Business and Accounting Policies (Note A)

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Business and Accounting Policies (Note A)

NOTE A – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Aspen Diversified Fund, LLC (“the Fund”) is a Delaware Limited Liability Company organized under the laws of Delaware in April 2005. The Fund began investment operations on July 1, 2005.

The Fund’s business is trading a diversified portfolio of futures, forward and option contracts on currencies, metals, financial instruments, stock indices, energy and agricultural commodities. The Fund is organized as a “multi-advisor” commodity pool and invests its assets in other pooled investment vehicles (“Investee Pools”) as well as separately managed accounts (together with Investee Pools, “Investment Funds”) managed or traded by independent Commodity Trading Advisors (“CTAs”), or other portfolio managers (together “Portfolio Managers”).

Investment Funds may trade diversified portfolios of futures in U.S. and non-U.S. markets in an effort to actively profit from anticipated trends in market prices. Portfolio Managers may rely on either technical or fundamental analysis or a combination thereof in making trading decisions and attempting to identify and exploit price trends. Portfolio Managers will attempt to structure portfolios of liquid futures contracts including but not limited to stock index, global currency, interest rate, metals, energy and agricultural futures markets.

Aspen Partners, Ltd. (the “Managing Member”), acts as the managing member, commodity pool operator, and trading adviser of the Fund. As of December 31, 2011, the Managing Member had approximately $150.6 million of assets under management, including assets of the Fund. The Managing Member is a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and is a registered Introducing Broker (“IB”) and Commodity Pool Operator (“CPO”) with the Commodity Futures Trading Commission (the “CFTC”) and a member of the National Futures Association (the “NFA”).

The Managing Member is responsible for recommending the selection of, investment in and withdrawal from Investment Funds, to the Investment Committee of the Fund (the “Investment Committee”), which consists of principals of the Managing Member. The Managing Member generally will, in its sole discretion, implement the decisions made by the Investment Committee, although it is not required to do so.

Interests in the Fund are marketed through Frontier Solutions, LLC (the “Broker/Dealer”), a Georgia limited liability company. The Broker/Dealer is a wholly-owned subsidiary of the Managing Member and is a registered Broker/Dealer with the Financial Industry Regulatory Authority (“FINRA”).

Aspen Partners, Ltd. is responsible for the daily operations of the Fund, as well as facilitating instructions of the Investment Committee. Interests in the Fund are marketed through the Managing Member’s wholly-owned broker/dealer subsidiary, Frontier Solutions, LLC. Aspen Partners, Ltd. participates in the investment decisions of the Fund via the Fund’s Investment Committee.

In 2010, the Fund transferred assets into a new fund called Aspen Commodity Long/Short Fund LLC (“ACLS”) in exchange for units in that fund. The purpose of this transfer was to provide investors with the opportunity to invest in commodities, separate from other investments that are included in the Fund, such as currencies, financials instruments, and stock indices. The Fund continues to invest in Aspen Commodity Long/Short Fund LLC.

The following accounting policies are presented to assist the reader in understanding the Fund’s financial statements:

Valuation of Investments in Investment Funds

The Fund values investments in Investment Funds for which there is no ready market at fair value as determined by the Managing Member.

The valuation of Investment Funds purchased or held by the Fund ordinarily will be based on the value provided most recently to the Managing Member by each Investment Fund which the Managing Member believes to be reliable and which reflects the amount that the Fund might reasonably expect to receive for the position if the Fund’s interest were redeemed at the time of valuation. The Managing Member’s reliance on or consideration of the values of Investment Funds will be based on: (i) due diligence performed prior to making an investment in an Investment Fund; (ii) ongoing due diligence and monitoring; (iii) periodic variation analysis and review by the Fund and/or the Fund’s auditors; and (iv) any other information reasonably available from the market or other third parties.

In certain circumstances, the Managing Member may determine that the value provided by an Investment Fund does not represent the fair value of the Fund’s interests in the Investment Fund. This determination may be based upon, among other things: (i) the absence of transaction activity in interests in a particular Investment Fund; (ii) the imposition by an Investment Fund of extraordinary restrictions on redemptions, including limitations on the percentage of Investment Fund assets that may be redeemed during a certain time period; (iii) a determination by the Managing Member that it would be impracticable to liquidate the Fund’s holdings in a particular Investment Fund; (iv) a conclusion that the Investment Fund’s valuation was based on valuation procedures that do not provide for valuation of underlying securities at market value or fair value as appropriate; (v) actual knowledge (if any) of the value of underlying portfolio holdings; (vi) ongoing due diligence and monitoring that indicates that the valuation provided by the Investment Fund is not reliable, such as significant variations between estimates and final values provided by an Investment Fund or lesser variations that occur on a regular basis with respect to a specific Investment Fund; or (vii) available market data or other relevant circumstances, including unusual or extraordinary circumstances.

In the event that an Investment Fund does not report a month-end value to the Fund on a timely basis, the fair value of the Investment Fund will be based on the most recent value reported by the Investment Fund, as well as any other relevant information available at the time the Fund values its portfolio. In this unusual event, it may be appropriate to consider the factors set forth herein, provided, however, that the Managing Member may not find such factors useful if, among other things, the Investment Fund in question is intended to have low correlation with the overall markets or a particular market (in which case the Managing Member may not have information necessary to determine whether a discount or premium would best reflect such significant events).

Where deemed appropriate by the Managing Member, investments in Investment Funds or illiquid securities may be valued at cost. Cost will be used only when the Managing Member determines that cost best approximates the fair value of the particular position under consideration. For example, cost may not be appropriate when the Fund is aware of similar sales to third parties at materially different prices or in other circumstances where cost may not approximate fair value (which could include situations in which there are no sales to third parties).

Valuation of Investments in Futures Contracts

These instruments include Open Trade Equity Positions (Futures Contracts and Currency Forwards) that are actively traded on public markets with quoted pricing for corroboration. Futures Contracts and Currency Forwards are reported at fair value using Level 1 inputs. Investments in Future Contracts further include Open Trade Equity that are quoted prices for identical or similar assets that are not traded on active markets.

Investment Income: Investment income includes realized and unrealized gains and losses from the Fund’s investments in investment funds and interest income. Income earned and expenses incurred by the investment funds are passed through to the Fund based on its percentage ownership in each respective fund. Investment transactions are recorded on the trade date.

Income Taxes: No provision for income taxes has been made in the accompanying financial statements as all items of the Fund’s income, loss, deduction, and credit are passed through to, and taken into account by, the Fund’s members on their own income tax returns. The primary difference between financial statement income and taxable income relates to certain gains and losses that are not immediately realized for income tax purposes. There were no material differences between the cost basis of the Fund’s assets and liabilities for financial and income tax reporting purposes.

The Fund has reviewed all open tax years and major jurisdictions and concluded there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the year-end December 31, 2011. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Cash and Cash Equivalents: For purposes of reporting cash flows, the Fund considers demand deposits and all unrestricted, highly liquid investments with original maturities of three months or less, which can be readily converted to cash on demand, without penalty, to be cash equivalents. Beginning December 31, 2010 through December 31, 2012 all non-interest bearing demand deposits are fully insured by the FDIC. The Fund has established managed accounts to be traded by certain foreign exchange and commodity trading advisors on behalf of the Fund.  Cash in managed accounts is held by Newedge USA, LLC to secure trading positions in currency and commodity futures. These funds are privately insured to the Securities Investor Protection Corporation (“SIPC”) limits as such limits may be amended from time to time.

Aspen Diversified Fund LLC

Cash Held in Excess of Federally Insured Limits

	Balance as of December 31, 2011			Balance as of December 31, 2010
Cash in bank	$	8,028,823		$	2,003,293
Cash held in managed accounts		56,329,538			21,354,976
Total bank balance	$	64,358,361		$	23,358,269
FDIC insurance limit		(8,028,823	)		(2,003,293	)
SIPC insurance limit		(500,000	)		(500,000	)
Uninsured, uncollateralized balance	$	55,829,538		$	20,854,976

Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investment Valuations: In accordance with generally accepted accounting principles in the USA (“GAAP”), fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP also establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation.

The three-tier hierarchy of inputs is summarized below.

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.

Level 2 Inputs – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.

Level 3 Inputs – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety. All assets and liabilities are measured at fair value on a recurring basis by level within the fair value hierarchy as reported on the Statement of Assets and Liabilities.

Subsequent events: Subsequent events are defined as events or transactions that occur after the balance sheet date, but before the financial statements are issued. There are two types of subsequent events: recognized subsequent events, which provide additional evidence about conditions which existed at the balance sheet date, and non-recognized subsequent events, which provide evidence about conditions which did not exist at the balance sheet date, but arose before the financial statements were issued. Recognized subsequent events are required to be recognized in the financial statements, and non-recognized subsequent events are required to be disclosed.