UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

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 000-51282

FAIRFIELD FUTURES FUND L.P. II

(Exact name of registrant as specified in its charter)

 

New York		56-2421596
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

c/o Ceres Managed Futures LLC
522 Fifth Avenue — 14^th Floor
New York, New York 10036

(Address of principal executive offices) (Zip Code)

(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, 26,105.3451 Limited Partnership Redeemable Units were outstanding.

FAIRFIELD FUTURES FUND L.P. II

FORM 10-Q

INDEX

						Page
PART I - Financial Information:						Number
		Item 1.		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 CMF Graham Capital Master Fund L.P. (unaudited)		5–19
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		20–22
		Item 3.		Quantitative and Qualitative Disclosures about Market Risk		23–24
		Item 4.		Controls and Procedures		25
PART II - Other Information						26-29
Exhibits
31.1 Certification
31.2 Certification
32.1 Certification
32.2 Certification
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

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.

PART I

Item 1. Financial Statements

Statements of Financial Condition

		(Unaudited)
		June 30,				December 31,
		2011				2010
Assets:
Investment in Master, at fair value		$	32,555,083			$	38,570,051
Cash			223,255				201,347
Total assets		$	32,778,338			$	38,771,398
Liabilities and Partners’ Capital:
Liabilities:
Accrued expenses:
Brokerage fees		$	122,919			$	145,393
Management fees			54,183				64,178
Administrative fees			13,546				16,045
Other			145,913				118,947
Redemptions payable			5,221,449				469,933
Total liabilities			5,558,010				814,496
Partners’ Capital:
General Partner, 546.3187 unit equivalents outstanding at June 30, 2011 and December 31, 2010			530,120				579,475
Special Limited Partner, 442.4015 units outstanding at June 30, 2011 and December 31, 2010			429,284				469,251
Limited Partners, 27,063.4662 and 34,796.4209 Redeemable Units outstanding at June 30, 2011 and December 31, 2010, respectively			26,260,924				36,908,176
Total partners’ capital			27,220,328				37,956,902
Total liabilities and partners’ capital		$	32,778,338			$	38,771,398
Net asset value per unit		$	970.35			$	1,060.69

See accompanying notes to financial statements.

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		$	1,252			$	10,111			$	8,535			$	14,938
Expenses:
Expenses allocated from Master			49,288				41,985				90,387				70,632
Brokerage fees			389,133				461,925				814,107				916,104
Management fees			171,578				204,466				359,046				405,426
Administrative fees			42,895				51,117				89,761				101,357
Other			53,513				90,536				100,792				132,422
Total expenses			706,407				850,029				1,454,093				1,625,941
Net investment income (loss)			(705,155	)			(839,918	)			(1,445,558	)			(1,611,003	)
Trading Results:
Net realized gains (losses) on closed contracts allocated from Master			(683,141	)			1,537,006				(688,574	)			(237,200	)
Change in net unrealized gains (losses) on open contracts allocated from Master			(682,557	)			(1,296,770	)			(914,962	)			(681,862	)
Total trading results allocated from Master			(1,365,698	)			240,236				(1,603,536	)			(919,062	)
Net income (loss)			(2,070,853	)			(599,682	)			(3,049,094	)			(2,530,065	)
Subscriptions — Limited Partners			0				1,894,000				0				3,456,000
Redemptions — General Partner			0				0				0				(700,077	)
Redemptions — Limited Partners			(5,681,698	)			(2,550,800	)			(7,687,480	)			(4,227,419	)
Net increase (decrease) in Partners’ Capital			(7,752,551	)			(1,256,482	)			(10,736,574	)			(4,001,561	)
Partners’ Capital, beginning of period			34,972,879				40,620,147				37,956,902				43,365,226
Partners’ Capital, end of period		$	27,220,328			$	39,363,665			$	27,220,328			$	39,363,665
Net asset value per unit (28,052.1864 and 38,995.3791 units outstanding at June 30, 2011 and 2010, respectively)		$	970.35			$	1,009.44			$	970.35			$	1,009.44
Net income (loss) per unit*		$	(62.39	)		$	(15.24	)		$	(90.34	)		$	(62.17	)
Weighted average units outstanding			33,602.0318				39,784.0795				34,555.3306				39,855.2165

 

*Based on change in net asset value per unit.

See accompanying notes to financial statements.

Notes to Financial Statements
June 30, 2011
(Unaudited)

1.   General:

Fairfield Futures Fund L.P. II (the “Partnership”) is a limited partnership organized on December 18, 2003 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 futures contracts, options, swaps and forward contracts. The sectors traded include currencies, energy, grains, indices, U.S. and non-U.S. interest rates, livestock, lumber, metals and softs. The Partnership commenced trading operations on March 15, 2004. The commodity interests that are traded by the Partnership, through its investment in the Master (as defined below), are volatile and involve a high degree of market risk.

Between January 12, 2004 (commencement of the offering period) and March 12, 2004, 28,601 redeemable units of limited partnership interest (“Redeemable Units”) and 285 General Partner unit equivalents were sold at $1,000 per unit. The proceeds of the initial offering were held in an escrow account until March 15, 2004 at which time they were remitted to the Partnership for trading. The Partnership was authorized to sell 200,000 Redeemable Units during its initial offering period. Effective January 31, 2011, the Partnership no longer offers Redeemable Units for sale.

Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the “General Partner”) and commodity pool operator of the Partnership. The General Partner is wholly owned by Morgan Stanley Smith Barney Holdings LLC (“MSSB Holdings”). 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 March 31, 2011, all trading decisions for the Partnership are made by the Advisor (defined below).

On June 1, 2006, the Partnership allocated substantially all of its capital to the CMF Graham Capital Master Fund L.P. (the “Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 74,569.3761 units of the Master with cash equal to $75,688,021. The Master was formed in order to permit accounts managed by Graham Capital Management, L.P. (“Graham” or the “Advisor”) using the K4D-15V Program, the Advisor’s proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner of the Master. In addition, the Advisor is a special limited partner (the “Special Limited Partner”) of the Partnership. The Master’s commodity broker is CGM. Individual and pooled accounts currently managed by the Advisor, including the Partnership, are permitted to be limited partners of the Master. 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 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 20.2% of the Master. At December 31, 2010, the Partnership owned approximately 22.8% 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, if applicable, on commodities is done primarily on U.S. and foreign commodity exchanges. It engages in such trading through a commodity brokerage account maintained with CGM. The Master’s Statements of Financial Condition, Condensed Schedules of Investments and Statements of Income and Expenses and Changes in Partner’s 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 and changes in partners’ capital 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. These financial statements should be read 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.

Fairfield Futures Fund L.P. II
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 Partners’ Capital for the three and six months ended June 30, 2011 and 2010 are presented below:

CMF Graham Capital Master Fund L.P.
Statements of Financial Condition

		(Unaudited)
		June 30,				December 31,
		2011				2010
Assets:
Equity in trading account:
Cash		$	141,949,246			$	151,476,359
Cash margin			21,167,763				14,248,524
Net unrealized appreciation on open futures contracts			0				1,429,574
Net unrealized appreciation on open forward contracts			0				1,819,046
Total assets		$	163,117,009			$	168,973,503
Liabilities and Partners’ Capital:
Liabilities:
Net unrealized depreciation on open futures contracts		$	1,481,839			$	0
Net unrealized depreciation on open forward contracts			135,097				0
Accrued expenses:
Professional fees			26,210				48,832
Total liabilities			1,643,146				48,832
Partners’ Capital:
General Partner, 0.0000 unit equivalents at June 30, 2011 and December 31, 2010			0				0
Limited Partners, 96,859.6189 and 96,248.2420 units outstanding at June 30, 2011 and December 31, 2010, respectively			161,473,863				168,924,671
Total liabilities and partners’ capital		$	163,117,009			$	168,973,503
Net asset value per unit		$	1,667.09			$	1,755.09

Fairfield Futures Fund L.P. II
Notes to Financial Statements
June 30, 2011
(Unaudited)

CMF Graham Capital Master Fund L.P.
Condensed Schedule of Investments
June 30, 2011

(Unaudited)

		Notional ($)/ Number								% of Partners’
		of Contracts				Fair Value				Capital
Futures Contracts Purchased
Currencies			185			$	44,005				0.03	%
Energy			295				598,101				0.37
Grains			283				(639,952	)			(0.40	)
Indices			467				541,585				0.33
Interest Rates U.S.			1,279				(873,141	)			(0.54	)
Interest Rates Non-U.S.			1,910				(497,941	)			(0.31	)
Metals			165				(385,511	)			(0.24	)
Softs			125				56,779				0.04
Total futures contracts purchased							(1,156,075	)			(0.72	)
Futures Contracts Sold
Currencies			191				49,835				0.03
Energy			218				(433,599	)			(0.27	)
Grains			401				491,735				0.31
Indices			270				(270,688	)			(0.17	)
Interest Rates U.S.			9				(838	)			(0.00	)*
Interest Rates Non-U.S.			569				(131,975	)			(0.08	)
Livestock			55				890				0.00	*
Softs			19				(31,124	)			(0.02	)
Total futures contracts sold							(325,764	)			(0.20	)
Unrealized Appreciation on Open Forward Contracts
Currencies		$	818,938,652				6,695,101				4.15
Metals			114				403,582				0.25
Total unrealized appreciation on open forward contracts							7,098,683				4.40
Unrealized Depreciation on Open Forward Contracts
Currencies		$	853,443,769				(6,723,135	)			(4.16	)
Metals			160				(510,645	)			(0.32	)
Total unrealized depreciation on open forward contracts							(7,233,780	)			(4.48	)
Net fair value						$	(1,616,936	)			(1.00	)%

*

Due to rounding.

Fairfield Futures Fund L.P. II
Notes to Financial Statements
June 30, 2011
(Unaudited)

CMF Graham Capital Master Fund L.P.
Condensed Schedule of Investments
December 31, 2010

 

*

Due to rounding.

Fairfield Futures Fund L.P. II
Notes to Financial Statements
June 30, 2011
(Unaudited)

CMF Graham Capital Master 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		$	6,100			$	43,047			$	37,554			$	63,465
Expenses:
Clearing fees			228,699				122,520				383,777				225,542
Professional fees			14,261				56,562				36,893				73,274
Total expenses			242,960				179,082				420,670				298,816
Net investment income (loss)			(236,860	)			(136,035	)			(383,116	)			(235,351	)
Trading Results:
Net gains (losses) on trading of commodity interests:
Net realized gains (losses) on closed contracts			(3,941,892	)			6,507,871				(3,990,110	)			(735,953	)
Change in net unrealized gains (losses) on open contracts			(3,843,054	)			(5,550,167	)			(4,865,556	)			(2,249,529	)
Total trading results			(7,784,946	)			957,704				(8,855,666	)			(2,985,482	)
Net income (loss)			(8,021,806	)			821,669				(9,238,782	)			(3,220,833	)
Subscriptions — Limited Partners			22,095,530				8,957,500				22,095,530				36,603,197
Redemptions — Limited Partners			(10,800,591	)			(10,501,223	)			(20,270,002	)			(31,765,337	)
Distribution of interest income to feeder funds			(6,100	)			(43,047	)			(37,554	)			(63,465	)
Net increase (decrease) in Partners’ capital			3,267,033				(765,101	)			(7,450,808	)			1,553,562
Partners’ Capital, beginning of period			158,206,830				173,530,923				168,924,671				171,212,260
Partners’ Capital, end of period		$	161,473,863			$	172,765,822			$	161,473,863			$	172,765,822
Net asset value per unit (96,859.6189 and 107,646.4306 units outstanding at June 30, 2011 and 2010, respectively)		$	1,667.09			$	1,604.94			$	1,667.09			$	1,604.94
Net income (loss) per unit*		$	(73.79	)		$	7.64			$	(87.59	)		$	(34.89	)
Weighted average units outstanding			98,699.7975				110,176.4975				96,218.2163				111,139.1762

*Based on change in net asset value per unit.

Fairfield Futures Fund L.P. II
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) *		$	(54.37	)		$	(6.45	)		$	(74.45	)		$	(46.07	)
Interest income			0.04				0.25				0.24				0.37
Expenses **			(8.06	)			(9.04	)			(16.13	)			(16.47	)
Increase (decrease) for the period			(62.39	)			(15.24	)			(90.34	)			(62.17	)
Net asset value per unit, beginning of period			1,032.74				1,024.68				1,060.69				1,071.61
Net asset value per unit, end of period		$	970.35			$	1,009.44			$	970.35			$	1,009.44

*		Includes Partnership brokerage fees and clearing fees allocated from the Master.
**		Excludes Partnership brokerage fees and clearing fees allocated from the Master.

		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****			(8.5	)%			(8.4	)%			(8.3	)%			(8.1	)%
Operating expenses			8.6	%			8.5	%			8.3	%			8.2	%
Allocation to Special Limited Partner			—	%			—	%			—	%			—	%
Total expenses			8.6	%			8.5	%			8.3	%			8.2	%
Total return:
Total return before allocation to Special Limited Partner			(6.0	)%			(1.5	)%			(8.5	)%			(5.8	)%
Allocation to Special Limited Partner			—	%			—	%			—	%			—	%
Total return after allocation to Special Limited Partner			(6.0	)%			(1.5	)%			(8.5	)%			(5.8	)%

***		Annualized (except for allocation to Special Limited Partner, if applicable).
****		Interest income allocated from the Master less total expenses.

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

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) *		$	(73.71	)		$	7.78			$	(87.61	)		$	(34.79	)
Interest income			0.07				0.39				0.41				0.58
Expenses **			(0.15	)			(0.53	)			(0.39	)			(0.68	)
Increase (decrease) for the period			(73.79	)			7.64				(87.59	)			(34.89	)
Distribution of interest income to feeder funds			(0.07	)			(0.39	)			(0.41	)			(0.58	)
Net asset value per unit, beginning of period			1,740.95				1,597.69				1,755.09				1,640.41
Net asset value per unit, end of period		$	1,667.09			$	1,604.94			$	1,667.09			$	1,604.94

*		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)****			(0.6	)%			(0.3	)%			(0.5	)%			(0.3	)%
Operating expenses			0.6	%			0.4	%			0.5	%			0.4	%
Total return			(4.2	)%			0.5	%			(5.0	)%			(2.1	)%

***		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 limited partner class using the limited partners’ share of income, expenses and average net assets.

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 forward contracts. The Master nets, for financial reporting purposes, the unrealized gains and losses on open futures and on open forward contracts on the Statements of Financial Condition.

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

All of the commodity interests owned by the Master are held for trading purposes. The monthly average number of futures contracts traded during the three months ended June 30, 2011 and 2010 were 7,106 and 5,546, respectively. The monthly average number of futures contracts traded during the six months ended June 30, 2011 and 2010 were 7,381 and 6,523, respectively. The monthly average number of metals forward contracts traded during the three months ended June 30, 2011 and 2010 were 412 and 370, respectively. The monthly average number of metals forward contracts traded during the six months ended June 30, 2011 and 2010 were 340 and 384, respectively. The monthly average notional values of currency forward contracts during the three months ended June 30, 2011 and 2010 were $1,335,013,823 and $905,512,964 respectively. The monthly average notional values of currency forward contracts during the six months ended June 30, 2011 and 2010 were $1,324,348,923 and $926,802,263 respectively. The following tables indicate the gross fair values of derivative instruments of futures and forward contracts as separate assets and liabilities as of June 30, 2011 and December 31, 2010.

		June 30, 2011
Assets
Futures Contracts
Currencies		$	166,815
Energy			664,150
Grains			501,843
Indices			554,650
Interest Rates U.S.			44,268
Interest Rates Non-U.S.			276,827
Livestock			16,898
Metals			55,053
Softs			168,702
Total unrealized appreciation on open futures contracts		$	2,449,206
Liabilities
Futures Contracts
Currencies		$	(72,975	)
Energy			(499,648	)
Grains			(650,060	)
Indices			(283,753	)
Interest Rates U.S.			(918,247	)
Interest Rates Non-U.S.			(906,743	)
Livestock			(16,008	)
Metals			(440,564	)
Softs			(143,047	)
Total unrealized depreciation on open futures contracts		$	(3,931,045	)
Net unrealized depreciation on open futures contracts		$	(1,481,839)	*
Assets
Forward Contracts
Currencies		$	6,695,101
Metals			403,582
Total unrealized appreciation on open forward contracts		$	7,098,683
Liabilities
Forward Contracts
Currencies		$	(6,723,135	)
Metals			(510,645	)
Total unrealized depreciation on open forward contracts		$	(7,233,780	)
Net unrealized depreciation on open forward contracts		$	(135,097)	**

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

The following tables indicate 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								Six Months Ended
		June 30,								June 30,
Sector		2011				2010				2011				2010
Currencies		$	(1,163,580	)		$	(962,550	)		$	(2,882,051	)		$	(828,492	)
Energy			(3,484,327	)			(3,137,463	)			(2,338,174	)			(3,147,141	)
Grains			(364,410	)			(861,766	)			(473,969	)			(620,083	)
Indices			(1,976,240	)			(2,650,631	)			(3,243,880	)			(5,824,387	)
Interest Rates U.S.			4,112,625				3,481,716				2,775,225				2,610,546
Interest Rates Non-U.S.			(2,218,275	)			6,018,887				(1,949,193	)			8,244,189
Livestock			(506,033	)			(35,595	)			(373,645	)			202,370
Metals			(1,126,808	)			(712,724	)			(256,654	)			(1,578,689	)
Softs			(1,057,898	)			(182,170	)			(113,325	)			(2,043,795	)
Total		$	(7,784,946	)***		$	957,704	***		$	(8,855,666	)***		$	(2,985,482	)***

4.   Fair Value Measurement:

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								Significant
						Active Markets				Significant Other				Unobservable
						for Identical				Observable Inputs				Inputs
		June 30, 2011				Assets (Level 1)				(Level 2)				(Level 3)
Assets
Investment in Master		$	32,555,083			$	—			$	32,555,083			$	—
Net fair value		$	32,555,083			$	—			$	32,555,083			$	—
						Quoted Prices in
						Active Markets				Significant Other				Significant
						for Identical				Observable Inputs				Unobservable
		December 31, 2010				Assets (Level 1)				(Level 2)				Inputs (Level 3)
Assets
Investment in Master		$	38,570,051			$	—			$	38,570,051			$	—
Net fair value		$	38,570,051			$	—			$	38,570,051			$	—

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 Partners’ 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. 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 Master’s Level 2 assets and liabilities.

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 that 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 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				Significant Other				Significant
						for Identical				Observable Inputs				Unobservable
		June 30, 2011				Assets (Level 1)				(Level 2)				Inputs (Level 3)
Assets
Futures		$	2,449,206			$	2,449,206			$	—			$	—
Forwards			7,098,683				403,582				6,695,101				—
Total assets			9,547,889				2,852,788				6,695,101				—
Liabilities
Futures		$	3,931,045			$	3,931,045			$	—			$	—
Forwards			7,233,780				510,645				6,723,135				—
Total liabilities			11,164,825				4,441,690				6,723,135				—
Net fair value		$	(1,616,936	)		$	(1,588,902	)		$	(28,034	)		$	—

						Quoted Prices in
						Active Markets				Significant Other				Significant
						for Identical				Observable Inputs				Unobservable
		December 31, 2010*				Assets (Level 1)				(Level 2)				Inputs (Level 3)
Assets
Futures		$	2,788,002			$	2,788,002			$	—			$	—
Forwards			7,559,452				653,412				6,906,040				—
Total assets			10,347,454				3,441,414				6,906,040				—
Liabilities
Futures		$	1,358,428			$	1,358,428			$	—			$	—
Forwards			5,740,406				149,021				5,591,385				—
Total liabilities			7,098,834				1,507,449				5,591,385				—
Net fair value		$	3,248,620			$	1,933,965			$	1,314,655			$	—

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 option contracts. OTC contracts are negotiated between contracting parties and include certain forwards and option contracts. 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. 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 have 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 General Partner 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 to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions.

The majority of these 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.

Fairfield Futures Fund L.P. II
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 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 and the Master’s Level 2 assets and liabilities.

     The Partnership will separately present purchases, sales, issuances and settlements in their reconciliation of Level 3 fair value measurements (i.e. to present such items on a gross basis rather than on a net basis), and makes 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 investments 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 that 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 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. 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 Partners’ Capital.

Forward Foreign Currency Contracts. Foreign currency contracts are those contracts where the Master agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign currency contracts are valued daily, and the Master’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Net realized gains (losses) and changes in net unrealized gains (losses) on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively, and are included in the Statements of Income and Expenses and Changes in Partners’ Capital.

The Master does not isolate that portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations from changes in market prices of investments held. Such fluctuations are included in net gain (loss) on investments in the Statements of Income and Expenses and Changes in Partners’ Capital.

London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange (“LME”) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead, nickel, tin or zinc. LME contracts traded by the Master are cash settled based on prompt dates published by the LME. 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. A contract is considered offset when all long positions have been matched with a like number of short positions settling on the same prompt date. When the contract is closed at the prompt date, the 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 LME contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the broker, directly with the LME. Net realized gains (losses) and changes in net unrealized gains (losses) on metal contracts are included in the Statements of Income and Expenses and Changes in Partners’ Capital.

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 measurement 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 excepted to have a material impact on the Partnership’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”.

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 sales 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 in the second quarter of 2011.

The Partnership’s capital consists of capital contributions of the partners, as increased or decreased by gains or losses allocated from the Master on trading 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 28.3% from $37,956,902 to $27,220,328. This decrease was attributable to a net loss from operations of $3,049,094 coupled with redemptions of 7,732.9547 Redeemable Units totaling $7,687,480. Future redemptions can 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 partners as increased or decreased by gains or losses on trading and by expenses, interest income, redemptions of units and distribution of profits, if any.

For the six months ended June 30, 2011, the Master’s capital decreased 4.4% from $168,924,671 to $161,473,863. This decrease was attributable to a net loss from operations of $9,238,782 coupled with redemptions of 11,575.7686 units totaling $20,270,002 and distribution of interest income to feeder funds totaling $37,554 which was partially offset by the additional subscriptions of 12,187.1455 units totaling $22,095,530. Future redemptions can impact the amount of funds available for investment in commodity contract positions in subsequent periods.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates 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 and change in net unrealized trading gain (loss) in the Statements of Income and Expenses and Changes in Partners’ Capital.

     During the Partnership’s second quarter of 2011, the net asset value per unit decreased 6.0% from $1,032.74 to $970.35 as compared to a decrease of 1.5% in the second quarter of 2010. The Partnership, through its investment in the Master, experienced a net trading loss before brokerage fees and related fees in the second quarter of 2011 of $1,365,698. Losses were primarily attributable to the Master’s trading of commodity futures in currencies, energy, grains, indices, livestock, metals and softs and were partially offset by gains in U.S. and non- U.S. interest rates. The Partnership, through its investment in the Master, experienced a net trading gain before brokerage fees and related fees in the second quarter of 2010 of $240,236. Gains were primarily attributable to the Master’s trading of commodity futures in U.S. and non- U.S. interest rates and were partially offset by losses in currencies, energy, grains, livestock, metals, softs and indices.

     The most significant losses were incurred in the energy markets, primarily during May and June, from long futures positions in crude oil and its related products as prices moved lower on signs the global economic recovery is slowing. Losses were also experienced within the global stock index markets, primarily during May, from long positions in U.S., European, and Pacific Rim equity index futures as prices declined after worse-than-expected economic reports and mounting worries over the European debt crisis stoked concern the global economic recovery is faltering. Within the agricultural complex, losses were recorded primarily during April due to long positions in cotton futures as prices declined to a three-month low on concern that demand may slow from China, the world’s biggest buyer of the fiber. Elsewhere during April, long futures positions in the soybean complex resulted in losses as prices fell on speculation that U.S. exports may slow. Within the metals markets, losses were recorded primarily during May from long positions in silver futures as prices fell sharply from a 31-year high. Within the currency markets, losses were incurred primarily during May from long futures positions in the Canadian dollar and Australian dollar versus the U.S. dollar as the value of these “commodity currencies” fell in tandem with declining commodity prices. A portion of the Partnership’s losses for the quarter was offset by gains achieved within the global interest rate sector, primarily during May, from long positions in U.S. fixed-income futures as prices increased following reports that showed the U.S. economy grew less than forecast and U.S. jobless claims unexpectedly rose.

     During the partnership’s six months ended June 30, 2011, the net asset value per unit decreased 8.5% from $1,060.69 to $970.35 as compared to a decrease of 5.8% for the six months ended June 30, 2010. The Partnership, through its investment in the Master, experienced a net trading loss before brokerage fees and related fees in the six months ended June 30, 2011 of $1,603,536. Losses were primarily attributable to the trading of commodity futures in currencies, energy, grains, indices, metals and softs and were partially offset by gains in livestock and U.S. and non-U.S. interest rates. The Partnership, through its investment in the Master, experienced a net trading loss before brokerage fees and related fees in the six months ended June 30, 2010 of $919,062. Losses were primarily attributable to the trading of commodity futures in currencies, energy, grains, metals, softs and indices and were partially offset by gains in U.S. and non-U.S. interest rates and livestock.

     The most significant losses were incurred within the global stock index markets, primarily during March, from long positions in European, U.S., and Pacific Rim equity index futures as prices moved sharply lower after the disaster in Japan spurred concern about global economic growth. Additional losses were experienced within this sector during May from long positions in U.S., European, and Pacific Rim equity index futures as prices declined after worse-than-expected economic reports and mounting worries over the European debt crisis stoked concern the global economic recovery is faltering. Within the currency sector, losses were recorded primarily during January from long positions in the Japanese yen, Australian dollar, South African rand, and Canadian dollar versus the U.S. dollar as the value of these currencies declined against the U.S. dollar on optimism about the U.S. economy. Further losses were incurred during May from long positions in the Australian dollar, Canadian dollar, and South African rand versus the U.S. dollar as the value of these “commodity currencies” fell in tandem with declining commodity prices. Losses were also experienced within the energy markets, primarily during May and June, from long futures positions in crude oil and its related products as prices moved lower amid signs the global economic recovery is slowing. Within the agricultural markets, losses were incurred primarily during April from long positions in cotton futures as prices declined on concern that demand may slow from China, the world’s biggest buyer of the fiber. Within the metals markets, losses were incurred primarily during May from long positions in silver futures as prices fell sharply from a 31-year high after an increase in margin requirements prompted a sell-off. A portion of the Partnership’s losses during the first half of the year was offset by gains achieved within the global interest rate sector, primarily during May, from long positions in U.S. fixed-income futures as prices increased following reports that showed the U.S. economy grew less than forecast and U.S. jobless claims unexpectedly rose.

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 existence of major price trends and the ability of the Advisor to correctly identify those price trends. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisor is able to identify them, the Partnership/Master expects to increase capital through operations.

Interest income on 80% of the Partnership’s daily average 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 $8,859 and $6,403 respectively, as compared to the corresponding periods in 2010. The decrease in interest income is primarily due to lower U.S. Treasury bill rates 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 upon the average daily equity in the Partnership’s/Master’s account and upon interest rates over which neither the Partnership/Master nor CGM has control.

Brokerage fees are calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Brokerage fees for the three and six months ended June 30, 2011 decreased by $72,792 and $101,997 respectively, as compared to the corresponding periods in 2010. The decrease in brokerage 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.

Management fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance and redemptions. Management fees for the three and six months ended June 30, 2011 decreased by $32,888 and $46,380 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.

Administrative fees are paid to the General Partner for administering the business and affairs of the Partnership. These fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance and redemptions. Administrative fees for the three and six months ended June 30, 2011 decreased by $8,222 and $11,596 respectively, as compared to the corresponding periods in 2010. The decrease in administrative 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 are based on the new trading profits generated by the Advisor at the end of the quarter, as defined in the management 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.

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 market value of the Master’s open positions and, consequently, its earnings and cash balances. The Master’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 effects among the Master’s open contracts and the liquidity of the markets in which it trades.

The Master rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the 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 tables indicate 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 values during the three months ended June 30, 2011 and 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 $161,473,863 and the Partnership owned approximately 20.2% 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:

										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*
Currencies		$	13,555,324				8.40	%		$	13,555,324			$	8,726,569			$	11,581,843
Energy			1,054,172				0.65	%			1,790,886				646,679				1,209,214
Grains			392,062				0.24	%			561,012				325,891				400,296
Indices			2,488,837				1.54	%			8,218,707				1,625,857				3,260,028
Interest Rates U.S.			968,150				0.60	%			4,564,925				968,150				2,351,225
Interest Rates Non-U.S.			1,987,740				1.23	%			2,505,732				795,437				1,561,437
Livestock			66,000				0.04	%			88,800				6,000				40,800
Metals			1,263,511				0.78	%			1,753,698				740,183				1,078,290
Softs			332,954				0.21	%			508,137				247,550				337,506
Total		$	22,108,750				13.69	%

     As of December 31, 2010, the Master’s total capitalization was $168,924,671 and the Partnership owned approximately 22.8% 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
Currencies		$	6,192,975				3.67	%		$	11,364,239			$	996,231			$	5,226,199
Energy			1,048,521				0.62	%			1,989,347				236,269				1,000,222
Grains			448,450				0.26	%			964,687				124,875				411,118
Indices			5,301,813				3.14	%			13,726,706				1,137,775				5,507,221
Interest Rates U.S.			161,600				0.10	%			2,021,410				68,806				1,014,515
Interest Rates Non-U.S.			1,209,918				0.72	%			4,305,447				749,055				2,006,426
Livestock			40,000				0.02	%			106,400				800				50,304
Metals			1,012,127				0.60	%			1,771,142				494,357				993,963
Softs			258,565				0.15	%			1,144,148				85,988				385,351
Total		$	15,673,969				9.28	%