FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 2000
Commission File Number 000-25921
SMITH BARNEY AAA ENERGY FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-3823300
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management LLC
390 Greenwich St. - 1st Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
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
<PAGE>
SMITH BARNEY AAA ENERGY FUND L.P.
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition
at March 31, 2000 and December 31,
1999 (unaudited). 3
Statement of Income and Expenses and
Partners' Capital for the three months
ended March 31, 2000 and 1999 (unaudited). 4
Notes to Financial Statements
(unaudited). 5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 9 - 10
Item 3. Quantitative and Qualitative
Disclosures of Market Risk 11 - 12
PART II - Other Information 13 - 17
2
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PART I
Item 1. Financial Statements
Smith Barney AAA Energy Futures Fund L.P.
Statement of Financial Condition
(Unaudited)
March 31, December 31,
2000 1999
Assets:
Equity in commodity futures trading account:
Cash $ 62,696,827 $ 78,368,723
Net unrealized depreciation
on open futures contracts (136,494) (751,259)
Net unrealized appreciation
(depreciation) on open
swaps contracts 65,126 (623,631)
Commodity options owned, at
market value (cost $5,641,623 and
$15,880,430, respectively ) 9,202,514 8,992,060
------------ ------------
71,827,973 85,985,893
Interest receivable 248,268 255,849
Due from broker 204,360 --
============ ============
$ 72,280,601 $ 86,241,742
============ ============
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $ 458,325 $ 908,487
Management fees 116,170 128,962
Other fees 84,101 46,760
Due to broker -- 808,761
Redemptions payable 4,748,968 1,485,873
Commodity options written, at
market value (premium $4,821,528 and
$11,396,728, respectively ) 3,347,938 8,556,476
------------ ------------
8,755,502 11,935,319
Partners' Capital:
General Partner, 704.3292 and 682.3138 Unit
equivalents outstanding in 2000 and
1999, respectively 695,899 774,815
Limited Partners, 61,580.6966 and 64,753.0149
Units of Limited Partnership Interest
outstanding in 2000 and 1999, respectively 62,829,200 73,531,608
------------ ------------
63,525,099 74,306,423
============ ============
$ 72,280,601 $ 86,241,742
============ ============
See Notes to Financial Statements.
3
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SMITH BARNEY AAA ENERGY FUND L.P.
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
Three Months Ended
March 31,
2000 1999
----------- ------------
Income:
Net gains (losses) on trading of commodity
futures:
Realized gains (losses) on closed positions $(16,320,989) $ 23,344,060
Change in unrealized gains (losses) on open
positions 10,386,121 (5,470,884)
------------ ------------
(5,934,868) 17,873,176
Less, brokerage commissions including
clearing fees of $348,282 and
$282,428, respectively (2,334,897) (2,245,671)
------------ ------------
Net realized and unrealized gains (losses) (8,269,765) 15,627,505
Interest income 792,698 765,028
------------ ------------
(7,477,067) 16,392,533
------------ ------------
Expenses:
Management fees 362,508 433,892
Organization expense -- --
Other expenses 60,207 16,848
------------ ------------
422,715 450,740
------------ ------------
Net income (loss) before allocation to
the Special Limited Partner (7,899,782) 15,941,793
Accrued Allocation to the Special
Limited Partner -- (3,035,353)
------------ ------------
Net income (loss) (7,899,782) 12,906,440
Additions - Limited Partner 4,455,000 --
- General Partner 25,000 --
Redemptions - Limited Partner (7,361,542) (2,554,384)
------------ ------------
Net increase (decrease) in Partners' capital (10,781,324) 10,352,056
Partners' capital, beginning of period 74,306,423 79,727,340
------------ ------------
Partners' capital, end of period $ 63,525,099 $ 90,079,396
============ ============
Net asset value per Unit
(62,285.0258 and 65,304.2783 Units
outstanding at March 31, 2000 and
1999, respectively) $ 1,019.91 $ 1,379.38
============ ============
Net income (loss) per Unit of Limited
Partnership Interest and General
Partner Unit equivalent $ (115.66) $ 195.05
============ ============
4
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SMITH BARNEY AAA ENERGY FUND L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
1. General:
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 to engage in the speculative trading of a diversified portfolio of
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
intends initially to trade solely energy and energy related products. In
addition, the Partnership may enter into swap contracts on energy related
products. The commodity interests that are traded by the Partnership are
volatile and involve a high degree of market risk.
Between February 12, 1998 (the commencement of the offering period) and
March 15, 1998, 49,538 Units of limited partnership interest were sold at $1,000
per Unit. The proceeds of the offering were held in an escrow account until
March 16, 1998, at which time they were turned over to the Partnership for
trading.
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The Partnership's commodity broker is
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. All trading decisions are made by AAA Capital Management LLC (the
"Advisor").
The accompanying financial statements are unaudited but, in the opinion
of management, include all adjustments, (consisting only of normal recurring
adjustments), necessary for a fair presentation of the Partnership's financial
condition at March 31, 2000 and December 31, 1999 and the results of its
operations for the three months ended March 31, 2000 and 1999. These financial
statements present the results of interim periods and do not include all
disclosures normally provided in annual financial statements. It is suggested
that these financial statements be read in conjunction with the financial
statements and notes included in the Partnership's annual report on Form 10-K
filed with the Securities and Exchange Commission for the year ended December
31, 1999.
Due to the nature of commodity trading, the results of operations for
the interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
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2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three months ended March
31, 2000 and 1999 were as follows:
THREE-MONTHS ENDED
MARCH 31,
2000 1999
Net realized and unrealized
gains (losses) $ (121.07) $ 236.16
Interest income 11.58 11.57
Expenses (6.17) (52.68)
--------- ---------
Increase (decrease) for
Period (115.66) 195.05
Net Asset Value per Unit,
Beginning of period 1,135.57 1,184.33
--------- ---------
Net Asset Value per Unit,
End of Period $ 1,019.91 $ 1,379.38
========= =========
3. Trading Activities:
The Partnership 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 Partnership's trading
activity are shown in the statement of income and expenses.
The Customer Agreement between the Partnership and SSB gives the
Partnership the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair value during the periods ended March 31, 2000
and December 31, 1999, based on a monthly calculation, was $5,090,939 and
$(6,771,852), respectively. The fair value of these commodity interests,
including options and swaps thereon, if applicable, at March 31, 2000 and
December 31, 1999 was $5,783,208 and $(939,306), respectively, as detailed
below.
Fair Value
March 31, December 31,
2000 1999
----------- ----------
Energy $5,718,082 $(315,675)
Energy Swaps 65,126 (623,631)
---------- ---------
Total $5,783,208 $(939,306)
========== =========
6
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4. Financial Instrument Risk:
The Partnership is party to financial instruments with off-balance
sheet risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
may include forwards, futures and options, whose value is based upon an
underlying asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash flows, to purchase or sell other
financial instruments at specific terms at specified future dates, or, in the
case of derivative commodity instruments, to have a reasonable possibility to be
settled in cash, through physical delivery or with another financial instrument.
These instruments may be traded on an exchange or over-the-counter ("OTC").
Exchange traded instruments are standardized and include futures and certain
option contracts. OTC contracts are negotiated between contracting parties and
include forwards and certain options. Each of these instruments is subject to
various risks similar to those related to the underlying financial instruments
including market and credit risk. In general, the risks associated with OTC
contracts are greater than those associated with exchange traded instruments
because of the greater risk of default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership 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 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 has concentration risk because the sole counterparty or broker with
respect to the Partnership's assets is SSB. As of March 31, 2000, the only
counterparties to the Partnership's swap contracts were Citibank, N.A. which is
affiliated with the Partnership, Morgan Stanley Capital Group Inc. and J. Aron &
Company.
The General Partner monitors and controls the Partnership'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 is
subject. These monitoring systems allow the General Partner to statistically
7
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analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. The majority of these instruments mature
within one year of March 31, 2000. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity.
8
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its
only assets are its equity in its commodity futures trading account, consisting
of cash and cash equivalents, net unrealized appreciation (depreciation) on open
futures and forward contracts, commodity options and interest receivable.
Because of the low margin deposits normally required in commodity futures
trading, relatively small price movements may result in substantial losses to
the Partnership. While substantial losses could lead to a substantial decrease
in liquidity, no such losses occurred in the Partnership's first quarter of
2000.
The Partnership's capital consists of capital contributions, as
increased or decreased by gains or losses on com modity futures trading and
expenses, interest income, redemptions of Units and distributions of profits, if
any.
For the three months ended March 31, 2000, Partnership capital decreased
14.5% from $74,306,423 to $63,525,099. This decrease was attributable to net
loss from operations of $7,899,782 coupled with the redemption of 7,095.4582
Units resulting in an outflow of $7,361,542 partially offset by additional sales
of 3,945.1553 Units totaling $4,480,000. Future redemptions can impact the
amount of funds available for investments in commodity contract position in
subsequent periods.
Results of Operations
During the Partnership's first quarter of 2000, the net asset value per
unit decreased 10.2% from $1,135.57 to $1,019.91, as compared to an increase of
16.5% in the first quarter of 1999. The Partnership experienced a net trading
loss before brokerage commissions and related fees in the first quarter of 2000
of $5,934,868. These losses were primarily attributable to the trading of
commodity futures in energy contracts. The Partnership experienced a net trading
gain before brokerage commissions and related fees in the first quarter of 1999
of $17,873,176. Gains were primarily attributable to the trading of energy
contracts.
Commodity futures 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
Partnership depends on the existence of major price trends and the ability of
the Advisors to identify correctly those price trends. Price trends are
influenced by, among other things, changing supply and demand relationships,
weather, governmental, agricultural, commercial and trade programs and policies,
9
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national and international political and economic events and changes in interest
rates. To the extent that market trends exist and the Advisors are able to
identify them, the Partnership expects to increase capital through operations.
Interest income on 80% of the Partnership's daily average equity
maintained in cash was earned 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. Interest income for the three months ended
March 31, 2000 increased by $27,670, as compared to the corresponding period in
1999. The increase in interest is primarily the result of interest received from
counterparties on cash held for margin purposes.
Brokerage commissions are based on the number of trades executed by
the Advisor. Commissions and fees for the three months ended March 31, 2000
increased by $89,226, as compared to the corresponding period in 1999.
Management fees are calculated as a percentage of the Partnership's
net asset value as of the end of each month and are affected by trading
performance and redemptions. Management fees for the three months ended March
31, 2000 decreased by $71,384, as compared to the corresponding period in 1999.
10
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12
Item. 3 Quantitative and Qualitative Disclosures of Market Risk
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Partnership's main line of business.
Market movements result in frequent changes in the fair market value of
the Partnership's open positions and, consequently, in its earnings and cash
flow. The Partnership's market risk is influenced by a wide variety of factors.
These primarily include factors which affect energy price levels, including
supply factors and weather conditions, but could also include the level and
volatility of interest rates, exchange rates, equity price levels, the market
value of financial instruments and contracts, the diversification effects among
the Partnership's open positions and the liquidity of the markets in which it
trades.
The Partnership 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 Partnership's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's experience to date (i.e., "risk of
ruin"). In light of the foregoing as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification
included in this section should not be considered to constitute any assurance or
representation that the Partnership's losses in any market sector will be
limited to Value at Risk or by the Partnership's attempts to manage its market
risk.
Exchange maintenance margin requirements have been used by the
Partnership 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. 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.
11
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The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of March 31, 2000. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of March 31, 2000, the Partnership's
total capitalization was $63,525,099. There has been no material change in the
trading Value at Risk information previously disclosed in the Form 10-K for the
year ended December 31, 1999.
March 31, 2000
(Unaudited)
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk
- --------------------------------------------------------------------------------
Energy $3,899,058 6.09% $16,360,644 $3,170,636
Energy Swaps 3,563,903 5.61% 7,158,350 3,563,903
----------- ------
Total $7,462,961 11.70%
=========== ======
12
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18
PART II OTHER INFORMATION
Item 1. Legal Proceedings -
For information concerning a suit filed by Harris Trust Savings Bank (as trustee
for the Ameritech Pension Trust) and others against Salomon Brothers Inc., and
Salomon Brothers Realty Corp., see the description that appears in the second
and third paragraphs under the caption "Legal Proceedings" beginning on page 11
of the Annual Report on Form 10-K of the Company for the year ended December 31,
1999 (File No. 1-4346), which description is included as Exhibit 99.1 to this
Form 10-Q and incorporated by reference herein. In April 2000, the U.S. Supreme
Court heard oral argument on plaintiffs' petition to reverse the decision of the
U.S. Court of Appeals for the Seventh Circuit. The U.S. Supreme Court reserved
its decision, and has not yet released its opinion.
For information concerning the complaints filed in the U.S. District Court for
the Eastern District of Louisiana (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.), a purported class action in Florida against
numerous broker-dealers including the Company (Dwight Brock as Clerk for Collier
County v. Merrill Lynch, et al.), and the IRS and SEC industry-wide
investigation into the pricing of Treasury securities in advanced refunding
transactions, see the description that appears in the fourth, fifth and sixth
paragraphs under the caption " Legal Proceedings" beginning on page 11 of the
Annual Report on Form 10-K of SSBHI for the year ended December 31, 1999 (File
No. 1-4346), which description is included as Exhibit 99.2 to this form 10-Q and
incorporated by reference herein. In April 2000, seventeen investment banks,
including the Company, entered into an agreement with the federal government to
settle charges related to the pricing of Treasury securities in advanced
refunding transactions. Thereafter, plaintiffs filed voluntary discontinuances
in the two Louisiana federal actions.
For information concerning the matter entitled MKP Master Fund, LDC et al. v.
Salomon Smith Barney Inc., see the description that appears in the seventh
paragraph under the caption "Legal Proceedings" beginning on page 11 of the
Annual Report on Form 10-K of SSBHI for the year ended December 31, 1999 (File
No. 1-4346), which description is included as Exhibit 99.3 to this Form 10-Q and
incorporated by reference herein. In March 2000, plaintiffs' motion to dismiss
the Company's amended counterclaims was argued, and no decision has been
rendered.
13
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Exhibit 99.1
Second and third paragraphs under the caption "Legal Proceedings" beginning on
page 11 of the Annual Report on Form 10-K of SSBHI for the year ended December
31, 1999 (File No. 1-4346).
In September 1992, Harris Trust and Savings Bank (as trustee for Ameritech
Pension Trust ("APT")), Ameritech Corporation, and an officer of Ameritech filed
suit against Salomon Brothers Inc. ("SBI") and Salomon Brothers Realty
Corporation ("SBRC") in the U.S. District Court for the Northern District of
Illinois (Harris Trust Savings Bank, not individually but solely as trustee for
the Ameritech Pension Trust, Ameritech Corporation and John A. Edwardson v.
Salomon Brothers Inc and Salomon Brothers Realty Corp.). The second amended
complaint alleges that three purchases by APT from defendants of participation
interests in net cash flow or resale proceeds of three portfolios of motels
owned by Motels of America, Inc. ("MOA"), as well as a fourth purchase by APT of
a similar participation interest in a portfolio of motels owned by Best Inns,
Inc. ("Best"), violated the Employee Retirement Income Security Act ("ERISA"),
and that APT's purchase of the participation interests in the third MOA
portfolio and in the Best portfolio violated the Racketeer Influenced and
Corrupt Organization Act ("RICO") and the Illinois Consumer Fraud and Deceptive
Practices Act ("Consumer Fraud Act"), and constituted fraud, negligent
misrepresentation, breach of contract and unjust enrichment. SBI had acquired
the participation interests when it purchased principal mortgage notes issued by
MOA and Best to finance purchases of motel portfolios; 95% of three of those
interests and 100% of the fourth were sold to APT for a total of approximately
$20.9 million. Plaintiffs' second amended complaint seeks judgment (a) on the
ERISA claims for the approximately $20.9 million purchase price, for rescission
and for disgorgement of profits, as well as other relief, and (b) on the RICO
and state law claims in the amount of $12.3 million, with damages trebled to $37
million on the RICO claims and punitive damages in excess of $37 million on
certain of the state law claims as well as other relief. Following motions by
defendants, the court dismissed the RICO, Consumer Fraud Act, fraud, negligent
misrepresentation, breach of contract, and unjust enrichment claims. The court
also found that defendants were not ERISA fiduciaries and dismissed two of the
three claims based on that allegation. Defendants moved for summary judgment on
plaintiffs' only remaining claim, which alleged an ERISA violation. The motion
was denied, and defendants appealed to the U.S. Court of Appeals for the Seventh
Circuit. In July 1999, the U. S. Court of Appeals for the Seventh Circuit
reversed the denial of defendants' motion for summary judgment and dismissed the
sole remaining ERISA claim against the Company. Plaintiffs filed a petition for
certiorari with the U. S. Supreme Court seeking review of the decision of the
Court of Appeals. The petition was granted in January 2000.
14
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Both the Department of Labor and the Internal Revenue Service have advised SBI
that they were or are reviewing the underlying transactions. With respect to the
Internal Revenue Service, SSBHI, SBI and SBRC have consented to extensions of
time for the assessment of excise taxes that may be claimed with respect to the
transactions for the years 1987, 1988 and 1989. In August 1996, the IRS sent
SSBHI, SBI and SBRC what appeared to be draft "30-day letters" with respect to
the transactions and SSBHI, SBI and SBRC were given an opportunity to comment on
whether the IRS should issue 30-day letters, which would actually commence the
assessment process. In October 1996, SSBHI, SBI and SBRC submitted a memorandum
setting forth reasons why the IRS should not issue such 30-day letters. Since
that time, the IRS has not issued such 30-day letters to SSBHI, SBI or SBRC.
15
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Exhibit 99.2
Fourth, fifth and sixth paragraphs under the caption "Legal Proceedings"
beginning on page 11 of the Annual Report on Form 10-K of SSBHI for the year
ended December 31, 1999 (File No. 1-4346).
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 declaratory
judgment that Smith Barney Inc. and another underwriter are responsible for any
damages that the City may incur if the Internal Revenue Service denies tax
exempt status to the City's General Obligation Refunding Bonds Series 1991. The
Company filed a motion to dismiss the complaints in September 1998, the
complaints were subsequently amended, and the Company then filed a motion to
dismiss the amended complaints. In May 1999, the Court denied the Company's
motion to dismiss, but stayed the litigation because the matter was not ripe.
In November 1998, a purported class action complaint was filed in the United
States District Court for the Middle District of Florida (Dwight Brock as Clerk
for Collier County v. Merrill Lynch, et al.). The complaint alleges that,
pursuant to a nationwide conspiracy, 17 broker-dealer defendants, including SSB,
charged excessive mark-ups in connection with advanced refunding transactions.
Plaintiff amended its complaint to name an additional defendant and, in March
1999, the Company filed a motion to dismiss the amended complaint. In October
1999, plaintiff filed a second amended complaint. The Company moved to dismiss
the second amended complaint in November 1999.
In connection with the Board of Liquidations, The City of New Orleans and Brock
matters, the IRS and SEC have been conducting an industry-wide investigation
into the pricing of Treasury securities in advanced refunding transactions.
16
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Exhibit 99.3
Seventh paragraph under the caption "Legal Proceedings" beginning on page 11 of
the Annual Report on Form 10-K of SSBHI for the year ended December 31, 1999
(File No. 1-4346).
In March 1999, a complaint seeking in excess of $250 million was filed by a
hedge fund and its investment advisor against SSB in the Supreme Court of the
State of New York, County of New York (MKP Master Fund, LDC et al. v. Salomon
Smith Barney Inc.). Plaintiffs allege that while acting as their prime broker
SSB breached its contracts with plaintiffs, converted plaintiffs' monies and
engaged in tortious conduct, including breaching its fiduciary duties. In
October 1999, the court dismissed plaintiffs' tort claims, including the breach
of fiduciary duty claims, but allowed the breach of contract and conversion
claims to stand. In December 1999, SSB filed an answer and asserted
counterclaims against the investment advisor. In response to plaintiffs' motion
to strike the counterclaims, in January 2000, SSB amended its counterclaims
against the investment advisor to seek indemnification and contribution.
Plaintiffs moved to strike SSB's amended counterclaims in February 2000.
Item 2. Changes in Securities and Use of Proceeds - For the three
months ended March 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. There were no
additional sales during the three months ended March 31, 1999.
Proceeds from the sale of additional Units are used in the
trading of commodity interests including futures contracts, options,
forwards and swap contracts.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
17
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SMITH BARNEY AAA ENERGY FUND L.P.
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 5/12/00
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 5/12/00
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 5/12/00
18
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001057051
<NAME> Smith Barney AAA Energy Fund L.P.
<S> <C>
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<FISCAL-YEAR-END> DEC-31-2000
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