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 October 31, 2011, 23,828.3246 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 September 30, 2011 (unaudited) and December 31, 2010		3
				Statements of Income and Expenses and Changes in Partners’ Capital for the three and nine months ended September 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)
		September 30,				December 31,
		2011				2010
Assets:
Investment in Master, at fair value		$	22,884,185			$	38,570,051
Cash			188,567				201,347
Total assets		$	23,072,752			$	38,771,398
Liabilities and Partners’ Capital:
Liabilities:
Accrued expenses:
Brokerage fees		$	86,523			$	145,393
Management fees			38,154				64,178
Administrative fees			9,539				16,045
Other			93,793				118,947
Redemptions payable			586,059				469,933
Total liabilities			814,068				814,496
Partners’ Capital:
General Partner, 413.8866 and 546.3187 unit equivalents outstanding at September 30, 2011 and December 31, 2010, respectively			375,416				579,475
Special Limited Partner, 442.4015 units outstanding at September 30, 2011 and December 31, 2010			401,280				469,251
Limited Partners, 23,683.4311 and 34,796.4209 Redeemable Units outstanding at September 30, 2011 and December 31, 2010, respectively			21,481,988				36,908,176
Total partners’ capital			22,258,684				37,956,902
Total liabilities and partners’ capital		$	23,072,752			$	38,771,398
Net asset value per unit		$	907.05			$	1,060.69

See accompanying notes to financial statements.

Statements of Income and Expenses and Changes in Partners’ Capital
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Investment Income:
Interest income allocated from Master		$	769			$	10,868			$	9,304			$	25,806
Expenses:
Expenses allocated from Master			37,229				33,221				127,616				103,853
Brokerage fees			287,840				463,219				1,101,947				1,379,323
Management fees			126,877				204,946				485,923				610,372
Administrative fees			31,720				51,237				121,481				152,594
Other			567				129,628				101,359				262,050
Total expenses			484,233				882,251				1,938,326				2,508,192
Net investment income (loss)			(483,464	)			(871,383	)			(1,929,022	)			(2,482,386	)
Trading Results:
Net realized gains (losses) on closed contracts allocated from Master			(1,560,820	)			(136,394	)			(2,249,394	)			(373,594	)
Change in net unrealized gains (losses) on open contracts allocated from Master			448,530				1,564,039				(466,432	)			882,177
Total trading results allocated from Master			(1,112,290	)			1,427,645				(2,715,826	)			508,583
Net income (loss)			(1,595,754	)			556,262				(4,644,848	)			(1,973,803	)
Subscriptions — Limited Partners			0				2,494,500				0				5,950,500
Redemptions — General Partner			(125,000	)			0				(125,000	)			(700,077	)
Redemptions — Limited Partners			(3,240,890	)			(633,772	)			(10,928,370	)			(4,861,191	)
Net increase (decrease) in Partners’ Capital			(4,961,644	)			2,416,990				(15,698,218	)			(1,584,571	)
Partners’ Capital, beginning of period			27,220,328				39,363,665				37,956,902				43,365,226
Partners’ Capital, end of period		$	22,258,684			$	41,780,655			$	22,258,684			$	41,780,655
Net asset value per unit (24,539.7192 and 40,856.7724 units outstanding at September 30, 2011 and 2010, respectively)		$	907.05			$	1,022.61			$	907.05			$	1,022.61
Net income (loss) per unit*		$	(63.30	)		$	13.17			$	(153.64	)		$	(49.00	)
Weighted average units outstanding			26,629.8951				40,401.0679				31,913.5187				40,037.1669

 

*Based on change in net asset value per unit.

See accompanying notes to financial statements.

Notes to Financial Statements
September 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, 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 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 September 30, 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 (in its capacity as 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 September 30, 2011.

At September 30, 2011, the Partnership owned approximately 16.0% 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 September 30, 2011 and December 31, 2010, and the results of its operations and changes in partners’ capital for the three and nine months ended September 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
September 30, 2011
(Unaudited)

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 Partners’ Capital for the three and nine months ended September 30, 2011 and 2010 are presented below:

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

		(Unaudited)
		September 30,				December 31,
		2011				2010
Assets:
Equity in trading account:
Cash		$	129,326,288			$	151,476,359
Cash margin			12,914,704				14,248,524
Net unrealized appreciation on open futures contracts			41,546				1,429,574
Net unrealized appreciation on open forward contracts			718,861				1,819,046
Total assets		$	143,001,399			$	168,973,503
Liabilities and Partners’ Capital:
Liabilities:
Accrued expenses:
Professional fees		$	43,258			$	48,832
Total liabilities			43,258				48,832
Partners’ Capital:
General Partner, 0.0000 unit equivalents at September 30, 2011 and December 31, 2010			0				0
Limited Partners, 90,157.9131 and 96,248.2420 units outstanding at September 30, 2011 and December 31, 2010, respectively			142,958,141				168,924,671
Total liabilities and partners’ capital		$	143,001,399			$	168,973,503
Net asset value per unit		$	1,585.64			$	1,755.09

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

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

(Unaudited)

		Notional ($)/ Number								% of Partners’
		of Contracts				Fair Value				Capital
Futures Contracts Purchased
Currencies			90			$	(10,151	)			(0.01	)%
Energy			109				(609,580	)			(0.43	)
Grains			127				(1,020,436	)			(0.71	)
Indices			265				(561,775	)			(0.39	)
Interest Rates U.S.			777				(353,172	)			(0.25	)
Interest Rates Non-U.S.			1,536				(601,045	)			(0.42	)
Metals			12				(200,616	)			(0.14	)
Softs			11				(10,259	)			(0.01	)
Total futures contracts purchased							(3,367,034	)			(2.36	)
Futures Contracts Sold
Currencies			108				166,072				0.12
Energy			417				1,237,719				0.87
Grains			390				1,559,321				1.09
Indices			444				208,670				0.14
Interest Rates U.S.			212				(8,175	)			(0.01	)
Interest Rates Non-U.S.			132				(6,290	)			(0.00)	*
Livestock			53				(110,294	)			(0.08	)
Metals			31				325,827				0.23
Softs			133				35,730				0.02
Total futures contracts sold							3,408,580				2.38
Unrealized Appreciation on Open Forward Contracts
Currencies			$509,254,977				8,472,749				5.93
Metals			208				1,747,824				1.22
Total unrealized appreciation on open forward contracts							10,220,573				7.15
Unrealized Depreciation on Open Forward Contracts
Currencies			$493,557,883				(8,924,774	)			(6.24	)
Metals			65				(576,938	)			(0.40	)
Total unrealized depreciation on open forward contracts							(9,501,712	)			(6.64	)
Net fair value						$	760,407				(0.53	)%

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

CMF Graham Capital Master Fund L.P.
Statements of Income and Expenses and Changes in Partners’ Capital
(Unaudited)

 

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Investment Income:
Interest income		$	4,364			$	45,847			$	41,918			$	109,312
Expenses:
Clearing fees			195,362				127,589				579,139				353,131
Professional fees			22,855				12,173				59,748				85,447
Total expenses			218,217				139,762				638,887				438,578
Net investment income (loss)			(213,853	)			(93,915	)			(596,969	)			(329,266	)
Trading Results:
Net gains (losses) on trading of commodity interests:
Net realized gains (losses) on closed contracts			(9,378,729	)			(740,880	)			(13,368,839	)			(1,476,833	)
Change in net unrealized gains (losses) on open contracts			2,377,343				6,661,117				(2,488,213	)			4,411,588
Total trading results			(7,001,386	)			5,920,237				(15,857,052	)			2,934,755
Net income (loss)			(7,215,239	)			5,826,322				(16,454,021	)			2,605,489
Subscriptions — Limited Partners			5,420,000				2,494,500				27,515,530				39,097,697
Redemptions — Limited Partners			(16,716,119	)			(6,525,987	)			(36,986,121	)			(38,291,324	)
Distribution of interest income to feeder funds			(4,364	)			(45,847	)			(41,918	)			(109,312	)
Net increase (decrease) in Partners’ capital			(18,515,722	)			1,748,988				(25,966,530	)			3,302,550
Partners’ Capital, beginning of period			161,473,863				172,765,822				168,924,671				171,212,260
Partners’ Capital, end of period		$	142,958,141			$	174,514,810			$	142,958,141			$	174,514,810
Net asset value per unit (90,157.9131 and 103,297.2785 units outstanding at September 30, 2011 and 2010, respectively)		$	1,585.64			$	1,659.47			$	1,585.64			$	1,659.47
Net income (loss) per unit*		$	(81.40	)		$	54.96			$	(168.99	)		$	20.07
Weighted average units outstanding			92,936.6932				107,459.7102				95,124.3753				109,912.6875

*Based on change in net asset value per unit.

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

2.   Financial Highlights:

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) *		$	(57.22	)		$	22.50			$	(131.67	)		$	(23.57	)
Interest income			0.03				0.27				0.27				0.64
Expenses **			(6.11	)			(9.60	)			(22.24	)			(26.07	)
Increase (decrease) for the period			(63.30	)			13.17				(153.64	)			(49.00	)
Net asset value per unit, beginning of period			970.35				1,009.44				1,060.69				1,071.61
Net asset value per unit, end of period		$	907.05			$	1,022.61			$	907.05			$	1,022.61

*		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								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****			(7.7	)%			(8.6	)%			(8.1	)%			(8.2	)%
Operating expenses			7.7	%			8.7	%			8.2	%			8.3	%
Allocation to Special Limited Partner			—	%			—	%			—	%			—	%
Total expenses			7.7	%			8.7	%			8.2	%			8.3	%
Total return:
Total return before allocation to Special Limited Partner			(6.5	)%			1.3	%			(14.5	)%			(4.6	)%
Allocation to Special Limited Partner			—	%			—	%			—	%			—	%
Total return after allocation to Special Limited Partner			(6.5	)%			1.3	%			(14.5	)%			(4.6	)%

***		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								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Net realized and unrealized gains (losses) *		$	(81.20	)		$	54.65			$	(168.81	)		$	19.86
Interest income			0.05				0.43				0.46				1.01
Expenses **			(0.25	)			(0.12	)			(0.64	)			(0.80	)
Increase (decrease) for the period			(81.40	)			54.96				(168.99	)			20.07
Distribution of interest income to feeder funds			(0.05	)			(0.43	)			(0.46	)			(1.01	)
Net asset value per unit, beginning of period			1,667.09				1,604.94				1,755.09				1,640.41
Net asset value per unit, end of period		$	1,585.64			$	1,659.47			$	1,585.64			$	1,659.47

*		Includes clearing fees.
**		Excludes clearing fees.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Ratios to average net assets:***
Net investment income (loss)****			(0.6	)%			(0.2	)%			(0.5	)%			(0.3	)%
Operating expenses			0.6	%			0.3	%			0.5	%			0.3	%
Total return			(4.9	)%			3.4	%			(9.6	)%			1.2	%

***		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 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 September 30, 2011 and 2010 were 5,624 and 7,768, respectively. The monthly average number of futures contracts traded during the nine months ended September 30, 2011 and 2010 were 6,795 and 6,938, respectively. The monthly average number of metals forward contracts traded during the three months ended September 30, 2011 and 2010 were 467 and 295, respectively. The monthly average number of metals forward contracts traded during the nine months ended September 30, 2011 and 2010 were 383 and 354, respectively. The monthly average notional values of currency forward contracts during the three months ended September 30, 2011 and 2010 were $1,154,021,697 and $925,235,870 respectively. The monthly average notional values of currency forward contracts during the nine months ended September 30, 2011 and 2010 were $1,267,573,181 and $926,280,132 respectively. The following tables indicate the gross fair values of derivative instruments of futures and forward contracts as separate assets and liabilities as of September 30, 2011 and December 31, 2010.

		September 30, 2011
Assets
Futures Contracts
Currencies		$	177,357
Energy			1,237,719
Grains			1,559,321
Indices			461,699
Interest Rates U.S.			34,581
Interest Rates Non-U.S.			103,365
Metals			325,827
Softs			64,553
Total unrealized appreciation on open futures contracts		$	3,964,422
Liabilities
Futures Contracts
Currencies		$	(21,436	)
Energy			(609,580	)
Grains			(1,020,436	)
Indices			(814,804	)
Interest Rates U.S.			(395,928	)
Interest Rates Non-U.S.			(710,700	)
Livestock			(110,294	)
Metals			(200,616	)
Softs			(39,082	)
Total unrealized depreciation on open futures contracts		$	(3,922,876	)
Net unrealized appreciation on open futures contracts		$	41,546	*
Assets
Forward Contracts
Currencies		$	8,472,749
Metals			1,747,824
Total unrealized appreciation on open forward contracts		$	10,220,573
Liabilities
Forward Contracts
Currencies		$	(8,924,774	)
Metals			(576,938	)
Total unrealized depreciation on open forward contracts		$	(9,501,712	)
Net unrealized appreciation on open forward contracts		$	718,861	**

*		This amount is in “Net unrealized appreciation on open futures contracts” on the Master’s Statements of Financial Condition.
**		This amount is in “Net unrealized appreciation 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 nine months ended September 30, 2011 and 2010.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
Sector		2011				2010				2011				2010
Currencies		$	(4,536,448	)		$	2,843,763			$	(7,418,499	)		$	2,015,271
Energy			(1,518,029	)			(423,279	)			(3,856,203	)			(3,570,420	)
Grains			(645,132	)			(280,747	)			(1,119,101	)			(900,830	)
Indices			(7,646,494	)			(2,848,678	)			(10,890,374	)			(8,673,065	)
Interest Rates U.S.			3,507,703				3,597,053				6,282,928				6,207,599
Interest Rates Non-U.S.			1,614,720				335,741				(334,473	)			8,579,930
Livestock			(205,464	)			43,716				(579,109	)			246,086
Metals			3,021,624				2,024,030				2,764,970				445,341
Softs			(593,866	)			628,638				(707,191	)			(1,415,157	)
Total		$	(7,001,386	) ***		$	5,920,237	***		$	(15,857,052	) ***		$	2,934,755	***

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 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).

						Quoted Prices in								Significant
						Active Markets				Significant Other				Unobservable
						for Identical				Observable Inputs				Inputs
		September 30, 2011				Assets (Level 1)				(Level 2)				(Level 3)
Assets
Investment in Master		$	22,884,185			$	—			$	22,884,185			$	—
Net fair value		$	22,884,185			$	—			$	22,884,185			$	—
						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 September 30, 2011 and December 31, 2010, the Master did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).

						Quoted Prices in
						Active Markets				Significant Other				Significant
						for Identical				Observable Inputs				Unobservable
		September 30, 2011				Assets (Level 1)				(Level 2)				Inputs (Level 3)
Assets
Futures		$	3,964,422			$	3,964,422			$	—			$	—
Forwards			10,220,573				1,747,824				8,472,749				—
Total assets			14,184,995				5,712,246				8,472,749				—
Liabilities
Futures		$	3,922,876			$	3,922,876			$	—			$	—
Forwards			9,501,712				576,938				8,924,774				—
Total liabilites			13,424,588				4,499,814				8,924,774				—
Net fair value		$	760,407			$	1,212,432			$	(452,025	)		$	—

						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 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. 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 CGM or a CGM affiliate is 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
September 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 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 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 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 that 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 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. 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. Forward 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. Forward 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 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 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 expected to have a material impact on the Partnership’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”.

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 third quarter of 2011.

The Partnership’s capital consists of capital contributions of the partners, as increased or decreased by income(loss) from investment in the Master on trading and by expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.

For the nine months ended September 30, 2011, Partnership capital decreased 41.4% from $37,956,902 to $22,258,684. This decrease was attributable to a net loss from operations of $4,644,848 coupled with redemptions of 11,112.9898 Redeemable Units totaling $10,928,370, and redemptions of 132.4321 General Partner unit equivalents totaling $125,000. 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 nine months ended September 30, 2011, the Master’s capital decreased 15.4% from $168,924,671 to $142,958,141. This decrease was attributable to a net loss from operations of $16,454,021 coupled with redemptions of 21,577.0692 units totaling $36,986,121 and distribution of interest income to feeder funds totaling $41,918 which was partially offset by the additional subscriptions of 15,486.7403 units totaling $27,515,530. 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 third quarter of 2011, the net asset value per unit decreased 6.5% from $970.35 to $907.05 as compared to an increase of 1.3% in the third quarter of 2010. The Partnership, through its investment in the Master, experienced a net trading loss before brokerage fees and related fees in the third quarter of 2011 of $1,112,290. Losses were primarily attributable to the Master’s trading of commodity futures in currencies, energy, grains, indices, livestock and softs and were partially offset by gains in U.S. and non- U.S. interest rates and metals. The Partnership, through its investment in the Master, experienced a net trading gain before brokerage fees and related fees in the third quarter of 2010 of $1,427,645. Gains were primarily attributable to the Master’s trading of commodity futures in currencies, U.S. and non- U.S. interest rates, livestock, metals and softs and were partially offset by losses in energy, grains and indices.

     The most significant losses were incurred in the global stock index markets, primarily during July and August, due to long positions in European and U.S. equity index futures as prices dropped amid Standard & Poor’s downgrade of the United States’ sovereign credit rating and concern about the European sovereign debt crisis. Within the currency sector, losses were experienced primarily during August from long positions in the Swiss franc versus the U.S. dollar as the value of the Swiss franc declined on speculation that the Swiss National Bank would seek to curb the currency’s climb in value. Additional losses were incurred in this sector during September from long positions in the Australian dollar, New Zealand dollar, and Canadian dollar versus the U.S. dollar as the value of these “commodity currencies” moved lower in tandem with declining commodity prices. Within the energy markets, losses were recorded primarily during August and September from long futures positions in crude oil and its related products as prices fell on concern energy demand may falter amid slowing economic growth in the U.S. and a deepening debt crisis in Europe. Losses were incurred within the agricultural complex, primarily during September, due to long futures positions in corn and soybeans as prices declined on speculation that Europe’s sovereign debt crisis may hinder the global economy, reducing demand for the grains. A portion of the Partnership’s losses for the quarter was offset by gains achieved within the global interest rate sector, primarily during July and August, due to long futures positions in European and U.S. fixed-income futures as prices advanced higher due to concern about the European sovereign debt crisis and a faltering global economy. Within the metals complex, gains were recorded primarily during July and August from long positions in gold futures after prices reached a record high as escalating concern that the global economy is slowing boosted demand for the precious metal.

     During the Partnership’s nine months ended September 30, 2011, the net asset value per unit decreased 14.5% from $1,060.69 to $907.05 as compared to a decrease of 4.6% for the nine months ended September 30, 2010. The Partnership, through its investment in the Master, experienced a net trading loss before brokerage fees and related fees in the nine months ended September 30, 2011 of $2,715,826. Losses were primarily attributable to the Master’s trading of commodity futures in currencies, energy, grains, indices, non- U.S. interest rates, livestock and softs and were partially offset by gains in U.S. interest rates and metals. The Partnership, through its investment in the Master, experienced a net trading gain before brokerage fees and related fees in the nine months ended September 30, 2010 of $508,583. Gains were primarily attributable to the trading of commodity futures in currencies, U.S. and non- U.S. interest rates, livestock and metals and were partially offset by losses in energy, grains, softs and indices.

     Within the global stock index markets, losses were incurred primarily during March, May, July, and August. During March, long positions in European, U.S., and Pacific Rim equity index futures resulted in losses as prices moved sharply lower after the tsunami and subsequent nuclear plant 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 on worse-than-expected economic reports and mounting worries over the European debt crisis. During July and August, long positions in European and U.S. equity index futures resulted in losses as prices dropped amid Standard & Poor’s downgrade of the United States’ sovereign credit rating and ongoing concern about the European sovereign debt crisis. 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. During August, long positions in the Swiss franc versus the U.S. dollar resulted in additional currency losses as the value of the Swiss franc declined on speculation that the Swiss National Bank would seek to curb the currency’s climb in value. 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. In the agricultural complex, losses were incurred primarily during April due to long positions in cotton futures as prices declined on concern that demand may slow from China, the world’s biggest buyer of the fiber. A portion of the Partnership’s losses during the first nine months of the year was offset by gains achieved within the 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. Additional gains were recorded within this sector during July and August due to long futures positions in European and U.S. fixed-income futures as prices advanced higher due to concern about the European sovereign debt crisis and a faltering global economy. Within the metals sector, gains were experienced primarily during February from long positions in silver futures as prices extended a rally to a 30-year high. Additional gains were recorded within this sector during April due to long futures positions in silver and gold as silver futures prices advanced to a 31-year high and gold futures prices reached an all-time high. In July and August, long positions in gold futures resulted in gains after prices reached a new record high as escalating concern that the global economy is slowing boosted demand for the precious metal.

Commodity futures markets are highly volatile. Broad and rapid price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase the possibility for profit or loss. 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 nine months ended September 30, 2011 decreased by $10,099 and $16,502 respectively, as compared to the corresponding periods in 2010. The decrease in interest income is primarily due to lower U.S. Treasury bill rates and lower average net assets during the three and nine months ended September 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 nine months ended September 30, 2011 decreased by $175,379 and $277,376, 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 nine months ended September 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 nine months ended September 30, 2011 decreased by $78,069 and $124,449, 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 nine months ended September 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 nine months ended September 30, 2011 decreased by $19,517 and $31,113, 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 nine months ended September 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 made for the three and nine months ended September 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 New York 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 September 30, 2011 and December 31, 2010, and the highest, lowest and average values during the three months ended September 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 September 30, 2011, the Master’s total capitalization was $142,958,141 and the Partnership owned approximately 16.0% of the Master. The Partnership invests substantially all of its assets in the Master. The Master’s Value at Risk as of September 30, 2011 was as follows:

										Three Months Ended September 30, 2011
						% of Total				High				Low				Average
Market Sector		Value at Risk				Capitalization				Value at Risk				Value at Risk				Value at Risk*
Currencies		$	4,902,891				3.43	%		$	14,715,746			$	4,054,432			$	9,021,925
Energy			1,644,645				1.15	%			1,710,689				805,479				1,414,892
Grains			517,966				0.36	%			672,995				330,409				467,824
Indices			1,318,348				0.92	%			7,570,579				1,264,457				2,684,660
Interest Rates U.S.			489,000				0.34	%			1,656,700				443,080				972,817
Interest Rates Non-U.S.			2,457,971				1.72	%			3,388,979				1,112,934				2,050,874
Livestock			67,200				0.05	%			127,950				2,400				32,800
Metals			1,136,889				0.80	%			1,714,134				955,310				1,315,587
Softs			307,192				0.21	%			414,872				161,005				297,674
Total		$	12,842,102				8.98	%

 

*   Average month-end Values at Risk.

     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	%