Trading Activities

9 Months Ended

Sep. 30, 2013

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 Partnership’s trading activities are shown in the Statements of Income and Expenses and Changes in Partners’ Capital.

During the second quarter of 2013, CMF Graham Capital Master Fund L.P. (“Graham Master”) entered into a futures brokerage account agreement and a foreign exchange brokerage account agreement with Morgan Stanley & Co. LLC (“MS&Co”), a registered futures commission merchant. 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. also 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. Effective September 4, 2013, the Partnership entered into a futures brokerage account agreement 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, will pay MS&Co trading fees for the clearing and, where applicable, execution of transactions. See Part II, Item 5 for additional information.

The customer agreements between the Partnership and Citigroup Global Markets, Inc. (“CGM”) and the Partnership and MS&Co. and the Funds and CGM and the Funds and MS&Co, as applicable, give the Partnership and the Funds, respectively, 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. All of the commodity interests owned by the Funds are held for trading purposes. The monthly average number of futures contracts traded directly by the Partnership during the three months ended September 30, 2012 was 780. The monthly average number of futures contracts traded directly by the Partnership during the nine months ended September 30, 2012 was 803. The monthly average number of metals forward contracts traded directly by the Partnership during the three months ended September 30, 2012 was 481. The monthly average number of metals forward contracts traded directly by the Partnership during the nine months ended September 30, 2013 and 2012 was 73 and 567, respectively.

Brokerage fees are calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and are affected by trading performance and redemptions.

On January 1, 2013, the Partnership adopted Accounting Standards Update (“ASU”) 2011-11, “Disclosure about Offsetting Assets and Liabilities” and ASU 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. ASU 2011-11 created a new disclosure requirement about the nature of an entity’s rights to setoff and the related arrangements associated with its financial instruments and derivative instruments, while ASU 2013-01 clarified the types of instruments and transactions that are subject to the offsetting disclosure requirements established by ASU 2011-11. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of these disclosures is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (“IFRS”). The new guidance did not have a significant impact on the Partnership’s financial statements.

There were no direct investments at September 30, 2013. The following table summarizes the valuation of the Partnership’s direct investments as of December 31, 2012.


December 31, 2012	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Condition			Net Amounts Presented in the Statement of Financial Condition
Assets
Forwards	$	759,648	$	(160,837	)	$	598,811

Total assets	$	759,648	$	(160,837	)	$	598,811

Liabilities
Forwards	$	134,750	$	(810,078	)	$	(675,328	)

Total liabilities	$	134,750	$	(810,078	)	$	(675,328	)

Net unrealized depreciation on open forward contracts						$	(76,517	)

Total net unrealized gain (loss) on total contracts						$	(76,517	)

The following table indicates the gross fair values of derivative instruments of futures and forward contracts traded directly by the Partnership as separate assets and liabilities as of December 31, 2012.


	December 31, 2012
Assets
Forward Contracts
Metals	$	894,398

Total unrealized appreciation on open forward contracts	$	894,398

Liabilities
Forward Contracts
Metals	$	(970,915	)

Total unrealized depreciation on open forward contracts	$	(970,915	)

Net unrealized depreciation on open forward contracts	$	(76,517	)*

*	This amount is in “Net unrealized depreciation on open forward contracts” on the Statements of Financial Condition.

The following table indicates the trading gains and losses, by market sector, on derivative instruments traded directly by the Partnership for the three and nine months ended September 30, 2012.


Sector	Three Months Ended September 30, 2012 Gain (loss) from trading			Nine Months Ended September 30, 2012 Gain (loss) from trading
Currencies	$	(62,311	)	$	(226,826	)
Energy		36,899			147,289
Grains		106,335			(44,325	)
Indices		(35,795	)		(278,648	)
Interest Rates U.S.		15,492			11,324
Interest Rates Non-U.S.		150,057			166,623
Livestock		(5,780	)		(5,193	)
Softs		(36,694	)		(17,335	)
Metals		(52,808	)		(374,036	)

Total	$	115,395	**	$	(621,127	)**

**	This amount is in “Total trading results” on the Statements of Income and Expenses and Changes in Partners’ Capital.

DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P. II 10-Q