UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001
Commission File Number 000-25921
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SMITH BARNEY AAA ENERGY FUND L.P.
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(Exact name of registrant as specified in its charter)
New York 13-3986032
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management LLC
388 Greenwich St. - 7th Fl.
New York, New York 10013
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(Address and Zip Code of principal executive offices)
(212) 723-5424
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Units
of Limited
Partnership
Interest
(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [X]
As of February 28, 2002, Limited Partnership Units with an aggregate value of
$141,285,344 were outstanding and held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business.
(a) General development of business. Smith Barney AAA Energy Fund L.P. (the
"Partnership") is a limited partnership organized on January 5, 1998 under the
partnership laws of the State of New York. The objective of the Partnership is
to achieve substantial appreciation of its assets through speculative trading,
directly or indirectly, in commodity interests generally including commodity
options and commodity futures contracts on United States exchanges and certain
foreign exchanges. The Partnership may trade commodity futures and options
contracts of any kind, but initially it traded solely energy and energy related
products. In addition, the Partnership has entered into swap contracts on energy
related products (together with other traded futures and options contracts, the
"Commodity Interests"). During the initial offering period (February 12, 1998
through March 15, 1998) the Partnership sold 49,538 Units. The Partnership
commenced its Commodity Interest trading activities on March 16, 1998. No
securities which represent an equity interest or any other interest in the
Partnership trade on any public market. Sales and redemptions of Units and
general partner contributions and redemptions for the years ended December 31,
2001, 2000 and 1999 are reported in the Statement of Partners' Capital on page
F-6 under "Item 8. Financial Statements and Supplementary Data."
The Partnership will be liquidated upon the first to occur of the
following: December 31, 2018; if the net asset value per Unit falls below $400
2
as of the close of business on any business day or upon the earlier occurrence
of certain other circumstances set forth in the Limited Partnership Agreement of
the Partnership (the "Limited Partnership Agreement").
Effective September 1, 2001, the Partnership transferred substantially all
of its assets (including unrealized appreciation of $7,323,329) in exchange for
128,539.1485 Units of the Master and a fair value of $128,539,149 as a tax-free
transfer to the SB AAA Master Fund LLC, a New York limited liability company
(the "Master"). The Master was formed in order to permit commodity pools managed
now or in the future by AAA Capital Management, Inc. (the "Advisor") using the
Energy with Swaps Program, the Advisor's proprietary trading program, to invest
together in one trading vehicle. Smith Barney Futures Management LLC acts as the
general partner (the "General Partner") of the Partnership and the managing
member of the Master. Expenses to investors as a result of investment in the
Master are approximately the same and redemption rights are not affected.
At December 31, 2001, the Partnership owns 94.5% 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 effected by the
performance of the Master.
Prior to September 1, 2001, the Partnership's commodity broker was Salomon
Smith Barney Inc. ("SSB"). SSB is an affiliate of the General Partner. The
General Partner is wholly owned by Salomon Smith Barney Holdings Inc. ("SSBHI"),
which is the sole owner of SSB. SSBHI is a wholly owned subsidiary of Citigroup
Inc.
3
The Master's trading of futures, forwards and options contracts, if
applicable, on commodities is done primarily on United States of America
commodity exchanges and foreign commodity exchanges. It engages in such trading
through a commodity brokerage account maintained with SSB.
Under the Limited Partnership Agreement, the General Partner has sole
responsibility for the administration of the business and affairs of the
Partnership, but may delegate trading discretion to one or more trading
advisors. The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make trading decisions
for the Partnership.
The General Partner has entered into a management agreement (the
"Management Agreement") with the Advisor who will make all commodity trading
decisions for the Partnership. Mr. A. Anthony Annunziato is the sole trading
principal of the Advisor and is also an employee of SSB. The Advisor is not
responsible for the organization or operation of the Partnership.
Prior to August 31, 2001, pursuant to the terms of the Management
Agreement, the Partnership was obligated to pay the Advisor a monthly management
fee equal to 1/6 of 1% (2% per year) of Net Assets allocated to the Advisor as
of the end of the month. Effective September 1, 2001, the Partnership is
obligated to pay the Advisor a monthly management fee equal to 1/6 of 1% (2% per
year) of month-end Net Assets allocated pro-rata by the Master. In addition, the
Advisor is a Special Limited Partner of the Partnership and receives an annual
4
profit share allocation to its capital account in the Partnership equal to 20%
of New Trading Profits (as defined in the Management Agreement) earned on behalf
of the Partnership during each calendar year in the form of Special Limited
Partner Units.
Prior to August 31, 2001, the Customer Agreement between the Partnership
and SSB (the "Customer Agreement") provided that the Partnership pay SSB
brokerage commissions at $18 per round turn for futures and swap transactions
and $9 per side for options. SSB pays a portion of its brokerage fees to its
financial consultants who have sold Units. The brokerage fee was inclusive of
floor brokerage. The Partnership paid for National Futures Association ("NFA")
fees, exchange and clearing fees, give-up and user fees. Effective September 1,
2001, all brokerage commissions, exchange, clearing, user, give-up, and NFA fees
will be borne by the Master and allocated to the Partnership through its
investment in the Master. The Customer Agreement between the Partnership and SSB
gives the Partnership the legal right to net unrealized gains and losses.
Brokerage fees will be paid for the life of the Partnership, although the rate
at which such fees are paid may be changed. In addition, SSB pays the
Partnership interest on 80% of the average daily equity maintained in cash in
its account during each month at a 30 day U.S. Treasury bill rate determined
5
weekly by SSB based on the non-competitive yield on 3 month U.S. Treasury bills
maturing in 30 days from the date in which such weekly rate is determined.
Effective September 1, 2001, SSB will pay the Partnership interest on 80% of the
average daily equity allocated to the Partnership by the Master during each
month at a 30-day U.S. Treasury bill rate determined weekly by SSB based on the
average non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days
from the date on which such weekly rate is determined. The Customer Agreement
may be terminated upon notice by either party.
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity
interests. The Partnership does not engage in sales of goods or services. The
Partnership's net income from operations for the years ended December 31, 2001,
2000, 1999 and the period from March 16, 1998 (commencement of trading
operations) to December 31, 1998 are set forth under "Item 6. Selected Financial
Data." The Partnership's capital as of December 31, 2001, was $134,887,821.
(c) Narrative description of business.
See Paragraphs (a) and (b) above.
(i) through (x) - Not applicable.
(xi) through (xii) - Not applicable.
(xiii) - The Partnership has no employees.
(d) Financial Information About Geographic Areas. The Partnership
does not engage in sales of goods or services or own any long lived assets, and
therefore this item is not applicable.
Item 2. Properties.
The Partnership does not own or lease any properties. The General
Partner operates out of facilities provided by its affiliate, SSB.
6
Item 3. Legal Proceedings.
This section describes the major pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which Salomon Smith
Barney Holdings Inc. ("SSBH") or its subsidiaries is a party or to which any of
their property is subject. There are no material legal proceedings pending
against the Partnership or the General Partner.
Salomon Smith Barney Inc. ("SSB") is a New York corporation with its
principal place of business at 388 Greenwich St., New York, New York 10013. SSB
is registered as a broker-dealer and futures commission merchant ("FCM"), and
provides futures brokerage and clearing services for institutional and retail
participants in the futures markets. SSB and its affiliates also provide
investment banking and other financial services for clients worldwide.
There have been no administrative, civil or criminal actions pending, on
appeal or concluded against SSB or any of its individual principals within the
past five years that management believes may have a material impact on SSB's
ability to act as an FCM. In the ordinary course of its business, SSB is a party
to various claims and regulatory inquiries. Proceedings deemed to be material
for purposes of Commodity Futures Trading Commission ("CFTC") disclosure
requirements are:
In September 1992, Harris Trust and Savings Bank (as trustee for Ameritech
Pension Trust ("APT"), Ameritech Corporation, and an officer of Ameritech filed
suit against Salomon Brothers Inc. ("SBI") and Salomon Brothers Realty
Corporation ("SBRC") in the U.S. District Court for the Northern District of
7
Illinois (Harris Trust Savings Bank, not individually but solely as trustee for
the Ameritech Pension Trust, Ameritech Corporation and John A. Edwardson v.
Salomon Brothers Inc and Salomon Brothers Realty Corp.). The second amended
complaint alleges that three purchases by APT from defendants of participation
interests in net cash flow or resale proceeds of three portfolios of motels
owned by Motels of America, Inc. ("MOA"), as well as a fourth purchase by APT of
a similar participation interest in a portfolio of motels owned by Best Inns,
Inc. ("Best"), violated the Employee Retirement Income Security Act ("ERISA"),
and that APT's purchase of the participation interests in the third MOA
portfolio and in the Best portfolio violated the Racketeer Influenced and
Corrupt Organization Act ("RICO") and the Illinois Consumer Fraud and Deceptive
Practices Act ("Consumer Fraud Act"), and constituted fraud, negligent
misrepresentation, breach of contract and unjust enrichment. SBI had acquired
the participation interests when it purchased principal mortgage notes issued by
MOA and Best to finance purchases of motel portfolios; 95% of three of those
interests and 100% of the fourth were sold to APT for a total of approximately
$20.9 million. Plaintiffs' second amended complaint seeks judgment (a) on the
ERISA claims for the approximately $20.9 million purchase price, for rescission
and for disgorgement of profits, as well as other relief, and (b) on the RICO
and state law claims in the amount of $12.3 million, with damages trebled to $37
million on the RICO claims and punitive damages in excess of $37 million on
certain of the state law claims as well as other relief.
8
Following motions by defendants, the court dismissed the RICO, Consumer Fraud
Act, fraud, negligent misrepresentation, breach of contract, and unjust
enrichment claims. The court also found that defendants were not ERISA
fiduciaries and dismissed two of the three claims based on that allegation.
Defendants moved for summary judgment on plaintiffs' only remaining claim, which
alleged an ERISA violation. The motion was denied, and defendants appealed to
the U.S. Court of Appeals for the Seventh Circuit. In July 1999, the U. S. Court
of Appeals for the Seventh Circuit reversed the denial of defendants' motion for
summary judgment and dismissed the sole remaining ERISA claim against the
Company. Plaintiffs filed a petition for certiorari with the U. S. Supreme Court
seeking review of the decision of the Court of Appeals, which was granted in
January 2000. After hearing oral argument, on June 12, 2000, the U.S. Supreme
Court reversed the U.S. Court of Appeals for the Seventh Circuit's judgment,
which had overturned the denial of defendants' motion for summary judgment and
dismissed the sole remaining ERISA claim against the Company, and remanded the
matter to the circuit court for further proceedings. Subsequently, the circuit
court remanded the matter to the U.S. District Court for the Northern District
of Illinois for further proceedings.
Both the Department of Labor and the Internal Revenue Service ("IRS") have
advised SBI that they were or are reviewing the underlying transactions. With
respect to the IRS, SSBH, SBI and SBRC have consented to extensions of time for
the assessment of excise taxes that may be claimed with respect to the
transactions for the years 1987, 1988 and 1989. In August 1996 , the IRS sent
9
SSBH, SBI and SBRC what appeared to be draft "30-day letters" with respect to
the transactions and SSBH, SBI and SBRC were given an opportunity to comment on
whether the IRS should issue 30-day letters, which would actually commence the
assessment process. In October 1996, SSBH, SBI and SBRC submitted a memorandum
setting forth reasons why the IRS should not issue such 30-day letters. Since
that time, the IRS has not issued such 30-day letters to SSBH, SBI or SBRC.
In December 1996, a complaint seeking unspecified monetary damages was
filed by Orange County, California against numerous brokerage firms, including
SSB, in the U.S. Bankruptcy Court for the Central District of California.
(County of Orange et al v. Bear Stearns & Co. Inc. et al.) The complaint
alleged, among other things, that the brokerage firms recommended and sold
unsuitable securities to Orange Count. SSB and the remaining brokerage firms
settled with Orange County in mid 1999.
In June 1998, complaints were filed in the U.S. district Court for the
Eastern District of Louisiana in two actions (Board of Liquidations, City Debt
of the City of New Orleans v. Smith Barney Inc, et ano. and The City of New
Orleans v. Smith Barney Inc. et ano.), in which the City of New Orleans seeks a
determination that Smith Barney Inc. and another underwriter will be responsible
for any damages that the City may incur in the event the IRS denies tax exempt
status to the City's General Obligation Refunding Bonds Series 1991. The
complaints were subsequently amended. SSB has asked the court to dismiss the
amended complaints. The Court denied the motion but stayed the case.
Subsequently, the city withdrew the lawsuit.
10
In November 1998, a class action complaint was filed in the United States
District Court for the Middle District of Florida (Dwight Brock as Clerk for
Collier County v. Merrill Lynch, et al.). The Complaint alleged that, pursuant
to a nationwide conspiracy, 17 broker-dealer defendants, including SSB, Charged
excessive mark-ups in connection with advanced refunding transactions. Among
other relief, plaintiffs sought compensatory and punitive damages, restitution
and/or rescission of the transactions and disgorgement of alleged excessive
profits. In October 1999, the plaintiff filed a second amended complaint. SSB
has asked the court to dismiss the amended complaint. In November 1999, SSB
moved to dismiss the amended complaint. In May 2001, the parties reached, and
the court preliminarily approved, a tentative settlement. In September 2001, the
court approved the settlement.
In connection with the Louisiana and Florida matters, the IRS and SEC have
been conducting an industry-wide investigation into the pricing of Treasury
securities in advanced refunding transactions, In April 2000 SSB and several
other broker-dealers entered into a settlement with the IRS and the SEC.
In December 1998, SSB was one of twenty-eight market making firms that
reached a settlement with the SEC in the matter titled In the Matter of Certain
Market Making Activities on NASDAQ. As part of the settlement of that matter,
SSB, without admitting or denying the factual allegation, agreed to an order
that required that it: (i) cease and desist from committing or causing any
violations of Sections 15(c)(1) and (2) of the Securities Exchange Act of 1934
11
and Rules 15cl -2, 15c2-7 and 17a-3 thereunder, (ii) pay penalties totaling
approximately $760,000, and (iii) submit certain policies and procedures to an
independent consultant for review.
In March 1999, a complaint seeking in excess of $250 million was filed by a
hedge fund and its investment advisor against SSB in the Supreme Court of the
State of New York, County of New York (MKP Master Fund, LDC et al. v. Salomon
Smith Barney Inc.). Plaintiffs allege that while acting as their prime broker
SSB breached its contracts with plaintiffs, converted plaintiffs' monies and
engaged in tortious conduct, including breaching its fiduciary duties. In
October 1999, the court dismissed plaintiffs' tort claims, including the breach
of fiduciary duty claims, but allowed the breach of contract and conversion
claims to stand. In December 1999, SSB filed an answer and asserted
counterclaims against the investment advisor. In response to plaintiffs' motion
to strike the counterclaims, in January 2000, SSB amended its counterclaims
against the investment advisor to seek indemnification and contribution.
Plaintiffs moved to strike SSB's amended counterclaims in February 2000. In
September 2000, the court denied plaintiffs' motion to dismiss SSB's
counterclaims based on indemnification and contribution. Discovery is ongoing.
SSBH and various subsidiaries have also been named as defendants in various
matters incident to and typical of the businesses in which they are engaged.
These include numerous civil actions, arbitration proceedings and other matters
in which SSBH's broker-dealer subsidiaries have been named, arising in the
12
normal course of business out of activities as a broker and dealer in
securities, as an underwriter of securities, as an investment banker or
otherwise. In the opinion of SSBH's management, none of these actions is
expected to have a material adverse effect on the results of operations,
consolidated financial condition or liquidity of SSBH and its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the security holders for a vote during
the last fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters.
(a) Market Information. The Partnership has issued no stock. There is
no public market for the Units of Limited Partnership Interest.
(b) Holders. The number of holders of Units of Partnership Interest
as of December 31, 2001, was 1,243.
(c) Distribution. The Partnership did not declare a distribution in
2001 or 2000.
(d) Use of Proceeds. For the twelve months ended December 31, 2001,
there were additional sales of 25,182.0535 Units totaling
$40,789,000 and contributions by the General Partner representing
209.6498 Unit equivalents totaling $355,000. For the twelve
months ended December 31, 2000, there were additional sales of
3,923.1399 Units
13
totaling $4,455,000 and contributions by the General Partner
representing 22.0154 Unit equivalents totaling $25,000. For the
twelve months ended December 31, 1999, there were additional
sales of 2,558.8989 Units totaling $3,354,000 and contributions
by the General Partner representing 15.2588 Unit equivalents
totaling $20,000. For the period ended December 31, 1998, there
were additional sales of 16,475.2559 Units totaling $15,973,000
and contributions by the General Partner representing 166.0550
Unit equivalents totaling $161,000.
Proceeds from the sale of additional Units are used in the
trading of commodity interests including futures contracts,
options, swaps and forward contracts.
14
Item 6. Selected Financial Data. The Partnership commenced trading operations on
March 16, 1998. Realized and unrealized trading gains (losses), interest income,
net income (loss) and increase (decrease) in Net Asset Value per Unit for the
years ended December 31, 2001, 2000, 1999 and the period from March 16, 1998
(commencement of trading operations) to December 31, 1998 and total assets at
December 31, 2001, 2000, 1999 and 1998 were as follows:
2001 2000 1999 1998
------------ ----------- ------------- -------------
Realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
of $3,892,417, $7,591,291,
$12,587,354 and $5,527,260,
respectively $ 35,724,000 $ 14,488,934 $ (4,677,441) $ 14,675,192
Interest Income 2,745,908 2,520,294 3,411,756 1,978,202
------------ ------------ ------------ ------------
$ 38,469,908 $ 17,009,228 $ (1,265,685) $ 16,653,394
============ ============ ============ ============
Net income (loss) before
Special Allocation to
Special Limited Partner $ 36,115,307 $ 15,501,056 $ (3,236,003) $ 15,401,913
Allocation to Special
Limited Partner $ 6,669,865 $ 1,831,884 $ - $ 2,699,932
------------ ------------ ------------ ------------
Net income (loss) available
for pro rata distribution
to Partners $ 29,445,442 $ 13,669,172 $ (3,236,003) $ 12,701,981
============ ============ ============ ============
Increase (decrease) in
Net Asset Value per Unit $ 489.01 $ 272.65 $ (48.76) $ 184.33
============ ============ ============ ============
Total assets $144,011,712 $ 95,783,289 $ 86,241,742 $ 84,035,617
============ ============ ============ ============
15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(a) Liquidity. The Partnership does not engage in sales of goods or
services. Its only assets are its investment in the Master, cash and interest
receivable. The Master does not engage in the sale of goods or services. Because
of the low margin deposits normally required in commodity trading, relatively
small price movements may result in substantial losses to the Partnership,
through its investment in the Master. Such substantial losses could lead to a
material decrease in liquidity. To minimize this risk, the Master follows
certain policies including:
(1) Master funds are invested only in commodity interests which are traded
in sufficient volume to permit, in the opinion of the Advisor, ease of taking
and liquidating positions.
(2) The Master diversifies its positions among various commodities. The
Advisor does not initiate additional positions in any commodity for the Master
if such additional positions would result in aggregate positions for all
commodities requiring a margin of more than 66-2/3% of net assets of the Master
managed by the Advisor.
(3) The Master may occasionally accept delivery of a commodity. Unless such
delivery is disposed of promptly by retendering the warehouse receipt
representing the delivery to the appropriate clearinghouse, the physical
commodity position is fully hedged.
16
(4) The Master does not employ the trading technique commonly known as
"pyramiding", in which the speculator uses unrealized profits on existing
positions as margin for the purchases or sale of additional positions in the
same or related commodities.
(5) The Master does not utilize borrowings except short-term borrowings if
the Master takes delivery of any cash commodities.
(6) The Advisor may, from time to time, employ trading strategies such as
spreads or straddles on behalf of the Master. The term "spread" or "straddle"
describes a commodity futures trading strategy involving the simultaneous buying
and selling of futures contracts on the same commodity but involving different
delivery dates or markets and in which the trader expects to earn a profit from
a widening or narrowing of the difference between the prices of the contracts.
The Partnership and through the Partnership's investment in the Master, is
party to financial instruments with off-balance sheet risk, including derivative
financial instruments and derivative commodity instruments, in the normal course
of its business. These financial instruments may include forwards, swaps,
futures and options, whose value is based upon an underlying asset, index, or
reference rate, and generally represent future commitments to exchange
currencies or cash flows, or to purchase or sell other financial instruments at
specified terms at specified future dates. Each of these instruments is subject
to various risks similar to those relating to the underlying financial
17
instruments including market and credit risk. The General Partner monitors and
controls the 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 Master is subject. (See also "Item 8. Financial Statements and
Supplementary Data" for further information on financial instrument risk
included in the notes to financial statements). Other than the risks inherent in
commodity trading, the Partnership knows of no trends, demands, commitments,
events or uncertainties which will result in or which are reasonably likely to
result in the Partnership's liquidity increasing or decreasing in any material
way. The Limited Partnership Agreement provides that the Partnership will cease
trading operations and liquidate all open positions under certain circumstances
including a decrease in Net Asset Value per Unit to less than $400 as of the
close of business on any business day.
(b) Capital resources. (i) The Partnership has made no material commitments
for capital expenditures.
(ii) The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity trading by
the Master and by expenses, interest income, redemptions of Units and
distributions of profits, if any. Gains or losses on commodity futures trading
cannot be predicted. Market moves in commodities are dependent upon fundamental
and technical factors which the Partnership may or may not be able to identify.
Partnership expenses will consist of, among other things, commissions and
18
advisory fees. The level of these expenses is dependent upon the level of
trading gains or losses and the ability of the Advisor to identify and take
advantage of price movements in the commodity markets, in addition to the level
of Net Assets maintained. In addition, the amount of interest income payable by
SSB is dependent upon interest rates over which the Partnership has no control.
For the Year ended December 31, 2001, there were additional sales of
25,182.0535 Units totaling $40,789,000 and contributions by the General Partner
representing 209.6498 Unit equivalents totaling $355,000. For the year ended
December 31, 2000, there were additional sales of 3,923.1399 Units totaling
$4,455,000 and contributions by the General Partner representing 22.0154 Unit
equivalents totaling $25,000. For the year ended December 31, 1999, there were
additional sales of 2,558.8989 Units totaling $3,354,000 and contributions by
the General Partner representing 15.2588 Unit equivalents totaling $20,000.
No forecast can be made as to the level of redemptions in any given period.
A limited partner may require the Partnership to redeem his Units at their Net
Asset Value as of the last day of a month on 10 business days notice to the
General Partner. For the year ended December 31, 2001, 5,774.1030 Units were
redeemed totaling $8,196,401 and 4,816.4313 Units of Special Limited Partnership
Interest totaling $8,501,749 were redeemed. For the year ended December 31,
2000, 17,900.7647 Units were redeemed totaling $19,960,815. For the year ended
December 31, 1999, 2,177.4358 Units were redeemed totaling $2,858,982.
19
Units of Limited Partnership Interest were sold to persons and entities who
are accredited investors as that term is defined in rule 501(a) of Regulation D
under the Securities Act of 1933, as well as to those persons who are not
accredited investors but who have either a net worth (exclusive of home,
furnishings and automobile) either individually or jointly with the investor's
spouse of at least three times his investment in the Partnership (the minimum
investment for which was $25,000) or gross income for the two previous years and
projected gross income for the current fiscal year of not less than three times
his investment in the Partnership for each year.
(c) Results of Operations. For the year ended December 31, 2001 the Net
Asset Value Per Unit increased 34.7% from $1,408.22 to $1,897.23. For the year
ended December 31, 2000, the net asset value Per Unit increased 24.0% from
$1,135.57 to $1,408.22. For the year ended December 31, 1999 the Net Asset Value
Per Unit decreased 4.1% from $1,184.33 to $1,135.57.
The Partnership, for its own account, through its investment in the Master,
experienced net trading gains of $39,616,417 before commissions and expenses for
the year ended December 31, 2001. Gains were primarily attributable to the
Master's trading of NYMEX Natural Gas and NYMEX Heating Oil and were partially
offset by losses in NYMEX Brent Crude, NYMEX Crude Oil, NYMEX Unleaded Gas and
IPE Gas Oil and Brent Crude and energy swaps.
The Partnership experienced net trading gains of $22,080,225 before
commissions and expenses for the year ended December 31, 2000. Gains were
primarily attributable to the trading of NYMEX Natural Gas, NYMEX Crude Oil,
20
NYMEX Heating Oil and energy swaps and were partially offset by losses in NYMEX
Unleaded Gas and IPE Gas Oil and Brent Crude.
The Partnership experienced net trading gains of $7,909,913 before
commissions and expenses for the year ended December 31, 1999. Gains were
primarily attributable to the trading of NYMEX Electricity, NYMEX Natural Gas,
NYMEX Crude Oil and IPE Gas Oil and were partially offset by losses in NYMEX
Unleaded Gas, NYMEX Heating Oil, IPE Brent Crude, CME GSC Index and energy
swaps.
Commodity markets are highly volatile. Broad price fluctuations and rapid
inflation increase the risks involved in commodity trading, but also increase
the possibility of profit. The profitability of the Master and the Partnership
depends on the existence of major price trends and the ability of the Advisor to
identify those price trends correctly. 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 Master and the Partnership expect to increase capital through operations.
(d) Operational Risk
The Partnership, through its investment in the Master, is directly exposed
to market risk and credit risk, which arise in the normal course of its business
activities. Slightly less direct, but of critical importance, are risks
21
pertaining to operational and back office support. This is particularly the case
in a rapidly changing and increasingly global environment with increasing
transaction volumes and an expansion in the number and complexity of products in
the marketplace.
Such risks include:
Operational/Settlement Risk - the risk of financial and opportunity loss and
legal liability attributable to operational problems, such as inaccurate pricing
of transactions, untimely trade execution, clearance and/or settlement, or the
inability to process large volumes of transactions. The Partnership, through the
Partnership's investment in the Master, is subject to increased risks with
respect to its trading activities in emerging market securities, where
clearance, settlement, and custodial risks are often greater than in more
established markets.
Technological Risk - the risk of loss attributable to technological limitations
or hardware failure that constrain the Partnership's and the Master's ability to
gather, process, and communicate information efficiently and securely, without
interruption, to customers, among Units within the Partnership, and in the
markets where the Partnership and the Master participates. Legal/Documentation
Risk - the risk of loss attributable to deficiencies in the documentation of
transactions (such as trade confirmations) and customer relationships (such as
master netting agreements) or errors that result in noncompliance with
applicable legal and regulatory requirements.
Financial Control Risk - the risk of loss attributable to limitations in
financial systems and controls. Strong financial systems and controls ensure
22
that assets are safeguarded, that transactions are executed in accordance with
management's authorization, and that financial information utilized by
management and communicated to external parties, including the Partnership's
unitholders, creditors, and regulators, is free of material errors.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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.
Market movements result in frequent changes in the fair market value of the
Master's open positions and, consequently, in its earnings and cash flow. The
Master's and the Partnership'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 results among the Master's open positions 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
23
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 included 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.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Master's and the
Partnership's market risk exposures contain "forward-looking statements" within
the meaning of the safe harbor from civil liability provided for such statements
by the Private Securities Litigation Reform Act of 1995 (set forth in Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934). All quantitative disclosures in this section are deemed to be
forward-looking statements for purposes of the safe harbor except for statements
of historical fact (such as the terms of particular contracts and the number of
market risk sensitive instruments held during or at the end of the reporting
period).
24
The Master's and the Partnership's risk exposure in the various market
sectors traded by the Advisor is quantified below in terms of Value at Risk. Due
to the Master's mark-to-market accounting, any loss in the fair value of the
Master's open positions is directly reflected in the Master's earnings (realized
or unrealized) and cash flow.
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
intervals. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic estimate
of the maximum expected near-term one-day price fluctuation. 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.
In the case of market sensitive instruments which are not exchange traded
(almost exclusively currencies in the case of the Partnership), the margin
requirements for the equivalent futures positions have been used as Value at
Risk. In those rare cases in which a futures-equivalent margin is not available,
dealers' margins have been used.
25
The fair value of the Master's futures and forward positions does not have
any optionality component. However, the Advisor does trade commodity options.
The Value at Risk associated with options is reflected in the following table as
the margin requirement attributable to the instrument underlying each option.
Where this instrument is a futures contract, the futures margin, and where this
instrument is a physical commodity, the futures-equivalent maintenance margin
has been used. This calculation is conservative in that it assumes that the fair
value of an option will decline by the same amount as the fair value of the
underlying instrument, whereas, in fact, the fair values of the options traded
by the Master in almost all cases fluctuate to a lesser extent than those of the
underlying instruments.
In quantifying the Master's Value at Risk, 100% positive correlation in the
different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been added to determine each trading category's aggregate Value at Risk.
The diversification effects resulting from the fact that the Master's positions
are rarely, if ever, 100% positively correlated have not been reflected.
26
The Master's Trading Value at Risk in Different Market Sectors
The following table indicates the trading Value at Risk associated with the
Master's open positions by market category as of December 31, 2001. All open
position trading risk exposures of the Master have been included in calculating
the figures set forth below. As of December 31, 2001, the Master's total
capitalization was $152,214,723.
December 31, 2001,
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- -----------------------------------------------------------------------------------
Energy $13,681,991 8.99% $30,660,157 $7,703,528
Energy Swaps 2,689,299 1.77%
----------- ------
Total $16,371,290 10.76%
=========== ======
27
The following table indicates the trading Value at risk associated with the
Partnership's open positions by market category as of December 31, 2000. As of
December 31, 2000, the Partnership's total capitalization was $74,326,664.
December 31, 2000
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- --------------------------------------------------------------------------------
Energy $ 4,708,717 6.34% $16,360,644 $3,346,961
Energy Swaps 6,991,928 9.40%
----------- -----
Total $11,700,645 15.74%
=========== =====
28
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Master is
typically many times the applicable margin requirement (margin requirements
generally range between 2% and 15% of contract face value) as well as many times
the capitalization of the Master. The magnitude of the Master's open positions
creates a "risk of ruin" not typically found in most other investment vehicles.
Because of the size of its positions, certain market conditions -- unusual, but
historically recurring from time to time -- could cause the Master to incur
severe losses over a short period of time. The foregoing Value at Risk table --
as well as the past performance of the Partnership -- give no indication of this
"risk of ruin."
Materiality as used in this section, "Qualitative and Quantitative
Disclosures About Market Risk," is based on an assessment of reasonably possible
market movements and the potential losses caused by such movements, taking into
account the leverage, optionality and multiplier features of the Master's market
sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Master's market risk
exposures - except for (i) those disclosures that are statements of historical
fact and (ii) the descriptions of how the Master manages its primary market risk
exposures - constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Master's primary market risk exposures as well as the strategies
29
used and to be used by the General Partner and the Advisor for managing such
exposures are subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Master's risk control to
differ materially from the objectives of such strategies. Government
interventions, defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in historical price
relationships, an influx of new market participants, increased regulation and
many other factors could result in material losses as well as in material
changes to the risk exposures and the management strategies of the Master. There
can be no assurance that the Master's current market exposure and/or risk
management strategies will not change materially or that any such strategies
will be effective in either the short- or long- term. Investors must be prepared
to lose all or substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the Master as of
December 31, 2001, by market sector.
Energy. Energy related products, such as crude oil, heating oil, gasoline
and natural gas, constitute the principal market exposure of the Master. The
Master has substantial market exposure to gas and oil price movements, often
resulting from political developments in the Middle East. Political developments
in other countries or regions can also materially impact upon the prices of
energy products, as could changing supply and demand relationships, weather,
governmental, commercial and trade programs and policies, and other significant
economic events. Energy prices can be volatile and substantial profits and
30
losses have been and are expected to continue to be experienced in these
markets.
The Master engages in swap transactions in crude oil and other energy
related products. In this connection, the Master contracts with its counterparty
to exchange a stream of payments computed by reference to a notional amount and
the price of the energy product that is the subject of the swap. Swap contracts
are not guaranteed by an exchange or clearinghouse. SSB does not engage in swap
transactions as a principal.
The Master usually enters into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the agreement, with the Master receiving or paying, as the case may
be, only the net amount of the two payments. Swaps do not involve the delivery
of underlying assets or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that the Master is contractually
obligated to make. If the counterparty to a swap defaults, the Master's risk of
loss consists of the net amount of payments that the Master is contractually
entitled to receive.
The Master may also enter into spot transactions to purchase or sell
commodities with SSB, or one of its affiliates, as principal. Such spot
transactions provide for two day settlement and are not margined. Such
transactions may be entered into in connection with exchange for physical
transactions. Like the swap contract market, the spot market is a principals'
market so there is no clearinghouse guarantee of performance. Instead, the
Master is subject to the risk of inability of, or refusal by, a counterparty to
perform with respect to the underlying contract.
31
Other Commodity Interests. The Master primarily emphasizes the trading of
energy products, but may also trade some portion of its assets in other
commodity interests, including, but not limited to, commodity interest contracts
on the Goldman Sachs Commodity Index (an index future comprised primarily of
energy products). Commodity interest prices can be affected by numerous factors,
including political developments, weather conditions, seasonal effects and other
factors which affect supply and demand for the underlying commodity.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors and controls the Partnership's, through
its investment in the Master, 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 Master and the Partnership is subject.
The General Partner monitors the Master's performance and the concentration
of its open positions, and consults with the Advisor concerning the Master's
overall risk profile. If the General Partner felt it necessary to do so, the
General Partner could require the Advisor to close out individual positions as
well as enter programs traded on behalf of the Master. However, any such
intervention would be a highly unusual event. The General Partner primarily
relies on the Advisor's own risk control policies while maintaining a general
supervisory overview of the Master's market risk exposures.
32
The Advisor applies its own risk management policies to its trading. The
Advisor often follows diversification guidelines, margin limits and stop loss
points to exit a position. The Advisor's research of risk management often
suggests ongoing modifications to its trading programs.
As part of the General Partner's risk management, the General Partner
periodically meets with the Advisor to discuss its risk management and to look
for any material changes to the Advisor's portfolio balance and trading
techniques. The Advisor is required to notify the General Partner of any
material changes to its programs.
33
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
SMITH BARNEY AAA ENERGY FUTURES FUND L.P.
INDEX TO FINANCIAL STATEMENTS
Page
Number
Oath or Affirmation F-2
Report of Independent Accountants. F-3
Financial Statements:
Statement of Financial Condition
at December 31, 2001 and 2000. F-4
Statement of Income and Expenses
For the years ended December 31,
2001, 2000 and 1999. F-5
Statement of Partners' Capital
for the years ended December 31,
2001, 2000 and 1999. F-6
Notes to Financial Statements. F-7 - F-11
Financial Statements of the SB AAA
Master Fund LLC
Oath or Affirmation. F-12
Report of Independent Accountants. F-13
Statement of Financial Condition at
December 31, 2001. F-14
Condensed Schedule of Investments at
December 31, 2001 F-15
Statement of Income and Expenses for the
period September 1, 2001 (commencement of
trading operations) to December 31, 2001 F-16
Statement of Members' Capital for the
period September 1, 2001 (commencement of
trading operations) to December 31, 2001 F-17
Notes to Financial Statements. F-18 - F-21
F-1
To The Limited Partners of
Smith Barney AAA Energy Fund L.P.
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
By: Daniel R. McAuliffe, Jr.
Chief Financial Officer and Director
Smith Barney Futures Management LLC
General Partner, Smith Barney AAA
Energy Fund L.P.
Smith Barney Futures Management LLC
388 Greenwich Street
7th Floor
New York, N.Y. 10013
212-723-5424
F-2
Report of Independent Accountants
To the Partners of
Smith Barney AAA Energy Fund L.P.:
In our opinion, the accompanying statement of financial condition, and the
related statements of income and expenses and of partners' capital present
fairly, in all material respects, the financial position of Smith Barney AAA
Energy Fund L.P. at December 31, 2001 and 2000 and the results of its operations
for each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the management of the
General Partner; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by the management
of the General Partner, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
New York, New York
February 28, 2002
F-3
Smith Barney AAA
Energy Fund L.P.
Statement of Financial Condition
December 31, 2001 and 2000
December 31, December 31,
2001 2000
Assets:
Investment in Master, at fair value $143,835,729 $ --
Cash, in commodity futures trading account 11,680 20,958,126
Net unrealized depreciation on open positions, in commodity
futures trading account -- (13,615,408)
Net unrealized depreciation on open swaps contracts, in
commodity futures trading account -- (231,661)
Commodity options owned, at market value (cost $0
and $21,531,952, respectively), in commodity futures
trading account -- 79,038,621
------------ ------------
143,847,409 86,149,678
Due from brokers -- 9,617,028
Interest receivable 164,303 16,583
------------ ------------
$144,011,712 $ 95,783,289
============ ============
Liabilities and Partners' Capital:
Liabilities:
Commodity options written, at fair value
(premium received $0 and $8,255,382, respectively) $ -- $ 12,063,964
Accrued expenses:
Commissions 519,842 335,187
Management fees 243,694 132,182
Professional fees 20,302 58,534
Other 6,791 14,035
Due to brokers -- 4,937,803
Due to SSB -- 343,968
Redemptions payable (Note 5) 8,333,262 3,570,952
------------ ------------
9,123,891 21,456,625
------------ ------------
Partners' capital (Notes 1, 5 and 7):
General Partner, 913.9790 and 704.3292 Unit equivalents
outstanding in 2001 and 2000, respectively 1,734,028 991,850
Limited Partners, 70,183.3406 and 50,775.3901 Units of
Limited Partnership Interest outstanding in 2001 and 2000,
respectively 133,153,793 71,502,930
Special Limited Partner, 0 and 1,300.8510 Units of Limited
Partnership Interest outstanding in 2001 and 2000,
respectively -- 1,831,884
------------ ------------
134,887,821 74,326,664
------------ ------------
$144,011,712 $ 95,783,289
============ ============
See notes to financial statements.
F-4
Smith Barney AAA
Energy Fund L.P.
Statement of Income and Expenses
for the years ended December 31, 2001, 2000 and 1999
2001 2000 1999
Income:
Realized gains on closed positions from Master $ 22,488,035 $ -- $ --
Change in unrealized losses on open positions from
Master (5,460,297) -- --
Income allocated from Master 20,077 -- --
Expenses allocated from Master (2,885,462) -- --
Net gains (losses) on trading of commodity interests:
Realized gains (losses) on closed positions 57,859,372* (23,193,801) 20,438,146
Change in unrealized gains (losses) on open positions (32,405,308)* 45,274,026 (12,528,233)
------------ ------------ ------------
39,616,417 22,080,225 7,909,913
Less, Brokerage commissions including clearing
fees of $637,145*, $1,024,792 and 1,574,467,
respectively (Note 3c) (3,892,417) (7,591,291) (12,587,354)
------------ ------------ ------------
Net realized and unrealized gains (losses) 35,724,000 14,488,934 (4,677,441)
Interest income (Notes 3c and 6) 2,745,908 2,520,294 3,411,756
------------ ------------ ------------
38,469,908 17,009,228 (1,265,685)
------------ ------------ ------------
Expenses:
Management fees (Note 3b) 2,197,448 1,365,960 1,820,154
Professional fees 74,195 111,791 111,375
Other expenses 82,958 30,421 38,789
------------ ------------ ------------
2,354,601 1,508,172 1,970,318
------------ ------------ ------------
Net income (loss) before allocation to the Special
Limited Partner 36,115,307 15,501,056 (3,236,003)
Allocation to the Special Limited Partner 6,669,865 1,831,884 --
------------ ------------ ------------
Net income (loss) available for pro rata distribution $ 29,445,442 $ 13,669,172 $ (3,236,003)
------------ ------------ ------------
Net income (loss) per Unit of Limited Partnership
Interest and General Partner Unit equivalent (Notes 1
and 7) $ 489.01 $ 272.65 $ (48.76)
============ ============ ============
* For the period from January 1, 2001 to August 31, 2001.
See notes to financial statements.
F-5
Smith Barney AAA
Energy Fund L.P.
Statement of Partners' Capital
for the years ended December 31, 2001, 2000 and 1999
Special
Limited Limited General
Partners Partner Partner Total
Partners' capital at December 31, 1998 $ 76,237,395 $ 2,699,932 $ 790,013 $ 79,727,340
Sale of 2,558.8989 Units of Limited Partnership
Interest and General Partner's contribution
representing 15.2588 Unit equivalents 3,354,000 -- 20,000 3,374,000
Redemption of 2,177.4358 Units of Limited
Partnership Interest (2,858,982) -- -- (2,858,982)
Redemption of 2,279.7128 Units of Special Limited
Partnership Interest -- (2,699,932) -- (2,699,932)
Net loss available for pro rata distribution (3,200,805) -- (35,198) (3,236,003)
------------- ------------- ------------- -------------
Partners' capital at December 31, 1999 73,531,608 -- 774,815 74,306,423
Sale of 3,923.1399 Units of Limited Partnership
Interest and General Partner's contribution
representing 22.0154 Unit equivalents 4,455,000 -- 25,000 4,480,000
Redemption of 17,900.7647 Units of Limited
Partnership Interest (19,960,815) -- -- (19,960,815)
Allocation of net income for the year ended
December 31, 2000:
Allocation of 1,300.8510 Units of Limited
Partnership Interest to the Special Limited -- 1,831,884 -- 1,831,884
Partner (Note 3b)
Net income available for pro rata distribution 13,477,137 -- 192,035 13,669,172
------------- ------------- ------------- -------------
Partners' capital at December 31, 2000 71,502,930 1,831,884 991,850 74,326,664
Sale of 25,182.0535 Units of Limited Partnership
Interest and General Partner's contribution
representing 209.6498 Unit equivalents 40,789,000 -- 355,000 41,144,000
Redemption of 5,774.1030 Units of Limited
Partnership Interest (8,196,401) -- -- (8,196,401)
Redemption of 4,816.4313 Units of Special Limited
Partnership Interest -- (8,501,749) -- (8,501,749)
Allocation of net income for the year ended
December 31, 2001:
Allocation of 3,515.5803 Units of Limited
Partnership Interest to the Special Limited
Partner (Note 3b) -- 6,669,865 -- 6,669,865
Net income available for pro rata distribution 29,058,264 -- 387,178 29,445,442
------------- ------------- ------------- -------------
Partners' capital at December 31, 2001 $ 133,153,793 $ -- $ 1,734,028 $ 134,887,821
============= ============= ============= =============
See notes to financial statements.
F-6
Smith Barney AAA
Energy Fund L.P.
Notes to Financial Statements
1. Partnership Organization:
Smith Barney AAA Energy Fund L.P. (the "Partnership") is a limited
partnership which was organized on January 5, 1998 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 commodity options and commodity futures contracts on United
States exchanges and certain foreign exchanges. The Partnership may trade
commodity futures and options contracts of any kind but intends initially
to trade solely energy and energy related products. In addition, the
Partnership may enter into swap contracts on energy related products. The
Partnership commenced trading on March 16, 1998. From March 16, 1998 to
August 31, 2001, the Partnership engaged directly in the speculative
trading of a diversified portfolio of commodity interests. The commodity
interests that are traded by the Partnership are volatile and involve a
high degree of market risk.
Effective September 1, 2001, the Partnership transferred substantially all
of its assets (including unrealized appreciation of $7,323,329) in exchange
for 128,539.1485 Units of the Master and a fair value of $128,539,149 as a
tax-free transfer to the SB AAA Master Fund LLC, a New York limited
liability company (the "Master"). The Master was formed in order to permit
commodity pools managed now or in the future by AAA Capital Management,
Inc. (the "Advisor") using the Energy with Swaps Program, the Advisor's
proprietary trading program, to invest together in one trading vehicle.
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership and the managing member of the
Master. Expenses to investors as a result of investment in the Master are
approximately the same and redemption rights are not affected.
The financial statements of the Master, including the condensed schedule of
investments, should be read together with the Partnership's financial
statements.
At December 31, 2001, the Partnership owns 94.5% 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
effected by the performance of the Master.
Prior to September 1, 2001, the Partnership's commodity broker was Salomon
Smith Barney Inc. ("SSB"). SSB is an affiliate of the General Partner. The
General Partner is wholly owned by Salomon Smith Barney Holdings Inc.
("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly owned
subsidiary of Citigroup Inc.
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 his initial capital contribution and profits, if
any, net of distributions.
The Partnership will be liquidated upon the first to occur of the
following: December 31, 2018; the net asset value of a Unit decreases to
less than $400 as of a close of any business day; or under certain other
circumstances as defined in the Limited Partnership Agreement.
2. Accounting Policies:
a. The value of the Partnership's investment in the Master reflects the
Partnership's proportional interest in the Member's Capital of the Master.
All of the unrealized and realized gains and losses from the commodity
transactions of the Master are allocated pro rata among the investors at
the time of such determination. All commodity interests (including
derivative financial instruments and derivative commodity instruments) held
F-7
by the Master and prior to September 1, 2001 by the Partnership are used
for trading purposes. The commodity interests are recorded on trade date
and open contracts are recorded in the statement of financial condition at
fair value on the last business day of the year, which represents market
value for those commodity interests for which market quotations are readily
available or other measures of fair value deemed appropriate by management
of the General Partner for those commodity interests and foreign currencies
for which market quotations are not readily available, including dealer
quotes for swaps and certain option contracts. Investments in commodity
interests denominated in foreign currencies are translated into U.S.
dollars at the exchange rates prevailing on the last business day of the
year. Realized gains (losses) and changes in unrealized values on commodity
interests are recognized in the period in which the contract is closed or
the changes occur and are included in net gains (losses) on trading of
commodity interests.
b. Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on his share of the Partnership's income and
expenses.
c. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of 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
these estimates.
3. Agreements:
a. Limited Partnership Agreement:
The General Partner administers the business and affairs of the Partnership
including selecting one or more advisors to make trading decisions for the
Partnership.
b. Management Agreement:
The General Partner, on behalf of the Partnership, has entered into a
Management Agreement with the Advisor, a registered commodity trading
advisor. Mr. A. Anthony Annunziato is the sole trading principal of the
Advisor and is also an employee of SSB. Prior to August 31, 2001, the
Partnership was obligated to pay the Advisor a monthly management fee equal
to 1/6 of 1% (2% per year) of month-end Net Assets allocated to the
Advisor. Effective September 1, 2001, the Partnership is obligated to pay
the Advisor a monthly management fee equal to 1/6 of 1% (2% per year) of
month-end Net Assets allocated by the Master. One half of the management
fee will be paid to the Advisor, and the other half will be paid to SSB for
services it provides in connection with the Advisor. In addition, the
Advisor is a Special Limited Partner of the Partnership and receives an
annual profit share allocation to its capital account in the Partnership
equal to 20% of New Trading Profits, as defined, earned on behalf of the
Partnership during each calendar year in the form of Special Limited
Partner Units.
c. Customer Agreement:
Prior to August 31, 2001, the Partnership entered into a Customer Agreement
which provided that the Partnership pay SSB brokerage commissions at $18
per round turn for futures and swap transactions and $9 per side for
options. The brokerage fee was inclusive of applicable floor brokerage. In
addition, the Partnership paid SSB National Futures Association ("NFA")
fees, exchange, clearing, user and give-up fees. Effective September 1,
2001, all brokerage commissions, exchange, clearing, user, give-up, and NFA
fees will be borne by the Master and allocated to the Partnership through
its investment in the Master. SSB will pay a portion of brokerage fees to
its financial consultants who have sold Units in this Partnership. All of
F-8
the Partnership's assets are deposited in the Partnership's account at SSB.
The Partnership's cash is deposited by SSB in segregated bank accounts to
the extent required by Commodity Futures Trading Commission regulations. At
December 31, 2000, the amount of cash held for margin requirements was
$6,991,928. Effective September 1, 2001, cash margin requirements were
maintained by the Master. Prior to September 1, 2001, SSB had agreed to pay
the Partnership interest on 80% of the average daily equity maintained in
cash in its account during each month at a 30-day U.S. Treasury bill rate
determined weekly by SSB based on the average noncompetitive yield on
3-month U.S. Treasury bills maturing in 30 days from the date on which such
weekly rate is determined. Effective September 1, 2001, SSB will pay the
Partnership interest on 80% of the average daily equity allocated to the
Partnership by the Master during each month at a 30-day U.S. Treasury bill
rate determined weekly by SSB based on the average non-competitive yield on
3-month U.S. Treasury bills maturing in 30 days from the date on which such
weekly rate is determined. The Customer Agreement between the Partnership
and SSB gives the Partnership the legal right to net unrealized gains and
losses. The Customer Agreement may be terminated upon notice by either
party.
4. Trading Activities:
The results of the Master's and prior to August 31, 2001, the Partnership's
trading activity are shown in the statement of income and expenses.
The average fair value of the Partnership's commodity interests during the
year ended December 31, 2000, based on a monthly calculation, was
$9,388,872. The fair value of these commodity interests, including options
and swaps thereon, if applicable, at December 31, 2000, was $53,127,588, as
detailed below.
Fair Value
December 31, 2000
Energy $53,359,249
Energy swaps (231,661)
----------
Total $53,127,588
----------
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of
the General Partner and at such times as the General Partner may decide.
Beginning with the first full month ending at least three months after the
commencement of trading, a limited partner may require the Partnership to
redeem his Units at their Net Asset Value as of the last day of a month on
10 days' notice to the General Partner. There is no fee charged to limited
partners in connection with redemptions.
F-9
6. Financial Highlights:
Changes in the net asset value per Unit of Partnership interest for the
years ended December 31, 2001, 2000 and 1999 were as follows:
2001 2000 1999
Net realized and unrealized gains (losses) $592.31 $290.47 $(70.95)
Interest income 46.08 41.32 51.81
Expenses (149.38) (59.14) (29.62)
---------- ---------- ----------
Increase (decrease) for period 489.01 272.65 (48.76)
Net asset value per Unit, beginning of period 1,408.22 1,135.57 1,184.33
---------- ---------- ----------
Net asset value per Unit, end of period $1,897.23 $1,408.22 $1,135.57
========== ========= ========
Ratios to average net assets:
Net income before incentive fee 35.2%
Incentive fee (6.5)%
----
Net income after incentive fee 28.7%
====
Operating expenses 8.9%
Incentive fee 6.5%
---
Total expenses and incentive fee 15.4%
====
Total return:
Total return before incentive fee 42.6%
Incentive fee (7.9)%
----
Total return after incentive fee 34.7%
====
7. Financial Instrument Risks:
The Partnership and through the Partnership's investment in the Master, is
party to financial instruments with off-balance sheet risk, including
derivative financial instruments and derivative commodity instruments, in
the normal course of its business. These financial instruments may include
forwards, futures, options and swaps, whose value is based upon an
underlying asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash flows, 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 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 option contracts. OTC contracts are negotiated between contracting
parties and include forwards and certain options. 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 Partnership's/Master's swap contracts
are OTC contracts.
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.
F-10
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. Credit risk
with respect to exchange traded instruments is reduced to the extent that
an exchange or clearing organization acts as a counterparty to the
transactions. The Partnership's/Master's risk of loss in the event of
counterparty default is typically limited to the amounts recognized in the
statement of financial condition and not represented by the contract or
notional amounts of the instruments. The Partnership through its investment
in the Master has concentration risk because the sole counterparty or
broker with respect to the Master's assets is SSB.
The General Partner monitors and controls 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 is subject. These monitoring systems allow the
General Partner to statistically analyze actual trading results with risk
adjusted performance indicators and correlation statistics. In addition,
on-line monitoring systems provide account analysis of futures, forwards
and options positions by sector, margin requirements, gain and loss
transactions and collateral positions.
The notional or contractual amounts of these instruments, while
appropriately not recorded in the financial statements, reflect the extent
of the Partnership's/Master's involvement in these instruments. The
majority of these instruments mature within one year of December 31, 2001.
However, due to the nature of the Partnership's/Master's business, these
instruments may not be held to maturity.
8. Subsequent Events:
On January 1, 2002, there were additional sales representing 1,309.8043
Units of Limited Partnership Interest totaling $2,485,000 and on January
31, 2002, there were additional redemptions of 110.5826 Units totaling
$212,006.
F-11
To The Members of
SB AAA Master Fund LLC
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
By: Daniel R. McAuliffe, Jr.
Chief Financial Officer and Director
Smith Barney Futures Management LLC
Managing Member, SB AAA Master Fund LLC
Smith Barney Futures Management LLC
388 Greenwich Street
7th Floor
New York, N.Y. 10013
212-723-5424
F-12
Report of Independent Accountants
To the Members of SB AAA Master Fund LLC:
In our opinion, the accompanying statement of financial condition, including the
condensed schedule of investments, and the related statements of income and
expenses and of members' capital present fairly, in all material respects, the
financial position of SB AAA Master Fund LLC at December 31, 2001 and the
results of its operations for the period from September 1, 2001 (commencement of
trading operations) to December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the management of the Managing Member; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by the management of the Managing Member,
and evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 28, 2002
F-13
SB AAA Master Fund LLC
Statement of Financial Condition
December 31, 2001
2001
Assets:
Equity in commodity futures trading account:
Cash $156,846,978
Net unrealized appreciation on open futures positions 1,084,800
Net unrealized depreciation on open swaps positions (606,310)
Commodity options owned, at fair value (cost $3,003,750) 2,135,700
--------------
159,461,168
Due from brokers 481,935
Interest receivable 2,911
--------------
$159,946,014
============
Liabilities and Members' Capital:
Liabilities:
Commodity options written, at fair value
(premium received $8,994,064) $6,501,746
Accrued expenses:
Commissions 261,717
Professional fees 38,000
Due to brokers 906,850
Due to SSB 22,978
--------------
7,731,291
Members' Capital:
Members' Capital, 137,224.2994 Units outstanding 152,214,723
--------------
$159,946,014
=============
See notes to financial statements.
F-14
SB AAA Master Fund LLC
Condensed Schedule of Investments
December 31, 2001
Number of Contract Fair Value
Sector Contracts
Energy Futures contracts purchased - (10.53)%
5,210 NYMEX Natural Gas - (8.61)%, Apr. 2002 - Nov. 2003 $(13,102,072)
Other - (1.92)% (2,924,740)
Futures contracts sold - 11.24%
5,550 NYMEX Natural Gas - 8.73%, Feb. 2002 - June 2004 13,281,102
Other - 2.51% 3,830,510
Options owned - 1.40% 2,135,700
Options written - (4.27)% (6,501,746)
Swaps contracts purchased - (1.50)% (2,277,251)
Swaps contracts sold - 1.11% 1,670,941
-----------
Total Energy - (2.55)% (3,887,556)
-----------
Total Fair Value - (2.55)% $(3,887,556)
=========
Investments at % of Investments at
Country Composition Fair Value Fair Value
------------------- ------------- ------------
United States $(3,887,556) 100.00%
=========== ======
Percentages are based on Members' Capital unless otherwise indicated.
See notes to financial statements.
F-15
SB AAA Master Fund LLC
Statement of Income and Expenses
for the period from September 1, 2001
(commencement of trading operations)
to December 31, 2001
2001
Income:
Net gains on trading of commodity interests:
Realized gains on closed positions $23,522,245
Change in unrealized losses
on open positions (5,652,277)
------------
17,869,968
Less, brokerage commissions including
clearing fees of $361,342 (2,992,446)
------------
Net realized and unrealized gains 14,877,522
Interest income 21,054
------------
14,898,576
Expenses:
Professional fees 38,000
------------
38,000
Net income $14,860,576
==========
Net income per Unit of Member Interest $109.24
=========
See notes to financial statements.
F-16
SB AAA Master Fund LLC
Statement of Members' Capital
for the period from September 1, 2001
(commencement of trading operations)
to December 31, 2001
Members'
Capital
Initial in-kind contribution from the Members
representing 133,712.5867 Units $133,712,587
Net Income 14,860,576
Sale of 6,891.1523 Units of
Member Interest 6,104,660
Redemptions of 3,379.4396 Units of
Member Interest (2,463,100)
--------
Members' Capital at December 31, 2001 $152,214,723
===========
See notes to financial statements.
F-17
SB AAA Master Fund LLC
Notes to Financial Statements
1. General:
SB AAA Master Fund LLC (the "Master") is a limited liability company formed
under the New York Limited Liability Company Law. The Master's purpose is
to engage in the speculative trading of a diversified portfolio of
commodity interests including commodity futures contracts and commodity
options contracts on United States exchanges and certain foreign exchanges.
The Master may trade commodity futures and option contracts of any kind but
intends initially to trade solely energy and energy related products. In
addition, the Partnership may enter into swap contracts and energy related
products. The Master is authorized to sell an unlimited number of member
interest.
On September 1, 2001 (date Master commenced trading), Smith Barney AAA
Energy Fund L.P. ("AAA") transferred substantially all of its assets and
Smith Barney Orion Futures Fund L.P. ("Orion") transferred a portion of its
assets to the Master as a tax-free transfer having a combined fair value of
$133,712,587 (including unrealized appreciation of $7,755,035) in exchange
for 133,712.5867 Units of the Master as non-managing members. The Master
was formed to permit commodity pools managed now or in the future by AAA
Capital Management, Inc. (the "Advisor") using the Energy with Swaps
Program, the Advisor's proprietary trading program, to invest together in
one vehicle.
The Master operates under a "master/feeder fund" structure where its
investors consist of AAA and Orion (collectively the "Feeder Funds") with
94.5% and 5.5% investments in the Master, respectively.
Smith Barney Futures Management LLC acts as the managing member (the
"Managing Member") of the Partnership. The Partnership's commodity broker
is Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the Managing
Member. The Managing Member is wholly owned by Salomon Smith Barney
Holdings Inc. ("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly
owned subsidiary of Citigroup Inc. As of December 31, 2001, all trading
decisions for the Partnership are made by the Advisor.
2. Accounting Policies:
a. All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The
commodity interests are recorded on trade date and open contracts are
recorded in the statement of financial condition at fair value on the last
business day of the year, which represents market value for those commodity
interests for which market quotations are readily available or other
measures of fair value deemed appropriate by management of the General
Partner for those commodity interests and foreign currencies for which
market quotations are not readily available, including dealer quotes for
swaps and certain option contracts. Investments in commodity interests
denominated in foreign currencies are translated into U.S. dollars at the
exchange rates prevailing on the last business day of the year. Realized
gains (losses) and changes in unrealized values on commodity interests and
foreign currencies are recognized in the period in which the contract is
closed or the changes occur and are included in net gains (losses) on
trading of commodity interests.
b. The Master may purchase and write (sell) options. An option is a contract
allowing, but not requiring, its holder to buy (call) or sell (put) a
specific or standard commodity or financial instrument at a specified price
during a specified time period. The option premium is the total price paid
or received for the option contract. When the Master writes an option, the
premium received is recorded as a liability in the statement of financial
condition and marked to market daily. When the Master purchases an option,
the premium paid is recorded as an asset in the statement of financial
condition and marked to market daily.
F-18
c. All of income and expenses and realized and unrealized gains and losses
on trading of commodity interests are determined on each valuation day and
allocated pro rata among the Feeder Funds at the time of such
determination.
d. Income taxes have not been provided as each member is individually liable
for the taxes, if any, on his share of the Master's income and expenses.
e. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of 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
these estimates.
3. Agreements:
a. Managing Member Agreement:
The Managing Member administers the business affairs of the Master. b.
Management Agreement:
The Managing Member, on behalf of the Master has entered into a Management
Agreement with the Advisor, a registered commodity trading advisor. The
Advisor is affiliated with the Managing Member and SSB but is not
responsible for the organization or operation of the Master. The Management
Agreement provides that the Advisor has sole discretion in determining the
investment of the assets of the Master. All management fees in connection
with the Management Agreement shall be borne by the Feeder Funds. c.
Customer Agreement:
The Master has entered into a Customer Agreement with SSB whereby SSB
provides services which include, among other things, the execution of
transactions for the Master's account in accordance with orders placed by
the Advisor. All exchange, clearing, user, give-up, floor brokerage and NFA
fees are borne by the Master. All other fees shall be borne by the Feeder
Funds. All of the Master's cash is deposited by SSB in segregated bank
accounts, to the extent required by Commodity Futures Trading Commission
regulations. At December 31, 2001, the amount of cash held by the Master
for margin requirements was $21,792,237. The Customer Agreement between the
Master and SSB, gives the Master the legal right to net unrealized gains
and losses. The Customer Agreement may be terminated by either party.
4. Trading Activities:
The Master was formed for the purpose of trading contracts in a variety of
commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Master's trading
activity are shown in the statement of income and expenses.
All of the commodity interests owned by the Master are held for trading
purposes. The average fair value during the period from September 1, 2001
(commencement of trading operations) to December 31, 2001, based on a
monthly calculation, was $(927,070). The fair value of these commodity
interests, including options thereon, if applicable, at December 31, 2001
was $(3,887,556).
F-19
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of
the Managing Member and at such time as the Managing Member may decide. A
member may require the Master to redeem his Units at their Net Asset Value
as of the last day of the month. The Managing Member, at its sole
discretion, may permit redemptions more frequently than monthly. There is
no fee charged to members in connection with redemptions.
6. Financial Highlights:
Changes in the net asset value per unit of Member interest for the period
from September 1, 2001 (commencement of trading operations) to December 31,
2001 were as follows:
2001
Net realized and unrealized gains $109.36
Interest income 0.16
Expenses (0.28)
----------
Increase for period 109.24
Net asset value per Unit, beginning of period 1,000.00
----------
Net asset value per Unit, end of period $1,109.24
========
Total return 10.9%
Ratio of expenses, including brokerage commissions, to
average net assets* 6.5%
Ration of net income to average net assets* 31.7%
* Annualized
7. Financial Instrument Risks:
The Master is party to financial instruments with off-balance sheet risk,
including derivative financial instruments and derivative commodity
instruments in the normal course of its business. These financial
instruments may include forwards, futures and options, whose value is based
upon an underlying asset, index, or reference rate, and generally represent
future commitments to exchange currencies or cash flows, 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 option contracts. OTC
contracts are negotiated between contracting parties and include forwards
and certain options. 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.
Market risk is the potential for changes in the value of the financial
instruments traded by the 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.
F-20
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. Credit risk
with respect to exchange traded instruments is reduced to the extent that
an exchange or clearing organization acts as a counterparty to the
transactions. The Master's risk of loss in the event of counterparty
default is typically limited to the amounts recognized in the statement of
financial condition and not represented by the contract or notional amounts
of the instruments. The Master has concentration risk because the sole
counterparty or broker with respect to the Master's assets is SSB. As of
December 31, 2001, the counterparties to the Master's swap contracts were
Citibank, N.A., which is affiliated with the Master, Morgan Stanley Capital
Group Inc., J. Aron & Company and Hess Trading Company, LLC. As of December
31, 2001, the Master owed Citibank, N.A. $503,780, which is included in due
to brokers and represents cash due to Citibank, N.A. for realized swap
transactions.
The Managing Member monitors and controls the 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 Master is
subject. These monitoring systems allow the Managing Member to
statistically analyze actual trading results with risk adjusted performance
indicators and correlation statistics. In addition, on-line monitoring
systems provide account analysis of futures, forwards and options positions
by sector, margin requirements, gain and loss transactions and collateral
positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Master's
involvement in these instruments. The majority of these instruments mature
within one year of December 31, 2001. However, due to the nature of the
Master's business, these instruments may not be held to maturity.
8. Subsequent Event:
On January 1, 2002, there were additional sales representing 3,252.0230
Units of Member Interest totaling $3,607,275 and on January 31, 2002, there
were additional redemptions representing 7,846.0367 Units of Member
Interest totaling $8,703,140.
F-21
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
During the last two fiscal years and any subsequent interim period, no
independent accountant who was engaged as the principal accountant to audit the
Partnership's financial statements has resigned or was dismissed.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no officers or directors and its affairs are managed by
its General Partner, Smith Barney Futures Management LLC. Investment decisions
are made by the Advisor, AAA Capital Management, Inc.
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are managed by
Smith Barney Futures Management LLC, its General Partner, which receives
compensation for its services, as set forth under "Item 1. Business." SSB, an
affiliate of the General Partner, is the commodity broker for the Partnership
and receives brokerage commissions for such services, as described under "Item
1. Business." During the year ended December 31, 2001, SSB earned $6,741,866 in
brokerage commissions and clearing fees from the Partnership and through the
Partnership's investment in the Master. The Advisor earned $2,197,448 in
management fees during 2001.
34
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a). Security ownership of certain beneficial owners. The Partnership knows
of no person who beneficially owns more than 5% of the Units outstanding.
(b). Security ownership of management. Under the terms of the Limited
Partnership Agreement, the Partnership's affairs are managed by the General
Partner. The General Partner owns Units of general partnership interest
equivalent to 913.9790 (1.3%) Units of Limited Partnership Interest as of
December 31, 2001.
Principals who own Units of the Partnership:
David J. Vogel 75 Units
Daniel R. McAuliffe, Jr. 10.3165 Units
(c). Changes in control. None.
Item 13. Certain Relationships and Related Transactions.
Salomon Smith Barney Inc. and Smith Barney Futures Management LLC would be
considered promoters for purposes of item 404(d) of Regulation S-K. The nature
and the amounts of compensation each promoter will receive from the Partnership
are set forth under "Item 1. Business.", "Item 8. Financial Statements and
Supplementary Data." and "Item 11. Executive Compensation."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements: Statement of Financial Condition
at December 31, 2001 and 2000.
35
Statement of Income and Expenses for the years ended
December 31, 2001, 2000 and 1999.
Statement of Partners' Capital for the years ended December
31, 2001, 2000 and 1999.
(2) Financial Statement Schedules: Financial Data Schedule for
year ended December 31, 2001.
(3) Exhibits:
3.1 - Certificate of Limited Partnership (previously filed).
3.2 - Limited Partnership Agreement (previously filed).
10.1 - Management Agreement among the Partnership, the General
Partner and AAA Capital Management, Inc. (previously filed).
10.2 - Customer Agreement between Registrant and Smith Barney
Inc. (the predecessor to Salomon Smith Barney Inc.)
(previously filed).
10.3 - Form of Subscription Agreement (previously filed).
10.4 - Letter from General Partner to AAA Capital Management,
Inc. extending the Management Agreement for 1999 (previously
filed).
10.5 - Letter from the General Partner to AAA Capital Management,
Inc. extending the Management Agreement for 2000 (previously
filed).
36
10.6 - Letter from the General Partner to AAA Capital Management,
Inc. extending the Management Agreement for 2001 (filed
herein).
(b) Report on Form 8-K: None Filed
37
Supplemental Information To Be Furnished With Reports Filed Pursuant To
Section 15(d) Of The Act by Registrants Which Have Not Registered Securities
Pursuant To Section 12 Of the Act.
Annual Report to Limited Partners
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report on Form
10-K authorized, in the City of New York and State of New York on the 29th day
of March 2002.
SMITH BARNEY AAA ENERGY FUTURES FUND L.P.
By: Smith Barney Futures Management LLC
(General Partner)
By /s/ David J. Vogel
-------------------------------------
David J. Vogel, President & Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report on Form 10-K has been signed below by the following persons in the
capacities and on the date indicated.
/s/ David J. Vogel /s/ Shelley Ullman
- ------------------------------ ------------------------
David J. Vogel Director
Director, Principal Executive
Officer and President
/s/ Maureen O'Toole /s/ Steve J. Keltz
- -------------------------- ------------------------
Maureen O'Toole Secretary and Director
Director
/s/ Daniel R. McAuliffe, Jr.
- ------------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer and
Director
39