General

6 Months Ended

Jun. 30, 2011

General [Abstract]

General

1. General:

     BHM Discretionary Futures Fund L.P. (the “Partnership”) is a limited partnership organized on August 23, 2010 under the partnership laws of the State of Delaware to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests including futures contracts, options, swaps and forward contracts. The Partnership commenced trading on November 1, 2010. The commodity interests that are traded by the Partnership are volatile and involve a high degree of market risk. The Partnership is authorized to sell an unlimited number of redeemable units of limited partnership interest (“Units”) on a continuous basis.

     In 2009 Morgan Stanley and Citigroup Inc. combined certain assets of the Global Wealth Management Group of Morgan Stanley & Co. Incorporated including Demeter Management LLC (“Demeter”), the former general partner of the Partnership and the Smith Barney division of Citigroup Global Markets Inc., into a new joint venture, Morgan Stanley Smith Barney Holdings LLC (“MSSBH”). As part of that transaction, Ceres Managed Futures LLC (“Ceres”) and Demeter were contributed to Morgan Stanley Smith Barney LLC (“MSSB” or the “Placement Agent”), and each became a wholly-owned subsidiary of MSSBH.

     Effective December 1, 2010, together with the unanimous support of the Boards of Directors of Demeter and Ceres, combined the assets of Demeter and Ceres into a single commodity pool operator, Ceres (the “General Partner”). Ceres will continue to be wholly-owned by MSSBH and will act as the general partner for the Partnership.

     On November 1, 2010, the Partnership allocated substantially all of its capital to the Morgan Stanley Smith Barney BHM I LLC (the “Trading Company”), a limited liability company organized under the Delaware Limited Liability Company Law. The Trading Company was formed in order to permit accounts managed by Blenheim Capital Management LLC (“Blenheim” or the “Advisor”) using Blenheim’s Global Markets Strategy-Futures/FX program, a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the trading manager of the Trading Company. Individual and pooled accounts currently managed by the General Partner, including the Partnership, are permitted to be members of the Trading Company. The General Partner and the Advisor believe that trading through this master/feeder structure promotes efficiency and economy in the trading process.

     On February 1, 2011, the Units currently offered pursuant to the Limited Partnership Agreement are deemed “Class A Units.” The rights, liabilities, risks, and fees associated with investment in the Class A Units will not be changed. In addition, beginning on February 1, 2011, Class D Units were offered. Class A and Class D will each be referred to as a “Class” and collectively referred to as the “Classes.” The Class of Units that a Limited Partner receives upon a subscription will generally depend upon the amount invested in the Partnership, although the General Partner may determine to offer Units to investors at its discretion. Class A Units and Class D Units will be identical, except that Class D Units will be subject to a monthly ongoing placement agent fee equal to 1/12th of 0.75% (a 0.75% annual rate) of the Net Assets of Class D as of the beginning of each month, which differs from the Class A monthly ongoing placement agent fee of 1/12th of 3.0% (a 3.0% annual rate) of the net assets of Class A.

     The non-clearing broker for the Trading Company is MSSB. The clearing commodity brokers for the Trading Company are Morgan Stanley & Co. Incorporated (“MS&CO.”) and Morgan Stanley & Co. International plc (“MSIP”).

     At June 30, 2011, the Partnership owned approximately 60.0% of the Trading Company. At December 31, 2010, the Partnership owned approximately 27.4% of the Trading Company. The Partnership intends to continue to invest substantially all of its assets in the Trading Company. The performance of the Partnership is directly affected by the performance of the Trading Company. The Trading Company’s trading of futures, forwards, and options contracts, as applicable, is done primarily on U.S. and foreign commodity exchanges. The Trading Company’s Statements of Financial Condition, including Condensed Schedules of Investments and Statements of Income and Expenses and Changes in Members’ Capital are included herein.

     The General Partner and each limited partner of the Partnership (each a “Limited Partner”) share in the profits and losses of the Partnership in proportion to the amount of partnership interest owned by each except that no limited partner shall be liable for obligations of the Partnership in excess of its capital contribution and profits, if any, net of distributions.

     The accompanying financial statements are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Partnership’s financial condition at June 30, 2011 and December 31, 2010, and the results of its operations for the three and six months ended June 30, 2011. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership’s Annual Report on the Form 10 filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2010.

     The preparation of financial statements in accompanying notes in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As a result, actual results could differ from these estimates.

     Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.

     The Trading Company’s Statements of Financial Condition and Condensed Schedules of Investments as of June 30, 2011 and December 31, 2010 and Statements of Income and Expenses and Changes in Members’ Capital for the three and six months ended June 30, 2011 and 2010 are presented below:

BHM I, LLC
Statements of Financial Condition

	(Unaudited)
	June 30,			December 31,
	2011			2010
Assets:
Equity in trading account:
Unrestricted cash	$	390,909,105		$	158,507,875
Restricted cash		34,928,878			1,734,854
Total cash		425,837,983			160,242,729
Net unrealized gain (loss) on open contracts (MS&Co.)		(12,019,276	)		15,322,971
Net unrealized gain (loss) on open contracts (MSIP)		(2,501,344	)		3,077,405
Total net unrealized gain (loss) on open contracts		(14,520,620	)		18,400,376
Options purchased, (premiums paid $11,630,368 and $4,623,417, respectively)		7,861,876			6,144,949
Total trading equity		419,179,239			184,788,054
Expense reimbursements		18,153			13,347
Interest receivable (MSSB)		—			365
Contributions receivable		—			31,929,508
Total assets	$	419,197,392		$	216,731,274
Liabilities and Members’ Capital:
Liabilities:
Options written (premiums received $7,851,225 and $3,883,588, respectively)	$	5,251,498		$	3,209,454
Accrued management fees		595,892			132,313
Interest payable (MSSB)		4,895			—
Accrued administrative fees		2,722			16,453
Accrued incentive fees		—			2,684,680
Withdrawals payable		—			2,035,496
Total liabilities		5,855,007			8,078,396
Members’ Capital:
Non-Managing Members		413,342,385			208,652,878
Total members’ capital		413,342,385			208,652,878
Total liabilities and members’ capital	$	419,197,392		$	216,731,274

BHM I, LLC
Condensed Schedule of Investments
June 30, 2011
(Unaudited)

				% of
	Fair Value			Members’ Capital
Futures and Forward Contracts Purchased
Commodity	$	(9,384,859	)		(2.27	)%
Equity		685,350			0.17
Foreign currency		448,897			0.11
Interest rate		(26,010	)		(0.01	)
Total futures and forward contracts purchased		(8,276,622	)		(2.00	)
Futures and Forward Contracts Sold
Commodity		(4,299,488	)		(1.04	)
Equity		—			—
Foreign currency		—			—
Interest rate		(1,198,854	)		(0.29	)
Total futures and forward contracts sold		(5,498,342	)		(1.33	)
Unrealized currency loss		(745,656	)		(0.18	)
Net fair value	$	(14,520,620	)		(3.51	)%
Options Contracts
Options purchased on Futures Contracts	$	7,861,876			1.90	%
Options written on Futures Contracts	$	(5,251,498	)		(1.27	)%

BHM I, LLC
Condensed Schedule of Investments
December 31, 2010

				% of
	Fair Value			Members’ Capital
Futures and Forward Contracts Purchased
Commodity	$	22,721,930			10.89	%*
Equity		3,128			—
Foreign currency		374,853			0.18
Interest rate		185,208			0.09
Total futures and forward contracts purchased		23,285,119			11.16
Futures and Forward Contracts Sold
Commodity		(4,367,221	)		(2.10	)
Foreign currency		(148,064	)		(0.07	)
Interest rate		368,241			0.18
Total futures and forward contracts sold		(4,147,044	)		(1.99	)
Unrealized currency loss		(737,699	)		(0.35	)
Net fair value	$	18,400,376			8.82	%
Options Contracts
Options purchased on Futures Contracts	$	6,144,949			2.95	%
Options written on Futures Contracts	$	(3,209,454	)		(1.54	)%

* No single contract’s value exceeds 5% of the Member’s Capital.

BHM I, LLC
Statements of Income and Expenses and Changes in Members’ Capital
(Unaudited)

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
Investment income:
Interest income (MSSB)	$	(9,126	)	$	(3,362	)	$	(8,477	)	$	(6,150	)
Expenses:
Management fees		1,529,091			222,654			2,334,070			441,348
Brokerage, clearing and transaction fees		207,448			130,462			365,637			229,425
Administrative fees		22,583			38,965			78,003			77,236
Incentive fees		—			—			245,858			—
Total expenses		1,759,122			392,081			3,023,568			748,009
Expense reimbursements		(43,815	)		(84,582	)		(101,438	)		(153,257	)
Net expenses		1,715,307			307,499			2,922,130			594,752
Net investment loss		(1,724,433	)		(310,861	)		(2,930,607	)		(600,902	)
Trading results
Trading profit (loss):
Realized		(12,543,734	)		(5,056,601	)		11,255,819			6,042,823
Net change in unrealized		(16,698,641	)		(7,831,734	)		(36,285,427	)		(23,618,539	)
Total trading results	$	(29,242,375	)	$	(12,888,335	)	$	(25,029,608	)	$	(17,575,716	)
Net loss	$	(30,966,808	)	$	(13,199,196	)	$	(27,960,215	)	$	(18,176,618	)
Net loss allocation
Non-managing members	$	(30,966,808	)	$	(13,199,196	)	$	(27,960,215	)	$	(18,176,618	)

	Managing		Non-Managing
	Member		Members			Total
Members’ Capital, December 31, 2010	$	—	$	208,652,878		$	208,652,878
Capital contributions		—		243,902,714			243,902,714
Net loss		—		(27,960,215	)		(27,960,215	)
Capital withdrawals		—		(11,252,992	)		(11,252,992	)
Members’ Capital, June 30, 2011		—		413,342,385			413,342,385
Members’ Capital, December 31, 2009		—		154,003,687			154,003,687
Capital contributions		—		9,401,868			9,401,868
Net loss		—		(18,176,618	)		(18,176,618	)
Capital withdrawals		—		(23,598,526	)		(23,598,526	)
Members’ Capital, June 30, 2010	$	—	$	121,630,411		$	121,630,411