Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | Financial_Report.xls |
EX-31.1 - EX-31.1 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | d754635dex311.htm |
EX-32.2 - EX-32.2 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | d754635dex322.htm |
EX-10.8(C) - EX-10.8(C) - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | d754635dex108c.htm |
EX-32.1 - EX-32.1 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | d754635dex321.htm |
EX-31.2 - EX-31.2 - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | d754635dex312.htm |
EX-10.10(C) - EX-10.10(C) - DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II | d754635dex1010c.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 000-22491
DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II
(Exact name of registrant as specified in its charter)
New York | 13-3769020 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
c/o Ceres Managed Futures LLC
522 Fifth Avenue 14th Floor
New York, New York 10036
(Address of principal executive offices) (Zip Code)
(855) 672-4468
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer | Non-accelerated filer X | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
As of July 31, 2014, 10,369.6254 Limited Partnership Redeemable Units were outstanding.
Table of Contents
DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II
FORM 10-Q
2
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Statements of Financial Condition
(Unaudited) June 30, 2014 |
December 31, 2013 |
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Assets: |
||||||||
Investment in Funds, at fair value |
$ | 14,321,526 | $ | 16,799,476 | ||||
Equity in trading account: |
||||||||
Cash |
69,130 | 66,703 | ||||||
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Total assets |
$ | 14,390,656 | $ | 16,866,179 | ||||
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Liabilities and Partners Capital: |
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Liabilities: |
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Accrued expenses: |
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Ongoing selling agent fees |
$ | 35,977 | 84,331 | |||||
Management fees |
20,327 | 24,339 | ||||||
Other |
65,369 | 73,552 | ||||||
Redemptions payable |
218,111 | 186,725 | ||||||
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Total liabilities |
339,784 | 368,947 | ||||||
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Partners Capital: |
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General Partner, 142.3844 unit equivalents at June 30, 2014 and December 31, 2013 |
188,703 | 196,412 | ||||||
Limited Partners, 10,459.6084 and 11,816.8964 Redeemable Units outstanding at June 30, 2014 and December 31, 2013, respectively |
13,862,169 | 16,300,820 | ||||||
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Total partners capital |
14,050,872 | 16,497,232 | ||||||
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Total liabilities and partners capital |
$ | 14,390,656 | $ | 16,866,179 | ||||
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Net asset value per unit |
$ | 1,325.30 | $ | 1,379.45 | ||||
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See accompanying notes to financial statements.
3
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
June 30, 2014
(Unaudited)
Fair Value | % of Partners Capital |
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Investment in Funds |
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CMF Willowbridge Master Fund L.P. |
$ | 7,229,942 | 51.46 | % | ||||
CMF Graham Capital Master Fund L.P. |
2,321,471 | 16.52 | ||||||
CMF Eckhardt Master Fund L.P. |
4,770,113 | 33.95 | ||||||
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Total Investment in Funds, at fair value |
$ | 14,321,526 | 101.93 | % | ||||
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See accompanying notes to financial statements.
4
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Schedule of Investments
December 31, 2013
Investment in Funds |
Fair Value | % of
Partners Capital |
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CMF Willowbridge Master Fund L.P. |
$ | 8,466,061 | 51.32 | % | ||||
CMF Graham Capital Master Fund L.P. |
2,488,503 | 15.08 | ||||||
CMF Eckhardt Master Fund L.P. |
5,844,912 | 35.43 | ||||||
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Total Investment in Funds, at fair value |
$ | 16,799,476 | 101.83 | % | ||||
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See accompanying notes to financial statements.
5
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Investment Income: |
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Interest income from investment in Funds |
$ | 482 | $ | 887 | $ | 1,477 | $ | 3,114 | ||||||||
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Total investment income (loss) |
482 | 887 | 1,477 | 3,114 | ||||||||||||
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Expenses: |
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Clearing fees allocated from Funds |
16,039 | 22,236 | 35,743 | 41,952 | ||||||||||||
Ongoing selling agent fees |
110,639 | 277,507 | 349,707 | 558,247 | ||||||||||||
Management fees |
62,377 | 80,119 | 131,013 | 158,319 | ||||||||||||
Other |
55,358 | 55,181 | 131,124 | 81,133 | ||||||||||||
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Total expenses |
244,413 | 435,043 | 647,587 | 839,651 | ||||||||||||
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Net investment income (loss) |
(243,931 | ) | (434,156 | ) | (646,110 | ) | (836,537 | ) | ||||||||
Trading Results: |
||||||||||||||||
Net gains (losses) on trading of commodity interests and investment in Funds: |
||||||||||||||||
Net realized gains (losses) on closed contracts |
| | | (76,517 | ) | |||||||||||
Net realized gains (losses) on investment in Funds |
300,400 | 57,915 | 222,055 | 602,287 | ||||||||||||
Change in net unrealized gains (losses) on open contracts |
| | | 76,517 | ||||||||||||
Change in net unrealized gains (losses) on investment in Funds |
170,126 | 161,372 | (212,528 | ) | 242,469 | |||||||||||
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Total trading results |
470,526 | 219,287 | 9,527 | 844,756 | ||||||||||||
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Net income (loss) |
226,595 | (214,869 | ) | (636,583 | ) | 8,219 | ||||||||||
Redemptions General Partner |
| | | (75,725 | ) | |||||||||||
Redemptions Limited Partners |
(877,561 | ) | (658,066 | ) | (1,809,777 | ) | (990,285 | ) | ||||||||
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Net increase (decrease) in Partners Capital |
(650,966 | ) | (872,935 | ) | (2,446,360 | ) | (1,057,791 | ) | ||||||||
Partners Capital, beginning of period |
14,701,838 | 18,359,984 | 16,497,232 | 18,544,840 | ||||||||||||
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Partners Capital, end of period |
14,050,872 | 17,487,049 | 14,050,872 | 17,487,049 | ||||||||||||
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Net asset value per unit (10,601.9928 and 12,476.5938 units outstanding at June 30, 2014 and 2013, respectively) |
$ | 1,325.30 | $ | 1,401.59 | $ | 1,325.30 | $ | 1,401.59 | ||||||||
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Net income (loss) per unit* |
$ | 20.07 | $ | (18.29 | ) | $ | (54.15 | ) | $ | (1.32 | ) | |||||
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Weighted average units outstanding |
10,980.7591 | 12,733.9321 | 11,356.9671 | 12,919.4018 | ||||||||||||
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* | Based on change in net asset value per unit. |
See accompanying notes to financial statements.
6
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
June 30, 2014
(Unaudited)
1. General:
Diversified Multi-Advisor Futures Fund L.P. II (the Partnership) is a limited partnership organized on May 10, 1994 under the partnership laws of the State of New York to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests including futures, options on futures, forwards, options on forwards, spot and swap contracts, cash commodities and any other rights or interest pertaining thereto including interest in commodity pools. The sectors traded include currencies, energy, grains, indices, metals, softs, livestock, lumber and U.S. and non-U.S. interest rates. The commodity interests that are traded by the Partnership directly and through its investment in the Funds (as defined in Note 5 Investment in Funds) are volatile and involve a high degree of market risk. The Partnership was authorized to sell up to 100,000 redeemable units of limited partnership interest (Redeemable Units) during its initial offering period. The Partnership no longer offers Redeemable Units for sale.
Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the General Partner) and commodity pool operator of the Partnership. The General Partner is wholly owned by Morgan Stanley Smith Barney Holdings LLC (MSSB Holdings). MSSB Holdings is ultimately owned by Morgan Stanley. Morgan Stanley is a publicly held company whose shares are listed on the New York Stock Exchange. Morgan Stanley is engaged in various financial services and other businesses. Prior to June 28, 2013, Morgan Stanley indirectly owned a majority equity interest in MSSB Holdings and Citigroup Inc. indirectly owned a minority equity interest in MSSB Holdings. Prior to July 31, 2009, the date as of which MSSB Holdings became its owner, the General Partner was wholly owned by Citigroup Financial Products Inc., a wholly owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner of which is Citigroup Inc.
As of June 30, 2014 all trading decisions are made for the Partnership by Graham Capital Management L.P. (Graham), Willowbridge Associates Inc. (Willowbridge) and Eckhardt Trading Company (Eckhardt) (each an Advisor and collectively, the Advisors), each of which is a registered commodity trading advisor. References herein to Advisors may also include, as relevant, SandRidge Capital L.P. (SandRidge). Each Advisor is allocated a portion of the Partnerships assets to manage. The Partnership invests the portion of its assets allocated to each of the Advisors indirectly through investments in master funds.
During the six months ended June 30, 2014, the Partnerships/Funds commodity broker was Morgan Stanley and Co. LLC (MS&Co.), a registered futures commission merchant. During the prior periods included in this report, Citigroup Global Markets Inc. (CGM) also served as a commodity broker.
During the second quarter of 2013, CMF Graham Capital Master Fund L.P. (Graham Master) entered into a foreign exchange brokerage account agreement with MS&Co. During the second quarter of 2013, Graham Master also entered into a futures brokerage account agreement with MS&Co. Graham Master commenced foreign exchange trading through an account at MS&Co. on or about May 1, 2013 and futures trading through an account at MS&Co. on or about June 17, 2013. During the third quarter of 2013, CMF Willowbridge Master Fund L.P. entered into a futures brokerage account agreement with MS&Co. and commenced futures trading through an account at MS&Co. on or about July 29, 2013. During the fourth quarter of 2013, CMF Eckhardt Master Fund L.P. entered into a futures brokerage account agreement with MS&Co. and commenced futures trading through an account at MS&Co. on or about October 4, 2013. Effective September 4, 2013, the Partnership entered into a futures brokerage account with MS&Co. and began transferring the brokerage account of the Partnership from CGM to MS&Co. The Partnership, through its investment in the Funds, pays MS&Co. trading fees for the clearing and, where applicable, execution of transactions.
Effective October 1, 2013, the Partnership ceased paying a brokerage fee to CGM and CGM ceased acting as a selling agent for the Partnership. Also effective October 1, 2013, the Partnership entered into a selling agreement with Morgan Stanley Smith Barney LLC (d/b/a Morgan Stanley Wealth Management). Pursuant to the selling agreement, Morgan Stanley Wealth Management received a selling agent fee equal to 1/2 of 1% (6% per year) of the Partnerships month-end net assets. The selling agent fee received by Morgan Stanley Wealth Management will be shared with the properly registered/licensed financial advisers of Morgan Stanley Wealth Management who sold redeemable units in the Partnership.
Effective April 1, 2014, the monthly ongoing selling agent fee was reduced from an annual rate of 6.0% to an annual rate of 3.0%. Effective April 1, 2014, the management fee paid to Graham was reduced from an annual rate of 2.0% to an annual rate of 1.75%. Effective July 1, 2014, the management fees paid to Eckhardt was reduced from an annual rate of 2.0% to an annual rate of 1.0%.
7
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
Certain prior period amounts have been reclassified to conform to current period presentation. Amounts reported separately on the Statements of Income and Expenses and changes in Partners Capital as ongoing selling agent fees and clearing fees were previously combined and presented as brokerage fees, including clearing fees.
The General Partner and each limited partner share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each, except that no limited partner shall be liable for obligations of the Partnership in excess of its initial capital contribution and profits, if any, net of distributions and losses, if any.
The accompanying financial statements and accompanying notes are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Partnerships financial condition at June 30, 2014 and December 31, 2013, and the results of its operations and changes in partners capital for the three and six months ended June 30, 2014 and 2013. 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, 2013.
The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.
Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.
8
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
2. Financial Highlights:
Changes in the net asset value per unit for the three and six months ended June 30, 2014 and 2013 were as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Net realized and unrealized gains (losses) 1 |
$ | 30.73 | $ | (7.74 | ) | $ | (31.27 | ) | $ | 17.01 | ||||||
Interest income |
0.04 | 0.07 | 0.12 | 0.23 | ||||||||||||
Expenses 2 |
(10.70 | ) | (10.62 | ) | (23.00 | ) | (18.56 | ) | ||||||||
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Increase (decrease) for the period |
20.07 | (18.29 | ) | (54.15 | ) | (1.32 | ) | |||||||||
Net asset value per unit, beginning of period |
1,305.23 | 1,419.88 | 1,379.45 | 1,402.91 | ||||||||||||
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Net asset value per unit, end of period |
$ | 1,325.30 | $ | 1,401.59 | $ | 1,325.30 | $ | 1,401.59 | ||||||||
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1 | Includes ongoing selling agent fees and clearing fees. Net realized and unrealized gains (losses) excluding ongoing selling agent fees for the three months ended June 30, 2014 and 2013 and for the six months ended June 30, 2014 and 2013 were $42.28, $15.80, $2.33 and $63.48, respectively. |
2 | Excludes ongoing selling agent fees and clearing fees. Total expenses, including ongoing selling agent fees for the three months ended June 30, 2014 and 2013 and for the six months ended June 30, 2014 and 2013 were $(22.25), $(34.16), $(56.60) and $(65.03), respectively. |
Three Months Ended June 30, |
Six Months Ended June 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Ratios to average net assets: 3 |
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Net investment income (loss) |
(6.8 | )% | (9.6 | )% | (8.6 | )% | (9.2 | )% | ||||||||
Incentive fees |
| % | | % | | % | | % | ||||||||
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Net investment income (loss) before incentive fees 4 |
(6.8 | )% | (9.6 | )% | (8.6 | )% | (9.2 | )% | ||||||||
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Operating expenses |
6.8 | % | 9.6 | % | 8.6 | % | 9.3 | % | ||||||||
Incentive fees |
| % | % | | % | % | ||||||||||
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Total expenses |
6.8 | % | 9.6 | % | 8.6 | % | 9.3 | % | ||||||||
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Total return: |
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Total return before incentive fees |
1.5 | % | (1.3 | )% | (3.9 | )% | (0.1 | )% | ||||||||
Incentive fees |
| % | | % | | % | | % | ||||||||
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Total return after incentive fees |
1.5 | % | (1.3 | )% | (3.9 | )% | (0.1 | )% | ||||||||
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3 | Annualized (other than incentive fees). |
4 | Interest income less total expenses. |
The above ratios may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the limited partner class using the limited partners share of income, expenses and average net assets.
9
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
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 among the Partnership, each of the Funds and MS&Co. gives, and the customer agreements between the Partnership and CGM and the Funds and CGM gave, the Partnership and the Funds the legal right to net unrealized gains and losses on open futures contracts and open forward contracts. The Partnership and the Funds net, for financial reporting purposes, the unrealized gains and losses on open futures and on open forward contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification (ASC) 210-20, Balance Sheet, have been met.
All of the commodity interests owned by the Partnership are held for trading purposes.
Brokerage fees previously paid to CGM were calculated as a percentage of the Partnerships adjusted net asset value on the last day of each month and were affected by trading performance and redemptions. Trading and transaction fees are based on the number of trades executed by the Advisors and the Partnerships ownership of the Funds.
10
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
4. Fair Value Measurements:
Partnerships and the Funds Investments. All commodity interests (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses and Changes in Partners Capital.
Partnerships and the Funds Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management has concluded that based on available information in the marketplace, the Funds Level 1 assets and liabilities are actively traded.
GAAP also requires the use of judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. Management has concluded that based on available information in the marketplace, there has not been a significant decrease in the volume and level of activity in the Partnerships and the Funds Level 2 assets and liabilities.
The Partnership and the Funds will separately present purchases, sales, issuances and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation as well as the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.
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Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
On October 1, 2012, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) 2012-04 Technical Corrections and Improvements, which makes minor technical corrections and clarifications to ASC 820, Fair Value Measurements and Disclosures. When the FASB issued Statement 157 (codified in ASC 820), it conformed the use of the term fair value in certain pre-Codification standards but not others. ASU 2012-04 conforms the terms use throughout the ASC to fully reflect the fair value measurement and disclosure requirements of ASC 820. ASU 2012-04 also amends the requirements that must be met for an investment company to qualify for the exemption from presenting a statement of cash flows. Specifically, it eliminates the requirements that substantially all of an entitys investments be carried at market value and that the investments be highly liquid. Instead, it requires substantially all of the entitys investments to be carried at fair value and classified as Level 1 or Level 2 measurements under ASC 820.
The Partnership and the Funds consider prices for exchange-traded commodity futures, forwards, swaps and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of non-exchange-traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2). Investments in Funds (other commodity pools) where there are no rights or obligations inherent within the ownership interest held by the Partnership are priced based on the end of the day net asset value (Level 2). The value of the Partnerships investments in the Funds reflects its proportional interest in the Funds. As of and for the periods ended June 30, 2014 and December 31, 2013, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of managements assumptions and internal valuation pricing models (Level 3). During the six months ended June 30, 2014 and for the year ended December 31, 2013, there were no transfers of assets or liabilities between Level 1 or Level 2.
June 30, 2014 | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Assets |
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Investment in Funds |
$ | 14,321,526 | $ | | $ | 14,321,526 | $ | | ||||||||
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Net fair value |
$ | 14,321,526 | $ | | $ | 14,321,526 | $ | | ||||||||
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December 31, 2013 | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Assets | ||||||||||||||||
Investment in Funds |
$ | 16,799,476 | $ | | $ | 16,799,476 | $ | | ||||||||
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Net fair value |
$ | 16,799,476 | $ | | $ | 16,799,476 | $ | | ||||||||
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12
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
5. Investment in Funds:
On July 1, 2005, the assets allocated to Willowbridge for trading were invested in CMF Willowbridge Master Fund L.P. (formerly, the Willowbridge Argo Master Fund L.P.) (Willowbridge Master), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 10,980.9796 units of Willowbridge Master with cash equal to $9,895,326 and a contribution of open commodity futures and forward positions with a fair value of $1,085,654. Willowbridge Master permits accounts managed by Willowbridge using its W/Praxis Futures Trading Approach, a proprietary, discretionary trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Willowbridge Master. Individual and pooled accounts currently managed by Willowbridge, including the Partnership, are permitted to be limited partners of Willowbridge Master. The General Partner and Willowbridge believe that trading through this structure should promote efficiency and economy in the trading process. The General Partner and Willowbridge agreed that Willowbridge will trade the Partnerships assets allocated to Willowbridge at a level that is up to 3 times the amount of assets allocated. Prior to January 1, 2013, Willowbridge traded the Partnerships assets pursuant to its Argo Trading System.
On April 1, 2006, the assets allocated to Graham for trading were invested in CMF Graham Capital Master Fund L.P. (Graham Master), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 11,192.9908 units of Graham Master with cash equal to $11,192,991. Graham Master permits accounts managed by Graham using its K4D-15V Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Graham Master. Individual and pooled accounts currently managed by Graham, including the Partnership, are permitted to be limited partners of Graham Master. The General Partner and Graham believe that trading through this structure should promote efficiency and economy in the trading process.
On April 1, 2008, the assets allocated to Eckhardt for trading were invested in CMF Eckhardt Master Fund L.P. (Eckhardt Master), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 7,000.0000 units of Eckhardt Master with cash equal to $7,000,000. Eckhardt Master permits accounts managed by Eckhardt using its Standard Program-Higher Leveraged, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Eckhardt Master. Individual and pooled accounts currently managed by Eckhardt, including the Partnership, are permitted to be limited partners of Eckhardt Master. The General Partner and Eckhardt believe that trading through this structure should promote efficiency and economy in the trading process.
On June 1, 2009, the assets allocated to SandRidge for trading were invested in the CMF SandRidge Master Fund L.P. (SandRidge Master), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 2,086.0213 units of SandRidge Master with cash equal to $4,288,986. Effective January 31, 2013, the Partnership fully redeemed its investment in SandRidge Master for cash equal to $5,701,761.
The General Partner is not aware of any material changes to any of the trading programs discussed above during the fiscal quarter ended June 30, 2014.
Willowbridge Masters, Graham Masters and Eckhardt Masters (collectively, the Funds) trading of futures, forwards, swaps and options contracts, if applicable, on commodities is done primarily on U.S. and foreign commodity exchanges. References to Funds included in this report may also include, as relevant, reference to SandRidge Master. During the the three and six months ended June 30, 2014, the Funds engaged in such trading through commodity brokerage accounts maintained with MS&Co. During prior periods included in this report, the Funds also engaged in such trading through commodity brokerage accounts maintained with CGM.
A limited partner of the Funds may withdraw all or part of its capital contribution and undistributed profits, if any, from the Funds in multiples of the net asset value per unit as of the end of any day (the Redemption Date) after a request for redemption has been made to the general partner of the Funds at least three days in advance of the Redemption Date. The units are classified as a liability when the limited partner elects to redeem and informs the Funds.
Management and incentive fees are charged at the Partnership level. All trading, exchange, clearing, user, give-up, floor brokerage and National Futures Association fees (collectively, the clearing fees) are borne by the Funds and allocated to their limited partners including the Partnership. All other fees are charged at the Partnership level.
13
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
As of June 30, 2014, the Partnership owned approximately 9.5%, 4.4% and 43.7%, of Willowbridge Master, Graham Master and Eckhardt Master, respectively. As of December 31, 2013, the Partnership owned approximately 8.9%, 4.2% and 33.2%, of Willowbridge Master, Graham Master and Eckhardt Master, respectively. It is the Partnerships intention to continue to invest in the Funds. The performance of the Partnership is directly affected by the performance of the Funds. Expenses to investors as a result of the investment in the Funds are approximately the same and redemption rights are not affected.
Summarized information reflecting the total assets, liabilities and capital of the Funds is shown in the following tables.
June 30, 2014 | ||||||||||||
Total Assets | Total Liabilities | Total Capital | ||||||||||
Willowbridge Master |
$ | 77,867,555 | $ | 1,765,021 | $ | 76,102,534 | ||||||
Graham Master |
52,654,694 | 23,354 | 52,631,340 | |||||||||
Eckhardt Master |
10,929,182 | 22,687 | 10,906,495 | |||||||||
December 31, 2013 | ||||||||||||
Total Assets | Total Liabilities | Total Capital | ||||||||||
Willowbridge Master |
$ | 95,699,725 | $ | 7,316,065 | $ | 88,383,660 | ||||||
Graham Master |
59,948,792 | 2,996,936 | 56,951,856 | |||||||||
Eckhardt Master |
17,660,024 | 4,548,609 | 13,111,415 |
Summarized information reflecting the net investment income (loss), total trading results and net income (loss) for the Funds is shown in the following tables.
For the three months ended June 30, 2014 | ||||||||||||
Net Investment | Total Trading | Net Income | ||||||||||
Income (Loss) | Results | (Loss) | ||||||||||
Willowbridge Master |
$ | (103,816 | ) | $ | 1,170,549 | $ | 1,066,733 | |||||
Graham Master |
(39,026 | ) | 4,311,690 | 4,272,664 | ||||||||
Eckhardt Master |
(38,699 | ) | 447,898 | 409,199 |
For the three months ended June 30, 2013 | ||||||||||||
Net Investment Income (Loss) |
Total
Trading Results |
Net Income (Loss) |
||||||||||
Willowbridge Master |
$ | (131,517 | ) | $ | 10,840,412 | $ | 10,708,895 | |||||
Graham Master |
(67,902 | ) | (3,765,050 | ) | (3,832,952 | ) | ||||||
Eckhardt Master |
(49,056 | ) | (1,990,468 | ) | (2,039,524 | ) |
For the six months ended June 30, 2014 | ||||||||||||
Net Investment | Total Trading | Net Income | ||||||||||
Income (Loss) | Results | (Loss) | ||||||||||
Willowbridge Master |
$ | (213,278 | ) | $ | (1,038,561 | ) | $ | (1,251,839 | ) | |||
Graham Master |
(114,708 | ) | (1,495,600 | ) | (1,610,308 | ) | ||||||
Eckhardt Master |
(80,741 | ) | 454,416 | 373,675 |
For the six months ended June 30, 2013 | ||||||||||||
Net Investment Income (Loss) |
Total
Trading Results |
Net Income (Loss) |
||||||||||
Willowbridge Master |
$ | (240,793 | ) | $ | 12,917,087 | $ | 12,676,294 | |||||
Graham Master |
(140,795 | ) | 3,770,508 | 3,629,713 | ||||||||
Eckhardt Master |
(91,968 | ) | (1,376,098 | ) | (1,468,066 | ) | ||||||
SandRidge Master |
(68,488 | ) | 129,650 | 61,162 |
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Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
Summarized information reflecting the Partnerships investment in, and the operations of, the Funds is shown in the following tables.
June 30, 2014 | For the three months ended June 30, 2014 | |||||||||||||||||||||||||||
% of Partnerships |
Fair | Income | Expenses | Net Income |
Investment | Redemptions | ||||||||||||||||||||||
Funds |
Net Assets | Value | (Loss) | Clearing Fees | Other | (Loss) | Objective | Permitted | ||||||||||||||||||||
Willowbridge Master |
51.46 | % | $ | 7,229,942 | $ | 84,553 | $ | 7,395 | $ | 2,310 | $ | 74,848 | Commodity Portfolio | Monthly | ||||||||||||||
Graham Master |
16.52 | % | 2,321,471 | 189,524 | 1,319 | 475 | 187,730 | Commodity Portfolio | Monthly | |||||||||||||||||||
Eckhardt Master |
33.95 | % | 4,770,113 | 196,931 | 7,325 | 9,844 | 179,762 | Commodity Portfolio | Monthly | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 14,321,526 | $ | 471,008 | $ | 16,039 | $ | 12,629 | $ | 442,340 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
December 31, 2013 | For the three months ended June 30, 2013 | |||||||||||||||||||||||||||
% of Partnerships |
Fair | Income | Expenses | Net Income |
Investment | Redemptions | ||||||||||||||||||||||
Funds |
Net Assets | Value | (Loss) | Clearing Fees | Other | (Loss) | Objective | Permitted | ||||||||||||||||||||
Willowbridge Master |
51.32 | % | $ | 8,466,061 | $ | 1,014,433 | $ | 10,059 | $ | 2,665 | $ | 1,001,709 | Commodity Portfolio | Monthly | ||||||||||||||
Graham Master |
15.08 | % | 2,488,503 | (141,925 | ) | 2,300 | 662 | (144,887 | ) | Commodity Portfolio | Monthly | |||||||||||||||||
Eckhardt Master |
35.43 | % | 5,844,912 | (652,334 | ) | 9,877 | 6,526 | (668,737 | ) | Commodity Portfolio | Monthly | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 16,799,476 | $ | 220,174 | $ | 22,236 | $ | 9,853 | $ | 188,085 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
June 30, 2014 | For the six months ended June 30, 2014 | |||||||||||||||||||||||||||
% of Partnerships |
Fair | Income | Expenses | Net Income |
Investment | Redemptions | ||||||||||||||||||||||
Funds |
Net Assets | Value | (Loss) | Clearing Fees | Other | (Loss) | Objective | Permitted | ||||||||||||||||||||
Willowbridge Master |
51.46 | % | $ | 7,229,942 | $ | (123,529 | ) | $ | 16,372 | $ | 4,087 | $ | (143,988 | ) | Commodity Portfolio | Monthly | ||||||||||||
Graham Master |
16.52 | % | 2,321,471 | (64,778 | ) | 2,874 | 2,381 | (70,033 | ) | Commodity Portfolio | Monthly | |||||||||||||||||
Eckhardt Master |
33.95 | % | 4,770,113 | 199,311 | 16,497 | 19,671 | 163,143 | Commodity Portfolio | Monthly | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 14,321,526 | $ | 11,004 | $ | 35,743 | $ | 26,139 | $ | (50,878 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
December 31, 2013 | For the six months ended June 30, 2013 | |||||||||||||||||||||||||||
% of Partnerships |
Fair | Income | Expenses | Net Income |
Investment | Redemptions | ||||||||||||||||||||||
Funds |
Net Assets | Value | (Loss) | Clearing Fees | Other | (Loss) | Objective | Permitted | ||||||||||||||||||||
Willowbridge Master |
51.32 | % | $ | 8,466,061 | $ | 1,178,829 | $ | 18,927 | $ | 5,380 | $ | 1,154,522 | Commodity Portfolio | Monthly | ||||||||||||||
Graham Master |
15.08 | % | 2,488,503 | 147,190 | 4,542 | 1,380 | 141,268 | Commodity Portfolio | Monthly | |||||||||||||||||||
Eckhardt Master |
35.43 | % | 5,844,912 | (480,848 | ) | 18,188 | 12,432 | (511,468 | ) | Commodity Portfolio | Monthly | |||||||||||||||||
SandRidge Master |
0.00 | % | | 2,699 | 295 | 1,214 | 1,190 | Energy Portfolio | Monthly | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 16,799,476 | $ | 847,870 | $ | 41,952 | $ | 20,406 | $ | 785,512 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
15
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
6. Financial Instrument Risks:
In the normal course of business, the Partnership (through its investments in the Funds) is a party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options and swaps, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange, a swap-execution facility or over-the-counter (OTC). Exchange-traded instruments include futures and certain standardized forward, option and swap contracts. Certain swap contracts may also be traded on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain forward and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. The writer or seller of an option has unlimited risk. Each of these instruments is subject to various risks similar to those relating to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 10.4% to 32.0% of the Funds contracts are traded OTC.
The risk to the limited partners that have purchased Redeemable Units is limited to the amount of their share of the Partnerships net assets and undistributed profits. This limited liability is a result of the organization of the Partnership as a limited partnership under New York law.
Market risk is the potential for changes in the value of the financial instruments traded by the 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 Funds are exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The Partnerships/Funds risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and is not represented by the contract or notional amounts of the instruments. The Partnerships/Funds risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Partnership/Funds to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership/Funds had credit risk and concentration risk during the reporting period and prior periods included in this report, as CGM and/or MS&Co. or their affiliates were the sole counterparties or brokers with respect to the Partnerships/Funds assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that, through CGM/MS&Co., the Partnerships/Funds counterparty is an exchange or clearing organization. The Partnership/Funds continue to be subject to such risks with respect to MS&Co.
As both a buyer and seller of options, the Funds pay or receive a premium at the outset and then bear the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Funds to potentially unlimited liability; for purchased options, the risk of loss is limited to the premiums paid. Certain written put options permit cash settlement and do not require the option holder to own the reference asset. The Funds do not consider these contracts to be guarantees.
The General Partner monitors and attempts to control the Partnerships/Funds risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership/Funds may be subject. These monitoring systems generally allow the General Partner to statistically analyze actual trading results with risk adjusted performance indicators and correlation statistics. In addition, on-line monitoring systems provide account analysis of futures, forwards and options contracts by sector, margin requirements, gain and loss transactions and collateral positions.
The majority of these financial instruments mature within one year of the inception date. However, due to the nature of the Funds business, these instruments may not be held to maturity.
16
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
7. Critical Accounting Policies:
Use of Estimates. The preparation of financial statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.
Partnerships and the Funds Investments. All commodity interests held by the Partnership and the Funds (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses and Changes in Partners Capital.
Partnerships and the Funds Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management has concluded that based on available information in the marketplace, the Funds Level 1 assets and liabilities are actively traded.
GAAP also requires the use of judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. Management has concluded that based on available information in the marketplace, there has not been a significant decrease in the volume and level of activity in the Partnerships and the Funds Level 2 assets and liabilities.
The Partnership and the Funds will separately present purchases, sales, issuances, and settlements in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation as well as the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.
The Partnership and the Funds consider prices for exchange-traded commodity futures, forwards, swaps and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of non-exchange-traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets and liabilities from observable inputs (Level 2). Investments in funds (other commodity pools) where there are no other rights or obligations inherent within the ownership interest held by the Partnership are priced based on the end of the day net asset value (Level 2). The value of the Partnerships investments in the Funds reflects its proportional interest in the Funds. As of and for the periods ended June 30, 2014 and December 31, 2013, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of managements assumptions and internal valuation pricing models (Level 3). During the six months ended June 30, 2014 and for the year ended December 31, 2013, there were no transfers of assets or liabilities between Level 1 and Level 2.
17
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
Futures Contracts. 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 the S&P 500 Index), whereby such contract is settled in cash. Payments (variation margin) may be made or received by 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 Funds. When the contract is closed, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses and Changes in Partners Capital.
Forward Foreign Currency Contracts. Forward foreign currency contracts are those contracts where the Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Forward foreign currency contracts are valued daily, and the Funds net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Net realized gains (losses) and changes in net unrealized gains (losses) on forward foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively, and are included in the Statements of Income and Expenses and Changes in Partners Capital.
The Partnership and the Funds do not isolate that portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations due to changes in market prices of investments held. Such fluctuations are included in net income (loss) on investments in the Statements of Income and Expenses and Changes in Partners Capital.
London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange (LME) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead, nickel, tin or zinc. LME contracts traded by the Funds are cash settled based on prompt dates published by the LME. Payments (variation margin) may be made or received by 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 Funds. A contract is considered offset when all long positions have been matched with a like number of short positions settling on the same prompt date. When the contract is closed at the prompt date, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in LME contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the broker, directly with the LME. Net realized gains (losses) and changes in net unrealized gains (losses) on metal contracts are included in the Statements of Income and Expenses and Changes in Partners Capital.
Options. The Funds may purchase and write (sell) both exchange listed and OTC options on commodities or financial instruments. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Funds write an option, the premium received is recorded as a liability in the Statements of Financial Condition and marked to market daily. When the Funds purchase an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Net realized gains (losses) and changes in net unrealized gains (losses) on options contracts are included in the Statements of Income and Expenses and Changes in Partners Capital.
18
Table of Contents
Diversified Multi-Advisor Futures Fund L.P. II
Notes to Financial Statements
June 30, 2014
(Unaudited)
Investment Company Status. Effective January 1, 2014, the Partnership adopted, ASU 2013-08, Financial Services Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements. ASU 2013-08 changes the approach to the investment company assessment, requires non-controlling ownership interests in other investment companies to be measured at fair value, and requires additional disclosures about the investment companys status as an investment company. ASU 2013-08 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of this ASU did not have a material impact on the Partnerships financial statements. Based on managements assessment, the Partnership has been deemed to be an investment company since inception. It has all of the fundamental and typical characteristics of an investment company.
Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnerships income and expenses.
GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnerships financial statements to determine whether the tax positions are more-likely-than-not to be sustained by the applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The General Partner concluded that no provision for income tax is required in the Partnerships financial statements.
The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2010 through 2013 tax years remain subject to examination by U.S. federal and most state tax authorities. The General Partner does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Net Income (Loss) per unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 2, Financial Highlights.
Subsequent Events. The General Partner evaluates events that occur after the balance sheet date but before financial statements are issued. The General Partner has assessed the subsequent events through the date of issuance and has determined that other than that referenced in Note 1 to the Financial Statements, there were no subsequent events requiring adjustment of or disclosure in the financial statements.
19
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in sales of goods or services. Its only assets are its investments in the Funds and cash. The Funds only assets are their equity in trading accounts, consisting of cash and cash margin, net unrealized appreciation on open futures contracts, net unrealized appreciation on forward contracts and options purchased. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the second quarter of 2014.
The Partnerships capital consists of the capital contributions of the partners as increased or decreased by realized and/or unrealized gains or losses on trading and by expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.
For the six months ended June 30, 2014, Partnership capital decreased 14.8% from $16,497,232 to $14,050,872. This decrease was attributable to the redemptions of 1,357.2880 Redeemable Units resulting in an outflow of $1,809,777, coupled with a net loss of $636,583. Future redemptions could impact the amount of funds available for investment in Funds in subsequent periods.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates and assumptions utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnerships significant accounting policies are described in detail in Note 7 of the Financial Statements.
The Partnership and the Funds record all investments at fair value in their financial statements, with changes in fair value reported as a component of net realized gains (losses) and change in net unrealized gains (losses) in the Statements of Income and Expenses and Changes in Partners Capital.
20
Table of Contents
Results of Operations
During the Partnerships second quarter of 2014, the net asset value per unit increased 1.5% from $1,305.23 to $1,325.30 as compared to a decrease of 1.3% in the second quarter of 2013. The Partnership experienced a net trading gain before fees and expenses in the second quarter of 2014 of $470,526. Gains were primarily attributable to the Funds trading of commodity futures in U.S. and non-U.S. interest rates and indices and were partially offset by losses in currencies, grains, metals and softs. The Partnership experienced a net trading gain before fees and expenses in the second quarter of 2013 of $219,287. Gains were primarily attributable to the Fundss trading of commodity futures in grains, indices, metals and softs and were partially offset by losses in currencies, energy, U.S. and non-U.S. interest rates and livestock.
The most significant gains were achieved within the global interest rate sector primarily during May from long positions in U.S. fixed income futures as prices moved higher amid expectation that Federal Reserve Chairperson Janet Yellen was backing away from a six-month time frame for lifting interest rates. Additional gains were experienced during May from long Australian fixed income futures as prices moved higher following the release of Reserve Bank of Australia meeting minutes, which signaled the central bank will likely maintain record-low interest rates. Additional gains in this sector were recorded during April. Within the global stock index sector, gains were experienced primarily during May and June from long European, Asian, and U.S. equity index futures positions as prices increased as global economic data met expectations, geopolitical risks eased and speculation that central banks monetary policies would remain accommodative in the near future. A portion of the Partnerships gains for the quarter was offset by losses recorded within the agricultural complex predominantly in May from long coffee futures positions as prices decreased due to lower expectations of crop damage in Brazil, caused by severe drought earlier this year. Additional losses were recorded during May from long positions in corn futures as prices declined as spring plantings in the U.S. accelerated due to mild weather throughout the Midwest. Within the currency markets, losses were recorded primarily during May from long euro positions versus the U.S. dollar as the value of the euro declined after manufacturing and business confidence signaled uneven economic growth, bolstering bets on further European Central Bank stimulus in June. Additional losses in this sector were recorded from positions in the Japanese yen, Swiss franc, and Canadian dollar. Within the metals sector, losses were experienced in the first half of May from short copper futures positions as prices increased following reports that inventories in China, the worlds largest buyer of industrial metals, were rapidly declining. Additional losses in this sector were recorded in June from short precious metals futures positions as prices increased amid regional instability in the Middle East, which prompted investors to take more of a defensive posture and increased demand for safe-haven assets.
During the Partnerships six months ended June 30, 2014, the net asset value per unit decreased 3.9% from $1,379.45 to $1,325.30 as compared to a decrease of 0.1% during the six months ended June 30, 2013. The Partnership experienced a net trading gain before fees and expenses in the six months ended June 30, 2014 of $9,527. Gains were primarily attributable to the Funds trading of commodity futures in grains and non-U.S. interest rates and were partially offset by losses in energy, U.S. interest rates indices, livestock, metals, and softs. The Partnership experienced a net trading gain before fees and expenses in the six months ended June 30, 2013 of $844,756. Gains were primarily attributable to the Fundss trading of commodity futures in currencies, grains, indices, metals and softs and were partially offset by losses in energy, U.S. and non-U.S. interest rates and livestock.
The most significant losses were recorded within the global stock index sector during January from long positions in U.S., European, and Asian equity index futures as prices declined following softer-than-expected economic data in the U.S. and China, along with political and economic headwinds facing emerging markets. Additional losses in this sector were incurred from long equity index futures positions as prices declined in the first half of March amid unrest in Russian-Ukrainian relations and weak Chinese economic data. In the metals sector, losses were recorded in January from long positions in copper futures as prices declined on concern that slowing economic growth will curb demand from China, the worlds largest user of the metal. Additional losses in this sector were recorded during March from long positions in gold futures as prices declined after Russian-Ukrainian tensions began to ease and as the Feds tone indicated further tightening of its monetary policy. Within the energy complex, losses were recorded in the first half of March from long futures positions in crude oil and its refined products as prices fell amid a larger-than-expected increase in U.S. crude oil stockpiles and slower economic growth within China. In the agricultural sector, losses were recorded primarily in May from long coffee futures positions as prices decreased due to lower expectations of crop damage in Brazil, caused by severe drought earlier this year. Additional losses were recorded during May from long positions in corn futures and in June from long soybean futures positions as prices decreased as warm, wet weather improved growing conditions, raising the outlook for record crops in the U.S. The Partnerships losses during the first six months of the year were partially offset by gains experienced within the global interest rate sector primarily during May from long positions in U.S. fixed income futures as prices moved higher amid expectation that Federal Reserve Chairperson Janet Yellen is backing away from a six-month time frame for lifting interest rates. Additional gains were experienced during May from long Australian fixed income futures as prices moved higher following the release of Reserve Bank of Australia meeting minutes, which signaled the central bank will likely maintain record-low interest rates. Additional gains in this sector were experienced in January from long positions in European fixed income futures as prices increased as investors sought the relative safety of interest rate instruments amid growing uncertainties in emerging markets.
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Table of Contents
Commodity futures markets are highly volatile. The potential for broad and rapid price fluctuations increases the risks involved in commodity trading, but also increases the possibility of profit. The profitability of the Partnership/Funds depends on the existence of major price trends and the ability of the Advisors to correctly identify those price trends. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisors are able to identify them, the Partnership expects to increase capital through operations.
Interest income on 80% of the average daily equity maintained in cash in the Partnerships (or the Partnerships allocable portion of a Funds) brokerage account during each month was earned at a 30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days or at the monthly average of the 4-week U.S. Treasury bill discount rate, as applicable. Interest income for the three and six months ended June 30, 2014, decreased by $405 and $1,637, respectively, as compared to the corresponding periods in 2013. The decrease in interest income was primarily due to lower U.S. Treasury bill rates and lower average daily equity during the three and six months ended June 30, 2014, as compared to the corresponding periods in 2013. Interest earned by the Partnership will increase the net asset value of the Partnership. The amount of interest income earned by the Partnership depends on the average daily equity in the Partnerships/Funds accounts and upon interest rates over which neither the Partnership, the Funds nor CGM/MS&Co has control.
Ongoing selling agent/brokerage fees are calculated as a percentage of the Partnerships net asset value as of the end of the month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Ongoing selling agent/brokerage fees for the three and six months ended June 30, 2014, decreased by $166,868 and $208,540, respectively, as compared to the corresponding periods in 2013. The decrease in ongoing selling agent/brokerage fees is due to lower average net assets and also a reduction in the monthly ongoing selling fee rate during the three and six months ended June 30, 2014, as compared to the corresponding periods in 2013.
Certain clearing fees are based on the number of trades executed by the Advisors for the Partnership/Funds. Accordingly, they must be compared in relation to the number or trades executed during the period. Clearing fees for the three and six months ended June 30, 2014 decreased by $6,197 and $6,209, respectively as compared to the corresponding periods in 2013. The decrease in clearing fees is primarily due to a decrease in the number of trades during the three and six months ended June 30, 2014, as compared to the corresponding periods in 2013.
Management fees are calculated on the portion of the Partnerships net asset value allocated to each Advisor at the end of the month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Management fees for the three and six months ended June 30, 2014 decreased by $17,742 and $27,306, respectively, as compared to the corresponding periods in 2013. The decrease in management fees is due to lower average net assets and also a reduction of Grahams annual management fee rate during the three and six months ended June 30, 2014, as compared to the corresponding periods in 2013.
Incentive fees are based on the new trading profits generated by each Advisor as defined in the advisory agreement among the Partnership, the General Partner and each Advisor. There were no incentive fees earned for the three and six months ended June 30, 2014 and 2013. To the extent an Advisor incurs a loss for the Partnership, the Advisor will not be paid incentive fees until such Advisor recovers any net loss incurred by the Advisor and earns additional new trading profits for the Partnership.
In allocating the assets of the Partnership among the Advisors, the General Partner considers each Advisors past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets among the Advisors and may allocate assets to additional advisors at any time.
As of June 30, 2014 and March 31, 2014, the Partnerships assets were allocated among the trading Advisors in the following approximate percentages:
Advisor |
June 30, 2014 | March 31, 2014 | ||||||||||||||
Graham Capital Management, L.P. |
$ | 2,102,021 | 15% | $ | 2,165,983 | 15% | ||||||||||
Willowbridge Associates, Inc. |
$ | 7,202,153 | 51% | $ | 7,430,188 | 50% | ||||||||||
Eckhardt Trading Company |
$ | 4,746,698 | 34% | $ | 5,105,667 | 35% |
22
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 the Partnership and the Funds are acquired for speculative trading purposes, and all or substantially all of the Partnerships and the Funds assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Partnerships and the Funds main line of business.
The limited partners will not be liable for losses exceeding the current net asset value of their investment.
Market movements result in frequent changes in the fair value of the Partnerships and the Funds open positions and, consequently, in their earnings and cash balances. The Partnerships and the Funds market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnerships and the Funds open contracts and the liquidity of the markets in which they trade.
The Partnership and the Funds rapidly acquire and liquidate both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Partnerships and the Funds past performance is not necessarily indicative of their future results.
Value at Risk is a measure of the maximum amount which the Partnership and the Funds could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnerships and the Funds speculative trading and the recurrence in the markets traded by the Partnership and the Funds of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Partnerships and the Funds experience to date (i.e., risk of ruin). In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Partnerships and the Funds losses in any market sector will be limited to Value at Risk or by the Partnerships and the Funds attempts to manage their market risk.
Exchange margin requirements have been used by the Partnership and the Funds as the measure of their Value at Risk. Margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. The margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The Advisors currently trade the Partnerships assets indirectly in master fund managed accounts established in the name of the masters over which they have been granted limited authority to make trading decisions. The first two trading Value at Risk tables reflect the market sensitive instruments held by the Partnership indirectly, through its investment in the Funds, as of June 30, 2014 and December 31, 2013. The remaining trading Value at Risk tables reflect the market sensitive instruments held by each Fund separately. There have been no material changes in the trading Value at Risk information previously disclosed in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2013.
23
Table of Contents
The following tables indicate the trading Value at Risk associated with the Partnerships open positions by market category through its investments in the Funds, as of June 30, 2014 and December 31, 2013. As of June 30, 2014, the Partnerships total capitalization was $14,050,872.
June 30, 2014
Market Sector |
Value at Risk | % of
Total Capitalization |
||||||
Currencies |
$ | 427,439 | 3.04 | % | ||||
Energy |
177,263 | 1.26 | % | |||||
Grains |
16,180 | 0.12 | % | |||||
Indices |
381,545 | 2.71 | % | |||||
Interest Rates U.S. |
450,585 | 3.21 | % | |||||
Interest Rates Non-U.S. |
190,195 | 1.35 | % | |||||
Metals |
128,831 | 0.92 | % | |||||
Softs |
14,479 | 0.10 | % | |||||
|
|
|
|
|||||
Total |
$ | 1,786,517 | 12.71 | % | ||||
|
|
|
|
As of December 31, 2013, the Partnerships total capitalization was $16,497,232
December 31, 2013
|
| |||||||
Market Sector |
Value at Risk | % of Total Capitalization |
||||||
Currencies |
$ | 583,241 | 3.54 | % | ||||
Energy |
172,370 | 1.05 | % | |||||
Grains |
61,735 | 0.37 | % | |||||
Indices |
301,947 | 1.83 | % | |||||
Interest Rates U.S. |
105,284 | 0.64 | % | |||||
Interest Rates Non-U.S. |
201,410 | 1.22 | % | |||||
Metals |
143,527 | 0.87 | % | |||||
Softs |
20,119 | 0.12 | % | |||||
|
|
|
|
|||||
Total |
$ | 1,589,633 | 9.64 | % | ||||
|
|
|
|
24
Table of Contents
The following tables indicate the trading Value at Risk associated with the Partnerships investments in the Funds by market category as of June 30, 2014 and December 31, 2013 and the highest and lowest value at any point and the average value during the three months ended June 30, 2014 and for the twelve months ended December 31, 2013. All open position trading risk exposures of the Funds have been included in calculating the figures set forth below.
As of June 30, 2014, Willowbridge Masters total capitalization was $76,102,534. The Partnership owned approximately 9.5% of Willowbridge Master. As of June 30, 2014, Willowbridge Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Willowbridge for trading) was as follows:
June 30, 2014
Three Months Ended June 30, 2014 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 515,488 | 0.68 | % | $ | 6,674,480 | $ | 30,418 | $ | 366,907 | ||||||||||
Indices |
408,788 | 0.54 | % | 1,860,183 | 90,393 | 136,263 | ||||||||||||||
Interest Rates U.S. |
3,740,206 | 4.91 | % | 6,033,472 | 1,106,362 | 3,907,728 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 4,664,482 | 6.13 | % | ||||||||||||||||
|
|
|
|
* | Average of month-end Values at Risk. |
As of December 31, 2013, Willowbridge Masters total capitalization was $88,383,660. The Partnership owned approximately 8.9% of Willowbridge Master. As of December 31, 2013, Willowbridge Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Willowbridge for trading) was as follows:
December 31, 2013
Twelve Months Ended December 31, 2013 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 3,210,939 | 3.63 | % | $ | 4,945,148 | $ | 148,500 | $ | 1,861,929 | ||||||||||
Energy |
726,752 | 0.82 | % | 2,264,273 | 46,200 | 424,936 | ||||||||||||||
Indices |
684,033 | 0.77 | % | 6,842,689 | 21,635 | 594,408 | ||||||||||||||
Interest Rates U.S. |
537,550 | 0.61 | % | 3,564,310 | 8,280 | 911,307 | ||||||||||||||
Interest Rates Non-U.S. |
289,287 | 0.33 | % | 1,216,176 | 2,178 | 337,625 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 5,448,561 | 6.16 | % | ||||||||||||||||
|
|
|
|
* | Annual average of month-end Values at Risk. |
As of June 30, 2014, Graham Masters total capitalization was $52,631,340. The Partnership owned approximately 4.4% of Graham Master. As of June 30, 2014, Graham Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Graham for trading) was as follows:
June 30, 2014
Three Months Ended June 30, 2014 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$4,192,725 | 7.97 | % | $6,396,381 | $4,192,725 |
|
$5,146,840 |
| ||||||||||||
Energy |
1,072,954 | 2.04 | % | 1,106,141 | 161,238 | 736,723 | ||||||||||||||
Grains |
367,732 | 0.70 | % | 594,374 | 268,571 | 452,518 | ||||||||||||||
Indices |
4,267,882 | 8.11 | % | 4,267,882 | 2,232,582 | 3,530,307 | ||||||||||||||
Interest Rates U.S. |
641,949 | 1.22 | % | 817,740 | 401,116 | 670,342 | ||||||||||||||
Interest Rates Non-U.S. |
1,542,388 | 2.93 | % | 1,742,463 | 1,317,501 | 1,569,516 | ||||||||||||||
Metals |
914,573 | 1.74 | % | 1,483,092 | 716,778 | 967,823 | ||||||||||||||
Softs |
265,707 | 0.50 | % | 310,127 | 153,249 | 248,176 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$13,265,910 | 25.21 | % | |||||||||||||||||
|
|
|
|
* | Average of month-end Values at Risk. |
25
Table of Contents
As of December 31, 2013, Graham Masters total capitalization was $56,951,856. The Partnership owned approximately 4.2% of Graham Master. As of December 31, 2013, Graham Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Graham for trading) was as follows:
December 31, 2013
Twelve Months Ended December 31, 2013 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 5,451,393 | 9.57 | % | $ | 6,263,455 | $ | 2,692,964 | $ | 3,780,586 | ||||||||||
Energy |
918,449 | 1.61 | % | 1,447,490 | 398,490 | 924,600 | ||||||||||||||
Grains |
707,595 | 1.24 | % | 746,819 | 350,474 | 585,416 | ||||||||||||||
Indices |
3,480,698 | 6.11 | % | 5,882,185 | 1,786,311 | 4,253,445 | ||||||||||||||
Interest Rates U.S. |
579,675 | 1.02 | % | 947,075 | 219,252 | 551,160 | ||||||||||||||
Interest Rates Non-U.S. |
1,218,251 | 2.14 | % | 2,659,126 | 449,052 | 1,491,188 | ||||||||||||||
Metals |
2,082,858 | 3.66 | % | 2,293,849 | 545,530 | 1,461,478 | ||||||||||||||
Softs |
284,243 | 0.50 | % | 511,259 | 231,428 | 390,411 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 14,723,162 | 25.85 | % | ||||||||||||||||
|
|
|
|
* | Annual average based on month-end Value at Risk. |
As of June 30, 2014, Eckhardt Masters total capitalization was $10,906,495. The Partnership owned approximately 43.7% of Eckhardt Master. As of June 30, 2014, Eckhardt Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Eckhardt for trading) was as follows:
June 30, 2014
Three Months Ended June 30, 2014 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 443,908 | 4.07 | % | $ | 717,364 | $ | 290,342 | $ | 480,515 | ||||||||||
Energy |
297,605 | 2.73 | % | 390,610 | 156,802 | 243,651 | ||||||||||||||
Indices |
354,516 | 3.25 | % | 373,050 | 161,695 | 280,892 | ||||||||||||||
Interest Rates U.S. |
153,362 | 1.40 | % | 297,325 | 74,605 | 216,037 | ||||||||||||||
Interest Rates Non -U.S. |
279,931 | 2.57 | % | 386,144 | 186,526 | 311,805 | ||||||||||||||
Metals |
202,723 | 1.86 | % | 202,723 | 98,632 | 157,963 | ||||||||||||||
Softs |
6,380 | 0.06 | % | 35,444 | 6,350 | 16,765 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 1,738,425 | 15.94 | % | ||||||||||||||||
|
|
|
|
* | Average of month-end Values at Risk. |
26
Table of Contents
As of December 31, 2013, Eckhardt Masters total capitalization was $13,111,415. The Partnership owned approximately 33.2% of Eckhardt Master. As of December 31, 2013, Eckhardt Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Eckhardt for trading) was as follows:
December 31, 2013
Twelve Months Ended December 31, 2013 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of
Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ |
206,353 |
|
1.56 | % | 945,143 | $ | 169,533 | $ | 409,579 | ||||||||||
Energy |
208,175 | 1.59 | % | 353,000 | 7,260 | 170,684 | ||||||||||||||
Grains |
96,435 | 0.74 | % | 200,679 | 38,539 | 110,010 | ||||||||||||||
Indices |
285,778 | 2.18 | % | 755,546 | 242,799 | 526,016 | ||||||||||||||
Interest Rates U.S. |
99,686 | 0.76 | % | 597,942 | 11,717 | 196,733 | ||||||||||||||
Interest Rates Non-U.S. |
374,990 | 2.86 | % | 586,137 | 116,551 | 351,504 | ||||||||||||||
Metals |
168,816 | 1.29 | % | 213,999 | 1,665 | 55,945 | ||||||||||||||
Softs |
24,642 | 0.19 | % | 88,897 | 6,000 | 41,824 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 1,464,875 | 11.17 | % | ||||||||||||||||
|
|
|
|
* | Annual average based of month-end Value at Risk. |
27
Table of Contents
Item 4. Controls and Procedures
The Partnerships disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Securities Exchange Act of 1934, (the Exchange Act), is recorded, processed, summarized and reported within the time periods expected in the SECs rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the President and Chief Financial Officer (CFO) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.
The General Partner is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Partnerships external disclosures.
The General Partners President and CFO have evaluated the effectiveness of the Partnerships disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2014 and, based on that evaluation, the General Partners President and CFO have concluded that, at that date, the Partnerships disclosure controls and procedures were effective.
The Partnerships internal control over financial reporting is a process under the supervision of the General Partners President and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. These controls include policies and procedures that:
| pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; |
| provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and (ii) the Partnerships receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and |
| provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material effect on the financial statements. |
There were no changes in the Partnerships internal control over financial reporting process during the fiscal quarter ended June 30, 2014 that materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.
28
Table of Contents
There are no material legal proceedings pending against the Partnership nor the General Partner.
The following information supplements and amends the discussion set forth under Part I, Item 3 Legal Proceedings in the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as updated by the Partnerships Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
On June 1, 2011, Morgan Stanley & Co. Incorporated converted from a Delaware corporation to a Delaware limited liability company. As a result of that conversion, Morgan Stanley & Co. Incorporated is now named Morgan Stanley & Co. LLC.
MS&Co. is a wholly-owned, indirect subsidiary of Morgan Stanley, a Delaware holding company. Morgan Stanley files periodic reports with the Securities and Exchange Commission as required by the Exchange Act, which include current descriptions of material litigation and material proceedings and investigations, if any, by governmental and/or regulatory agencies or self-regulatory organizations concerning Morgan Stanley and its subsidiaries, including MS&Co. As a consolidated subsidiary of Morgan Stanley, MS&Co. does not file its own periodic reports with the SEC that contain descriptions of material litigation, proceedings and investigations. As a result, please refer to the Legal Proceedings section of Morgan Stanleys SEC 10-K filings for 2013, 2012, 2011, 2010 and 2009.
In addition to the matters described in those filings, in the normal course of business, each of Morgan Stanley and MS&Co. has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions, and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Each of Morgan Stanley and MS&Co. is also involved, from time to time, in investigations and proceedings by governmental and/or regulatory agencies or self-regulatory organizations, certain of which may result in adverse judgments, fines or penalties. The number of these investigations and proceedings has increased in recent years with regard to many financial services institutions, including Morgan Stanley and MS&Co.
MS&Co. is a Delaware limited liability company with its main business office located at 1585 Broadway, New York, New York 10036. Among other registrations and memberships, MS&Co. is registered as a futures commission merchant and is a member of NFA.
On May 7, 2009, MS&Co. was named as a defendant in a purported class action lawsuit brought under Sections 11, 12 and 15 of the Securities Act of 1933, as amended, which is now styled In re Morgan Stanley Mortgage Pass-Through Certificates Litigation and is pending in the United States District Court for the Southern District of New York (SDNY). The third amended complaint, filed on September 30, 2011, alleges, among other things, that the registration statements and offering documents related to the offerings of certain mortgage pass-through certificates in 2006 contained false and misleading information concerning the pools of residential loans that backed these securitizations. The plaintiffs seek, among other relief, class certification, unspecified compensatory and rescissionary damages, costs, interest and fees. On July 22, 2014, the parties reached an agreement in principle to settle the litigation. The settlement is subject to court approval.
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On December 23, 2009, the Federal Home Loan Bank of Seattle filed a complaint against MS&Co. and another defendant in the Superior Court of the State of Washington, styled Federal Home Loan Bank of Seattle v. Morgan Stanley & Co. Inc., et al. The amended complaint, filed on September 28, 2010, alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by MS&Co. was approximately $233 million. The complaint raises claims under the Washington State Securities Act and seeks, among other things, to rescind the plaintiffs purchase of such certificates. On October 18, 2010, defendants filed a motion to dismiss the action. By orders dated June 23, 2011 and July 18, 2011, the court denied defendants omnibus motion to dismiss plaintiffs amended complaint and on August 15, 2011, the court denied MS&Co.s individual motion to dismiss the amended complaint. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $55 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss for this action up to the difference between the $55 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
On March 15, 2010, the Federal Home Loan Bank of San Francisco filed two complaints against MS&Co. and other defendants in the Superior Court of the State of California. These actions are styled Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al., and Federal Home Loan Bank of San Francisco v. Deutsche Bank Securities Inc. et al., respectively. Amended complaints filed on June 10, 2010 allege that defendants made untrue statements and material omissions in connection with the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by MS&Co. in these cases was approximately $704 million and $276 million, respectively. The complaints raise claims under both the federal securities laws and California law and seek, among other things, to rescind the plaintiffs purchase of such certificates. On August 11, 2011, plaintiffs claims brought under the Securities Act of 1933, as amended, were dismissed with prejudice. The defendants filed answers to the amended complaints on October 7, 2011. On February 9, 2012, defendants demurrers with respect to all other claims were overruled. On December 20, 2013, plaintiffs negligent misrepresentation claims were dismissed with prejudice. A bellwether trial is currently scheduled to begin in January 2015. MS&Co. is not a defendant in connection with the securitizations at issue in that trial. On May 23, 2014, plaintiff and the defendants in the bellwether trial filed motions for summary adjudication. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $301 million, and the certificates had incurred actual losses of approximately $6 million. Based on currently available information, MS&Co. believes it could incur a loss for this action up to the difference between the $301 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
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On October 15, 2010, the Federal Home Loan Bank of Chicago filed a complaint against MS&Co. and other defendants in the Circuit Court of the State of Illinois styled Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation et al. The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by MS&Co. in this action was approximately $203 million. The complaint raises claims under Illinois law and seeks, among other things, to rescind the plaintiffs purchase of such certificates. On March 24, 2011, the court granted plaintiff leave to file an amended complaint. MS&Co. filed its answer on December 21, 2012. On December 13, 2013, the court entered an order dismissing all claims related to one of the securitizations at issue. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $56 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $56 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
On October 25, 2010, MS&Co., certain affiliates and Pinnacle Performance Limited, a special purpose vehicle, were named as defendants in a purported class action related to securities issued by the special purpose vehicle in Singapore, commonly referred to as Pinnacle Notes. The case is styled Ge Dandong, et al. v. Pinnacle Performance Ltd., et al. and is pending in the SDNY. An amended complaint was filed on October 22, 2012. The court denied defendants motion to dismiss the amended complaint on August 22, 2013 and granted class certification on October 17, 2013. On October 30, 2013, defendants filed a petition for permission to appeal the courts decision granting class certification. On January 31, 2014, plaintiffs filed a second amended complaint. The second amended complaint alleges that the defendants engaged in a fraudulent scheme to defraud investors by structuring the Pinnacle Notes to fail and benefited subsequently from the securities failure. In addition, the second amended complaint alleges that the securities offering materials contained material misstatements or omissions regarding the securities underlying assets and the alleged conflicts of interest between the defendants and the investors. The second amended complaint asserts common law claims of fraud, aiding and abetting fraud, fraudulent inducement, aiding and abetting fraudulent inducement, and breach of the implied covenant of good faith and fair dealing. On July 17, 2014, the parties reached an agreement in principle to settle the litigation. The settlement is subject to court approval.
On April 20, 2011, the Federal Home Loan Bank of Boston filed a complaint against MS&Co. and other defendants in the Superior Court of the Commonwealth of Massachusetts styled Federal Home Loan Bank of Boston v. Ally Financial, Inc. F/K/A GMAC LLC et al. An amended complaint was filed on June 19, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $385 million. The amended complaint raises claims under the Massachusetts Uniform Securities Act, the Massachusetts Consumer Protection Act and common law and seeks, among other things, to rescind the plaintiffs purchase of such certificates. On May 26, 2011, defendants removed the case to the United States District Court for the District of Massachusetts. On October 11, 2012, defendants filed motions to dismiss the amended complaint, which was granted in part and denied in part on September 30, 2013. The defendants filed an answer to the amended complaint on December 16, 2013. On July 16, 2014, plaintiff voluntarily dismissed its claims against MS&Co. with respect to one of the securitizations at issue. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $67 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $67 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
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On July 5, 2011, Allstate Insurance Company and certain of its affiliated entities filed a complaint against MS&Co. in the Supreme Court of the State of New York, New York County (Supreme Court of NY, NY County), styled Allstate Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on September 9, 2011 and alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued and/or sold to plaintiffs by MS&Co. was approximately $104 million. The complaint raises common law claims of fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation and seeks, among other things, compensatory and/or recessionary damages associated with plaintiffs purchases of such certificates. On March 15, 2013, the court denied in substantial part the defendants motion to dismiss the amended complaint, which order MS&Co. appealed on April 11, 2013. On May 3, 2013, MS&Co. filed its answer to the amended complaint. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $99 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $99 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to an offset for interest received by the plaintiff prior to a judgment.
On July 18, 2011, the Western and Southern Life Insurance Company and certain affiliated companies filed a complaint against MS&Co. and other defendants in the Court of Common Pleas in Ohio, styled Western and Southern Life Insurance Company, et al. v. Morgan Stanley Mortgage Capital Inc., et al. An amended complaint was filed on April 2, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of the certificates allegedly sold to plaintiffs by MS&Co. was approximately $153 million. The amended complaint raises claims under the Ohio Securities Act, federal securities laws, and common law and seeks, among other things, to rescind the plaintiffs purchases of such certificates. MS&Co. filed its answer on August 17, 2012. Trial is currently scheduled to begin in July 2015. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $113 million, and the certificates had incurred actual losses of approximately $2 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $113 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus post-judgment interest, fees and costs. MS&Co. may be entitled to an offset for interest received by the plaintiff prior to a judgment.
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On November 4, 2011, the Federal Deposit Insurance Corporation (FDIC), as receiver for Franklin Bank S.S.B., filed two complaints against MS&Co. in the District Court of the State of Texas. Each was styled Federal Deposit Insurance Corporation, as Receiver for Franklin Bank S.S.B. v. Morgan Stanley & Company LLC F/K/A Morgan Stanley & Co. Inc. and alleged that MS&Co. made untrue statements and material omissions in connection with the sale to plaintiff of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly underwritten and sold to the plaintiff by MS&Co. in these cases was approximately $67 million and $35 million, respectively. The complaints each raised claims under both federal securities law and the Texas Securities Act and each seeks, among other things, compensatory damages associated with plaintiffs purchase of such certificates. On March 20, 2012, MS&Co. filed answers to the complaints in both cases. On June 7, 2012, the two cases were consolidated. On January 10, 2013, MS&Co. filed a motion for summary judgment and special exceptions with respect to plaintiffs claims. On February 6, 2013, the FDIC filed an amended consolidated complaint. On February 25, 2013, MS&Co. filed a motion for summary judgment and special exceptions, which motion was denied in substantial part on April 26, 2013. On May 3, 2013, the FDIC filed a second amended consolidated complaint. Trial is currently scheduled to begin in November 2014. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $46 million, and the certificates had incurred actual losses of approximately $5 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $46 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
On April 25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against MS&Co. and certain affiliates in the Superior Court of the State of New Jersey styled The Prudential Insurance Company of America, et al. v. Morgan Stanley, et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. is approximately $1 billion. The complaint raises claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud and tortious interference with contract and seeks, among other things, compensatory damages, punitive damages, rescission and rescissionary damages associated with plaintiffs purchases of such certificates. On October 16, 2012, plaintiffs filed an amended complaint which, among other things, increases the total amount of the certificates at issue by approximately $80 million, adds causes of action for fraudulent inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey Racketeer Influenced and Corrupt Organizations Act, and includes a claim for treble damages. On March 15, 2013, the court denied the defendants motion to dismiss the amended complaint. On April 26, 2013, the defendants filed an answer to the amended complaint. On June 5, 2014, the defendants filed a renewed motion to dismiss the amended complaint. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $623 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $623 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
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On February 14, 2013, Bank Hapoalim B.M. filed a complaint against MS&Co. and certain affiliates in the Supreme Court of NY, styled Bank Hapoalim B.M. v. Morgan Stanley et al. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. to plaintiff was approximately $141 million. The complaint alleges causes of action against MS&Co. for common law fraud, fraudulent concealment, aiding and abetting fraud, and negligent misrepresentation, and seeks, among other things, compensatory and punitive damages. On April 22, 2014, the defendants motion to dismiss was denied in substantial part. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $75 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $75 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs.
On May 3, 2013, plaintiffs in Deutsche Zentral-Genossenschaftsbank AG et al. v. Morgan Stanley et al. filed a complaint against MS&Co., certain affiliates, and other defendants in the Supreme Court of NY. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. to plaintiff was approximately $694 million. The complaint alleges causes of action against MS&Co. for common law fraud, fraudulent concealment, aiding and abetting fraud, negligent misrepresentation, and rescission and seeks, among other things, compensatory and punitive damages. On June 10, 2014, the court denied defendants motion to dismiss. On July 10, 2014, MS&Co. filed a renewed motion to dismiss with respect to two certificates at issue in the case. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $284 million, and the certificates had incurred actual losses of approximately $52 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $284 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses.
On September 23, 2013, plaintiffs in National Credit Union Administration Board v. Morgan Stanley & Co. Inc., et al. filed a complaint against MS&Co. and certain affiliates in the SDNY. The complaint alleges that defendants made untrue statements of material fact or omitted to state material facts in the sale to plaintiffs of certain mortgage pass-through certificates issued by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. to plaintiffs was approximately $417 million. The complaint alleges causes of action against MS&Co. for violations of Section 11 and Section 12(a)(2) of the Securities Act of 1933, as amended, violations of the Texas Securities Act, and violations of the Illinois Securities Law of 1953 and seeks, among other things, rescissory and compensatory damages. The defendants filed a motion to dismiss the complaint on November 13, 2013. On January 22, 2014, the court granted defendants motion to dismiss with respect to claims arising under the Securities Act of 1933, as amended, and denied defendants motion to dismiss with respect to claims arising under Texas Securities Act and the Illinois Securities Law of 1953. On April 28, 2014, the court granted in part and denied in part plaintiffs motion to strike certain of the defendants affirmative defenses. On July 11, 2014, the defendants filed a motion for reconsideration of the courts order on the motion to dismiss the complaint or, in the alternative, for certification of interlocutory appeal and a stay of all proceedings. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $215 million, and the certificates had incurred actual losses of approximately $26 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $215 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
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On July 23, 2014, the SEC approved a settlement by MS&Co. and certain affiliates to resolve an investigation related to certain subprime residential mortgage-backed security transactions sponsored and underwritten by those entities in 2007. Pursuant to the settlement, MS&Co. and certain affiliates were charged with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, as amended, agreed to pay disgorgement and penalties in an amount of $275 million and neither admitted nor denied the SECs findings.
Additional lawsuits containing claims similar to those described above may be filed in the future. In the course of its business, MS&Co., as a major futures commission merchant, is party to various civil actions, claims and routine regulatory investigations and proceedings that the General Partner believes do not have a material effect on the business of MS&Co. MS&Co. may establish reserves from time to time in connections with such actions.
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There have been no material changes to the risk factors set forth under Part 1, Item 1A. Risk Factors in the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and under Part II, Item 1A. Risk Factors in the Partnerships Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Partnership no longer offers Redeemable Units for sale.
The following chart sets forth the purchases of Redeemable Units by the Partnership.
Period | (a) Total Number of Shares (or Units) Purchased* |
(b) Average Price Paid per Share (or Unit)** |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
April 1, 2014 April 30, 2014 |
351.9040 | $ | 1,316.35 | N/A | N/A | |||||||||||
May 1, 2014 May 31, 2014 |
145.3350 | $ | 1,350.13 | N/A | N/A | |||||||||||
June 1, 2014 June 30, 2014 |
164.5750 | $ | 1,325.30 | N/A | N/A | |||||||||||
661.8140 | $ | 1,325.99 |
* | Generally, limited partners are permitted to redeem their Redeemable Units as of the end of each month on three business days notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnerships business in connection with effecting redemptions for limited partners. |
** | Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day. No fee will be charged for redemptions. |
Item 3. Defaults Upon Senior Securities None.
Item 4. Mine Safety Disclosures Not Applicable.
Effective October 1, 2014, the monthly ongoing selling agent fee will be reduced from an annual rate of 3.00% to an annual rate of 2.00%.
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Exhibit
3.1(a) | Certificate of Limited Partnership dated May 10, 1994 (filed as Exhibit 3.1(a) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(b) | Certificate of Amendment of the Certificate of Limited Partnership dated July 31, 1995 (filed as Exhibit 3.1(b) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(c) | Certificate of Amendment of the Certificate of Limited Partnership dated October 1, 1999 (filed as Exhibit 3.1(c) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(d) | Certificate of Change of the Certificate of Limited Partnership effective January 31, 2000 (filed as Exhibit 3.1(d) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(e) | Certificate of Amendment of the Certificate of Limited Partnership dated May 21, 2003 (filed as Exhibit 3.1(e) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(f) | Certificate of Amendment of the Certificate of Limited Partnership dated September 21, 2005 (filed as Exhibit 3.1(f) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(g) | Certificate of Amendment of the Certificate of Limited Partnership dated September 19, 2008 (filed as Exhibit 3.1(g) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
(h) | Certificate of Amendment of the Certificate of Limited Partnership dated September 28, 2009 (filed as Exhibit 99.1 to the Current Report on Form 8-K filed on September 30, 2009 and incorporated herein by reference). | |
(i) | Certificate of Amendment of the Certificate of Limited Partnership dated April 12, 2010 (filed as Exhibit 3.1(i) to the Current Report on Form 8-K/A filed on April 14, 2010 and incorporated herein by reference). | |
(j) | Certificate of Amendment of the Certificate of Limited Partnership dated June 30, 2010 (filed as Exhibit 3.1 to the Current Report on form 8-K filed on July 2, 2010 and incorporated herein by reference). | |
(k) | Certificate of Amendment of the Certificate of Limited Partnership dated September 2, 2011 (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on September 7, 2011 and incorporated herein by reference). | |
(1) | Certificate of Amendment of the Certificate of Limited Partnership dated August 7, 2013 (filed as Exhibit 3.1(l) to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 filed on August 14, 2013 and incorporated herein by reference). | |
(m) | Certificate of Amendment of the Certified of Limited Partnership dated March 26, 2014 (filed as Exhibit 3.1(m) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on March 28, 2014 and incorporated herein by reference). |
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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(a) | 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). | |
(b) | Commodity Futures Customer Agreement between the Partnership and MS & Co., effective September 4, 2013 (filed as Exhibit 10.1(b) to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 filed on November 14, 2013 and incorporated herein by reference). | |
10.2 | Form of Subscription Agreement (attached as Exhibit B to the Registration Statement on Form S-1 filed on May 29, 1996 and incorporated herein by reference). | |
10.3 | Form of Escrow Agreement (filed as Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 16, 2009 and incorporated herein by reference). | |
10.4(a) | Management Agreement among the Partnership, the General Partner and Willowbridge Associates, Inc. (filed as Exhibit 10.7 to the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 filed on March 30, 1998 and incorporated herein by reference). | |
(b) | Letter extending Management Agreement with Willowbridge Associates Inc. from June 30, 2013 through June 30, 2014 (filed as Exhibit 10.4(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on March 28, 2014 and incorporated herein by reference). | |
(c) | Amendment to the Management Agreement dated January 1, 2013, by and among the Partnership, Ceres Managed Futures LLC and Willowbridge Associates Inc. (filed as an exhibit to the Current Report on Form 8-K filed on January 7, 2013 and incorporated herein by reference). | |
10.6(a) | Management Agreement among the Partnership, the General Partner and Graham 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 Capital Management L.P. from June 30, 2013 through June 30, 2014 (filed as Exhibit 10.6(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on March 28, 2014 and incorporated herein by reference). | |
(c) | Amendment No. 1 to the Management Agreement among the Partnership, the General Partner and Graham Capital Management, L.P. effective April 1, 2014 (filed as Exhibit 10.6(c) to the Quarterly Report on Form 10-Q for the Quarterly period ended March 31, 2014 filed on May 14, 2014 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 from June 30, 2013 through June 30, 2014 (filed as Exhibit 10.8(b) to the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on March 28, 2014 and incorporated herein by reference). | |
(c) | Amendment No. 1 to the Management Agreement among the Partnership, the General Partner and Eckhardt Trading Company dated July 25, 2014 and effective July 1, 2014 (filed herewith). | |
10.9(a) | Management Agreement among the Partnership, the General Partner and SandRidge Capital, L.P. (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on June 2, 2009 and incorporated herein by reference). | |
10.10(a) |
Alternative Investment Selling Agreement between the Partnership, the General Partner and Morgan Stanley Wealth Management, effective October 1, 2013 (filed as Exhibit 10.10 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 filed on November 14, 2013 and incorporated herein by reference). | |
(b) | Letter from the General Partner amending Alternative Investment Selling Agent Agreement between the Partnership, the General Partner and Morgan Stanley Wealth Management, effective April 1, 2014 (filed as Exhibit 10.10(b) to the Quarterly Report on Form 10-Q for the Quarterly period ended March 31, 2014 filed on May 14, 2014 and incorporated herein by reference). | |
(c) | Letter from the General Partner amending Alternative Investment Selling Agent Agreement between the Partnership, the General Partner and Morgan Stanley Wealth Management dated as of August 8, 2014 and effective October 1, 2014 (filed herewith). |
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31.1 | Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director) (filed herewith). | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer) (filed herewith). | |
32.1 | Section 1350 Certification (Certification of President and Director) (filed herewith). | |
32.2 | Section 1350 Certification (Certification of Chief Financial Officer) (filed herewith). | |
101. INS | XBRL Instance Document. | |
101. SCH | XBRL Taxonomy Extension Schema Document. | |
101. CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101. LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101. PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
101. DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Diversified Multi-Advisor Futures Fund L.P. II
By: | Ceres Managed Futures LLC | |
(General Partner) | ||
By: | /s/ Alper Daglioglu | |
Alper Daglioglu | ||
President and Director | ||
Date: August 13, 2014 | ||
By: | /s/ Steven Ross | |
Steven Ross | ||
Chief Financial Officer | ||
(Principal Accounting Officer) | ||
Date: August 13, 2014 |