursuant to instructions provided by the Trading Advisors. The assets are held either in 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.

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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 June 30, 2014, approximately 69.46% of the Partnership’s total investment exposure is futures contracts which are exchange-traded while approximately 30.54% 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 six months ended June 30, 2014 and 2013, and a general discussion of its trading activities during each period. It is important to note, however, that the Trading Advisors trade in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the Trading Advisors or will be profitable in the future. Consequently, the results of operations of the Partnership are difficult to discuss other than in the context of the Trading Advisors’ trading activities on behalf of the Partnership during the period in question. Past performance is no guarantee of future results.

As of June 30, 2014 and March 31, 2014, the allocations between the Trading Companies were as follows:


Trading Company	Allocation as of 6/30/2014	Allocation as of 3/31/2014

BHM I, LLC	19.80%	20.20%
Boronia I, LLC	19.50%	14.85%
TT II, LLC	13.50%	12.80%
Altis I, LLC	13.00%	12.60%
Augustus I, LLC	13.50%	10.70%
Rotella I, LLC	13.20%	9.85%
Aspect I, LLC	7.50%	8.80%
Kaiser I, LLC	–	10.20%

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

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

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

For the Three and Six Months Ended June 30, 2014

The Partnership recorded total net realized loss/change in unrealized appreciation on investments of $964,274 and expenses totaling $151,447, resulting in net income of $812,827 for the three months ended June 30, 2014. The Partnership’s net asset value per Unit by share Class is provided in the table below.

Share Class	NAV at 6/30/14	NAV at 3/31/14

A	$907.88	$869.35
B	$939.87	$898.88
C	$972.97	$929.39
Z	$1,042.67	$993.52

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During the second quarter, the Partnership posted a gain in net asset value per Unit from trading profits in stock indices, global interest rates, metals, currencies, energies, and agriculturals. The most significant gains were achieved within the global stock index sector throughout the majority of the second quarter from long European, U.S., and Asian equity index futures positions as prices increased as global economic data met expectations, geopolitical risks eased. and investors speculated that central banks’ monetary policies would remain very accommodative in the near future. Additional gains were achieved in this sector during June from long positions in U.S. equity index futures as prices advanced due to a better-than-expected non-farm U.S. employment report and dovish comments released by the U.S. Federal Reserve. Within the global interest rate sector, gains were achieved during May from long positions in European fixed income futures as prices moved higher amid the prospect of European Central Bank stimulus and an increase in German unemployment, boosting demand for the relative “safety” of government debt. In the metals markets, gains were achieved throughout the majority of the second quarter from long positions in palladium futures as prices increased after tensions between Russia and Ukraine raised concern of a possible supply disruption from Russia. Within the currency sector, gains were achieved primarily during May from short euro positions versus the U.S. dollar as the value of the euro declined after manufacturing and business confidence signaled uneven economic growth, bolstering bets on further European Central Bank stimulus. Additional gains were experienced in June from long British pound positions versus the U.S. dollar as the value of the pound increased after U.K. manufacturing output expanded and the Bank of England suggested that rates may start rising sooner than markets expected. In the energy complex, gains were achieved during June from long positions in crude oil futures as prices rallied during the first half of the month due to concern that tensions in Iraq would curtail oil exports from OPEC’s second largest oil

- 26 -

producer. Additional gains in June were recorded from long positions in gasoline futures as prices rallied after reports indicated U.S. gasoline demand was higher than previously estimated. Within the agricultural markets, gains were recorded primarily during June from long cattle futures positions as prices advanced as the U.S. cattle herd dwindled to record lows and demand for beef increased.

The Partnership recorded total net realized loss/change in unrealized appreciation on investments of $383,267 and expenses totaling $322,248, resulting in net income of $61,019 for the six months ended June 30, 2014. The Partnership’s net asset value per Unit by share Class is provided in the table below.

Share Class	NAV at 6/30/14	NAV at 12/31/13

A	$907.88	$901.98
B	$939.87	$931.43
C	$972.97	$961.83
Z	$1,042.67	$1,025.61

The Partnership recorded total realized/net change in unrealized depreciation on investments of $(221,237) and expenses totaling $211,234, resulting in a net loss of $432,471 for the three months ended June 30, 2013.

- 27 -

June from long positions in U.S. equity index futures as prices advanced due to a better-than-expected non-farm U.S. employment report and dovish comments released by the U.S. Federal Reserve. Within the global interest rate sector, gains were achieved during May from long positions in European fixed income futures as prices moved higher amid the prospect of European Central Bank stimulus and an increase in German unemployment, boosting demand for the relative “safety” of government debt. In the metals markets, gains were achieved throughout the majority of the second quarter from long positions in palladium futures as prices increased after tensions between Russia and Ukraine raised concern of a possible supply disruption from Russia. Within the currency sector, gains were achieved primarily during May from short euro positions versus the U.S. dollar as the value of the euro declined after manufacturing and business confidence signaled uneven economic growth, bolstering bets on further European Central Bank stimulus. Additional gains were experienced in June from long British pound positions versus the U.S. dollar as the value of the pound increased after U.K. manufacturing output expanded and the Bank of England suggested that rates may start rising sooner than markets expected. In the energy complex, gains were achieved during June from long positions in crude oil futures as prices rallied during the first half of the month due to concern that tensions in Iraq would curtail oil exports from OPEC’s second largest oil producer. Additional gains in June were recorded from long positions in gasoline futures as prices rallied after reports indicated U.S. gasoline demand was higher than previously estimated. Within the agricultural markets, gains were recorded primarily during June from long cattle futures positions as prices advanced as the U.S. cattle herd dwindled to record lows and demand for beef increased.

For the Three and Six Months Ended June 30, 2013

The Partnership recorded total net realized loss/net change in unrealized depreciation on investments of

- 28 -

$(221,237) and expenses totaling $211,234, resulting in a net loss of $432,471 for the three months ended June 30, 2013. The Partnership’s net asset value per Unit by share Class is provided in the table below.

Share Class	NAV at 6/30/13	NAV at 3/31/13

A	$908.70	$925.39
B	$936.03	$952.02
C	$964.17	$979.40
Z	$1,022.96	$1,036.52

During the second quarter, the Partnership posted a loss in Net Asset Value per Unit as losses in energies, interest rates, and agriculturals offset gains in metals and stock indices. Net trading results in currencies were relatively flat and had no material impact on the Partnership’s performance for the quarter. The most significant losses were incurred within the energy complex during May from long positions in natural gas futures as prices declined towards the end of the month on forecasts of mild weather and bigger-than-expected inventories in the U.S. Additional energy losses were experienced during June from short futures positions in crude oil 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. Within the global interest rate sector, losses were recorded primarily during May from long positions in U.S. and European fixed income futures as prices moved lower following a positive U.S. employment report and a rise in German sentiment. Within the agricultural complex, losses were experienced during April from short positions in corn futures as prices increased at the end of the month on speculation flooding and cold weather in the U.S. Midwest would delay the pace of planting. The Partnership’s losses for the quarter were offset by gains achieved within the metals sector throughout the majority of the quarter 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

- 29 -

and on speculation the U.S. Federal Reserve may scale back its monetary stimulus program. Within the global stock index markets, gains were experienced 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.

The Partnership recorded total net realized loss/net change in unrealized appreciation on investments of $399,240 and expenses totaling $437,260, resulting in a net loss of $38,020 for the six months ended June 30, 2013. The Partnership’s net asset value per Unit by share Class is provided in the table below.

Share Class	NAV at 6/30/13	NAV at 12/31/12

A	$908.70	$912.87
B	$936.03	$937.97
C	$964.17	$963.75
Z	$1,022.96	$1,017.43

During the first six months of the year, the Partnership recorded a loss in net asset value per Unit as losses across the energy, global interest rate, and agricultural sectors offset gains in stock indices, metals, and

currencies. The most significant losses were incurred within the energy markets during February, May, and June. 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. During May, losses were recorded from long positions in natural gas futures as prices declined towards the end of the month on forecasts of mild weather and bigger-than-expected inventories in the U.S. Additional energy losses were experienced during June from short futures positions in crude oil 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. Within the global interest

- 30 -

rate sector, losses were experienced primarily during May from long positions in U.S. and European fixed income futures as prices moved lower following a positive U.S. employment report and a rise in German sentiment. Within the agricultural complex, losses were experienced during January from short positions in corn futures as prices advanced on concern that drier weather will deplete soil moisture in South America and increase stress on crops. Additional agricultural losses were incurred during April from short positions in corn futures as prices increased at the end of the month on speculation flooding and cold weather in the U.S. Midwest would delay the pace of planting. A portion of the Partnership’s losses during the first six months of the year was 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 throughout the majority of the second quarter 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 currency markets, gains were achieved during January from short positions in the Japanese yen versus the U.S. dollar, euro, and Australian dollar as the value of the yen declined on speculation the Bank of Japan will ease monetary policy further. Additional currency gains were 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.

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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.

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.

- 32 -

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

statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “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.

- 33 -

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 of market movements far exceeding expectations in the markets traded by the Trading Companies could result in actual trading or non-trading losses far beyond the indicated VaR of each Trading Company’s experience to date (i.e., “risk of ruin”). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Trading Companies’ losses in any market sector will be limited to VaR or by the Trading Companies’ attempts to manage its market risk.

Exchange maintenance margin requirements have been used by the Trading Companies as the measure of its VaR. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95% - 99% of any one-day

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interval. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to VaR.

The Trading Companies’ Value at Risk in Different Market Sectors

As of June 30, 2014, Aspect I, LLC’s total capitalization was $10,528,637. The Partnership owned approximately 12% of Aspect I, LLC.

June 30, 2014

		% of Total
Market Sector	VaR	Capitalization

Currency	$610,102	5.79%

Interest Rate	354,501	3.37%

Equity	297,527	2.83%

Commodity	294,672	2.80%

Total	$1,556,802	14.79%

Three Months Ended June 30, 2014

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$960,539	$600,905	$767,924
Interest Rate	$439,402	$288,443	$361,748
Equity	$511,440	$291,180	$372,594
Commodity	$575,962	$253,988	$397,122

* Average of month-end VaR.

As of June 30, 2014, Augustus I, LLC’s total capitalization was $10,773,291. The Partnership owned approximately 20% of Augustus I, LLC.

- 35 -

June 30, 2014

		% of Total
Market Sector	VaR	Capitalization

Currency	$987,661	9.17%

Interest Rate	103,791	0.96%

Total	$1,091,452	10.13%

Three Months Ended June 30, 2014

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$1,236,282	$744,511	$973,305
Interest Rate	$103,791	$31,900	$50,109

* Average of month-end VaR.

As of June 30, 2014, TT II, LLC’s total capitalization was $450,904,019. The Partnership owned approximately 1% of TT II, LLC.

June 30, 2014

		% of Total
Market Sector	VaR	Capitalization

Currency	$27,654,097	6.13%

Interest Rate	11,880,550	2.63%

Equity	21,724,341	4.82%

Commodity	20,615,327	4.57%

Total	$81,874,315	18.15%

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Three Months Ended June 30, 2014

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$37,101,031	$26.453,342	$33,120,245
Interest Rate	$17,939,949	$11,214,979	$14,361,840
Equity	$24,704,696	$15,089,838	$18,625,294
Commodity	$28,357,774	$16,359,150	$24,452,861

* Average of month-end VaR.

As of June 30, 2014, BHM I, LLC’s total capitalization was $307,656,163. The Partnership owned approximately 1% of BHM I, LLC.

June 30, 2014

		% of Total
Market Sector	VaR	Capitalization

Currency	$2,695,022	0.88%

Interest Rate	279,290	0.09%

Equity	1,701,473	0.55%

Commodity	30,469,024	9.90%

Total	$35,144,809	11.42%

Three Months Ended June 30, 2014

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$3,104,822	$122,650	$2,167,849
Interest Rate	$1,084,042	$20,768	$378,044
Equity	$3,610,669	$1,439,980	$3,112,692
Commodity	$37,566,624	$19,951,586	$28,861,818

* Average of month-end VaR.

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As of June 30, 2014, Altis I, LLC’s total capitalization was $18,137,703. The Partnership owned approximately 12% of Altis I, LLC.

June 30, 2014

		% of Total
Market Sector	VaR	Capitalization

Currency	$584,948	3.23%

Interest Rate	151,069	0.83%

Equity	1,007,582	5.56%

Commodity	1,488,908	8.21%

Total	$3,232,507	17.83%

Three Months Ended June 30, 2014

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$584,948	$236,018	$359,060
Interest Rate	$460,011	$85,373	$269,173
Equity	$1,007,582	$549,877	$785,764
Commodity	$2,147,962	$1,460,608	$1,714,369

* Average of month-end VaR.

As of June 30, 2014, Boronia I, LLC’s total capitalization was $65,939,351. The Partnership owned approximately 5% of Boronia I, LLC.

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June 30, 2014

		% of Total
Market Sector	VaR	Capitalization

Currency	$7,882,371	11.95%

Interest Rate	2,011,355	3.05%

Equity	2,598,304	3.94%

Commodity	3,936,795	5.97%

Total	$16,428,825	24.91%

Three Months Ended June 30, 2014

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$11,301,501	$1,545,741	$4,379,652
Interest Rate	$4,575,274	$1,060,641	$2,198,037
Equity	$5,830,521	$1,869,301	$3,862,086
Commodity	$5,949,111	$1,782,819	$3,521,782

* Average of month-end VaR.

As of June 30, 2014, Rotella I, LLC’s total capitalization was $5,570,604. The Partnership owned approximately 39% of Rotella I, LLC.

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June 30, 2014

		% of Total
Market Sector	VaR	Capitalization

Currency	$405,949	7.29%

Interest Rate	206,358	3.70%

Equity	405,667	7.28%

Commodity	238,214	4.28%

Total	$1,256,188	22.55%

Three Months Ended June 30, 2014

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$528,702	$191,152	$362,514
Interest Rate	$363,480	$119,065	$247,678
Equity	$537,576	$207,732	$353,148
Commodity	$238,214	$100,993	$168,883

* Average of month-end VaR.

The Partnership terminated trading in Kaiser I, LLC as of June 30, 2014.

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Three Months Ended June 30, 2014

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$4,645,254	–	$1,875,622
Interest Rate	$2,833,892	–	$1,417,553
Equity	$6,328,364	–	$2,404,481
Commodity	$953,135	–	$334,052

* Average of month-end VaR.

As of December 31, 2013, Aspect I, LLC’s total capitalization was $16,561,035. The Partnership owned approximately 10% of Aspect I, LLC.

December 31, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$883,449	5.33%

Interest Rate	646,049	3.90%

Equity	558,868	3.37%

Commodity	630,023	3.80%

Total	$2,718,389	16.40%

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Twelve Months Ended December 31, 2013

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$2,193,535	$425,898	$989,413
Interest Rate	$1,417,650	$216,251	$686,416
Equity	$1,238,616	$272,249	$746,080
Commodity	$1,549,033	$598,288	$1,112,092

* Average of month-end VaR.

As of December 31, 2013, Augustus I, LLC’s total capitalization was $15,233,555. The Partnership owned approximately 14% of Augustus I, LLC.

December 31, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$1,118,984	7.35%

Total	$1,118,984	7.35%

Twelve Months Ended December 31, 2013

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$1,219,145	$51,910	$619,328
Interest Rate	$92,002	–	$15,075

* Average of month-end VaR.

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As of December 31, 2013, Kaiser I, LLC’s total capitalization was $51,718,650. The Partnership owned approximately 4% of Kaiser I, LLC.

December 31, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$713,683	1.38%

Interest Rate	611,810	1.18%

Equity	248,710	0.48%

Commodity	103,658	0.20%

Total	$1,677,861	3.24%

Twelve Months Ended December 31, 2013

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$7,336,691	$22,992	$1,488,345
Interest Rate	$4,218,857	$2,475	$1,332,205
Equity	$7,192,355	$129,192	$2,475,745
Commodity	$1,479,103	–	$433,522

* Average of month-end VaR.

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As of December 31, 2013, TT II, LLC’s total capitalization was $508,256,409. The Partnership owned approximately 1% of TT II, LLC.

December 31, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$36,018,348	7.09%

Interest Rate	9,081,535	1.79%

Equity	17,291,541	3.40%

Commodity	36,416,803	7.17%

Total	$98,808,227	19.45%

Twelve Months Ended December 31, 2013

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$37,638,813	$5,474,243	$17,624,769
Interest Rate	$25,815,930	$3,277,243	$11,818,184
Equity	$29,020,570	$6,586,655	$16,916,915
Commodity	$41,246,716	$14,327,064	$24,069,926

* Average of month-end VaR.

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As of December 31, 2013, WNT I, LLC’s total capitalization was $5,582,376. The Partnership owned approximately 32% of WNT I, LLC.

December 31, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$292,507	5.24%

Interest Rate	94,703	1.70%

Equity	288,490	5.17%

Commodity	127,264	2.28%

Total	$802,964	14.39%

Twelve Months Ended December 31, 2013

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$528,259	$210,356	$336,294
Interest Rate	$305,078	$33,697	$128,003
Equity	$482,073	$122,601	$282,874
Commodity	$272,741	$74,121	$155,722

* Average of month-end VaR.

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As of December 31, 2013, BHM I, LLC’s total capitalization was $313,607,842. The Partnership owned approximately 1% of BHM I, LLC.

December 31, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$488,620	0.16%

Interest Rate	67,027	0.02%

Equity	2,767,009	0.88%

Commodity	35,095,155	11.19%

Total	$38,417,811	12.25%

Twelve Months Ended December 31, 2013

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$7,162,892	–	$1,716,463
Interest Rate	$6,444,482	–	$1,519,739
Equity	$5,369,695	–	$1,612,129
Commodity	$42,361,561	$16,149,300	$26,558,961

* Average of month-end VaR.

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As of December 31, 2013, Altis I, LLC’s total capitalization was $27,768,357. The Partnership owned approximately 9% of Altis I, LLC.

December 31, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$585,192	2.11%

Interest Rate	795,271	2.86%

Equity	564,335	2.03%

Commodity	2,989,671	10.77%

Total	$4,934,469	17.77%

Twelve Months Ended December 31, 2013

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$1,090,904	$345,576	$728,931
Interest Rate	$1,365,410	$305,786	$821,536
Equity	$1,902,335	$192,007	$946,467
Commodity	$3,777,525	$1,764,044	$2,970,949

* Average of month-end VaR.

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As of December 31, 2013, Boronia I, LLC’s total capitalization was $65,220,505. The Partnership owned approximately 4% of Boronia I, LLC.

December 31, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$1,686,465	2.59%

Interest Rate	1,335,142	2.05%

Equity	1,905,034	2.92%

Commodity	2,706,808	4.15%

Total	$7,633,449	11.71%

Twelve Months Ended December 31, 2013

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$6,014,107	$251,044	$2,188,362
Interest Rate	$3,815,651	$258,654	$1,509,121
Equity	$5,076,611	$443,259	$2,245,443
Commodity	$4,896,991	$557,636	$3,083,483

* Average of month-end VaR.

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As of December 31, 2013, Rotella I, LLC’s total capitalization was $5,985,093. The Partnership owned approximately 33% of Rotella I, LLC.

December 31, 2013

		% of Total
Market Sector	VaR	Capitalization

Currency	$277,057	4.63%

Interest Rate	123,272	2.06%

Equity	370,860	6.20%

Commodity	182,103	3.04%

Total	$953,292	15.93%

Twelve Months Ended December 31, 2013

Market Sector	High VaR	Low VaR	Average VaR*
Currency	$400,639	$74,405	$210,890
Interest Rate	$413,332	$28,749	$161,429
Equity	$486,506	$78,582	$292,151
Commodity	$210,965	$41,841	$112,948
* 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:

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·	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.

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.

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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 and Section 21E of the Exchange Act. The Partnership’s primary market risk exposures, as well as the strategies used and to be used by Ceres and the Trading Advisors for managing such exposures, are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of

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

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

Qualitative Disclosures Regarding Means of Managing Risk Exposure

The Partnership and the Trading Advisors, separately, attempt to manage the risk of the Partnership’s open positions in essentially the same manner in all market categories traded. Ceres attempts to manage market exposure by diversifying the Partnership’s assets among different market sectors through the selection of a commodity trading advisors and by daily monitoring of its performance. In addition, the Trading Advisors establish diversification guidelines, often set in terms of the maximum margin to be committed to positions in any one market sector or market-sensitive instrument.

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Ceres monitors and controls the risk of the Partnership’s non-trading instrument, cash. Cash is the only Partnership investment directed by Ceres, rather than the Trading Advisors.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the management of Ceres, Ceres’ President (Ceres’ principal executive officer) and Chief Financial Officer (Ceres’ principal financial officer) have evaluated the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2014. 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 is 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 June 30, 2014.

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.

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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

There are no material legal proceedings pending against the Partnership nor the General Partner.

The following information supplements and amends the discussion set forth under Part I, Item 3, “Legal Proceedings” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

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. is a wholly-owned, indirect subsidiary of Morgan Stanley, a Delaware holding company. Morgan Stanley files periodic reports with the Securities and Exchange Commission (“SEC”) as required by the Exchange Act, which include current descriptions of material litigation and material proceedings and investigations, if any, by governmental and/or regulatory agencies or self-regulatory organizations concerning Morgan Stanley and its subsidiaries, including MS&Co. As a consolidated subsidiary of Morgan Stanley, MS&Co. does not file its own periodic reports with the SEC that contain descriptions of material litigation, proceedings and investigations. As a result, please refer to the “Legal Proceedings” section of Morgan Stanley’s SEC 10-K filings for 2013, 2012, 2011, 2010 and 2009.

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In addition to the matters described in those filings, in the normal course of business, each of Morgan Stanley and MS&Co. 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 legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Each of Morgan Stanley and MS&Co. is also involved, from time to time, in investigations and proceedings by governmental and/or regulatory agencies or self-regulatory organizations, certain of which may result in adverse judgments, fines or penalties. The number of these investigations and proceedings has increased in recent years with regard to many financial services institutions, including Morgan Stanley and MS&Co.

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

On December 23, 2009, the Federal Home Loan Bank of Seattle filed a complaint against MS&Co. and another defendant in the Superior Court of the State of Washington, styled Federal Home Loan Bank of Seattle v. Morgan Stanley & Co. Inc., et al. The amended complaint, filed on September 28, 2010, alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by MS&Co. was approximately $233 million. The complaint raises claims under the Washington State Securities Act and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On October 18, 2010, defendants filed a motion to

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dismiss the action. By orders dated June 23, 2011 and July 18, 2011, the court denied defendants’ omnibus motion to dismiss plaintiff’s amended complaint and on August 15, 2011, the court denied MS&Co.’s individual motion to dismiss the amended complaint. At March 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $56 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss for this action up to the difference between the $56 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs. MS&Co. 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 March 15, 2010, the Federal Home Loan Bank of San Francisco filed two complaints against MS&Co. 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 MS&Co. 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 August 11, 2011, plaintiff’s claims brought under the Securities Act of 1933, as amended, were dismissed with prejudice. The defendants filed answers to the amended complaints on October 7, 2011. On February 9, 2012, defendants’ demurrers with respect to all

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other claims were overruled. On December 20, 2013, plaintiff’s negligent misrepresentation claims were dismissed with prejudice. A bellwether trial is currently scheduled to begin in September 2014. MS&Co. is not a defendant in connection with the securitizations at issue in that trial. At March 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $309 million, and the certificates had incurred actual losses of approximately $5 million. Based on currently available information, MS&Co. believes it could incur a loss for this action up to the difference between the $309 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs. MS&Co. 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 October 15, 2010, the Federal Home Loan Bank of Chicago filed a complaint against MS&Co. 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 MS&Co. in this action was approximately $203 million. The complaint raises claims under Illinois law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On March 24, 2011, the court granted plaintiff leave to file an amended complaint. MS&Co. filed its answer on December 21, 2012. On December 13, 2013, the court entered an order dismissing all claims related to one of the securitizations at issue. At March 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $57 million, and the

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certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $57 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs. MS&Co. 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 October 25, 2010, MS&Co., certain affiliates and Pinnacle Performance Limited, a special purpose vehicle, were named as defendants in a purported class action related to securities issued by the special purpose vehicle in Singapore, commonly referred to as Pinnacle Notes. The case is styled Ge Dandong, et al. v. Pinnacle Performance Ltd., et al. and is pending in the United States District Court for the Southern District of New York (“SDNY”). An amended complaint was filed on October 22, 2012. The court denied defendants’ motion to dismiss the amended complaint on August 22, 2013 and granted class certification on October 17, 2013. On October 30, 2013, defendants filed a petition for permission to appeal the court’s decision granting class certification. On January 31, 2014, plaintiffs filed a second amended complaint. The second amended complaint alleges that the defendants engaged in a fraudulent scheme to defraud investors by structuring the Pinnacle Notes to fail and benefited subsequently from the securities’ failure. In addition, the second amended complaint alleges that the securities’ offering materials contained material misstatements or omissions regarding the securities’ underlying assets and the alleged conflicts of interest between the defendants and the investors. The second amended complaint asserts common law claims of fraud, aiding and abetting fraud, fraudulent inducement, aiding and abetting fraudulent inducement, and breach of the implied covenant of good faith and fair dealing. On March 25, 2014, the court denied defendants’ petition seeking permission to appeal the court’s decision granting class

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certification. Plaintiffs seek damages of approximately $138.7 million, rescission, punitive damages, and interest.

On April 20, 2011, the Federal Home Loan Bank of Boston filed a complaint against MS&Co. and other defendants in the Superior Court of the Commonwealth of Massachusetts styled Federal Home Loan Bank of Boston v. Ally Financial, Inc. F/K/A GMAC LLC et al. An amended complaint was filed on June 19, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $385 million. The amended complaint raises claims under the Massachusetts Uniform Securities Act, the Massachusetts Consumer Protection Act and common law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On May 26, 2011, defendants removed the case to the United States District Court for the District of Massachusetts. On October 11, 2012, defendants filed motions to dismiss the amended complaint, which was granted in part and denied in part on September 30, 2013. The defendants filed an answer to the amended complaint on December 16, 2013. At March 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $78 million, and the certificates had incurred actual losses of $1 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $78 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs. MS&Co. 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 5, 2011, Allstate Insurance Company and certain of its affiliated entities filed a complaint against MS&Co. in the Supreme Court of NY, styled Allstate Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on September 9, 2011 and alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued and/or sold to plaintiffs by MS&Co. was approximately $104 million. The complaint raises common law claims of fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation and seeks, among other things, compensatory and/or recessionary damages associated with plaintiffs’ purchases of such certificates. On March 15, 2013, the court denied in substantial part the defendants’ motion to dismiss the amended complaint, which order MS&Co. appealed on April 11, 2013. On May 3, 2013, MS&Co. filed its answer to the amended complaint. At March 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $99 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $99 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled 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 MS&Co. 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

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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 MS&Co. 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. MS&Co. filed its answer on August 17, 2012. Trial is currently scheduled to begin in May 2015. At March 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $115 million, and the certificates had incurred actual losses of approximately $1 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $115 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus post-judgment interest, fees and costs. MS&Co. may be entitled to an offset for interest received by the plaintiff prior to a judgment.

On November 4, 2011, the Federal Deposit Insurance Corporation (“FDIC”), as receiver for Franklin Bank S.S.B., filed two complaints against MS&Co. in the District Court of the State of Texas. Each was styled Federal Deposit Insurance Corporation, as Receiver for Franklin Bank S.S.B. v. Morgan Stanley & Company LLC F/K/A Morgan Stanley & Co. Inc. and alleged that MS&Co. made untrue statements and material omissions in connection with the sale to plaintiff of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly underwritten and sold to the plaintiff by MS&Co. in these cases was approximately $67 million and $35 million, respectively. The complaints each raised claims under both federal securities law and the Texas Securities Act and each seeks, among other things, compensatory damages associated with plaintiff’s

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purchase of such certificates. On March 20, 2012, MS&Co. filed answers to the complaints in both cases. On June 7, 2012, the two cases were consolidated. On January 10, 2013, MS&Co. filed a motion for summary judgment and special exceptions with respect to plaintiff’s claims. On February 6, 2013, the FDIC filed an amended consolidated complaint. On February 25, 2013, MS&Co. filed a motion for summary judgment and special exceptions, which motion was denied in substantial part on April 26, 2013. On May 3, 2013, the FDIC filed a second amended consolidated complaint. Trial is currently scheduled to begin in November 2014. At March 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $52 million, and the certificates had incurred actual losses of approximately $5 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $52 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs. MS&Co. 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 MS&Co. 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 MS&Co. was approximately $758 million. The amended complaint raised common law claims of fraud, fraudulent inducement, and aiding

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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 January 23, 2014, the parties reached an agreement in principle to settle the litigation. On April 25, 2014, the parties filed a stipulation of voluntary discontinuance of the action with prejudice.

On April 25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against MS&Co. 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 MS&Co. 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 Racketeer Influenced and Corrupt Organizations Act, and includes a claim for treble damages. On March 15, 2013, the court denied the defendants’ motion to dismiss the amended complaint. On April 26, 2013, the defendants filed an answer to the amended complaint. At March 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $636 million, and the certificates had not yet incurred actual losses.

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Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $636 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs. MS&Co. 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 February 14, 2013, Bank Hapoalim B.M. filed a complaint against MS&Co. and certain affiliates in the Supreme Court of NY, styled Bank Hapoalim B.M. v. Morgan Stanley et al. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiff 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 MS&Co. to plaintiff was approximately $141 million. The complaint alleges causes of action against MS&Co. for common law fraud, fraudulent concealment, aiding and abetting fraud, and negligent misrepresentation, and seeks, among other things, compensatory and punitive damages. On April 22, 2014, the defendants’ motion to dismiss was denied in substantial part. At March 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $76 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $76 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs.

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On September 23, 2013, plaintiffs in National Credit Union Administration Board v. Morgan Stanley & Co. Inc., et al. filed a complaint against MS&Co. and certain affiliates in the SDNY. The complaint alleges that defendants made untrue statements of material fact or omitted to state material facts in the sale to plaintiffs of certain mortgage pass-through certificates issued by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. to plaintiffs was approximately $417 million. The complaint alleges causes of action against MS&Co. for violations of Section 11 and Section 12(a)(2) of the Securities Act of 1933, as amended, violations of the Texas Securities Act, and violations of the Illinois Securities Law of 1953 and seeks, among other things, rescissionary and compensatory damages. The defendants filed a motion to dismiss the complaint on November 13, 2013. On January 22, 2014, the court granted defendants’ motion to dismiss with respect to claims arising under the Securities Act of 1933, as amended, and denied defendants’ motion to dismiss with respect to claims arising under Texas Securities Act and the Illinois Securities Law of 1953. At March 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $220 million, and the certificates had incurred actual losses of $25 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $220 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs. MS&Co. 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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Additional lawsuits containing claims similar to those described above may be filed in the future. In the course of its business, MS&Co., as a major futures commission merchant, is party to various civil actions, claims and routine regulatory investigations and proceedings that the General Partner believes do not have a material effect on the business of MS&Co. MS&Co. may establish reserves from time to time in connections with such actions.

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 June 30, 2014, was $88,691,151. Since inception, the Partnership received $570,000 in consideration from the sale of Units to the General Partner.

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

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

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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 A
April 1, 2014 – April 30, 2014	(397.992)	869.77	N/A	N/A
May 1, 2014 – May 31, 2014	(362.443)	892.90	N/A	N/A
June 1, 2014 – June 30, 2014	(367.293)	907.88	N/A	N/A
	(1,127.728)	889.62

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
April 1, 2014 – April 30, 2014	–	–	N/A	N/A
May 1, 2014 – May 31, 2014	–	–	N/A	N/A
June 1, 2014 – June 30, 2014	–	–	N/A	N/A
	–	–

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
April 1, 2014 – April 30, 2014	–	–	N/A	N/A
May 1, 2014 – May 31, 2014	–	–	N/A	N/A
June 1, 2014 – June 30, 2014	–	–	N/A	N/A
	–	–

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
April 1, 2014 – April 30, 2014	–	–	N/A	N/A
May 1, 2014 – May 31, 2014	–	–	N/A	N/A
June 1, 2014 – June 30, 2014	–	–	N/A	N/A
	–	–

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*		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 5. OTHER INFORMATION

The registrant does not have a board of directors. The registrant’s General Partner is managed by a board of directors.

Effective July 11, 2014, Ms. Alice Lonero no longer serves as Chief Financial Officer of the General Partner.

Effective July 14, 2014, Mr. Steven Ross was appointed Chief Financial Officer of the General Partner.

Steven Ross, age 43, has been Chief Financial Officer and a principal of the General Partner since July 2014. Mr. Ross has been employed by Morgan Stanley Investment Management, a financial services firm, since September 2005, where his responsibilities include serving as an Assistant Treasurer of Morgan Stanley with respect to certain investment vehicles publicly offered by Morgan Stanley. Mr. Ross is also an Executive Director of the Morgan Stanley Fund Administration Group where he is responsible for finance and accounting matters for certain private funds offered by Morgan Stanley. Before joining Morgan Stanley Investment Management, Mr. Ross was employed by JPMorgan Investor Services Co., a financial services firm, from December 1997 through September 2005, where his responsibilities included

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serving as a Vice President responsible for the accounting of certain funds sponsored by JP Morgan Chase & Co. and other large fund families serviced by JPMorgan Investor Services Co. From April 1997 to December 1997, Mr. Ross was employed by Investors Bank & Trust, a financial services firm, where his responsibilities included performing mutual fund accounting for financial services firms. Mr. Ross began his career at Putnam Investments LLC, a financial services firm, where he was responsible for providing broker services for certain funds sponsored by Putnam Investments LLC from August 1996 to April 1997. Mr. Ross received a B.S. in Accounting from Rhode Island College in May 1995.

Item 6. EXHIBITS

10.01

Alternative Investment Placement Agent Agreement, dated as Of October 1, 2014, by among the General Partner, Morgan Stanley Wealth Management and the partnerships listed on Schedule 1 thereto.

31.01

Certification of President of Ceres Managed Futures LLC, the General Partner of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02

Certification of Chief Financial Officer of Ceres Managed Futures LLC, the General Partner of the Partnership, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01

Certification of President of Ceres Managed Futures LLC, the General Partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.02

Certification of Chief Financial Officer of Ceres Managed Futures LLC, the General Partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

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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.

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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.

	Meritage Futures Fund L.P.
	(Registrant)

	By:	Ceres Managed Futures LLC
		(General Partner)

August 14, 2014	By:	/s/Steven Ross
		Steven Ross
		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

Meritage Futures Fund L.P. Reports

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