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JANA Master Fund, Ltd.Performance Update - September 2011Third Quarter in Review
 JANA Master Fund, Ltd. is a value-oriented fund with an event-driven strategy which invests in companies
considering or implementing strategic change. Investors subscribe to the fund’s feeders - JANA Partners, L.P., JANAPartners Qualified, L.P. and JANA Offshore Partners, Ltd. The fund is managed by JANA Partners LLC and beganoperations in April 2001.
PERFORMANCE UPDATE
From Inception(April 2001)2011 Third Quarter
Jul Aug Sep
Q3 2011
 
YTD 2011 Total Return Annualized
JANA Master Fund 0.5% (4.6%) (2.5%) (6.5%) (4.4%) 252.0% 12.7%
S&P 500 Total Return Index (2.0%) (5.4%) (7.0%) (13.9%) (8.7%) 19.2% 1.7%
Performance is quoted net of all fees and expenses for JANA Partners, L.P., the original feeder entity. Results for 2011 are preliminary and pending audit. Net returns among feeders may differ.
In a steady-state environment, even with a slowing economy, the opportunity set for value+catalystinvesting looks very good. The large backlog of overdue and necessary corporate activity we haveexpected has materialized, causing us to deem 2011 the ‘year of the break-up.’ For the first half we
maintained a relatively fully-invested position. With conditions ripe for corporate change and activistshareholders, we carefully selected opportunities such as Williams Co. (WMB), El Paso Corp. (EP) andMcGraw-Hill Companies
(MHP), which were followed swiftly by value-unlocking split-up
announcements.
However the rise of systemic risk over the summer has threatened to upset investors’ economic
assumptions. We monitor three key global macro/policy issues. In Europe, the primary concern is
whether any solution exists that can ‘ring-fence’ a Greek debt default so that capital market financingremains available to Italy, Spain and a host of major banks. In the U.S., we fear the Super Committee
will be unable to agree on $1.2 trillion of budget cuts, which could lead to a de-stabilizing budgetimpasse. Lastly, the rumored ‘hard landing’ in China could finally manifest, dragging down the
commodity complex and export markets. While these issues are pending, we feel the uncertainty itself hinders global growth and we have begun to model our current and prospective investments on a 2012recession-case basis.Drawing upon the lessons of 2008, we have made the decision to run with considerably lower gross and netexposures for now. We feel it is a market to hold only what you truly believe in - offset by positionspecificand other portfolio hedges - and to go home with only a modest amount of net market exposure.
That hasbeen our posture since early August. Our exposure has ranged between 15-30% net long recently,versus 50-65% earlier in the year. It is also a time to actively build a buy list and look to
opportunistically upgrade the portfolio when we come across unusual bargain entry points. We believe therewards of surviving such a time will justify the defensive posture at present.Beyond the daily wrestle with highly volatile and macro-driven markets, JANA Partners continues tostride forward into its second decade in business. We have noteworthy progress to report with certainactivist positions and we are pleased to have culminated a search for a Chief Administrative Officer with
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Page 2
an excellent hire.
PERFORMANCE ATTRIBUTION
3rd Quarter 2011 (Manager’s estimates) July Aug Sep Q3 2011 YTD 2011
Gross performance - Longs 0.8% (6.0%) (6.8%)
(12.0%)
(5.3%)Gross performance - Shorts 0.0% 1.0% 4.2%
5.2%
1.7%Gross performance - Total 0.8% (5.0%) (2.6%)
(6.8%)
(3.6%)Avg. long exposure 96.5% 76.0% 79.6%
84.0%
90.3%Avg. short exposure 46.7% 47.1% 46.7%
46.8%
41.1%Avg. net exposure 49.8% 28.9% 32.9%
37.2%
49.2%Avg. beta-adjusted net exposure 38.9% 21.2% 32.0%
30.7%
46.0%
We are seeing large daily swings in the market on a regular basis. Against this backdrop of political
uncertainty and high volatility, our bias is to keep net exposure low (in the 20-30% range) until we seemore clarity. With a highly-liquid and adjustable short book, we expect our exposures to fluctuate againsta range-bound market (lower as the market moves higher and higher as the market moves lower).Sticking with what we love, our current activist positions are about 20% of the long book. Other hardcatalystspecial situations make up about 25%. The balance of our long positions are generally stable, defensivebusinesses run by smart capital allocators with great franchises we are excited to own. Cash buying powercurrently represents 20%. We believe our best defense is staying liquid, focusing on highquality businesses, andbeing very disciplined on price.The short side of the portfolio includes a combination of approximately 20% general market hedges, 10%sector-specific hedges and about 20% single-name or ‘alpha’ shorts. In this market we have been careful to beat least near fully-hedged in exposures to energy, cyclicals, consumer names and Europe. Several shortthemes resonate with our team, including the following:
•
 
We believe there will be a slowdown in
US advertising
despite the bullish commentary of 
media executives. We are short advertising firms and advertising dependent media.
•
 
We believe the
Australian housing
bubble is popping. We have targeted some banks and
retailers.•
 
We expect
luxury consumer goods
to retrench after sharp stock market losses. We are shortsome high-end retailers.•
 
US grocers
appear to be getting pinched by dollar stores and Walmart and will struggle to passthrough food inflation.•
 
We expect budget austerity will affect a range of 
government-facing businesses
, from defenseto engineering and construction.
PORTFOLIO HIGHLIGHTS
After the public disclosure of our filing position and the subsequent announcement of the company’s
break-up plans, we can unveil the mystery of Position A. Its story supports our belief that activist
shareholdershave a critical role in the current market and is another example that careful, disciplined target selection canoften yield swift and favorable results.
 McGraw-Hill Companies (MHP).
On September 12th, McGraw-Hill announced a “ComprehensiveGrowth and Value Plan.” This plan involves separating the McGraw-Hill conglomerate into two public
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Floor, New York, NY 10153 Tel. 212-455-0900 / Fax 212-455-0901
 
 
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companies to be known as McGraw-Hill Markets and McGraw-Hill Education. The plan also includescommitments to significantly reduce overlapping corporate costs and to accelerate share repurchasestoward a total of $1 billion in 2011. The announcement closely followed our 13D filing of August 1st inwhich we disclosed a more than 5% MHP ownership stake and alluded to ongoing talks between us andMHP management. These developments represent another significant catalyst brought about by JANA’sactivist group in a situation bearing several similarities to the El Paso Corp. (EP) investment we discussedlast quarter.As with El Paso, we had followed McGraw-Hill for years before concluding that the time was right toinvest. While a break-up liberating MHP’s Standard & Poor’s unit had long been debated, it was not until
thisyear that we felt McGraw-Hill came to satisfy all of our “V
3
” requirements for success in active
shareholder engagement. To review, the elements of V
3
are:
•
 
Value
- After multi-year underperformance somewhat traceable to its inefficient corporate
structure, MHP traded at the valuation of its least desirable business (Education), representing a
sizeable discount to sum-of-the-parts valuations and offering an attractive shareholder return
irrespective of any event.•
 
Votes
- We confirmed that shareholder interest in a break-up plan had shifted materially during
the period of underperformance causing the MHP board to intensify its ongoing strategic
review. If it were to come to a vote or proxy battle, we felt confident in the outcome.
•
 
Variety of ways to win
- Even in an environment that includes litigation and regulatory
uncertainty over rating agencies, we saw many ways MHP could be restructured to unlock valueshort of the four-way break up we advocated initially. For instance, cost structure and balancesheet optimization can create significant value with or without a formal split.The fund began establishing a position in February of this year. We presented our own comprehensiveplan in person to CEO Harold “Terry” McGraw on August 22nd, and he welcomed the dialogue. Onceagain, in addition to our funds’ investment, our position was bolstered by an additional investment fromthe JANA Special Investment Fund and a co-investment from Ontario Teachers’ Pension Plan, lendingundeniable credence to the cause. Through our background work, we believe we discovered several valuedrivers not widely appreciated by the market, including the extent of redundant costs in the inefficientMHP structure that could be eliminated in a split. We also conducted a deep-dive analysis of potentialrating agency liabilities stemming from the financial crisis to gain better clarity on issues misunderstood
by many investors. Nevertheless, to protect against factors such as a decline in debt issuance and
potential sovereign retaliations, we initiated certain short positions against MHP which have so far addedto overall profits from the long position.
Since the September announcement we have continued a productive dialog with management over
specifics of the Growth and Value Plan. While we are pleased with the company’s announcements to date,there are multiple additional levers to unlocking even greater value at the company’s disposal, and
we will bewatching the company’s further comments and actions closely. Much more detail can be
found infollowing public documents:•
 
New York Times’ coverage of our 13D filing on August 1, 2011 ishere.•
 
JANA’s public Presentation to McGraw-Hill of August 22, 2011 ishere.•
 
McGraw-Hill’s September 11, 2011 announcement of the Growth and Value Plan ishere.
•
 
Absolute Return+Alpha Magazine,
 JANA’s Turn of the Screw
, article reprint October 2011 is
here.
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