Fair Value Measurements

6 Months Ended

Jun. 30, 2014

4. Fair Value Measurements

Fund Fair Value Measurements. The Fund values its investments at fair value, in accordance with U.S. GAAP, which is 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.

Various inputs are used in determining the fair value of the Fund’s investments which are summarized in the three broad levels listed below.

Level 1 — quoted prices (unadjusted) in active markets for identical securities

Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment spreads, credit risk, etc.)

Level 3 — significant unobservable inputs (including Sydling’s own assumptions and indicative non-binding broker quotes)

Fair value measurement disclosure for each class of assets and liabilities requires greater disaggregation than the Fund’s line items in its Statements of Financial Condition. The Fund determines the appropriate classes for those disclosures on the basis of the nature and risks of the assets and liabilities and their classification in the fair value hierarchy (i.e., Level 1, Level 2, and Level 3).

The Fund values investments in the Master Fund, where there are no other rights or obligations inherent within the ownership interest held by the Fund, based on the end of the day net asset value of the Master Fund (Level 2). The value of the Fund’s investment in the Master Fund reflects its proportional interest in the Master Fund. As of and for the periods ended June 30, 2014 and December 31, 2013, the Fund 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 Sydling’s assumptions and internal valuation pricing models (Level 3).

The Fund recognizes transfers into and out of the levels indicated above at the end of the reporting period. During the periods ended June 30, 2014 and December 31, 2013, there were no transfers amongst Levels 1, 2 and 3 of the valuation hierarchy.

Master Fund Fair Value Measurements. For assets and liabilities measured at fair value on a recurring basis during the period, the Master Fund provides quantitative disclosures about the fair value measurements separately for each class of assets and liabilities, as well as a reconciliation of beginning and ending balances of Level 3 assets and liabilities broken down by class.

The Master Fund considers prices for exchange-traded commodity futures and option contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1). As of and for the periods ended June 30, 2014 and December 31, 2013, the Master Fund did not hold any derivative instruments for which market quotations were not readily available and which were priced by broker-dealers who derive fair values for these assets from observable inputs (Level 2) or that were priced at fair value using unobservable inputs through the application of Sydling’s assumptions and internal valuation pricing models (Level 3). The gross presentation of the fair value of the Master Fund’s derivatives by instrument type is shown in Note 3, “Trading Activities.”

The Master Fund recognizes transfers into and out of the levels indicated above at the end of the reporting period. During the periods ended June 30, 2014 and December 31, 2013, there were no transfers amongst Levels 1, 2 and 3 of the valuation hierarchy.

The following is a summary of the Master Fund’s investments at fair value. The inputs or methodology used for valuing derivative instruments are not necessarily an indication of the risk associated with investing in those derivative instruments.

ASSET TABLE (Unaudited)

Description	Total Fair Value at June 30, 2014		Level 1		Level 2		Level 3
Future Options Purchased	$	10,598,260	$	10,598,260	$	—	$	—
Total Assets	$	10,598,260	$	10,598,260	$	—	$	—

LIABILITIES TABLE (Unaudited)

Description	Total Fair Value at June 30, 2014			Level 1			Level 2		Level 3
Future Options Written	$	(2,602,136	)	$	(2,602,136	)	$	—	$	—
Futures Contracts	$	(6,572,831	)	$	(6,572,831	)	$	—	$	—
Total Liabilities	$	(9,174,967	)	$	(9,174,967	)	$	—	$	—

ASSET TABLE

Description	Total Fair Value at December 31, 2013		Level 1		Level 2		Level 3
Future Options Purchased	$	8,382,120	$	8,382,120	$	—	$	—
Futures Contracts	$	1,717,472	$	1,717,472	$	—	$	—
Total Assets	$	10,099,592	$	10,099,592	$	—	$	—

LIABILITIES TABLE

Description	Total Fair Value at December 31, 2013			Level 1			Level 2		Level 3
Future Options Written	$	(5,878,520	)	$	(5,878,520	)	$	—	$	—
Total Liabilities	$	(5,878,520	)	$	(5,878,520	)	$	—	$	—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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AAA Energy Opportunities Fund LLC 10-Q