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EX-32.1 - EX-32.1 - MANAGED FUTURES PREMIER ENERGY FUND L.P.y05036exv32w1.htm
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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2011
 
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 000-25921
 
AAA CAPITAL ENERGY FUND L.P.
 
(Exact name of registrant as specified in its charter)
 
     
New York   13-3986032
 
 
(State or other jurisdiction of
  (I.R.S. Employer
incorporation or organization)
  Identification No.)
 
c/o Ceres Managed Futures LLC
522 Fifth Avenue – 14th Floor
New York, New York 10036
 
(Address of principal executive offices) (Zip Code)
 
(212) 296-1999
 
(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, 2011, 19,816.9366 Limited Partnership Redeemable Units were outstanding.


 

 
AAA CAPITAL ENERGY FUND L.P.
 
 
FORM 10-Q
 
 
INDEX
 
         
        Page
        Number
 
   
         
  Financial Statements:    
         
    Statements of Financial Condition
at June 30, 2011 (unaudited) and December 31,
2010
  3
         
    Statements of Income and Expenses
and Changes in Partners’ Capital for the three and six months ended
June 30, 2011 and 2010 (unaudited)
  4
         
    Notes to Financial Statements,
including the Financial Statements
of AAA Master Fund LLC (unaudited)
  5 – 17
         
  Management’s Discussion and Analysis
of Financial Condition and Results of
Operations
  18 – 20
         
  Quantitative and Qualitative
Disclosures about Market Risk
  21
         
  Controls and Procedures   22
         
      23 – 25
 
Exhibits
       
 
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
Exhibit 31.1 Certification
Exhibit 31.2 Certification
Exhibit 32.1 Certification
Exhibit 32.2 Certification
     
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.


2


Table of Contents

 
PART I
 
 
Item 1. Financial Statements
 
 
AAA Capital Energy Fund L.P.
Statements of Financial Condition
 
                 
    (Unaudited)
June 30,
    December 31,  
    2011     2010  
               
Assets:
               
Investment in Master, at fair value
  $ 207,775,724     $ 241,344,162  
Cash
    194,569       183,161  
             
Total assets
  $ 207,970,293     $ 241,527,323  
             
Liabilities and Partners’ Capital:
               
Liabilities:
               
Accrued expenses:
               
Brokerage commissions
  $ 789,382     $ 1,145,338  
Management fees
    344,997       400,386  
Other
    182,933       150,494  
Redemptions payable
    4,748,101       8,409,584  
             
Total liabilities
    6,065,413       10,105,802  
             
Partners’ Capital:
               
General Partner, 218.7937 and 242.9887 unit equivalents outstanding at June 30, 2011 and December 31, 2010, respectively
    2,179,446       2,471,696  
Special Limited Partner, 118.5047 Redeemable Units outstanding at June 30, 2011 and December 31, 2010
    1,180,448       1,205,437  
Limited Partners, 19,931.8447 and 22,389.2068 Redeemable Units outstanding at June 30, 2011 and December 31, 2010, respectively
    198,544,986       227,744,388  
             
Total partners’ capital
    201,904,880       231,421,521  
             
Total liabilities and partners’ capital
  $ 207,970,293     $ 241,527,323  
             
Net asset value per unit
  $ 9,961.19     $ 10,172.06  
             
 
See accompanying notes to financial statements.


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Table of Contents

 
AAA Capital Energy Fund L.P.
Statements of Income and Expenses and Changes in Partners’ Capital
(Unaudited)
 
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Investment income:
                               
Interest income allocated from Master
  $ 6,344     $ 48,638     $ 44,490     $ 71,782  
 
                       
Expenses:
                               
Expenses allocated from Master
    169,855       255,068       357,414       529,937  
Brokerage commissions
    471,998       847,955       1,137,726       2,000,832  
Management fees
    1,056,464       1,321,033       2,186,643       2,683,434  
Other
    63,794       69,766       124,203       138,000  
 
                       
Total expenses
    1,762,111       2,493,822       3,805,986       5,352,203  
 
                       
Net investment income (loss)
    (1,755,767 )     (2,445,184 )     (3,761,496 )     (5,280,421 )
 
                       
 
                               
Trading Results:
                               
Net realized gains (losses) on closed contracts allocated from Master
    (23,327,380     2,680,341     (13,928,073     (11,904,608 )
Change net in unrealized gains (losses) on open contracts allocated from Master
    17,310,558     (5,461,746 )     13,497,679     1,071,614  
 
                       
Total trading results allocated from Master
    (6,016,822     (2,781,405 )     (430,394     (10,832,994 )
 
                       
Net income (loss)
    (7,772,589     (5,226,589 )     (4,191,890     (16,113,415 )
Redemptions — Limited Partners
    (8,373,512 )     (4,690,040 )     (25,074,751 )     (10,893,603 )
Redemptions — General Partner
    0     (299,997 )     (250,000 )     (299,997 )
 
                       
Net increase (decrease) in Partners’ Capital
    (16,146,101 )     (10,216,626 )     (29,516,641 )     (27,307,015 )
Partners’ Capital, beginning of period
    218,050,981       265,201,734       231,421,521       282,292,123  
 
                       
Partners’ Capital, end of period
  $ 201,904,880     $ 254,985,108     $ 201,904,880     $ 254,985,108  
 
                       
Net asset value per unit (20,269.1431 and 24,618.5999 units outstanding at June 30, 2011 and 2010, respectively)
  $ 9,961.19     $ 10,357.42     $ 9,961.19     $ 10,357.42  
 
                       
Net income (loss) per unit *
  $ (371.53   $ (211.63 )   $ (210.87   $ (638.92 )
 
                       
Weighted average units outstanding
    20,921.5882       24,967.0624       21,406.3460       25,216.7591  
 
                       
 
*   Based on change in net asset value per unit.
 
See accompanying notes to financial statements.


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Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
1.   General:
 
AAA Capital Energy Fund L.P. (the “Partnership”) is a limited partnership organized on January 5, 1998 under the partnership laws of the State of New York to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests, including commodity options and commodity futures contracts on U.S. exchanges and certain foreign exchanges. The Partnership, through its investment in the Master (defined below), may trade commodity futures and options contracts of any kind. In addition, the Partnership, through its investment in the Master, may enter into swap contracts on energy-related products. During the initial offering period (February 12, 1998 through March 15, 1998), the Partnership sold 49,538 redeemable units of limited partnership interest (“Redeemable Units”). The Partnership commenced trading on March 16, 1998. From March 16, 1998 to August 31, 2001, the Partnership engaged directly in the speculative trading of a diversified portfolio of commodity interests. The Partnership no longer offers Redeemable Units for sale.
 
Ceres Managed Futures LLC (“CMF”), 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”). Morgan Stanley, indirectly through various subsidiaries, owns a majority equity interest in MSSB Holdings. Citigroup Global Markets Inc. (“CGM”), the commodity broker and a selling agent for the Partnership, owns a minority equity interest in MSSB Holdings. Citigroup Inc. (“Citigroup”), indirectly through various subsidiaries, wholly owns CGM. Prior to July 31, 2009, the date as of which MSSB Holdings became its owner, the General Partner was wholly owned by Citigroup Financial Products Inc., a wholly owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner of which is Citigroup. As of June 30, 2011, all trading decisions for the Partnership are made by the Advisor (defined below).
 
On September 1, 2001, the Partnership allocated substantially all of its capital to AAA Master Fund LLC (the “Master”), a New York limited liability company. The Partnership purchased 128,539.1485 units of the Master with a fair value of $128,539,149 (including unrealized appreciation of $7,323,329). The Master was formed in order to permit commodity pools managed now or in the future by AAA Capital Management Advisors, Ltd. (the “Advisor”) using the Energy Program—Futures and Swaps, a proprietary, discretionary trading program, to invest together in one trading vehicle. In addition, the Advisor is a special limited partner of the Partnership (in its capacity as special limited partner, the “Special Limited Partner”) of the Partnership. The General Partner and the Advisor believe that trading through this master/feeder structure promotes efficiency and economy in the trading process. Expenses to investors as a result of the investment in the Master are approximately the same and redemption rights are not affected. The Master’s commodity broker is CGM and its managing member is CMF. The Master may trade commodity futures and options contracts of any kind, but trades solely energy, energy-related products, lumber, grains and softs. In addition, the Master may enter into swap contracts or trade in energy-related products. The commodity interests that are traded by the Partnership through its investment in the Master are volatile and involve a high degree of market risk.
 
The General Partner is not aware of any material changes to the trading program discussed above during the fiscal quarter ended June 30, 2011.
 
At June 30, 2011, the Partnership owned approximately 21.5% of the Master. At December 31, 2010, the Partnership owned approximately 24.4% of the Master. It is the Partnership’s intention to continue to invest substantially all of its assets in the Master. The performance of the Partnership is directly affected by the performance of the Master. The Master’s trading of futures, forwards, swaps and options contracts, as applicable, is done primarily on U.S. and foreign commodity exchanges. The Master engages in such trading through a commodity brokerage account maintained with CGM. The Master’s Statements of Financial Condition, including Condensed Schedules of Investments and Statements of Income and Expenses and Changes in Members’ Capital are included herein.
 
The General Partner and each limited partner share in the profits and losses of the Partnership, after the allocation to the Special Limited Partner, 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.
 
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, 2011 and December 31, 2010, and the results of its operations for the three and six months ended June 30, 2011 and 2010. 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, 2010.
 
The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.
 
Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.


5


Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
The Master’s Statements of Financial Condition and Condensed Schedules of Investments as of June 30, 2011 and December 31, 2010 and Statements of Income and Expenses and Changes in Members’ Capital for the three and six months ended June 30, 2011 and 2010 are presented below:
 
AAA Master Fund LLC
Statements of Financial Condition
 
                 
    (Unaudited)
June 30,
    December 31,  
    2011     2010  
 
               
Assets:
               
Equity in trading account:
               
Cash
  $ 750,938,124     $ 786,204,916  
Cash margin
    33,664,044       84,669,985  
Net unrealized appreciation on open futures and exchange-cleared swap contracts
    26,942,951        
Options purchased, at fair value (cost $456,343,040 and $561,437,849, respectively)
    304,026,927       363,802,239  
 
           
Total assets
  $ 1,115,572,046     $ 1,234,677,140  
 
           
Liabilities and Members’ Capital:
               
Liabilities:
               
Net unrealized depreciation on open futures and exchange-cleared swap contracts
  $     $ 6,571,110  
Options premium received, at fair value (premium $244,452,199 and $354,410,825, respectively)
    148,184,988       239,504,355  
Accrued expenses:
               
Professional fees
    321,551       290,824  
Redemptions payable
          7,941,213  
 
           
Total liabilities
    148,506,539       254,307,502  
 
           
Members’ Capital:
               
Members’ Capital, 102,369.6485 and 103,223.2146 units outstanding at June 30, 2011 and December 31, 2010, respectively
    967,065,507       980,369,638  
 
           
Total liabilities and members’ capital
  $ 1,115,572,046     $ 1,234,677,140  
 
           
Net asset value per unit
  $ 9,446.80     $ 9,497.57  
 
           


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Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
AAA Master Fund LLC
Condensed Schedule of Investments
June 30, 2011
(Unaudited)
                         
    Number of             % of Members’  
    Contracts     Fair Value     Capital  
Futures and Exchange-Cleared Swap Contracts Purchased
                       
Energy
    42,510     $ (75,944,534     (7.86 )%
Lumber
    29       43,967       0.01  
Softs
    147       (848,830     (0.09
 
                   
Total futures and exchange-cleared swap contracts purchased
            (76,749,397     (7.94
 
                   
Futures and Exchange-Cleared Swap Contracts Sold
                       
Energy
                       
NYMEX HH Swap Nov 11 - Dec 14
    15,563       60,933,758       6.30  
Other
    25,713       42,796,249     4.42
Lumber
    29       (37,659     (0.00 )* 
 
                   
Total futures and exchange-cleared swap contracts sold
            103,692,348     10.72
 
                   
Options Purchased
                       
Energy
                       
Call
                       
NYMEX LT Crude Oil Aug 11 - Dec 14
    10,328       96,054,920       9.93  
Other
    14,758       61,893,618       6.40  
 
                   
Call options purchased
            157,948,538       16.33  
 
                   
Put
                       
NYMEX LT Crude Oil Aug 11 - Dec 14
    9,310       50,548,880       5.23  
NYMEX Natural Gas E Aug 11 - May 14
    4,056       54,694,364       5.66  
Other
    8,962       40,835,145       4.22  
 
                   
Put options purchased
            146,078,389       15.11  
 
                   
Total options purchased
            304,026,927       31.44  
 
                   
Options Premium Received
                       
Energy
                       
Call
                       
NYMEX LT Crude Oil Aug 11 - Dec 16
    9,138       (58,189,420 )     (6.02 )
Other
    18,970       (44,527,399 )     (4.60 )
 
                   
Call options premium received
            (102,716,819 )     (10.62 )
 
                   
Put
                       
Other
    13,762       (45,468,169 )     (4.70 )
 
                   
Put options premium received
            (45,468,169 )     (4.70 )
 
                   
Total options premium received
            (148,184,988 )     (15.32 )
 
                   
Net fair value
          $ 182,784,890       18.90 %
 
                   
 
*
  Due to rounding.


7


Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
AAA Master Fund LLC
Condensed Schedule of Investments
December 31, 2010
 
                         
    Number of
          % of Members’
 
    Contracts     Fair Value     Capital  
 
Futures and Exchange-Cleared Swap Contracts Purchased
                       
Energy
    49,880     $ (76,588,395 )     (7.75 )%
                         
Total futures and exchange-cleared swap contracts purchased
            (76,588,395 )     (7.75 )
                         
Futures and Exchange-Cleared Swap Contracts Sold
                       
Energy
                       
NYMEX HH Swap Feb 11 – Dec 14
    24,098       119,170,628       12.06  
Other
    27,946       (49,185,903 )     (4.98 )
Lumber
    72       32,560       0.00 *
                         
Total futures and exchange-cleared swap contracts sold
            70,017,285       7.08  
                         
Options Purchased
                       
Energy
                       
Call
                       
NYMEX Crude Oil E Jun 11 – Dec 12
    3,098       50,475,970       5.11  
NYMEX LT Crude Oil Feb 11 – Dec 13
    9,371       97,741,150       9.89  
Other
    17,005       46,219,048       4.67  
                         
Call options purchased
            194,436,168       19.67  
                         
Put
                       
NYMEX Natural Gas E Feb 11 – May 14
    17,363       82,281,218       8.33  
Other
    20,468       87,084,853       8.81  
                         
Put options purchased
            169,366,071       17.14  
                         
Total options purchased
            363,802,239       36.81  
                         
Options Premium Received
                       
Energy
                       
Call
                       
NYMEX Heating Oil Feb 11 – Jun 11
    5,580       (64,361,900 )     (6.51 )
NYMEX LT Crude Oil Feb 11 – Dec 16
    9,485       (62,747,240 )     (6.35 )
Other
    21,649       (52,266,589 )     (5.29 )
                         
Call options premium received
            (179,375,729 )     (18.15 )
                         
Put
                       
Other
    21,624       (60,128,626 )     (6.08 )
                         
Put options premium received
            (60,128,626 )     (6.08 )
                         
Total options premium received
            (239,504,355 )     (24.23 )
                         
Net fair value
          $ 117,726,774       11.91 %
                         
 
* Due to rounding.
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Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
AAA Master Fund LLC
Statements of Income and Expenses and Changes in Members’ Capital
(Unaudited)
 
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Investment income:
                               
Interest income
  32,232     208,928     210,599       309,170  
 
                       
Expenses:
                               
Clearing fees
    604,928       840,845       1,246,945       1,786,167  
Professional fees
    181,223       179,295       352,828       354,649  
 
                       
Total expenses
    786,151       1,020,140       1,599,773       2,140,816  
 
                       
Net investment income (loss)
    (753,919 )     (811,212 )     (1,389,174 )     (1,831,646 )
 
                       
Trading results:
                               
Net gains (losses) on trading of commodity interests:
                               
Net realized gains (losses) on closed contracts
    (105,994,346     10,673,183       (64,414,036     (50,774,547 )
Change in net unrealized gains (losses) on open contracts
    77,837,677     (21,835,116     60,194,299     6,775,577  
 
                       
Total trading results
    (28,156,669     (11,161,933 )     (4,219,737     (43,998,970 )
 
                       
Net income (loss)
    (28,910,588     (11,973,145 )     (5,608,911     (45,830,616 )
Subscriptions
    53,542,535       923,181       106,019,273       15,611,134  
Redemptions
    (44,594,880 )     (30,813,437 )     (113,503,894 )     (161,403,924 )
Distribution of interest income to feeder funds
    (32,232 )     (208,928 )     (210,599 )     (309,170 )
 
                       
Net increase (decrease) in Members’ Capital
    (19,995,165     (42,072,329 )     (13,304,131     (191,932,576 )
Members’ Capital, beginning of period
    987,060,672       1,079,334,945       980,369,638       1,229,195,192  
 
                       
Members’ Capital, end of period
  $ 967,065,507     $ 1,037,262,616     $ 967,065,507     $ 1,037,262,616  
 
                       
Net asset value per unit (102,369.6485 and 108,871.6670 units outstanding in June 30, 2011 and 2010, respectively)
  $ 9,446.80     $ 9,527.39     $ 9,446.80     $ 9,527.39  
 
                       
Net income (loss) per unit*
  $ (277.70 )   $ (111.98 )   $ (48.70 )   $ (405.87 )
 
                       
Weighted average units outstanding
    104,376.4270       110,761.3661       104,211.0155       115,131.4869  
 
                       
 
*   Based on change in net asset value per unit.


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AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
2.   Financial Highlights:
 
Changes in the net asset value per unit for the three and six months ended June 30, 2011 and 2010 were as follows:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Net realized and unrealized gains (losses) *
  $ (316.42   $ (156.08 )   $ (101.29   $ (526.42 )
Interest income
    0.30       1.95       2.03       2.86  
Expenses and allocation to Special Limited Partner**
    (55.41 )     (57.50 )     (111.61 )     (115.36 )
 
                       
Increase (decrease) for the period
    (371.53     (211.63 )     (210.87     (638.92 )
Net asset value per unit, beginning of period
    10,332.72       10,569.05       10,172.06       10,996.34  
 
                       
Net asset value per unit, end of period
  $ 9,961.19     $ 10,357.42     $ 9,961.19     $ 10,357.42  
 
                       
     
Includes brokerage commissions and clearing fees allocated from the Master.
 
** Excludes brokerage commissions, clearing fees allocated from the Master and includes allocation to Special Limited Partner in the three and six months ended June 30, 2011 and 2010 if any.
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Ratios to average net assets:***
                               
Net investment income (loss) before allocation to Special Limited Partner****
    (3.3 )%     (3.7 )%     (3.5 )%     (4.0 )%
 
                       
Operating expenses
    3.4 %     3.8 %     3.5 %     4.0 %
Allocation to Special Limited Partner
    %     %     %     %
 
                       
Total expenses and allocation to Special Limited Partner
    3.4 %     3.8 %     3.5 %     4.0 %
 
                       
 
                               
Total return:
                               
Total return before allocation to Special Limited Partner
    (3.6 )%     (2.0 )%     (2.1 )%     (5.8 )%
Allocation to Special Limited Partner
    %     %     %     %
 
                       
Total return after allocation to Special Limited Partner
    (3.6 )%     (2.0 )%     (2.1 )%     (5.8 )%
 
                       
     
*** Annualized (except for allocation to Special Limited Partner, if applicable).
 
**** Interest income allocated from Master less total expenses (exclusive of allocation to Special Limited Partner, if applicable).
 
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.


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Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
Financial Highlights of the Master:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Net realized and unrealized gains (losses)*
  $ (276.25   $ (112.25 )   $ (47.32 )   $ (405.51 )
Interest income
    0.31       1.90       2.07       2.79  
Expenses **
    (1.76 )     (1.63 )     (3.45 )     (3.15 )
 
                       
Increase (decrease) for the period
    (277.70     (111.98 )     (48.70 )     (405.87 )
Distribution of interest income to feeder funds
    (0.31 )     (1.90 )     (2.07 )     (2.79 )
Net asset value per unit, beginning of period
    9,724.81       9,641.27       9,497.57       9,936.05  
 
                       
Net asset value per unit, end of period
  $ 9,446.80     $ 9,527.39     $ 9,446.80     $ 9,527.39  
 
                       
     
Includes clearing fees.
 
** Excludes clearing fees.
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Ratios to average net assets:***
                               
Net investment income (loss)****
    (0.3 )%     (0.3 )%     (0.3 )%     (0.3 )%
 
                       
Operating expenses
    0.3 %     0.4 %     0.3 %     0.4 %
 
                       
Total return
    (2.9 )%     (1.2 )%     (0.5 )%     (4.1 )%
 
                       
     
*** Annualized.
 
**** 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 non-managing member class using the non-managing member’s share of income, expenses and average net assets.


11


Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
 
3.   Trading Activities:
 
The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The Partnership invests substantially all of its assets through a “master/feeder” structure. The Partnership’s pro rata share of the results of the Master’s trading activities are shown in the Statements of Income and Expenses and Changes in Partners’ Capital.
 
The customer agreements between the Partnership and CGM and the Master and CGM give the Partnership and the Master, respectively, the legal right to net unrealized gains and losses on open futures and exchange-cleared swap contracts. The Master nets, for financial reporting purposes, the unrealized gains and losses on open futures and exchange-cleared swap contracts on the Statements of Financial Condition.
 
Brokerage commissions are based on the number of trades executed by the Advisor and the Partnership’s ownership percentage of the Master.
 
All of the commodity interests owned by the Master are held for trading purposes. The monthly average number of futures and exchange-cleared swap contracts traded during the three months ended June 30, 2011 and 2010 were 87,559 and 133,344, respectively. The monthly average number of futures and exchange-cleared swap contracts traded during the six months ended June 30, 2011 and 2010 were 90,712 and 139,785, respectively. The monthly average number of options contracts traded during the three months ended June 30, 2011 and 2010 were 107,081 and 202,097, respectively. The monthly average number of options contracts traded during the six months ended June 30, 2011 and 2010 were 114,608 and 189,331, respectively.
 
The following tables indicate the gross fair values of derivative instruments of futures and exchange-cleared swaps and options contracts as separate assets and liabilities as of June 30, 2011 and December 31, 2010.
 
         
    June 30, 2011  
Assets
       
Futures and Exchange-Cleared Swap Contracts
       
Energy
  $ 177,633,422  
Lumber
    43,967  
Softs
    435  
 
     
Total unrealized appreciation on open futures and exchange-cleared swap contracts
  $ 177,677,824  
 
     
 
       
Liabilities
       
Futures and Exchange-Cleared Swap Contracts
       
Energy
  $ (149,847,949 )
Lumber
    (37,659 )
Softs
    (849,265 )
 
     
Total unrealized depreciation on open futures and exchange-cleared swap contracts
  $ (150,734,873 )
 
     
Net unrealized appreciation on open futures and exchange-cleared swap contracts
  $ 26,942,951 *
 
     
 
       
Assets
       
Options Purchased
       
Energy
  $ 304,026,927  
 
     
Total options purchased
  $ 304,026,927 **
 
     
 
       
Liabilities
       
Options Premium Received
       
Energy
  $ (148,184,988
 
     
Total options premium received
  $ (148,184,988 )***
 
     
 
*   This amount is in “Net unrealized appreciation on open futures and exchange-cleared swap contracts” on the Master’s Statements of Financial Condition.
 
**   This amount is in “Options purchased, at fair value” on the Master’s Statements of Financial Condition.
 
***   This amount is in “Options premium received, at fair value” on the Master’s Statements of Financial Condition.


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Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
         
    December 31, 2010  
 
Assets
       
Futures and Exchange-Cleared Swap Contracts
       
Energy
  $ 253,480,029  
Lumber
    38,390  
         
Total unrealized appreciation on open futures and exchange-cleared swap contracts
  $ 253,518,419  
         
Liabilities
       
Futures and Exchange-Cleared Swap Contracts
       
Energy
  $ (260,083,699 )
Lumber
    (5,830 )
         
Total unrealized depreciation on open futures and exchange-cleared swap contracts
  $ (260,089,529 )
         
Net unrealized depreciation on open futures and exchange-cleared swap contracts
  $ (6,571,110 )*
         
Assets
       
Options Purchased
       
Energy
  $ 363,802,239  
         
Options purchased
  $ 363,802,239 **
         
Liabilities
       
Options Premium Received
       
Energy
  $ (239,504,355 )
         
Options premium received
  $ (239,504,355 )***
         
 
This amount is in “Net unrealized depreciation on open futures and exchange-cleared swap contracts” on the Master’s Statements of Financial Condition.
 
** This amount is in “Options purchased, at fair value” on the Master’s Statements of Financial Condition.
 
*** This amount is in “Options premium received, at fair value” on the Master’s Statements of Financial Condition.
 
 
The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three and six months ended June 30, 2011 and 2010.
                                          
    Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended  
    June 30, 2011     June 30, 2010     June 30, 2011     June 30, 2010  
Sector   Gain (loss) from trading     Gain (loss) from trading     Gain (loss) from trading     Gain (loss) from trading  
                             
Energy
  (27,173,465   (11,184,961   (3,338,136   (44,006,160
Grains
    (34,875           (34,875      
Lumber
    (99,499     23,028       2,104       7,190  
Softs
    (848,830           (848,830      
 
                       
Total
  $ (28,156,669 )****   $ (11,161,933 )****   $ (4,219,737 )****   $ (43,998,970 )****
 
                       
 
****   This amount is in “Total trading results” on the Master’s Statements of Income and Expenses and Changes in Members’ Capital.


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Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
4.   Fair Value Measurements:
 
Partnership’s Investments.  The Partnership values its investment in the Master at its net asset value per unit as calculated by the Master. The Master values its investments as described in note 2 of the Master’s notes to the annual financial statements as of December 31, 2010.
 
Partnership’s 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.
GAAP also requires the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. 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 Level 2 assets.
The Partnership will separately present purchases, sales, issuances and settlements in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation 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.
 
The Partnership values its investment in the Master where there are no other rights or obligations inherent within the ownership interest held by the Partnership based on the end of the day net asset value of the Master (Level 2). The value of the Partnership’s investment in the Master reflects its proportional interest in the Master. As of and for the periods ended June 30, 2011 and December 31, 2010, the Partnership did not hold any derivative instruments that are based on unadjusted quoted prices in active markets for identical assets (Level 1) or priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).
 
                                 
          Quoted Prices in
             
          Active Markets for
    Significant Other
    Significant
 
          Identical Assets
    Observable Inputs
    Unobservable Inputs
 
    6/30/2011     (Level 1)     (Level 2)     (Level 3)  
 
Assets
                               
Investment in Master
  $ 207,775,724     $           —     $ 207,775,724     $           —  
                                 
Net fair value
  $ 207,775,724     $     $ 207,775,724     $  
                                 
 
                                 
          Quoted Prices in
             
          Active Markets for
    Significant Other
    Significant
 
          Identical Assets
    Observable Inputs
    Unobservable Inputs
 
    12/31/2010     (Level 1)     (Level 2)     (Level 3)  
 
Assets
                               
Investment in Master
  $ 241,344,162     $           —     $ 241,344,162     $           —  
                                 
Net fair value
  $ 241,344,162     $     $ 241,344,162     $  
                                 


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Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
 
Master’s Investments.  All commodity interests of the Master (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 Members’ Capital.
 
Master’s 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. GAAP also requires the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. Management has concluded that based on available information in the marketplace, the Master’s Level 1 assets and liabilities are actively traded.
The Master will separately present purchases, sales, issuances and settlements in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation 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.
 
The Master considers prices for exchange-traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1). The values of non-exchange traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2). As of and for the periods ended June 30, 2011 and December 31, 2010, the Master did not hold any derivative instruments for which market quotations are not readily available and which are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2) or that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).
                                 
            Quoted Prices in              
            Active Markets for     Significant Other     Significant  
            Identical Assets     Observable Inputs     Unobservable Inputs  
    6/30/2011     (Level 1)     (Level 2)     (Level 3)  
Assets
                               
Futures and Exchange-Cleared Swaps
  $ 177,677,824     $ 177,677,824     $     $  
Options purchased
    304,026,927       304,026,927              
 
                       
Total assets
    481,704,751       481,704,751              
 
                       
 
                               
Liabilities
                               
Futures and Exchange-Cleared Swaps
  $ 150,734,873     $ 150,734,873     $     $  
Options premium received
    148,184,988       148,184,988              
 
                       
Total liabilites
    298,919,861       298,919,861              
 
                       
Net fair value
  $ 182,784,890     $ 182,784,890     $     $  
 
                       
                                 
            Quoted Prices in              
            Active Markets for     Significant Other     Significant  
            Identical Assets     Observable Inputs     Unobservable Inputs  
    12/31/2010*     (Level 1)     (Level 2)     (Level 3)  
Assets
                               
Futures and Exchange-Cleared Swaps
  $ 253,518,419     $ 253,518,419     $     $  
Options purchased
    363,802,239       363,802,239              
 
                       
Total assets
    617,320,658       617,320,658              
 
                       
Liabilities
                               
Futures and Exchange-Cleared Swaps
  $ 260,089,529     $ 260,089,529     $     $  
Options premium received
    239,504,355       239,504,355              
 
                       
Total liabilites
    499,593,884       499,593,884              
 
                       
Net fair value
  $ 117,726,774     $ 117,726,774     $     $  
 
                       
 
*    The amounts have been reclassified from the December 31, 2010 prior year financial statements to conform to current year presentation.


15


Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
5.   Financial Instrument Risks:
     In the normal course of business, the Partnership, through its investment in the Master, is 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, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (“OTC”). Exchange-traded instruments are standardized and include futures and certain forwards and options contracts. OTC contracts are negotiated between contracting parties and include forwards and certain options. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. 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 risk to the limited partners that have purchased interests in the Partnership is limited to the amount of their capital contributions to the Partnership and their share of the Partnership’s assets and undistributed profits. This limited liability is a result of the organization of the Partnership as a limited partnership under applicable law.
     Market risk is the potential for changes in the value of the financial instruments traded by the Partnership/Master 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 by the Partnership/Master. The Partnership/Master is 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/Master’s 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/Master’s risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Partnership/Master to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership/Master has credit risk and concentration risk as the sole counterparty or broker with respect to the Partnership’s/Master’s assets is CGM or a CGM affiliate. Credit risk with respect to exchange-traded instruments is reduced to the extent that through CGM, the Partnership’s/Master’s counterparty is an exchange or clearing organization.
     The Advisor will concentrate the Partnership’s/Master’s trading in energy-related markets. Concentration in a limited number of commodity interests may subject the Partnership’s/Master’s account to greater volatility than if a more diversified portfolio of contracts were traded on behalf of the Partnership/Master.
     As both a buyer and seller of options, the Master pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Master 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 Master does not consider these contracts to be guarantees.
     The General Partner/managing member monitors and attempts to control the Partnership’s/Master’s 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/Master 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, on-line monitoring systems provide account analysis of futures and exchange-cleared swaps, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions.
     The majority of these instruments mature within one year of the inception date. However, due to the nature of the Partnership’s/Master’s business, these instruments may not be held to maturity.
 


16


Table of Contents

 
AAA Capital Energy Fund L.P.
Notes to Financial Statements
June 30, 2011
(Unaudited)
 
6. 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 Investments. The Partnership values its investment in the Master at its net asset value per unit as calculated by the Master. The Master values its investments as described in note 2 of the Master’s notes to the annual financial statements as of December 31, 2010.
     Partnership’s and the Master’s 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 Master’s Level 1 assets and liabilities are actively traded.
     GAAP also requires the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. 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 Level 2 assets and liabilities.
     The Partnership will separately present purchases, sales, issuances and settlements in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation 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.
     The Partnership values its investment in the Master where there are no other rights or obligations inherent within the ownership interest held by the Partnership based on the end of the day net asset value of the Master (Level 2). The value of the Partnership’s investment in the Master reflects its proportional interest in the Master. As of and for the periods ended June 30, 2011 and December 31, 2010, the Partnership did not hold any derivative instruments that are based on unadjusted quoted prices in active markets for identical assets (Level 1) or priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).
     The Master considers prices for exchange-traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1). The values of non–exchange-traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2). As of and for the periods ended June 30, 2011 and December 31, 2010, the Master did not hold any derivative instruments for which market quotations are not readily available, and are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2) or that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).
     Futures Contracts. The Master trades futures contracts and exchange-cleared swaps. Exchange-cleared swaps are swaps that are traded as futures. 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 Master 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 Master. When the contract is closed, the Master records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses and Changes in Members’ Capital.
     Options. The Master 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 Master writes an option, the premium received is recorded as a liability in the Statements of Financial Condition and marked to market daily. When the Master purchases an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Realized gains (losses) and changes in unrealized gains (losses) on options contracts are included in the Statements of Income and Expenses and Changes in Members’ Capital.
     Brokerage Commissions. Commission charges to open and close futures and exchange-traded swap contracts are expensed at the time the positions are opened. Commission charges on option contracts are expensed at the time the position is established and when the option contract is closed.
     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. Generally, the 2007 through 2010 tax years remain subject to examination by U.S. federal and most state tax authorities. Management 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 filed. The General Partner has assessed the subsequent events through the date of filing and has determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements.
     Recent Accounting Pronouncements. In May 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards” (“IFRS”). The amendments within this ASU change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to eliminate unnecessary wording differences between U.S. GAAP and IFRS. However, some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The ASU is effective for annual and interim periods beginning after December 15, 2011 for public entities. This new guidance is not expected to have a material impact on the Partnership’s/Master’s 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”.


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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Liquidity and Capital Resources
 
The Partnership does not engage in sales of goods or services. Its only assets are its investment in the Master and cash. The Master does not engage in the sale of goods or services. 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 investment in the Master. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the second quarter of 2011.
 
The Partnership’s capital consists of the capital contributions of the partners as increased or decreased by income (loss) from its investment in the Master and by expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.
For the six months ended June 30, 2011, Partnership capital decreased 12.8% from $231,421,521 to $201,904,880. This decrease was attributable to redemptions of 2,457.3621 Redeemable Units resulting in an outflow of $25,074,751, and the redemption of 24.1950 General Partner unit equivalents totaling $250,000, coupled with the net loss from operations of $4,191,890. Future redemptions could impact the amount of funds available for investment in the Master in subsequent periods.
The Master’s capital consists of the capital contributions of the members as increased or decreased by realized and/or unrealized gains or losses on commodity futures trading and by expenses, interest income, redemptions of units and distributions of profits, if any.
For the six months ended June 30, 2011, the Master’s capital decreased 1.4% from $980,369,638 to $967,065,507. This decrease was attributable to the redemption of 11,813.0601 Units of Member Interest totaling $113,503,894 and distribution of interest income to feeder funds totaling $210,599 to the non-managing members of the Master, coupled with the net loss from operations of $5,608,911, which was partially offset by the addition of 10,959.4940 Units of Member Interest totaling $106,019,273. Future redemptions can impact the amount of funds available for investments 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 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 6 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.
 


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Results of Operations
     During the Partnership’s second quarter of 2011, the net asset value per unit decreased 3.6% from $10,332.72 to $9,961.19 as compared to a decrease of 2.0% in the second quarter of 2010. The Partnership, for its own account, through its investment in the Master, experienced a net trading loss before brokerage commissions and related fees in the second quarter of 2011 of $6,016,822. Losses were primarily attributable to the Master’s trading of commodity futures in NYMEX Energy Swaps, NYMEX Gasoline, NYMEX Heating Oil, NYMEX Natural Gas, Lumber, Corn and Softs and were partially offset by gains in IPE Brent Crude Oil, NYMEX Crude Oil and IPE Gas Oil. The Partnership, for its own account, through its investment in the Master, experienced a net trading loss before brokerage commissions and related fees in the second quarter of 2010 of $2,781,405. Losses were primarily attributable to the Master’s trading of commodity futures in NYMEX Crude Oil, NYMEX Gasoline, NYMEX Natural Gas and IPE Brent Crude Oil and were partially offset by gains in NYMEX Energy Swaps, NYMEX Heating Oil, Unleaded Gasoline, IPE Gas Oil and Lumber.
     The Partnership generated modest gains in April from long futures and options positions in WTI crude as increased volatility due to the contagion in the Middle East helped to generate gains. Further gains were recorded during the month trading throughout the term structure in the natural gas complex as prices continued to move sideways coming out of the winter season. Losses in long futures and options positions in Brent crude oil were the main detractors to performance during April, as well as RBOB gasoline positions. May saw sharp price reversals in the crude oil markets and losses for the month were largely driven by the retrenchment in the refined products complex. Long futures positions in RBOB gasoline, gasoil and heating oil all experienced losses during May, resulting in the majority of the losses for the second quarter. Further losses in May resulted from long futures and options positions in WTI crude oil as prices plummeted in the early part of the month and were unable to get back to their previous highs. On the positive side during May, Brent crude oil positions generated the largest gains for the month as spread trading and directional futures and options positions were able to profit despite the significant decline in prices. During the last month of the quarter, natural gas positions were the main detractors to performance as the front-end of the curve continued to move in a sideways manner, given the increased uncertainty in the weather throughout the United States. Further losses for June came from long futures positions in RBOB gasoline and gasoil as these refined products continued to trade lower given a bleaker domestic demand outlook. Gains in the crude oil complex helped to generate positive returns for the month as prices moved in favor of the Partnership’s positions despite concerns regarding global demand and the Greek debt crisis.
     During the six months ended June 30, 2011, the net asset value per unit decreased 2.1% from $10,172.06 to $9,961.19 as compared to a decrease of 5.8% in the same period of 2010. The Partnership, for its own account, through its investment in the Master experienced a net trading loss before brokerage commissions and related fees in the six months ended June 30, 2011 of $430,394. Losses were primarily attributable to the Master’s trading of commodity futures in NYMEX Energy Swaps, NYMEX Gasoline, NYMEX Heating Oil, NYMEX Natural Gas, Lumber, Corn and Softs and were partially offset by gains in IPE Brent Crude Oil, NYMEX Crude Oil and IPE Gas Oil. The Partnership, for its own account, through its investment in the Master experienced a net trading loss before brokerage commissions and related fees in the six months ended June 30, 2010 of $10,832,994. Losses were primarily attributable to the Master’s trading of commodity futures in NYMEX Crude Oil, NYMEX Gasoline, NYMEX Natural Gas, IPE Brent Crude Oil and IPE Gas Oil, and were partially offset by gains in NYMEX Energy Swaps, NYMEX Heating Oil, Unleaded Gasoline and Lumber.
     During the first quarter, long positions in WTI crude oil were the largest positive contributor to performance as prices rallied given the tsunami and earthquake in Japan, as well as the contagion in the Middle East. Long futures positions in heating oil also generated solid gains in January and February as a colder-than-expected winter throughout the United States helped to generate profits. Modest gains were generated in natural gas positions during January and February as prices remained volatile given the severe cold throughout the United States, particularly on the West Coast. Losses in natural gas during March were modest and largely driven by price appreciation in the front-end of the curve as short futures positions detracted from performance. Trading in WTI crude oil and Brent crude oil were positive contributors to performance during the second quarter as increased price volatility benefited long option positions for the Partnership. Refined products, specifically RBOB gasoline, gasoil, and heating oil saw significant price declines during May and June as fears of weaker global demand for refined products, concerns over the Eurozone’s burgeoning debt crisis, and a slowing U.S. economy generated losses for the Partnership. Despite the losses in refined products, natural gas positions made modest gains in April and May as prices continued to trade in a directionless manner given the continued volatility in the weather coming out of the winter and into spring. However, June saw more sharp moves in natural gas prices as demand for the commodity was expected to increase given the abnormally warm temperatures throughout the United States, thus resulting in losing positions.


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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 (and the Master) depends on the Advisor’s ability to forecast price changes in energy and energy-related commodities. Such price changes 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 the Advisor correctly makes such forecasts, the Partnership (and the Master) expects to increase capital through operations.
 
Brokerage commissions are based on the number of trades executed by the Advisor and the Partnership’s ownership percentage of the Master. Brokerage commissions and fees for the three and six months ended June 30, 2011 decreased by $375,957 and $863,106, respectively, as compared to the corresponding periods in 2010. The decrease in commissions and fees is primarily due to a decrease in the number of trades during the three and six months ended June 30, 2011 as compared to the corresponding periods in 2010.
 
Interest income on 80% of the Partnership’s average daily equity allocated to it by the Master was earned at a 30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days. Interest income allocated from the Master for the three and six months ended June 30, 2011 decreased by $42,294 and $27,292, respectively, as compared to the corresponding periods in 2010. The decrease in interest income is primarily due to lower average daily equity and lower U.S. Treasury bill rates for the Partnership during the three and six months ended June 30, 2011 as compared to the corresponding periods in 2010. 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 account and upon interest rates over which neither the Partnership nor CGM has control.
 
Management fees are calculated as a percentage of the Partnership’s net asset value as of the end of each month and are affected by trading performance and redemptions. Management fees for the three and six months ended June 30, 2011, decreased by $264,569 and $496,791, respectively, as compared to the corresponding periods in 2010. The decrease in management fees is due to lower average net assets during the three and six months ended June 30, 2011, as compared to the corresponding periods in 2010.
 
Special Limited Partner profit share allocations (incentive fees) are based on the new trading profits generated by the Advisor at the end of the quarter, as defined in the advisory agreement among the Partnership, the General Partner and the Advisor. There were no profit share allocations earned for the three and six months ended June 30, 2011 and 2010. The Advisor will not be allocated a profit share until the Advisor recovers the net loss incurred and earns additional new trading profits for the Partnership.
 
In allocating substantially all of the assets of the Partnership to the Master, the General Partner considers the Advisor’s past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets to the Advisor at any time.


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Item 3.   Quantitative and Qualitative Disclosures about Market Risk
 
All of the Partnership’s assets are subject to the risk of trading loss through its investment in the Master. The Master is a speculative commodity pool. The market sensitive instruments held by the Master are acquired for speculative trading purposes, and all or substantially all of the Partnership’s assets are subject to the risk of trading loss through its investment in the Master. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Master’s and the Partnership’s main line of business.
 
The risk to the limited partners that have purchased interests in the Partnership is limited to the amount of their capital contributions to the Partnership and their share of the Partnership’s assets and undistributed profits. This limited liability is a result of the organization of the Partnership as a limited partnership under applicable law.
 
Market movements result in frequent changes in the fair value of the Master’s open positions and, consequently, in their earnings and cash balances. The Master’s and the Partnership’s 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 results among the Master’s open contracts and the liquidity of the markets in which the Master trades.
 
The Master rapidly acquires and liquidates both long and short positions in a range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Master’s past performance is not necessarily indicative of its future results.
 
“Value at Risk” is a measure of the maximum amount which the Master could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Master’s speculative trading and the recurrence in the markets traded by the Master of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Master’s 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 Master’s losses in any market sector will be limited to Value at Risk or by the Master’s attempts to manage its market risk.
 
Exchange maintenance margin requirements have been used by the Master as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95% - 99% of any one-day interval. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.
 
Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The following table indicates the trading Value at Risk associated with the Master’s open positions by market category as of June 30, 2011 and December 31, 2010, and the highest, lowest and average value during the three months ended June 30, 2011 and for the twelve months ended December 31, 2010. All open position trading risk exposures of the Master have been included in calculating the figures set forth below. There has been no material change 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, 2010.
As of June 30, 2011, the Master’s total capitalization was $967,065,507 and the Partnership owned approximately 21.5% of the Master. The Partnership invests substantially all of its assets in the Master. The Master’s Value at Risk as of June 30, 2011 was as follows:
 
June 30, 2011
                                         
                    Three Months Ended June 30, 2011  
            % of Total     High     Low     Average  
Market Sector   Value at Risk     Capitalization     Value at Risk     Value at Risk     Value at Risk*  
Energy
  $ 50,494,592       5.22 %   $ 94,389,860     $ 50,494,592     $ 62,238,685  
Lumber
    29,000       0.01 %     108,000       29,000       49,267  
Softs
    402,900       0.04     402,900       108,000       402,900  
 
                                   
Total
  $ 50,926,492       5.27 %                        
 
                                   
 
*   Average monthly Values at Risk
     As of December 31, 2010, the Master’s total capitalization was $980,369,638 and the Partnership owned approximately 24.4% of the Master. The Partnership invests substantially all of its assets in the Master. The Master’s Value at Risk as of December 31, 2010 was as follows:
December 31, 2010
                                         
                Twelve Months Ended December 31, 2010  
            % of Total     High     Low     Average  
Market Sector   Value at Risk     Capitalization     Value at Risk     Value at Risk     Value at Risk*  
Energy
  $ 51,518,525       5.26 %   $ 143,609,109     $ 51,518,525     $ 94,568,057  
Lumber
    93,600       0.01       126,800       22,200       57,792  
 
                                   
Total
  $ 51,612,125       5.27 %                        
 
                                   
 
*   Annual average of month-end Values at Risk


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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, as amended (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 Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.
 
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 CEO 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, 2011 and, based on that evaluation, the General Partners CEO 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 CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. These controls include policies and procedures that:
 
  •   pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;
 
  •   provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and (ii) the 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 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, 2011 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.


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PART II. OTHER INFORMATION
 
Item 1.   Legal Proceedings
     There are no material changes to 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, 2010, as updated by the Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011.


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Item 1A.   Risk Factors
     There have been no material changes to the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and under Part II, Item 1A. “Risk Factors” in the Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011.
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
The Partnership no longer offers Redeemable Units at the net asset value per Redeemable Unit as of the end of each month.
 
The following chart sets forth the purchases of Redeemable Units by the Partnership.
 
                                         
                              (d) Maximum Number
 
                              (or Approximate
 
                      (c) Total Number
      Dollar Value) of
 
                      of Redeemable Units
      Redeemable Units that
 
      (a) Total Number
      (b) Average
      Purchased as Part
      May Yet Be
 
      of Redeemable Units
      Price Paid per
      of Publicly Announced
      Purchased Under the
 
Period     Purchased*       Redeemable Unit**       Plans or Programs       Plans or Programs  
April 1, 2011 -
April 30, 2011
      186.9643       $ 10,338.53         N/A         N/A  
May 1, 2011 -
May 31, 2011
      170.1955       $ 9,944.30         N/A         N/A  
June 1, 2011 -
June 30, 2011
      476.6600       $ 9,961.19         N/A         N/A  
        833.8198       $ 10,042.35         N/A         N/A  
                                         
* 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 may 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.
 
Item 3.   Defaults Upon Senior Securities – None
 
Item 4.   [Removed and Reserved]
 
Item 5.   Other Information – None


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Item 6.   Exhibits
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, dated December 30, 1997 (filed as Exhibit 3.1 to the Partnership Form 10 filed on April 30, 1999 and incorporated herein by reference).
  (a)   Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated October 1, 1999 (filed as Exhibit 3.1(a) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
 
  (b)   Certificate of Change of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, effective January 31, 2000 (filed as Exhibit 3.1(b) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
 
  (c)   Certificate of Amendment of 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 3.1(c) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
 
  (d)   Certificate of Amendment of 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 3.1(d) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
 
  (e)   Certificate of Amendment of 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 3.1(e) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
 
  (f)   Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 28, 2009 (filed as Exhibit 99.1 to the Form 8-K filed on September 30, 2009 and incorporated herein by reference).
 
  (g)   Certificate of Amendment of 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(g) to the Form 8-K filed on July 2, 2010 and incorporated herein by reference).
3.2 — Amended and Restated Limited Partnership Agreement, dated September 30, 2006 (filed as Exhibit 10.1 to the Form 10-Q filed on November 14, 2006 and incorporated herein by reference).
10.1 — Customer Agreement between the Partnership and Smith Barney Inc., dated February 12, 1998 (filed as Exhibit 10.B to the Form 10 filed on April 30, 1999 and incorporated herein by reference).
10.2 — Agency Agreement among the Partnership, Smith Barney Futures Management Inc. and Smith Barney Inc., dated February 12, 1998 (filed as Exhibit 10.2 to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
10.3 — Joinder Agreement among the Partnership, the General Partner, CGM and Morgan Stanley Smith Barney LLC, dated June 1, 2009 (filed as Exhibit 10 to the Form 10-Q filed on August 14, 2009 and incorporated herein by reference).
10.4 — Escrow Agreement among the Partnership, Smith Barney Futures Management Inc., Smith Barney Inc. and European American Bank, dated February 9, 1998 (filed as Exhibit 10.4 to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
10.5 — Advisory Agreement among the Partnership, the General Partner and AAA Capital Management Advisors, Ltd., dated April 3, 2006 (filed as Exhibit 33 to the Form 10-Q filed on August 14, 2006 and incorporated herein by reference).
  (a)   Letter from the General Partner extending Advisory Agreement with AAA Capital Management Advisors, Ltd. for 2010, dated June 1, 2010 (filed as Exhibit 10.5(a) to the Form 10-K filed on March 31, 2011 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.


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Table of Contents

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
AAA Capital Energy Fund L.P.
 
By:       Ceres Managed Futures LLC  
(General Partner)
 
By:      
/s/  Walter Davis
 
Walter Davis
President and Director
 
Date:    August 15, 2011  
 
By:      
/s/  Jennifer Magro
 
Jennifer Magro
Chief Financial Officer and
Director
(Principal Accounting Officer)
 
Date:    August 15, 2011  


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