10-Q

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, 2013

OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-50718

TACTICAL DIVERSIFIED FUTURES FUND L.P.

(Exact name of registrant as specified in its charter)


New York		13-4224248
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

c/o Ceres Managed Futures LLC

522 Fifth Avenue – 14^th Floor

New York, New York 10036

(Address of principal executive offices) (Zip Code)

(855) 672-4468

(Registrant’s 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 the 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, 2013, 464,304.2598 Limited Partnership Redeemable Units were outstanding.

PART I

Item 1. Financial Statements

Tactical Diversified Futures Fund L.P.

Statements of Financial Condition


	(Unaudited) June 30, 2013		December 31, 2012
Assets:

Investment in Funds, at fair value	$	456,224,389	$	441,773,637
Redemptions receivable from Funds		0		63,591,891
Cash		443,658		619,640

Total assets	$	456,668,047	$	505,985,168


Liabilities and Partners’ Capital:
Liabilities:
Accrued expenses:
Brokerage fees	$	2,093,062	$	2,319,099
Management fees		549,154		760,717
Incentive fees		189,621		0
Other		327,230		409,898
Redemptions payable		7,091,916		14,312,916

Total liabilities		10,250,983		17,802,630

Partners’ Capital:
General Partner, 5,249.9634 and 5,996.9634 unit equivalents outstanding at June 30, 2013 and December 31, 2012, respectively		4,927,406		5,561,644
Limited Partners, 470,392.3228 and 520,395.3638 Redeemable Units outstanding at June 30, 2013 and December 31, 2012, respectively		441,489,658		482,620,894

Total partners’ capital		446,417,064		488,182,538

Total liabilities and partners’ capital	$	456,668,047	$	505,985,168

Net asset value per unit	$	938.56	$	927.41

See accompanying notes to financial statements.

Tactical Diversified Futures Fund L.P.

Statements of Income and Expenses and Changes in Partners’ Capital

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Investment Income:
Interest income	$	0		$	3,193		$	0		$	5,629
Interest income from investment in Funds		19,206			64,319			69,089			115,483

Total investment income		19,206			67,512			69,089			121,112


Expenses:
Brokerage fees including clearing fees		7,137,031			9,003,730			14,473,763			18,730,776
Management fees		2,019,804			2,831,490			4,149,730			5,883,240
Incentive fees		1,343,427			0			1,420,902			0
Other		316,268			263,436			562,023			535,944

Total expenses		10,816,530			12,098,656			20,606,418			25,149,960

Net investment income (loss)		(10,797,324	)		(12,031,144	)		(20,537,329	)		(25,028,848	)


Trading Results:
Net gains (losses) on trading of commodity interests and investment in Funds:
Net realized gains (losses) on closed contracts		0			2,039,249			0			(1,969,731	)
Net realized gains (losses) on investment in Funds		10,289,396			(7,415,668	)		18,989,148			10,798,426
Change in net unrealized gains (losses) on open contracts		0			(140,622	)		0			(1,499,732	)
Change in net unrealized gains (losses) on investment in Funds		2,120,255			(4,327,517	)		7,711,361			(18,355,978	)

Total trading results		12,409,651			(9,844,558	)		26,700,509			(11,027,015	)


Net income (loss)		1,612,327			(21,875,702	)		6,163,180			(36,055,863	)
Subscriptions — Limited Partners		2,307,700			4,776,802			5,146,153			18,247,302
Redemptions — Limited Partners		(22,861,870	)		(26,894,683	)		(52,373,465	)		(61,273,518	)
Redemptions — General Partner		(200,924	)		0			(701,342	)		0

Net increase (decrease) in Partners’ Capital		(19,142,767	)		(43,993,583	)		(41,765,474	)		(79,082,079	)
Partners’ Capital, beginning of period		465,559,831			631,473,906			488,182,538			666,562,402

Partners’ Capital, end of period	$	446,417,064		$	587,480,323		$	446,417,064		$	587,480,323

Net asset value per unit (475,642.2862 and 582,368.3265 units outstanding on June 30, 2013 and 2012, respectively)	$	938.56		$	1,008.78		$	938.56		$	1,008.78

Net income (loss) per unit*	$	2.59		$	(36.93	)	$	11.15		$	(60.02	)

Weighted average units outstanding		490,680.2919			598,362.9176			503,689.2939			611,459.5048

*	Based on change in net asset value per unit.

See accompanying notes to financial statements.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)

1. General:

Tactical Diversified Futures Fund L.P. (the “Partnership”) is a limited partnership organized under the partnership laws of the State of New York on December 3, 2002 to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests including futures contracts, options, swaps and forward contracts. The sectors traded include currencies, energy, grains, indices, U.S. and non-U.S. interest rates, livestock, lumber, metals and softs. The commodity interests that are traded by the Partnership directly and through its investments in the Funds (as defined in Note 5 “Investment in Funds”) are volatile and involve a high degree of market risk.

Between March 27, 2003 (commencement of the public offering period) and April 30, 2003, 36,616 redeemable units of limited partnership interest (“Redeemable Units”) were publicly offered at $1,000 per Redeemable Unit. The proceeds of the initial public offering were held in an escrow account until April 30, 2003, at which time they were turned over to the Partnership for trading. The Partnership was authorized to publicly offer 300,000 Redeemable Units during the initial public offering period. As of December 4, 2003, the Partnership was authorized to publicly offer an additional 700,000 Redeemable Units. As of October 7, 2004, the Partnership was authorized to publicly offer an additional 1,000,000 Redeemable Units. As of June 30, 2005, the Partnership was authorized to publicly offer the 2,000,000 Redeemable Units previously registered. The public offering of Redeemable Units terminated on November 30, 2008. The Partnership currently privately and continuously offers Redeemable Units to qualified investors. There is no maximum number of Redeemable Units that may be sold by the Partnership.

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 and 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, 2013, all trading decisions were made for the Partnership by Drury Capital, Inc., (“Drury”), Graham Capital Management, L.P., (“Graham”), Willowbridge Associates Inc. (“Willowbridge”), Aspect Capital Limited (“Aspect”), Krom River Trading AG and Krom River Investment Management (Cayman) Limited (collectively, “Krom River”), Altis Partners (Jersey) Limited (“Altis”), Boronia Capital Pty. Ltd. (“Boronia”) and Kaiser Trading Group Pty. Ltd. (“Kaiser”) (each an “Advisor” and collectively, the “Advisors”), each of which is a registered commodity trading advisor or exempt from registration. Each Advisor is allocated a portion of the Partnership’s assets to manage. The Partnership invests the portion of its assets allocated to each of the Advisors indirectly through investments in the Funds.

The General Partner and each limited partner share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each except that no limited partner shall be liable for obligations of the Partnership in excess of its capital contribution and profits, if any, net of distributions or 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 Partnership’s financial condition at June 30, 2013 and December 31, 2012, and the results of its operations and changes in partners’ capital for the three and six months ended June 30, 2013 and 2012. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2012.

The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)

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.

2. Financial Highlights:

Changes in the net asset value per unit for the three and six months ended June 30, 2013 and 2012 were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net realized and unrealized gains (losses) *	$	10.04		$	(31.87	)	$	23.23		$	(49.73	)
Interest income		0.03			0.11			0.13			0.20
Expenses **		(7.48	)		(5.17	)		(12.21	)		(10.49	)

Increase (decrease) for the period		2.59			(36.93	)		11.15			(60.02	)
Net asset value per unit, beginning of period		935.97			1,045.71			927.41			1,068.80

Net asset value per unit, end of period	$	938.56		$	1,008.78		$	938.56		$	1,008.78

*	Includes brokerage fees.

**	Excludes brokerage fees.


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Ratios to average net assets:***
Net investment income (loss)		(8.5	)%		(7.9	)%		(8.5	)%		(7.9	)%
Incentive fees		0.3	%		—	%		0.3	%		—	%

Net investment income (loss) before incentive fees****		(8.2	)%		(7.9	)%		(8.2	)%		(7.9	)%

Operating expenses		8.2	%		7.9	%		8.2	%		8.0	%
Incentive fees		0.3	%		—	%		0.3	%		—	%

Total expenses		8.5	%		7.9	%		8.5	%		8.0	%


Total return:
Total return before incentive fees		0.6	%		(3.5	)%		1.5	%		(5.6	)%
Incentive fees		(0.3	)%		—	%		(0.3	)%		—	%

Total return after incentive fees		0.3	%		(3.5	)%		1.2	%		(5.6	)%

***	Annualized (other than incentive fees).

****	Interest income less total expenses.

The above ratios may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the limited partner class using the limited partners’ share of income, expenses and average net assets.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(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. However, the Partnership’s investments are in other funds. The results of the Partnership’s trading activities resulting from its investments in the Funds 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., CMF Drury Capital Master Fund L.P. and CMF Aspect Master Fund L.P. entered into brokerage account agreements with MS&Co. The Partnership, through its investment in the Funds, will pay MS&Co. a service fee equal to $0.70 per round-turn for futures transactions, an equivalent amount for swaps, excluding forward foreign currency transactions, and $0.35 per side for option transactions, excluding foreign exchange options. CMF Graham Capital Master Fund L.P. commenced trading in June 2013. CMF Drury Capital Master Fund L.P. and CMF Aspect Master Fund L.P. are expected to commence trading during the third quarter of 2013. Subsequent to June 30, 2013, CMF Willowbridge Master Fund L.P., KR Master Fund L.P. and CMF Altis Partners Master Fund L.P. entered into brokerage account agreements with MS&Co. and expect to commence trading during the third quarter of 2013.

Effective April 12, 2013, CMF Graham Capital Master Fund L.P., CMF Drury Capital Master Fund L.P. and CMF Aspect Master Fund entered into a foreign exchange brokerage agreement with MS&Co. and commenced trading on or about May 1, 2013. The Partnership, through its investment in the Funds, will pay MS&Co. a foreign exchange prime brokerage fee equal to $4 per $1 million (notional) spot and forward foreign currency contracts transacted each month.

The customer agreements between the Partnership/Funds and Citigroup Global Markets Inc. (“CGM”) or Morgan Stanley & Co. LLC (“MS&Co”), as applicable, give the Partnership and the Funds the legal right to net unrealized gains and losses on open futures contracts and open forward contracts. The Partnership and the Funds net, for financial reporting purposes, the unrealized gains and losses on open futures and open forward contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification (“ASC”) 201-20, “Balance Sheet,” have been met.

All of the commodity interests owned by the Partnership are held for trading purposes.

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, subscriptions 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.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)

4. Fair Value Measurements:

Partnership’s 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.

Partnership’s 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 Partnership’s and the Funds’ Level 2 assets and liabilities.

The Partnership and the Funds will separately present purchases, sales, issuances and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.

On October 1, 2012, the Financial Accounting Standards Board (the “FASB”) issued ASU 2012-04 “Technical Corrections and Improvements,” which makes minor technical corrections and clarifications to Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”. When the FASB issued Statement 157 (codified in ASC 820), it conformed the use of the term “fair value” in certain pre-Codification standards but not others. ASU 2012-04 conforms the term’s 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 entity’s investments be carried at “market value” and that the investments be highly liquid. Instead, it requires substantially all of the entity’s investments to be carried at “fair value” and classified as Level 1 or Level 2 measurements under ASC 820. The amendments are effective for fiscal periods beginning after December 15, 2012. The adoption of this ASU did not have a material impact on the Partnership’s financial statements.

The Partnership and the Funds consider prices for exchange-traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of non-exchange-traded forwards, swaps and 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) with 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 Partnership’s investments in the Funds reflects its proportional interest in the Funds. As of and for the periods ended June 30, 2013 and December 31, 2012, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). For the six months ended June 30, 2013 and the year ended December 31, 2012, there were no transfers of assets and liabilities between Level 1 and Level 2.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)


	June 30, 2013		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Investment in funds	$	456,224,389	$	—	$	456,224,389	$	—

Net fair value	$	456,224,389	$	—	$	456,224,389	$	—


	December 31, 2012		Quoted Prices in Active markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Investment in funds	$	441,773,637	$	—	$	441,773,637	$	—

Net fair value	$	441,773,637	$	—	$	441,773,637	$	—

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)

5. Investment in Funds:

The assets allocated to John W. Henry & Company, Inc., (“JWH”) for trading were invested directly pursuant to JWH’s Global Analytics Program. Effective October 31, 2012, JWH was no longer allocated a portion of the Partnership’s assets.

On March 1, 2005, the assets allocated to Aspect for trading were invested in the CMF Aspect Master Fund L.P. (“Aspect Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 131,340.8450 units of Aspect Master with cash equal to $122,786,448 and a contribution of open commodity futures and forward contracts with a fair value of $8,554,397. Aspect Master was formed in order to permit accounts managed by Aspect using its Diversified Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Aspect Master. Individual and pooled accounts currently managed by Aspect, including the Partnership, are permitted to be limited partners of Aspect Master. The General Partner and Aspect believe that trading through this structure should promote efficiency and economy in the trading process.

On July 1, 2005, the assets allocated to Willowbridge for trading were invested in the CMF Willowbridge Master Fund L.P. (formerly CMF Willowbridge Argo Master Fund L.P.) (“Willowbridge Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 95,795.8082 units of Willowbridge Master with cash equal to $85,442,868 and a contribution of open commodity futures and forward contracts with a fair value of $10,352,940. Willowbridge Master was formed in order to permit accounts managed by Willowbridge using its wPraxis 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 have agreed that Willowbridge will trade the assets allocated to Willowbridge at a level up to 3 times the amount of assets allocated. Prior to January 1, 2013, Willowbridge traded the Partnership’s assets pursuant to its Argo Trading System.

On August 1, 2005, the assets allocated to Drury for trading were invested in the CMF Drury Capital Master Fund L.P. (“Drury Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 120,720.7387 units of Drury Master with cash equal to $117,943,206 and a contribution of open commodity futures and forward contracts with a fair value of $2,777,533. Drury Master was formed in order to permit accounts managed by Drury using its Diversified Trend-Following Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Drury Master. Individual and pooled accounts currently managed by Drury, including the Partnership, are permitted to be limited partners of Drury Master. The General Partner and Drury believe that trading through this structure should promote efficiency and economy in the trading process.

On August 1, 2005, the assets allocated to CFM for trading were invested in the CMF Capital Fund Management Master Fund L.P. (“CFM Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 159,434.0631 units of CFM Master with cash equal to $157,804,020 and a contribution of open commodity futures and forward contracts with a fair value of $1,630,043. CFM Master was formed in order to permit accounts managed by CFM using its Discus Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The Partnership fully redeemed its investment in CFM Master on December 31, 2012 for cash equal to $63,591,891.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)

On June 1, 2006, the assets allocated to Graham for trading were invested in the 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 101,486.0491 units of Graham Master with cash equal to $103,008,482. Graham Master was formed in order to permit accounts managed by Graham using its K4D-15V Program, a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner of Graham Master. Individual and pooled accounts currently managed by Graham, including the Partnership, are permitted to be limited partners of Graham Master. The General Partner and Graham believe that trading through this structure should promote efficiency and economy in the trading process. The General Partner and Graham agreed that Graham will trade the Partnership’s assets allocated to Graham at a level up to 1.5 times the amount of assets allocated.

On May 1, 2011, the assets allocated to Krom River for trading were invested in the KR Master Fund L.P. (“KR Master”), a limited partnership organized under the partnership laws of the State of Delaware. The Partnership purchased an interest in KR Master with cash equal to $65,000,000. KR Master was formed in order to permit accounts managed by Krom River using the Krom River Commodity Program, a fundamental and technical trading system, to invest together in one trading vehicle. The General Partner is also the general partner of KR Master. Individual and pooled accounts currently managed by Krom River, including the Partnership, are permitted to be limited partners of KR Master. The General Partner and Krom River believe that trading through this structure should promote efficiency and economy in the trading process. The General Partner and Krom River agreed that Krom River will trade the Partnership’s assets allocated to Krom River at a level up to 1.5 times the amount of assets allocated.

On May 1, 2011, the assets allocated to Altis for trading were invested in the CMF Altis Partners Master Fund L.P. (“Altis Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 21,851.9469 units of Altis Master with cash equal to $70,000,000. Altis Master was formed to permit accounts managed by Altis using its Global Futures Portfolio Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Altis Master. Individual and pooled accounts currently managed by Altis, including the Partnership, are permitted to be limited partners of Altis Master. The General Partner and Altis believe that trading through this structure should promote efficiency and economy in the trading process.

On January 1, 2013, the assets allocated to Boronia for trading were invested in the Morgan Stanley Smith Barney Boronia I, LLC (“Boronia I, LLC” or the “Boronia Trading Company”), a limited liability company organized under the partnership laws of the State of Delaware. The Partnership purchased an interest in Boronia I, LLC with cash equal to $36,000,000. Boronia I, LLC was formed in order to permit accounts managed by Boronia using the Boronia Diversified Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the manager of Boronia I, LLC. Individual and pooled accounts currently managed by Boronia, including the Partnership, are permitted to be limited partners of Boronia I, LLC. The General Partner and Boronia believe that trading through this structure should promote efficiency and economy in the trading process. The General Partner and Boronia agreed that Boronia will trade the Partnership’s assets allocated to Boronia at a level up to 1.5 times the amount of assets allocated.

On January 1, 2013, the assets allocated to Kaiser for trading were invested in the Morgan Stanley Smith Barney Kaiser I, LLC (“Kaiser I, LLC” or the “Kaiser Trading Company”), a limited liability company organized under the partnership laws of the State of Delaware. The Partnership purchased an interest in Kaiser I, LLC with cash equal to $30,000,000. Kaiser I, LLC was formed in order to permit accounts managed by Kaiser using the Global Diversified Trading Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the manager of Kaiser I, LLC. Individual and pooled accounts currently managed by Kaiser, including the Partnership, are permitted to be limited partners of Kaiser I, LLC. The General Partner and Kaiser believe that trading through this structure should promote efficiency and economy in the trading process. The General Partner and Kaiser agreed that Kaiser will trade the Partnership’s assets allocated to Kaiser at a level up to 2 times the amount of assets allocated.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)

The General Partner is not aware of any material changes to the trading programs discussed above during the fiscal quarter ended June 30, 2013.

Aspect Master’s, Drury Master’s, Willowbridge Master’s, Graham Master’s, Altis Master’s, KR Master’s, Boronia I, LLC’s and Kaiser I, LLC’s (collectively, the “Funds”) trading of futures, forwards and options contracts, if applicable, on commodities is done primarily on U.S. commodity exchanges and foreign commodity exchanges. The Funds engage in such trading through commodity brokerage accounts maintained with CGM and MS&Co, as applicable.

A limited partner of the Funds may withdraw all or part of its capital contribution and undistributed profits, if any, from the Funds as of the end of any day. Such withdrawals 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, with the exception of Boronia I, LLC and Kaiser I, LLC (collectively the “Trading Companies”), where the Partnership paid, indirectly, its pro rata portion of the management and incentive fees of the Trading Companies. All exchange, clearing, service, user, give-up, floor brokerage and National Futures Association fees (collectively the “clearing fees”) are borne by the Partnership directly and through its investment in the Funds. All other fees, including CGM’s direct brokerage fees, are charged at the Partnership level except for the brokerage fees paid to MS&Co., which will be paid indirectly by the Partnership.

As of June 30, 2013, the Partnership owned approximately 88.5% of Drury Master, 69.0% of Willowbridge Master, 71.1% of Aspect Master, 42.0% of Graham Master, 81.7% of KR Master, 76.9% of Altis Master, 55.2% of Boronia I, LLC and 55.6% of Kaiser I, LLC. As of December 31, 2012, the Partnership owned approximately 85.4% of Drury Master, 77.3% of Willowbridge Master, 72.1% of Aspect Master, 74.7% of CFM Master (prior to its redemption on December 31, 2012), 57.8% of Graham Master, 81.8% of KR Master and 75.6% of Altis Master. It is the Partnership’s 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 investment in the Funds are approximately the same and the redemption rights are not affected.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)

Summarized information reflecting the total assets, liabilities and capital for the Funds is shown in the following tables.


	June 30, 2013
	Total Assets		Total Liabilities		Total Capital
Drury Master	$	58,904,215	$	3,100	$	58,901,115
Willowbridge Master		102,723,073		46,849		102,676,224
Aspect Master		125,014,187		39,871		124,974,316
Graham Master		56,677,673		1,055,763		55,621,910
KR Master		90,588,345		5,003,834		85,584,511
Altis Master		113,956,401		45,266		113,911,135
Boronia I, LLC		63,698,702		978,657		62,720,045
Kaiser I, LLC		53,048,761		1,073,394		51,975,367

Total	$	664,611,357	$	8,246,734	$	656,364,623


	December 31, 2012
	Total Assets		Total Liabilities		Total Capital
Drury Master	$	94,551,696	$	603,502	$	93,948,194
Willowbridge Master		39,742,467		485,385		39,257,082
Aspect Master		136,219,745		591,506		135,628,239
CFM Master		85,861,956		85,861,956		—
Graham Master		85,313,676		377,625		84,936,051
KR Master		116,058,406		1,168,169		114,890,237
Altis Master		120,633,506		1,220,905		119,412,601

Total	$	678,381,452	$	90,309,048	$	588,072,404

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, 2013
	Net Investment Income (Loss)			Total Trading Results			Net Income (Loss)
Drury Master	$	(65,140	)	$	2,326,520		$	2,261,380
Willowbridge Master		(131,517	)		10,840,412			10,708,895
Aspect Master		(90,150	)		(2,410,204	)		(2,500,354	)
Graham Master		(67,902	)		(3,765,050	)		(3,832,952	)
KR Master		(86,935	)		(2,872,871	)		(2,959,806	)
Altis Master		(156,647	)		4,569,389			4,412,742
Boronia I, LLC		(1,623,230	)		6,619,435			4,996,205
Kaiser I, LLC		(1,392,739	)		5,502,270			4,109,531

Total	$	(3,614,260	)	$	20,809,901		$	17,195,641


	For the six months ended June 30, 2013
	Net Investment Income (Loss)			Total Trading Results			Net Income (Loss)
Drury Master	$	(132,584	)	$	8,202,723		$	8,070,139
Willowbridge Master		(240,793	)		12,917,087			12,676,294
Aspect Master		(160,359	)		1,209,002			1,048,643
Graham Master		(140,795	)		3,770,508			3,629,713
KR Master		(163,594	)		(4,527,593	)		(4,691,187	)
Altis Master		(299,770	)		7,893,467			7,593,697
Boronia I, LLC		(2,408,803	)		7,018,033			4,609,230
Kaiser I, LLC		(1,913,887	)		6,543,598			4,629,711

Total	$	(5,460,585	)	$	43,026,825		$	37,566,240

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)


	For the three months ended June 30, 2012
	Net Investment Income (Loss)			Total Trading Results			Net Income (Loss)
Drury Master	$	(93,776	)	$	(8,176,656	)	$	(8,270,432	)
Willowbridge Master		(26,816	)		3,554,069			3,527,253
Aspect Master		(76,125	)		(4,563,814	)		(4,639,939	)
CFM Master		(166,897	)		(2,286,359	)		(2,453,256	)
Graham Master		(106,234	)		(4,020,363	)		(4,126,597	)
KR Master		(84,987	)		(557,619	)		(642,606	)
Altis Master		(84,220	)		516,388			432,168

Total	$	(639,055	)	$	(15,534,354	)	$	(16,173,409	)


	For the six months ended June 30, 2012
	Net Investment Income (Loss)			Total Trading Results			Net Income (Loss)
Drury Master	$	(166,078	)	$	2,367,857		$	2,201,779
Willowbridge Master		(51,109	)		1,474,001			1,422,892
Aspect Master		(121,766	)		(1,485,967	)		(1,607,733	)
CFM Master		(434,032	)		(6,862,865	)		(7,296,897	)
Graham Master		(261,107	)		(958,694	)		(1,219,801	)
KR Master		(194,274	)		(3,703,464	)		(3,897,738	)
Altis Master		(163,841	)		(1,155,332	)		(1,319,173	)

Total	$	(1,392,207	)	$	(10,324,464	)	$	(11,716,671	)

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)

Summarized information reflecting the Partnership’s investment in, and the operations of, the Funds is shown in the following tables.


	June 30, 2013					For the three months ended June 30, 2013
	% of								Expenses				Net
Funds	Partners’ Net Assets			Fair Value		Income (Loss)			Brokerage Fees		Other		Income (Loss)			Investment Objective		Redemptions Permitted
Drury Master		11.67	%	$	52,109,511	$	1,745,187		$	40,438	$	18,473	$	1,686,276			Commodity Portfolio		Monthly
Willowbridge Master		15.87	%		70,851,554		6,115,095			65,129		17,382		6,032,584			Commodity Portfolio		Monthly
Aspect Master		19.91	%		88,898,542		(1,746,699	)		54,303		14,680		(1,815,682	)		Commodity Portfolio		Monthly
Graham Master		5.24	%		23,365,208		(1,485,175	)		24,244		6,998		(1,516,417	)		Commodity Portfolio		Monthly
KR Master		15.66	%		69,903,377		(2,346,609	)		67,502		16,806		(2,430,917	)		Commodity Portfolio		Monthly
Altis Master		19.63	%		87,608,007		3,490,894			106,667		17,295		3,366,932			Commodity Portfolio		Monthly
Boronia I, LLC		7.75	%		34,597,646		3,639,428			239,763		792,579		2,607,086			Commodity Portfolio		Monthly
Kaiser I, LLC		6.47	%		28,890,544		3,016,736			71,002		728,669		2,217,065			Commodity Portfolio		Monthly

Total				$	456,224,389	$	12,428,857		$	669,048	$	1,612,882	$	10,146,927


	June 30, 2013					For the six months ended June 30, 2013
	% of								Expenses				Net
Funds	Partners’ Net Assets			Fair Value		Income (Loss)			Brokerage Fees		Other		Income (Loss)			Investment Objective		Redemptions Permitted
Drury Master		11.67	%	$	52,109,511	$	6,646,515		$	91,413	$	31,981	$	6,523,121			Commodity Portfolio		Monthly
Willowbridge Master		15.87	%		70,851,554		7,139,210			108,683		30,784		6,999,743			Commodity Portfolio		Monthly
Aspect Master		19.91	%		88,898,542		885,578			99,579		32,056		753,943			Commodity Portfolio		Monthly
Graham Master		5.24	%		23,365,208		2,311,518			54,613		17,909		2,238,996			Commodity Portfolio		Monthly
KR Master		15.66	%		69,903,377		(3,712,765	)		132,503		34,125		(3,879,393	)		Commodity Portfolio		Monthly
Altis Master		19.63	%		87,608,007		5,993,734			207,605		36,264		5,749,865			Commodity Portfolio		Monthly
Boronia I, LLC		7.75	%		34,597,646		3,873,366			483,731		992,805		2,396,830			Commodity Portfolio		Monthly
Kaiser I, LLC		6.47	%		28,890,544		3,632,442			124,227		982,637		2,525,578			Commodity Portfolio		Monthly

Total				$	456,224,389	$	26,769,598		$	1,302,354	$	2,158,561	$	23,308,683


	December 31, 2012					For the three months ended June 30, 2012
	% of								Expenses				Net
Funds	Partners’ Net Assets			Fair Value		Income (Loss)			Brokerage Fees		Other		Income (Loss)			Investment Objective		Redemptions Permitted
Drury Master		16.44	%	$	80,236,934	$	(6,980,226	)	$	77,294	$	13,734	$	(7,071,254	)		Commodity Portfolio		Monthly
Willowbridge Master		6.21	%		30,332,782		2,765,515			8,653		15,203		2,741,659			Commodity Portfolio		Monthly
Aspect Master		20.04	%		97,835,150		(3,262,707	)		32,379		33,902		(3,328,988	)		Commodity Portfolio		Monthly
CFM Master		0.00	%		—		(1,750,266	)		123,095		14,520		(1,887,881	)		Commodity Portfolio		Monthly
Graham Master		10.06	%		49,092,083		(2,422,653	)		61,755		11,256		(2,495,664	)		Commodity Portfolio		Monthly
KR Master		19.25	%		93,993,936		(414,972	)		75,945		12,856		(503,773	)		Commodity Portfolio		Monthly
Altis Master		18.49	%		90,282,752		386,443			59,361		13,319		313,763			Commodity Portfolio		Monthly

Total				$	441,773,637	$	(11,678,866	)	$	438,482	$	114,790	$	(12,232,138	)


	December 31, 2012					For the six months ended June 30, 2012
	% of								Expenses				Net
Funds	Partners’ Net Assets			Fair Value		Income (Loss)			Brokerage Fees		Other		Income (Loss)			Investment Objective		Redemptions Permitted
Drury Master		16.44	%	$	80,236,934	$	1,908,054		$	135,161	$	25,628	$	1,747,265			Commodity Portfolio		Monthly
Willowbridge Master		6.21	%		30,332,782		1,124,649			16,618		29,470		1,078,561			Commodity Portfolio		Monthly
Aspect Master		20.04	%		97,835,150		(1,019,522	)		62,917		45,684		(1,128,123	)		Commodity Portfolio		Monthly
CFM Master		0.00	%		—		(5,185,388	)		320,035		28,735		(5,534,158	)		Commodity Portfolio		Monthly
Graham Master		10.06	%		49,092,083		(503,435	)		155,228		20,658		(679,321	)		Commodity Portfolio		Monthly
KR Master		19.25	%		93,993,936		(2,947,394	)		167,088		29,540		(3,144,022	)		Commodity Portfolio		Monthly
Altis Master		18.49	%		90,282,752		(819,033	)		106,354		32,852		(958,239	)		Commodity Portfolio		Monthly

Total				$	441,773,637	$	(7,442,069	)	$	963,401	$	212,567	$	(8,618,037	)

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(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 on specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (“OTC”). Exchange-traded instruments are standardized and include futures and certain forwards and option contracts. OTC contracts are negotiated between contracting parties and include swaps and 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 related to the underlying financial instruments, including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 1.5% to 22.7% of the Partnership’s/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 Partnership’s net assets and undistributed profits. This limited liability is a result of the organization of the Partnership as a limited partnership under New York law.

Market risk is the potential for changes in the value of the financial instruments traded by the Partnership/Funds due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The Partnership/Funds are exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.

Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The Partnership’s/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 Partnership’s/Funds’ risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Partnership/Funds to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership/Funds have credit risk and concentration risk as MS&Co. and/or CGM or their affiliates are the counterparties or brokers with respect to the Partnership’s/Funds’ assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that through MS&Co. or CGM, the Partnership’s/Funds’ counterparty is an exchange or clearing organization.

As both a buyer and seller of options, the Funds pay or receive a premium at the outset and then bear the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Funds to potentially unlimited liability; for purchased options, the risk of loss is limited to the premiums paid. Certain written put options permit cash settlement and do not require the option holder to own the reference asset. The Funds do not consider these contracts to be guarantees.

The General Partner/Managing Member monitors and attempts to control the Partnership’s/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/Managing Member to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions.

The majority of these financial instruments mature within one year of the inception date. However, due to the nature of the Partnership’s/Funds’ businesses, these instruments may not be held to maturity.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)

7. Critical Accounting Policies:

Use of Estimates. The preparation of financial statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.

Partnership’s and the Funds’ Investments. All commodity interests held by 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.

Partnership’s 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.

The Partnership and the Funds will separately present purchases, sales, issuances, and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.

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.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)

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.

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 gain (loss) on investments in the Statements of Income and Expenses.

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.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

June 30, 2013

(Unaudited)

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.

Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnership’s 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 Partnership’s 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 Partnership’s financial statements.

The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2009 through 2012 tax years remain subject to examination by U.S. federal and most state tax authorities. The General Partner does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Subsequent Events. The General Partner evaluates events that occur after the balance sheet date but before financial statements are issued. The General Partner has assessed the subsequent events through the date of issuance and determined that, other than that described in Note 3 to the financial statements, there were no subsequent events requiring adjustment of or disclosure in the financial statements.

Recent Accounting Pronouncements. In June 2013, the FASB issued ASU 2013-08, “Financial Services — Investments 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 company’s status as an investment company. The amendments are effective for interim and annual reporting periods beginning after December 15, 2013. The Partnership is currently evaluating the impact this pronouncement would have on the financial statements.

Net Income (Loss) per Unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 2, “Financial Highlights”.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Liquidity and Capital Resources

The Partnership does not engage in the sale of goods or services. Its only assets are its investment in 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 commodity options, if applicable, and interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership, through its investments in the Funds. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the second quarter of 2013.

The Partnership’s capital consists of the capital contributions of the partners as increased or decreased by gains or losses on trading and by subscriptions, expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.

For the six months ended June 30, 2013, Partnership capital decreased 8.6% from $488,182,538 to $446,417,064. This decrease was attributable to the redemptions of 55,473.7370 Redeemable Units resulting in an outflow of $52,373,465, and the redemptions of 747.0000 General Partner unit equivalents totaling $701,342, which was partially offset by the subscriptions of 5,470.6960 Redeemable Units totaling $5,146,153, coupled with the net income of $6,163,180. Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent periods.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates and assumptions utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnership’s significant accounting policies are described in detail in Note 7 of the Financial Statements.

The Partnership records all investments at fair value in its financial statements, with changes in fair value reported as a component of net realized gains (losses) and change in net unrealized gains (losses) in the Statements of Income and Expenses and Changes in Partners’ Capital.

Results of Operations

During the second quarter of 2013, the Partnership’s net asset value per unit increased 0.3% from $935.97 to $938.56 as compared to a decrease of 3.5% in the same period of 2012. The Partnership experienced a net trading gain before brokerage fees and related fees in the second quarter of 2013 of $12,409,651. Gains were primarily attributable to the Funds’ trading in U.S. interest rates, metals, softs and indices and were partially offset by losses in currencies, energy, grains, livestock and non-U.S. interest rates. The Partnership experienced a net trading loss before brokerage fees and related fees in the second quarter of 2012 of $9,844,558. Losses were primarily attributable to the Partnership/Funds’ trading in currencies, energy, grains, livestock and indices and were partially offset by gains in U.S. and non-U.S. interest rates, metals and softs.

Trading results in the agricultural sector were flat and had no material impact on the Partnership’s performance during the quarter. The most significant gains were achieved within the metals sector, primarily during April and June, from short positions in gold and silver futures as prices fell on fears Cyprus and other crisis-hit countries may be forced to sell their gold reserves and on speculation the U.S. Federal Reserve may scale back its monetary stimulus program. Additional gains were recorded from short positions in copper futures during April and June. Within the global stock index sector, gains were recorded during April and May from long positions in U.S., European, and Pacific Rim equity index futures as prices advanced after gauges of U.S. leading economic indicators and consumer sentiment advanced more than estimated and amid optimism central banks would maintain loose monetary policies to boost economic growth. A portion of the Partnership’s gains during the quarter was offset by losses recorded within the energy markets during June from short futures positions in crude oil and its related products as prices rose after the Syrian conflict spurred concern that the flow of supplies from the Middle East may be disrupted. Within the global interest rate sector, the Partnership experienced losses, primarily during May, from long positions in U.S. and European fixed income futures as prices declined on reports signaling the global economic recovery is strengthening. Indicators that the U.S. Federal Reserve would curb its bond buying program further added to the downward price move during May. Within the currency markets, short positions in the Japanese yen versus the U.S. dollar resulted in losses during June as the value of the yen rose on speculation the Bank of Japan may limit its monetary stimulus program to a two-year period.

During the Partnership’s six months ended June 30, 2013, the net asset value per unit increased 1.2% from $927.41 to $938.56 as compared to a decrease of 5.6% in the same period of 2012. The Partnership experienced a net trading gain before brokerage fees and related fees in the six months ended June 30, 2013 of $26,700,509. Gains were primarily attributable to the Funds’ trading in currencies, U.S. interest rates, metals, softs and indices and were partially offset by losses in energy, grains, livestock and non-U.S. interest rates. The Partnership experienced a net trading loss before brokerage fees and related fees in the six months ended June 30, 2012 of $11,027,015. Losses were primarily attributable to the Partnership/Funds’ trading in currencies, grains, U.S. and non-U.S. interest rates, livestock, metals and softs and were partially offset by gains in energy and indices.

The most significant gains were achieved within the metals complex during April and June from short positions in gold and silver futures as prices declined after U.S. economic data topped estimates, eroding the appeal of the precious metals as a store of value and increasing speculation the U.S. Federal Reserve would potentially curb its monetary stimulus program. Additional gains in the sector were also recorded during April from short positions in copper futures as prices declined on reports of weakening demand from China. Within the global stock index sector, gains were recorded, primarily during January, from long positions in Asian, U.S., and European equity index futures as prices advanced amid positive global economic sentiment. Within the currency markets, gains were recorded primarily during January from short positions in Japanese yen versus U.S. dollar as the relative value of the yen declined dramatically following newly elected Prime Minister Shinzo Abe’s announced intention to devalue the Asian nation’s currency. Additional gains were recorded within the agricultural sector during February from short positions in wheat futures as prices traded near the lowest level in almost eight months as snowfall expected in Kansas, the biggest U.S. grower of winter wheat varieties, eased concern that drought in the U.S. Great Plains will damage crops. Gains were also recorded in the agricultural sector during May from short positions in sugar futures as prices moved lower on forecasts of large crop yields in Brazil and Thailand. A portion of the Partnership’s gains for the first six months of the year was offset by losses incurred within the energy markets, primarily during February, from long futures positions in crude oil and its related products as prices fell amid concern fuel demand will decline. Within the global interest rate markets, losses were recorded during May from long positions in U.S. and European fixed income futures as prices declined on reports signaling the global economic recovery is strengthening. Indicators that the U.S. Federal Reserve would curb its bond buying program further added to the downward price move during May.

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 Partnership’s (or the Partnership’s allocable portion of a Fund’s, other than Boronia I, LLC and Kaiser I, LLC) brokerage account was earned at a 30-day U.S. Treasury bill yield determined weekly by CGM and/or MS&Co, as applicable, based on the average non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days. MS&Co. credits Boronia I, LLC and Kaiser I, LLC on 100% of the average daily equity maintained in cash in the account of Boronia I, LLC or Kaiser I, LLC during each month at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount less 0.15% during such month. Interest income for the three and six months ended June 30, 2013 decreased by $48,306 and $52,023, respectively, as compared to the corresponding periods in 2012. The decrease in interest income is primarily due to lower average daily equity maintained in the Partnership’s account and lower U.S. Treasury bill rates during the three and six months ended June 30, 2013, as compared to the corresponding periods in 2012. Interest earned by the Partnership will increase the net asset value of the Partnership. The amount of interest income earned by the Partnership depends on the average daily equity in the Partnership’s and the Funds’ accounts and upon interest rates over which neither the Partnership/the Funds nor CGM/MS&Co. has control.

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, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Brokerage fees for the three and six months ended June 30, 2013 decreased $1,866,699 and $4,257,013, respectively, as compared to the corresponding periods in 2012. The decrease in brokerage fees is due to a decrease in average net assets for the three and six months ended June 30, 2013, as compared to the corresponding periods in 2012.

Management fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions 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, 2013 decreased $811,686 and $1,733,510, respectively, as compared to the corresponding periods in 2012. The decrease in management fees is due to a decrease in average net assets for the three and six months ended June 30, 2013, as compared to the corresponding periods in 2012.

Incentive fees are based on the new trading profits generated by each Advisor at the end of the quarter as defined in the respective management agreements between the Partnership, the General Partner and each Advisor. Trading performance for the three and six months ended June 30, 2013 resulted in incentive fees of $1,343,427 and $1,420,902, respectively. There were no incentive fees earned for the three and six months ended June 30, 2012. 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 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, 2013 and March 31, 2013, the Partnership’s assets were allocated among the trading Advisors in the following approximate percentages:


Advisor	June 30, 2013				March 31, 2013
Drury Capital, Inc.		12	%	51,809,598		13	%	$	61,454,921
Graham Capital Management, L.P.		5	%	23,241,662		7	%	$	30,709,326
Aspect Capital Limited		20	%	88,401,852		21	%	$	96,373,857
Willowbridge Associates Inc.		16	%	70,274,749		9	%	$	41,711,079
Krom River Trading AG and Krom River Investment Management (Cayman) Limited		14	%	62,392,308		17	%	$	81,345,553
Altis Partners (Jersey) Limited		19	%	87,113,454		19	%	$	88,795,295
Boronia Capital Pty. Ltd.		8	%	34,431,633		8	%	$	35,287,165
Kaiser Trading Group Pty. Ltd.		6	%	28,751,808		6	%	$	29,882,635

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Partnership/Funds are speculative commodity pools. The market sensitive instruments held by them are acquired for speculative trading purposes, and all or substantially all of the Partnership’s/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 Partnership’s 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 Partnership’s/Funds’ open positions and, consequently, in their earnings and cash balances. The Partnership’s/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 Partnership’s/Funds’ open contracts and the liquidity of the markets in which they trade.

The Partnership/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 Partnership’s/Funds’ past performance is not necessarily indicative of their future results.

“Value at Risk” is a measure of the maximum amount which the Partnership/Funds could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnership’s/Funds’ speculative trading and the recurrence in the markets traded by the Partnership/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 Partnership’s/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 Partnership’s/Funds’ losses in any market sector will be limited to Value at Risk or by the Partnership’s/Funds’ attempts to manage their market risk.

Exchange maintenance margin requirements have been used by the Partnership/Funds as the measure of their Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. The margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation. Maintenance Margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.

Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The Advisors currently trade the Partnership’s assets indirectly in master fund managed accounts over which they have been granted limited authority to make trading decisions. The first two trading Value at Risk tables reflects the market sensitive instruments held by the Partnership indirectly, through its investment in the Funds. 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 Partnership’s Annual Report on Form 10-K for the year ended December 31, 2012.

The following tables indicate the trading Value at Risk associated with the Partnership’s open positions by market category as of June 30, 2013 and December 31, 2012. As of June 30, 2013, the Partnership’s total capitalization was $446,417,064.


Market Sector	Value at Risk		% of Total Capitalization
Commodities	$	27,266,025		6.11	%
Currencies		12,737,861		2.85	%
Indices		7,099,826		1.59	%
Interest Rates		7,172,130		1.61	%

Total	$	54,275,842		12.16	%

As of June 30, 2013, Drury Master’s total capitalization was $58,901,115. The Partnership owned approximately 88.5% of Drury Master. As of June 30, 2013, Drury Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Drury for trading) was as follows:

June 30, 2013


						Three Months Ended June 30, 2013
Market Sector	Value at Risk		% of Total Capitalization			High Value at Risk		Low Value at Risk		Average Value at Risk*
Commodities	$	6,298,186		10.69	%	$	8,074,650	$	4,305,695	$	5,866,150
Currencies		3,289,036		5.58	%		6,180,278		80,961		4,197,365
Indices		2,304,091		3.91	%		4,088,918		2,297,431		3,311,254
Interest Rates		305,485		0.52	%		3,222,891		293,283		2,409,009

Total	$	12,196,798		20.70	%

*	Average of month-end Values at Risk.

As of December 31, 2012, Drury Master’s total capitalization was $93,948,194. The Partnership owned approximately 85.4% of Drury Master. As of December 31, 2012, Drury Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Drury for trading) was as follows:

December 31, 2012


						Twelve Months Ended December 31, 2012
Market Sector	Value at Risk		% of Total Capitalization			High Value at Risk		Low Value at Risk		Average Value at Risk*
Currencies	$	6,460,451		6.88	%	$	10,339,934	$	3,453,763	$	6,617,779
Energy		1,925,774		2.05	%		4,234,320		898,433		2,623,658
Grains		1,648,650		1.75	%		1,956,180		458,950		989,090
Indices		4,393,956		4.68	%		6,175,851		2,266,333		4,332,723
Interest Rates U.S.		1,132,850		1.21	%		1,204,350		587,762		1,086,871
Interest Rates Non-U.S.		2,949,257		3.14	%		3,834,020		2,949,257		3,360,144
Metals		1,232,567		1.31	%		6,311,043		929,015		3,793,978
Softs		911,471		0.97	%		1,346,443		428,538		815,046

Total	$	20,654,976		21.99	%

*	Annual average of month-end Value at Risk.

As of June 30, 2013, Willowbridge Master’s total capitalization was $102,676,224. The Partnership owned approximately 69.0% of Willowbridge Master. As of June 30, 2013, Willowbridge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Willowbridge for trading) was as follows:

June 30, 2013


						Three Months Ended June 30, 2013
Market Sector	Value at Risk		% of Total Capitalization			High Value at Risk		Low Value at Risk		Average Value at Risk*
Currencies	$	2,933,864		2.86	%	$	4,689,300	$	262,600	$	1,876,885
Energy		645,150		0.63	%		1,496,900		606,300		632,600
Grains		678,000		0.66	%		724,800		678,000		682,067
Interest Rates U.S.		236,700		0.23	%		1,628,676		8,280		544,834
Interest Rates Non-U.S.		4,265		0.00	%**		1,008,316		4,265		385,984
Livestock		206,000		0.20	%		206,000		184,200		193,850
Metals		1,308,845		1.28	%		1,409,895		556,200		1,325,445
Softs		702,225		0.68	%		897,050		651,550		719,189

Total	$	6,715,049		6.54	%

*	Average of month-end Values at Risk.

**	Due to rounding.

As of December 31, 2012, Willowbridge Master’s total capitalization was $39,257,082 and there were no amounts at risk. The Partnership owned approximately 77.3% of Willowbridge Master.

As of June 30, 2013, Aspect Master’s total capitalization was $124,974,316. The Partnership owned approximately 71.1% of Aspect Master. As of June 30, 2013, Aspect Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Aspect for trading) was as follows:

June 30, 2013


						Three Months Ended June 30, 2013
Market Sector	Value at Risk		% of Total Capitalization			High Value at Risk		Low Value at Risk		Average Value at Risk*
Commodities	$	6,209,339		4.97	%	$	7,489,422	$	6,077,206	$	6,738,914
Currencies		5,090,386		4.08	%		9,857,593		67,390		7,226,838
Indices		1,336,151		1.07	%		3,796,510		1,303,158		2,854,415
Interest Rates		2,479,831		1.98	%		6,518,405		1,519,021		4,211,976

Total	$	15,115,707		12.10	%

*	Average of month-end Values at Risk.

As of December 31, 2012, Aspect Master’s total capitalization was $135,628,239. The Partnership owned approximately 72.1% of Aspect Master. As of December 31, 2012, Aspect Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Aspect for trading) was as follows:

December 31, 2012


						Twelve Months Ended December 31, 2012
Market Sector	Value at Risk		% of Total Capitalization			High Value at Risk		Low Value at Risk		Average Value at Risk*
Currencies	$	10,632,678		7.84	%	$	11,770,248	$	4,656,853	$	9,036,390
Energy		1,034,020		0.76	%		3,158,700		330,466		1,421,376
Grains		434,137		0.32	%		937,803		300,451		540,011
Indices		4,333,939		3.20	%		4,400,956		1,403,855		2,653,071
Interest Rates U.S.		434,750		0.32	%		1,068,175		94,668		812,824
Interest Rates Non-U.S.		2,649,060		1.95	%		6,627,877		2,360,099		3,874,561
Livestock		105,850		0.08	%		214,905		61,040		111,128
Lumber		5,000		0.00	%**		7,500		1,100		2,938
Metals		1,203,144		0.89	%		3,472,258		1,203,144		2,219,661
Softs		679,573		0.50	%		847,554		336,425		665,742

Total	$	21,512,151		15.86	%

*	Annual average of month-end Value at Risk.

**	Due to rounding.

As of June 30, 2013, Graham Master’s total capitalization was $55,621,910. The Partnership owned approximately 42.0% of Graham Master. As of June 30, 2013, Graham Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Graham for trading) was as follows:

June 30, 2013


						Three Months Ended June 30, 2013
Market Sector	Value at Risk		% of Total Capitalization			High Value at Risk		Low Value at Risk		Average Value at Risk*
Commodities	$	3,114,187		5.60	%	$	4,077,940	$	2,765,962	$	3,386,477
Currencies		3,632,544		6.53	%		5,464,169		187,679		4,031,569
Indices		3,318,320		5.97	%		5,847,239		2,966,268		4,767,817
Interest Rates		1,269,689		2.28	%		4,059,574		1,269,689		3,088,203

Total	$	11,334,740		20.38	%

*	Average of month-end Values at Risk.

As of December 31, 2012, Graham Master’s total capitalization was $84,936,051. The Partnership owned approximately 57.8% of Graham Master. As of December 31, 2012, Graham Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Graham for trading) was as follows:

December 31, 2012


						Twelve Months Ended December 31, 2012
Market Sector	Value at Risk		% of Total Capitalization			High Value at Risk		Low Value at Risk		Average Value at Risk*
Currencies	$	4,886,499		5.75	%	$	5,242,762	$	2,153,005	$	3,676,056
Energy		879,022		1.04	%		3,576,694		328,716		1,612,982
Grains		707,500		0.83	%		1,548,650		617,775		806,449
Indices		4,894,230		5.76	%		8,403,330		3,650,988		5,248,562
Interest Rates U.S.		727,200		0.86	%		2,173,050		190,045		1,283,420
Interest Rates Non-U.S.		2,250,303		2.65	%		5,723,015		2,250,303		3,953,113
Metals		1,161,998		1.37	%		2,984,515		661,356		1,671,237
Softs		372,412		0.44	%		999,000		372,412		653,258

Total	$	15,879,164		18.70	%

*	Annual average of month-end Value at Risk.

As of June 30, 2013, KR Master’s total capitalization was $85,584,511. The Partnership owned approximately 81.7% of KR Master. As of June 30, 2013, KR Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to KR for trading) was as follows:

June 30, 2013


						For the three months ended June 30, 2013
Market Sector	Value at Risk		% of Total Capitalization			High Value at Risk		Low Value at Risk		Average Value at Risk*
Energy	$	691,015		0.81	%	$	1,322,235	$	404,821	$	881,619
Grains		888,098		1.04	%		1,297,380		184,060		543,418
Livestock		47,436		0.05	%		259,950		17,490		103,789
Metals		2,381,553		2.78	%		3,068,574		456,425		2,452,410
Softs		274,396		0.32	%		470,827		127,145		252,658

Total	$	4,282,498		5.00	%

*	Average of month-end Values at Risk.

As of December 31, 2012, KR Master’s total capitalization was $114,890,237. The Partnership owned approximately 81.8% of KR Master. As of December 31, 2012, KR Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Krom River for trading) was as follows:

December 31, 2012


						Twelve Months Ended December 31, 2012
Market Sector	Value at Risk		% of Total Capitalization			High Value at Risk		Low Value at Risk		Average Value at Risk*
Energy	$	1,361,847		1.18	%	$	2,684,219	$	720,189	$	1,248,502
Grains		229,814		0.20	%		2,830,766		40,250		1,013,242
Livestock		215,733		0.19	%		985,549		215,733		593,319
Metals		4,654,833		4.05	%		8,263,352		547,985		4,135,866
Softs		352,837		0.31	%		1,248,168		115,297		521,306

Total	$	6,815,064		5.93	%

*	Annual average of month-end Value at Risk.

As of June 30, 2013, Altis Master’s total capitalization was $113,911,135. The Partnership owned approximately 76.9% of Altis Master. As of June 30, 2013, Altis Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Altis for trading) was as follows:

June 30, 2013


						Three Months Ended June 30, 2013
Market Sector	Value at Risk		% of Total Capitalization			High Value at Risk		Low Value at Risk		Average Value at Risk *
Currencies	$	1,769,107		1.55	%	$	3,051,418	$	1,538,644	$	2,178,971
Energy		1,453,985		1.28	%		2,136,131		909,348		1,513,642
Grains		1,796,240		1.58	%		2,594,161		1,454,422		1,901,828
Indices		1,412,070		1.24	%		5,629,558		956,409		3,028,544
Interest Rates U.S.		439,709		0.39	%		710,192		97,248		427,304
Interest Rates Non -U.S.		2,779,395		2.44	%		3,289,215		742,311		2,307,388
Livestock		507,020		0.44	%		549,450		439,150		477,407
Metals		4,315,206		3.79	%		4,476,363		663,229		3,734,471
Softs		2,236,724		1.96	%		2,338,466		971,944		1,645,844

Total	$	16,709,456		14.67	%

*	Average of month-end Values at Risk.

As of December 31, 2012, Altis Master’s total capitalization was $119,412,601. The Partnership owned approximately 75.6% of Altis Master. As of December 31, 2012, Altis Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Altis for trading) was as follows:

December 31, 2012


						Twelve Months Ended December 31, 2012
Market Sector	Value at Risk		% of Total Capitalization			High Value at Risk		Low Value at Risk		Average Value at Risk *
Currencies	$	2,786,739		2.34	%	$	5,066,857	$	884,563	$	2,247,636
Energy		476,707		0.40	%		2,423,995		209,859		998,793
Grains		1,292,325		1.08	%		2,282,893		1,065,088		1,535,697
Indices		3,016,091		2.53	%		3,016,091		596,630		1,636,713
Interest Rates U.S.		1,747,325		1.46	%		2,121,250		376,246		1,125,673
Interest Rates Non -U.S.		1,628,110		1.36	%		4,536,756		1,628,110		3,108,814
Livestock		216,300		0.18	%		498,350		182,900		302,980
Lumber		23,750		0.02	%		70,500		1,100		21,896
Metals		1,887,669		1.58	%		3,284,303		980,021		2,100,231
Softs		1,109,679		0.93	%		1,804,057		902,071		1,235,219

Total	$	14,184,695		11.88	%

*	Annual average month-end Value at Risk.

As of June 30, 2013, Boronia Trading Company’s total capitalization was $62,720,045. The Partnership owned approximately 55.2% of Boronia Trading Company. As of June 30, 2013, Boronia Trading Company’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Boronia for trading) was as follows:

June 30, 2013


						Three Months Ended June 30, 2013
			% of Total			High		Low		Average
Market Sector	Value at Risk		Capitalization			Value at Risk		Value at Risk		Value at Risk *
Commodities	$	3,121,422		4.98	%	$	4,529,504	$	1,693,205	$	3,058,275
Currencies		1,410,750		2.25	%		3,314,191		547,653		1,388,363
Indices		834,379		1.33	%		3,949,064		661,910		1,951,564
Interest Rates		1,230,941		1.96	%		3,162,046		860,778		1,790,679

Total	$	6,597,492		10.52	%

*	Average of month-end Values at Risk.

As of June 30, 2013, Kaiser Trading Company’s total capitalization was $51,975,367. The Partnership owned approximately 55.6% of Kaiser Trading Company. As of June 30, 2013, Kaiser Trading Company’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Kaiser for trading) was as follows:

June 30, 2013


						Three Months Ended June 30, 2013
			% of Total			High		Low		Average
Market Sector	Value at Risk		Capitalization			Value at Risk		Value at Risk		Value at Risk *
Commodities	$	678,055		1.30	%	$	884,655	$	72,405	$	416,504
Currencies		932,712		1.79	%		3,308,368		135,294		1,177,805
Indices		2,105,304		4.05	%		6,323,135		643,052		2,535,146
Interest Rates		2,309,551		4.44	%		3,440,358		498,254		1,698,086

Total	$	6,025,622		11.58	%

*	Average of month-end Values at Risk.

Item 4. Controls and Procedures.

The Partnership’s 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 SEC’s 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 Partnership’s external disclosures.

The General Partner’s President and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2013 and, based on that evaluation, the General Partner’s President and CFO have concluded that, at that date, the Partnership’s disclosure controls and procedures were effective.

The Partnership’s internal control over financial reporting is a process under the supervision of the General Partner’s 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 Partnership’s 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 Partnership’s assets that could have a material effect on the financial statements.

There were no changes in the Partnership’s internal control over financial reporting process during the fiscal quarter ended June 30, 2013 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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 Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as updated by the Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.

Citigroup Global Markets Inc.

Subprime Mortgage–Related Litigation and Other Matters

Securities Actions:

On May 31, 2013, the United States District Court for the Southern District of New York entered an order dismissing with prejudice the consolidated action INTERNATIONAL FUND MANAGEMENT S.A., ET AL. v. CITIGROUP INC., ET AL. and the individual action SWISSCANTO ASSET MANAGEMENT AG, ET AL. v. CITIGROUP INC., ET AL. pursuant to settlement agreements reached by the parties.

RMBS Litigation and Other Matters

Beginning in July 2010, Citigroup and Related Parties have been named as defendants in complaints filed by purchasers of mortgage-backed securities (“MBS”) and collateralized debt obligations (“CDOs”) sold or underwritten by Citigroup and certain of its subsidiaries. The MBS-related complaints generally assert that the defendants made material misrepresentations and omissions about the credit quality of the mortgage loans underlying the securities, such as the underwriting standards to which the loans conformed, the loan-to-value ratio of the loans, and the extent to which the mortgaged properties were owner-occupied, and typically assert claims under Section 11 of the Securities Act of 1933, state blue sky laws, and/or common-law misrepresentation-based causes of action. The CDO-related complaints further allege that the defendants adversely selected or permitted the adverse selection of CDO collateral without full disclosure to investors. The plaintiffs in these actions generally seek rescission of their investments, recovery of their investment losses, or other damages. Other purchasers of MBS and CDOs sold or underwritten by Citigroup have threatened to file additional suits, for some of which Citigroup has agreed to toll (extend) the statute of limitations.

The filed actions generally are in the early stages of proceedings, and certain of the actions or threatened actions have been resolved through settlement or otherwise. The aggregate original purchase amount of the purchases at issue in the pending RMBS and CDO investor suits, including claims that have been dismissed but are still subject to appeal or otherwise not fully resolved, is approximately $8 billion, and the aggregate original purchase amount of the purchases covered by tolling agreements with RMBS and CDO investors threatening litigation is approximately $6 billion.

On May 29, 2013, the United States District Court for the Southern District of New York so-ordered the parties’ stipulation of voluntary dismissal with prejudice in FEDERAL HOUSING FINANCE AGENCY v. CITIGROUP INC., ET AL. On June 24, 2013, the court entered orders of voluntary dismissal with prejudice and bar orders in FEDERAL HOUSING FINANCE AGENCY v. JPMORGAN CHASE & CO., ET AL. and FEDERAL HOUSING FINANCE AGENCY v. ALLY FINANCIAL INC., ET AL., dismissing with prejudice all claims against Citigroup in those actions.

On April 30, 2013, the United States District Court for the Southern District of New York issued an order reinstating certain RMBS claims on behalf of a putative class of purchasers of mortgage-backed securities issued by Residential Accredit Loans, Inc. in NEW JERSEY CARPENTERS HEALTH FUND v. RESIDENTIAL CAPITAL LLC, ET AL. Citigroup Global Markets Inc. is named as an underwriter defendant, along with several other underwriter defendants, in plaintiffs’ consolidated third amended complaint, served on May 10, 2013.

Terra Firma Litigation

On September 15, 2010, the district court issued an order granting in part and denying in part Citigroup’s motion for summary judgment. Plaintiffs’ claims for negligent misrepresentation and tortious interference were dismissed. On October 18, 2010, a jury trial commenced on Plaintiffs’ remaining claims for fraudulent misrepresentation and fraudulent concealment. The court dismissed the fraudulent concealment claim before sending the case to the jury. On November 4, 2010, the jury returned a verdict on the fraudulent misrepresentation claim in favor of Citi. Judgment dismissing the complaint was entered on December 9, 2010. Plaintiffs have appealed the judgment as to the negligent misrepresentation claim, the fraudulent concealment claim and the fraudulent misrepresentation claim to the United States Court of Appeals for the Second Circuit. Argument was held on October 4, 2012. On May 31, 2013, the United States Court of Appeals for the Second Circuit vacated the November 2010 jury verdict in favor of Citigroup and ordered that the case be retried. The action was remanded to the United States District Court for the Southern District of New York, and retrial is scheduled to begin on October 7, 2013.

Other Matters

On May 6, 2013, Citibank, N.A. filed a complaint in the United States District Court for the Southern District of New York against Barclays Bank, PLC, seeking payment under a contractual indemnity for losses suffered as a result of foreign exchange trading by Lehman Brothers Inc. in September 2008.

Credit Default Swaps Information Market Matters

In April 2011, the European Commission (DG Competition) (the “EC”) opened an investigation (Case No COMP/39.745) concerning the market for pricing information concerning credit default swaps (“CDS”). On July 2, 2013, the EC served on Citigroup and Related Parties, as well as a dozen other CDS dealers, a Statement of Objections alleging that Citigroup and the other dealers colluded to prevent exchanges from entering the credit derivatives business. The Statement of Objections sets forth the EC case team’s preliminary conclusions prior to hearing the dealers’ defenses.

In July 2009 and September 2011, the Antitrust Division of the U.S. Department of Justice served Civil Investigative Demands (“CIDs”) on Citigroup concerning its role in Markit, a financial information services firm that collects and disseminates valuation and other data relating to credit default swaps. Citigroup has responded to the CIDs and is cooperating with the investigation.

Interbank Offered Rates-Related litigation and Other Matters

On June 14, 2013, the Monetary Authority of Singapore (“MAS”) announced the results of its review of the submissions processes from 2007 to 2011 of twenty banks, including Citibank, N.A. Singapore Branch, for benchmarks set in Singapore, including the Singapore Interbank Offered Rates (“SIBOR”), Swap Offered Rates, and foreign exchange benchmarks used to settle non-deliverable forward FX contracts. All of the banks, including Citibank, N.A. Singapore Branch, were found to have deficiencies in governance, risk management, internal controls, and surveillance systems relating to benchmark submissions, and all were required, among other things, to adopt certain corrective measures, to make quarterly reports to the MAS, and (with one exception) to deposit additional statutory reserves with the MAS for a period of one year.

On June 11, 2013, the plaintiff in 7 W. 57TH ST. REALTY V. CITIGROUP, INC., ET AL., filed a First Amended Complaint. The plaintiff alleges that defendants, including Citigroup and Citibank, N.A., manipulated USD LIBOR in violation of federal and state antitrust law and the Racketeer Influenced and Corrupt Organizations Act, and seeks compensatory damages and, where authorized by statute, treble damages.

On May 20, 2013, an individual action was brought against Citigroup and Citibank, N.A., as well as other USD LIBOR panel banks on behalf of certain hedge funds that were parties to interest rate swap

transactions. Based on allegations that the panel bank defendants manipulated USD LIBOR, plaintiffs assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, tortious interference with contract, civil conspiracy, and unjust enrichment, and seek compensatory damages.

On June 25 and 28, 2013, three additional individual actions were brought against Citigroup and Citibank, N.A., as well as other USD LIBOR panel banks by various California counties and related public entities. Plaintiffs in each of these actions allege that the panel bank defendants manipulated USD LIBOR in violation of federal and state antitrust law. Plaintiffs also assert claims for fraud, negligent misrepresentation, interference with economic advantage, breach of the implied covenant of good faith and fair dealing, and unjust enrichment, and seek compensatory damages and, where authorized by statute, treble damages and injunctive relief.

Morgan Stanley & Co. LLC

On March 15, 2010, the Federal Home Loan Bank of San Francisco filed two complaints against the Company 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 the Company 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 plaintiff’s purchase of such certificates. On July 29, 2011 and September 8, 2011, the court presiding over both actions sustained defendants’ demurrers with respect to claims brought under the Securities Act of 1933, as amended, and overruled defendants’ demurrers with respect to all other claims. At June 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $345 million, and the certificates had incurred actual losses of approximately $2.8 million. Based on currently available information, the Company believes it could incur a loss for this action up to the difference between the $345 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company 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 July 9, 2010 and February 11, 2011, Cambridge Place Investment Management Inc. filed two separate complaints against the Company and other defendants in the Superior Court of the Commonwealth of Massachusetts, both styled Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., et al. The complaints assert claims on behalf of certain clients of plaintiff’s affiliates and allege that defendants made untrue statements and material omissions in the sale of a number of mortgage pass through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company or sold to plaintiff’s affiliates’ clients by the Company in the two matters was approximately $263 million. Plaintiff filed amended complaints on October 14, 2011, which raise claims under the Massachusetts Uniform Securities Act and seek, among other things, to rescind the plaintiff’s purchase of such certificates. On November 22, 2011, defendants filed a motion to dismiss the amended complaints. On March 12, 2012, the court denied defendants’ motion to dismiss with respect to plaintiff’s standing to bring suit. Defendants sought interlocutory appeal from that decision on April 11, 2012. On April 26, 2012, defendants filed a second motion to dismiss for failure to state a claim upon which relief can be granted, which the court denied, in substantial part, on October 2, 2012. At June 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $216 million, and the certificates had incurred actual losses of approximately $109 million. Based on currently available information, the Company believes it could incur a loss for these actions of up to the difference between the $216 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company 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 15, 2010, the Federal Home Loan Bank of Chicago filed a complaint against the Company 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 the Company in this action was approximately $203 million. The complaint raises claims under Illinois law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On March 24, 2011, the court granted plaintiff leave to file an amended complaint. The defendants’ motion to dismiss the amended complaint was denied on September 19, 2012. The Company filed its answer on December 21, 2012. At June 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $100 million and certain certificates had incurred actual losses of approximately $1 million. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $100 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company 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 July 18, 2011, the Western and Southern Life Insurance Company and certain affiliated companies filed a complaint against the Company 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 the Company 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. On May 21, 2012, the Company filed a motion to dismiss the amended complaint, which motion was denied on August 3, 2012. The court has set a trial date in May 2015. At June 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $121 million, and the certificates had incurred actual losses of approximately $1 million. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $121 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus post-judgment interest, fees and costs. The Company may be entitled to an offset for interest received by the plaintiff prior to a judgment.

On September 2, 2011, the Federal Housing Finance Agency (“FHFA”), as conservator for Fannie Mae and Freddie Mac, filed 17 complaints against numerous financial services companies, including the Company. A complaint against the Company and other defendants was filed in the Supreme Court of NY, styled Federal Housing Finance Agency, as Conservator v. Morgan Stanley et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to Fannie Mae and Freddie Mac of residential mortgage pass-through certificates with an original unpaid balance of approximately $11 billion. The complaint raises claims under federal and state securities laws and common law and seeks, among other things, rescission and compensatory and punitive damages. On September 26, 2011, defendants removed the action to the United States District Court for the Southern District of New York. On July 13, 2012, the Company filed a motion to dismiss the complaint, which motion was denied in large part on November 19, 2012. Trial is currently scheduled to begin in January 2015. At June 25, 2013, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $2.86 billion, and the certificates had incurred actual losses of approximately $59 million. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $2.86 billion unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company 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, Metropolitan Life Insurance Company and certain affiliates filed a complaint against the Company and certain affiliates in the Supreme Court of NY styled Metropolitan Life Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on June 29, 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 total amount of certificates allegedly sponsored, underwritten and/or sold by the Company was approximately $758 million. The amended complaint raises common

law claims of fraud, fraudulent inducement, and aiding and abetting fraud and seeks, among other things, rescission, compensatory and/or rescissionary damages, as well as punitive damages, associated with plaintiffs’ purchases of such certificates. On September 21, 2012, the Company filed a motion to dismiss the amended complaint, which was granted in part and denied in part on July 16, 2013. Following that decision, the total amount of certificates allegedly sponsored, underwritten and/or sold by the Company was approximately $656 million. At June 25, 2013, the current unpaid balance of the mortgage pass-through certificates remaining at issue in this case was approximately $369 million, and the certificates incurred actual losses of approximately $28.3 million. Based on currently available information, the Company believes it could incur a loss up to the difference between the $369 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company 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 the Company 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 the Company 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 RICO statute, and includes a claim for treble damages. On March 15, 2013, defendants’ motion to dismiss was denied. At June 25, 2013, the current unpaid balance of the mortgage pass through certificates at issue in this action was approximately $674 million, and the certificates had not yet incurred actual losses. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $674 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The public offering of Redeemable Units terminated on November 30, 2008.

For the three months ended June 30, 2013, there were additional subscriptions of 2,439.3810 Redeemable Units totaling $2,307,700. The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Section 506 of Regulation D promulgated thereunder. The Redeemable Units were purchased by accredited investors as described in Regulation D. In determining the applicability of the exemption, the General Partner relied on the fact that the Redeemable Units were purchased by accredited investors in a private offering.

Proceeds of net offering were used for the trading of commodity interests including futures contracts, options and forward contracts.

The following chart sets forth the purchases of Redeemable Units by the Partnership.


Period	(a) Total Number of Redeemable Units Purchased*		(b) Average Price Paid per Redeemable Unit**		(c) Total Number of Redeemable Units Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Redeemable Units that May Yet Be Purchased Under the Plans or Programs
April 1, 2013 – April 30, 2013		8,379.4640	$	965.98		N/A		N/A
May 1, 2013 – May 31, 2013		8,064.9350	$	951.72		N/A		N/A
June 1, 2013 – June 30, 2013		7,556.1670	$	938.56		N/A		N/A
		24,000.5660	$	952.56

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 Partnership’s 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.

Item 5. Other Information.

As of August 1, 2013, a portion of the Partnership’s assets were allocated to J E Moody & Company LLC, which was invested in JEM Master Fund L.P.

The General Partner is in the process of transferring the brokerage accounts of the Partnership and the Funds from CGM to MS & Co., a registered futures commission merchant. It is anticipated that eventually all of the assets of the Partnership and the Funds will be deposited in accounts at MS & Co. MS & Co. is owned by Morgan Stanley, which is also the ultimate parent company of Morgan Stanley Smith Barney LLC, currently doing business as Morgan Stanley Wealth Management (“MSWM”), and the General Partner. Morgan Stanley is a worldwide financial services firm with offices throughout the United States and foreign countries.

In connection with this transition, (i) the Partnership will cease paying a brokerage fee to CGM, (ii) CGM will no longer act as a selling agent for the Partnership, (iii) the Partnership will begin paying an ongoing selling agent fee to MSWM and (iv) the Partnership will begin indirectly paying service and transaction fees to MS & Co. through its investment in the Funds.

The Partnership does not have officers or a board of directors. The General Partner is managed by officers and a board of directors.

Effective August 8, 2013, Walter Davis resigned his position as President and Chairman of the Board of Directors of the General Partner. Effective August 8, 2013, Alper Daglioglu was appointed President of the General Partner and Jeremy Beal was appointed Chairman of the Board of Directors of the General Partner. Also effective August 8, 2013, Douglas Ketterer resigned his position as Director of the General Partner.

Effective September 13, 2013, Damian George will be resigning his position as Chief Financial Officer and Director of the General Partner. Effective September 13, 2013, Alice Ng will be appointed Chief Financial Officer of the General Partner.

Business background descriptions for the newly appointed officers and director are included below.

Alper Daglioglu, age 36, has been a Director, and listed as a principal, of the General Partner since December 2010. He was appointed President of the General Partner in August 2013. Mr. Daglioglu was also appointed Deputy Chief Investment Officer for the Alternative Investments Group at Morgan Stanley Smith Barney LLC, a financial services firm, in August 2013. Since December 2010, Mr. Daglioglu has been employed by Morgan Stanley Smith Barney LLC where his responsibilities include serving as Executive Director and Chief Investment Officer for Morgan Stanley Smith Barney Managed Futures and serving on the Alternative Investments Product Review Committee of Morgan Stanley Smith Barney LLC’s Alternative Investments Group. From June 2009 through December 2010, Mr. Daglioglu was employed by Morgan Stanley Smith Barney LLC, where his responsibilities included serving as a Senior Analyst in the Product Origination Group. From December 2003 through June 2009, Mr. Daglioglu was employed by Morgan Stanley, a financial services firm, where his responsibilities included serving as a Senior Analyst in the Product Origination Group, and serving as the lead investment analyst for Global Macro and Managed Futures strategies within Morgan Stanley Graystone Research Group from February 2007 through June 2009. Mr. Daglioglu earned his Bachelor of Science degree in Industrial Engineering in June 2000 from Galatasaray University and his Master of Business Administration degree in Finance in May 2003 from the University of Massachusetts-Amherst’s Isenberg School of Management. Mr. Daglioglu was awarded a full merit scholarship and research assistantship at the Center for International Securities and Derivatives Markets during his graduate studies. In this capacity, he worked with various major financial institutions in performance monitoring, asset allocation and statistical analysis projects and specialized on alternative approaches to risk assessment for hedge funds and managed futures. Mr. Daglioglu wrote and published numerous research papers on alternative investments. Mr. Daglioglu is a Chartered Alternative Investment Analyst charter holder.

Jeremy Beal, age 38, has been Chairman of the Board of Directors of the General Partner since August 2013. Since May 2013, Mr. Beal has been employed by Morgan Stanley, a financial services firm, where his responsibilities include serving as the Head of Product Strategy and Development, Global Alternative Investments. Mr. Beal has been a Vice President and Director since June 2013, and listed as a principal since July 2013, of

Morgan Stanley GWM Feeder Strategies LLC, which acts as a general partner to multiple alternative investment entities. Mr. Beal has also been a Vice President and Director since June 2013, and listed as a principal (pending) since July 2013, of Morgan Stanley HedgePremier GP LLC, which acts as a general partner and administrative agent to numerous hedge fund feeder funds. Since January 2013, each of Morgan Stanley GWM Feeder Strategies LLC and Morgan Stanley HedgePremier GP LLC has been registered as a commodity pool operator with the CFTC. Mr. Beal is responsible for general management and oversight with respect to such entities. Mr. Beal has also been employed by Morgan Stanley Smith Barney Private Management LLC, Morgan Stanley Smith Barney Private Management II LLC, and Morgan Stanley Smith Barney Venture Services LLC, each an investment management company, since June 2013, where his responsibilities include acting as Vice President and Director. From October 2012 through May 2013, he was employed by JE Moody & Company LLC (“JE Moody”), a hedge fund and commodity trading advisor, where his responsibilities included acting as the Chief Operating Officer. Prior to joining JE Moody, Mr. Beal was employed by Morgan Stanley Smith Barney LLC, where his responsibilities included serving as Chief Operating Officer, Global Alternative Investments from July 2009 through September 2012, and acting as Head of Product Development and Management, Alternative Investments for Morgan Stanley from May 2007 through July 2009. From March 2002 through May 2007, Mr. Beal was employed by Morgan Stanley, where his responsibilities included acting as Head of Product Development, Managed Futures for Morgan Stanley from May 2005 through May 2007, and acting as Senior Associate, Managed Futures from March 2002 through May 2005. Mr. Beal earned his Bachelor of Science degree in Business Administration in May 1997 from Pacific University and his Juris Doctor and Master of Business Administration degree in May 2001 from Willamette University.

Alice Ng, age 30, has been employed by Morgan Stanley Smith Barney LLC, a financial services firm, since July 2009, where her responsibilities have included serving as Vice President and managing the accounting, financial reporting and regulatory reporting of managed futures funds. Before joining Morgan Stanley Smith Barney LLC, Ms. Ng was employed by Citigroup Alternative Investments, a financial services firm, from September 2005 through July 2009, where her responsibilities included serving as Vice President responsible for the accounting, financial reporting and regulatory reporting of Citigroup Alternative Investments’ managed futures funds. From August 2004 through September 2005, Ms. Ng was employed by The Bank of New York, a financial services firm, where her responsibilities included performing mutual fund administration for financial services firms. Ms. Ng earned her Bachelor of Science in Finance in 2004 from the State University of New York at Binghamton.

Item 6. Exhibits



3.1		Certificate of Limited Partnership of the Partnership as filed in the office of the Secretary of State of the State of New York (filed as Exhibit 3.2 to the Registration on Form S-1 filed on December 20, 2002 and incorporated herein by reference).

(a)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated May 21, 2003 (filed as Exhibit 99.2 to the Form 8-K filed on November 3, 2009 and incorporated herein by reference).

(b)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 21, 2005 (filed as Exhibit 99.3 to the Form 8-K filed on November 3, 2009 and incorporated herein by reference).

(c)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 19, 2008 (filed as Exhibit 99.4 to the Form 8-K filed on November 3, 2009 and incorporated herein by reference).

(d)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 24, 2009 (filed as Exhibit 99.1 to the Form 8-K filed on September 30, 2009 and incorporated herein by reference).

(e)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated June 30, 2010 (filed as Exhibit 3.1(e) to the Form 8-K filed on July 2, 2010 and incorporated herein by reference).

(f)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 2, 2011 (filed as Exhibit 3.1 to the Form 8-K filed on September 7, 2011 and incorporated herein by reference).

(g)		Certificate of Amendment to the Certificate of Limited Partnership dated August 7, 2013 (filed herewith).

3.2		Limited Partnership Agreement (filed as Exhibit A to the Post-Effective Amendment No. 5 to the Registration on Form S-1 filed on April 22, 2008 and incorporated herein by reference).

(a)		Amendment to the Limited Partnership Agreement, dated May 31, 2009 (filed as Exhibit 99.1 to the Form 8-K filed on November 3, 2009 and incorporated herein by reference).

10.1		Amended and Restated Customer Agreement among the Partnership and Salomon Smith Barney Inc. (filed as Exhibit 10.1 to the Pre-Effective Amendment No. 2 to the Registration on Form S-1 filed on March 18, 2003 and incorporated herein by reference).

10.2		Escrow Agreement among the Partnership, Morgan Stanley Smith Barney LLC and The Bank of New York (filed as Exhibit 10.2 on the Form 10-K filed on March 27, 2013 and incorporated herein by reference).

(a)		Fifth amendment to the Escrow Agreement among The Bank of New York, the General Partner and Morgan Stanley Smith Barney LLC (filed as Exhibit 10.2(a) on Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.3		Management Agreement among the Partnership, the General Partner and Graham (filed as Exhibit 10.5 to the Registration on Form S-1 filed on December 20, 2002 and incorporated herein by reference).

(a)		Letter from the General Partner extending Management Agreement with Graham from June 30, 2012 through June 30, 2013 (filed as Exhibit 10.3(a) to the Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.4		Management Agreement among the Partnership, the General Partner and Willowbridge (filed as Exhibit 10.7 to the Registration on Form S-1 filed on December 20, 2002 and incorporated herein by reference).

(a)		Amendment to the Management Agreement, dated January 1, 2013, by and among the Partnership, the General Partner and Willowbridge (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on January 7, 2013).

(b)		Letter from the General Partner extending Management Agreement with Willowbridge from June 30, 2012 through June 30, 2013 (filed as Exhibit 10.4(a) to the Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.5		Management Agreement among the Partnership, the General Partner and Drury (filed as Exhibit 10.4 to the Pre-Effective Amendment No. 1 to the Registration on Form S-1 filed on February 14, 2003 and incorporated herein by reference).

(a)		Letter from the General Partner extending Management Agreement with Drury from June 30, 2012 through June 30, 2013 (filed as Exhibit 10.5(a) to the Form 10-K filed on March 27, 2013 and incorporated herein by reference).



10.6		Management Agreement among the Partnership, the General Partner and JWH (filed as Exhibit 10.6 to the Pre-Effective Amendment No. 2 to the Registration on Form S-1 filed on March 18, 2003 and incorporated herein by reference).

(a)		Letter from the General Partner extending Management Agreement with JWH for 2012 (filed as Exhibit 10.6(a) to the Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.7		Amended and Restated Management Agreement among the Partnership, the General Partner and CFM (filed as Exhibit 10.8 to the Form 10-K filed on March 30, 2012 and incorporated herein by reference).

(a)		Letter from the General Partner extending Amended and Restated Management Agreement with CFM for 2012 (filed as Exhibit 10.8(a) to the Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.8		Management Agreement among the Partnership, the General Partner and Aspect (filed as Exhibit 10.4 to the Form 10-K filed on March 16, 2005 and incorporated herein by reference).

(a)		Letter from the General Partner extending Management Agreement with Aspect from June 30, 2012 through June 30, 2013 (filed as Exhibit 10.8(a) to the Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.9		Management Agreement among the Partnership, the General Partner and Altis Partners (Jersey) Limited. (filed as Exhibit 10.13 to the Form 8-K filed on May 3, 2011 and incorporated herein by reference).

(a)		Letter from the General Partner extending Management Agreement with Altis from June 30, 2012 through June 30, 2013 (filed as Exhibit 10.9(a) to the Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.10		Management Agreement among the Partnership, the General Partner and Krom River Investment Management (Cayman) Limited and Krom River Trading AG (filed as Exhibit 10.14 to the Form 8-K filed on May 3, 2011 and incorporated herein by reference).

(a)		Letter from the General Partner extending Management Agreement with Krom River from June 30, 2012 through June 30, 2013 (filed as Exhibit 10.10(a) to the Form 10-K filed on March 27, 2013 and incorporated herein by reference).

10.11		Second Amended and Restated Agency Agreement among the Partnership, the General Partner, CGM and MSSB dated July 29, 2010 (filed as Exhibit 10.12 to the Form 8-K filed on August 3, 2010 and incorporated herein by reference).

10.12		Form of Subscription Agreement (filed as Exhibit 10.12 to the Form 10-Q filed on November 14, 2012 and incorporated herein by reference).

31.1 — Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director)

31.2 — Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director)

32.1 — Section 1350 Certification (Certification of President and Director)

32.2 — Section 1350 Certification (Certification of Chief Financial Officer and Director)

101. INS XBRL Instance Document.

101. SCH XBRL Taxonomy Extension Schema Document.

101. CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101. LAB XBRL Taxonomy Extension Label Linkbase Document.

101. PRE XBRL Taxonomy Extension Presentation Linkbase Document.

101. DEF XBRL Taxonomy Extension Definition Linkbase Document.


	December 31, 2012
Market Sector	Value at Risk		% of Total Capitalization
Currencies	$	18,114,557		3.71	%
Energy		4,372,596		0.90	%
Grains		3,294,880		0.67	%
Indices		11,986,238		2.46	%
Interest Rates U.S.		3,022,208		0.62	%
Interest Rates Non-U.S.		6,960,164		1.43	%
Livestock		416,310		0.09	%
Lumber		21,560		0.00	%*
Metals		7,826,445		1.60	%
Softs		2,611,161		0.53	%

Total	$	58,626,119		12.01	%


TACTICAL DIVERSIFIED FUTURES FUND L.P.

By:		Ceres Managed Futures LLC
		(General Partner)

By:		/s/ Alper Daglioglu
		Alper Daglioglu
		President and Director

Date:		August 14, 2013

By:		/s/ Damian George
		Damian George
		Chief Financial Officer and Director
		(Principal Accounting Officer)

Date:		August 14, 2013


		Page Number

PART I - Financial Information:

Item 1.	Financial Statements:

	Statements of Financial Condition at June 30, 2013 (unaudited) and December 31, 2012	3

	Schedule of Investments at June 30, 2013 (unaudited) and December 31, 2012	4–5

	Statements of Income and Expenses and Changes in Partners’ Capital for the three and six months ended June 30, 2013 and 2012 (unaudited)	6

	Notes to Financial Statements (unaudited)	7–21

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22–24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25–33

Item 4.	Controls and Procedures	34

PART II - Other Information:

Item 1.	Legal Proceedings	35-39

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 5.	Other Information	42-43

Item 6.	Exhibits	44-45


	Fair Value		% of Partners’ Capital
Investment in Funds
CMF Drury Capital Master Fund L.P.	$	52,109,511		11.67	%
CMF Willowbridge Master Fund L.P.		70,851,554		15.87
CMF Aspect Master Fund L.P.		88,898,542		19.91
CMF Graham Capital Master Fund L.P.		23,365,208		5.24
KR Master Fund L.P.		69,903,377		15.66
CMF Altis Partners Master Fund L.P.		87,608,007		19.63
Morgan Stanley Smith Barney Boronia I, LLC		34,597,646		7.75
Morgan Stanley Smith Barney Kaiser I, LLC		28,890,544		6.47

Total investment in Funds, at fair value	$	456,224,389		102.20	%