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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 September 30, 2009
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
55 East 59th Street 10th Floor
New York, New York 10022
55 East 59th Street 10th Floor
New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 559-2011
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer | Non-accelerated filer X | Smaller reporting company |
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 October 31, 2009, 18,682.6200 Limited Partnership
Redeemable Units were outstanding.
DIVERSIFIED
MULTI-ADVISOR FUTURES FUND L.P. II
FORM 10-Q
INDEX
Ex. 3.1(a) Certificate of Limited Partnership dated May 10, 1994
Ex. 3.1(b) Certificate of Amendment of the Certificate of Limited Partnership dated July 31, 1995
Ex. 3.1(c) Certificate of Amendment of the Certificate of Limited Partnership dated October 1, 1999
Ex. 3.1(d) Certificate of Change of the Certificate of Limited Partnership effective January 31, 2000
Ex. 3.1(e) Certificate of Amendment of the Certificate of Limited Partnership dated May 21, 2003
Ex. 3.1(f) Certificate of Amendment of the Certificate of Limited Partnership dated September 21, 2005
Ex. 3.1(g) Certificate of Amendment of the Certificate of Limited Partnership dated September 19, 2008
Ex. 10.3 Form of Escrow Agreement
Ex. 31.1 Certification
Ex. 31.2 Certification
Ex. 32.1 Certification
Ex. 32.2 Certification
2
Table of Contents
PART I
Item 1.
Financial Statements
Diversified Multi-Advisor Futures Fund L.P. II
Statements of Financial Condition
(Unaudited)
Diversified Multi-Advisor Futures Fund L.P. II
Statements of Financial Condition
(Unaudited)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Assets: |
||||||||
Investment in Partnerships, at fair value |
$ | 24,900,984 | $ | 34,424,088 | ||||
Equity in trading account: |
||||||||
Cash |
8,893,546 | 10,597,297 | ||||||
Cash margin |
2,440,319 | 696,680 | ||||||
Net unrealized appreciation on open futures contracts |
108,443 | | ||||||
36,343,292 | 45,718,065 | |||||||
Interest receivable |
474 | 169 | ||||||
Total assets |
$ | 36,343,766 | $ | 45,718,234 | ||||
Liabilities and Partners Capital: |
||||||||
Liabilities: |
||||||||
Net unrealized depreciation on open futures contracts |
$ | | $ | 449 | ||||
Accrued expenses: |
||||||||
Brokerage commissions |
181,719 | 228,589 | ||||||
Management fees |
60,167 | 75,664 | ||||||
Incentive fees |
227,658 | 136,374 | ||||||
Other |
61,876 | 90,644 | ||||||
Redemptions payable |
571,360 | 793,186 | ||||||
Total liabilities |
1,102,780 | 1,324,906 | ||||||
Partners Capital: |
||||||||
General
Partner, 274.2452 and 748.5217 Unit equivalents
at September 30, 2009 and December 31, 2008, respectively |
507,060 | 1,397,490 | ||||||
Limited
Partners, 18,785.9978 and 23,029.4237 Redeemable
Units of Limited Partnership Interest outstanding at September 30, 2009
and December 31, 2008, respectively |
34,733,926 | 42,995,838 | ||||||
Total partners capital |
35,240,986 | 44,393,328 | ||||||
Total liabilities and partners capital |
$ | 36,343,766 | $ | 45,718,234 | ||||
See accompanying notes to financial statements.
3
Table of Contents
Diversified
Multi-Advisor Futures Fund L.P. II
September 30, 2009
(Unaudited)
Number of | % of Partners | |||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased |
||||||||||||
Currencies |
96 | $ | 61,215 | 0.17 | % | |||||||
Grains |
3 | 385 | 0.00 | * | ||||||||
Indices |
260 | 43,705 | 0.13 | |||||||||
Interest Rates Non-U.S. |
204 | 36,421 | 0.10 | |||||||||
Interest Rates U.S. |
8 | 1,128 | 0.00 | * | ||||||||
Metals |
5 | 177 | 0.00 | * | ||||||||
Softs |
4 | 9,242 | 0.03 | |||||||||
Total futures contracts purchased |
152,273 | 0.43 | ||||||||||
Futures Contracts Sold |
||||||||||||
Currencies |
12 | (1,537 | ) | (0.00 | )* | |||||||
Energy |
19 | (50,225 | ) | (0.14 | ) | |||||||
Grains |
10 | 8,331 | 0.02 | |||||||||
Interest Rates U.S. |
3 | 31 | 0.00 | * | ||||||||
Livestock |
4 | (710 | ) | (0.00 | )* | |||||||
Softs |
3 | 280 | 0.00 | * | ||||||||
Total futures contracts sold |
(43,830 | ) | (0.12 | ) | ||||||||
Investment in Partnerships |
||||||||||||
CMF Willowbridge Argo Master Fund L.P. |
6,497,446 | 18.44 | ||||||||||
CMF Graham Capital Master Fund L.P. |
8,594,485 | 24.39 | ||||||||||
CMF Eckhardt Master Fund L.P. |
5,266,412 | 14.94 | ||||||||||
CMF SandRidge Master Fund L.P. |
4,542,641 | 12.89 | ||||||||||
Total investment in Partnerships |
24,900,984 | 70.66 | ||||||||||
Total fair value |
$ | 25,009,427 | 70.97 | % | ||||||||
* | Due to rounding. | |
See accompanying notes to financial statements.
4
Table of Contents
Diversified
Multi-Advisor Futures Fund L.P. II
Schedule of Investments
December 31, 2008
Schedule of Investments
December 31, 2008
Number of | % of Partners | |||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased
|
||||||||||||
Currencies
|
23 | $ | (21,305 | ) | (0.05 | )% | ||||||
Indices
|
57 | 45,056 | 0.10 | |||||||||
Interest Rates Non-U.S.
|
33 | 7,783 | 0.02 | |||||||||
Interest Rates U.S.
|
47 | (25,794 | ) | (0.06 | ) | |||||||
Metals
|
1 | (110 | ) | (0.00 | )* | |||||||
Softs
|
2 | 5,033 | 0.01 | |||||||||
Total futures contracts purchased
|
10,663 | 0.02 | ||||||||||
Futures Contracts Sold
|
||||||||||||
Currencies
|
9 | (797 | ) | (0.00 | )* | |||||||
Energy
|
1 | (5,450 | ) | (0.01 | ) | |||||||
Grains
|
3 | (3,924 | ) | (0.01 | ) | |||||||
Softs
|
5 | (941 | ) | (0.00 | )* | |||||||
Total futures contracts sold
|
(11,112 | ) | (0.02 | ) | ||||||||
Investment in Partnerships
|
||||||||||||
CMF Willowbridge Argo Master Fund L.P.
|
10,048,176 | 22.63 | ||||||||||
CMF Campbell Master Fund L.P.
|
7,553,372 | 17.01 | ||||||||||
CMF Graham Capital Master Fund L.P.
|
10,523,350 | 23.71 | ||||||||||
CMF Eckhardt Master Fund L.P.
|
6,299,190 | 14.19 | ||||||||||
Total investment in Partnerships
|
34,424,088 | 77.54 | ||||||||||
Total fair value
|
$ | 34,423,639 | 77.54 | % | ||||||||
* | Due to rounding. |
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)
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Income: |
||||||||||||||||
Net gains (losses) on trading of commodity interests and investment
in Partnerships: |
||||||||||||||||
Net realized gains (losses) on closed contracts |
$ | 1,640,775 | $ | (1,271,741 | ) | $ | 2,379,375 | $ | 492,206 | |||||||
Net realized gains (losses) on investment in Partnerships |
(458,935 | ) | 832,170 | (390,558 | ) | 5,794,047 | ||||||||||
Change in
net unrealized gains (losses) on open contracts |
3,337 | (182,735 | ) | 108,892 | 105,133 | |||||||||||
Change in
net unrealized gains (losses) on investments in Partnerships |
1,095,604 | (1,686,067 | ) | 237,534 | (752,053 | ) | ||||||||||
Gain (loss) from trading, net |
2,280,781 | (2,308,373 | ) | 2,335,243 | 5,639,333 | |||||||||||
Interest income |
2,421 | 31,890 | 6,891 | 134,096 | ||||||||||||
Interest income from investment in Partnerships |
5,522 | 102,013 | 18,203 | 338,781 | ||||||||||||
Total income (loss) |
2,288,724 | (2,174,470 | ) | 2,360,337 | 6,112,210 | |||||||||||
Expenses: |
||||||||||||||||
Brokerage commissions including clearing fees |
613,759 | 721,764 | 1,995,462 | 2,337,410 | ||||||||||||
Management fees |
183,231 | 221,166 | 588,229 | 705,287 | ||||||||||||
Incentive fees |
216,320 | 22,587 | 331,108 | 391,213 | ||||||||||||
Other expenses |
28,086 | 44,474 | 107,942 | 118,755 | ||||||||||||
Total
expenses |
1,041,396 | 1,009,991 | 3,022,741 | 3,552,665 | ||||||||||||
Net income (loss) |
1,247,328 | (3,184,461 | ) | (662,404 | ) | 2,559,545 | ||||||||||
Redemptions General Partner |
| | (809,941 | ) | (2,000,000 | ) | ||||||||||
Redemptions
Limited Partners |
(2,401,720 | ) | (1,302,436 | ) | (7,679,997 | ) | (4,653,114 | ) | ||||||||
Net increase
(decrease) in Partners capital |
(1,154,392 | ) | (4,486,897 | ) | (9,152,342 | ) | (4,093,569 | ) | ||||||||
Partners capital, beginning of period |
36,395,378 | 47,804,336 | 44,393,328 | 47,411,008 | ||||||||||||
Partners capital, end of period |
$ | 35,240,986 | $ | 43,317,439 | $ | 35,240,986 | $ | 43,317,439 | ||||||||
Net Asset Value per Redeemable Unit
(19,060.2430 and 24,899.5905 Units outstanding
at September 30, 2009 and September 30, 2008, respectively) |
$ | 1,848.93 | $ | 1,739.68 | $ | 1,848.93 | $ | 1,739.68 | ||||||||
Net income (loss) per Redeemable Unit of Limited Partnership
Interest and General Partner Unit equivalent |
$ | 63.22 | $ | (124.22 | ) | $ | (18.07 | ) | $ | 87.98 | ||||||
Weighted average units outstanding |
19,971.6488 | 25,414.1893 | 21,511.1653 | 26,950.3411 | ||||||||||||
See accompanying notes to financial statements.
6
Table of Contents
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
September 30, 2009
(Unaudited)
Notes to Financial Statements
September 30, 2009
(Unaudited)
1. | General: |
Diversified Multi-Advisor Futures Fund L.P. II (formerly, Smith Barney Diversified Futures Fund L.P. II) (the
Partnership) is a limited partnership which
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 included currencies, energy, grains, indices,
metals, softs, livestock, U.S. and non-U.S. interest rates.
The commodity interests that are traded by
the Partnership are volatile and involve a high degree of market
risk. The Partnership was authorized to sell 100,000 redeemable
units of Limited Partnership Interest (Redeemable
Units) during its initial offering period. The Partnership no
longer offers Redeemable Units for sale.
Ceres Managed Futures LLC (formerly Citigroup 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), a newly registered non-clearing futures commission merchant and a member of
the National Futures Association. Morgan Stanley, indirectly through various subsidiaries,
owns 51% of MSSB Holdings. Citigroup Global Markets Inc. (CGM), the commodity broker and a
selling agent for the Partnership, owns 49% of MSSB Holdings. Citigroup Inc. (Citigroup),
indirectly through various subsidiaries, wholly owns CGM. 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.
As of September 30, 2009, all trading decisions are made for the
Partnership by Capital Fund Management SA
(CFM), Graham Capital Management L.P.
(Graham), Willowbridge Associates Inc.
(Willowbridge), Eckhardt Trading Company
(Eckhardt) and SandRidge Capital L.P. (SandRidge) (each an Advisor and
collectively, the Advisors). Campbell & Co., Inc.
(Campbell) was terminated as of May 31, 2009. SandRidge was added as
an advisor to the Partnership on June 1, 2009. Each Advisor is allocated a portion of the Partnerships assets to manage. The Partnership invests the portion of its
assets allocated to CFM directly, whereas the Partnership invests the portion of its assets allocated to each of the other Advisors indirectly through investments in master funds.
The General Partner and each Limited Partner share in the profits and losses of the Partnership in proportion to the amount
of Partnership interest owned by each except that no Limited Partner shall be liable for obligations of the Partnership in
excess of their initial capital contribution and profits, if any, net of distributions.
The accompanying financial statements are unaudited but, in the
opinion of management, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement
of the Partnerships financial condition at September 30,
2009 and December 31, 2008, and the results of its
operations and changes in partners capital for the three
and nine
months ended September 30, 2009 and 2008. 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, 2008.
The preparation of financial
statements in conformity with U.S. generally accepted
accounting principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, income and expenses and related
disclosures of contingent assets and liabilities in the
financial statements and accompanying notes. In making these estimates and assumptions, management has considered the effects, if any, of events
occurring after the date of the Partnerships Statements of
Financial Condition through November 16,
2009, which is the date the financial statements were issued.
Actual results
could differ from these estimates.
On July 1, 2009, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, also known as FASB Accounting Standards
Codification (ASC) 105-10, Generally Accepted Accounting Principles (ASC 105-10) (the
Codification). ASC 105-10 established the exclusive authoritative reference for U.S. GAAP for use
in financial statements except for SEC rules and interpretive releases, which are also
authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting
and reporting standards. Codification became the single source of authoritative accounting
principles generally accepted in the United States and applies to all financial statements issued
after September 15, 2009.
The Partnership is not required to provide a Statement of Cash Flows
as permitted by ASC 230-10 Statement
of Cash Flows (formerly, FAS No. 102, Statement of Cash Flows
Exemption of Certain Enterprises and Classification of Cash Flows
from Certain Securities Acquired for Resale).
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.
Certain prior period amounts have been reclassified to conform to
current period presentation.
7
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
September 30, 2009
(Unaudited)
Notes to Financial Statements
September 30, 2009
(Unaudited)
2. | Financial Highlights: |
Changes in Net Asset Value per Redeemable Unit of Limited
Partnership Interest for the three and nine months ended
September 30, 2009 and 2008 were as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net realized and unrealized gains (losses) * |
$ | 84.22 | $ | (118.13 | ) | $ | 28.89 | $ | 115.69 | |||||||
Interest income |
0.40 | 5.26 | 1.17 | 17.47 | ||||||||||||
Expenses ** |
(21.40 | ) | (11.35 | ) | (48.13 | ) | (45.18 | ) | ||||||||
Increase (decrease) for the period |
63.22 | (124.22 | ) | (18.07 | ) | 87.98 | ||||||||||
Net Asset Value per Redeemable Unit, beginning of period |
1,785.71 | 1,863.90 | 1,867.00 | 1,651.70 | ||||||||||||
Net Asset Value per Redeemable Unit, end of period |
$ | 1,848.93 | $ | 1,739.68 | $ | 1,848.93 | $ | 1,739.68 | ||||||||
* | Includes brokerage commissions. | |
** | Excludes brokerage commissions. |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Ratio to average net assets: ***
|
||||||||||||||||
Net investment income (loss) before incentive fees ****
|
(9.0 | )% | (7.6 | )% | (9.3 | )% | (7.9 | )% | ||||||||
Operating expenses
|
9.1 | % | 8.8 | % | 9.4 | % | 9.3 | % | ||||||||
Incentive fees
|
0.6 | % | 0.1 | % | 0.9 | % | 0.9 | % | ||||||||
Total expenses
|
9.7 | % | 8.9 | % | 10.3 | % | 10.2 | % | ||||||||
Total return:
|
||||||||||||||||
Total return before incentive fees
|
4.2 | % | (6.6 | )% | (0.0 | )%***** | 6.3 | % | ||||||||
Incentive fees
|
(0.7 | )% | (0.1 | )% | (1.0 | )% | (1.0 | )% | ||||||||
Total return after incentive fees
|
3.5 | % | (6.7 | )% | (1.0 | )% | 5.3 | % | ||||||||
*** | Annualized (other than incentive fees). | |
**** | Interest income less total expenses. | |
***** | Due to rounding. |
The above ratios may vary for individual investors based on the
timing of capital transactions during the period. Additionally,
these ratios are calculated for the Limited Partner class using
the Limited Partners share of income, expenses and average
net assets.
3. | Trading Activities: |
The Partnership was formed for the purpose of trading contracts
in a variety of commodity interests, including derivative
financial instruments and derivative commodity instruments. The
results of the Partnerships trading activities are shown
in the Statements of Income and Expenses and Changes in Partners
Capital.
The customer agreement between the Partnership and CGM gives the
Partnership the legal right to net unrealized gains and losses
on open futures contracts.
The Partnership nets, for financial reporting purposes, the unrealized gains and losses on
open futures and forward contracts on the Statements of Financial Condition as the criteria under
ASC 210-20 Balance Sheet (formerly, FIN No. 39, Offsetting of Amounts Related to Certain Contracts)
have been met.
8
Table of Contents
All of the commodity interests owned by the Partnership are held
for trading purposes. The average fair values of these interests
during the nine and twelve months ended September 30, 2009 and
December 31, 2008, based on a monthly calculation, were
$309,360 and $151,002, respectively. The fair values of these
commodity interests, including options thereon, if applicable,
at September 30, 2009 and December 31, 2008, were
$108,443
and $(449), respectively. Fair values for exchange traded
commodity futures and options are based on quoted market prices
for those futures and options. Fair values for all other
financial instruments for which market quotations are not
readily available are based on other measures of fair value
deemed appropriate by the General Partner.
Brokerage commissions 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, additions
and redemptions.
The Partnership adopted ASC 815-10 Derivatives and Hedging
(formerly, FAS No. 161 Disclosure about Derivative Instruments and Hedging Activities) as of January 1, 2009 which
requires qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in derivative
agreements. ASC 815-10 only expands the disclosure requirements for derivative instruments and related
hedging activities and has no impact on the Statements of Financial Condition or Statements of
Income and Expenses and Changes in Partners Capital. The contracts
outstanding at the period ended September 30, 2009, are indicative of volume traded during the period. See the Schedule of Investments. The following table indicates the
fair values of derivative instruments of futures and forward contract
as separate assets and liabilities.
September 30, 2009 | ||||
Assets |
||||
Futures Contracts |
||||
Currencies |
$ | 71,528 | ||
Energy |
3,830 | |||
Grains |
9,864 | |||
Indices |
63,623 | |||
Interest Rates U.S. |
1,159 | |||
Interest Rates Non-U.S. |
41,463 | |||
Livestock |
310 | |||
Metals |
3,965 | |||
Softs |
10,122 | |||
Total unrealized appreciation on open futures
contracts |
$ | 205,864 | ||
Liabilities |
||||
Futures Contracts |
||||
Currencies |
$ | (11,850 | ) | |
Energy |
(54,055 | ) | ||
Grains |
(1,148 | ) | ||
Indices |
(19,918 | ) | ||
Interest Rates Non-U.S. |
(5,042 | ) | ||
Livestock |
(1,020 | ) | ||
Metals |
(3,788 | ) | ||
Softs |
(600 | ) | ||
Total unrealized depreciation on open futures
contracts |
$ | (97,421 | ) | |
Net unrealized appreciation on open futures
contracts |
$ | 108,443 | * | |
* | This amount is included in Net unrealized appreciation on open futures contracts on the Statements of Financial Condition. |
9
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
September 30, 2009
(Unaudited)
Notes to Financial Statements
September 30, 2009
(Unaudited)
The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three and nine months ended September 30, 2009.
Three Months Ended | Nine Months Ended | |||||||
September 30, 2009 | September 30, 2009 | |||||||
Sector | Gain (loss) from trading | Gain (loss) from trading | ||||||
Currencies |
$ | 468,912 | $ | 763,515 | ||||
Energy |
(300,766 | ) | (917,563 | ) | ||||
Grains |
26,669 | 67,693 | ||||||
Indices |
651,854 | 1,855,359 | ||||||
Interest Rates U.S. |
506,856 | 620,330 | ||||||
Interest Rates
Non-U.S. |
226,672 | 143,866 | ||||||
Livestock |
(90 | ) | 2,490 | |||||
Softs |
25,018 | (21,982 | ) | |||||
Metals |
38,987 | (25,441 | ) | |||||
Total |
$ | 1,644,112 | $ | 2,488,267 | ||||
4. | Fair Value Measurements: |
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. 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. |
Fair Value Measurements. The Partnership and
the Funds (as defined in note 5 Investment in
Partnerships) adopted ASC 820-10, Fair Value Measurements
and Disclosures (formerly, FAS No. 157, Fair Value Measurements) as of January 1, 2008 which
defines fair value 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.
ASC 820-10 establishes a framework for measuring fair value
and expands disclosures regarding fair value measurements in
accordance with GAAP. 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. The Partnership
did not apply the deferral allowed by ASC 820-10, for
nonfinancial assets and nonfinancial liabilities measured at
fair value on a nonrecurring basis.
The Partnership and the Funds consider prices for exchange
traded commodity futures, forwards and options contracts to be
based on unadjusted quoted prices in active markets for identical assets
(Level 1). The values of non exchange traded forwards,
swaps and certain options contracts for which market quotations
are not readily available are priced by broker-dealers who
derive fair values for those assets from observable inputs
(Level 2). Investments in partnerships (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 partnerships reflects
its proportional interest in the partnerships. As of and for the periods ended September 30, 2009 and December 31, 2008, the Partnership and the Funds did not
hold any derivative instruments that are priced at fair value
using unobservable inputs through the application of
managements assumptions and internal valuation pricing
models (Level 3).
10
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
September 30, 2009
(Unaudited)
Notes to Financial Statements
September 30, 2009
(Unaudited)
Quoted Prices in |
||||||||||||||||
Active Markets for |
Significant Other |
Significant |
||||||||||||||
Identical Assets |
Observable Inputs |
Unobservable Inputs |
||||||||||||||
9/30/2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Investment in Partnerships |
$ | 24,900,984 | $ | | $ | 24,900,984 | $ | | ||||||||
Futures |
108,443 | 108,443 | | | ||||||||||||
Total assets |
25,009,427 | 108,443 | 24,900,984 | | ||||||||||||
Total fair value |
$ | 25,009,427 | $ | 108,443 | $ | 24,900,984 | $ | | ||||||||
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
12/31/2008 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Investment in Partnerships |
$ | 34,424,088 | $ | | $ | 34,424,088 | $ | | ||||||||
Total assets |
34,424,088 | | 34,424,088 | | ||||||||||||
Liabilities |
||||||||||||||||
Futures |
$ | 449 | $ | 449 | $ | | $ | | ||||||||
Total liabilities |
449 | 449 | | | ||||||||||||
Total fair value |
$ | 34,423,639 | $ | (449 | ) | $ | 34,424,088 | $ | | |||||||
5. | Investment in Partnerships: |
The
assets allocated to CFM for trading are invested directly pursuant to CFMs Discus (1.5x Leverage) Program, a proprietary, systematic trading system.
On January 1, 2005, the assets allocated to Campbell for
trading were invested in CMF Campbell Master Fund L.P.
(Campbell Master), a limited partnership organized
under the partnership laws of the State of New York. The
Partnership purchased 18,800.3931 units of Campbell Master
with cash of $18,587,905 and a contribution of open commodity
futures and forward positions with a fair value of $212,488.
Campbell Master was formed in order to permit commodity pools
managed now or in the future by Campbell using Campbells
Financials, Metals and Energy Portfolio, a proprietary, systematic trading system, to
invest together in one trading vehicle. The Partnership fully
redeemed its investment in Campbell Master on May 31, 2009 for cash
equal to $4,288,986.
On July 1, 2005, the assets allocated to Willowbridge for
trading were invested in CMF Willowbridge Argo Master
Fund L.P. (Willowbridge Master), a limited
partnership organized under the partnership laws of the State of
New York. The Partnership purchased 10,980.9796 units of
Willowbridge Master with cash of $9,895,326 and a
contribution of open commodity futures and forward positions
with a fair value of $1,085,654. Willowbridge Master was formed
in order to permit commodity pools managed now or in the future
using Willowbridges Argo Trading Program, a proprietary, systematic trading system, to invest
together in one trading vehicle. The General Partner is also the
general partner of Willowbridge Master. Individual and pooled
accounts currently managed by Willowbridge, including the
Partnership, are permitted to be a limited partner of
Willowbridge Master. The General Partner and Willowbridge
believe that trading through this structure should promote
efficiency and economy in the trading process.
On April 1, 2006, the assets allocated to Graham for
trading were invested in CMF Graham Capital Master
Fund L.P. (Graham Master), a limited
partnership organized under the partnership laws of the State of
New York. The Partnership purchased 11,192.9908 units of
Graham Master with cash of $11,192,991. Graham Master was formed
in order to permit commodity pools managed now or in the future
by using Grahams K4D-12.5 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 a limited partner of Graham Master. The
General Partner and Graham believe that trading through this
structure should promote efficiency and economy in the trading
process.
On April 1, 2008, the assets allocated to Eckhardt for
trading were invested in CMF Eckhardt Master Fund L.P.
(Eckhardt Master), a limited partnership organized
under the partnership laws of the State of New York. The
Partnership purchased 7,000.0000 units of Eckhardt Master with
cash of $7,000,000. Eckhardt Master was formed in order to
permit commodity pools managed now or in the future by using
Eckhardts Standard Program, 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 a limited partner of Eckhardt Master. The General Partner and
Eckhardt believe that trading through this structure should
promote efficiency and economy in the trading process.
On June 1, 2009, the assets allocated to SandRidge for trading were in invested in the CMF
SandRidge Master Fund L.P. (SandRidge Master), a limited partnership organized under the
partnership laws of the State of New York. The Partnership purchased 2,086.0213 units of
SandRidge Master with cash of $4,288,986. SandRidge Master was formed in order to permit commodity
pools managed now or in the future by using SandRidges Energy Program, a proprietary, discretionary trading system, to invest
together in one trading vehicle. The General Partner is also the general partner of SandRidge
Master. Individual and pooled accounts currently managed by SandRidge, including the Partnership,
are permitted to be limited partners of SandRidge Master. The General Partner and SandRidge believe
that trading through this structure should promote efficiency and economy in the trading process.
The General Partner is not aware of any material changes to the trading programs discussed above
during the fiscal quarter ended September 30, 2009.
Willowbridge Masters, Graham
Masters, Eckhardt Masters and SandRidge Masters
(collectively, the Funds)
trading of futures, forwards, swaps and options contracts, if
applicable, on commodities is done primarily on United States of
America and foreign commodity exchanges. The Funds engage in
such trading through a commodity brokerage account maintained
with CGM.
A Limited Partner may withdraw all or part of their capital
contribution and undistributed profits, if any, from the Funds
in multiples of the Net Asset Value per Redeemable Unit of Limited
Partnership Interest as of the end of any day (the
Redemption Date) after a
request for redemption has been made to the General Partner at
least 3 days in advance of the Redemption Date. The Units
are classified as a liability when the Limited Partner elects to
redeem and inform the Funds.
All exchange, clearing, user,
give-up,
floor brokerage and National Futures Association fees
(collectively the clearing fees) are borne
by the Partnership and through its investment in the Funds. All other fees, including CGMs direct
brokerage commissions, are charged at the Partnership level.
As of September 30, 2009, the Partnership owned approximately
2.7%, 5.1%, 28.5% and 0.7%, of
Willowbridge Master, Graham Master, Eckhardt Master and SandRidge Master, respectively. As of
December 31, 2008, the Partnership owned approximately 5.9%, 3.4%, 4.7% and 30.7% of Campbell
Master, Willowbridge Master, Graham Master and Eckhardt Master, respectively. The performance of
the Partnership is directly affected by the performance of the Funds. It is Willowbridges,
Grahams, Eckhardts and SandRidges intention to continue to invest the assets allocated to each
by the Partnership in Willowbridge Master, Graham Master, Eckhardt Master and SandRidge Master,
respectively. Expenses to investors as a result of the investment in the Funds are approximately
the same and redemption rights are not affected.
11
Table of Contents
Diversified
Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
September 30, 2009
(Unaudited)
Notes to Financial Statements
September 30, 2009
(Unaudited)
Summarized information reflecting the total assets, liabilities
and capital of the Funds are shown in the following tables.
September 30, 2009 | ||||||||||||
Total Assets | Total Liabilities | Total Capital | ||||||||||
Willowbridge Master |
$ | 238,192,320 | $ | 30,172 | $ | 238,162,148 | ||||||
Graham Master |
168,037,387 | 14,694 | 168,022,693 | |||||||||
Eckhardt Master |
18,505,502 | 41,281 | 18,464,221 | |||||||||
SandRidge Master |
621,430,942 | 752,175 | 620,678,767 | |||||||||
Total |
$ | 1,046,166,151 | $ | 838,322 | $ | 1,045,327,829 | ||||||
December 31, 2008 | ||||||||||||
Total |
Total |
Total |
||||||||||
Assets | Liabilities | Capital | ||||||||||
Willowbridge Master
|
$ | 297,439,763 | $ | 19,759 | $ | 297,420,004 | ||||||
Campbell Master
|
127,587,225 | 112,263 | 127,474,962 | |||||||||
Graham Master
|
224,787,639 | 296,697 | 224,490,942 | |||||||||
Eckhardt Master
|
20,544,954 | 15,519 | 20,529,435 | |||||||||
Total
|
$ | 670,359,581 | $ | 444,238 | $ | 669,915,343 | ||||||
Summarized information reflecting the net gain (loss) from trading, total income (loss) and net
income (loss) for the Funds are shown in the following tables.
For the three months ended September 30, 2009 | ||||||||||||
Gain (Loss) from | Total Income | Net Income | ||||||||||
Trading, net | (Loss) | (Loss) | ||||||||||
Willowbridge Master |
$ | (20,085,700 | ) | $ | (20,026,877 | ) | $ | (20,139,642 | ) | |||
Graham Master |
14,413,920 | 14,449,688 | 14,240,193 | |||||||||
SandRidge Master |
34,131,288 | 34,264,993 | 34,047,914 | |||||||||
Eckhardt Master |
893,553 | 897,568 | 858,478 | |||||||||
Total |
$ | 29,353,061 | $ | 29,585,372 | $ | 29,006,943 | ||||||
For the nine months ended September 30, 2009 | ||||||||||||
Gain (Loss) from | Total Income | Net Income | ||||||||||
Trading, net | (Loss) | (Loss) | ||||||||||
Willowbridge Master |
$ | (23,802,080 | ) | $ | (23,622,469 | ) | $ | (23,895,630 | ) | |||
Campbell Master |
3,089,848 | 9,476,242 | 9,387,591 | |||||||||
Graham Master |
10,826,683 | 10,942,253 | 10,429,707 | |||||||||
SandRidge Master |
106,906,561 | 107,255,829 | 106,581,046 | |||||||||
Eckhardt Master |
117,273 | 129,528 | 38,338 | |||||||||
Total |
$ | 97,138,285 | $ | 104,181,383 | $ | 102,541,052 | ||||||
For the three months ended September 30, 2008 | ||||||||||||
Gain (Loss) from | Total Income | Net Income | ||||||||||
Trading, net | (Loss) | (Loss) | ||||||||||
Willowbridge Master |
$ | 8,930,938 | $ | 9,817,051 | $ | 9,686,363 | ||||||
Campbell Master |
(4,786,916 | ) | (4,320,336 | ) | (4,356,671 | ) | ||||||
Graham Master |
(8,833,929 | ) | (8,216,506 | ) | (8,473,481 | ) | ||||||
SandRidge Master |
(32,596,094 | ) | (31,234,287 | ) | (31,370,244 | ) | ||||||
Eckhardt Master |
(1,688,169 | ) | (1,616,809 | ) | (1,641,549 | ) | ||||||
Total |
$ | (38,974,170 | ) | $ | (35,570,887 | ) | $ | (36,155,582 | ) | |||
For the nine months ended September 30, 2008 | ||||||||||||
Gain (Loss) from | Total Income | Net Income | ||||||||||
Trading, net | (Loss) | (Loss) | ||||||||||
Willowbridge Master |
$ | 87,588,256 | $ | 90,440,613 | $ | 90,089,941 | ||||||
Campbell Master |
7,436,006 | 24,471,311 | 24,178,434 | |||||||||
Graham Master |
29,103,729 | 31,236,297 | 30,332,774 | |||||||||
SandRidge Master |
89,601,360 | 93,571,595 | 93,110,958 | |||||||||
Eckhardt Master |
432,317 | 575,667 | 500,679 | |||||||||
Total |
$ | 214,161,668 | $ | 240,295,483 | $ | 238,212,786 | ||||||
12
Table of Contents
Summarized information reflecting the Partnerships
investment in, and the operations of the Funds are shown in the
following tables.
September 30, 2009 | For the three months ended September 30, 2009 | |||||||||||||||||||||||||||
% of |
Net |
|||||||||||||||||||||||||||
Partnerships |
Fair |
Income |
Expenses |
Income |
Investment |
Redemptions |
||||||||||||||||||||||
Fund | Net Assets | Value | (Loss) | Commissions | Other | (Loss) |
Objective
|
Permitted
|
||||||||||||||||||||
Willowbridge Master |
18.44 | % | $ | 6,497,446 | $ | (628,352 | ) | $ | 2,710 | $ | 545 | $ | (631,607 | ) | Commodity Portfolio | Monthly | ||||||||||||
Graham Master |
24.39 | % | 8,594,485 | 751,254 | 10,410 | 521 | 740,323 | Commodity Portfolio | Monthly | |||||||||||||||||||
Eckhardt Master |
14.94 | % | 5,266,412 | 258,338 | 5,222 | 6,079 | 247,037 | Commodity Portfolio | Monthly | |||||||||||||||||||
SandRidge Master |
12.89 | % | 4,542,641 | 260,951 | 1,356 | 278 | 259,317 | Energy Portfolio | Monthly | |||||||||||||||||||
Total |
$ | 24,900,984 | $ | 642,191 | $ | 19,698 | $ | 7,423 | $ | 615,070 | ||||||||||||||||||
September 30, 2009 | For the nine months ended September 30, 2009 | |||||||||||||||||||||||||||
% of |
Net |
|||||||||||||||||||||||||||
Partnerships |
Fair |
Income |
Expenses |
Income |
Investment |
Redemptions |
||||||||||||||||||||||
Investment | Net Assets | Value | (Loss) | Commissions | Other | (Loss) |
Objective
|
Permitted
|
||||||||||||||||||||
Willowbridge Master |
18.44 | % | $ | 6,497,446 | $ | (779,510 | ) | $ | 7,040 | $ | 1,196 | $ | (787,746 | ) | Commodity Portfolio | Monthly | ||||||||||||
Graham Master |
24.39 | % | 8,594,485 | 534,881 | 25,523 | 1,399 | 507,959 | Commodity Portfolio | Monthly | |||||||||||||||||||
Eckhardt Master |
14.94 | % | 5,266,412 | 33,356 | 9,386 | 17,402 | 6,568 | Commodity Portfolio | Monthly | |||||||||||||||||||
SandRidge Master |
12.89 | % | 4,542,641 | 348,726 | 1,682 | 376 | 346,668 | Energy Portfolio | Monthly | |||||||||||||||||||
Campbell Master |
| % | | (272,274 | ) | 1,385 | 1,144 | (274,803 | ) | Financials, Metals & Energy Portfolio |
Monthly | |||||||||||||||||
Total |
$ | 24,900,984 | $ | (134,821 | ) | $ | 45,016 | $ | 21,517 | $ | (201,354 | ) | ||||||||||||||||
December 31, 2008 | For the three months ended September 30, 2008 | |||||||||||||||||||||||||||
% of |
Net |
|||||||||||||||||||||||||||
Partnerships |
Fair |
Income |
Expenses |
Income |
Investment |
Redemptions |
||||||||||||||||||||||
Fund | Net Assets | Value | (Loss) | Commissions | Other | (Loss) |
Objective
|
Permitted
|
||||||||||||||||||||
Willowbridge Master
|
22.63 | % | $ | 10,048,176 | $ | 331,188 | $ | 4,248 | $ | 325 | $ | 326,615 | Commodity Portfolio | Monthly | ||||||||||||||
Campbell Master
|
17.01 | % | 7,553,372 | (243,429) | 1,582 | 472 | (245,483) |
Financials,
Metals & Energy Portfolio |
Monthly | |||||||||||||||||||
Graham Master
|
23.71 | % | 10,523,350 | (379,104) | 11,265 | 298 | (390,667) | Commodity Portfolio | Monthly | |||||||||||||||||||
Eckhardt Master
|
14.19 | % | 6,299,190 | (460,539) | 3,403 | 3,639 | (467,581) | Commodity Portfolio |
Monthly |
|||||||||||||||||||
Total
|
$ | 34,424,088 | $ | (751,884) | $ | 20,498 | $ | 4,734 | $ | (777,116) | ||||||||||||||||||
13
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
September 30, 2009
(Unaudited)
Notes to Financial Statements
September 30, 2009
(Unaudited)
December 31, 2008 | For the nine months ended September 30, 2008 | |||||||||||||||||||||||||||
% of |
Net |
|||||||||||||||||||||||||||
Partnerships |
Fair |
Income |
Expense |
Income |
Investment |
Redemption |
||||||||||||||||||||||
Investment | Net Assets | Value | (Loss) | Commissions | Other | (Loss) | Objectives | Permitted | ||||||||||||||||||||
Willowbridge Master
|
22.63 | % | $ | 10,048,176 | $ | 3,226,237 | $ | 11,624 | $ | 982 | $ | 3,213,631 |
Commodity Portfolio |
Monthly | ||||||||||||||
Campbell Master
|
17.01 | % | 7,553,372 | 433,364 | 5,520 | 1,417 | 426,427 |
Financials, Metals & Energy Portfolio |
Monthly | |||||||||||||||||||
Graham Master
|
23.71 | % | 10,523,350 | 1,548,768 | 41,988 | 1,124 | 1,505,656 |
Commodity Portfolio |
Monthly | |||||||||||||||||||
Eckhardt Master
|
14.19 | % | 6,299,190 | 172,406 | 6,003 | 15,655 | 150,748 |
Commodity Portfolio |
Monthly | |||||||||||||||||||
Total
|
$ | 34,424,088 | $ | 5,380,775 | $ | 65,135 | $ | 19,178 | $ | 5,296,462 | ||||||||||||||||||
6. | Financial Instrument Risks: |
In the normal course of its business, the Partnership and the
Funds are parties to financial instruments with off-balance
sheet risk, including derivative financial instruments and
derivative commodity instruments. These financial instruments
may include forwards, futures, options and swaps, whose values
are based upon an underlying asset, index, or reference rate,
and generally represent future commitments to exchange
currencies or cash balances, or to purchase or sell other
financial instruments at specific terms at specified future
dates, or, in the case of derivative commodity instruments, to
have a reasonable possibility to be settled in cash, through
physical delivery or with another financial instrument. These
instruments may be traded on an exchange or
over-the-counter
(OTC). Exchange traded instruments are standardized
and include futures and certain forwards and option contracts.
OTC contracts are negotiated between contracting parties and
include certain forwards and option contracts. Each of these
instruments is subject to various risks similar to those related to the
underlying financial instruments including market and credit
risk. In general, the risks associated with OTC contracts are
greater than those associated with exchange traded instruments
because of the greater risk of default by the counterparty to an
OTC contract.
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 not represented by the contract or notional amounts of the instruments. The
Partnerships/Funds risk of loss is reduced through the use of legally enforceable master netting
agreements with counterparties that permit the Partnership/Funds to offset unrealized gains and
losses and other assets and liabilities with such counterparties upon the occurrence of certain
events. The Partnership/Funds have credit risk and concentration risk as the sole counterparty or
broker with respect to the Partnerships/Funds assets is CGM or a CGM affiliate. Credit risk with
respect to exchange-traded instruments is reduced to the extent that through CGM, the
Partnerships/Funds counterparty is an exchange or clearing organization.
As both a buyer and seller of options, the Partnership/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 Partnership/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 Partnership/Funds do not
consider these contracts to be guarantees as described in ASC
460-10 Guarantees (formerly, FAS No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees).
The General Partner monitors and controls 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 are subject. These
monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance
indicators and correlation statistics. In addition, on-line
monitoring systems provide account analysis of futures, forwards
and options positions by sector, margin requirements, gain and
loss transactions and collateral positions.
The majority of these instruments mature within one year of the
inception date. However, due to the nature of the
Partnerships/Funds business, these instruments may
not be held to maturity.
14
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 and services.
Its only assets are its investment in Partnerships and equity in its trading account,
consisting of cash, net unrealized appreciation on open futures
contracts and 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 losses occurred
during the third quarter of 2009.
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, additions
and redemptions of Redeemable Units and distributions of profits,
if any.
For the nine months ended September 30, 2009, Partners Capital decreased 20.6% from
$44,393,328 to $35,240,986. This decrease was attributable to the net loss from operations of
$662,404, coupled with a redemption of 4,243.4259 Redeemable Units of Limited Partnership
Interest resulting in an outflow of $7,679,997 and 474.2765 General Partner Unit equivalents
totaling $809,941. Future redemptions could impact the amount of funds available for investment
in commodity contract positions in subsequent periods.
Critical
Accounting Policies
Use of Estimates. The preparation of financial statements and accompanying notes in
conformity with U.S.
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.
Statement of Cash Flows. The Partnership
is not required to provide a Statement of Cash Flows
as permitted by ASC 230-10.
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. 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.
Fair Value Measurements. The Partnership
and the Funds adopted ASC 820-10 as of January 1, 2008 which defines fair value 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. The Partnership did not apply the
deferral allowed by ASC 820-10 for
nonfinancial assets and nonfinancial liabilities measured at
fair value on a nonrecurring basis.
The Partnership and the Funds consider prices for exchange traded commodity
futures, forwards and options contracts to be based on unadjusted quoted
prices in active markets for identical assets (Level 1).
The values of non exchange traded forwards, swaps and certain
options contracts for which market quotations are not readily
available are priced by broker-dealers who derive fair values
for those assets from observable inputs (Level 2). Investments
in partnerships (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 partnerships reflects its
proportional interest in the partnerships. As of and for the period ended September 30, 2009, the Partnership and the Funds did not hold any
derivative instruments that are priced at fair value using
unobservable inputs through the application of managements
assumptions and internal valuation pricing models (Level 3).
Futures Contracts. The Partnership and the Funds trade futures contracts. 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 S&P 500
Index), whereby such contract is settled in cash. Payments
(variation margin) may be made or received by the
Partnership 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. Because
transactions in futures contracts require participants to make both initial margin deposits of cash
or other assets and variation margin deposits, through the futures
brokers, directly with the exchange on which the contracts are
traded, credit exposure is limited. Realized gains (losses) and changes in unrealized gains
(losses) on futures contracts are included in the Statements of
Income and Expenses and Changes in Partners Capital.
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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 and the Funds are cash settled based on prompt dates published by the LME. 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. A contract is considered offset when all long positions have been matched with short positions. When the contract is closed at the prompt date, 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. Because 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, credit exposure is limited. Realized gains (losses) and changes in unrealized gains (losses) on metal contracts are included in the Statements of Income and Expenses and Changes Partners Capital.
Forward Foreign Currency Contracts. 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. Foreign currency contracts are valued daily, and the Funds
net equity therein, representing unrealized gain or loss on the contracts as measured by the
difference between the forward foreign exchange rates at the dates of entry into the contracts and
the forward rates at the reporting date, is included in the Statements of Financial Condition.
Realized gains (losses) and changes in unrealized gains (losses) on foreign currency contracts are
recognized in the period in which the contract is closed or the
changes occur, respectively, and are included in
the Statements of Income and Expenses and Changes in Partners Capital.
The
Partnership does not isolate that portion of the results of
operations arising from
the effect of changes in foreign exchange rates on investments from
fluctuations from changes in market prices of investments held. Such
fluctuations are included in net gain (loss) on investments in the
Statements of Income and Expenses and Changes in Partners Capital.
Options. The
Funds may purchase and write (sell) both exchange listed and
over-the counter, 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 purchases an option, the premium paid is recorded
as an asset in the Statements of Financial Condition and marked to
market daily. Realized gains (losses) and changes in unrealized gains (losses) on options contracts are
included in the Statements of Income and Expenses and Changes in Partners Capital.
Income Taxes. Income taxes have not been provided as each partner is individually liable for
the taxes, if any, on their share of the Partnerships income and expenses.
In 2007, the Master adopted ASC 740-10 Income
Taxes (formerly, FAS No. 48, Accounting for Uncertainty
in Income Taxes). ASC 740-10 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. ASC 740-10 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 has continued to evaluate the application of ASC 740-10 and has concluded that the adoption of ASC 740-10 had no impact on the
operations of the Partnership for the nine months ended September 30,
2009 and that no provision for income
tax is required in the Partnerships financial statements.
The following are the major tax jurisdictions for the Partnership and the earliest tax year
subject to examination: United States 2005.
Recent Accounting Pronouncements. In 2009, the Partnership adopted ASC 820-10-65 Fair Value
Measurements (formerly, FAS No. 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly). ASC 820-10-65
reaffirms that fair value is
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.
ASC 820-10-65 also reaffirms the need to use judgment in determining if a formerly active market has
become inactive and in determining fair values when the market has become inactive. The application
of the ASC 820-10-65 is required for interim and annual reporting periods ending after June 15, 2009.
Management has concluded that based on available information in the marketplace, there has not been a decrease in the volume and level of activity in the Partnerships Level 2 assets and liabilities.
The adoption of the ASC 820-10-65 had no effect on the Partnerships Financial Statements.
Subsequent Events. In 2009, the Partnership adopted ASC
855-10, Subsequent Events (formerly, FAS No. 165, Subsequent
Events). The objective of ASC 855-10 is to establish general standards
of accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued.
Results
of Operations
During the Partnerships third quarter of 2009, the Net Asset Value per Redeemable Unit
increased 3.5% from $1,785.71 to $1,848.93 as compared to a decrease of 6.7% in the third quarter of 2008.
The Partnership experienced a net trading gain (comprised of net realized gains (losses) on closed positions
and investment in Partnerships and change in net unrealized gains (losses) on open positions and
investment in Partnerships) before brokerage commissions and related fees in the third quarter of 2009 of
$2,280,781. Gains were primarily attributable to the Partnerships and the Funds trading of commodity
futures in currencies, U.S. and non-U.S interest rates, indices, metals and softs and
were
partially offset by losses in energy, livestock and grains. The Partnership experienced a net trading loss
(comprised of net realized gains (losses) on closed positions and investment in Partnerships and change in net
unrealized gains (losses) on open positions and investment in Partnerships)
before brokerage commissions and fees in the third quarter of 2008 of $2,308,373. Losses were primarily
attributable to the Partnerships and the Funds trading of commodity futures in currencies, energy, grains,
non-U.S. interest rates, livestock and softs and were partially offset by gains in metals, U.S. interest rates
and indices.
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Table of Contents
Markets around the world rose again in the third quarter of 2009. Economic activity in the U.S.
further stabilized with many important sectors of the economy demonstrating marked improvements
over the depressed levels reached earlier this year. The overall economy continued to face
headwinds with employment further contracting, albeit at a much slower pace. Consumer confidence
has bounced off record lows but remains well below historical averages. The Partnership realized
gains for the quarter, primarily in equity indices, metals, currencies and soft commodities.
The majority of the profits were earned on the back of the equity rally. The combination of
strong growth news, benign inflation data and accommodative monetary policy stances from key
central banks has continued to support the price action in risky assets. Gains were also recorded
in metals, primarily in copper and gold, as prices established firm bullish trends that began in
early 2009. The Partnership capitalized on these trends and registered strong gains. Profits
were earned from trading currencies as higher yielding currencies and those associated with
natural resource based economies, especially the Australian dollar, proved particularly strong.
In soft commodities, profits were realized primarily from trading sugar as prices rallied to
a 28-year high in August on a weaker-than-normal monsoon season which has had a negative impact
on the crop in India. In addition, the harvest in Brazil, the worlds largest producer, has been
delayed by excessive rainfall.
In the energy sector, losses were captured as the markets remained in contango. Natural gas
demonstrated a strong bearish trend but the trend seemed to be reversing late in the quarter.
Crude oil and heating oil remained mostly trendless and volatile, thus contributing to losses.
During the Partnerships nine months ended September 30, 2009, the Net Asset Value per
Redeemable Unit decreased 1.0% from $1,867.00 to $1,848.93, as compared to an increase of 5.3% during
the nine months ended September 30, 2008. The Partnership experienced a net trading gain (comprised of
net realized gains (losses) on closed positions and investment in Partnerships and change in net unrealized
gains (losses) on open positions and investment in Partnerships) before brokerage commissions and related
fees during the nine months ended September 30, 2009 of $2,335,243. Gains were primarily attributable to
the Partnerships and the Funds trading of commodity futures in currencies, U.S. interest rates, metals, softs and indices
were partially offset by losses in energy, grains, non-U.S. interest rates, and livestock. The
Partnership experienced a net trading gain
(comprised of net realized gains (losses) on closed positions and investment in Partnerships and change
in unrealized gains (losses) on open positions and investment in Partnerships)
before brokerage commissions and related fees in the nine
months ended September 30, 2008 of $5,639,333. Gains were primarily attributable to the Partnerships
and the Funds trading of commodity futures in currencies, energy, grains, U.S. and non-U.S. interest rates,
metals, livestock, and indices and were partially offset by losses in softs.
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 equity
average maintained in cash was earned at the
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. CGM may
continue to maintain the Partnerships assets in cash
and/or place
all of the Partnerships assets in
90-day
Treasury bills and pay the Partnership 80% on the interest
earned on the Treasury bills purchased. Twenty percent of the interest earned on Treasury bills purchased may be retained by CGM and/or credited to the General Partner. Interest income for the three and nine months ended September 30, 2009 decreased by $125,960 and $447,783,
respectively, as compared to the corresponding periods in 2008. This decrease was due to lower daily
equity average maintained in cash and lower U.S. Treasury bill rates during the three and nine months
ended September 30, 2009 as compared to the corresponding periods in 2008.
17
Table of Contents
Brokerage commissions are calculated as a percentage of the Partnerships net asset value as
of the
last day of each month and are affected by trading performance, additions and redemptions. Accordingly,
they must be compared in relation to the fluctuations in the monthly net asset values. Brokerage
commissions and fees for the three and nine months ended September 30, 2009 decreased by $108,005 and
$341,948, respectively, as compared to the corresponding periods in 2008. The decrease in brokerage
commissions and fees is due to lower average net assets during the three and nine months ended September 30,
2009 as compared to the corresponding periods in 2008.
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, additions and redemptions.
Management fees for the three and nine months ended September 30,
2009 decreased by $37,935 and $117,058,
respectively, as compared to the corresponding periods in 2008. The decrease in management fees is due to
lower average net assets during the three and nine months ended September 30, 2009 as compared to the
corresponding periods in 2008.
Incentive fees are based on the new trading profits generated by each Advisor as defined in the
advisory agreements between the Partnership, the General Partner and each Advisor. Trading performance
for the three and nine months ended September 30, 2009 resulted in incentive fees of $216,320 and $331,108,
respectively. Trading performance for the three and nine months ended September 30, 2008 resulted in incentive
fees of $22,587 and $391,213, respectively.
In allocating the assets of the Partnership among the trading advisors, the General Partner
considers past performance, trading style, volatility of markets traded and fee requirements. The
General Partner may modify or terminate the allocation of assets among the trading advisors and may
allocate assets to additional advisors at any time.
18
Table of Contents
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
The Partnership and the Funds are speculative commodity pools.
The market sensitive instruments held by Partnership and the
Funds are acquired for speculative trading purposes, and all or
substantially all of the Partnerships and the Funds
assets are subject to the risk of trading loss. Unlike an
operating company, the risk of market sensitive instruments is
integral, not incidental, to the Partnerships and the
Funds main line of business.
The risk to the limited partners that have purchased interests
in the Partnership is limited to the amount of
their capital contributions to the Partnership and their
share of the Partnership assets and undistributed profits. This
limited liability is a consequence of the organization of the
Partnership as a limited partnership under
applicable law.
Market movements result in frequent changes in the fair value of
the Partnerships and the Funds open positions and,
consequently, in its earnings and cash flow. The
Partnerships and the Funds market risk is influenced
by a wide variety of factors, including the level and volatility
of interest rates, exchange rates, equity price levels, the
market value of financial instruments and contracts, the
diversification effects among the Partnerships and the
Funds open positions and the liquidity of the markets in
which it trades.
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 its future results.
Value at Risk is a measure of the maximum amount which the
Partnership and the Funds could reasonably be expected to lose
in a given market sector. However, the inherent uncertainty of
the Partnerships and the Funds speculative trading
and the recurrence in the markets traded by the Partnership and
the Funds of market movements far exceeding expectations could
result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnerships and the
Funds experience to date (i.e., risk of ruin).
In light of the foregoing as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the
quantification in this section should not be considered to
constitute any assurance or representation that the
Partnerships and the Funds losses in any market
sector will be limited to Value at Risk or by the
Partnerships and the Funds attempts to manage its
market risk.
Exchange maintenance margin requirements have been used by the
Partnership and the Funds as the measure of its Value at Risk.
Maintenance margin requirements are set by exchanges to equal or
exceed the maximum losses reasonably expected to be incurred in
the fair value of any given contract in 95%-99% of any
one-day
interval. Maintenance margin has been used rather than the more
generally available initial margin, because initial margin
includes a credit risk component, which is not relevant to Value
at Risk.
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Table of Contents
The following tables indicate the trading Value at Risk
associated with the Partnerships investments and
investments in the Funds by market category as of September 30, 2009, and the highest, lowest and average values during the
three months ended September 30, 2009. All open position trading
risk exposures of the Partnership/Funds have been included in
calculating the figures set forth below. There have been no
material changes in the trading Value at Risk information
previously disclosed in the Partnerships Annual Report on
Form 10-K
for the year ended December 31, 2008.
As of September 30, 2009, the Partnerships total
capitalization
was $35,240,986.
The Partnerships Value at Risk for the portion of its assets
that are traded directly (including through CFMs Discus 1.5x
Leverage) Program was as follows:
September 30, 2009
(Unaudited)
(Unaudited)
Three months ended September 30, 2009 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 348,073 | 0.99 | % | $ | 453,110 | $ | 71,468 | 260,707 | |||||||||||
Energy |
94,868 | 0.27 | % | 387,364 | 20,443 | 126,527 | ||||||||||||||
Grains |
16,293 | 0.05 | % | 33,042 | 6,833 | 17,847 | ||||||||||||||
Indices |
1,638,685 | 4.65 | % | 2,038,884 | 149,939 | 889,769 | ||||||||||||||
Interest Rates U.S. |
4,691 | 0.01 | % | 504,090 | 4,691 | 246,863 | ||||||||||||||
Interest Rates Non -U.S. |
610,760 | 1.73 | % | 692,527 | 20,152 | 277,274 | ||||||||||||||
Livestock |
4,658 | 0.01 | % | 6,075 | 1,350 | 3,340 | ||||||||||||||
Metals |
24,974 | 0.07 | % | 96,843 | 5,400 | 38,055 | ||||||||||||||
Softs |
15,875 | 0.05 | % | 29,379 | 6,456 | 15,469 | ||||||||||||||
Total |
$ | 2,758,877 | 7.83 | % | ||||||||||||||||
* | Average of month-end Values at Risk. |
As of September 30, 2009, SandRidge Masters total
capitalization
was $620,678,767. The Partnership owned approximately 0.7% of SandRidge Master.
The Partnerships Value at Risk for the portion of its assets
that are traded indirectly through its investment in the SandRidge
Master as of September 30, 2009 was as follows:
September 30, 2009
(Unaudited)
(Unaudited)
Three months ended September 30, 2009 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Energy |
$ | 25,720,664 | 4.14 | % | $ | 25,720,664 | $ | 18,754,664 | $ | 24,319,593 | ||||||||||
Total |
$ | 25,720,664 | 4.14 | % | ||||||||||||||||
* | Average of month-end Values at Risk. |
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Table of Contents
As of September 30, 2009, Willowbridge Masters total
capitalization was $238,162,148. The Partnership owned approximately 2.7% of
Willowbridge Master.
The Partnerships Value at Risk for the portion of its assets
that are traded indirectly through its investment in the Willowbridge
Master as of September 30, 2009 was as follows:
September 30, 2009
(Unaudited)
(Unaudited)
Three months ended September 30, 2009 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 7,855,650 | 3.30 | % | $ | 14,208,480 | $ | 2,908,305 | $ | 8,695,042 | ||||||||||
Energy |
1,451,588 | 0.61 | % | 13,037,019 | 685,800 | 6,087,536 | ||||||||||||||
Grains |
3,415,500 | 1.44 | % | 3,415,500 | 1,723,410 | 2,429,356 | ||||||||||||||
Interest Rates U.S. |
5,191,560 | 2.18 | % | 9,939,105 | 507,263 | 3,052,277 | ||||||||||||||
Interest Rates
Non-U.S. |
10,084,707 | 4.23 | % | 14,168,324 | 455,649 | 7,346,189 | ||||||||||||||
Livestock |
273,240 | 0.12 | % | 410,400 | 133,110 | 209,851 | ||||||||||||||
Metals |
8,083,122 | 3.39 | % | 8,372,754 | 1,909,575 | 5,660,365 | ||||||||||||||
Softs |
1,841,840 | 0.77 | % | 2,445,100 | 981,960 | 1,607,183 | ||||||||||||||
Total |
$ | 38,197,207 | 16.04 | % | ||||||||||||||||
* Average of month-end Values at Risk. | ||||||||||||||||||||
As of September 30, 2009, Graham Masters total capitalization was $168,022,693. The Partnership owned approximately 5.1% of Graham Master. The Partnerships Value at Risk for the portion of its assets that are traded indirectly through its investment in the Graham Master as of September 30, 2009 was as follows: | ||||||||||||||||||||
September 30, 2009 (Unaudited) |
||||||||||||||||||||
Three months ended September 30, 2009 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 6,395,662 | 3.81 | % | $ | 8,136,447 | $ | 3,040,693 | $ | 5,464,391 | ||||||||||
Energy |
678,527 | 0.41 | % | 1,774,426 | 484,382 | 1,096,708 | ||||||||||||||
Grains |
1,411,794 | 0.84 | % | 1,846,996 | 215,255 | 1,126,000 | ||||||||||||||
Interest Rates U.S. |
2,238,368 | 1.33 | % | 2,365,808 | 87,777 | 682,461 | ||||||||||||||
Interest Rates Non-U.S. |
8,320,518 | 4.95 | % | 8,320,518 | 471,498 | 2,721,058 | ||||||||||||||
Livestock |
36,180 | 0.02 | % | 48,263 | 15,660 | 26,831 | ||||||||||||||
Metals |
1,596,936 | 0.95 | % | 1,806,942 | 488,247 | 1,265,220 | ||||||||||||||
Softs |
1,479,945 | 0.88 | % | 1,479,945 | 511,314 | 883,086 | ||||||||||||||
Indices |
9,707,902 | 5.78 | % | 12,019,804 | 3,419,163 | 8,269,216 | ||||||||||||||
Total |
$ | 31,865,832 | 18.97 | % | ||||||||||||||||
* | Average of month-end Values at Risk. | |
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Table of Contents
As of September 30, 2009, Eckhardt Masters total capitalization
was $18,464,221. The Partnership owned approximately 28.5% of
Eckhardt Master.
The Partnerships Value at Risk for the portion of its assets
that are traded indirectly through its investment in the Eckhardt
Master as of September 30, 2009 was as follows:
September 30, 2009
(Unaudited)
(Unaudited)
Three months ended September 30, 2009 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 122,663 | 0.66 | % | $ | 1,191,210 | $ | 122,663 | $ | 654,172 | ||||||||||
Energy |
51,156 | 0.28 | % | 442,311 | 50,550 | 190,696 | ||||||||||||||
Grains |
137,399 | 0.74 | % | 138,725 | 62,430 | 102,002 | ||||||||||||||
Interest Rates U.S. |
361,800 | 1.96 | % | 678,443 | 61,560 | 245,751 | ||||||||||||||
Interest Rates Non -U.S. |
142,809 | 0.77 | % | 337,995 | 13,213 | 73,920 | ||||||||||||||
Metals |
495,706 | 2.69 | % | 495,706 | 209,150 | 357,137 | ||||||||||||||
Softs |
251,705 | 1.36 | % | 251,705 | 105,270 | 148,442 | ||||||||||||||
Indices |
706,284 | 3.83 | % | 706,284 | 188,635 | 438,028 | ||||||||||||||
Total |
$ | 2,269,522 | 12.29 | % | ||||||||||||||||
* | Average of month-end Values at Risk. | |
22
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 Commission's rules and forms. Disclosed controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management,
including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO) of the General Partner, to allow for timely
decisions regarding required disclosure and appropriate SEC
filings.
Management is responsible for ensuring that there is an adequate
and effective process for establishing, maintaining and
evaluating disclosure controls and procedures for the
Partnerships external disclosures.
The General Partners CEO and CFO have evaluated the
effectiveness of the Partnerships disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) as of September 30, 2009 and, based on
that evaluation, the CEO and CFO have concluded that at that
date the Partnerships disclosure controls and procedures
were effective.
The Partnerships internal control over financial
reporting is a process under the supervision of the General
Partners CEO and CFO to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements in accordance with
GAAP. These
controls include policies and procedures that:
| pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; | |
| provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and (ii) the Partnerships receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and | |
| provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material effect on the financial statements. |
There were no changes in the Partnerships internal control
over financial reporting process during the fiscal quarter ended
September 30, 2009 that materially affected, or are reasonably
likely to materially affect, the Partnerships internal
control over financial reporting.
23
Table of Contents
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
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, 2008, as updated by the Partnerships Quarterly Report on Form 10-Q for the quarters ended
March 31, 2009 and June 30, 2009. There are no material legal proceedings pending against the
Partnership and the General Partner.
Subprime Mortgage-Related Litigation
On August 31, 2009, Asher, et al. v. Citigroup Inc., et al. and Pellegrini v. Citigroup Inc.,
et al. were consolidated with In re Citigroup Inc. Bond Litigation.
On July 27, 2009, Utah Retirement Systems v. Strauss, et al. was filed in the United States
District Court for the Eastern District of New York asserting, among other claims, claims under the
Securities Act of 1933 and Utah state law arising out of an offering of American Home Mortgage
common stock underwritten by CGM.
On July 31, 2009, the United States District Court for the Eastern District of New York
entered an order preliminarily approving settlements reached with all defendants (including
Citigroup and CGM) in In Re American Home Mortgage Securities Litigation.
On August 5, 2009, the underwriter defendants, including CGM, moved to dismiss the
consolidated amended complaint in In Re American International Group, Inc. 2008 Securities
Litigation.
Auction Rate SecuritiesRelated Litigation and Other Matters
On July 23, 2009, the Judicial Panel on Multidistrict Litigation issued an order transferring
K-V Pharmaceutical Co. v. CGMI from the United States District Court for the Eastern District of
Missouri to the United States District Court for the Southern District of New York for coordination
with In Re Citigroup Auction Rate Securities Litigation. On August 24, 2009, CGM moved to dismiss
the complaint.
On September 11, 2009, the United States District Court for the Southern District of New York
dismissed without prejudice the complaint in In Re Citigroup Auction Rate Securities Litigation. On
October 15, 2009, lead plaintiff filed a second consolidated amended complaint asserting claims
under Sections 10 and 20 of the Securities Exchange Act of 1934.
On October 2, 2009, the Judicial Panel on Multidistrict Litigation transferred Ocwen Financial
Corp., et al. v. CGMI to the United States District Court for the Southern District of New York for
coordination with In Re Citigroup Auction Rate Securities Litigation.
Other Matters
On September 14, 2009, defendants filed a motion to dismiss the amended complaint in ECA
Acquisitions, Inc., et al. v. MAT Three LLC, et al..
Adelphia Communications Corporation
Trial of the Adelphia Recovery Trusts claims against Citigroup and numerous other defendants
is scheduled to begin in April 2010.
IPO Securities Litigation
In October 2009, the District Court entered an order granting final approval of the
settlement.
Other Matters
Investors in municipal bonds and other instruments affected by the collapse of the credit
markets have sued Citigroup on a variety of theories. On August 10, 2009, certain such investors, a
Norwegian securities firm and
seven Norwegian municipalities, filed an actionTerra Securities Asa Konkursbo, et al. v.
Citigroup Inc., et al.in the United States District Court for the Southern District of New York
against Citigroup, CGM and Citigroup Alternative Investments LLC, asserting claims under
Sections 10 and 20 of the Securities Exchange Act of 1934 and state law arising out of the
municipalities investment in certain notes. On October 7, 2009, defendants filed a motion to
dismiss.
24
Table of Contents
Item 1A. | Risk Factors |
The following disclosure supplements the risk factors set forth under Part I, Item 1A. Risk
Factors in the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31,
2008 and under Part II, Item 1A. Risk Factors in the Partnerships Quarterly Report on Forms 10-Q
for the quarters ended March 31, 2009 and June 30, 2009.
Speculative
position and trading limits may reduce profitability. The
Commodity Futures Trading Commission (CFTC) and U.S. exchanges have
established speculative position limits on the maximum net long or net short position which any
person may hold or control in particular futures and options on futures. The trading instructions
of an advisor may have to be modified, and positions held by the Partnership and the Funds may have
to be liquidated in order to avoid exceeding these limits. Such modification or liquidation could
adversely affect the operations and profitability of the Partnership and the Funds by increasing
transaction costs to liquidate positions and foregoing potential profits.
Regulatory changes could restrict the Partnerships operations. Regulatory changes could adversely
affect the Partnership and the Funds by restricting its markets or activities, limiting its trading
and/or increasing the taxes to which investors are subject. The General Partner is not aware of
any definitive regulatory developments that might adversely affect the Partnership and the Funds;
however, since June 2008, several bills have been proposed in the U.S. Congress in response to
record energy and agricultural prices and the financial crisis. Some of the pending legislation,
if enacted, could impact the manner in which swap contracts are traded and/or settled and limit
trading by speculators (such as the Partnership and the Funds) in
futures and OTC
markets. One of the proposals would authorize the CFTC and the Commission to regulate swap
transactions. Other potentially adverse regulatory initiatives could develop suddenly and without
notice.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The Redeemable Units were issued to accredited investors in
reliance upon applicable exemptions from registration under
Section 4(2) of the Securities Act of 1933, as amended, and
Section 506 of Regulation D promulgated thereunder.
There were no additional sales of Redeemable Units during the
three months ended September 30, 2009.
The following chart sets forth the purchases of Redeemable Units
by the Partnership.
(d) Maximum Number |
||||||||||||||||||||
(or Approximate |
||||||||||||||||||||
(c) Total Number |
Dollar Value) of Shares |
|||||||||||||||||||
of Shares (or Units) |
(or Units) that |
|||||||||||||||||||
(a) Total Number |
(b) Average |
Purchased as Part |
May Yet Be |
|||||||||||||||||
of Shares |
Price Paid per |
of Publicly Announced |
Purchased Under the |
|||||||||||||||||
Period | (or Units) Purchased* | Share (or Unit)** | Plans or Programs | Plans or Programs | ||||||||||||||||
July 1, 2009 July 31, 2009 | 217.3382 | $ | 1,814.83 | N/A | N/A | |||||||||||||||
August 1, 2009 August 31, 2009 | 794.9067 | $ | 1,806.41 | N/A | N/A | |||||||||||||||
September 1, 2009 September 30, 2009 |
309.0219 | $ | 1,848.93 | N/A | N/A | |||||||||||||||
1,321.2668 | $ | 1,817.74 | ||||||||||||||||||
* Generally, Limited Partners are permitted to redeem their
Redeemable Units as of the end of each month on
10 days notice to the General Partner. Under certain
circumstances, the General Partner can compel redemption but to
date the General Partner has not exercised this right. Purchases
of Redeemable Units by the Partnership reflected in the chart
above were made in the ordinary course of the Partnerships
business in connection with effecting redemptions for Limited
Partners.
** Redemptions of Redeemable Units are effected as of the last
day of each month at the Net Asset Value per Redeemable Unit as
of that day.
Item 3. | Defaults Upon Senior Securities None |
Item 4. | Submission of Matters to a Vote of Security Holders None |
Item 5. | Other Information None. |
25
Table of Contents
Item 6. | Exhibits |
Exhibit
3.1(a) | Certificate of Limited Partnership dated May 10, 1994 (filed herewith). | |
(b) | Certificate of Amendment of the Certificate of Limited Partnership dated July 31, 1995 (filed herewith). | |
(c) | Certificate of Amendment of the Certificate of Limited Partnership dated October 1, 1999 (filed herewith). | |
(d) | Certificate of Change of the Certificate of Limited Partnership effective January 31, 2000 (filed herewith). | |
(e) | Certificate of Amendment of the Certificate of Limited Partnership dated May 21, 2003 (filed herewith). | |
(f) | Certificate of Amendment of the Certificate of Limited Partnership dated September 21, 2005 (filed herewith). | |
(g) | Certificate of Amendment of the Certificate of Limited Partnership dated September 19, 2008 (filed herewith). | |
(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). | |
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 | 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 herewith). | |
10.4(a) | Management Agreement among the Partnership, the General Partner and Willowbridge Associates Inc. (filed as Exhibit 10.7 to the Annual Report Form on 10-K for the fiscal year ended December 31, 1997 filed on March 30, 1998 and incorporated herein by reference). | |
(b) | Letter extending Management Agreement with Willowbridge Associates Inc. for 2008 (filed as Exhibit 10.33 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 31, 2009 and incorporated herein by reference). | |
10.5(a) | Management Agreement among the Partnership, the General Partner and Campbell & Co., Inc. (filed as Exhibit 10.9 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). | |
(b) | Letter extending Management Agreement with Campbell & Co., Inc. for 2008 (filed as Exhibit 10.33 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 31, 2009 and incorporated herein by reference). | |
10.6(a) | Management Agreement among the Partnership, the General Partner and Graham Capital Management L.P. (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 Management L.P. for 2008 (filed as Exhibit 10.33 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 31, 2009 and incorporated herein by reference). | |
10.7(a) | Management Agreement among the Partnership, the General Partner and Capital Fund Management (filed as Exhibit 10.24 to the Annual Report Form on 10-K for the fiscal year ended December 31, 2001 filed on March 28, 2002 and incorporated herein by reference). | |
(b) | Letter extending Management Agreement with Capital Fund Management for 2008 (filed as Exhibit 10.33 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 31, 2009 and incorporated herein by reference). | |
10.8(a) | Management Agreement among the Partnership, the General Partner and Eckhardt Trading Company (filed as Exhibit 10 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008 filed on August 14, 2008 and incorporated herein by reference). | |
(b) | Letter extending Management Agreement with Eckhardt Trading Company for 2008 (filed as Exhibit 10.33 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed on March 31, 2009 and incorporated herein by reference). | |
10.9 | Management Agreement among the Partnership, the General Partner and SandRidge Capital, LP (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on June 2, 2009 incorporated herein by reference). | |
10.10 | Joinder Agreement among the Partnership, Citigroup Managed Futures LLC, Citigroup Global Markets Inc. 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). |
26
Table of Contents
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/ Jerry Pascucci |
Jerry
Pascucci
President and Director
Date: | November 16, 2009 |
By: |
/s/ Jennifer Magro |
Jennifer Magro
Chief Financial Officer and Director
(Principal Accounting Officer)
(Principal Accounting Officer)
Date: | November 16, 2009 |
27