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, 2002
Commission File Number 000-25921
SMITH BARNEY AAA ENERGY FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-3986032
(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
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
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
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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Acts).
Yes X No
Limited Partnership Units with an aggregate value of $169,195,731 were
outstanding and held by non-affiliates as of the last business day of the
registrant's most recently completed second fiscal quarter.
As of February 28, 2003, 68,723.0178 Limited Partnership Units were outstanding.
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,
2002, 2001 and 2000 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, 2002, the Partnership owns 55.5% 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 affected 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
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.
5
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, 2002,
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, 2002, was $181,851,658.
(c) Narrative description of business.
See Paragraphs (a) and (b) above.
(i) 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.
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
6
Barney Holdings Inc. ("SSBHI") 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 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 County. SSB and the remaining brokerage firms settled with
Orange County in mid 1999. SSB paid $1,333,333 to settle this matter.
7
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 Internal Revenue
Service 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 its lawsuit.
In November 1998, a class action complaint was filed in the U.S. 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. In
November 1999, SSB moved to dismiss the amended complaint. In May 2001, the
parties reached and the court preliminarily approved a tentative settlement. SSB
paid $1,063,457 to settle this matter and in September 2001, the court approved
the settlement.
8
In connection with the Louisiana and Florida matters, the IRS and SEC
conducted 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. Thereafter,
the plaintiffs filed voluntary discontinuances.
In December 1998, SSB was one of 28 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 allegations, agreed to an order which
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 and SEC
Rules 15c1-2, 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.). The complaint included allegations that, while acting as
prime broker for the hedge fund, SSB breached its contracts with plaintiffs,
misused their monies and engaged in tortious conduct, including breaching its
fiduciary duties. SSB asked the court to dismiss the complaint in full. In
October 1999, the court dismissed the tort claims, including the breach of
9
fiduciary duty claims. The court 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 plaintiff's motion
to strike out 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. In August 2002, SSB
filed a motion for summary judgment.
In April 2002, numerous class action complaints were filed against Salomon
Smith Barney and other investment banks in the U.S. District Court for the
Southern District of New York alleging violations of certain federal securities
laws (including Section 11 of the Securities Act of 1933 and Section 10(b) of
the Securities Exchange Act of 1934) with respect to the allocation of shares
for certain initial public offerings and related aftermarket transactions and
damage to investors caused by allegedly biased research analyst reports. On
February 19, 2003, the court issued an opinion denying the defendants' motion to
dismiss. Also pending in the Southern District of New York against SSB and other
investment banks are several alleged class actions which have been consolidated
into a single class action alleging violations of certain federal and state
antitrust laws in connection with the allocation of shares in initial public
offerings underwritten by such parties. The defendants in these actions have
moved to dismiss the consolidated amended complaint but the court has not yet
rendered a decision on those motions.
10
In April 2002, Citigroup and, in one case, SSB were named as defendants
along with, among others, commercial and/or investment banks, certain current
and former Enron officers and directors, lawyers and accountants in two alleged
consolidated class action complaints that were filed in the U.S. District Court
for the Southern District of Texas seeking unspecified damages. One action,
brought on behalf of individuals who purchased Enron securities (Newby, et al.
v. Enron Corp., et al.), alleges violations of Sections 11 and 15 of the
Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and the other action, brought on behalf of current and former Enron
employees (Tittle, et al. v. Enron Corp., et al.), alleges violations of ERISA
and RICO, as well as negligence and civil conspiracy. On May 8, 2002, Citigroup
and SSB filed motions to dismiss the complaints. On December 19, 2002, the
motions to dismiss the Newby complaint were denied. The motion to dismiss the
complaint in Tittle remains pending.
Since April 2002, SSB and several other broker dealers have received
subpoenas and/or requests for information from various governmental and
self-regulatory agencies and Congressional committees, including the NASD Inc.
which has raised issues about SSB's internal e-mail retention practices and
research on Winstar Communications, Inc. With respect to Winstar, SSB has
entered into a settlement agreement. SSB agreed to pay a penalty in the amount
of $5 million and did not admit to any wrongdoing. With respect to other such
matters, on December 20, 2002, Citigroup and a number of other broker/dealers
11
reached a settlement-in-principle with the SEC, the NASD Inc., the New York
Stock Exchange (the "NYSE") and the Attorney General of New York of all issues
raised in their research, initial public offerings allocation and
spinning-related inquiries. In addition, with respect to issues raised by the
NASD, the NYSE and the SEC about SSB's and other firms' e-mail retention
practices, SSB and several other broker/dealers and the NASD, the NYSE and the
SEC entered into a settlement agreement in December 2002. SSB agreed to pay a
penalty in the amount of $1.65 million and did not admit to any allegation of
wrongdoing.
Since May 2002, Citigroup, SSB and certain principals, executive officers
and current and former employees have been named as defendants in a number of
alleged class action complaints filed in the U.S. District Court for the
Southern District of New York by purchasers of various securities alleging they
violated federal securities law, including Sections 10 and 20 of the Securities
Exchange Act of 1934 by issuing research reports without reasonable basis and
failing to disclose conflicts of interest in connection with published
investment research, including Global Crossing, WorldCom, Inc., AT&T, Winstar,
Rhythm Net Connections, Level 3 Communications, MetroMedia Fiber Network, XO
Communications and Williams Communications Group Inc. Nearly all of these
actions are pending before a single judge in the U.S. District Court for the
Southern District of New York for coordinated proceedings. The court has
consolidated these actions into nine separate categories corresponding to the
companies named above.
12
Additional actions have been filed against Citigroup and certain of its
affiliates, including SSB, and certain of their current and former directors,
officers and employees, along with other parties, including: (1) three putative
class actions filed in state courts and federal courts on behalf of persons who
maintained accounts with SSB asserting, among other things, common law claims,
claims under state statutes, and claims under the Investment Advisers Act of
1940, for allegedly failing to provide objective and unbiased investment
research and investment management, seeking, among other things, return of fees
and commissions; (2) approximately fifteen actions filed in different state
courts by individuals asserting, among other claims, common law claims and
claims under state securities laws, for allegedly issuing research reports
without a reasonable basis in fact and for allegedly failing to disclose
conflicts of interest with companies in connection with published investment
research, including Global Crossing and WorldCom, Inc.; (3) approximately five
actions filed in different state courts by pension and other funds asserting
common law claims and statutory claims under, among other things, state and
federal securities laws, for allegedly issuing research reports without a
reasonable basis in fact and for allegedly failing to disclose conflicts of
interest with companies in connection with published investment research,
including WorldCom, Inc. and Qwest Communications International Inc.; and (4)
more than two hundred arbitrations asserting common law claims and statutory
claims under, among other things, state and federal securities laws, for
allegedly issuing research reports without a reasonable basis in fact and for
13
allegedly failing to disclose conflicts of interest with companies in connection
with published investment research.
In July 2002, Citigroup, SSB and various of its affiliates and certain of
their officers and other employees were named as defendants, along with, among
others, commercial and/or investment banks, certain current and former Enron
officers and directors, lawyers and accountants in an alleged class action filed
in the U.S. District Court for the Southern District of New York on behalf of
purchasers of the Yosemite Notes and Enron Credit-Linked Notes, among other
securities (Hudson Soft Co., Ltd v. Credit Suisse First Boston Corporation, et
al.). The complaint alleges violations of RICO and of Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934 and seeks unspecified damages.
Additional actions have been filed against Citigroup and certain of its
affiliates, including SSB, along with other parties, including (i) three actions
brought in state courts by state pension plans for alleged violations of state
securities law and common law fraud and unjust enrichment; (ii) an action by
banks that participated in two Enron revolving credit facilities, alleging
fraud, gross negligence and breach of implied duties in connection with
defendants' administration of a credit facility with Enron; (iii) an action
brought by several funds in connection with secondary market purchases of Enron
Corp. debt securities alleging violations of federal securities law, including
Section 11 of the Securities Act of 1933, and claims for fraud and
misrepresentation; (iv) a series of alleged class actions by purchasers of
14
NewPower Holdings common stock alleging violations of federal securities law,
including Section 11 of the Securities Act of 1933 and Section 10(b) of the
Securities Exchange Act of 1934; (v) an action brought by two investment funds
in connection with purchases of Enron-related securities for alleged violations
of state securities and unfair competition statutes; (vi) an action brought by
several investment funds and fund owners in connection with purchases of notes
of the Osprey I and Osprey II Trusts for alleged violation of state and federal
securities laws and claims for common law fraud, misrepresentation and
conspiracy; (vii) an action brought by several investment funds and fund owners
in connection with purchases of notes of the Osprey I and Osprey II Trusts for
alleged violation of state and federal securities laws and state unfair
competition laws and claims for common law fraud and misrepresentation; (viii)
an action brought by the Attorney General of Connecticut in connection with
various commercial and investment banking services provided to Enron; (ix) a
putative class action brought by clients of SSB in connection with research
reports concerning Enron, alleging breach of contract; (x) actions brought by
several investment funds in connection with the purchase of notes and/or
certificates of the Osprey Trusts, the Marlin Trust, and the Marlin Water trust,
as well as the purchase of other Enron or Enron-related securities, alleging
violation of state and federal securities laws, and common law civil conspiracy
and fraud; (xi) an action brought by a retirement and health benefits plan in
connection with the purchase of certain Enron notes, alleging violation of
federal securities law, including Section 11 of the Securities Act of 1933, as
15
amended, violations of state securities and unfair competition law, and common
law fraud and breach of fiduciary duty; and (xii) an action brought by two
broker/dealers in connection with the purchase of certain notes, alleging
violation of federal and state securities laws. Several of these cases have been
consolidated with the Newby action and stayed pending the Court's decision on
the pending motions of certain defendants to dismiss Newby.
Additionally, Citigroup and certain of its affiliates, including SSB, have
provided substantial information to, and have entered into substantive
discussions with, the Securities and Exchange Commission regarding certain of
their transactions with Enron and a transaction with Dynegy Inc. Citigroup and
certain of its affiliates, including SSB, also have received subpoenas and
requests for information from various other regulatory and governmental agencies
and Congressional committees, as well as from the Special Examiner in the Enron
bankruptcy, regarding certain transactions and business relationships with Enron
and its affiliates. Citigroup and such affiliates, including SSB, are
cooperating fully with all such requests.
Citigroup and SSB are involved in a number of lawsuits arising out of the
underwriting of debt securities of WorldCom, Inc. These lawsuits include
putative class actions filed in July 2002 by alleged purchasers of WorldCom debt
securities in the United States District Court for the Southern District of New
York (Above Paradise Investments Ltd. V. Worldcom, Inc., et al.; Municipal
Police Employees Retirement System Of Louisiana V. Worldcom, Inc., et al.), and
in the United States District Court for the Southern District of Mississippi
(Longacre Master Fund V. Worldcom, Inc., et al.). These putative class action
16
complaints assert violations of federal securities law, including Sections 11
and 12 of the Securities Act of 1933, as amended, and seek unspecified damages
from the underwriters.
On October 11, 2002, the Above Paradise and Municipal Police Employees
lawsuits filed in the United States District Court for the Southern District of
New York were superseded by the filing of a consolidated putative class action
complaint in the United States District Court for the Southern District of New
York (In Re Worldcom, Inc. Securities Litigation). In the consolidated
complaint, in addition to the claims of violations by the underwriters of the
federal securities law, including Sections 11 and 12 of the Securities Act of
1933, as amended, the plaintiffs allege violations of Section 10(b) of the
Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated
thereunder, by SSB arising out of alleged conflicts of interest of SSB and Jack
Grubman. The plaintiffs continue to seek unspecified compensatory damages. In
addition to the consolidated class action complaint, the Southern District of
Mississippi class action has been transferred by the Judicial Panel on
MultiDistrict Litigation to the Southern District of New York for centralized
pre-trial proceedings with other WorldCom-related actions.
In addition to the several putative class actions that have been commenced,
certain individual actions have been filed in various federal and state courts
against Citigroup and SSB, along with other parties, concerning WorldCom debt
17
securities including individual state court actions brought by approximately 18
pension funds and other institutional investors in connection with the
underwriting of debt securities of WorldCom alleging violations of Section 11 of
the Securities Act of 1933, as amended, and, in one case, violations of various
state securities laws and common law fraud. Most of these actions have been
removed to federal court and have been transferred to the Southern District of
New York for centralized pre-trial proceedings with other WorldCom-related
actions.
A putative class action on behalf of participants in WorldCom's 401(k)
salary savings plan and those WorldCom benefit plans covered by ERISA alleging
violations of ERISA and common law fraud (Emanuele V. Worldcom, Inc., Et Al.),
which was commenced in the United States District Court for the District of
Columbia, also has been transferred by the Judicial Panel on MultiDistrict
Litigation to the Southern District of New York for centralized pre-trial
proceedings with other WorldCom-related actions. In December 2002, the claims
against SSB and the other underwriters were dismissed without prejudice.
On or about January 27, 2003, lead plaintiff in a consolidated putative
class action in the United States District Court for the District of New Jersey
(In Re AT&T Corporation Securities Litgation) sought leave to amend its
complaint on behalf of purchasers of AT&T common stock asserting claims against,
among others, AT&T Corporation, to add as named defendants Citigroup, SSB and
certain executive officers and current and former employees, asserting claims
18
under federal securities laws for allegedly issuing research reports without a
reasonable basis in fact and for allegedly failing to disclose conflicts of
interest with AT&T in connection with published investment research.
On or about January 28, 2003, lead plaintiff in a consolidated putative
class action in the United States District Court for the Southern District of
New York (In Re Global Crossing, Ltd. Securities Litigation) filed a
consolidated complaint on behalf of purchasers of the securities of Global
Crossing and its subsidiaries, which names as defendants, among others,
Citigroup, SSB and certain executive officers and current and former employees,
asserting claims under federal securities laws for allegedly issuing research
reports without a reasonable basis in fact and for allegedly failing to disclose
conflicts of interest with Global Crossing in connection with published
investment research.
SSBHI 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 SSBHI's broker-dealer subsidiaries have been named, arising in
the 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 SSBHI'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 SSBHI and its subsidiaries.
19
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, 2002, was 1,241.
(c) Distribution. The Partnership did not declare a distribution
in 2002 or 2001.
(d) Use of Proceeds. For the twelve months ended December 31,
2002, there were additional sales of 3,071.2548 Units
totaling $5,862,000. 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 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
20
contributions by the General Partner representing 15.2588
Unit equivalents totaling $20,000.
Proceeds from the sale of additional Units are used in the
trading of commodity interests including futures contracts,
options, swaps and forward contracts.
21
Item 6. Selected Financial Data. The Partnership commenced trading operations on
march 16, 1998.
Net 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, 2002, 2001, 2000, 1999 and the period from March 16, 1998
(commencement of trading operations) to December 31, 1998 and total assets at
December 31, 2002, 2001, 2000, 1999 and 1998 were as follows:
2002 2001 2000 1999 1998
Net realized and unrealized
trading gains (losses) net
of brokerage commissions
and clearing fees of
$15,155,860, $3,892,417,
$7,591,291, $12,587,354
and $5,527,260,
respectively $ 63,718,803 $ 35,724,000 $ 14,488,934 $ (4,677,441) $ 14,675,192
Interest income 2,199,382 2,745,908 2,520,294 3,411,756 1,978,202
$ 65,918,185 $ 38,469,908 $ 17,009,228 $ (1,265,685) $ 16,653,394
Net income (loss) before
Special Allocation to
Special Limited Partners $ 62,361,519 $ 36,115,307 $ 15,501,056 $ (3,236,003) $ 15,401,913
Allocation to Special
Limited Partners 12,019,017 6,669,865 1,831,884 - 2,699,932
Net income (loss) available
For pro rata distribution
To Partners $ 50,342,502 $ 29,445,442 $ 13,669,172 $ (3,236,003) $ 12,701,981
Increase(decrease) in Net
Asset Value per Unit $ 691.35 $ 489.01 $ 272.65 $ (48.76) $ 184.33
Total assets $194,697,342 $144,011,712 $ 95,783,289 $ 86,241,742 $ 84,035,617
22
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.
23
(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 purchase 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 two
contracts.
The Partnership, 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
instruments including market and credit risk. The General Partner monitors and
24
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 futures
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
25
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. 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, 2002, there were additional sales of
3,071.2548 Units totaling $5,862,000. 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.
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 day's notice to the
General Partner. For the year ended December 31, 2002, 3,916.9924 Units were
redeemed totaling $9,240,665 and 4,643.0922 Units of Special Limited Partnership
Interest totaling $12,019,016. 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.
26
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, 2002 the Net
Asset Value Per Unit increased 36.4% from $1,897.23 to $2,588.58. 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.
The Partnership, for its own account, through its investment in the Master,
experienced net trading gains of $63,718,803 before commissions and expenses for
the year ended December 31, 2002. Gains were primarily attributable to the
trading of NYMEX Natural Gas, NYMEX Heating Oil, IPE Gas Oil and energy swaps
and were partially offset by losses in NYMEX Unleaded Gas, IPE Brent Crude and
NYMEX Crude Oil.
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
27
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,
NYMEX Heating Oil and energy swaps and were partially offset by losses in NYMEX
Unleaded Gas and IPE Gas Oil and Brent Crude.
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 Advisor's ability to forecast changes in energy and energy
related commodities. Such price changes 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 the
Advisor correctly makes such forecasts, 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
28
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
29
financial systems and controls. Strong financial systems and controls ensure
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. Quantitative
and Qualitative Disclosures About Market Risk
(e) Critical Accounting Policies
The General Partner believes that the accounting policies that will be most
critical to the Partnership's financial condition and results of operations
relate to the valuation of the Partnership's positions. The majority of the
Partnership's positions will be exchange-traded futures contracts, which will be
valued daily at settlement prices published by the exchanges. Swap contracts
generally will be valued by reference to published settlement prices or dealers'
quotes in related markets or other measures of fair value deemed appropriate by
the General Partner. The General Partner expects that under normal circumstances
substantially all of the Partnership's assets will be valued by objective
measures and without difficulty.
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
30
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
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
31
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).
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
32
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.
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.
33
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.
34
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, 2002 and the
highest and lowest value at any point during the year. All open position trading
risk exposures of the Master have been included in calculating the figures set
forth below. As of December 31, 2002, the Master's total capitalization was
$353,700,050.
December 31, 2002,
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
Energy $47,253,146 13.36% $64,130,606 $5,737,107
Energy Swaps 9,245,703 2.61% $30,923,087 $1,395,629
----------- ----
Total $56,498,849 15.97%
---------- -----
35
The following table indicates the trading Value at risk associated with the
Master's open positions by market category as of December 31, 2001. As of
December 31, 2002, the Partnership'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%
---------- -----
36
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
37
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, 2002, 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
38
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.
39
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.
40
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.
41
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 - F-4
Financial Statements:
Statement of Financial Condition
at December 31, 2002 and 2001. F-5
Statement of Income and Expenses
For the years ended December 31,
2002, 2001 and 2000. F-6
Statement of Partners' Capital
for the years ended December 31,
2002, 2001 and 2000. F-6 - F-7
Notes to Financial Statements. F-8- F-12
Selected unaudited quarterly financial
data. F-13
Financial Statements of the SB AAA
Master Fund LLC
Oath or Affirmation. F-14
Report of Independent Accountants. F-15 - F-16
Statement of Financial Condition at
December 31, 2002 and 2001. F-17
Condensed Schedule of Investments at
December 31, 2002 and 2001. F-18 - F-19
Statement of Income and Expenses for the
Year ended December 341, 2002 and the
period September 1, 2001 (commencement of
trading operations) to December 31, 2001. F-20
Statement of Members' Capital for the
Year ended December 31, 2002 and for the
period September 1, 2001 (commencement of
trading operations) to December 31, 2001. F-21
Notes to Financial Statements. F-22 - F-26
Selected unaudited quarterly financial
data. F-27
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:/s/ Daniel R. McAuliffe, Jr.
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 Auditors
To the Partners of
Smith Barney AAA Energy Fund L.P.:
We have audited the accompanying statement of financial condition of Smith
Barney AAA Energy Fund L.P. (the Partnership), as of December 31, 2002, and the
related statements of income and expenses, and partners' capital for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of the
Partnership as of December 31, 2001 and for the years ended December 31, 2001
and 2000 were audited by other auditors whose report dated February 28, 2002
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Smith Barney AAA Energy Fund
L.P. as of December 31, 2002, and the results of its operations and changes in
its partners' capital for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
New York, New York
March 7, 2003
F-3
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 the results of its operations for each
of the two 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-4
Smith Barney AAA
Energy Fund L.P.
Statements of Financial Condition
December 31, 2002 and 2001
December 31, December 31,
2002 2001
Assets:
Investment in Master, at fair value $194,537,976 $143,835,729
Cash 5,181 11,680
------------- -------------
194,543,157 143,847,409
Interest receivable 154,185 164,303
------------- -------------
$194,697,342 $144,011,712
------------- -------------
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions (Note 3c) - $519,842
Management fees (Note 3b) $330,695 243,694
Professional fees 8,590 20,302
Other 5,223 6,791
Redemptions payable (Note 5) 12,501,176 8,333,262
------------- -------------
12,845,684 9,123,891
------------- -------------
Partners' capital (Notes 1 and 5):
General Partner 913.9790 Unit equivalents outstanding
in 2002 and 2001, respectively 2,365,908 1,734,028
Limited Partners, 69,337.6030 and 70,183.3406 Units of
Limited Partnership Interest outstanding in 2002 and 2001,
respectively 179,485,750 133,153,793
------------- -------------
181,851,658 134,887,821
------------- -------------
$194,697,342 $144,011,712
------------- -------------
See accompanying notes to financial statements.
F-5
Smith Barney AAA
Energy Fund L.P.
Statements of Income and Expenses
for the years ended December 31, 2002, 2001 and 2000
2002 2001 2000
Income:
Realized gains on closed positions from Master $70,639,778 $22,488,035 $ --
Change in unrealized gains (losses) on open
positions from Master 8,167,821 (5,460,297) --
Income allocated from Master 67,064 20,077 --
Expenses allocated from Master (15,155,860) (2,885,462) --
Net gains (losses) on trading of commodity interests:
Realized gains (losses) on closed positions -- 57,859,372* (23,193,801)
Change in unrealized gains (losses) on open positions -- (32,405,308)* 45,274,026
63,718,803 39,616,417 22,080,225
-------------- -------------- --------------
Interest income (Note 3c) 2,199,382 2,745,908 2,520,294
-------------- -------------- --------------
65,918,185 42,362,325 24,600,519
-------------- -------------- --------------
Expenses:
Brokerage commissions including clearing
fees of $0, $637,145* and 1,024,792,
respectively (Note 3c) - 3,892,417 7,591,291
Management fees (Note 3b) 3,488,171 2,197,448 1,365,960
Professional fees 49,098 74,195 111,791
Other expenses 19,397 82,958 30,421
-------------- -------------- --------------
3,556,666 6,247,018 9,099,463
-------------- -------------- --------------
Net income before allocation to the Special
Limited Partner 62,361,519 36,115,307 15,501,056
Allocation to the Special Limited Partner 12,019,017 6,669,865 1,831,884
-------------- -------------- --------------
Net income available for pro rata distribution $50,342,502 $29,445,442 $13,669,172
-------------- -------------- --------------
Net income per Unit of Limited Partnership Interest and
General Partner Unit equivalent (Notes 1 and 7) $691.35 $489.01 $272.65
-------------- -------------- --------------
* For the period from January 1, 2001 to August 31, 2001.
See accompanying notes to financial statements.
F-6
Smith Barney AAA
Energy Fund L.P.
Statements of Partners' Capital
for the years ended December 31, 2002, 2001 and 2000
Special
Limited Limited General
Partners Partner Partner Total
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:
llocation of 1,300.8510 Units of Limited Partnership -- 1,831,884 -- 1,831,884
Interest to the Special Limited 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 -- 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
Sale of 3,071.2548 Units of Limited Partnership Interest 5,862,000 -- -- 5,862,000
Redemption of 3,916.9924 Units of Limited Partnership
Interest (9,240,665) -- -- (9,240,665)
Redemption of 4,643.0922 Units of Special Limited
Partnership Interest -- (12,019,016) -- (12,019,016)
Allocation of net income for the year ended
December 31, 2002:
Allocation of 4,643.0922 Units of Limited
Partnership Interest to the Special Limited Partner -- 12,019,016 -- 12,019,016
(Note 3b)
Net income available for pro rata distribution 49,710,622 -- 631,880 50,342,502
------------- ------------- ------------- -------------
Partners' capital at December 31, 2002 $ 179,485,750 $ -- $ 2,365,908 $ 181,851,658
------------- ------------- ------------- -------------
See accompanying notes to financial statements.
F-7
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 SB AAA Master Fund LLC, a New York limited
liability company (the "Master") and a fair value of $128,539,149 as a
tax-free transfer to 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 the 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, 2002 and 2001, the Partnership owns 55.5% and 94.5%,
respectively, of the Master. It is the Partnership's intention to continue
to invest substantially all of its assets in the Master. The performance of
the Partnership is directly affected by the performance of the Master.
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 (as defined in Note 3b), 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 their 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; the aggregate net assets
of the Partnership decline to less than $1,000,000; 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 Members' 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
F-8
(including derivative financial instruments and derivative commodity
instruments) held 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 realized and
unrealized gains (losses).
b. Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on their share of the Partnership's
income and expenses.
c. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
d. Certain prior period amounts have been reclassified to conform to
current year presentation.
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. Month-end Net Assets, for the purpose of calculating
management fees are Net Assets, as defined in the Limited Partnership
Agreement, prior to the reduction of redemptions and incentive fees.
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 in the Management Agreement, earned on behalf of
the Partnership during each calendar year in the form of Special
Limited Partner Units.
F-9
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 half turn for options. The brokerage fee was inclusive of
applicable floor brokerage. In addition, the Partnership paid SSB
National Futures Association ("NFA") fees, as well as 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 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. 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 activities are shown in the statement of income and expenses.
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 their 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-10
6. Financial Highlights:
Changes in the net asset value per Unit of Partnership interest for the
years ended December 31, 2002, 2001 and 2000 were as follows:
2002 2001 2000
Net realized and unrealized gains* $875.42 $592.31 $290.47
Interest income 31.29 46.08 41.32
Expenses** (215.36) (149.38) (59.14)
---------- ----------- -----------
Increase for period 691.35 489.01 272.65
Net asset value per Unit, beginning of year 1,897.23 1,408.22 1,135.57
----------- ----------- -----------
Net asset value per Unit, end of year $2,588.58 $1,897.23 $1,408.22
----------- ----------- -----------
* Includes brokerage commissions
** Excludes brokerage commissions
Ratios to average net assets:
Net investment loss before incentive fee allocation (10.1)% (1.4)%
***
Incentive fee allocation (7.3)% (6.5)%
--------- ---------
Net investment loss after incentive fee allocation (17.4)% (7.9)%
--------- ---------
Net income before incentive fee allocation**** 38.1% 35.2%
Incentive fee allocation**** (7.3)% (6.5)%
--------- ---------
Net income after incentive fee allocation**** 30.8% 28.7%
--------- ---------
Operating expenses 11.4% 8.9%
Incentive fee allocation 7.3% 6.5%
--------- ---------
Total expenses 18.7% 15.4%
--------- ---------
Total return:
Total return before incentive fee allocation 45.5% 42.6%
Incentive fee allocation (9.1)% (7.9)%
--------- ---------
Total return after incentive fee allocation 36.4% 34.7%
--------- ---------
*** Interest income less total expenses (exclusive of incentive fee
allocation)
****Supplemental information not required.
The above ratios may vary for individual investors based on the timing of
capital transactions during the year.
7. Financial Instrument Risks:
In the normal course of its business, the Partnership, 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. These financial instruments may include
forwards, futures, options and swaps, whose values are based upon an
underlying asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash 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
F-11
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 Master's swap contracts are OTC
contracts.
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.
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 majority of these instruments mature within one year of December 31,
2002. However, due to the nature of the Partnership's/Master's business,
these instruments may not be held to maturity.
F-12
Selected unaudited quarterly financial data for the years ended December 31,
2002 and December 31, 2001 is summarized below:
For the period For the period For the period For the period
from from from from
October 1, 2002 July 1, 2002 April 1, 2002 January 1, 2002
to to to to
December 31, 2002 September 30, 2002 June 30, 2002 March 31, 2002
Net realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
including interest income $12,880,854 $ 8,504,250 $ 20,314,775 $ 24,218,306
Net Income (loss) $ 9,694,864 $ 6,175,754 $ 15,629,025 $ 18,842,859
Increase (decrease) in Net Asset
Value per Unit $ 137.26 $ 86.93 $ 211.99 $ 255.17
For the period For the period For the period For the period
from from from from
October 1, 2001 July 1, 2001 April 1, 2001 January 1, 2001
to to to to
December 31, 2001 September 30, 2001 June 30, 2001 March 31, 2001
Net realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
including interest income $ 8,755,705 $10,364,608 $ 6,098,085 $ 13,251,510
Net Income (loss) $ 6,524,539 $ 7,916,335 $ 4,636,368 $ 10,368,200
Increase (decrease) in Net Asset
Value per Unit $ 91.15 $ 112.78 $ 88.45 $ 196.63
F-13
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:/s/ Daniel R. McAuliffe, Jr.
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-14
Report of Independent Auditors
To the Members of
SB AAA Master Fund LLC:
We have audited the accompanying statement of financial condition of SB AAA
Master Fund LLC (the Company), including the condensed schedule of investments,
as of December 31, 2002, and the related statements of income and expenses, and
members' capital for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of the Company as of December 31, 2001 and for the period from
September 1, 2001 (commencement of trading operations) to December 31, 2001 were
audited by other auditors whose report dated February 28, 2002 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SB AAA Master Fund LLC as of
December 31, 2002, and the results of its operations and changes in its members'
capital for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
New York, New York
March 7, 2003
F-15
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 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-16
SB AAA Master Fund LLC
Statements of Financial Condition
December 31, 2002 and 2001
2002 2001
Assets:
Equity in commodity futures trading account:
Cash (restricted $53,522,255 and $21,792,237, respectively) $330,218,077 $156,846,978
Net unrealized appreciation on open futures positions 9,188,483 1,084,800
Unrealized appreciation on open swaps positions 38,011,771 2,366,125
Commodity options owned, at fair value (cost $63,879,907
and $3,003,750, respectively) 83,252,102 2,135,700
------------ ------------
460,670,433 162,433,603
Due from brokers 12,595,792 481,935
Interest receivable 6,712 2,911
------------ ------------
$473,272,937 $162,918,449
-------------- -------------
Liabilities and Members' Capital:
Liabilities:
Unrealized depreciation on open swap positions $48,470,222 $2,972,435
Commodity options written, at fair value
(premium received $59,666,185 and $8,994,064, respectively) 67,724,777 6,501,746
Accrued expenses:
Commissions 5,210,167 261,717
Professional fees 20,117 38,000
Due to brokers 1,541,223 906,850
Due to SSB 22,978 22,978
-------------- ------------
122,989,484 10,703,726
Members' Capital:
Members' Capital, 216,158.4103 and 137,224.2994 Units
outstanding in 2002 and 2001, respectively 350,283,453 152,214,723
-------------- ------------
$473,272,937 $162,918,449
-------------- -------------
See accompanying notes to financial statements.
F-17
SB AAA Master Fund LLC
Condensed Schedule of Investments
December 31, 2002
Number of Contract Fair Value
Sector Contracts
Energy Futures contracts purchased 17.92%
6,228 IPE Gas Oil 5.45% Jan. - Feb. 2003 $19,089,003
Other 12.47% 43,677,214
------------
62,766,217
Futures contracts sold (15.30)%
13,454 NYMEX Light Sweet Crude Oil (7.22)% Feb. 03 - June 04 (25,271,391)
7,578 NYMEX Natural Gas (6.05)% Feb. 03 - Feb. 04 (21,203,640)
Other (2.03)% (7,102,703)
------------
(53,577,734)
Options owned 23.77%
7,293 NYMEX Natural Gas Call 10.40% Feb. 03 - June 03 36,430,400
5,325 NYMEX Natural Gas Put 5.37% Feb. 03 - June 03 18,812,110
Other 8.00% 28,009,592
------------
83,252,102
Options written (19.33)%
12,086 NYMEX Light Sweet Crude Call (6.90)% Feb. 03 - June 03 (24,193,640)
Other (12.43)% (43,531,137)
------------
(67,724,777)
Unrealized appreciation on Swaps contracts 10.85%
3,354 NYMEX Natural Gas 5.46% 19,130,237
Other 5.39% 18,881,534
------------
38,011,771
Unrealized depreciation on Swaps contracts (13.84)%
1,809 NYMEX Natural Gas (5.17)% (18,107,814)
Other (8.67)% (30,362,408)
------------
(48,470,222)
------------
Total Energy 4.07% 14,257,357
------------
Total Fair Value 4.07% $14,257,357
------------
Investments at % of Investments at
Country Composition Fair Value Fair Value
-------------------- ----------- ---------------
United Kingdom $25,728,485 180.46%
United States (11,471,128) (80.46)
------------ ------
$14,257,357 100.00%
------------ ------
Percentages are based on Members' Capital unless otherwise indicated.
See accompanying notes to financial statements.
F-18
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 Kingdom $ 2,662,253 68.48%
United States (6,549,809) (168.48)
------------ ------
$(3,887,556) 100.00%
------------ ------
Percentages are based on Members' Capital unless otherwise indicated.
See accompanying notes to financial statements.
F-19
SB AAA Master Fund LLC
Statements of Income and Expenses
for the year ended December 31, 2002
and for the period from September 1, 2001
(commencement of trading operations)
to December 31, 2001
2002 2001
Income:
Net gains on trading of commodity interests:
Realized gains on closed positions $96,247,547 $23,522,245
Change in unrealized gains (losses)
on open positions 7,940,877 (5,652,277)
------------ ------------
104,188,424 17,869,968
Interest income 102,864 21,054
------------ ------------
104,291,288 17,891,022
------------ ------------
Expenses:
Brokerage commissions including clearing fees of
$2,515,609 and $361,342, respectively 21,769,166 2,992,446
Professional fees 37,083 38,000
------------ ------------
21,806,249 3,030,446
------------ ------------
Net income $82,485,039 $14,860,576
------------ ------------
Net income per Unit of Member Interest $511.25 $109.24
------------ ------------
See accompanying notes to financial statements.
F-20
SB AAA Master Fund LLC
Statements of Members' Capital
for the year ended December 31, 2002
and 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
Net Income 82,485,039
Sale of 103,668.6762 Units of
Member Interest 149,182,059
Redemptions of 24,734.5653 Units of
Member Interest (33,598,368)
-------------
Members' Capital at December 31, 2002 $350,283,453
-------------
See accompanying notes to financial statements.
F-21
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 Master may enter into swap contracts. The Master is
authorized to sell an unlimited number of Units 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. On July 1,
2002, Salomon Smith Barney AAA Energy Fund L.P. II ("AAAII") transferred
substantially all of its assets to the Master as a tax-free transfer in
exchange for 64,945.0387 Units of the Master as a non-managing member. 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, AAAII and Orion (collectively the "Feeder Funds")
with 55.5%, 37.2% and 7.3% investments in the Master, respectively.
Smith Barney Futures Management LLC acts as the managing member (the
"Managing Member") of the Master. The Master'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 Master 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 Managing Member 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 gains (losses) on open positions
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
F-22
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.
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 partner of each of the
members (the Feeder Funds) is individually liable for the taxes, if
any, on their share of the Master's income and expenses.
e. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from 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. The Master will pay SSB brokerage commissions at $18
per round turn for futures, options and swap transactions. The
brokerage fee is inclusive of applicable floor brokerage. All
exchange, clearing, user, give-up and National Futures Association
fees are borne by the Master. All other fees (management fees,
administrative fees, incentive fees and offering costs) 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, 2002 and 2001, the
amount of cash held by the Master for margin requirements was
$53,522,255 and $21,792,237, respectively. 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. All commissions in connection with the Customer
Agreement shall be borne by the Feeder Funds.
F-23
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
activities 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 values for the year ended December 31, 2002 and
during the period from September 1, 2001 (commencement of trading
operations) to December 31, 2001, based on a monthly calculation, were
$13,217,805 and $(927,070), respectively. The fair values of these
commodity interests, including options thereon, if applicable, at December
31, 2002 and 2001 were $14,257,357 and $(3,887,556), respectively.
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 their 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 year
ended December 31, 2002 and for the period from September 1, 2001
(commencement of trading operations) to December 31, 2001 were as follows:
2002 2001
Net realized and unrealized gains * $510.93 $109.36
Interest income 0.54 0.16
Expenses ** (0.22) (0.28)
------- --------
Increase for year 511.25 109.24
Net asset value per Unit, beginning of year/period 1,109.24 1,000.00
-------- --------
Net asset value per Unit, end of year/period $1,620.49 $1,109.24
-------- ---------
* Includes brokerage commissions
** Excludes brokerage commissions
Ratio to average net assets:
Net investment loss *** (8.9)% (2.1)%*****
Net income **** 34.0% 31.7%*****
Operating expenses 9.0% 6.5%*****
Total Return 46.1% 10.9%
*** Interest income less total expenses
**** Supplemental information not required
*****Annualized
The above ratios may vary for individual investors based on the timing of
capital transactions during the year.
F-24
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 values are
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.
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, 2002, 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, 2002, the Master owed Citibank, N.A. $7,665, 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 majority of these instruments mature within one year of December 31,
2002. However, due to the nature of the Master's business, these
instruments may not be held to maturity.
F-25
8. Subsequent Event (Unaudited):
During the period January 1, 2003 through February 28, 2003, the Master
experienced a cumulative loss of approximately 25%. This loss was primarily
attributable to extraordinary price activity in US natural gas markets at
the end of February which led to losses in the Master's energy market
positions.
The natural gas market experienced an upward increase in price of over 50%
in two days in the April futures contract and a 300% increase in physical
gas market prices. Such extreme moves happen only in exceptionally rare
circumstances and can lead to "hyper-volatility" and generally illiquid
market conditions.
The Masters' liquidity was not hindered as a result of these market
movements.
F-26
Selected unaudited quarterly financial data for the years ended December 31,
2002 and December 31, 2001 is summarized below:
For the period For the period For the period For the period
from from from from
October 1, 2002 July 1, 2002 April 1, 2002 January 1, 2002
to to to to
December 31, 2002 September 30, 2002 June 30, 2002 March 31, 2002
Net realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
including interest income $20,900,856 $13,555,805 $21,669,451 $26,396,010
Net Income (loss) $20,891,458 $13,546,406 $21,660,359 $26,386,816
Increase (decrease) in Net Asset
Value per Unit $96.86 $62.01 $158.46 $193.92
For the period For the period from
from September 1, 2001
October 1, 2001 (Commencenment of
to Operations) to
December 31, 2001 September 30, 2001
Net realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
including interest income $8,474,195 $6,424,381
Net Income (loss) $8,436,195 $6,424,381
Increase (decrease) in Net Asset
Value per Unit $61.67 $47.57
F-27
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
PricewaterhouseCoopers LLP was previously the principal accountant for the
Partnership. On July 9, 2002, that firm was dismissed as principal accountant
and KPMG LLP was engaged as principal accountant. The decision to change
accountants was approved by the general partner of the Partnership.
In connection with the audits of the two fiscal years ended December 31,
2001, and through July 9, 2002, there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to their satisfaction would have caused them to
make reference thereto in their reports on the financial statements for such
years.
The audit reports of PricewaterhouseCoopers LLP on the financial statements
of the Partnership as of and for the years ended December 31, 2001 and 2000 did
not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principle.
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.
42
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, 2002, SSB earned $15,155,860 in
brokerage commissions and clearing fees from the Partnership and through the
Partnership's investment in the Master. The Advisor earned $3,488,171 in
management fees during 2002.
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, 2002. Principals who own Units of the Partnership:
David J. Vogel 101.0801 Units
Daniel R. McAuliffe, Jr. 10.3165 Units
(c). Changes in control. None.
43
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." Item 14. Control and
Procedures
Based on their evaluation of the Partnership's disclosure controls and
procedures as of a date within 90 days of the filing of this report, the Chief
Executive Officer and Chief Financial Officer have concluded that such controls
and procedures are effective.
There were no significant changes in the Partnership's internal controls or
in other factors that could significantly affect such controls subsequent to the
date of their evaluation.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements: Statements of Financial Condition at
December 31, 2002 and 2001.
Statements of Income and Expenses for the years ended
December 31, 2002, 2001 and 2000.
Statements of Partners' Capital for the years ended December
31, 2002, 2001 and 2000.
44
(2) Financial Statement Schedules: Financial Data Schedule
for year ended December 31, 2002.
(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).
10.6 - Letter from the General Partner to AAA Capital
Management, Inc. extending the Management Agreement for
2001 (previously filed).
45
10.7 - Letter from the General Partner to AAA Capital
Management, Inc. extending the Management Agreement
for02 (filed herein).
99.1 Certificate of Chief Executive Officer.
99.2 Certificate of Chief Financial Officer.
(b) Report on Form 8-K: None Filed.
46
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
No proxy material has been sent to Limited Partners.
47
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 28th day
of March 2003.
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
48
TYPE> EX-27
DESCRIPTION> FINANCIAL DATA SCHEDULE
TEXT>
ARTICLE> 5
CIK> 0001057051
NAME> Smith Barney AAA Energy Fund L.P.
PERIOD-TYPE> 12-MONTHS
FISCAL-YEAR-END> DEC-31-2002
PERIOD-START> JAN-01-2002
PERIOD-END> DEC-31-2002
CASH> 5,181
SECURITIES> 194,537,976
RECEIVABLES> 154,185
ALLOWANCES> 0
INVENTORY> 0
CURRENT-ASSETS> 194,697,342
PP&E> 0
DEPRECIATION> 0
TOTAL-ASSETS> 194,697,342
CURRENT-LIABILITIES> 12,845,684
BONDS> 0
PREFERRED-MANDATORY> 0
PREFERRED> 0
COMMON> 0
OTHER-SE> 181,851,658
TOTAL-LIABILITY-AND-EQUITY> 194,697,342
SALES> 0
TOTAL-REVENUES> 65,918,185
CGS> 0
TOTAL-COSTS> 0
OTHER-EXPENSES> 15,575,683
LOSS-PROVISION> 0
INTEREST-EXPENSE> 0
INCOME-PRETAX> 50,342,502
INCOME-TAX> 0
INCOME-CONTINUING> 0
DISCONTINUED> 0
EXTRAORDINARY> 0
CHANGES> 0
NET-INCOME> 50,342,502
EPS-PRIMARY> 691.35
EPS-DILUTED> 0