The Master’s Statements of Financial Condition and Condensed Schedules of Investments as of September 30, 2011 and December 31, 2010 and Statements of Income and Expenses and Changes in Members’ Capital for the three and nine months ended September 30, 2011 and 2010 are presented below:

 

AAA Master Fund LLC
Statements of Financial Condition

 

		(Unaudited) September 30,				December 31,
		2011				2010
Assets:
Equity in trading account:
Cash		$	693,127,470			$	786,204,916
Cash margin			59,363,764				84,669,985
Options purchased, at fair value (cost $493,938,936 and $561,437,849, respectively)			429,852,506				363,802,239
Total assets		$	1,182,343,740			$	1,234,677,140
Liabilities and Members’ Capital:
Liabilities:
Net unrealized depreciation on open futures and exchange-cleared swap contracts		$	76,333,930			$	6,571,110
Options premium received, at fair value (premium $268,534,703 and $354,410,825, respectively)			161,034,970				239,504,355
Accrued expenses:
Professional fees			380,512				290,824
Redemptions payable			0				7,941,213
Total liabilities			237,749,412				254,307,502
Members’ Capital:
Members’ Capital, 97,881.6157 and 103,223.2146 units outstanding at September 30, 2011 and December 31, 2010, respectively			944,594,328				980,369,638
Total liabilities and members’ capital		$	1,182,343,740			$	1,234,677,140
Net asset value per unit		$	9,650.38			$	9,497.57

		Number of								% of Members’
		Contracts				Fair Value				Capital
Futures and Exchange-Cleared Swap Contracts Purchased
Energy
NYMEX HH Natural Gas Nov 11 - Aug 15			9,620			$	(78,767,521	)			(8.34	)%
NYMEX LT Crude Oil Dec 11 - Dec 16			7,747				(60,091,330	)			(6.36	)
Other			24,720				(148,404,918	)			(15.71	)
Grains			81				(466,775	)			(0.05	)
Lumber			67				(125,590	)			(0.01	)
Softs			243				(1,870,500	)			(0.20	)
Total futures and exchange-cleared swap contracts purchased							(289,726,634	)			(30.67	)
Futures and Exchange-Cleared Swap Contracts Sold
Energy
NYMEX HH Swap Nov 11 - Dec 14			13,761				69,609,870				7.37
NYMEX LT Crude Oil Nov 11 - June 13			7,077				60,414,586				6.40
Other			16,087				83,234,094				8.81
Lumber			22				134,154				0.01
Total futures and exchange-cleared swap contracts sold							213,392,704				22.59
Options Purchased
Energy
Call
NYMEX LT Crude Oil Nov 11 - Dec 14			12,301				48,730,190				5.16
Other			10,746				15,485,341				1.64
Call options purchased							64,215,531				6.80
Put
NYMEX Crude Oil E Dec 11 - Dec 16			7,040				62,702,310				6.64
NYMEX LT Crude Oil Dec 11 - Dec 14			15,623				200,186,350				21.19
NYMEX Natural Gas E Nov 11 - Oct 12			4,652				70,613,407				7.48
Other			4,369				31,541,345				3.34
Grains			90				593,563				0.06
Put options purchased							365,636,975				38.71
Total options purchased							429,852,506				45.51
Options Premium Received
Energy
Call
Other			31,106				(11,228,683	)			(1.19	)
Grains			254				(96,044	)			(0.01	)
Call options premium received							(11,324,727	)			(1.20	)
Put
NYMEX LT Crude Oil Nov 11 - Dec 13			11,118				(79,288,910	)			(8.39	)
Other			13,541				(70,246,533	)			(7.44	)
Grains			64				(174,800	)			(0.02	)
Put options premium received							(149,710,243	)			(15.85	)
Total options premium received							(161,034,970	)			(17.05	)
Net fair value						$	192,483,606				20.38	%

 

 

8

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Investment income:
Interest income		$	25,879			$	207,252			$	236,478			$	516,422
Expenses:
Clearing fees			504,922				618,341				1,751,867				2,404,508
Professional fees			129,784				185,424				482,612				540,073
Total expenses			634,706				803,765				2,234,479				2,944,581
Net investment income (loss)			(608,827	)			(596,513	)			(1,998,001	)			(2,428,159	)
Trading results:
Net gains (losses) on trading of commodity interests:
Net realized gains (losses) on closed contracts			24,740,487				14,465,672				(39,673,549	)			(36,308,875	)
Change in net unrealized gains (losses) on open contracts			(3,814,676	)			(4,975,687	)			56,379,623				1,799,890
Total trading results			20,925,811				9,489,985				16,706,074				(34,508,985	)
Net income (loss)			20,316,984				8,893,472				14,708,073				(36,937,144	)
Subscriptions			34,613				193,888				106,053,886				15,805,022
Redemptions			(42,796,897	)			(24,709,949	)			(156,300,791	)			(186,113,873	)
Distribution of interest income to feeder funds			(25,879	)			(207,252	)			(236,478	)			(516,422	)
Net increase (decrease) in Members’ Capital			(22,471,179	)			(15,829,841	)			(35,775,310	)			(207,762,417	)
Members’ Capital, beginning of period			967,065,507				1,037,262,616				980,369,638				1,229,195,192
Members’ Capital, end of period		$	944,594,328			$	1,021,432,775			$	944,594,328			$	1,021,432,775
Net asset value per unit (97,881.6157 and 106,317.8812 units outstanding in September 30, 2011 and 2010, respectively)		$	9,650.38			$	9,607.35			$	9,650.38			$	9,607.35
Net income (loss) per unit*		$	203.84			$	81.89			$	155.14			$	(323.98	)
Weighted average units outstanding			100,759.3411				107,869.1608				103,060.4574				112,710.7115

 

 

Changes in the net asset value per unit for the three and nine months ended September 30, 2011 and 2010 were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Net realized and unrealized gains (losses) *		$	189.21			$	60.19			$	87.92			$	(466.23	)
Interest income			0.25				1.97				2.28				4.83
Expenses and allocation to Special Limited Partner**			(52.45	)			(55.12	)			(164.06	)			(170.48	)
Increase (decrease) for the period			137.01				7.04				(73.86	)			(631.88	)
Net asset value per unit, beginning of period			9,961.19				10,357.42				10,172.06				10,996.34
Net asset value per unit, end of period		$	10,098,20			$	10,364.46			$	10,098.20			$	10,364.46

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Ratios to average net assets:***
Net investment income (loss) before allocation to Special Limited Partner****			(3.4	)%			(3.4	)%			(3.5	)%			(3.8	)%
Operating expenses			3.4	%			3.5	%			3.5	%			3.8	%
Allocation to Special Limited Partner			—	%			—	%			—	%			—	%
Total expenses and allocation to Special Limited Partner			3.4	%			3.5	%			3.5	%			3.8	%
Total return:
Total return before allocation to Special Limited Partner			1.4	%			0.1	%			(0.7	)%			(5.7	)%
Allocation to Special Limited Partner			—	%			—	%			—	%			—	%
Total return after allocation to Special Limited Partner			1.4	%			0.1	%			(0.7	)%			(5.7	)%

 

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.

 

Financial Highlights of the Master:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Net realized and unrealized gains (losses)*		$	204.88			$	81.69			$	157.56			$	(323.82	)
Interest income			0.26				1.93				2.33				4.72
Expenses **			(1.30	)			(1.73	)			(4.75	)			(4.88	)
Increase (decrease) for the period			203.84				81.89				155.14				(323.98	)
Distribution of interest income to feeder funds			(0.26	)			(1.93	)			(2.33	)			(4.72	)
Net asset value per unit, beginning of period			9,446.80				9,527.39				9,497.57				9,936.05
Net asset value per unit, end of period		$	9,650.38			$	9,607.35			$	9,650.38			$	9,607.35

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Ratios to average net assets:***
Net investment income (loss)****			(0.3	)%			(0.2	)%			(0.3	)%			(0.3	)%
Operating expenses			0.3	%			0.3	%			0.3	%			0.4	%
Total return			2.2	%			0.9	%			1.6	%			(3.3	)%

 

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.

 

 

 

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 September 30, 2011 and 2010 were 84,370 and 130,493, respectively. The monthly average number of futures and exchange-cleared swap contracts traded during the nine months ended September 30, 2011 and 2010 were 88,598 and 136,688, respectively. The monthly average number of options contracts traded during the three months ended September 30, 2011 and 2010 were 104,178 and 198,507, respectively. The monthly average number of options contracts traded during the nine months ended September 30, 2011 and 2010 were 111,131 and 192,390, 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 September 30, 2011 and December 31, 2010.

		September 30, 2011
Assets
Futures and Exchange-Cleared Swap Contracts
Energy		$	218,019,111
Lumber			134,154
Softs			100,514
Total unrealized appreciation on open futures and exchange-cleared swap contracts		$	218,253,779
Liabilities
Futures and Exchange-Cleared Swap Contracts
Energy		$	(292,024,330	)
Grains			(466,775	)
Lumber			(125,590	)
Softs			(1,971,014	)
Total unrealized depreciation on open futures and exchange-cleared swap contracts		$	(294,587,709	)
Net unrealized depreciation on open futures and exchange-cleared swap contracts		$	(76,333,930)	*
Assets
Options Purchased
Energy		$	429,258,943
Grains			593,563
Total options purchased		$	429,852,506	**
Liabilities
Options Premium Received
Energy		$	(160,764,126	)
Grains			(270,844	)
Total options premium received		$	(161,034,970)	***

 

 

 

 

The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three and nine months ended September 30, 2011 and 2010.

		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
		September 30, 2011				September 30, 2010				September 30, 2011				September 30, 2010
Sector		Gain(loss) from trading				Gain(loss) from trading				Gain(loss) from trading				Gain(loss) from trading
Currencies		$	—			$	(1,854,840	)		$	—			$	(1,854,840	)
Energy			20,967,573				11,328,885				17,629,437				(32,677,275	)
Grains			207,501				—				172,626				—
Lumber			395,146				15,940				397,250				23,130
Softs			(644,409	)			—				(1,493,239	)			—
Total		$	20,925,811	****		$	9,489,985	****		$	16,706,074	****		$	(34,508,985)	****

 

 

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 September 30, 2011 and December 31, 2010, the Partnership did not hold any derivative instruments that were 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).

 

 

 

 

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 September 30, 2011 and December 31, 2010, the Master did not hold any derivative instruments for which market quotations were not readily available and which were priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2) or that ware 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
		9/30/2011				(Level 1)				(Level 2)				(Level 3)
Assets
Futures and Exchange-Cleared Swaps		$	218,253,779			$	218,253,779			$	—			$	—
Options purchased			429,852,506				429,852,506				—				—
Total assets			648,106,285				648,106,285				—				—
Liabilities
Futures and Exchange-Cleared Swaps		$	294,587,709			$	294,587,709			$	—			$	—
Options premium received			161,034,970				161,034,970				—				—
Total liabilites			455,622,679				455,622,679				—				—
Net fair value		$	192,483,606			$	192,483,606			$	—			$	—

						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			$	—			$	—

 

     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. The purchaser of an option may lose the entire premium paid for the option. The writer, or seller, of an option has unlimited risk. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract.

     The 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 New York 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 CGM or a CGM affiliate is the sole counterparty or broker with respect to the Partnership’s/Master’s assets. 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.

 

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 September 30, 2011 and December 31, 2010, the Partnership did not hold any derivative instruments that were 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 September 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 were 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 2008 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 Standards 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.

     In October 2011, FASB issued a proposed ASU intended to improve and converge financial reporting by setting forth consistent criteria for determining whether an entity is an investment company. Under longstanding U.S. GAAP, investment companies carry all of their investments at fair value, even if they hold a controlling interest in another company. The primary changes being proposed by the FASB relate to which entities would be considered investment companies as well as certain disclosure and presentation requirements. In addition to the changes to the criteria for determining whether an entity is an investment company, the FASB also proposes that an investment company consolidate another investment company if it holds a controlling financial interest in the entity. The Partnership is currently evaluating the impact that this proposed update would have on the financial statements.

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