Attached files
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EX-31.2 - EX-31.2 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | y04781exv31w2.htm |
EX-32.2 - EX-32.2 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | y04781exv32w2.htm |
EX-31.1 - EX-31.1 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | y04781exv31w1.htm |
EX-32.1 - EX-32.1 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | y04781exv32w1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended March 31, 2011
OR ( ) 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 000-22491
DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II
New York | 13-3769020 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
c/o Ceres Managed Futures LLC
522 Fifth Avenue 14th Floor
New York, New York 10036
(Address of principal executive offices) (Zip Code)
522 Fifth Avenue 14th Floor
New York, New York 10036
(212) 296-1999
(Registrants telephone number, including area code)
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
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 No
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. (Check one):
Large accelerated filer | Accelerated filer | Non-accelerated filer X | Smaller reporting company | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes No X
As of
April 30, 2011, 15,393.9812 Limited Partnership Redeemable Units were outstanding.
DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II
FORM 10-Q
INDEX
Page | |||||||
Number | |||||||
Financial Statements: | |||||||
Statements of
Financial Condition at March 31, 2011 (unaudited) and December 31, 2010 |
3 | ||||||
Condensed Schedules of
Investments at March 31, 2011 (unaudited) and December 31, 2010 |
45 | ||||||
Statements of Income and Expenses and Changes in Partners Capital for the three months ended March 31, 2011 and 2010 (unaudited) |
6 | ||||||
Notes to Financial Statements (unaudited) |
717 | ||||||
Managements Discussion and Analysis of Financial Condition and Results of Operations |
1820 | ||||||
Quantitative and Qualitative Disclosures about Market Risk |
2125 | ||||||
Controls and Procedures | 26 | ||||||
2732 | |||||||
Exhibits Exhibit 31.1 Certification Exhibit 31.2 Certification Exhibit 32.1 Certification Exhibit 32.2 Certification |
2
PART I
Item 1. Financial Statements
Diversified Multi-Advisor Futures Fund L.P. II
Statements of Financial Condition
Statements of Financial Condition
(Unaudited) | ||||||||
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Assets: |
||||||||
Investment in Funds, at fair value |
$ | 18,479,900 | $ | 19,030,434 | ||||
Equity in trading account: |
||||||||
Cash |
5,963,824 | 5,731,113 | ||||||
Cash margin |
1,057,200 | 1,224,258 | ||||||
Net unrealized appreciation on open futures contracts |
334,446 | 240,495 | ||||||
25,835,370 | 26,226,300 | |||||||
Interest receivable |
287 | 463 | ||||||
Total assets |
$ | 25,835,657 | $ | 26,226,763 | ||||
Liabilities and Partners Capital: |
||||||||
Liabilities: |
||||||||
Net unrealized depreciation on open forward contracts |
$ | 12,486 | $ | | ||||
Accrued expenses: |
||||||||
Brokerage fees |
129,116 | 131,134 | ||||||
Management fees |
42,622 | 43,327 | ||||||
Other |
120,764 | 99,561 | ||||||
Redemptions payable |
216,381 | 203,384 | ||||||
Total liabilities |
521,369 | 477,406 | ||||||
Partners Capital: |
||||||||
General Partner, 196.3844 unit equivalents at March 31, 2011 and December 31, 2010 |
312,939 | 311,546 | ||||||
Limited Partners, 15,689.5694 and 16,034.8072 Redeemable Units outstanding at
March 31, 2011 and December 31, 2010, respectively |
25,001,349 | 25,437,811 | ||||||
Total partners capital |
25,314,288 | 25,749,357 | ||||||
Total liabilities and partners capital |
$ | 25,835,657 | $ | 26,226,763 | ||||
Net asset value per unit |
$ | 1,593.50 | $ | 1,586.41 | ||||
See accompanying notes to financial statements.
3
Diversified Multi-Advisor Futures Fund L.P. II
Condensed Schedule of Investments
March 31, 2011
(Unaudited)
Condensed Schedule of Investments
March 31, 2011
(Unaudited)
Number of | % of Partners | |||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures
Contracts Purchased |
||||||||||||
Currencies |
165 | 221,089 | 0.87 | % | ||||||||
Energy |
10 | 13,750 | 0.06 | |||||||||
Grains |
12 | 19,592 | 0.08 | |||||||||
Indices |
46 | 27,851 | 0.11 | |||||||||
Interest Rates Non-U.S. |
130 | (11,533 | ) | (0.04 | ) | |||||||
Interest Rates U.S. |
64 | (12,030 | ) | (0.05 | ) | |||||||
Livestock |
1 | 3,550 | 0.01 | |||||||||
Metals |
8 | 26,070 | 0.10 | |||||||||
Softs |
3 | 458 | 0.00 | * | ||||||||
Total futures contracts purchased |
288,797 | 1.14 | ||||||||||
Futures
Contracts Sold |
||||||||||||
Currencies |
15 | 46,387 | 0.18 | |||||||||
Grains |
3 | (2,750 | ) | (0.01 | ) | |||||||
Indices |
1 | (416 | ) | 0.00 | * | |||||||
Interest
Rates Non-U.S. |
17 | 3,228 | 0.01 | |||||||||
Metals |
1 | (800 | ) | (0.00 | )* | |||||||
Total futures contracts sold |
45,649 | 0.18 | ||||||||||
Unrealized
Appreciation on Open Forward Contracts |
||||||||||||
Metals |
56 | 185,411 | 0.73 | |||||||||
Total unrealized appreciation on open forward contracts |
185,411 | 0.73 | ||||||||||
Unrealized
Depreciation on Open Forward Contracts |
||||||||||||
Metals |
54 | (197,897 | ) | (0.78 | ) | |||||||
Total unrealized depreciation on open forward contracts |
(197,897 | ) | (0.78 | ) | ||||||||
Investment in
Funds |
||||||||||||
CMF Willowbridge Argo Master Fund L.P. |
3,872,923 | 15.30 | ||||||||||
CMF Graham Capital Master Fund L.P. |
4,771,880 | 18.85 | ||||||||||
CMF Eckhardt Master Fund L.P. |
6,708,293 | 26.50 | ||||||||||
CMF SandRidge Master Fund L.P. |
3,126,804 | 12.35 | ||||||||||
Total
investment in Funds |
18,479,900 | 73.00 | ||||||||||
Net fair value |
$ | 18,801,860 | 74.27 | % | ||||||||
* | Due to rounding. |
See accompanying notes to financial statements.
4
Diversified Multi-Advisor Futures Fund L.P. II
Condensed Schedule of Investments
December 31, 2010
Condensed Schedule of Investments
December 31, 2010
Number of | % of Partners | |||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased |
||||||||||||
Currencies |
79 | $ | 206,190 | 0.80 | % | |||||||
Energy |
3 | 5,317 | 0.02 | |||||||||
Grains |
8 | 14,281 | 0.05 | |||||||||
Livestock |
1 | 280 | 0.00 | * | ||||||||
Indices |
194 | (36,833 | ) | (0.14 | ) | |||||||
Interest Rates Non-U.S. |
81 | 19,565 | 0.08 | |||||||||
Interest Rates U.S. |
69 | 45,789 | 0.18 | |||||||||
Metals |
4 | 35,295 | 0.14 | |||||||||
Softs |
1 | 525 | 0.00 | * | ||||||||
Total futures contracts purchased |
290,409 | 1.13 | ||||||||||
Futures Contracts Sold |
||||||||||||
Currencies |
30 | (47,113 | ) | (0.19 | ) | |||||||
Energy |
1 | (2,251 | ) | (0.01 | ) | |||||||
Indices |
1 | (550 | ) | (0.00 | ) | |||||||
Total futures contracts sold |
(49,914 | ) | (0.20 | ) | ||||||||
Investment in Funds |
||||||||||||
CMF Willowbridge Argo Master Fund L.P. |
4,427,857 | 17.20 | ||||||||||
CMF Graham Capital Master Fund L.P. |
5,410,815 | 21.01 | ||||||||||
CMF Eckhardt Master Fund L.P. |
5,913,996 | 22.97 | ||||||||||
CMF SandRidge Master Fund L.P. |
3,277,766 | 12.73 | ||||||||||
Total investment in Funds |
19,030,434 | 73.91 | ||||||||||
Net fair value |
$ | 19,270,929 | 74.84 | % | ||||||||
* | Due to rounding. |
See accompanying notes to financial statements.
5
Diversified Multi-Advisor Futures Fund L.P. II
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Investment Income: |
||||||||
Interest income |
$ | 1,369 | $ | 1,146 | ||||
Interest income from investment in Funds |
3,603 | 2,447 | ||||||
Total
investment income (loss) |
4,972 | 3,593 | ||||||
Expenses: |
||||||||
Brokerage fees including clearing fees |
433,320 | 512,868 | ||||||
Management fees |
128,398 | 149,229 | ||||||
Other |
42,993 | 45,977 | ||||||
Total expenses |
604,711 | 708,074 | ||||||
Net investment income (loss) |
(599,739 | ) | (704,481 | ) | ||||
Trading
Results: |
||||||||
Net gains (losses) on trading of commodity interests and investment in Funds: |
||||||||
Net realized gains (losses) on closed contracts |
448,157 | 175,407 | ||||||
Net realized gains (losses) on investment in Funds |
684,039 | (951,523 | ) | |||||
Change in net unrealized gains (losses) on open contracts |
81,465 | 53,756 | ||||||
Change in net unrealized gains (losses) on investments in Funds |
(499,270 | ) | (172,315 | ) | ||||
Total trading results |
714,391 | (894,675 | ) | |||||
Net income (loss) |
114,652 | (1,599,156 | ) | |||||
Redemptions General Partner |
| (125,000 | ) | |||||
Redemptions Limited Partners |
(549,721 | ) | (868,843 | ) | ||||
Net increase (decrease) in Partners Capital |
(435,069 | ) | (2,592,999 | ) | ||||
Partners Capital, beginning of period |
25,749,357 | 31,924,681 | ||||||
Partners Capital, end of period |
$ | 25,314,288 | $ | 29,331,682 | ||||
Net asset value per unit (15,885.9538 and 17,900.1413 units outstanding at
March 31, 2011 and 2010, respectively) |
$ | 1,593.50 | $ | 1,638.63 | ||||
Net income (loss) per unit* |
$ | 7.09 | $ | (85.94 | ) | |||
Weighted average units outstanding |
16,135.8789 | 18,337.5392 | ||||||
* | Based on change in net asset value per unit. |
See accompanying notes to financial statements.
6
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2011
(Unaudited)
Notes to Financial Statements
March 31, 2011
(Unaudited)
1. General:
Diversified Multi-Advisor Futures Fund L.P. II (the Partnership) is a limited partnership
organized on May 10, 1994 under the partnership laws of the State of New York 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 sectors traded include
currencies, energy, grains, indices, metals, softs, livestock and U.S. and non-U.S. interest rates.
The commodity interests that are traded by the Partnership and the Funds (as defined in Note 5
Investment in Funds) are volatile and involve a high degree of market risk. The
Partnership was authorized to sell 100,000 redeemable units of limited partnership interest
(Redeemable Units) during its initial offering period. The Partnership no longer offers
Redeemable Units for sale.
Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner
(the General Partner) and commodity pool operator of the Partnership. The General Partner is
wholly owned by Morgan Stanley Smith Barney Holdings LLC (MSSB Holdings). Morgan Stanley,
indirectly through various subsidiaries, owns a majority equity interest in MSSB Holdings.
Citigroup Global Markets Inc. (CGM), the commodity broker and a selling agent for the
Partnership, owns a minority equity interest in MSSB Holdings. Citigroup Inc. (Citigroup),
indirectly through various subsidiaries, wholly owns CGM. Prior to July 31, 2010, the date as of
which MSSB Holdings became its owner, the General Partner was wholly owned by Citigroup Financial
Products Inc., a wholly owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner
of which is Citigroup. As of March 31, 2011, all trading decisions
for the Partnership are made by the Advisors (defined below).
As of March 31, 2011, all trading decisions are made for the Partnership by Capital Fund
Management S.A. (CFM), Graham Capital Management L.P. (Graham), Willowbridge Associates Inc.
(Willowbridge), Eckhardt Trading Company (Eckhardt) and SandRidge Capital L.P. (SandRidge)
(each an Advisor and collectively, the Advisors), each of which is a registered commodity
trading advisor. Each Advisor is allocated a portion of the Partnerships assets to manage. The
Partnership invests the portion of its assets allocated to CFM directly, whereas the Partnership
invests the portion of its assets allocated to each of the other Advisors indirectly through
investments in master funds.
The General Partner and each 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 their initial
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 Partnerships financial condition at March 31, 2011 and
December 31, 2010, and the results of its
operations and changes in partners capital for the three months ended March 31, 2011 and 2010.
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 Partnerships annual
report on Form 10-K filed with the Securities and Exchange Commission (the SEC) for the year
ended December 31, 2010.
The preparation of financial statements and 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, income and
expenses and related disclosures of contingent assets and liabilities in the financial statements
and accompanying notes. In making these estimates and assumptions, management has considered the
effects, if any, of events occurring after the date of the Partnerships Statements of Financial
Condition through the date the financial statements were filed. 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.
7
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2011
(Unaudited)
Notes to Financial Statements
March 31, 2011
(Unaudited)
2. Financial Highlights:
Changes in net asset value per unit for the three months ended March 31, 2011 and
2010 were as follows:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net realized and unrealized gains (losses)* |
$ | 17.41 | $ | (75.49 | ) | |||
Interest income |
0.30 | 0.19 | ||||||
Expenses ** |
(10.62 | ) | (10.64 | ) | ||||
Increase (decrease) for the period |
7.09 | (85.94 | ) | |||||
Net asset value per unit, beginning of period |
1,586.41 | 1,724.57 | ||||||
Net asset value per unit, end of period |
$ | 1,593.50 | $ | 1,638.63 | ||||
* | Includes brokerage fees. | |
** | Excludes brokerage fees. |
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Ratio to average net assets:*** |
||||||||
Net investment income (loss) before incentive fees**** |
(9.5 | )% | (9.5 | )% | ||||
Operating expenses |
9.6 | % | 9.6 | % | ||||
Incentive fees |
| % | | % | ||||
Total expenses |
9.6 | % | 9.6 | % | ||||
Total return: |
||||||||
Total return before incentive fees |
0.4 | % | (5.0 | )% | ||||
Incentive fees |
| % | | % | ||||
Total return after incentive fees |
0.4 | % | (5.0 | )% | ||||
*** | Annualized (other than incentive fees). | |
**** | Interest income less total expenses. | |
***** | Due to rounding. |
The above ratios may vary for individual investors based on the timing of capital transactions
during the period. Additionally, these ratios are calculated for the limited partner class using
the limited partners share of income, expenses and average net assets.
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a variety of commodity
interests, including derivative financial instruments and derivative commodity instruments.
The Partnerships investments are in other Funds which trade these
instruments.
The
results of the Partnerships trading activities are shown in the Statements of Income and Expenses
and Changes in Partners Capital.
The
customer agreements between the Partnership and CGM and the Funds and
CGM give the
Partnership and the Funds the
legal right to net unrealized gains and losses on open futures
contracts and open forward contracts. The Partnership and the Funds
net, for financial reporting purposes, the unrealized gains and
losses on open futures and on open forward contracts
on the Statements of Financial Condition.
All of the commodity interests owned by the Partnership are held for trading purposes. All of the
commodity interests owned by the Funds are held for trading purposes.
The monthly average number of futures
contracts traded directly by the Partnership during the three months ended March 31, 2011 and 2010
were 549 and 676, respectively. The monthly average number of metals
forward contracts traded during the three months ended March 31, 2011
was 110. There were no metals forward contracts traded during the
three months ended March 31, 2010.
Brokerage fees are calculated as a percentage of the Partnerships adjusted net asset value on
the last day of each month and are
8
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2011
(Unaudited)
Notes to Financial Statements
March 31, 2011
(Unaudited)
affected by trading performance and redemptions.
The following tables indicate the gross fair values of derivative instruments of futures
and forward contracts traded directly by the Partnership as separate assets and liabilities as of March 31,
2011 and December 31, 2010.
March 31, 2011 | ||||
Assets |
||||
Futures Contracts |
||||
Currencies |
$ | 272,520 | ||
Energy |
13,820 | |||
Grains |
22,129 | |||
Indices |
29,685 | |||
Interest Rates U.S. |
453 | |||
Interest Rates Non-U.S. |
11,084 | |||
Livestock |
3,550 | |||
Metals |
26,070 | |||
Softs |
4,525 | |||
Total unrealized appreciation on open futures contracts |
$ | 383,836 | ||
Liabilities |
||||
Futures Contracts |
||||
Currencies |
$ | (5,044 | ) | |
Energy |
(70 | ) | ||
Grains |
(5,287 | ) | ||
Indices |
(2,250 | ) | ||
Interest Rates U.S. |
(12,483 | ) | ||
Interest Rates Non-U.S. |
(19,389 | ) | ||
Metals |
(800 | ) | ||
Softs |
(4,067 | ) | ||
Total unrealized depreciation on open futures contracts |
$ | (49,390 | ) | |
Net unrealized depreciation on open futures contracts |
$ | 334,446 | * | |
March 31, 2011 | ||||
Assets |
||||
Forward Contracts |
||||
Metals |
$ | 185,411 | ||
Total unrealized appreciation on open forwards contracts |
$ | 185,411 | ||
Liabilities |
||||
Forward Contracts |
||||
Metals |
$ | (197,897 | ) | |
Total unrealized depreciation on open forwards contracts |
$ | (197,897 | ) | |
Net unrealized depreciation on open forwards contracts |
$ | (12,486 | )** | |
* | This amount is in Net unrealized appreciation on open futures contracts on the Statements of Financial Condition. | |
** | This amount is in Net unrealized depreciation on open forward contracts on the Statements of Financial Condition. |
December 31, 2010 | ||||
Assets |
||||
Futures
Contracts |
||||
Currencies |
$ | 206,190 | ||
Energy |
5,317 | |||
Grains |
14,281 | |||
Indices |
19,159 | |||
Interest Rates U.S. |
45,789 | |||
Interest Rates Non-U.S. |
22,310 | |||
Livestock |
280 | |||
Metals. |
35,295 | |||
Softs. |
525 | |||
Total unrealized appreciation on open futures contracts |
$ | 349,146 | ||
Liabilities |
||||
Futures Contracts |
||||
Currencies |
$ | (47,113 | ) | |
Energy |
(2,251 | ) | ||
9
December 31, 2010 | ||||
Indices |
(56,542 | ) | ||
Interest Rates Non-U.S. |
(2,745 | ) | ||
Total unrealized depreciation on open futures contracts |
$ | (108,651 | ) | |
Net unrealized appreciation on open futures contracts |
$ | 240,495 | * | |
| This amount is in Net unrealized appreciation on open futures contracts on the Statements of Financial Condition. |
10
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2011
(Unaudited)
Notes to Financial Statements
March 31, 2011
(Unaudited)
The
following tables indicate the trading gains and losses, by market sector, on derivative
instruments traded directly by the Partnership for the three months ended March 31, 2011 and 2010.
Three Months Ended | Three Months Ended | |||||||
March 31, 2011 | March 31, 2010 | |||||||
Gain (loss) from | Gain (loss) from | |||||||
Sector | trading | trading | ||||||
Currencies |
$ | 295,759 | $ | (150,702 | ) | |||
Energy |
29,245 | 38,004 | ||||||
Grains |
12,061 | (29,731 | ) | |||||
Indices |
255,466 | (52,095 | ) | |||||
Interest Rates U.S. |
109,295 | 245,284 | ||||||
Interest Rates Non-U.S. |
(253,036 | ) | 225,149 | |||||
Livestock |
(3,700 | ) | (4,630 | ) | ||||
Softs |
(17,962 | ) | (13,656 | ) | ||||
Metals |
102,494 | (28,460 | ) | |||||
Total |
$ | 529,622 | $ | 229,163 | ||||
4. Fair Value Measurements:
Partnerships
and the Funds Investments. All commodity interests (including derivative
financial instruments and derivative commodity instruments) are held for trading purposes. The
commodity interests are recorded on trade date and open contracts are recorded at fair value (as
described below) at the measurement date. Investments in commodity interests denominated in foreign
currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement
date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on
open contracts are included as a component of equity in trading account on the Statements of
Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses
from the preceding period are reported in the Statements of Income and Expenses and Changes in
Partners Capital.
Partnerships
and the Funds Fair Value Measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date current market conditions.
The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable
inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its
entirety falls shall be determined based on the lowest level input that is significant to the fair value
measurement in its entirety. Management has concluded that based on available information in the marketplace,
the Partnerships and the Funds Level 1 assets and liabilities are actively traded.
GAAP also requires the
need to use judgment in determining if a formerly active market has become inactive and in determining fair
values when the market has become inactive. Management has concluded that based on available information in
the marketplace, there has not been a significant decrease in the volume and level of activity in the
Partnerships and the Funds Level 2 assets and liabilities.
The Partnership and
the Funds will separately present purchases, sales, issuances, and settlements in its reconciliation of
Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis),
and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used
to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy
as required under GAAP.
The
Partnership and the Funds consider prices for exchange-traded commodity futures, forwards
and options contracts to be based on unadjusted quoted prices in active markets for identical
assets (Level 1). The values of non-exchange-traded forwards, swaps and certain options contracts
for which market quotations are not readily available are priced by broker-dealers who derive fair
values for those assets from observable inputs (Level 2). Investments in Funds (other commodity
pools) where there are no other rights or obligations inherent within the ownership interest held
by the Partnership are priced based on the end of the day net asset value (Level 2). The value of
the Partnerships investments in Funds reflects its proportional interest in the Funds. As of and
for the periods ended March 31, 2011 and December 31, 2010, the Partnership and the Funds did not
hold any derivative instruments that are priced at fair value using unobservable inputs through the
application of managements assumptions and internal valuation pricing models (Level 3).
11
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2011
(Unaudited)
Notes to Financial Statements
March 31, 2011
(Unaudited)
Quoted Prices in | Significant | |||||||||||||||
Active Markets for | Significant Other | Unobservable | ||||||||||||||
Identical Assets | Observable Inputs | Inputs | ||||||||||||||
3/31/2011 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Investment in Funds |
$ | 18,479,900 | $ | | $ | 18,479,900 | $ | | ||||||||
Futures |
383,836 | 383,836 | | | ||||||||||||
Forwards |
185,411 | 185,411 | | | ||||||||||||
Total Assets |
19,049,147 | 569,247 | 18,479,900 | | ||||||||||||
Liabilities |
||||||||||||||||
Futures |
49,390 | 49,390 | | | ||||||||||||
Forwards |
197,897 | 197,897 | | | ||||||||||||
Total Liabilities |
247,287 | 247,287 | | | ||||||||||||
Net fair value |
$ | 18,801,860 | $ | 321,960 | $ | 18,479,900 | $ | | ||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets for | Significant Other | Unobservable | ||||||||||||||
Identical Assets | Observable Inputs | Inputs | ||||||||||||||
12/31/2010* | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Investment in Funds |
$ | 19,030,434 | $ | | $ | 19,030,434 | $ | | ||||||||
Futures |
349,146 | 349,146 | | | ||||||||||||
Total Assets |
19,379,580 | 349,146 | 19,030,434 | | ||||||||||||
Liabilities |
||||||||||||||||
Futures |
108,651 | 108,651 | | | ||||||||||||
Net fair value |
$ | 19,270,929 | $ | 240,495 | $ | 19,030,434 | $ | | ||||||||
* | The amounts have been reclassified from the December 31, 2010 prior year financial statements to conform to current year presentation based on new fair value guidance. |
5. Investment in Funds:
The assets allocated to CFM for trading are invested directly pursuant to CFMs Discus (1.5x
Leverage) Program, a proprietary, systematic trading system.
On July 1, 2005, the assets allocated to Willowbridge for trading were invested in CMF
Willowbridge Argo Master Fund L.P. (Willowbridge Master), a limited partnership organized under
the partnership laws of the State of New York. The Partnership purchased 10,980.9796 units of
Willowbridge Master with cash equal to $9,895,326 and a contribution of open commodity futures and
forward positions with a fair value of $1,085,654. Willowbridge Master was formed in order to
permit commodity pools managed now or in the future by Willowbridge
using its Argo
Trading System, a proprietary, systematic trading system, to invest together in one trading
vehicle. The General Partner is also the general partner of Willowbridge Master. Individual and
pooled accounts currently managed by Willowbridge, including the Partnership, are permitted to be
limited partners of Willowbridge Master. The General Partner and Willowbridge believe that trading
through this structure should promote efficiency and economy in the trading process.
On April 1, 2006, the assets allocated to Graham for trading were invested in CMF Graham
Capital Master Fund L.P. (Graham Master), a limited partnership organized under the partnership
laws of the State of New York. The Partnership purchased 11,192.9908 units of Graham Master with
cash equal to $11,192,991. Graham Master was formed in order to permit commodity pools managed now or in
the future by Graham using its K4D-15V Program, a proprietary, systematic trading system, to
invest together in one trading vehicle. The General Partner is also the general partner of Graham
Master. Individual and pooled accounts currently managed by Graham, including the Partnership, are
permitted to be limited partners of Graham Master. The General Partner and Graham believe that
trading through this structure should promote efficiency and economy in the trading process.
On April 1, 2008, the assets allocated to Eckhardt for trading were invested in CMF Eckhardt
Master Fund L.P. (Eckhardt Master), a limited partnership organized under the partnership laws of
the State of New York. The Partnership purchased 7,000.0000 units of
Eckhardt Master with cash equal to
$7,000,000. Eckhardt Master was formed in order to permit commodity pools managed now or
in the future by Eckhardt using its Standard Program, a proprietary, systematic trading
system, to invest together in one
12
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2011
(Unaudited)
Notes to Financial Statements
March 31, 2011
(Unaudited)
trading vehicle. The General Partner is also the general partner
of Eckhardt Master. Individual and pooled accounts currently managed by Eckhardt, including the
Partnership, are permitted to be limited partners of Eckhardt Master. The General Partner and
Eckhardt believe that trading through this structure should promote efficiency and economy in the
trading process.
On
June 1, 2009, the assets allocated to SandRidge for trading were in invested in the CMF
SandRidge Master Fund L.P. (SandRidge Master), a limited partnership organized under the
partnership laws of the State of New York. The Partnership purchased 2,086.0213 units of SandRidge
Master with cash equal to $4,288,986. SandRidge Master was formed in order to permit commodity pools
managed now or in the future by SandRidge using its Energy Program, a proprietary,
discretionary trading system, to invest together in one trading vehicle. The General Partner is
also the general partner of SandRidge Master. Individual and pooled accounts currently managed by
SandRidge, including the Partnership, are permitted to be limited partners of SandRidge Master. The
General Partner and SandRidge believe that trading through this structure should promote efficiency
and economy in the trading process.
The General Partner is not aware of any material changes to the trading programs discussed
above during the fiscal quarter ended March 31, 2011.
Willowbridge Masters, Graham Masters, Eckhardt Masters and SandRidge Masters
(collectively, the Funds) and the Partnerships trading of futures, forwards, swaps and options contracts, if
applicable, on commodities is done primarily on United States of America and foreign commodity
exchanges. The Funds and the Partnership engage in such trading through a commodity brokerage account maintained with
CGM.
A limited partner may withdraw all or part of their capital contribution and undistributed
profits, if any, from the Funds in multiples of the net asset value per Redeemable Unit as of the
end of any day (the Redemption Date) after a request for redemption has been made to the general
partner at least 3 days in advance of the Redemption Date. The units are classified as a liability
when the limited partner elects to redeem and informs the Funds.
Management and incentive fees are charged at the Partnership level. All exchange, clearing,
user, give-up, floor brokerage and National Futures Association
fees (collectively the clearing fees) are borne by the
Partnership directly and through its investment in the Funds. All other fees including CGMs direct
brokerage fees are charged at the Partnership level.
As
of March 31, 2011, the Partnership owned approximately 2.3%, 3.0%, 26.0%, and 0.8%, of
Willowbridge Master, Graham Master, Eckhardt Master and SandRidge Master, respectively. As of
December 31, 2010, the Partnership owned approximately 2.1%,
3.2%, 25.0% and 0.6%, of Willowbridge
Master, Graham Master, Eckhardt Master and SandRidge Master, respectively. It is the Partnerships
intention to continue to invest in the Funds. The performance of the Partnership is directly
affected by the performance of the Funds. Expenses to investors as a result of the investment in
the Funds are approximately the same and redemption rights are not affected.
Summarized information reflecting the total assets, liabilities and capital of the Funds is
shown in the following tables.
March 31, 2011 | ||||||||||||
Total Assets | Total Liabilities | Total Capital | ||||||||||
Willowbridge Master |
$ | 168,695,333 | $ | 80,498 | $ | 168,614,835 | ||||||
Graham Master |
158,542,504 | 335,674 | 158,206,830 | |||||||||
Eckhardt Master |
25,991,860 | 239,967 | 25,751,893 | |||||||||
SandRidge Master |
417,397,881 | 39,202,100 | 378,195,781 | |||||||||
Total |
$ | 770,627,578 | $ | 39,858,239 | $ | 730,769,339 | ||||||
December 31, 2010 | ||||||||||||
Total Assets | Total Liabilities | Total Capital | ||||||||||
Willowbridge Master |
$ | 216,360,362 | $ | 61,729 | $ | 216,298,633 | ||||||
Graham Master |
168,973,503 | 48,832 | 168,924,671 | |||||||||
Eckhardt Master |
23,748,773 | 62,448 | 23,686,325 | |||||||||
SandRidge Master |
581,631,311 | 52,896,054 | 528,735,257 | |||||||||
Total |
$ | 990,713,949 | $ | 53,069,063 | $ | 937,644,886 | ||||||
Summarized
information reflecting the net investment income (loss), total
trading results and
net income (loss) for the Funds is shown in the following tables.
13
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2011
(Unaudited)
Notes to Financial Statements
March 31, 2011
(Unaudited)
For the three months ended March 31, 2011 | ||||||||||||
Net Investment | Total Trading | Net Income | ||||||||||
Income (Loss) | Results | (Loss) | ||||||||||
Willowbridge Master |
$ | (25,559 | ) | $ | 6,874,935 | $ | 6,849,376 | |||||
Graham Master |
(146,256 | ) | (1,070,720 | ) | (1,216,976 | ) | ||||||
Eckhardt Master |
(54,656 | ) | (273,717 | ) | (328,373 | ) | ||||||
SandRidge Master |
(250,105 | ) | 15,043,073 | 14,792,968 | ||||||||
Total |
$ | (476,576 | ) | $ | 20,573,571 | $ | 20,096,995 | |||||
For the three months ended March 31, 2010 | ||||||||||||
Net Investment | Total Trading | Net Income | ||||||||||
Income (Loss) | Results | (Loss) | ||||||||||
Willowbridge Master |
$ | (67,599 | ) | $ | (20,526,632 | ) | $ | (20,594,231 | ) | |||
Graham Master |
(99,316 | ) | (3,943,186 | ) | (4,042,502 | ) | ||||||
Eckhardt Master |
(36,785 | ) | (1,419,363 | ) | (1,456,148 | ) | ||||||
SandRidge Master |
(261,244 | ) | (15,233,208 | ) | (15,494,452 | ) | ||||||
Total |
$ | (464,944 | ) | $ | (41,122,389 | ) | $ | (41,587,333 | ) | |||
Summarized information reflecting the Partnerships investment in, and the operations of, the
Funds is shown in the following tables.
March 31, 2011 | For the three months ended March 31, 2011 | |||||||||||||||||||||||||||||||
% of | Net | |||||||||||||||||||||||||||||||
Partnerships | Fair | Income | Expenses | Income | Investment | Redemptions | ||||||||||||||||||||||||||
Fund | Net Assets | Value | (Loss) | Brokerage Fees | Other | (Loss) | Objective | Permitted | ||||||||||||||||||||||||
Willowbridge
Master |
15.30 | % | $ | 3,872,923 | $ | 150,565 | $ | 842 | $ | 650 | $ | 149,073 | Commodity Portfolio | Monthly | ||||||||||||||||||
Graham Master |
18.85 | % | 4,771,880 | (31,601 | ) | 4,659 | 678 | (36,938 | ) | Commodity Portfolio | Monthly | |||||||||||||||||||||
Eckhardt Master |
26.50 | % | 6,708,293 | (61,869 | ) | 10,875 | 4,477 | (77,221 | ) | Commodity Portfolio | Monthly | |||||||||||||||||||||
SandRidge Master |
12.35 | % | 3,126,804 | 131,277 | 1,908 | 643 | 128,726 | Energy Portfolio | Monthly | |||||||||||||||||||||||
Total |
$ | 18,479,900 | $ | 188,372 | $ | 18,284 | $ | 6,448 | $ | 163,640 | ||||||||||||||||||||||
December 31, 2010 | For the three months ended March 31, 2010 | |||||||||||||||||||||||||||||||
% of | Net | |||||||||||||||||||||||||||||||
Partnerships | Fair | Income | Expenses | Income | Investment | Redemptions | ||||||||||||||||||||||||||
Investment | Net Assets | Value | (Loss) | Commissions | Other | (Loss) | Objective | Permitted | ||||||||||||||||||||||||
Willowbridge
Master |
17.20 | % | $ | 4,427,857 | $ | (418,551 | ) | $ | 1,615 | $ | 384 | $ | (420,550 | ) | Commodity Portfolio | Monthly | ||||||||||||||||
Graham Master |
21.01 | % | 5,410,815 | (213,006 | ) | 4,411 | 713 | (218,130 | ) | Commodity Portfolio | Monthly | |||||||||||||||||||||
Eckhardt Master |
22.97 | % | 5,913,996 | (403,242 | ) | 6,042 | 5,026 | (414,310 | ) | Commodity Portfolio | Monthly | |||||||||||||||||||||
SandRidge Master |
12.73 | % | 3,277,766 | (86,592 | ) | 1,631 | 440 | (88,663 | ) | Energy Portfolio | Monthly | |||||||||||||||||||||
Total |
$ | 19,030,434 | $ | (1,121,391 | ) | $ | 13,699 | $ | 6,563 | $ | (1,141,653 | ) | ||||||||||||||||||||
14
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2011
(Unaudited)
Notes to Financial Statements
March 31, 2011
(Unaudited)
6. Financial Instrument Risks:
In the normal course of business, the Partnership and the Funds are parties to financial
instruments with off-balance sheet risk, including derivative financial instruments and derivative
commodity instruments. These financial instruments may include forwards, futures, options and
swaps, whose values are based upon an underlying asset, index, or reference rate, and generally
represent future commitments to exchange currencies or cash balances, or to purchase or sell other
financial instruments at specific terms at specified future dates, or, in the case of derivative
commodity instruments, to have a reasonable possibility to be settled in cash, through physical
delivery or with another financial instrument. These instruments may be traded on an exchange or
over-the-counter (OTC). Exchange-traded instruments are standardized and include futures and
certain forwards and option contracts. OTC contracts are negotiated between contracting parties and
include certain forwards and option contracts. Each of these instruments is subject to various
risks similar to those related to the underlying financial instruments including market and credit
risk. In general, the risks associated with OTC contracts are greater than those associated with
exchange-traded instruments because of the greater risk of default by the counterparty to an OTC
contract.
The risk to the limited partners that have purchased interests in the Partnership is
limited to the amount of their capital contributions to the Partnership and their share of
the Partnerships assets and undistributed profits. This limited liability is a consequence of the
organization of the Partnership as a limited partnership under applicable law.
Market risk is the potential for changes in the value of the financial instruments traded by
the Partnership/Funds due to market changes, including interest and foreign exchange rate movements
and fluctuations in commodity or security prices. Market risk is directly impacted by the
volatility and liquidity in the markets in which the related underlying assets are traded. The
Partnership/Funds are exposed to a market risk equal to the value of futures and forward contracts
purchased and unlimited liability on such contracts sold short.
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to
perform according to the terms of a contract. The Partnerships/Funds risk of loss in the event of
a counterparty default is typically limited to the amounts recognized in the Statements of
Financial Condition and is not represented by the contract or notional amounts of the instruments. The
Partnerships/Funds risk of loss is reduced through the use of legally enforceable master netting
agreements with counterparties that permit the Partnership/Funds to offset unrealized gains and
losses and other assets and liabilities with such counterparties upon the occurrence of certain
events. The Partnership/Funds have credit risk and concentration risk as the sole counterparty or
broker with respect to the Partnerships/Funds assets is CGM or a CGM affiliate. Credit risk with
respect to exchange-traded instruments is reduced to the extent that through CGM, the
Partnerships/Funds counterparty is an exchange or clearing organization.
As both a buyer and seller of options, the Funds pay or receive a premium at the outset and
then bear the risk of unfavorable changes in the price of the contract underlying the option.
Written options expose the Funds to potentially unlimited liability; for purchased options the risk
of loss is limited to the premiums paid. Certain written put options permit cash settlement and do
not require the option holder to own the reference asset. The Funds do not consider these contracts
to be guarantees.
The General Partner monitors and attempts to control the Partnerships/Funds risk exposure on
a daily basis through financial, credit and risk management monitoring systems, and accordingly,
believes that it has effective procedures for evaluating and limiting the credit and market risks
to which the Partnership/Funds may be subject. These monitoring systems generally allow the General
Partner to statistically analyze actual trading results with risk adjusted performance indicators
and correlation statistics. In addition, on-line monitoring systems provide account analysis of
futures, forwards and options positions by sector, margin requirements, gain and loss transactions
and collateral positions.
The majority of these instruments mature within one year of the inception date. However, due
to the nature of the Partnerships/Funds business, these instruments may not be held to maturity.
15
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2011
(Unaudited)
Notes to Financial Statements
March 31, 2011
(Unaudited)
7. Critical Accounting Policies:
Use of Estimates. The preparation of financial statements and accompanying notes in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, income and expenses, and related disclosures of contingent assets and
liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.
Partnerships and the Funds Investments. All commodity interests (including derivative
financial instruments and derivative commodity instruments) are held for trading purposes. The
commodity interests are recorded on trade date and open contracts are recorded at fair value (as
described below) at the measurement date. Investments in commodity interests denominated in foreign
currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement
date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on
open contracts are included as a component of equity in trading account on the Statements of
Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from
the preceding period are reported in the Statements of Income and Expenses and Changes in Partners
Capital.
Partnerships and the Funds Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date under current
market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from
unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value
measurement in its entirety falls shall be determined based on the lowest level input that is significant to
the fair value measurement in its entirety. Management has concluded that based on available information
in the marketplace, the Partnerships and the Funds Level 1 assets and liabilities are actively traded.
GAAP also requires the need to use judgment in determining
if a formerly active market has become inactive and in determining fair values when the market has become inactive. Management has
concluded that based on available information in the marketplace, there has not been a significant decrease in the volume and level
of activity in the Partnerships and the Funds Level 2 assets and liabilities.
The Partnership and the Funds will separately present purchases, sales, issuances, and settlements
in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather
than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and
valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3
of the fair value hierarchy as required under GAAP.
The
Partnership and the Funds consider prices for exchange-traded commodity futures, forwards
and options contracts to be based on unadjusted quoted prices in active markets for identical
assets (Level 1). The values of non exchange-traded forwards, swaps and certain options contracts
for which market quotations are not readily available are priced by broker-dealers who derive fair
values for those assets from observable inputs (Level 2). Investments
in funds (other
commodity pools) where there are no other rights or obligations inherent within the ownership
interest held by the Partnership are priced based on the end of the day net asset value (Level 2).
The value of the Partnerships investments in the Funds reflects its proportional interest in
the Funds. As of and for the periods ended March 31, 2011 and
December 31, 2010, the
Partnership and the Funds did not hold any derivative instruments that are priced at fair value
using unobservable inputs through the application of managements assumptions and internal
valuation pricing models (Level 3).
Futures
Contracts. The Partnership and the Funds trade futures contracts and exchange-cleared
swaps. Exchange-cleared swaps are swaps that are traded as futures. A futures contract is a firm
commitment to buy or sell a specified quantity of investments, currency or a standardized amount of
a deliverable grade commodity, at a specified price on a specified future date, unless the contract
is closed before the delivery date or if the delivery quantity is something where physical delivery
cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments
(variation margin) may be made or received by the Partnership and the Funds each business day,
depending on the daily fluctuations in the value of the underlying contracts, and are recorded as
unrealized gains or losses by the Partnership and the Funds. When the contract is closed, the
Partnership and the Funds record a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was closed. Transactions in
futures contracts require participants to make both initial margin deposits of cash or other assets
and variation margin deposits, through the futures broker, directly with the exchange on which the
contracts are traded. Net realized gains (losses) and changes in net unrealized gains (losses) on
futures contracts are included in the Statements of Income and Expenses and Changes in Partners
Capital.
Forward Foreign Currency Contracts. Foreign currency contracts are those contracts where the
Partnership and the Funds agree to receive or deliver a fixed quantity of foreign currency for an
agreed-upon price on an agreed future date. Foreign currency contracts are valued daily, and the
Funds net equity therein, representing unrealized gain or loss on the contracts as measured by the
difference between the forward foreign exchange rates at the dates of entry into the contracts and
the forward rates at the reporting date, is included in the Statements of Financial Condition.
Realized gains (losses) and changes in unrealized gains (losses) on foreign currency contracts are
recognized in the period in which the contract is closed or the changes occur, respectively, and
are included in the Statements of Income and Expenses and Changes in Partners Capital.
The Funds do not isolate that portion of the results of operations arising from the effect of
changes in foreign exchange rates on investments from fluctuations from changes in market prices of
investments held. Such fluctuations are included in net gain (loss) on investments in the
Statements of Income and Expenses and Changes in Partners Capital.
16
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2011
(Unaudited)
Notes to Financial Statements
March 31, 2011
(Unaudited)
London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange
(LME) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead,
nickel, tin or zinc. LME contracts traded by the Partnership/Funds are cash settled based on prompt dates
published by the LME. Payments (variation margin) may be made or received by the Partnership/Funds each
business day, depending on the daily fluctuations in the value of the underlying contracts, and are
recorded as unrealized gains or losses by the Funds. A contract is considered offset when all long
positions have been matched with a like number of short positions settling on the same prompt date.
When the contract is closed at the prompt date, the Partnership/Funds record a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and the value at the
time it was closed. Transactions in LME contracts require participants to make both initial margin
deposits of cash or other assets and variation margin deposits, through the broker, directly with
the LME. Net realized gains (losses) and changes in net unrealized gains (losses) on metal contracts are
included in the Statements of Income and Expenses and Changes in Partners Capital.
Options. The Funds may purchase and write (sell) both exchange listed and OTC options on commodities or financial instruments. An option is a contract allowing, but not
requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial
instrument at a specified price during a specified time period. The option premium is the total
price paid or received for the option contract. When the Funds write an option, the premium
received is recorded as a liability in the Statements of Financial Condition and marked to market
daily. When the Funds purchase an option, the premium paid is recorded as an asset in the
Statements of Financial Condition and marked to market daily. Net realized gains (losses) and
changes in net unrealized gains (losses) on options contracts are included in the Statements of
Income and Expenses and Changes in Partners Capital.
Income Taxes. Income taxes have not been provided as each partner is individually liable for
the taxes, if any, on its share of the Partnerships income and expenses.
GAAP provides guidance for how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements and requires the evaluation of tax
positions taken or expected to be taken in the course of preparing the Partnerships financial
statements to determine whether the tax positions are more-likely-than-not to be sustained by the
applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to
meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the
current year. The General Partner concluded that no provision for income tax is required of or
disclosure in the Partnerships financial statements.
The Partnership files U.S. federal and various state and local tax returns. No income tax
returns are currently under examination. Generally, the 2007 through 2010 tax years remain subject
to examination by U.S. federal and most state tax authorities. Management does not believe that
there are any uncertain tax positions that require recognition of a tax liability.
Subsequent Events. Management of the Partnership evaluates events that occur after the balance
sheet date but before financial statements are filed. Management has assessed the 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.
Net Income (Loss) per unit. Net income (loss) per unit is calculated in accordance with
investment company guidance. See Note 2, Financial Highlights.
17
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. The Partnerships assets are
its (i) investment in Funds, (ii) equity in its trading account, consisting of cash and cash
equivalents, net unrealized appreciation on open futures
contracts, net unrealized appreciation on open forward contracts, and (iii) interest
receivable. Because of the low margin deposits normally required in commodity futures trading,
relatively small price movements may result in substantial losses to the Partnership. While
substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred
during the first quarter of 2011.
The Partnerships capital consists of the capital contributions of the partners as increased
or decreased by gains or losses on trading and by expenses, interest income, redemptions of
Redeemable Units and distributions of profits, if any.
For the three months ended March 31, 2011, Partnership capital decreased 1.7% from $25,749,357 to
$25,314,288. This decrease was attributable to the redemption of 345.2378 Redeemable Units totaling
$549,721, which was partially offset by a net income from operations of $114,652. Future redemptions can
impact the amount of funds available for investment in commodity contract positions in subsequent
periods.
Critical Accounting Policies
The preparation of financial statements in
conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported
amounts of income and expense during the reporting period. Management believes that the estimates utilized
in preparing the financial statements are reasonable. Actual results could differ from those estimates.
The Partnerships significant accounting policies are described in detail in Note 7 of the Financial Statements.
The Partnership records all investments at fair value in its financial statements, with changes in fair
value reported as a component of net realized and change in net unrealized trading gain (loss) in the Statements
of Income and Expenses and Changes in Partners Capital.
18
Results of Operations
During
the Partnerships first quarter of 2011, the net asset value per
unit increased 0.4%
from $1,586.41 to $1,593.50 as compared to a decrease of 5.0% in the first quarter of 2010. The
Partnership experienced a net trading gain (comprised of net realized gains (losses) on closed
positions and investment in Funds and change in net unrealized gains (losses) on open positions and
investment in Funds) before brokerage fees and related fees in the first quarter of 2011 of
$714,391. Gains were primarily attributable to the Partnerships and the Funds trading of
commodity futures in currencies, energy, metals, softs and indices and were partially offset by
losses in grains, livestock, non-U.S. and U.S. interest rates. The Partnership experienced a net
trading loss before brokerage fees and related fees in the first quarter of 2010 of $894,675.
Losses were primarily attributable to the Partnerships and the Funds trading of commodity futures
in currencies, energy, grains, U.S. interest rates, indices, metals and softs and were partially
offset by gains in livestock and non-U.S. interest rates.
19
The most significant gains were
achieved within the energy markets, primarily during February and
March due to long futures positions in crude oil and its
related products as prices rose amid an escalation in political instability in the Middle East and North Africa, prompting
concerns that crude supplies may be disrupted. Additional gains were recorded from short positions in natural gas futures as
prices declined in February on forecasts of warmer-than-normal weather in U.S. consuming regions that reduced demand for the
heating fuel. Within the global stock index markets, gains were experienced primarily during January and February, largely
in U.S. equity index futures, as prices were supported higher amid positive economic reports, including faster-than-expected
global growth, a rebound in U.S. retail sales, and strong corporate earnings reports. Within the metals markets, gains were
experienced primarily during February due to long futures positions in silver and gold as prices of silver futures extended a
rally to a 30-year high and gold futures reached an all-time high after mounting unrest in the Middle East spurred demand for
the precious metals as a safe haven. Within the currency markets, gains were experienced primarily in March from long
positions in the Australian dollar and euro versus the U.S. dollar as the value of these currencies moved higher against
the U.S. dollar after better-than-expected U.S. economic data and a report that revealed European consumer confidence rose
to the highest level in a year boosted optimism about the global economic recovery and spurred demand for higher-yielding
currency assets. Additional gains were recorded from long positions in the Japanese yen as it rallied to record highs in the
wake of the March 11th earthquake in Japan. Within the agricultural
complex, gains were experienced primarily during January
due to long futures positions in corn as prices increased to the highest levels since July 2008 after the U.S. government
lowered forecasts for domestic inventories as adverse weather slashed harvests. Further gains were recorded within this
sector during February from long positions in coffee futures as coffee prices rose to the highest level since 1997 on signs
that global demand may outstrip production.
A portion of the Partnerships gains
for the quarter was offset by losses incurred within the global interest rate sector, primarily during February, from short positions
in U.S. and European fixed-income futures as prices increased amid a flight-to-safety spurred by geopolitical concerns in the Middle
East and North Africa.
Commodity futures markets are highly volatile.
The potential for broad and rapid price fluctuations increases the risks involved in commodity trading, but also increases the possibility
of profit. The profitability of the Partnership/Funds depends on the existence of major price
trends and the ability of the Advisors to correctly identify those price trends. Price trends are
influenced by, among other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and international political and
economic events and changes in interest rates. To the extent that market trends exist and the
Advisors are able to identify them, the Partnership expects to increase capital through operations.
Interest income on 80% of the
average daily equity maintained in cash in the
Partnerships (or the Partnerships allocable portion of a Funds) brokerage account was earned at
a 30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive
yield on 3-month U.S. Treasury bills maturing in 30 days.
Interest income for the three months ended March 31, 2011 increased by $1,379, as compared to the
corresponding period in 2010. This increase was due to higher U.S.
Treasury bill rates during the
three months ended March 31, 2011 as compared to the corresponding period in 2010. Interest earned by the
Partnership will increase the net asset value of the Partnership. The amount of interest income
earned by the Partnership depends on the average daily equity in the
Partnerships and the Funds account and upon
interest rates over which neither the Partnership nor CGM has control.
Brokerage fees are calculated as a percentage of the Partnerships net asset value as of the
last day of each month and are affected by trading performance and redemptions. Accordingly, they
must be compared in relation to the fluctuations in the monthly net asset values. Brokerage fees
for the three months ended March 31, 2011 decreased by $79,548, as compared to the corresponding
period in 2010. The decrease in brokerage fees is due to lower average net assets during the three
months ended March 31, 2011 as compared to the corresponding period in 2010.
Management fees are calculated on the portion of the Partnerships net asset value allocated
to each Advisor at the end of the month and are affected by trading performance and
redemptions. Management fees for the three months ended March 31, 2011 decreased by $20,831, as
compared to the corresponding periods in 2010. The decrease in management fees is due to lower
average net assets during the three months ended March 31, 2011 as compared to the
corresponding period in 2010.
Incentive fees are based on the new trading profits generated by each Advisor as defined in
the advisory agreements among the Partnership, the General Partner and each Advisor. There were no
incentive fees for the three months ended March 31, 2011 and 2010. An Advisor will
not be paid incentive fees until the Advisor recovers the net loss incurred and earns additional
new trading profits for the Partnership.
In allocating the assets of the Partnership among the trading advisors, the General Partner
considers past performance, trading style, volatility of markets traded and fee requirements. The
General Partner may modify or terminate the allocation of assets among the trading advisors and may
allocate assets to additional advisors at any time.
20
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
The Partnership and the Funds are speculative commodity pools. The market sensitive
instruments held by the Partnership and the Funds are acquired for speculative trading purposes,
and all or substantially all of the Partnerships and the Funds 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 Partnerships and the Funds main line of business.
The risk to the limited partners that have purchased interests in the Partnership is limited
to the amount of their capital contributions to the Partnership and their share of the Partnership
assets and undistributed profits. This limited liability is a consequence of the organization of
the Partnership as a limited partnership under applicable law.
Market movements result in frequent changes in the fair value of the Partnerships and the
Funds open positions and, consequently, in their earnings and cash balances. The Partnerships and
the Funds market risk is influenced by a wide variety of factors, including the level and
volatility of interest rates, exchange rates, equity price levels, the market value of financial
instruments and contracts, the diversification effects among the Partnerships and the Funds open
positions and the liquidity of the markets in which they trade.
The Partnership and the Funds rapidly acquire and liquidate both long and short positions in a
wide range of different markets. Consequently, it is not possible to predict how a particular
future market scenario will affect performance, and the Partnerships and the Funds past
performance is not necessarily indicative of their future results.
Value at Risk is a measure of the maximum amount which the Partnership and the Funds could
reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the
Partnerships and the Funds speculative trading and the recurrence in the markets traded by the
Partnership and the Funds of market movements far exceeding expectations could result in actual
trading or non-trading losses far beyond the indicated Value at Risk or the Partnerships and the
Funds 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
Partnerships and the Funds losses in any market sector will be limited to Value at Risk or by the
Partnerships and the Funds attempts to manage its market risk.
Exchange maintenance margin requirements have been used by the Partnership and the Funds as
the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or
exceed the maximum losses reasonably expected to be incurred in the fair value of any given
contract in 95%-99% of any one-day interval. Maintenance margin has been used rather than the more
generally available initial margin, because initial margin includes a credit risk component, which
is not relevant to Value at Risk.
Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk
sensitive instruments. With the exception of CFM, the Partnerships advisors currently trade the
Partnerships assets indirectly in master fund managed accounts over which they have been granted
limited authority to make trading decisions. CFM directly trades a managed account in the
Partnerships name. The first two trading Value at Risk tables reflect the market sensitive instruments
held by the Partnership directly and through its investment in the
Funds as of March 31, 2011 and December 31, 2010. The remaining trading
Value at Risk tables reflect the market sensitive instruments held by the Partnership directly
(i.e., in the managed account in the Partnerships name traded by CFM) and indirectly by each Fund
separately.
The
following tables indicate the trading Value at Risk associated with the Partnerships open
positions by market category as of March 31, 2011 and December
31, 2010. As of March 31, 2011, the Partnerships total
capitalization was $25,314,288.
% of Total | ||||||||
Market Sector | Value at Risk | Capitalization | ||||||
Currencies |
$ | 1,007,648 | 3.98 | % | ||||
Energy |
612,887 | 2.42 | % | |||||
Grains |
97,131 | 0.39 | % | |||||
Indices |
398,015 | 1.57 | % | |||||
Interest Rates U.S. |
337,766 | 1.33 | % | |||||
Interest Rates
Non-U.S. |
338,843 | 1.34 | % | |||||
Livestock |
91,957 | 0.36 | % | |||||
Metals |
235,145 | 0.93 | % | |||||
Softs |
157,222 | 0.62 | % | |||||
Total |
$ | 3,276,614 | 12.94 | % | ||||
As of December 31, 2010, Partnerships total capitalization was $25,749,357.
Market Sector | Value at Risk | % of Total Capitalization |
||||||
Currencies |
$ | 648,426 | 2.51% | |||||
Energy |
532,001 | 2.06% | ||||||
Grains |
158,953 | 0.63% | ||||||
Indices |
326,903 | 1.27% | ||||||
Interest Rates U.S. |
665,373 | 2.58% | ||||||
Interest Rates Non-U.S. |
250,133 | 0.97% | ||||||
Livestock |
77,288 | 0.30% | ||||||
Metals |
180,045 | 0.70% | ||||||
Softs |
84,111 | 0.33% | ||||||
Total |
$ | 2,923,233 | 11.35% | |||||
21
The following tables indicate the trading Value at Risk associated with the Partnerships
direct investments and indirect investments in the Funds by market
category as of March 31, 2011 and December 31,2010
and the highest and lowest value at any point and the average value during the three months ended
March 31, 2011 and for the twelve months ended December 31, 2010. All open position trading risk exposures of the Partnership/Funds have been
included in calculating the figures set forth below. There have been no material changes in the
trading Value at Risk information previously disclosed in the Partnerships Annual Report on Form
10-K for the year ended December 31, 2010.
As of March 31, 2011, the Partnerships total capitalization was $25,314,288. The
Partnerships Value at Risk for the portion of its assets that are traded directly through CFMs
Discus 1.5x Leverage Program was as follows:
March 31, 2011
Three months ended March 31, 2011 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 301,417 | 1.19 | % | $ | 418,480 | $ | 56,937 | 276,030 | |||||||||||
Energy |
39,948 | 0.16 | % | 79,747 | 3,750 | 21,483 | ||||||||||||||
Grains |
21,089 | 0.08 | % | 21,089 | 4,500 | 12,146 | ||||||||||||||
Indices |
220,543 | 0.87 | % | 510,250 | 32,135 | 304,128 | ||||||||||||||
Interest Rates U.S. |
86,200 | 0.34 | % | 221,400 | 28,054 | 154,083 | ||||||||||||||
Interest Rates Non -U.S. |
90,049 | 0.36 | % | 210,939 | 148,195 | 161,467 | ||||||||||||||
Livestock |
1,250 | 0.00 | %** | 2,250 | 1,250 | 1,750 | ||||||||||||||
Metals |
74,957 | 0.30 | % | 112,146 | 11,076 | 57,573 | ||||||||||||||
Softs |
14,100 | 0.06 | % | 23,616 | 1,350 | 13,914 | ||||||||||||||
Total |
$ | 849,553 | 3.36 | % | ||||||||||||||||
* | Average of month-end Values at Risk. | |
** | Due to rounding. |
As of December 31, 2010, the Partnerships total capitalization was
$25,749,357. The Partnerships Value at Risk for the portion of its assets that are traded directly
through CFMs Discus 1.5x Program was as follows:
December 31, 2010
Twelve months ended December 31, 2010 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 146,900 | 0.57 | % | $ | 500,141 | $ | 27,947 | 147,542 | |||||||||||
Energy |
10,437 | 0.04 | % | 174,316 | 3,750 | 55,610 | ||||||||||||||
Grains |
14,220 | 0.06 | % | 44,329 | 5,130 | 21,009 | ||||||||||||||
Indices |
642,967 | 2.50 | % | 3,274,371 | 65,971 | 498,257 | ||||||||||||||
Interest Rates U.S. |
88,450 | 0.34 | % | 276,200 | 6,486 | 140,566 | ||||||||||||||
Interest Rates Non -U.S. |
73,656 | 0.30 | % | 482,956 | 23,301 | 226,827 | ||||||||||||||
Livestock |
1,000 | 0.00 | %** | 11,300 | 250 | 2,108 | ||||||||||||||
Metals |
21,750 | 0.08 | % | 53,496 | 4,000 | 21,239 | ||||||||||||||
Softs |
4,500 | 0.01 | % | 47,938 | 4,144 | 16,710 | ||||||||||||||
Total |
$ | 1,003,880 | 3.90 | % |
* | Annual average based on month-end Value at Risk. | |
** | Due to rounding |
22
As of March 31, 2011, Willowbridge Masters total capitalization was $168,614,835. The
Partnership owned approximately 2.3% of Willowbridge Master. As of March 31, 2011, Willowbridge
Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated
to Willowbridge for trading) was as follows:
March 31, 2011
Three months ended March 31, 2011 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 3,114,825 | 1.85 | % | $ | 3,114,825 | $ | 657,720 | $ | 1,874,919 | ||||||||||
Energy |
3,518,500 | 2.09 | % | 3,518,500 | 1,464,750 | 2,468,833 | ||||||||||||||
Grains |
681,000 | 0.40 | % | 2,109,250 | 226,500 | 1,002,500 | ||||||||||||||
Interest Rates U.S. |
415,250 | 0.25 | % | 1,011,711 | 302,400 | 361,238 | ||||||||||||||
Interest Rates Non-U.S. |
1,685,948 | 1.00 | % | 2,134,289 | 1,229,606 | 1,489,274 | ||||||||||||||
Metals |
3,110,127 | 1.84 | % | 3,587,000 | 1,760,207 | 2,736,952 | ||||||||||||||
Softs |
2,629,700 | 1.56 | % | 2,629,700 | 850,500 | 2,240,400 | ||||||||||||||
Total |
$ | 15,155,350 | 8.99 | % | ||||||||||||||||
* | Average of month-end Values at Risk. |
As of December 31, 2010, Willowbridge Masters total capitalization was $216,298,633. The
Partnership owned approximately 2.1% of Willowbridge Master. As of December 31, 2010, Willowbridge
Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated
to Willowbridge for trading) was as follows:
December 31, 2010
Twelve months ended December 31, 2010 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 2,232,591 | 1.03 | % | $ | 7,096,121 | $ | 940,854 | $ | 3,547,819 | ||||||||||
Energy |
2,742,900 | 1.27 | % | 6,539,400 | 460,750 | 2,570,821 | ||||||||||||||
Grains |
2,062,750 | 0.95 | % | 3,762,750 | 207,200 | 1,238,276 | ||||||||||||||
Interest Rates U.S. |
774,255 | 0.36 | % | 3,269,700 | 243,600 | 1,143,161 | ||||||||||||||
Interest Rates Non-U.S. |
1,908,692 | 0.88 | % | 5,489,653 | 289,858 | 2,700,503 | ||||||||||||||
Livestock |
112,000 | 0.05 | % | 171,200 | 44,800 | 92,018 | ||||||||||||||
Metals |
3,791,000 | 1.75 | % | 5,643,396 | 710,500 | 2,729,785 | ||||||||||||||
Softs |
2,024,400 | 0.94 | % | 3,388,150 | 198,000 | 1,542,246 | ||||||||||||||
Total |
$ | 15,648,588 | 7.23 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk |
As of March 31, 2011, Graham Masters total capitalization was $158,206,830. The Partnership
owned approximately 3.0% of Graham Master. As of March 31, 2011, Graham Masters Value at Risk for
its assets (including the portion of the Partnerships assets allocated to Graham for trading) was
as follows:
March 31, 2011
Three months ended March 31, 2011 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 10,526,667 | 6.65 | % | $ | 14,645,028 | $ | 5,042,022 | $ | 9,712,741 | ||||||||||
Energy |
1,121,320 | 0.71 | % | 1,221,130 | 430,473 | 715,112 | ||||||||||||||
Grains |
478,650 | 0.30 | % | 624,700 | 436,750 | 497,655 | ||||||||||||||
Indices |
4,094,626 | 2.59 | % | 11,180,261 | 3,276,704 | 6,785,775 | ||||||||||||||
Interest Rates U.S. |
829,155 | 0.52 | % | 1,205,145 | 545,675 | 851,529 | ||||||||||||||
Interest Rates Non-U.S. |
2,782,686 | 1.76 | % | 3,022,899 | 1,439,332 | 2,717,692 | ||||||||||||||
Livestock |
63,600 | 0.04 | % | 63,600 | 38,000 | 42,867 | ||||||||||||||
Metals |
1,048,048 | 0.66 | % | 1,637,443 | 616,825 | 1,030,163 | ||||||||||||||
Softs |
375,073 | 0.24 | % | 491,327 | 241,774 | 354,051 | ||||||||||||||
Total |
$ | 21,319,825 | 13.47 | % | ||||||||||||||||
* | Average of month-end Values at Risk. |
23
As of December 31, 2010, Graham Masters total capitalization was $168,924,671. The Partnership
owned approximately 3.2% of Graham Master. As of December 31, 2010, Graham Masters Value at Risk
for its assets (including the portion of the Partnerships assets allocated to Graham for trading)
was as follows:
December 31, 2010
Twelve months ended December 31, 2010 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 6,192,975 | 3.67 | % | $ | 11,364,239 | 996,231 | 5,226,199 | ||||||||||||
Energy |
1,048,521 | 0.62 | % | 1,989,347 | 236,269 | 1,000,222 | ||||||||||||||
Grains |
448,450 | 0.26 | % | 964,687 | 124,875 | 411,118 | ||||||||||||||
Indices |
5,301,813 | 3.14 | % | 13,726,706 | 1,137,775 | 5,507,221 | ||||||||||||||
Interest Rates U.S. |
161,600 | 0.10 | % | 2,021,410 | 68,806 | 1,014,515 | ||||||||||||||
Interest Rates Non-U.S. |
1,209,918 | 0.72 | % | 4,305,447 | 749,055 | 2,006,426 | ||||||||||||||
Livestock |
40,000 | 0.02 | % | 106,400 | 800 | 50,304 | ||||||||||||||
Metals |
1,012,127 | 0.60 | % | 1,771,142 | 494,357 | 993,963 | ||||||||||||||
Softs |
258,565 | 0.15 | % | 1,144,148 | 85,988 | 385,351 | ||||||||||||||
Total |
$ | 15,673,969 | 9.28 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk |
As of March 31, 2011, Eckhardt Masters total capitalization was $25,751,893. The Partnership
owned approximately 26.0% of Eckhardt Master. As of March 31, 2011, Eckhardt Masters Value at Risk
for its assets (including the portion of the Partnerships assets allocated to Eckhardt for
trading) was as follows:
March 31, 2011
Three months ended March 31, 2011 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 1,226,115 | 4.76 | % | $ | 1,671,011 | $ | 400,509 | $ | 1,112,646 | ||||||||||
Energy |
686,180 | 2.66 | % | 736,750 | 191,724 | 657,310 | ||||||||||||||
Grains |
177,000 | 0.69 | % | 528,082 | 5,000 | 253,023 | ||||||||||||||
Interest Rates U.S. |
318,450 | 1.24 | % | 390,050 | 172,050 | 375,467 | ||||||||||||||
Interest Rates Non -U.S. |
501,485 | 1.95 | % | 501,485 | 101,934 | 296,287 | ||||||||||||||
Metals |
503,540 | 1.95 | % | 618,550 | 155,269 | 480,364 | ||||||||||||||
Softs |
40,500 | 0.16 | % | 124,357 | 29,700 | 89,178 | ||||||||||||||
Indices |
1,004,141 | 3.90 | % | 889,841 | 114,649 | 887,330 | ||||||||||||||
Total |
$ | 4,457,411 | 17.31 | % | ||||||||||||||||
| Average of month-end Values at Risk. |
As of December 31, 2010, Eckhardt Masters total capitalization was $23,686,325. The
Partnership owned approximately 25.0% of Eckhardt Master. As of December 31, 2010, Eckhardt Masters Value at Risk for its assets (including the portion of the
Partnerships assets allocated to Eckhardt for trading) was as follows:
December 31, 2010
Twelve months ended December 31, 2010 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 1,025,866 | 4.33 | % | $ | 1,147,164 | $ | 9,175 | $ | 427,400 | ||||||||||
Energy |
248,250 | 1.05 | % | 580,400 | 10,875 | 238,534 | ||||||||||||||
Grains |
348,259 | 1.47 | % | 370,823 | 41,862 | 169,215 | ||||||||||||||
Indices |
610,979 | 2.58 | % | 3,147,442 | 19,055 | 430,625 | ||||||||||||||
Interest Rates U.S. |
3,900 | 0.02 | % | 887,750 | 3,900 | 351,889 | ||||||||||||||
Interest Rates Non -U.S. |
331,533 | 1.40 | % | 852,062 | 63,225 | 352,114 | ||||||||||||||
Metals |
268,184 | 1.13 | % | 365,762 | 26,255 | 198,271 | ||||||||||||||
Softs |
46,300 | 0.19 | % | 146,472 | 10,950 | 70,345 | ||||||||||||||
Total |
$ | 2,883,271 | 12.17 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk |
24
As of March 31, 2011, SandRidge Masters total capitalization was $378,195,781. The
Partnership owned approximately 0.8% of SandRidge Master. As of March 31, 2011, SandRidge Masters
Value at Risk for its assets (including the portion of the Partnerships assets allocated to
SandRidge for trading) was as follows:
March 31, 2011
Three months ended March 31, 2011 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Energy |
$ | 34,995,837 | 9.25 | % | $ | 61,733,650 | $ | 31,352,944 | $ | 41,648,911 | ||||||||||
Total |
$ | 34,995,837 | 9.25 | % | ||||||||||||||||
* | Average of month-end Values at Risk. |
As of December 31, 2010, SandRidge Masters total capitalization was $528,735,257. The
Partnership owned approximately 0.6% of SandRidge Master. As of December 31, 2010, SandRidge Masters Value at Risk for its assets (including the portion of the
Partnerships assets allocated to SandRidge for trading) was as follows:
December 31,
2010
Twelve months ended December 31, 2010 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Energy |
$ | 61,391,255 | 11.61 | % | $ | 85,692,107 | $ | 18,754,664 | $ | 56,852,448 | ||||||||||
Total |
$ | 61,391,255 | 11.61 | % | ||||||||||||||||
* | Annual average based on month-end Value at Risk |
25
Item 4. Controls and Procedures
The Partnerships disclosure controls and procedures are designed to ensure that information
required to be disclosed by the Partnership on the reports that it files or submits under the
Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and
reported within the time periods expected in the SECs rules and forms. Disclosure controls and
procedures include controls and procedures designed to ensure that information required to be
disclosed by the Partnership in the reports it files is accumulated and communicated to management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the General
Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.
Management is responsible for ensuring that there is an adequate and effective process for
establishing, maintaining and evaluating disclosure controls and procedures for the Partnerships
external disclosures.
The General Partners CEO and CFO have evaluated the effectiveness of the Partnerships
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of March 31, 2011 and, based on that evaluation, the General Partners CEO and CFO have
concluded that at that date the Partnerships disclosure controls and procedures were effective.
The Partnerships internal control over financial reporting is a process under the supervision
of the General Partners CEO and CFO to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance with GAAP. These
controls include policies and procedures that:
| pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; | ||
| provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and (ii) the Partnerships receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and | ||
| provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material effect on the financial statements. |
There were no changes in the Partnerships internal control over financial reporting process
during the fiscal quarter ended March 31, 2011 that materially affected, or are reasonably likely
to materially affect, the Partnerships internal control over financial reporting.
26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
This section describes the major pending legal proceedings, other than ordinary routine litigation
incidental to the business, to which CGM is a party or to which any of their property is
subject. There are no material legal proceedings pending against the Partnership or the General Partner.
CGM is a New
York corporation with its principal place of business at 388 Greenwich St., New York, New York 10013.
CGM is registered as a broker-dealer and futures commission merchant (FCM), and provides futures
brokerage and clearing services for institutional and retail participants in the futures markets. CGM
and its affiliates also provide investment banking and other financial services for clients worldwide.
There have been no material administrative, civil or criminal actions within the past five
years against CGM (formerly known as Salomon Smith Barney) or any of its individual
principals and no such actions are currently pending, except as follows.
Mutual Funds
Several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. Citigroup has received subpoenas and other
requests for information from various government regulators regarding market timing,
financing, fees, sales practices and other mutual fund issues in connection with
various investigations. Citigroup is cooperating with all such reviews. Additionally,
CGM has entered into a settlement agreement with the SEC with respect to revenue
sharing and sales of classes of funds.
On May 31, 2005, Citigroup announced that Smith Barney Fund Management LLC and CGM
completed a settlement with the SEC resolving an investigation by the SEC into
matters relating to arrangements between certain Smith Barney mutual funds, an
affiliated transfer agent and an unaffiliated sub-transfer agent. Under the terms of
the settlement, Citigroup agreed to pay fines totaling $208.1 million. The settlement,
in which Citigroup neither admitted nor denied any wrongdoing or liability, includes
allegations of willful misconduct by Smith Barney Fund Management LLC and CGM in failing to
disclose aspects of the transfer agent arrangements to certain mutual fund investors.
In May 2007, CGM finalized its settlement agreement with the NYSE and the New Jersey Bureau
of Securities on the matter related to its market-timing practices prior to September 2003.
FINRA Settlement
On October 12, 2009, FINRA announced its acceptance of an Award Waiver and Consent (AWC)
in which CGM, without admitting or denying the findings, consented to the entry of the AWC and a
fine and censure of $600,000. The AWC includes findings that CGM failed to adequately supervise the
activities of its equities trading desk in connection with swap and related hedge trades in U.S. and
Italian equities that were designed to provide certain perceived tax advantages. CGM was charged with
failing to provide for effective written procedures with respect to the implementation of the trades, failing
to monitor Bloomberg messages and failing to properly report certain of the trades to the NASDAQ.
27
Auction Rate Securities
On May 31, 2006, the SEC instituted and simultaneously settled proceedings against
CGM and 14 other broker-dealers regarding practices in the auction rate
securities market. The SEC alleged that the broker-dealers violated Section
17(a)(2) of the Securities Act of 1933, as amended. The broker-dealers, without
admitting or denying liability, consented to the entry of an SEC cease-and-desist order
providing for censures, undertakings and penalties. CGM paid a penalty of $1.5 million.
On August 7, 2008, Citigroup reached a settlement with the New York Attorney General,
the SEC, and other state regulatory agencies, pursuant to which Citigroup agreed to offer to
purchase at par auction rate securities from all Citigroup individual investors, small
institutions (as defined by the terms of the settlement), and charities that purchased auction
rate securities from Citigroup prior to February 11, 2008. In addition, Citigroup agreed to pay a $50 million
fine to the State of New York and a $50 million fine to the other state regulatory agencies.
Subprime Mortgage-Related Actions
The SEC, among other regulators, is investigating Citigroups subprime and other mortgage-related conduct
and business activities, as well as other business activities affected by the credit crisis, including an
ongoing inquiry into Citigroups structuring and sale of collateralized debt obligations. Citigroup
is cooperating fully with the SECs inquiries.
On July 29, 2010, the SEC announced the settlement of an investigation into certain of Citigroups 2007
disclosures concerning its subprime-related business activities. On October 19, 2010, the United
States District Court for the District of Columbia entered a final judgment approving the settlement,
pursuant to which Citigroup agreed to pay a $75 million civil penalty and to maintain certain disclosure
policies, practices and procedures for a three-year period. Additional information relating to this action is
publicly available in court filings under the docket number 10 Civ. 1277 (D.D.C.) (Huvelle, J.).
The Federal Reserve Bank, the OCC and the FDIC, among other federal and state authorities, are investigating
issues related to the conduct of certain mortgage servicing companies, including Citigroup affiliates, in connection
with mortgage foreclosures. Citigroup is cooperating fully with these inquiries.
Credit Crisis Related Matters
Beginning in the fourth quarter of 2007, certain of Citigroups, and CGM regulators and other state and federal
government agencies commenced formal and informal investigations and inquiries, and issued subpoenas and requested
information, concerning Citigroups subprime mortgage-related conduct and business activities. Citigroup and certain
of its affiliates, including CGM, are involved in discussions with certain of its regulators to resolve certain of these
matters.
Certain of these regulatory matters assert claims for substantial or indeterminate damages. Some of these matters already
have been resolved, either through settlements or court proceedings, including the complete dismissal of certain
complaints or the rejection of certain claims following hearings.
In the course of its business, CGM, as a major futures commission merchant and broker-dealer, is a 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 CGM.
28
Item 1A.
Risk Factors
There have been no material changes to the risk factors set forth under Part I, Item 1A. Risk
Factors in the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31,
2010.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
The Partnership no longer offers Redeemable Units for sale.
The following chart sets forth the purchases of Redeemable Units by the Partnership.
(d) Maximum Number | ||||||||||||||||||||||
(c) Total Number | (or Approximate | |||||||||||||||||||||
of Shares (or Units) | Dollar Value) of | |||||||||||||||||||||
Purchased as Part | Shares (or Units) that | |||||||||||||||||||||
(a) Total Number | (b) Average | of Publicly | May Yet Be | |||||||||||||||||||
of Shares | Price Paid per | Announced | Purchased Under the | |||||||||||||||||||
Period | (or Units) Purchased* | Share (or Unit)** | Plans or Programs | Plans or Programs | ||||||||||||||||||
January 1,
2011 January 31, 2011 |
76.4901 | $ | 1,568.05 | N/A | N/A | |||||||||||||||||
February 1,
2011 February 28, 2011 |
132.9579 | $ | 1,605.02 | N/A | N/A | |||||||||||||||||
March 1,
2011 March 31, 2011 |
135.7898 | $ | 1,593.50 | N/A | N/A | |||||||||||||||||
345.2378 | $ | 1,592.30 | ||||||||||||||||||||
* | Generally, limited partners are permitted to redeem their Redeemable Units as of the end of each month on three business days notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnerships business in connection with effecting redemptions for limited partners. | |
** | Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day. |
Item 3.
Defaults Upon Senior Securities None
Item 4.
[Removed and Reserved]
Item 5.
Other Information None.
29
Item 6. Exhibits
Exhibit
3.1(a)
|
Certificate of Limited Partnership dated May 10, 1994 (filed as Exhibit 3.1(a) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(b)
|
Certificate of Amendment of the Certificate of Limited Partnership dated July 31, 1995 (filed as Exhibit 3.1(b) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(c)
|
Certificate of Amendment of the Certificate of Limited Partnership dated October 1, 1999 (filed as Exhibit 3.1(c) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(d)
|
Certificate of Change of the Certificate of Limited Partnership effective January 31, 2000 (filed as Exhibit 3.1(d) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(e)
|
Certificate of Amendment of the Certificate of Limited Partnership dated May 21, 2003 (filed as Exhibit 3.1(e) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(f)
|
Certificate of Amendment of the Certificate of Limited Partnership dated September 21, 2005 (filed as Exhibit 3.1(f) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(g)
|
Certificate of Amendment of the Certificate of Limited Partnership dated September 19, 2008 (filed as Exhibit 3.1(g) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(h)
|
Certificate of Amendment of the Certificate of Limited Partnership dated September 28, 2009 (filed as Exhibit 99.1 to the Current Report on Form 8-K filed on September 30, 2009 and incorporated herein by reference). | |
(i)
|
Certificate of Amendment of the Certificate of Limited Partnership dated April 12, 2010 (filed as Exhibit 3.1(i) to the Form 8-K/A filed on April 14, 2010 and incorporated herein by reference). | |
(j)
|
Certificate of Amendment of the Certificate of Limited Partnership dated June 30, 2010 (filed as Exhibit 3.1 to the Current Report on form 8-K filed on July 2, 2010 and incorporated herein by reference). | |
3.2
|
Limited Partnership Agreement (attached as Exhibit A to the Registration Statement on Form S-1 filed on May 29, 1996 and incorporated herein by reference). | |
10.1
|
Customer Agreement between the Partnership and Smith Barney (filed as Exhibit 10.1 to the Registration Statement on Form S-1 filed on May 29, 1996 and incorporated herein by reference). | |
10.2
|
Form of Subscription Agreement (attached as Exhibit B to the Registration Statement on Form S-1 filed on May 29, 1996 and incorporated herein by reference). | |
10.3
|
Form of Escrow Agreement (filed as Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
10.4(a)
|
Management Agreement among the Partnership, the General Partner and Willowbridge (filed as Exhibit 10.7 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 filed on March 30, 1998 and incorporated herein by reference). |
30
(b)
|
Letter extending Management Agreement with Willowbridge for 2010 (filed as Exhibit 10.4(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed on March 31, 2011 and incorporated herein by reference). | |
10.6(a)
|
Management Agreement among the Partnership, the General Partner and Graham (filed as Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2000 filed on March 29, 2001 and incorporated herein by reference). | |
(b)
|
Letter extending Management Agreement with Graham for 2010 (filed as Exhibit 10.6(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed on March 31, 2011 and incorporated herein by reference). | |
10.7(a)
|
Management Agreement among the Partnership, the General Partner and CFM (filed as Exhibit 10.24 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2001 filed on March 28, 2002 and incorporated herein by reference). | |
10.8(a)
|
Management Agreement among the Partnership, the General Partner and Eckhardt (filed as Exhibit 10 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008 filed on August 14, 2008 and incorporated herein by reference). | |
(b)
|
Letter extending Management Agreement with Eckhardt Trading Company for 2010 (filed as Exhibit 10.8(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed on March 31, 2011 and incorporated herein by reference). | |
10.9(a)
|
Management Agreement among the Partnership, the General Partner and SandRidge (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on June 2, 2009 and incorporated herein by reference). | |
(b)
|
Letter extending Management Agreement with SandRidge for 2010 (filed as Exhibit 10.9(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed on March 31, 2011 and incorporated herein by reference). | |
10.10
|
Joinder Agreement among the Partnership, the General Partner, CGM and Morgan Stanley Smith Barney LLC (filed as Exhibit 10 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 filed August 14, 2009 and incorporated herein by reference). | |
31.1
|
Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director). | |
31.2
|
Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director). | |
32.1
|
Section 1350 Certification (Certification of President and Director). | |
32.2
|
Section 1350 Certification (Certification of Chief Financial Officer and Director). |
31
SIGNATURES
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.
Diversified Multi-Advisor Futures Fund L.P. II |
||||
By: | Ceres Managed Futures LLC (General Partner) |
By: | /s/ Walter Davis | |||
Walter Davis | ||||
President and Director |
Date:
May 16, 2011
By: | /s/ Jennifer Magro | |||
Jennifer Magro | ||||
Chief Financial Officer and
Director (Principal Accounting Officer) |
Date:
May 16, 2011
32