Attached files
file | filename |
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EX-32.1 - EX 32.1 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | d517630dex321.htm |
EX-31.2 - EX 31.2 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | d517630dex312.htm |
EX-31.1 - EX 31.1 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | d517630dex311.htm |
EXCEL - IDEA: XBRL DOCUMENT - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | Financial_Report.xls |
EX-32.2 - EX 32.2 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | d517630dex322.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
OR ( ) 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
(Exact name of registrant as specified in its charter)
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)
(855) 672-4468
(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 X 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 |
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, 2013, 12,518.4424 Limited Partnership Redeemable Units were outstanding.
Table of Contents
DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II
FORM 10-Q
2
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Statements of Financial Condition
(Unaudited) March 31, 2013 |
December 31, 2012 |
|||||||
Assets: |
||||||||
Investment in Funds, at fair value |
$ | 18,582,187 | $ | 12,034,895 | ||||
Equity in trading account: |
||||||||
Cash |
70,975 | 6,882,148 | ||||||
Cash margin |
| 76,517 | ||||||
|
|
|
|
|||||
Total trading equity |
18,653,162 | 18,993,560 | ||||||
Interest receivable |
| 291 | ||||||
|
|
|
|
|||||
Total assets |
$ | 18,653,162 | $ | 18,993,851 | ||||
|
|
|
|
|||||
Liabilities and Partners Capital: |
||||||||
Liabilities: |
||||||||
Net unrealized depreciation on open forward contracts |
$ | | $ | 76,517 | ||||
Accrued expenses: |
||||||||
Brokerage fees |
93,267 | 94,586 | ||||||
Management fees |
27,221 | 31,256 | ||||||
Other |
71,778 | 69,996 | ||||||
Redemptions payable |
100,912 | 176,656 | ||||||
|
|
|
|
|||||
Total liabilities |
293,178 | 449,011 | ||||||
|
|
|
|
|||||
Partners Capital: |
||||||||
General Partner, 142.3844 and 196.3844 unit equivalents at March 31, 2013 and December 31, 2012, respectively |
202,169 | 275,510 | ||||||
Limited Partners, 12,788.2864 and 13,022.4684 Redeemable Units outstanding at March 31, 2013 and December 31, 2012, respectively |
18,157,815 | 18,269,330 | ||||||
|
|
|
|
|||||
Total partners capital |
18,359,984 | 18,544,840 | ||||||
|
|
|
|
|||||
Total liabilities and partners capital |
$ | 18,653,162 | $ | 18,993,851 | ||||
|
|
|
|
|||||
Net asset value per unit |
$ | 1,419.88 | $ | 1,402.91 | ||||
|
|
|
|
See accompanying notes to financial statements.
3
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Condensed Schedule of Investments
March 31, 2013
(Unaudited)
% of Partners |
||||||||
Fair Value | Capital | |||||||
Investment in Funds |
||||||||
CMF Willowbridge Master Fund L.P. |
$ | 8,668,217 | 47.21 | % | ||||
CMF Graham Capital Master Fund L.P. |
3,041,059 | 16.56 | ||||||
CMF Eckhardt Master Fund L.P. |
6,872,911 | 37.44 | ||||||
|
|
|
|
|||||
Total investment in Funds, at fair value |
$ | 18,582,187 | 101.21 | % | ||||
|
|
|
|
See accompanying notes to financial statements.
4
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Condensed Schedule of Investments
December 31, 2012
Number of Contracts |
Fair Value | % of Partners Capital |
||||||||||
Unrealized Appreciation on Open Forward Contracts |
||||||||||||
Metals |
329 | $ | 894,398 | 4.82 | % | |||||||
|
|
|
|
|||||||||
Total unrealized appreciation on open forward contracts |
894,398 | 4.82 | ||||||||||
|
|
|
|
|||||||||
Unrealized Depreciation on Open Forward Contracts |
||||||||||||
Metals |
319 | (970,915 | ) | (5.24 | ) | |||||||
|
|
|
|
|||||||||
Total unrealized depreciation on open forward contracts |
(970,915 | ) | (5.24 | ) | ||||||||
|
|
|
|
|||||||||
Investment in Funds |
||||||||||||
CMF Willowbridge Master Fund L.P. |
2,832,717 | 15.28 | ||||||||||
CMF Graham Capital Master Fund L.P. |
2,711,863 | 14.62 | ||||||||||
CMF Eckhardt Master Fund L.P. |
4,751,594 | 25.62 | ||||||||||
CMF SandRidge Master Fund L.P. |
1,738,721 | 9.38 | ||||||||||
|
|
|
|
|||||||||
Total Investment in Funds |
12,034,895 | 64.90 | ||||||||||
|
|
|
|
|||||||||
Net fair value |
$ | 11,958,378 | 64.48 | % | ||||||||
|
|
|
|
See accompanying notes to financial statements.
5
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Investment Income: |
||||||||
Interest income |
$ | | $ | 736 | ||||
Interest income from investment in Funds |
2,227 | 1,145 | ||||||
|
|
|
|
|||||
Total investment income (loss) |
2,227 | 1,881 | ||||||
|
|
|
|
|||||
Expenses: |
||||||||
Brokerage fees including clearing fees |
300,456 | 394,138 | ||||||
Management fees |
78,200 | 115,299 | ||||||
Other |
25,952 | 50,313 | ||||||
|
|
|
|
|||||
Total expenses |
404,608 | 559,750 | ||||||
|
|
|
|
|||||
Net investment income (loss) |
(402,381 | ) | (557,869 | ) | ||||
Trading Results: |
||||||||
Net gains (losses) on trading of commodity interests and investment in Funds: |
||||||||
Net realized gains (losses) on closed contracts |
(76,517 | ) | (142,014 | ) | ||||
Net realized gains (losses) on investment in Funds |
544,372 | 408,544 | ||||||
Change in net unrealized gains (losses) on open contracts |
76,517 | (384,756 | ) | |||||
Change in net unrealized gains (losses) on investments in Funds |
81,097 | (38,880 | ) | |||||
|
|
|
|
|||||
Total trading results |
625,469 | (157,106 | ) | |||||
|
|
|
|
|||||
Net income (loss) |
223,088 | (714,975 | ) | |||||
Redemptions Limited Partners |
(332,219 | ) | (406,078 | ) | ||||
Redemptions General Partner |
(75,725 | ) | | |||||
|
|
|
|
|||||
Net increase (decrease) in Partners Capital |
(184,856 | ) | (1,121,053 | ) | ||||
Partners Capital, beginning of period |
18,544,840 | 23,203,984 | ||||||
|
|
|
|
|||||
Partners Capital, end of period |
$ | 18,359,984 | $ | 22,082,931 | ||||
|
|
|
|
|||||
Net asset value per unit (12,930.6708 and 14,502.6008 units outstanding at March 31, 2013 and 2012, respectively) |
$ | 1,419.88 | $ | 1,522.69 | ||||
|
|
|
|
|||||
Net income (loss) per unit* |
$ | 16.97 | $ | (49.46 | ) | |||
|
|
|
|
|||||
Weighted average units outstanding |
13,104.8715 | 14,631.7375 | ||||||
|
|
|
|
* | Based on change in net asset value per unit. |
See accompanying notes to financial statements.
6
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
March 31, 2013
(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, lumber and U.S. and non-U.S. interest rates. The commodity interests that are traded by the Partnership directly and through its investment in 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 up to 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 Inc. indirectly owns a minority equity interest in MSSB Holdings. Citigroup Inc. also indirectly owns Citigroup Global Markets Inc. (CGM), the commodity broker for the Partnership. Morgan Stanley expects to purchase, subject to regulatory approvals, Citigroup Inc.s remaining interest in MSSB Holdings. Prior to July 31, 2009, 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 Inc.
As of March 31, 2013 all trading decisions are made for the Partnership by Graham Capital Management L.P. (Graham), Willowbridge Associates Inc. (Willowbridge) and Eckhardt Trading Company (Eckhardt) (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 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 its initial capital contribution and profits or losses, if any, net of distributions.
The accompanying financial statements and accompanying notes 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, 2013 and December 31, 2012, and the results of its operations and changes in partners capital for the three months ended March 31, 2013 and 2012. 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, 2012.
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. As a result, actual results could differ from these estimates.
Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.
7
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2013
(Unaudited)
2. Financial Highlights:
Changes in the net asset value per unit for the three months ended March 31, 2013 and 2012 were as follows:
Three Months
Ended March 31, |
||||||||
2013 | 2012 | |||||||
Net realized and unrealized gains (losses) * |
$ | 24.75 | $ | (38.27 | ) | |||
Interest income |
0.16 | 0.13 | ||||||
Expenses ** |
(7.94 | ) | (11.32 | ) | ||||
|
|
|
|
|||||
Increase (decrease) for the period |
16.97 | (49.46 | ) | |||||
Net asset value per unit, beginning of period |
1,402.91 | 1,572.15 | ||||||
|
|
|
|
|||||
Net asset value per unit, end of period |
$ | 1,419.88 | $ | 1,522.69 | ||||
|
|
|
|
* | Includes brokerage fees. |
** | Excludes brokerage fees. |
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Ratios to average net assets: *** |
||||||||
Net investment income (loss) |
(8.9 | )% | (9.8 | )% | ||||
Incentive fees |
| % | | % | ||||
|
|
|
|
|||||
Net investment income (loss) before incentive fees **** |
(8.9 | )% | (9.8 | )% | ||||
|
|
|
|
|||||
Operating expenses |
8.9 | % | 9.8 | % | ||||
Incentive fees |
| % | % | |||||
|
|
|
|
|||||
Total expenses |
8.9 | % | 9.8 | % | ||||
|
|
|
|
|||||
Total return: |
||||||||
Total return before incentive fees |
1.2 | % | (3.1 | )% | ||||
Incentive fees |
| % | | % | ||||
|
|
|
|
|||||
Total return after incentive fees |
1.2 | % | (3.1 | )% | ||||
|
|
|
|
*** | Annualized (other than incentive fees). |
**** | Interest income less total expenses. |
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 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, respectively, the legal right to net unrealized gains and losses on open futures contracts, exchange-cleared swaps and open forward contracts. The Partnership and the Funds net, for financial reporting purposes, the unrealized gains and losses on open futures exchange-cleared swaps and on open forward contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification (ASC) 210-20, Balance Sheet, have been met.
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, 2012 was 1,050. The monthly average number of metals forward contracts traded directly by the Partnership during the three months ended March 31, 2013 and 2012 was 219 and 624, respectively.
8
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2013
(Unaudited)
Brokerage fees are calculated as a percentage of the Partnerships adjusted net asset value on the last day of each month and are affected by trading performance and redemptions.
On January 1, 2013, the Partnership adopted Accounting Standards Update (ASU) 2011-11, Disclosure about Offsetting Assets and Liabilities and ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 created a new disclosure requirement about the nature of an entitys rights to setoff and the related arrangements associated with its financial instruments and derivative instruments, while ASU 2013-01 clarified the types of instruments and transactions that are subject to the offsetting disclosure requirements established by ASU 2011-11. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of these disclosures is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (IFRS). The new guidance did not have a significant impact on the Partnerships financial statements.
The were no direct investments at March 31, 2013. The following table summarizes the valuation of the Partnerships direct investments as of December 31, 2012.
December 31, 2012 |
Gross Amounts Recognized |
Gross Amounts Offset in the Statement of Financial Condition |
Net Amounts Presented in the Statement of Financial Condition |
|||||||||
Assets |
||||||||||||
Forwards |
$ | 759,648 | $ | (160,837 | ) | $ | 598,811 | |||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 759,648 | $ | (160,837 | ) | $ | 598,811 | |||||
|
|
|
|
|
|
|||||||
Liabilities |
||||||||||||
Forwards |
$ | 134,750 | $ | (810,078 | ) | $ | (675,328 | ) | ||||
|
|
|
|
|
|
|||||||
Total liabilities |
$ | 134,750 | $ | (810,078 | ) | $ | (675,328 | ) | ||||
|
|
|
|
|
|
|||||||
Net unrealized depreciation on open forward contracts |
$ | (76,517 | ) | |||||||||
|
|
|||||||||||
Total net unrealized gain (loss) on total contracts |
$ | (76,517 | ) | |||||||||
|
|
The following table indicates the gross fair values of derivative instruments of futures and forward contracts traded directly by the Partnership as separate assets and liabilities as of December 31, 2012.
December 31, 2012 | ||||
Assets |
||||
Forward Contracts |
||||
Metals |
$ | 894,398 | ||
|
|
|||
Total unrealized appreciation on open forward contracts |
$ | 894,398 | ||
|
|
|||
Liabilities |
||||
Forward Contracts |
||||
Metals |
$ | (970,915 | ) | |
|
|
|||
Total unrealized depreciation on open forward contracts |
$ | (970,915 | ) | |
|
|
|||
Net unrealized depreciation on open forward contracts |
$ | (76,517 | )* | |
|
|
* | This amount is in Net unrealized depreciation on open forward contracts on the Statements of Financial Condition. |
9
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2013
(Unaudited)
The following table indicates the trading gains and losses, by market sector, on derivative instruments traded directly by the Partnership for the three months ended March 31, 2012.
Sector |
Three Months Ended March 31, 2012 Gain (loss) from trading |
|||
Currencies |
$ | (108,027 | ) | |
Energy |
175,794 | |||
Grains |
(130,585 | ) | ||
Indices |
199,491 | |||
Interest Rates U.S. |
(84,484 | ) | ||
Interest Rates Non-U.S. |
(292,264 | ) | ||
Livestock |
2,657 | |||
Softs |
(20,829 | ) | ||
Metals |
(268,523 | ) | ||
|
|
|||
Total |
$ | (526,770 | )** | |
|
|
** | This amount is in Total trading results on the Statements of Income and Expenses and Changes in Partners Capital. |
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 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 use of 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 their 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.
10
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2013
(Unaudited)
On October 1, 2012, the Financial Accounting Standards Board (FASB) issued ASU 2012-04 Technical Corrections and Improvements, which makes minor technical corrections and clarifications to Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures. When the FASB issued Statement 157 (codified in ASC 820), it conformed the use of the term fair value in certain pre-Codification standards but not others. ASU 2012-04 conforms the terms use throughout the ASC to fully reflect the fair value measurement and disclosure requirements of ASC 820. ASU 2012-04 also amends the requirements that must be met for an investment company to qualify for the exemption from presenting a statement of cash flows. Specifically, it eliminates the requirements that substantially all of an entitys investments be carried at market value and that the investments be highly liquid. Instead, it requires substantially all of the entitys investments to be carried at fair value and classified as Level 1 or Level 2 measurements under ASC 820. The amendments are effective for fiscal periods beginning after December 15, 2012. The adoption of this ASU did not have a material impact on the Partnerships financial statements.
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 and liabilities (Level 1). The values of non-exchange-traded forwards, swaps and 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 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, 2013 and December 31, 2012, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of managements assumptions and internal valuation pricing models (Level 3). During the three months ended March 31, 2013 and for the year ended December 31, 2012, there were no transfers of assets or liabilities between Level 1 or Level 2.
March 31, 2013 | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Assets |
||||||||||||||||
Investment in Funds |
$ | 18,582,187 | $ | | $ | 18,582,187 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net fair value |
$ | 18,582,187 | $ | | $ | 18,582,187 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2012 | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Assets | ||||||||||||||||
Investment in Funds |
$ | 12,034,895 | $ | | $ | 12,034,895 | $ | | ||||||||
Forwards |
894,398 | 894,398 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
12,929,293 | 894,398 | 12,034,895 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities | ||||||||||||||||
Forwards |
$ | 970,915 | $ | 970,915 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
970,915 | 970,915 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net fair value |
$ | 11,958,378 | $ | (76,517 | ) | $ | 12,034,895 | $ | | |||||||
|
|
|
|
|
|
|
|
11
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2013
(Unaudited)
5. Investment in Funds:
The assets allocated to CFM for trading were invested directly pursuant to CFMs Discus (1.5x Leverage) Program, a proprietary, systematic trading system. The Partnership terminated its direct allocation to CFM on December 31, 2012 for cash equal to $6,746,935.
On July 1, 2005, the assets allocated to Willowbridge for trading were invested in CMF Willowbridge Master Fund L.P. (formerly, the 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 accounts managed by Willowbridge using its W/Praxis Futures Trading Approach, a proprietary, discretionary 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. The General Partner and Willowbridge will trade the Partnerships assets allocated to Willowbridge at a level that is up to 3 times the amount of assets allocated. Prior to January 1, 2013, Willowbridge traded the Partnerships assets pursuant to its Argo Trading System.
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 accounts managed 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. The General Partner and Graham agreed that Graham will trade the Partnerships assets allocated to Graham at a level that is 1.5 times the amount of assets allocated.
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 accounts managed by Eckhardt using its Standard Program-Higher Leveraged, a proprietary, systematic trading system, to invest together in one 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 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. Effective January 31, 2013, the Partnership fully redeemed its investment in SandRidge Master for cash equal to $5,701,761.
The General Partner is not aware of any material changes to any of the trading programs discussed above during the fiscal quarter ended March 31, 2013.
Willowbridge Masters, Graham Masters and Eckhardt Masters (collectively, the Funds) and the Partnerships trading of futures, forwards, swaps and options contracts, if applicable, on commodities is done primarily on U.S. and foreign commodity exchanges. References to funds included in this report may also include, as relevant, reference to SandRidge Master. The Funds and the Partnership engage in such trading through commodity brokerage accounts maintained with CGM.
A limited partner of the Funds 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 unit as of the end of any day (the Redemption Date) after a request for redemption has been made to the general partner of the Funds 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, service, 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.
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Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2013
(Unaudited)
As of March 31, 2013, the Partnership owned approximately 10.0%, 4.2% and 32.8%, of Willowbridge Master, Graham Master and Eckhardt Master, respectively. As of December 31, 2012, the Partnership owned approximately 7.2%, 3.2%, 25.8% 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, 2013 | ||||||||||||
Total Assets | Total Liabilities | Total Capital | ||||||||||
Willowbridge Master |
$ | 86,930,324 | $ | 642,455 | $ | 86,287,869 | ||||||
Graham Master |
73,666,855 | 960,767 | 72,706,088 | |||||||||
Eckhardt Master |
21,891,929 | 957,900 | 20,934,029 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 182,489,108 | $ |
2,561,122 |
|
$ | 179,927,986 | |||||
|
|
|
|
|
|
|||||||
December 31, 2012 | ||||||||||||
Total Assets | Total Liabilities | Total Capital | ||||||||||
Willowbridge Master |
$ | 39,742,467 | $ | 485,385 | $ | 39,257,082 | ||||||
Graham Master |
85,313,676 | 377,625 | 84,936,051 | |||||||||
Eckhardt Master |
18,542,577 | 112,971 | 18,429,606 | |||||||||
SandRidge Master |
294,670,281 | 2,521,288 | 292,148,993 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 438,269,001 | $ | 3,497,269 | $ | 434,771,732 | ||||||
|
|
|
|
|
|
Summarized information reflecting the net investment income (loss), total trading results and net income (loss) for the Funds is shown in the following tables.
For the three months ended March 31, 2013 | ||||||||||||
Net Investment Income (Loss) |
Total
Trading Results |
Net Income (Loss) |
||||||||||
Willowbridge Master |
$ | (109,276 | ) | $ | 2,076,675 | $ | 1,967,399 | |||||
Graham Master |
(72,893 | ) | 7,535,558 | 7,462,665 | ||||||||
Eckhardt Master |
(42,912 | ) | 614,370 | 571,458 | ||||||||
SandRidge Master |
(68,488 | ) | 129,650 | 61,162 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (293,569 | ) | $ | 10,356,253 | $ | 10,062,684 | |||||
|
|
|
|
|
|
|||||||
For the three months ended March 31, 2012 | ||||||||||||
Net Investment Income (Loss) |
Total Trading Results |
Net Income (Loss) |
||||||||||
Willowbridge Master |
$ | (24,293 | ) | $ | (2,080,068 | ) | $ | (2,104,361 | ) | |||
Graham Master |
(154,873 | ) | 3,061,669 | 2,906,796 | ||||||||
Eckhardt Master |
(50,920 | ) | 245,610 | 194,690 | ||||||||
SandRidge Master |
(232,244 | ) | 49,569,214 | 49,336,970 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (462,330 | ) | $ | 50,796,425 | $ | 50,334,095 | |||||
|
|
|
|
|
|
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Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2013
(Unaudited)
Summarized information reflecting the Partnerships investment in, and the operations of, the Funds is shown in the following tables.
March 31, 2013 | For the three months ended March 31, 2013 | |||||||||||||||||||||||||||
% of Partnerships |
Fair | Income | Expenses | Net Income |
Investment | Redemptions | ||||||||||||||||||||||
Funds |
Net Assets | Value | (Loss) | Brokerage Fees | Other | (Loss) | Objective | Permitted | ||||||||||||||||||||
Willowbridge Master |
47.21 | % | $ | 8,668,217 | $ | 164,396 | $ | 8,868 | $ | 2,715 | $ | 152,813 | Commodity Portfolio | Monthly | ||||||||||||||
Graham Master |
16.56 | % | 3,041,059 | 289,115 | 2,242 | 718 | 286,155 | Commodity Portfolio | Monthly | |||||||||||||||||||
Eckhardt Master |
37.44 | % | 6,872,911 | 171,486 | 8,311 | 5,906 | 157,269 | Commodity Portfolio | Monthly | |||||||||||||||||||
SandRidge Master |
0.00 | % | | 2,699 | 295 | 1,214 | 1,190 | Energy Portfolio | Monthly | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 18,582,187 | $ | 627,696 | $ | 19,716 | $ | 10,553 | $ | 597,427 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
December 31, 2012 | For the three months ended March 31, 2012 | |||||||||||||||||||||||||||
% of Partnerships |
Fair | Income | Expenses | Net Income |
Investment | Redemptions | ||||||||||||||||||||||
Funds |
Net Assets | Value | (Loss) | Brokerage Fees | Other | (Loss) | Objective | Permitted | ||||||||||||||||||||
Willowbridge Master |
15.28 | % | $ | 2,832,717 | $ | (139,997 | ) | $ | 649 | $ | 1,172 | $ | (141,818 | ) | Commodity Portfolio | Monthly | ||||||||||||
Graham Master |
14.62 | % | 2,711,863 | 89,843 | 4,430 | 446 | 84,967 | Commodity Portfolio | Monthly | |||||||||||||||||||
Eckhardt Master |
25.62 | % | 4,751,594 | 62,774 | 8,997 | 4,663 | 49,114 | Commodity Portfolio | Monthly | |||||||||||||||||||
SandRidge Master |
9.38 | % | 1,738,721 | 358,189 | 1,290 | 560 | 356,339 | Energy Portfolio | Monthly | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 12,034,895 | $ | 370,809 | $ | 15,366 | $ | 6,841 | $ | 348,602 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
14
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2013
(Unaudited)
6. Financial Instrument Risks:
In the normal course of business, the Partnership (through its investments in the Funds) 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, 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 forward and option contracts. OTC contracts are negotiated between contracting parties and include certain forward, swap and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. The writer or seller of an option has unlimited risk. Each of these instruments is subject to various risks similar to those relating 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 General Partner estimates that at any given time approximately 3.6% to 11.6% of the Partnerships/Funds contracts are traded OTC.
The risk to the limited partners that have purchased Redeemable Units is limited to the amount of their share of the Partnerships net assets and undistributed profits. This limited liability is a result of the organization of the Partnership as a limited partnership under New York 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 CGM or a CGM affiliate is the sole counterparty or broker with respect to the Partnerships/Funds assets. 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, exchange-cleared swaps, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions.
The majority of these financial 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
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2013
(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 held by the Partnership and the Funds (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 use of 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 and liabilities (Level 1). The values of non-exchange-traded forwards, swaps and options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets and liabilities 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, 2013 and December 31, 2012, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of managements assumptions and internal valuation pricing models (Level 3). During the three months ended March 31, 2013 and for the year ended December 31, 2012, there were no transfers of assets or liabilities between Level 1 and Level 2.
16
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2013
(Unaudited)
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. Forward foreign currency contracts are those contracts where the Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Forward 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. Net realized gains (losses) and changes in net unrealized gains (losses) on forward 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 Partnership and 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 income (loss) on investments in the Statements of Income and Expenses and Changes in Partners Capital.
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 Partnership/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.
17
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
March 31, 2013
(Unaudited)
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 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. The 2009 through 2012 tax years remain subject to examination by U.S. federal and most state tax authorities. The General Partner does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Subsequent Events. The General Partner evaluates events that occur after the balance sheet date but before financial statements are filed. The General Partner 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.
Recent Accounting Pronouncements. In October 2011, FASB issued a proposed ASU intended to improve and converge financial reporting by setting forth consistent criteria for determining whether an entity is an investment company. Under longstanding GAAP, investment companies carry all of their investments at fair value, even if they hold a controlling interest in another company. The primary changes being proposed by FASB relate to which entities would be considered investment companies as well as certain disclosure and presentation requirements. In addition to the changes to the criteria for determining whether an entity is an investment company, FASB also proposes that an investment company consolidate another investment company if it holds a controlling financial interest in the entity. In August 2012, FASB updated the proposed ASU to state that entities regulated under the Investment Company Act of 1940 should qualify to be investment companies within the proposed investment company guidance. The Partnership will evaluate the impact that this proposed update would have on the financial statements once the pronouncement is issued.
Net Income (Loss) per unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 2, Financial Highlights.
18
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in sales 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 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 2013.
The Partnerships capital consists of the capital contributions of the partners as increased or decreased by realized and/or unrealized 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 2013, Partnership capital decreased 1.0% from $18,544,840 to $18,359,984. This decrease was attributable to the redemptions of 234.1820 Redeemable Units resulting in an outflow of $332,219 and 54.0000 General Partner unit equivalents totaling $75,725, which was partially offset by the net income of $223,088. Future redemptions could 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 and assumptions 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 and the Funds record all investments at fair value in their financial statements, with changes in fair value reported as a component of net realized gains (losses) and change in net unrealized gains (losses) in the Statements of Income and Expenses and Changes in Partners Capital.
19
Table of Contents
Results of Operations
During the Partnerships first quarter of 2013, the net asset value per unit increased 1.2% from $1,402.91 to $1,419.88 as compared to a decrease of 3.1% in the first quarter of 2012. 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 2013 of $625,469. Gains were primarily attributable to the Masters trading of commodity futures in currencies, grains, non-U.S. interest rates, softs and indices and were partially offset by losses in energy, U.S. interest rates and metals. The Partnership experienced a net trading loss before brokerage fees and related fees in the first quarter of 2012 of $157,106. Losses were primarily attributable to the Partnerships and the Funds trading of commodity futures in currencies, grains, metals, softs, U.S. and non-U.S. interest rates and were partially offset by gains in energy, indices and livestock.
The most significant gains were recorded within the global stock index markets during January from long positions in U.S., Pacific Rim, and European equity index futures as prices moved higher after German business confidence improved, economic reports in the U.S. and China beat estimates, and a weaker yen boosted Japans exports. Within the currency markets, gains were achieved primarily during January from short positions in the Japanese yen versus the U.S. dollar, Canadian dollar, euro, and Australian dollar as the value of the yen declined on speculation the Bank of Japan will ease monetary policy further. Additional currency gains were experienced during March from long positions in the Mexican peso versus the U.S. dollar as the value of the peso moved higher after a gain in U.S. retail sales boosted the outlook for Mexican exports. Gains were also experienced within the global interest rate sector, primarily during March, from long positions in European fixed income futures as prices rose after Cypruss rejection of a bailout plan stoked concern Europes debt crisis is worsening. Within the agricultural sector, gains were experienced primarily during January from long positions in soybean futures as prices advanced on concern that drier weather will deplete soil moisture in South America and increase stress on crops.
A portion of the Partnerships gains for the quarter was offset by losses incurred within the energy sector during February from long futures positions in crude oil and its related products as prices fell sharply following news that the U.S. economy grew less than economists expected and manufacturing expanded less than forecast in China and contracted in Europe. Within the metals sector, losses were incurred primarily during March from short positions in gold futures as prices advanced as signs of slowing growth in Europe increased speculation that central banks will expand stimulus, boosting demand for precious metals as a store of value.
20
Table of Contents
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 Partnerships daily average 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, 2013 increased by $346, as compared to the corresponding period in 2012. The increase in interest income was primarily due to higher U.S. Treasury bill rates during the three months ended March 31, 2013 as compared to the corresponding period in 2012. 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 account and upon interest rates over which neither the Partnership, the Funds nor CGM has control.
Brokerage fees are calculated as a percentage of the Partnerships net asset value as of the end of the 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, 2013 decreased by $93,682, as compared to the corresponding period in 2012. The decrease in brokerage fees is due to lower average net assets during the three months ended March 31, 2013 as compared to the corresponding period in 2012.
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. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Management fees for the three months ended March 31, 2013 decreased by $37,099, as compared to the corresponding period in 2012. The decrease in management fees is due to lower average net assets during the three months ended March 31, 2013 as compared to the corresponding period in 2012.
Incentive fees are based on the new trading profits generated by each Advisor as defined in the advisory agreement among the Partnership, the General Partner and each Advisor. There were no incentive fees for the three months ended March 31, 2013 and 2012. An Advisor will not be paid incentive fees until such Advisor recovers any net loss incurred by the Advisor and earns additional new trading profits for the Partnership.
In allocating the assets of the Partnership among the Advisors, the General Partner considers each Advisors past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets among the Advisors and may allocate assets to additional advisors at any time.
As of March 31, 2013 and December 31, 2012, the Partnerships assets were allocated among the trading Advisors in the following approximate percentages:
Advisor |
March 31, 2013 | December 31, 2012 | ||||||||||||||
Graham Capital Management, L.P. |
$ | 2,926,898 | 16% | $ | 2,527,613 | 14% | ||||||||||
Capital Fund Management SA |
$ | | % | $ | 6,746,935 | 36% | ||||||||||
Willowbridge Associates, Inc. |
$ | 8,611,777 | 47% | $ | 2,819,833 | 15% | ||||||||||
Eckhardt Trading Company |
$ | 6,821,309 | 37% | $ | 4,721,634 | 26% | ||||||||||
SandRidge Capital, L.P. |
$ | | % | $ | 1,728,825 | 9% |
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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 limited partners will not be liable for losses exceeding the current net asset value of their investment.
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 contracts 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 their market risk.
Exchange maintenance margin requirements have been used by the Partnership and the Funds as the measure of their 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. The margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation. 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. The Advisors currently trade the Partnerships assets indirectly in master fund managed accounts over which they have been granted limited authority to make trading decisions. The first two trading Value at Risk tables reflect the market sensitive instruments held by the Partnership indirectly, through its investment in the Funds, as of March 31, 2013 and December 31, 2012. The remaining trading Value at Risk tables reflect the market sensitive instruments held by each Fund separately. 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, 2012.
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The following tables indicate the trading Value at Risk associated with the Partnerships open positions by market category as of March 31, 2013 and December 31, 2012. As of March 31, 2013, the Partnerships total capitalization was $18,359,984.
March 31, 2013
Market Sector |
Value at Risk | % of Total Capitalization |
||||||
Currencies |
$ | 443,768 | 2.42 | % | ||||
Energy |
120,255 | 0.65 | % | |||||
Grains |
38,501 | 0.21 | % | |||||
Indices |
493,878 | 2.69 | % | |||||
Interest Rates U.S. |
229,398 | 1.25 | % | |||||
Interest Rates Non-U.S. |
214,949 | 1.17 | % | |||||
Metals |
73,249 | 0.40 | % | |||||
Softs |
32,827 | 0.18 | % | |||||
|
|
|
|
|||||
Total |
$ | 1,646,825 | 8.97 | % | ||||
|
|
|
|
|||||
As of December 31, 2012, the Partnerships total capitalization was $18,544,840.
December 31, 2012 |
| |||||||
Market Sector |
Value at Risk | % of
Total Capitalization |
||||||
Currencies |
$ | 385,082 | 2.08 | % | ||||
Energy |
74,579 | 0.40 | % | |||||
Grains |
50,119 | 0.27 | % | |||||
Indices |
294,290 | 1.59 | % | |||||
Interest Rates U.S. |
67,595 | 0.36 | % | |||||
Interest Rates Non-U.S. |
145,799 | 0.79 | % | |||||
Metals |
74,986 | 0.40 | % | |||||
Softs |
14,239 | 0.08 | % | |||||
|
|
|
|
|||||
Total |
$ | 1,106,689 | 5.97 | % | ||||
|
|
|
|
The following tables indicate the trading Value at Risk associated with the Partnerships investments in the Funds by market category as of March 31, 2013 and December 31, 2012 and the highest and lowest value at any point and the average value during the three months ended March 31, 2013 and for the twelve months ended December 31, 2012. All open position trading risk exposures of the Funds have been included in calculating the figures set forth below.
23
Table of Contents
As of March 31, 2013, Willowbridge Masters total capitalization was $86,287,869. The Partnership owned approximately 10.0% of Willowbridge Master. As of March 31, 2013, 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, 2013
Three months ended March 31, 2013 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of
Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 1,118,100 | 1.30 | % | $ | 2,058,475 | $ | 148,500 | $ | 1,171,821 | ||||||||||
Indices |
596,583 | 0.69 | % | 6,842,689 | 352,000 | 1,329,948 | ||||||||||||||
Interest Rates U.S. |
766,750 | 0.89 | % | 1,021,680 | 235,000 | 456,389 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 2,481,433 | 2.88 | % | ||||||||||||||||
|
|
|
|
* | Average of month-end Values at Risk. |
As of December 31, 2012, Willowbridge Masters total capitalization was $39,257,082 and there were no amounts at risk. The Partnership owned approximately 7.2% of Willowbridge Master.
As of March 31, 2013, Graham Masters total capitalization was $72,706,088. The Partnership owned approximately 4.2% of Graham Master. As of March 31, 2013, 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, 2013
Three months ended March 31, 2013 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of
Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 3,660,626 | 5.03 | % | $ | 5,000,207 | $ | 3,107,628 | $ | 3,663,639 | ||||||||||
Energy |
678,298 | 0.93 | % | 1,417,325 | 405,059 | 774,033 | ||||||||||||||
Grains |
437,050 | 0.60 | % | 714,250 | 350,474 | 441,855 | ||||||||||||||
Indices |
5,262,299 | 7.24 | % | 5,882,185 | 3,961,891 | 4,731,273 | ||||||||||||||
Interest Rates U.S. |
874,475 | 1.20 | % | 874,575 | 537,325 | 701,250 | ||||||||||||||
Interest Rates Non-U.S. |
2,644,302 | 3.64 | % | 2,659,126 | 1,276,455 | 1,978,115 | ||||||||||||||
Metals |
1,381,837 | 1.90 | % | 1,522,953 | 545,530 | 1,071,267 | ||||||||||||||
Softs |
462,192 | 0.64 | % | 511,259 | 308,329 | 406,507 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 15,401,079 | 21.18 | % | ||||||||||||||||
|
|
|
|
* | Average of month-end Values at Risk. |
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Table of Contents
As of December 31, 2012, Graham Masters total capitalization was $84,936,051. The Partnership owned approximately 3.2% of Graham Master. As of December 31, 2012, 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, 2012
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 4,886,499 | 5.75 | % | $ | 5,242,762 | $ | 2,153,005 | $ | 3,676,056 | ||||||||||
Energy |
879,022 | 1.04 | % | 3,576,694 | 328,716 | 1,612,982 | ||||||||||||||
Grains |
707,500 | 0.83 | % | 1,548,650 | 617,775 | 806,449 | ||||||||||||||
Indices |
4,894,230 | 5.76 | % | 8,403,330 | 3,650,988 | 5,248,562 | ||||||||||||||
Interest Rates U.S. |
727,200 | 0.86 | % | 2,173,050 | 190,045 | 1,283,420 | ||||||||||||||
Interest Rates Non-U.S. |
2,250,303 | 2.65 | % | 5,723,015 | 2,250,303 | 3,953,113 | ||||||||||||||
Metals |
1,161,998 | 1.37 | % | 2,984,515 | 661,356 | 1,671,237 | ||||||||||||||
Softs |
372,412 | 0.44 | % | 999,000 | 372,412 | 653,258 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 15,879,164 | 18.70 | % | ||||||||||||||||
|
|
|
|
* | Annual average based on month-end Value at Risk. |
As of March 31, 2013, Eckhardt Masters total capitalization was $20,934,029. The Partnership owned approximately 32.8% of Eckhardt Master. As of March 31, 2013, 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, 2013
Three months ended March 31, 2013 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of
Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 543,328 | 2.60 | % | $ | 945,143 | $ | 330,467 | $ | 475,304 | ||||||||||
Energy |
279,775 | 1.34 | % | 299,925 | 123,150 | 212,958 | ||||||||||||||
Grains |
61,417 | 0.29 | % | 183,331 | 61,417 | 93,536 | ||||||||||||||
Indices |
650,011 | 3.10 | % | 755,546 | 475,576 | 612,020 | ||||||||||||||
Interest Rates U.S. |
353,644 | 1.69 | % | 353,644 | 27,783 | 277,868 | ||||||||||||||
Interest Rates Non-U.S. |
316,732 | 1.51 | % | 372,076 | 116,551 | 289,886 | ||||||||||||||
Metals |
46,378 | 0.22 | % | 213,999 | 43,587 | 82,645 | ||||||||||||||
Softs |
40,900 | 0.20 | % | 40,900 | 6,000 | 22,733 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 2,292,185 | 10.95 | % | ||||||||||||||||
|
|
|
|
| Average of month-end Values at Risk. |
As of December 31, 2012, Eckhardt Masters total capitalization was $18,429,606. The Partnership owned approximately 25.8% of Eckhardt Master. As of December 31, 2012, 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, 2012
Market Sector |
Value at Risk | % of
Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 886,487 | 4.81 | % | $ | 1,330,124 | $ | 345,179 | $ | 861,941 | ||||||||||
Energy |
146,250 | 0.79 | % | 7,866,490 | 49,900 | 261,682 | ||||||||||||||
Grains |
106,507 | 0.58 | % | 244,448 | 45,898 | 169,313 | ||||||||||||||
Indices |
533,624 | 2.90 | % | 675,308 | 8,000 | 432,089 | ||||||||||||||
Interest Rates U.S. |
171,800 | 0.93 | % | 626,375 | 109,035 | 357,245 | ||||||||||||||
Interest Rates Non-U.S. |
286,004 | 1.55 | % | 923,168 | 137,819 | 510,969 | ||||||||||||||
Metals |
146,521 | 0.80 | % | 316,501 | 25,650 | 153,467 | ||||||||||||||
Softs |
9,000 | 0.05 | % | 111,543 | 5,800 | 45,908 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 2,286,193 | 12.41 | % | ||||||||||||||||
|
|
|
|
* | Annual average based of month-end Value at Risk. |
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As of December 31, 2012, SandRidge Masters total capitalization was $292,148,993. The Partnership owned approximately 0.6% of SandRidge Master. As of December 31, 2012, 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, 2012
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Energy |
$ | 1,452,965 | 0.50 | % | $ | 21,675,334 | $ | 1,452,965 | $ | 12,063,026 | ||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 1,452,965 | 0.50 | % | ||||||||||||||||
|
|
|
|
* | Annual average based on month-end Value at Risk. |
26
Table of Contents
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, (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 President and Chief Financial Officer (CFO) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.
The General Partner 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 President 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, 2013 and, based on that evaluation, the General Partners President 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 President 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 and correction 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, 2013 that materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.
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Table of Contents
The following information supplements and amends the discussion set forth under Part I, Item 3 Legal Proceedings in the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
Subprime MortgageRelated Litigation and Other Matters
Securities Actions:
On March 13, 2009, defendants filed a motion to dismiss the complaint. On July 12, 2010, the court issued an opinion and order dismissing plaintiffs claims under Section 12 of the Securities Act of 1933, as amended, but denying defendants motion to dismiss certain claims under Section 11. On September 30, 2010, the district court entered a scheduling order in IN RE CITIGROUP INC. BOND LITIGATION. Fact discovery began in November 2010, and plaintiffs motion to certify a class was fully briefed. On March 25, 2013, the United States District Court for the Southern District of New York entered an order preliminarily approving the parties proposed settlement of IN RE CITIGROUP INC. BOND LITIGATION, pursuant to which Citigroup and certain of its subsidiaries will pay $730 million in exchange for a release of all claims asserted on behalf of the settlement class. A fairness hearing is scheduled for July 23, 2013.
RMBS Litigation and Other Matters
Beginning in July 2010, Citigroup and certain of its subsidiaries have been named as defendants in complaints filed by purchasers of mortgage-backed security (MBS) and collateralized debt obligation (CDO) sold or underwritten by Citigroup and certain of its subsidiaries. The MBS-related complaints generally assert that the defendants made material misrepresentations and omissions about the credit quality of the mortgage loans underlying the securities, such as the underwriting standards to which the loans conformed, the loan-to-value ratio of the loans, and the extent to which the mortgaged properties were owner-occupied, and typically assert claims under Section 11 of the Securities Act of 1933, state blue sky laws, and/or common-law misrepresentation-based causes of action. The CDO-related complaints further allege that the defendants adversely selected or permitted the adverse selection of CDO collateral without full disclosure to investors. The plaintiffs in these actions generally seek rescission of their investments, recovery of their investment losses, or other damages. Other purchasers of MBS and CDOs sold or underwritten by Citigroup and certain of its subsidiaries have threatened to file additional suits, for some of which Citigroup and certain of its subsidiaries has agreed to toll (extend) the statute of limitations.
The filed actions generally are in the early stages of proceedings, and certain of the actions or threatened actions have been resolved through settlement or otherwise. The aggregate original purchase amount of the purchases at issue in the filed suits is approximately $12 billion, and the aggregate original purchase amount of the purchases covered by tolling agreements with investors threatening litigation is approximately $6 billion. The largest MBS investor claim against Citigroup and certain of its subsidiaries, as measured by the face value of purchases at issue, has been asserted by the Federal Housing Finance Agency, as conservator for Fannie Mae and Freddie Mac. This suit was filed on September 2, 2011, and has been coordinated in the United States District Court for the Southern District of New York with fifteen other related suits brought by the same plaintiff against various other financial institutions. Motions to dismiss in the coordinated suits have been denied in large part, and discovery is proceeding. An interlocutory appeal currently is pending in the United States Court of Appeals for the Second Circuit on issues common to all of the coordinated suits.
On April 5, 2013, the United States Court of Appeals for the Second Circuit denied defendants appeal from the district courts denial of defendants motion to dismiss in FEDERAL HOUSING FINANCE AGENCY v. UBS AMERICAS, INC., ET AL., a parallel case to FEDERAL HOUSING FINANCE AGENCY v. ALLY FINANCIAL INC., ET AL., FEDERAL HOUSING FINANCE AGENCY v. CITIGROUP INC., ET AL., and FEDERAL HOUSING FINANCE AGENCY v. JPMORGAN CHASE & CO., ET AL.
On March 26, 2013, the United States Court of Appeals for the Second Circuit denied defendants petition for review of the district courts October 15, 2012 order granting lead plaintiffs amended motion for class certification in NEW JERSEY CARPENTERS HEALTH FUND V. RESIDENTIAL CAPITAL LLC, ET AL. Plaintiffs allege federal securities law claims on behalf of a putative class of purchasers of MBSs issued by Residential Accredited Loans, Inc. CGM is named as an underwriter defendant.
On January 18, 2013, defendants filed a notice of appeal from the New York Supreme Courts order granting in part and denying in part defendants motion to dismiss in LORELEY FINANCING (JERSEY) NO. 3 LTD., ET AL. v. CITIGROUP GLOBAL MARKETS INC., ET AL.
Auction-rate Securities-Related Litigation and Other Matters
Antitrust Actions: On March 5, 2013, the United States Court of Appeals for the Second Circuit affirmed the district courts dismissal of two putative class actions brought on behalf of purchasers and issuers of auction rate securities for alleged violations of Section 1 of the Sherman Antitrust Act.
Other Matters
Terra Securities ASA Konkursbo, et al. v. Citigroup Inc., et al.: On August 10, 2009, Norwegian securities firm Terra Securities ASA Konkursbo and seven Norwegian municipalities filed a complaint in the United States District Court for the Southern District of New York against Citigroup and certain of its subsidiaries, including CGM and Citigroup Alternative Investments LLC. The complaint asserts, among other things, claims for fraud and negligent misrepresentation as well as claims under Sections 10 and 20 of the Securities Exchange Act of 1934 arising out of the municipalities purchase of fund-linked notes acquired from the now-defunct securities firm, Terra Securities, which in turn acquired those notes from Citigroup and certain of its subsidiaries. Plaintiffs seek approximately $120 million in compensatory damages, plus punitive damages. Plaintiffs allege that, among other things, the municipalities invested in the notes after receiving purportedly false and materially misleading marketing materials that were allegedly prepared by defendants. On March 28, 2013, the United States District Court for the Southern District of New York granted defendants motion for summary judgment dismissing all remaining claims asserted by seven Norwegian municipalities. Plaintiffs filed a notice of appeal from this ruling to the United States Court of Appeals for the Second Circuit.
28
Table of Contents
There have been no material changes to the risk factors set forth under Part 1, Item 1A. Risk Factors in the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31, 2012, other than as set forth below.
As a result of leverage, small changes in the price of the Partnerships positions may result in major losses.
The trading of commodity interests is speculative, volatile and involves a high degree of leverage. A small change in the market price of a commodity interest contract can produce major losses for the Partnership. Market prices can be influenced by, among other things, changing supply and demand relationships, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events, weather and climate conditions, insects and plant disease, purchases and sales by foreign countries and changing interest rates.
An advisor that trades at a higher level of leverage will establish a greater number of positions than it would establish for an account of similar size traded at the advisors standard leverage. Accordingly, a greater amount of the Partnerships assets will be committed to margin in such situations than if the advisor traded its program at standard leverage. Trading at a higher level of leverage may increase the volatility of the Partnerships account.
29
Table of Contents
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.
Period | (a) Total Number of Shares (or Units) Purchased* |
(b) Average Price Paid per Share (or Unit)** |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
January 1, 2013 January 31, 2013 |
124.8330 | $ | 1,422.93 | N/A | N/A | |||||||||||
February 1, 2013 February 28, 2013 |
38.2780 | $ | 1,402.32 | N/A | N/A | |||||||||||
March 1, 2013 March 31, 2013 |
71.0710 | $ | 1,419.88 | N/A | N/A | |||||||||||
234.1820 | $ | 1,418.64 |
* | 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. No fee will be charged for redemptions. |
Item 3. Defaults Upon Senior Securities None.
Item 4. Mine Safety Disclosures Not Applicable.
30
Table of Contents
Item 5. Other Information None.
31
Table of Contents
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). | |
(k) | Certificate of Amendment of the Certificate of Limited Partnership dated September 2, 2011 (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on September 7, 2011 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). |
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(b) | Letter extending Management Agreement with Willowbridge from June 30, 2012 through June 30, 2013 (filed as Exhibit 10.4(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed on March 27, 2013 and incorporated herein by reference). | |
(c) | Amendment to the Management Agreement dated January 1, 2013, by and among the Partnership, Ceres Managed Futures LLC and Willowbridge Associates Inc. (filed as an exhibit to the Current Report on Form 8-K filed on January 7, 2013 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 from June 30, 2012 through June 30, 2013 (filed as Exhibit 10.6(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed on March 27, 2013 and incorporated herein by reference). | |
10.7(a) | Amended and Restated Management Agreement among the Partnership, the General Partner and CFM (filed as Exhibit 10.7A to the Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed on March 30, 2012 and incorporated herein by reference). | |
(b) | Letter extending Management Agreement with CFM from June 30, 2012 through June 30, 2013 (filed as Exhibit 10.7(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed on March 27, 2013 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 from June 30, 2012 through June 30, 2013 (filed as Exhibit 10.8(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed on March 27, 2013 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 from June 30, 2012 through June 30, 2013 (filed as Exhibit 10.9(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed on March 27, 2013 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). | |
101. INS | XBRL Instance Document. | |
101. SCH | XBRL Taxonomy Extension Schema Document. | |
101. CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101. LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101. PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
101. DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
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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 15, 2013 | ||
By: | /s/ Damian George | |
Damian George | ||
Chief Financial Officer and Director | ||
(Principal Accounting Officer) | ||
Date: May 15, 2013 |