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MAN AHL DIVERSIFIED I LP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

August 13, 2014

Introduction

Reference is made to Item 1, "Financial Statements." The information contained therein is essential to, and should be read in conjunction with, the following analysis.

Operational Overview

Man-AHL Diversified I L.P. (the "Partnership") is a speculative managed futures fund which trades through its investment in Man-AHL Diversified Trading Company L.P. (the "Trading Company") pursuant to the AHL Diversified Program, directed on behalf of the Trading Company by AHL Partners LLP (the "Advisor"). Prior to June 1, 2014, trading on behalf of the Trading Company was directed by Man-AHL (USA) Limited. The Advisor implements the same trading program and employs substantively the same personnel as did Man-AHL (USA) Limited. The AHL Diversified Program is a price trend-following trading system, entirely quantitative in nature, and implements trading positions on the basis of statistical analyses of past price histories. The objective of the AHL Diversified Program is to deliver substantial capital growth for commensurate levels of volatility over the medium term, independent of the movement of the stock and bond markets, through the speculative trading, directly and indirectly, of physical commodities, futures contracts, spot and forward contracts, swaps and options on the foregoing, exchanges of futures for physical transactions and other investments on domestic and international exchanges and markets (including the interbank and over-the-counter markets). The AHL Diversified Program is proprietary and confidential, so that substantially the only information that can be furnished regarding the Partnership's results of operations is contained in the performance record of its trading through the Trading Company. Past performance is not necessarily indicative of its futures results. Man Investments (USA) Corp., the general partner of the Partnership (the "General Partner") does believe, however, that there are certain market conditions, for example, markets with pronounced price trends, in which the Partnership has a greater likelihood of being profitable than in other market environments.

Capital Resources and Liquidity

Units of limited partnership interests ("Units") of the Partnership may be offered for sale as of the beginning, and may be redeemed as of the end, of each month.

The Partnership raises additional capital only through the sale of Units and capital is increased through trading profits (if any) and interest income. The Partnership does not engage in borrowing. The Partnership, not being an operating company, does not incur capital expenditures. It functions solely as a passive trading vehicle, investing the substantial majority of its assets in the Trading Company. Its remaining capital resources are used only as assets available to make further investments in the Trading Company and to pay Partnership level expenses. Accordingly, the amount of capital raised for the Partnership should not have a significant impact on its operations.

Partnership assets not invested in the Trading Company are maintained in cash and cash equivalents in bank accounts or accounts with JPMorgan Chase Bank, N.A. and Citibank, N.A. and are readily available to the Partnership. The Partnership may redeem any part or all of its limited partnership interest in the Trading Company at any month-end at the net asset value per unit of the Trading Company. The Trading Company's assets are generally held as due from brokers which is used to margin futures and provide collateral for forward contracts and other over-the-counter contract positions and is withdrawn, as necessary, to pay redemptions (to the Partnership and other investors in the Trading Company). Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Trading Company's futures trading, the Trading Company's assets are highly liquid and are expected to remain so.

There have been no material changes with respect to the Partnership's critical accounting policies, off-balance sheet arrangements or disclosure of contractual obligations as reported in the Partnership's Form 10-K filed March 31, 2014.

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Results of Operations

Due to the nature of the Partnership's trading, the results of operations for the interim period presented should not be considered indicative of the results that may be expected for the entire year.

Periods Ended June 30, 2014: 30-June-14 Ending Equity $ 174,326,641



Six months ended June 30, 2014:

Net assets decreased $28,554,977 for the six months ended June 30, 2014. This decrease was attributable to subscriptions in the amount of $996,286, redemptions in the amount of $41,499,152 and a net gain from operations of $11,897,889.

Management Fees of $2,697,475 and servicing fees of $989,849 were paid or accrued, and interest of $101,601 was earned or accrued on the Partnership's cash and cash equivalent investments and broker balances, for the six months ended June 30, 2014.

The Partnership's other expenses paid or accrued for the six months ended June 30, 2014 were $371,872.

Three months ended June 30, 2014:

Net assets decreased $148,716 for the three months ended June 30, 2014. This decrease was attributable to subscriptions in the amount of $204,700, redemptions in the amount of $18,356,944 and a net gain from operations of $18,003,528.

Management Fees of $1,302,280 and servicing fees of $437,619 were paid or accrued, and interest of $37,816 was earned or accrued on the Partnership's cash and cash equivalent investments and broker balances, for the three months ended June 30, 2014.

The Partnership's other expenses paid or accrued for the three months ended June 30, 2014 were $180,882.

The Partnership posted modest trading profits in April as positive performance in the bond, credit, agricultural and currency markets outdistanced losses from equity, energy and metals trading. The Partnership's long positions in European and Canadian bonds proved particularly successful in connection with the European Central Bank's ("ECB") accommodative monetary policy relative to the U.S. Federal Reserve's continued stimulus tapering. Holdings in Swedish interest rate swaps also benefitted from the renewed European confidence. Currency trading produced smaller gains, however, as the lack of substantial movement in the currency markets prevented the Partnership's positions from realizing higher levels of return. Commodity trading similarly produced more modest returns as gains in long soybean and coffee contracts were offset by losses on short wheat positions. The bursting of a mini-tech bubble in April caused losses for the Partnership which held long positions in NASDAQ futures. Energy trading also produced losses as crude oil prices remained relatively range bound and an increase in European power prices made short positions in Germany and Scandinavia unprofitable.

The Partnership experienced a notable net trading gain in May with the fixed income, equity and currency markets serving as the strongest contributors to performance. With respect to fixed income trading, the Partnership benefitted the most from its long positions in U.S. and Australian bonds as low yields in the European bond market and expectations of additional ECB stimulus increased investor demand back to the U.S. and other bond markets. The continued low interest rate environment in both the U.S. and Europe had the additional effect of buoying equities in both markets, which in combination with the Partnership's long stakes in U.S. and European equities, produced significant gains for the Partnership.

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Currency trading resulted in more moderate returns as the Partnership's short position against emerging markets and long positions in the Indian rupee and non-dollar crosses each produced small gains. Commodity and energy trading, in turn, produced small losses attributable to long positions in cotton and natural gas and the shorting of aluminum.

June provided another positive month of trading returns with the strongest performances achieved in the equity, bond and commodities markets. Both the U.S. and European equity markets saw sizeable gains on account of the U.S. Federal Reserve's continuing support of monetary stimulus as expressed by Federal Reserve Chair, Janet Yellen, in her mid-month address. With the S&P 500 and the DAX index both reaching their highest levels to date, the Partnership's long positions in equities similarly produced noteworthy profits. Although a long stake in U.S. Treasuries did result in a loss, corresponding long positions in European bonds helped to offset these losses as the European bond markets rallied in light of the ECB's continuing accommodative policy. Commodity trading also proved profitable as long positions in live cattle and short corn and wheat positions were well-timed to take advantage of record-high futures prices for cattle and the downward trend of corn and wheat prices which had spiked earlier on concerns over the cold weather impact on summer harvests. In contrast to these positive gains, the Partnership's energy contract positioning provided mixed results following geopolitical developments in Iraq which raised concerns of the future delivery of crude oil from the region. Gains from longs in Brent and WTI crude were tempered by losses from shorts in the gasoil market. The instability in Iraq, moreover, had a negative impact on the Partnership's metal trading. Prices of gold and silver both increased sharply over the news of the instability resulting in losses for the Partnership's short gold and silver positions.

Three months ended March 31, 2014:

Poor performance in the equities markets resulted in a net trading loss in January as both the European and U.S. equity markets experienced declines. Jumps in credit premiums and a long exposure to industrial metals further contributed to these losses. On the positive side, renewed demand for developed market bonds brought noteworthy gains. Existing long positions in French and Italian bond futures, as well as Euro-bund and Canadian contracts, provided the most significant returns. Commodity trading also added positive returns as short positions in sugar and wheat benefitted from continued weak demand, a record Canadian wheat harvest, and increased sugar production from Brazil and Thailand.

In February, trading in the bond, commodity, and energy markets generated modest overall performance with long positions in Italian bond futures, soy beans, and natural gas contributing most to the positive returns. Long positions in Italian bonds were particularly profitable as demand increased for such bonds in spite of other key bond yields remaining relatively stagnant. On the commodity side, trading results were mixed. Although an unusually cold winter across the eastern half of North America made long exposure to natural gas profitable, short exposure to wheat and sugar offset these gains. A drought in Brazil increased the price of soft commodities such as sugar, and concerns of lower wheat production on account of the harsh U.S. winter drove up prices for wheat. Trading in the currency markets also provided mixed results. While short positions in the Russian rouble provided positive gains in light of the political turmoil in Ukraine, a slightly weaker U.S. dollar caused losses for the Partnership's positions in Brazilian real, Korean won and Malaysian ringgit.

Against a backdrop of increased volatility for equities, energies and rates, the Partnership sustained negative returns in March as losses in stocks and fixed income exposures outweighed gains in currency positions. Regarding equities, the Dax Index in Germany experienced sharp market reversals in light of lingering uncertainty from the Russian-Ukrainian political conflict. During this reversal, the Partnership cut positions at the time of sell-off yet did not participate in the return upward swing. Sharp reversals in both the Eurodollar and U.S. Treasury bond markets similarly resulted in negative returns which were offset by gains on long positions in French and Italian government bonds. The losses in the equity and bond markets were further tempered by the Partnership's currency trading with respect to the Indian rupee and New Zealand dollar, which both yielded positive results.

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Table of Contents Periods Ended June 30, 2013: 30-June-13 Ending Equity $ 292,798,220



Six months ended June 30, 2013:

Net assets decreased $86,552,767 for the six months ended June 30, 2013. This decrease was attributable to subscriptions in the amount of $8,021,999, redemptions in the amount of $81,284,633 and a net loss from operations of $13,290,133.

Management Fees of $5,203,989 and servicing fees of $2,646,716 were paid or accrued, and interest of $103,741 was accrued on the Partnership's cash and cash equivalent investments and broker balances, for the six months ended June 30, 2013.

The Partnership's other expenses paid or accrued for the six months ended June 30, 2013 were $430,050.

Three months ended June 30, 2013:

Net assets decreased $60,887,331 for the three months ended June 30, 2013. This decrease was attributable to subscriptions in the amount of $2,816,848, redemptions in the amount of $41,917,704 and a net loss from operations of $21,786,475.

Management Fees of $2,462,098 and servicing fees of $1,249,690 were paid or accrued, and interest of $53,104 was accrued on the Partnership's cash, cash equivalent investments and broker balances, for the three months ended June 30, 2013.

The Partnership's other expenses paid or accrued for the three months ended June 30, 2013 were $213,642.

The Partnership generated positive performance in April. A long exposure to fixed income assets added a large share of returns with European bonds, US Treasuries and Eurodollar contracts all delivering profits, although long exposure to Japanese bonds detracted slightly. Profits were added by a short allocation to both precious and base metals, although platinum and palladium gave back some performance. However, the agricultural sector detracted because of exposure to wheat and corn. Negative performance came from currencies as well. Short GBP positions caused a loss with the pound moving higher as the UK avoided triple-dip recession.

The Partnership generated a notable loss in May with a long exposure to fixed income assets being the primary driver of negative performance. US Treasuries were among the most notable losers. Further negative performance came from UK gilts and bonds from commodity focused economies. Long exposure to interest rate holdings also incurred a loss following a cut in Eurozone rates; Eurodollar significantly detracted with Euribor and Short Sterling contracts also ending May in negative territory. Currency trading delivered a loss as a rising greenback weighed on short US dollar versus a number of commodity-linked currency trades.

Stock trading was the largest positive contributor as long US and European holdings benefitted from the equity rally before returns were trimmed in the final week. Agricultural trading added a gain, primarily via long soybeans and short sugar positions. Energies were slightly negative with long natural gas adding a loss. Short electricity and coat contracts helped partially offset sector losses.

The Partnership posted a loss in June with long holdings of fixed income and equities being the primary negatives, particularly early in the month. US Treasuries were a significant detractor as yields jumped. European bonds were also loss-making, coming under pressure from the general sell-off in fixed income. Eurodollar, Euribor and Short Sterling contracts were all notable losers.

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Equities detracted significantly; European indices were the biggest losers after US markets rebounded at the end of the month, helping long holdings recover some performance. Short metals added a notable gain as prices of both base and precious metals fell sharply over the period.

Three months ended March 31, 2013:

January began with noteworthy results from long equity exposure across all regions, but particularly in US and European indices. However, this was nullified by losses on long fixed income exposure, with US Treasuries, French bonds, Short Sterling and Eurodollar being the main detractors. Commodity allocations generated a gain, largely due to short electricity contracts as milder, wetter weather drove prices down, but long exposure to oil and oil derivatives and short gold exposure also returned positive numbers. Short exposure to European and US credit default protection captured gains over the past months as the cost of default insurance fell. Currency trading also added positive returns largely by way of short exposure to Japanese yen which fell 6% (on a trade-weighted basis) following the announcement of a stimulus and deflation control.

Commodity and currency trading were major factors in losses in February. Energy trading took a hit in February, with all positions contributing to the loss. Long positions in crude oil and its by-products was the main theme. The story was similar within the metals sector as long exposure to base metals suffered from the pull back in growth sensitive commodities over the month. Currency trading provided mixed performance. Short GBP positions performed well on the back of the UK rating downgrade and prospects for further quantitative easing. However, this was offset by losses from short USD positions as the dollar rose 3.3% on a trade weighted basis. On the positive side, long exposure to both bonds and short term interest rates performed positively over the month, reversing some of the sector's losses from last month as markets returned to a more cautious state, following the overwhelmingly bullish nature of January. As such safe haven bonds (US Treasuries in particular) returned some of the larger gains, but with further returns coming from emerging market bonds as well. On the interest rate side, long positions in Eurodollar, Euribor and Short Sterling all contributed positive performances as there continued to be no immediate end in sight to the relaxed monetary policies of the major central banks.

Long exposure to rising stock markets generated good performance in March. US equities added the largest contribution with main European indices and Japanese stocks also performing. The only notable negative came from a long exposure to the Korean Kospi. Further positive returns were also added by long holdings of bonds. Yields on most European debt fell, benefitting the portfolio, as investor sought safety in light of Eurozone issues. A small portion of the gain was given back via Italian long dated bonds and US Treasuries. Currency trading had a positive month, due largely to a continuing short exposure to the US dollar. The credit sector detracted as short exposure to the rising cost of European default protection resulted in a loss. The allocation to commodities also delivered negative performance on the whole, driven predominantly by a long exposure to energy markets. Crude oil and its derivatives caused the most pain. AHL was positioned long at the start of the period and suffered as oil prices fell, but reduced this exposure and did not participate in some of the upward movement towards the end of the period.

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