Attached files
file | filename |
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EX-31.1 - EX-31.1 - MANAGED FUTURES PREMIER ENERGY FUND L.P. | y03041exv31w1.htm |
EX-32.1 - EX-32.1 - MANAGED FUTURES PREMIER ENERGY FUND L.P. | y03041exv32w1.htm |
EX-31.2 - EX-31.2 - MANAGED FUTURES PREMIER ENERGY FUND L.P. | y03041exv31w2.htm |
EX-10.5(A) - EX-10.5(A) - MANAGED FUTURES PREMIER ENERGY FUND L.P. | y03041exv10w5xay.htm |
EX-32.2 - EX-32.2 - MANAGED FUTURES PREMIER ENERGY FUND L.P. | y03041exv32w2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 000-25921
AAA CAPITAL 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 Ceres Managed Futures LLC
55 East 59th Street - 10th Floor
New York, New York 10022
55 East 59th Street - 10th Floor
New York, New York 10022
(212) 559-2011
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: |
Redeemable Units of Limited Partnership Interest (Title of Class) |
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes | No | X |
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes | No | X |
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 whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files.
Yes | 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 registrants 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 a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer |
Non-accelerated filer X (Do not check if a smaller reporting company) |
Smaller reporting company |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes | No | X |
Limited Partnership Redeemable Units with an aggregate value of
$262,573,908 were outstanding and held by non-affiliates as of
the last business day of the registrants most recently
completed second calendar month.
As of February 28, 2010, 25,003.8541 Limited Partnership
Redeemable Units were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
[None]
[None]
PART I
Item 1. | Business. |
(a) General Development of Business. AAA Capital Energy Fund L.P. (formerly known as
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, directly or
indirectly, 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, through its investment in the Master (defined herein) may trade
commodity futures and options contracts of any kind. In addition, the Partnership, through its
investment in the Master, 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.
During the initial offering period (February 12, 1998 through March 15, 1998) the Partnership
sold 49,538 redeemable units of Limited Partnership Interest in the Partnership (Redeemable
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. The Partnership no longer offers Redeemable Units for sale. During 2008, the Special
Limited Partner (defined herein) donated Redeemable Units to the Limited Partners. Sales and
redemptions of Redeemable Units and General Partner contributions and redemptions for the years
ended December 31, 2009, 2008 and 2007 are reported in the Statements of Changes in Partners
Capital on page F-11 under Item 8. Financial Statements and Supplementary Data.
Ceres Managed Futures LLC (formerly Citigroup Managed Futures LLC) (CMF), a Delaware limited
liability company, acts as the general partner (the General Partner) and commodity pool operator
of the Partnership. The General Partner is wholly owned by Morgan Stanley Smith Barney Holdings LLC
(MSSB Holdings), a newly registered non-clearing futures commission merchant and a member of the
National Futures Association (NFA). Morgan Stanley, indirectly through various subsidiaries, owns 51% of
MSSB Holdings. Citigroup Global Markets Inc. (CGM), the commodity broker and a selling agent for
the Partnership, owns 49% of MSSB Holdings. Citigroup Inc. (Citigroup), indirectly through
various subsidiaries, wholly owns CGM. Prior to July 31, 2009, the date as of which MSSB Holdings
became its owner, the General Partner was wholly owned by Citigroup Financial Products Inc., a
wholly owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner of which is
Citigroup.
On September 1, 2001, the Partnership allocated substantially all of its capital to the AAA
Master Fund LLC, (formerly known as Citigroup AAA Master Fund LLC), (the Master) a limited
partnership organized under the partnership laws of the State of New York. The Partnership
purchased 128,539.1485 units of the Master with a fair value of $128,539,149 (including unrealized
appreciation of $7,323,329). The Master was formed in order to permit commodity pools managed now
or in the future by AAA Capital Management Advisors, Ltd. (successor to AAA Capital Management,
Inc.) (the Advisor) using the Energy Program
Futures and Swaps, the Advisors proprietary, discretionary
trading program, to invest together in one trading vehicle.
A description of the trading activities and focus of the Advisor is included on page 7
under Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations.
In addition, the Advisor is a Special
Limited Partner (the Special Limited Partner) of the Partnership. The General Partner and the Advisor
believe that trading through this master/feeder structure promotes efficiency and economy in the
trading process. Expenses to investors as a result of the investment in the Master are
approximately the same and redemption rights are not affected. The Masters commodity broker is CGM
and its managing member is CMF. The Master may trade commodity futures and options contracts of any
kind, but trades solely energy, energy-related products and grains. In addition, the Master may
enter into swap contracts or trade in energy-related products. The commodity interests that are
traded by the Master are volatile and involve a high degree of market risk.
For the period January 1, 2009 through December 31, 2009, the approximate average market
sector allocation for the Partnership was 100% energy.
At December 31, 2009 and 2008, the Partnership owned approximately 23.3% and 23.2%,
respectively of the Master. It is the Partnerships 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.
The Masters trading of futures, forwards, swaps 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 CGM.
The General Partner has agreed to make capital contributions, if necessary, so that its
general partnership interest will be equal to the greater of (i) 1% of the partners contributions
to the Partnership or (ii) $25,000. The Partnership will be liquidated upon the first to occur of
the following: December 31, 2018; the Net Asset Value per Redeemable Unit decreases to less than $400 as of
the 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 per Redeemable Unit in the Limited Partnership Agreement of the Partnership (the Limited
Partnership Agreement).
2
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 has entered into a management agreement (the Management Agreement) with
the Advisor who will make all commodity trading decisions for the Partnership. The Advisor is not
responsible for the organization or operation of the Partnership.
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 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
the current months profit share allocation accrual, the monthly management fee and any redemption or distributions as of the end of such month. The Management Agreement may
be terminated upon notice by either party.
In addition, the Advisor is a Special Limited Partner of the
Partnership and receives a quarterly profit share allocation to its capital account in the
Partnership in the form of units of the Partnership, the value of which shall be equal to 20% of
New Trading Profits, as defined in the Management Agreement, earned on behalf of the Partnership
during each calendar quarter and are issued as Special Limited Partner Units.
The Partnership entered into a customer agreement (the Customer Agreement) which provides
that the Partnership pay CGM brokerage commissions at $18 per round turn for futures, $5 per round
turn for swap transactions and $9 per side for options. The brokerage commissions were inclusive of
applicable floor brokerage fees. All exchange, clearing, user, give-up, and NFA fees, (collectively
the clearing fees) are borne by the Master and allocated to the Partnership through its
investment in the Master. The Partnership pays CGM brokerage commissions at the above
rates based on its proportional share of the Masters trades. CGM will pay a portion of brokerage
fees to its financial advisors who have sold Redeemable Units in the Partnership. The Partnerships assets
not held in the Masters account at CGM are held in the Partnerships account at CGM. The Partnerships assets are
deposited by CGM in segregated bank accounts to the extent required by Commodity Futures Trading
Commission regulations. Cash margin requirements are maintained by the Master. CGM will pay the
Partnership interest on its allocable share of 80% of the average daily equity maintained in cash in the Masters account
during each month at a 30-day U.S. Treasury bill rate determined weekly by CGM 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. CGM will pay such interest to the
Partnership out of its own funds whether or not it is able to earn
the interest it has obligated itself to pay.
Alternatively, CGM may place up to all of the Partnerships
assets in 90-day U.S. Treasury bills and pay the Partnership
its allocable share of 80% of the interest earned on Treasury bills purchased.
Twenty percent of the interest earned on Treasury bills purchased may be retained by CGM and/or credited to the General Partner. The Customer Agreement may be terminated upon
notice by either party.
(b) Financial Information about Industry Segments. The Partnerships business
consists of only one segment, speculative trading of commodity interests. The Partnership does not
engage in sales of goods or services. The Partnerships net income (loss) from operations for the
years ended December 31, 2009, 2008, 2007, 2006 and 2005 are set forth under Item 6. Selected
Financial Data. The Partnerships Capital as of December 31, 2009, was $282,292,123.
(c) Narrative Description of Business.
See Paragraphs (a) and (b) above.
(i) through
(xii) - Not applicable.
(xiii) - The Partnership has no employees.
3
(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.
(e) Available Information. Not applicable.
(f) Reports to Security Holders. Not applicable.
(g) Enforceability of Civil Liabilities Against Foreign Persons. Not applicable.
(h) Smaller Reporting Companies. Not applicable.
Item 1A. | Risk Factors. |
As a result of leverage, small changes in the price of the Partnerships positions may result in major losses.
The trading of commodity interests is speculative, volatile and involves a high degree of
leverage. A small change in the market price of a commodity interest contract can produce major
losses for the Partnership. Market prices can be influenced by, among other things, changing supply and demand
relationships, governmental, agricultural, commercial and trade programs and policies,
national and international political and economic events, weather and climate conditions,
insects and plant disease, purchases and sales by foreign countries and changing interest
rates.
An investor may lose all of their investment.
Due to the speculative nature of trading commodity interests, an investor could lose all of
their investment in the Partnership.
The Partnership will pay substantial fees and expenses regardless of profitability.
Regardless of its trading performance, the Partnership will incur fees and expenses, including
brokerage and management fees. Fees will be paid to the trading Advisor even if the Partnership
experiences a net loss for the full year.
An investors ability to redeem or transfer units is limited.
An investors ability to redeem units is limited and no market exists for the units.
Conflicts of interest exist.
The Partnership is subject to numerous conflicts of interest including those that arise from
the facts that:
1. | The General Partner and commodity broker are affiliates; | |
2. | The Advisor, the commodity broker and their principals and affiliates may trade in commodity interests for their own accounts; and | |
3. | An investors financial advisor will receive ongoing compensation for providing services to the investors account. |
Investing in units might not provide the desired diversification of an investors overall portfolio.
The Partnership will not provide any benefit of diversification of an investors overall
portfolio unless it is profitable and produces returns that are independent from stock and bond
market returns.
Past performance is no assurance of future results.
The Advisors trading strategies may not perform as they have performed in the past. The
Advisor has from time to time incurred substantial losses in trading on behalf of clients.
An investors tax liability may exceed cash distributions.
4
Investors are taxed on their share of the Partnerships income, even though the Partnership
does not intend to make any distributions.
Regulatory changes could restrict the Partnerships operations.
Regulatory changes could adversely affect the Partnership by restricting its markets or
activities, limiting its trading and/or increasing the taxes to which investors are subject. The
General Partner is not aware of any definitive regulatory developments that might adversely affect
the Partnership; however, since June 2008, several bills have been proposed in the U.S. Congress in
response to record energy and agricultural prices and the financial crisis. Some of the pending
legislation, if enacted, could impact the manner in which swap contracts are traded and/or settled
and limit trading by speculators (such as the Partnership) in futures and over-the-counter markets.
One of the proposals would authorize the CFTC and the Commission to regulate swap transactions.
Other potentially adverse regulatory initiatives could develop suddenly and without notice.
Speculative position and trading limits may reduce profitability.
The CFTC and U.S. exchanges have established speculative position limits on the maximum net
long or net short positions which any person may hold or control in particular futures and options
on futures. The trading instructions of an advisor may have to be modified, and positions held by
the Partnership may have to be liquidated in order to avoid exceeding these limits. Such
modification or liquidation could adversely affect the operations and profitability of the
Partnership by increasing transaction costs to liquidate positions and foregoing potential profits.
Item 2. | Properties. |
The Partnership does not own or lease any properties. The General Partner operates out of
facilities provided by its affiliate, Citigroup.
Item 3. | Legal Proceedings. |
This section describes the major pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which CGM 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.
CGM is a New York corporation with its principal place of business at 388 Greenwich St., New
York, New York 10013. CGM 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. CGM and its affiliates also provide investment banking and
other financial services for clients worldwide.
There have been no material administrative, civil or criminal actions within the past five
years against CGM (formerly known as Salomon Smith Barney) or any of its
individual principals and no such actions are currently pending, except as follows.
Mutual Funds
Several issues in the mutual fund industry have come under the scrutiny of federal and state
regulators. Citigroup has received subpoenas and other requests for information from various
government regulators regarding market timing, financing, fees, sales practices and other mutual
fund issues in connection with various investigations. Citigroup is cooperating with all such
reviews. Additionally, Citigroup Global Markets has entered into a settlement agreement with the
SEC with respect to revenue sharing and sales of classes of funds.
On May 31, 2005, Citigroup announced that Smith Barney Fund Management LLC and Citigroup
Global Markets completed a settlement with the SEC resolving an investigation by the SEC into
matters relating to arrangements between certain Smith Barney mutual funds, an affiliated transfer
agent and an unaffiliated sub-transfer agent. Under the terms of the settlement, Citigroup agreed
to pay fines totaling $208.1 million. The settlement, in which Citigroup neither admitted nor
denied any wrongdoing or liability, includes allegations of willful misconduct by Smith Barney Fund
Management LLC and Citigroup Global Markets in failing to disclose aspects of the transfer agent
arrangements to certain mutual fund investors.
In May 2007, Citigroup Global Markets finalized its settlement agreement with the NYSE and the
New Jersey Bureau of Securities on the matter related to its market-timing practices prior to
September 2003.
FINRA Settlement
On October 12, 2009, FINRA announced its acceptance of an Award Waiver and Consent (AWC) in
which Citigroup Global Markets, without admitting or denying the findings, consented to the entry
of the AWC and a fine and censure of $600,000. The AWC includes findings that Citigroup Global
Markets failed to adequately supervise the activities of its equities trading desk in connection
with swap and related hedge trades in U.S. and Italian equities that were designed to provide
certain perceived tax advantages. Citigroup Global Markets was charged with failing to provide for
effective written procedures with respect to the implementation of the trades, failing to monitor
Bloomberg messages and failing to properly report certain of the trades to the NASDAQ.
Auction Rate Securities
On May 31, 2006, the SEC instituted and simultaneously settled proceedings against Citigroup
Global Markets and 14 other broker-dealers regarding practices in the Auction Rate Securities
market. The SEC alleged that the broker-dealers violated Section 17(a)(2) of the Securities Act of
1933. The broker-dealers, without admitting or denying liability, consented to the entry of an SEC
cease-and-desist order providing for censures, undertakings and penalties. Citigroup Global
Markets paid a penalty of $1.5 million.
On August 7, 2008, Citigroup reached a settlement with the New York Attorney General, the SEC,
and other state regulatory agencies, pursuant to which Citigroup agreed to offer to purchase at par
Auction Rate Securities from all Citigroup individual investors, small institutions (as defined by
the terms of the settlement), and charities that purchased Auction Rate Securities from Citigroup
prior to February 11, 2008. In addition, Citigroup agreed to pay a $50 million fine to the State
of New York and a $50 million fine to the other state regulatory agencies.
Subprime-Mortgage Related Actions
Citigroup and certain of its affiliates are subject to formal and informal investigations, as
well as subpoenas and/or requests for information, from various governmental and self-regulatory
agencies relating to subprime mortgagerelated activities. Citigroup and its affiliates are
cooperating fully and are engaged in discussions on these matters.
Credit Crisis Related Matters
Beginning in the fourth quarter of 2007, certain of Citigroups, and Citigroup Global Markets
regulators and other state and federal government agencies commenced formal and informal
investigations and inquiries, and issued subpoenas and requested information, concerning
Citigroups subprime mortgage-related conduct and business activities. Citigroup and certain of
its affiliates, including Citigroup Global Markets, are involved in discussions with certain of its
regulators to resolve certain of these matters.
Certain of these regulatory matters assert claims for substantial or indeterminate damages.
Some of these matters already have been resolved, either through settlements or court proceedings,
including the complete dismissal of certain complaints or the rejection of certain claims following
hearings.
In the course of its business, CGM, as a major futures commission merchant and broker-dealer,
is a party to various civil actions, claims and routine regulatory investigations and proceedings
that the general partner believes do not have a material effect on the business of CGM.
Item 4. | [Removed and Reserved] |
5
PART II
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
(a) | Market Information. The Partnership has issued no stock. There is no public market for the Redeemable Units. | ||
(b) | Holders. The number of holders of Redeemable Units as of December 31, 2009 was 717. | ||
(c) | Dividends. The Partnership did not declare a distribution in 2009, 2008 or 2007. The Partnership does not intend to declare distributions in the foreseeable future. | ||
(d) | Securities Authorized for Issuance Under Equity Compensation Plans. None. | ||
(e) | Performance Graph. Not applicable. | ||
(f) | Recent Sales of Unregistered Securities. There were no additional sales of Redeemable Units for the twelve months ended December 31, 2009, 2008 and 2007. | ||
(g) | Purchases of Equity Securities by the Issuer and Affiliated Purchasers. |
The following chart sets forth the purchases of Redeemable Units by the Partnership.
(d) Maximum Number | ||||||||||||||||
(or Approximate | ||||||||||||||||
(c) Total Number | Dollar Value) of | |||||||||||||||
of Redeemable Units | Redeemable Units that | |||||||||||||||
(a) Total Number | (b) Average | Purchased as Part | May Yet Be | |||||||||||||
of Redeemable | Price Paid per | of Publicly Announced | Purchased Under the | |||||||||||||
Period | Units Purchased* | Redeemable Unit** | Plans or Programs | Plans or Programs | ||||||||||||
October 1, 2009
October 31, 2009 |
119.8366 | $ | 11,141.08 | N/A | N/A | |||||||||||
November 1, 2009
November 30, 2009 |
128.9270 | $ | 11,288.86 | N/A | N/A | |||||||||||
December 1, 2009
December 31, 2009 |
156.4500 | $ | 10,996.34 | N/A | N/A | |||||||||||
405.2136 | $ | 11,132.22 | N/A | N/A |
* | Generally, Limited Partners are permitted to redeem their Redeemable Units as of the end of each month on 10 days notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnerships business in connection with effecting redemptions for Limited Partners. | |
** | Redemptions of Redeemable Units are effected as of the last day of each month at the Net Asset Value per Redeemable Unit as of that day. |
Item 6. | Selected Financial Data. |
Net
realized and unrealized trading gains (losses), interest income, net income (loss),
increase (decrease) in Net Asset Value per Unit and Net Asset Value
per Unit for the years ended December 31, 2009,
2008, 2007, 2006 and 2005 and total assets at December 31, 2009, 2008, 2007, 2006 and 2005 were as
follows:
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Net realized and unrealized
trading gains (losses) net of
expenses allocated from Master and
brokerage commissions (including
clearing fees) of $4,229,768, $5,086,378,
$3,960,395, $4,740,069 and $5,383,149, respectively |
$ | 31,443,146 | $ | 130,274,917 | $ | 27,234,329 | $ | 61,630,927 | $ | 170,933,637 | ||||||||||
Interest income allocated from Master |
142,784 | 1,194,256 | 6,743,998 | 9,819,323 | 5,081,028 | |||||||||||||||
$ | 31,585,930 | $ | 131,469,173 | $ | 33,978,327 | $ | 71,450,250 | $ | 176,014,665 | |||||||||||
Net income (loss) before allocation
to Special Limited Partner |
$ | 25,336,190 | $ | 125,747,278 | $ | 28,681,741 | $ | 65,331,807 | $ | 170,951,340 | ||||||||||
Allocation to Special Limited Partner |
(5,141,561 | ) | (24,914,378 | ) | (4,492,189 | ) | (11,102,497 | ) | (33,174,063 | ) | ||||||||||
Net income (loss) after allocation
to Special Limited Partner |
$ | 20,194,629 | $ | 100,832,900 | $ | 24,189,552 | $ | 54,229,310 | $ | 137,777,277 | ||||||||||
Increase (decrease) in Net Asset
Value per Unit |
$ | 697.34 | $ | 3,239.74 | $ | 655.84 | $ | 1,064.98 | $ | 2,545.62 | ||||||||||
Net Asset
Value per Unit |
$ | 10,996.34 | $ | 10,299.00 | $ | 7,059.21 | $ | 6,403.37 | $ | 5,338.39 | ||||||||||
Total assets |
$ | 285,980,036 | $ | 310,559,773 | $ | 242,063,671 | $ | 259,688,401 | $ | 309,054,933 | ||||||||||
6
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
The Partnership, through its investment in the Master, seeks to achieve capital appreciation
through speculative trading, directly or indirectly, in commodity
interests, including,
commodity futures and commodity option contracts traded on United States exchanges and certain
foreign exchanges and swaps. The Partnership, through its investment in the Master, intends to
trade only energy and energy related products, as well as the Goldman Sachs Commodity Index (an
index future comprised of energy and other products), traded on the Chicago Mercantile Exchange,
but is authorized to trade commodity futures, swaps and options contracts of any kind. The
Partnership has invested substantially all of its capital in the Master. The Advisor is authorized
to trade forward contracts on behalf of the Partnership and the Master but does not currently
intend to do so (certain swaps that the Advisor trades are, however, the substantial economic
equivalent of forward contracts).
The General Partner/Managing Member manages all business of the Partnership/Master. The
General Partner has delegated its responsibility for the investment of the Partnerships assets to
the Advisor. The Partnership has invested these assets in the Master. The General Partner employs a
team of approximately 20 professionals whose primary emphasis is on attempting to maintain quality
control among the advisors to the partnerships operated or managed by the General Partner. A
full-time staff of due diligence professionals uses proprietary technology and on-site evaluations
to monitor new and existing futures money managers. The accounting and operations staff provides
processing of trading activity and reporting to Limited Partners and regulatory authorities. In
selecting the Advisor for the Partnership/Master, the General Partner considered past performance,
trading style, volatility of markets traded and fee requirements.
Responsibilities of the General Partner/Managing Member include:
| due diligence examinations of the Advisor; | |
| selection, appointment and termination of the Advisor; | |
| negotiation of the Management Agreement; and | |
| monitoring the activity of the Advisor. |
In addition, the General Partner/Managing Member prepares the books and records and provides
the administrative and compliance services that are required by law or regulation from time to time
in connection with operation of the Partnership/Master. These services include the preparation of
required books and records and reports to limited partners, government agencies and regulators;
computation of net asset value; calculation of fees; effecting subscriptions, redemptions and
limited partner communications; and preparation of offering documents and sales literature.
The General Partner/Managing Member shall seek the best prices and services available in its
commodity futures brokerage transactions.
AAA Capital Management Advisors, Ltd.
The
Partnerships assets allocated to the Advisor for trading are not invested in commodity interests
directly. The Advisors allocation of the Partnerships assets is
currently invested in the Master. The Advisor
trades the Masters, and thereby the Partnerships, assets in accordance with its Energy Program
Futures and Swaps.
The Master currently trades energy futures contracts and options on energy futures contracts
on domestic and international exchanges, as well as the Goldman Sachs Commodity Index (an index
future comprised of energy and other products) traded on the Chicago Mercantile Exchange. The
Master also currently engages in swap transactions involving crude oil and other energy related
products. References herein to energy and energy related products include all of the foregoing.
The Advisor generally bases its trading decisions on fundamental factors, namely supply and demand
for a particular group or type of commodity. The Advisor attempts to buy undervalued commodities and sell
overvalued commodities, often but not always simultaneously. The Advisor uses options to attempt either to
reduce or define risks.
7
The Advisor is aware of price trends but does not trade upon trends. The Advisor often takes profits in
positions with specific trends even though that trend may still be intact or perhaps even strong.
The Advisor occasionally establishes positions that are countertrend.
Effective risk management is a crucial aspect of the Advisors trading program. Account size,
expectation, volatility of the market traded and the nature of other positions taken are all
factors in determining the amount of equity committed to each trade. The Master is the Advisors largest
account.
(a) | Liquidity. |
The Partnership does not engage in sales of goods or services. Its only assets are its
investment in the Master and cash. 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. While substantial losses could lead to a material decrease in liquidity, no such illiquidity
occurred during the year ended December 31, 2009.
To minimize this risk relating to low margin deposits, the Master follows certain trading
policies, including:
(i) | The Master invests its assets only in commodity interests that the Advisor believes are traded in sufficient volume to permit ease of taking and liquidating positions. Sufficient volume, in this context, refers to a level of liquidity that the Advisor believes will permit it to enter and exit trades without noticeably moving the market. | ||
(ii) | The Advisor will not initiate additional positions in any commodity if these positions would result in aggregate positions requiring a margin of more than 66 2/3% of the Masters net assets allocated to the Advisor. | ||
(iii) | 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. | ||
(iv) | The Master does not employ the trading technique commonly known as pyramiding, in which the speculator uses unrealized profits on existing positions as margin for the purchases or sale of additional positions in the same or related commodities. | ||
(v) | The Master does not utilize borrowings other than short-term borrowings if the Master takes delivery of any cash commodities. | ||
(vi) | 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. | ||
(vii) | The Master will not permit the churning of its commodity trading account. The term churning refers to the practice of entering and exiting trades with a frequency unwarranted by legitimate efforts to profit from the trades, driven by the desire to generate commission income. |
From January 1, 2009 through December 31, 2009, the Partnerships average margin to equity
ratio (i.e., the percentage of assets on deposit required for margin) was approximately 13.2%. The
foregoing margin to equity ratio takes into account cash held in the Partnerships name, as well as
the allocable value of the positions and cash held on behalf of the Partnership in the name of the
master fund.
In the normal course of business, the Partnership, through its 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 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 balances, or to purchase or sell other financial instruments at specified terms
at specified future dates, or, in the case of derivative commodity interests, 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, certain forwards and certain option contracts.
OTC contracts are negotiated between contracting parties and include forwards and certain
options. Specific market movements of the commodities or futures contracts underlying an option
cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the
option. The writer, or seller, of an option has unlimited risk. Each of these instruments is
subject to various risks similar to those relating 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.
8
Market risk is the potential for changes in the value of the financial instruments traded by
the Partnership/Master due to market changes, including interest and foreign exchange rate
movements and fluctuations in commodity or security prices. Market risk is directly impacted by the
volatility and liquidity in the markets in which the related underlying assets are traded. The
Partnership/Master is exposed to a market risk equal to the value of futures and forward contracts
purchased and unlimited liability on such contracts sold short.
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. The Partnerships/Masters risk of loss in the event
of a counterparty default is typically limited to the amounts recognized in the Statements of
Financial Condition and not represented by the contract or notional amounts of the instruments. The
Partnerships/Masters risk of loss is reduced through the use of legally enforceable master
netting agreements with counterparties that permit the Partnership/Master to offset unrealized
gains and losses and other assets and liabilities with such counterparties upon the occurrence of
certain events. The Partnership/Master has credit risk and concentration risk as the sole
counterparty or broker with respect to the Partnerships/Masters assets is CGM or a CGM affiliate.
Credit risk with respect to exchange-traded instruments is
reduced to the extent that through CGM, the Partnerships/Masters counterparty is an exchange or
clearing organization.
The Advisor will concentrate the Partnerships/Masters trading in energy related markets.
Concentration in a limited number of commodity interests may subject the Partnerships/Masters
account to greater volatility than if a more diversified portfolio of contracts were traded on
behalf of the Partnership/Master.
As
both a buyer and seller of options, the Master pays or receives a premium at
the outset and then bears the risk of unfavorable changes in the price of the contract underlying
the option. Written options expose the Master to potentially unlimited liability; for
purchased options the risk of loss is limited to the premiums paid. Certain written put options
permit cash settlement and do not require the option holder to own the reference asset. The
Master does not consider these contracts to be guarantees as described in ASC 460,
Guarantees (formerly, FAS No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees).
The
General Partner/Managing Member monitors and attempts to control the Partnerships/Masters 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 may be subject. These
monitoring systems generally allow the General
Partner/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. (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 futures and swaps trading, the Master knows of no
trends, demands, commitments, events or uncertainties which will result in or which are reasonably
likely to result in the Masters liquidity increasing or decreasing in any material way. The
Limited Partnership Agreement provides that the General Partner may, in its discretion, cause the
Partnership to cease trading operations and liquidate all open positions under certain
circumstances including a decrease in Net Asset Value per Redeemable 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 Partnerships capital consists of the capital contributions of the partners as
increased or decreased by gains or losses on trading and by expenses, interest income, redemptions
of Redeemable Units and distributions of profits, if any. Gains or losses on trading cannot be
predicted. Market movements in commodities are dependent upon fundamental and technical factors which
the Advisor may or may not be able to identify, such as changing supply and demand relationships,
weather, government, agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. Partnership expenses
consist of, among other things, commissions, advisory fees and administrative fees. The level of
these expenses is dependent upon the level of trading and the ability of the Advisor to identify
and take advantage of price movements in the commodity markets, in addition to the level of Net
Assets maintained. In addition, the amount of interest income payable by CGM is dependent upon
interest rates over which the Partnership has no control.
9
No forecast can be made as to the level of redemptions in any given period. A Limited Partner
may require the Partnership to redeem their Redeemable 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.
Redemptions generally are funded out of the Partnerships cash holdings.
For the year ended December 31, 2009, 2,177.9080
Redeemable Units were redeemed totaling $23,620,701 and 1,389.5644 Units of Special Limited
Partnership Interest totaling $15,224,202 were redeemed. For the year ended December 31, 2008,
5,682.3887 Redeemable Units were redeemed totaling $47,287,192 and 1,773.3087 Units of Special
Limited Partnership Interest totaling $17,007,106 were redeemed. For the year ended December 31,
2007, 5,293.7553 Redeemable Units were redeemed totaling $35,330,949 and 1,514.3085 Units of
Special Limited Partnership Interest totaling $10,537,346 were redeemed.
Redeemable Units 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 amended (the
Securities Act).
(c) | Results of Operations. |
For the year ended December 31, 2009 the Net Asset Value per Redeemable Unit increased 6.8%
from $10,299.00 to $10,996.34. For the year ended December 31, 2008 the Net Asset Value per
Redeemable Unit increased 45.9% from $7,059.21 to $10,299.00. For the year ended December 31, 2007
the Net Asset Value per Redeemable Unit increased 10.2% from $6,403.37 to $7,059.21.
The Partnership, for its own account, through its investment in the Master,
experienced a net trading gain of $35,672,914 before commissions and expenses for the
year ended December 31, 2009. Gains were primarily attributable to the trading of
commodity futures in NYMEX Energy Swaps, NYMEX Heating Oil, NYMEX Gasoline,
NYMEX Natural Gas, Unleaded Gasoline, Brent Crude Oil and Grains and were partially
offset by losses in IPE Gas Oil, RBOB Gasoline and NYMEX Crude Oil.
2009 was a volatile year for the financial markets. The U.S. stock market entered
2009 reeling from the financial turmoil of 2008. The results of the sub-prime fallout,
bank bailouts, auto industry bankruptcies, and capitulating economic data overwhelmed
not just stock prices, but fueled extraordinarily high levels of risk aversion. The markets
recovery was driven by stability in the banking sector and a rapid recovery in global
markets. By mid-year 2009, the market hit a bottom in March, banks were seeking
to return TARP bailout money and leading indicators were recovering. The Partnership
realized gains as directional trends in the first three quarters sufficiently offset losses
recorded in December.
The Partnership recorded gains primarily in natural gas as prices tumbled in the
first quarter of 2009. In January, natural gas prices dropped more than 25% on reduced
economic activity on natural gas, benefiting short positions on the front end of the price
curve. The position was reduced in February as prices stabilized on cold weather. The
downward trend continued in March on bearish fundamentals and demand for natural gas
continued to suffer, adding profits to the portfolio. While the bearish trend across the
petroleum complex became range bound. In the crude oil market, contango spread
widened to historic levels indicating that the excess supply in the market was being
pushed into storage.
In the second quarter of 2009, the Partnership realized modest gains evenly
split between natural gas and petroleum. Performance with the natural gas book was
mixed. April gains came from the Partnerships long option/volatility positions and
short winter/long summer spread positions along the forward gas curve. Profits were
partially given back in May in both petroleum and natural gas.
Oil market activity during summer was impressive. Lead by the refined products,
oil prices sold off sharply early in the month with NYMEX crude falling from
$73.38/barrel on June 30th to as low as $58.32 by July 13th. Majority of the Julys return
was derived from the oil side of the Partnerships market position. The Partnership
realized modest return in the month as gains in trading petroleum markets were offset by
losses in the refined products. In particular, while there were very slight returns in
distillate markets, refined products performance overall was weighed down by losses in
gasoline.
December
proved to be a tough month in the energy markets. Mean reversion lead to
a flattening of the crude volatility curve and persistent downward pressure in the long
dated crude option volatility value. The epic cold weather across major global markets
also worked against the Partnerships positions in natural gas and petroleum trading
books. Small losses were recorded in the fourth quarter of 2009 as a result.
The Partnership, for its own account, through its investment in the Master, experienced a net
trading gain of $135,361,295 before commissions and expenses for the year ended December 31, 2008.
Gains were primarily attributable to the trading of NYMEX Crude Oil, NYMEX Energy Swaps, NYMEX
Heating Oil, NYMEX Natural Gas, Corn and IPE Gas Oil and were partially offset by losses in IPE
Brent Crude Oil, NYMEX Gasoline, NYMEX Unleaded Gas, and OTC Energy Swaps.
The Partnership posted gains for the year as profits accumulated from the Partnerships
trading in the petroleum complex and natural gas. The strategy realized most of the profits in the
energy sector by capturing both the bullish and the bearish trends. In the earlier part of the
year, crude oil pushed towards a historic high of $147 per barrel and in the latter part, the trend
suddenly reversed and a strong negative trend emerged with crude oil dropping to about $32 per
barrel. Trading in spreads between petroleum products was also beneficial to the second half of the
year. Natural gas also contributed to profits as prices plunged from $14 to about $5.
Interest income on 80% of the Partnerships average daily equity allocated to it by the Master
was earned at a 30-day U.S. Treasury bill rate determined weekly by CGM based on the average
non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days. CGM may continue to
maintain the Masters assets in cash and/or place all of the Masters assets in 90-day Treasury
bills and pay the Partnership its allocated shares of 80% of the interest earned on the Treasury
bills purchased. Twenty percent of the interest earned on Treasury bills purchased may be retained
by CGM and/or credited to the General Partner. Interest income allocated from the Master for the
three and twelve months ended December 31, 2009 decreased by $66,909 and $1,051,472, respectively
as compared to the corresponding periods in 2008. The decrease in interest income is primarily due
to lower U.S. Treasury Bill rates for the Partnership during the three and twelve months ended
December 31, 2009, as compared to the corresponding periods in 2008.
Interest earned by the Partnership will increase the net asset value
of the Partnership.
Brokerage commissions are based on the number of trades executed by the Advisor and the
Partnerships ownership percentage. Brokerage commissions and fees for the three months ended
December 31, 2009 increased by $85,903 as compared to the corresponding period in 2008. The
increase in commissions and fees is primarily due to an increase in the number of trades during the
three months ended December 31, 2009 as compared to the corresponding period in 2008. Brokerage
commissions and fees for the twelve months ended December 31, 2009 decreased by $799,461 as
compared to the corresponding period in 2008. The decrease in commissions and fees is primarily
due to a decrease in the number of trades during the twelve months ended December 31, 2009 as
compared to the corresponding period in 2008.
Management fees are calculated as a percentage of the Partnerships 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 December 31, 2009 decreased by $70,950 as compared to the corresponding period
in 2008. The decrease in management fees is due to a decrease in average net assets during the
three months ended December 31, 2009 as compared to the corresponding period in 2008. Management
fees for the twelve months ended December 31, 2009 increased by $583,267 as compared to the
corresponding period in 2008. The increase in management fees is due to an increase in average net
assets during the twelve months ended December 31, 2009 as compared to the corresponding period in
2008.
Special Limited Partner profit share allocations (incentive fees) are based on the new trading
profits generated by the Advisor at the end of the quarter, as defined in the advisory agreement
between the Partnership, the General Partner and the Advisor. The profit share allocation accrued
for the three and twelve months ended December 31, 2009 was $0 and $5,141,561, respectively. The
profit share allocation accrued for the three and twelve months ended December 31, 2008 was
$7,665,816 and $24,914,378, respectively.
The Partnership, for its own account, through its investment in the Master, experienced a net
trading gain of $31,194,724 before commissions and expenses for the year ended December 31, 2007.
Gains were primarily attributable to the trading of NYMEX Gasoline, NYMEX Heating Oil, NYMEX
Natural Gas, NYMEX Unleaded Gas, NYMEX Energy Swaps, IPE Freight Index, IPE Gas Oil and OTC Energy
Swaps and were partially offset by losses in IPE Brent Crude Oil, NYMEX Crude Oil and Corn.
The Partnership posted gains for the year 2007 as profits accumulated from fundamental trading
in natural gas and petroleum products more than offset small losses realized in trading crude oil
and some spread positions. In crude oil, prices continued the long-term upward trend independent of
the underlying fundamentals. Losses in trading crude oil contracts were realized primarily in the
first quarter as prices fell due to exceptionally mild winter weather across most major U.S.
population centers. Trading in natural gas and gasoline markets were profitable throughout the year
as these markets were mostly influenced by market forces and less on geopolitical events. In
natural gas, the Partnership benefited from the short natural gas positions as a fairly mild start
to the summer and higher than expected storage injection rates caused prices to fall.
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 Advisors 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.
In allocating substantially all of the assets of the Partnership to the Master, the General
Partner considered the Advisors past performance, trading style, volatility of markets traded and
fee requirements. The General Partner may modify or terminate the allocation of assets to the
Advisor at any time.
(d) | Off-Balance Sheet Arrangements. None. | |
(e) | Contractual Obligations. None. | |
(f) | 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 pertaining to operational and back office support. This is
particularly the case in a rapidly changing and increasingly global environment with increasing
transaction volumes
10
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/Master is subject to increased risks with respect to their 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 Partnerships ability to gather, process, and communicate information
efficiently and securely, without interruption, to customers and in the markets where the
Partnership/Master participates.
Legal/Documentation Risk the risk of loss attributable to deficiencies in the documentation
of transactions (such as trade confirmations) and customer relationships (such as master netting
agreements) or errors that result in noncompliance with applicable legal and regulatory
requirements.
Financial Control Risk the risk of loss attributable to limitations in financial systems
and controls. Strong financial systems and controls ensure that assets are safeguarded, that
transactions are executed in accordance with managements authorization, and that financial
information utilized by management and communicated to external parties, including the
Partnerships Redeemable Unit holders, creditors, and regulators, is free of material errors.
(g) | Critical Accounting Policies. |
Use of Estimates. The preparation of financial statements and accompanying notes in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, income and expenses, and related disclosures of contingent assets and
liabilities in the financial statements and accompanying notes. In making these estimates and
assumptions, management has considered the effects, if any, of events occurring after the date of
the Partnerships Statements of Financial Condition through the date the financial statements were
issued. As a result, actual results could differ from these estimates.
Statement of Cash Flows. The Partnership is not required to provide a Statement of Cash Flows
as permitted by ASC 230, Statement of Cash Flows (formerly, FAS No. 102, Statement of Cash
Flows Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities
Acquired for Resale).
Partnerships Investments. The Partnership values its investment in the Master at its net asset value per
unit as calculated by the Master. The Master values its investments as described in note 2 of the
Masters notes to the annual financial statements as of December 31, 2009.
Partnerships
Fair Value Measurements. The Partnership adopted ASC 820, Fair Value Measurements and
Disclosures (formerly, FAS No. 157, Fair Value Measurements) as of January 1, 2008 which defines
fair value as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The Partnership did not
apply the deferral allowed by ASC 820 for nonfinancial assets and nonfinancial liabilities
measured at fair value on a nonrecurring basis.
11
The Partnership values investments
in the Master where there are no other rights or obligations
inherent within the ownership interest held by the Partnership based on the end of the day net
asset value of the Master (Level 2). The value of the Partnerships investments in the Master
reflects its proportional interest in the Master. As of and for the years ended December 31, 2009
and 2008, the Partnership did not hold any derivative instruments that are based on unadjusted
quoted prices in active markets for identical assets (Level 1) or priced at fair value using
unobservable inputs through the application of managements assumptions and internal valuation
pricing models (Level 3).
The Master considers prices for exchange traded commodity futures, forwards and options
contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1).
The values of non exchange traded forwards, swaps and certain options contracts for which market
quotations are not readily available are priced by broker-dealers who derive fair values for those
assets from observable inputs (Level 2). As of and for the year ended December 31, 2009 and 2008,
the Master did not hold any derivative instruments for which market quotations are not readily
available, and which are priced by broker-dealers who derive fair values for those assets from observable
inputs (Level 2) or that are priced at fair value using unobservable inputs through the application
of managements assumptions and internal valuation pricing models (Level 3).
Futures Contracts. The Master trades futures contracts.
Exchange cleared swaps included in futures and exchange cleared swaps
are swaps that are traded as futures.
A futures contract is a firm
commitment to buy or sell a specified quantity of investments, currency or a standardized amount of
a deliverable grade commodity, at a specified price on a specified future date, unless the contract
is closed before the delivery date or if the delivery quantity is something where physical delivery
cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments
(variation margin) may be made or received by the Master each business day, depending on the
daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains
or losses by the Master. When the contract is closed, the Master records a realized gain or loss
equal to the difference between the value of the contract at the time it was opened and the value
at the time it was closed. Because transactions in futures contracts require participants to make
both initial margin deposits of cash or other assets and variation margin deposits, through the
futures broker, directly with the exchange on which the contracts are traded, credit exposure is
limited. Realized gains (losses) and changes in unrealized gains (losses) on futures contracts are
included in the Statements of Income and Expenses.
Options. The Master may purchase and write (sell), both exchange listed and over-the-counter
options on commodities or financial instruments. 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 Statements of Financial Condition and marked to market
daily. When the Master purchases an option, the premium paid is recorded as an asset in the
Statements of Financial Condition and marked to market daily. Realized gains (losses) and changes
in unrealized gains (losses) on options contracts are included in the Statements of Income and
Expenses.
Brokerage Commissions. Commission charges to open and close futures and exchange traded swap
contracts are expensed at the time the positions are opened. Commission charges on option contracts
are expensed at the time the position is established and when the option contract is closed.
Income Taxes. Income taxes have not been provided as each partner is individually liable for
the taxes, if any, on their share of the Partnerships income and expenses.
In 2007, the Partnership adopted ASC 740, Income Taxes (formerly, FAS No. 48, Accounting
for Uncertainty in Income Taxes). ASC 740 provides guidance for how uncertain tax positions
should be recognized, measured, presented and disclosed in the financial statements. ASC 740
requires the evaluation of tax positions taken or expected to be taken in the course of preparing
the Partnerships financial statements to determine whether the tax positions are
more-likely-than-not to be sustained by the applicable tax authority. Tax positions with respect
to tax at the partnership level not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. The General Partner concluded that no
provision for income tax is required in the Partnerships financial statements.
The
following is the major tax jurisdiction for the Partnership and the earliest tax year
subject to examination: United States 2006.
Subsequent Events. In 2009, the Partnership adopted ASC 855, Subsequent Events (formerly,
FAS No. 165, Subsequent Events). The objective of ASC 855 is to establish general standards of
accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued.
Management has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
Recent Accounting Pronouncements. In January 2010, the FASB issued Accounting Standards Update
No. 2010-06 (ASU 2010-06), Improving
Disclosures about Fair Value Measurements, which, among
other things, amends ASC 820 to require entities to separately present purchases, sales, issuances,
and settlements in their reconciliation of Level 3 fair value measurements (i.e. to
12
present such items on a gross basis rather than on a net basis), and which clarifies existing
disclosure requirements provided by ASC 820 regarding the level of disaggregation and the inputs
and valuation techniques used to measure fair value for measurements that fall within either Level
2 or Level 3 of the fair vale hierarchy. ASU 2010-06 is effective for interim and annual periods
beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances,
and settlements in the roll forward of activity in Level 3 fair value measurements (which are
effective for fiscal years beginning after December 15, 2010, and for interim periods within those
fiscal years). Management is currently assessing the impact that the adoption of ASU 2010-06 will
have on the Partnerships financial statements disclosures.
In February 2010, the
FASB issued Accounting Standards Update No. 2010-09 (ASU 2010-09),
Subsequent Events
(Topic 855): Amendments to Certain Recognition and Disclosure Requirements,
which among other things amended ASC 855 to remove the requirement for an SEC filer
to disclose the date through which subsequent events have been
evaluated. This change alleviates potential conflicts between ASC 855 and the SECs
requirements. All of the amendments in this update are effective upon issuance of this
update. Management has included the provisions of these amendments in the financial statements.
Certain prior period amounts have been reclassified to conform to current period presentation.
13
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
Partnerships capital are subject to the risk of trading loss through its investment in the Master.
Unlike an operating company, the risk of market sensitive instruments is integral, not incidental,
to the Masters and the Partnerships main line of business.
The risk to the limited partners that have purchased interests in the Partnership is limited
to the amount of their capital contributions to the Partnership and their share of Partnership
assets and undistributed profits. This limited liability is a consequence of the organization of
the Partnership as a limited partnership under applicable law.
Market movements result in frequent changes in the fair market value of the Masters open
positions and, consequently, in its earnings and cash flow. The Masters and the Partnerships
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 Masters 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 Masters 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 Masters 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 Masters 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 Masters losses in any market sector will be limited to Value at Risk or by
the Masters attempts to manage its market risk.
Quantifying the Partnerships Trading Value at Risk
The following quantitative disclosures regarding the Masters and the Partnerships 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 and Section 21E of the Securities Exchange Act
of 1934, as amended (the Exchange Act)). 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 Masters and the Partnerships risk exposure in the various market sectors traded by the
Advisor is quantified below in terms of Value at Risk. Due to the Masters mark-to-market
accounting, any loss in the fair value of the Masters open positions is directly reflected in the
Masters earnings (realized or unrealized) and cash flow.
Exchange maintenance margin requirements have been used by the Master as the measure of its
Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum
losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any
one-day intervals. The maintenance margin levels are established by dealers and exchanges using
historical price studies as well as an assessment of current market volatility (including the
implied volatility of the options on a given futures contract) and economic fundamentals to provide
a probabilistic estimate of the maximum expected near-term one-day price fluctuation. Maintenance
margin has been used rather than the more generally available initial margin, because initial
margin includes a credit risk component which is not relevant to Value at Risk.
In the case of market sensitive instruments which are not exchange traded (almost exclusively
currencies in the case of the Master), 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 Masters 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
14
instrument is a physical commodity, the futures-equivalent maintenance margin has been used.
This calculation is conservative in that it assumes that the fair value of an option will decline
by the same amount as the fair value of the underlying instrument, whereas, in fact, the fair
values of the options traded by the Master in almost all cases fluctuate to a lesser extent than
those of the underlying instruments.
In quantifying the Masters 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 categorys
aggregate Value at Risk. The diversification effects resulting from the fact that the Masters
positions are rarely, if ever, 100% positively correlated have not been reflected.
The Masters Trading Value at Risk in Different Market Sectors
The following tables indicate the trading Value at Risk associated with the Masters open
positions by market category as of December 31, 2009 and 2008, and the highest, lowest and average
value at any point during the years. All open position trading risk exposures of the Master have
been included in calculating the figures set forth below. As of December 31, 2009, the Masters
total capitalization was $1,229,195,192 and the Partnership owned
approximately 23.3% of the Master.
December 31, 2009
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Energy |
$ | 133,905,240 | 10.89 | % | $ | 352,329,038 | $ | 4,405,231 | $ | 166,882,818 | ||||||||||
Total |
$ | 133,905,240 | 10.89 | % | ||||||||||||||||
* | Annual average of month-end Values at Risk |
As of December 31, 2008, the Masters total capitalization was $1,338,631,099 and the Partnership owned approximately
23.2% of the Master.
December 31, 2008
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Energy |
$ | 306,037,030 | 22.86 | % | $ | 393,679,114 | $ | 86,922,706 | $ | 205,141,776 | ||||||||||
Total |
$ | 306,037,030 | 22.86 | % | ||||||||||||||||
* | Annual average of month-end Values at Risk |
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 Masters
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.
15
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 Masters market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Masters 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 and Section 21E of the Exchange Act. The
Masters primary market risk exposures as well as the strategies 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 Masters 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 Masters 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, 2009 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 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. CGM 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 Masters 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 CGM, 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.
Grains. The Masters commodities exposure is to agricultural price movements which are
often directly affected by severe or unexpected weather conditions.
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.
16
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors and controls the Partnerships, 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 are subject.
The General Partner monitors the Masters performance and the concentration of its open
positions, and consults with the Advisor concerning the Masters 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
Advisors own risk control policies while maintaining a general supervisory overview of the
Masters market risk exposures.
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 Advisors
research of risk management often suggests ongoing modifications to its trading programs.
As part of the General Partners risk management, the General Partner periodically meets with
the Advisor to discuss its risk management and to look for any material changes to the Advisors
portfolio balance and trading techniques. The Advisor is required to notify the General Partner of
any material changes to its programs.
17
Item 8. | Financial Statements and Supplementary Data. |
AAA CAPITAL ENERGY FUND L.P.
INDEX TO FINANCIAL STATEMENTS
Page | ||
Number |
||
Oath or Affirmation |
F-2 | |
Managements Report on Internal Control over Financial Reporting |
F-3 | |
Reports of Independent Registered Public Accounting Firms |
F-4 F-8 | |
Financial Statements: |
||
Statements of Financial Condition at December 31, 2009 and 2008 |
F-9 | |
Statements of Income and Expenses for the years ended December 31, 2009, 2008 and 2007 |
F-10 | |
Statements of Changes in Partners Capital for the years ended December 31, 2009, 2008 and 2007 |
F-11 | |
Notes to Financial Statements |
F-12 F-21 | |
Selected Unaudited Quarterly Financial Data |
F-22 | |
Financial
Statements of the AAA Master Fund LLC |
||
Oath or Affirmation |
F-23 | |
Reports of Independent Registered Public Accounting Firms |
F-24 F-26 | |
Statements of Financial Condition at December 31, 2009 and 2008 |
F-27 | |
Condensed Schedules of Investments at December 31, 2009 and 2008 |
F-28 F-29 | |
Statements of Income and Expenses for the years ended December 31, 2009, 2008 and 2007 |
F-30 | |
Statements of Changes in Members Capital for the years ended December 31, 2009, 2008 and 2007 |
F-31 | |
Notes to Financial Statements |
F-32 F-40 | |
Selected Unaudited Quarterly Financial Data |
F-41 |
F-1
To the Limited
Partners of
AAA Capital Energy Fund L.P.
AAA Capital Energy Fund L.P.
To the best of the knowledge and belief of the undersigned, the
information contained herein is accurate and complete.
By: | Jennifer Magro |
Chief Financial Officer and Director
Ceres Managed Futures LLC
General Partner,
AAA Capital Energy Fund L.P.
Ceres Managed Futures LLC
55 East 59th Street
10th Floor
New York, N.Y. 10022
212-559-2011
55 East 59th Street
10th Floor
New York, N.Y. 10022
212-559-2011
F-2
Managements
Report on Internal Control Over
Financial Reporting
Financial Reporting
The management of AAA Capital Energy Fund L.P. (formerly,
Smith Barney AAA Energy Fund L.P.) (the Partnership), Ceres
Managed Futures LLC (formerly, Citigroup Managed Futures LLC),
is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in
Rules 13a - 15(f) and 15d 15(f) under the
Securities Exchange Act of 1934 and for our assessment of
internal control over financial reporting. The
Partnerships internal control over financial reporting is
a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America. The Partnerships internal control over financial
reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Partnership;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and
expenditures of the Partnership are being made only in
accordance with authorizations of management and directors of
the Partnership; and
(iii) provide reasonable assurance regarding prevention or
timely detection and correction of unauthorized acquisition, use
or disposition of the Partnerships assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The management of AAA Capital Energy Fund L.P. has assessed
the effectiveness of the Partnerships internal control
over financial reporting as of December 31, 2009. In making
this assessment, management used the criteria set forth in the
Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on our assessment, management concluded that the
Partnership maintained effective internal control over financial
reporting as of December 31, 2009 based on the criteria
referred to above.
The Partnerships independent registered public accounting
firm, Deloitte & Touche LLP, has audited the effectiveness
of the Partnerships internal control over financial
reporting as of December 31, 2009, as stated in their
report dated March 19, 2010 which appears herein.
Jennifer Magro
Chief Financial Officer and Director
Ceres Managed Futures LLC
General Partner,
AAA Capital Energy Fund L.P.
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
AAA Capital Energy Fund L.P.:
AAA Capital Energy Fund L.P.:
We have audited the accompanying statement of financial condition of AAA Capital Energy Fund L.P.
(the Partnership) as of December 31, 2009, and the related statements of income and expenses, and
changes in partners capital for the year then ended. We also have audited the Partnerships
internal control over financial reporting as of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Partnerships management is responsible for these financial statements,
for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on these financial statements and an opinion on the Partnerships internal control over
financial reporting based on our audit. The financial statements of the Partnership for the years
ended December 31, 2008 and 2007 were audited by other auditors whose reports, dated March 26, 2009
and March 24, 2008, respectively, expressed unqualified opinions on those statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audit of the financial statements included 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 management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A partnerships internal control over financial reporting is a process designed by, or under the
supervision of, the partnerships principal executive and principal financial officers, or persons
performing similar functions, and effected by the partnerships general partner, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles.
A partnerships internal control over financial reporting includes those policies and procedures
that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the partnership; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of
the partnership are being made only in accordance with authorizations of management and general
partner of the partnership; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Partnerships assets that could
have a material effect on the financial statements.
F-4
Because of the inherent limitations of
internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented
or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of AAA Capital Energy Fund L.P. as of December 31, 2009, and the
results of its operations and its changes in partners capital for the year then ended, in
conformity with accounting principles generally accepted in the United States of America. Also, in
our opinion, the Partnership maintained, in all material respects, effective internal control over
financial reporting as of
December 31, 2009, based on the criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ Deloitte & Touche LLP
New York, New York
New York, New York
March 19, 2010
F-5
Report of Independent Registered Public Accounting Firm
To the Partners of
AAA Capital Energy Fund L.P.:
AAA Capital Energy Fund L.P.:
In our opinion, the accompanying statement of financial condition, the related statement of income
and expenses, and statement of changes in partners capital present fairly, in all material
respects, the financial position of AAA Capital Energy Fund L.P. (formerly known as Smith Barney
AAA Energy Fund L.P.) at December 31, 2008 and the results of its operations for the year then
ended in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Partnership maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Partnerships management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial Reporting. Our responsibility is to express
opinions on these financial statements and on the Partnerships internal control over financial
reporting based on our integrated audit. We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting
was maintained in all material respects. Our audit of the financial statements included 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 management, and
evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.
F-6
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 26, 2009
March 26, 2009
F-7
Report of Independent Registered Public Accounting Firm
The Partners
AAA Capital Energy Fund L.P.:
AAA Capital Energy Fund L.P.:
We have audited the accompanying statements of income and expenses and changes in partners capital
of AAA Capital Energy Fund L.P. (formerly, Smith Barney AAA Energy Fund L.P.) for the year ended
December 31, 2007. These financial statements are the responsibility of the Partnerships
management. Our responsibility is to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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, 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 results of operations and changes in partners capital of AAA Capital Energy Fund
L.P. for the year ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
New York, New York
March 24, 2008
March 24, 2008
F-8
AAA Capital
Energy Fund L.P.
Statements of Financial Condition
December 31, 2009 and 2008
Statements of Financial Condition
December 31, 2009 and 2008
2009 | 2008 | |||||||
Assets:
|
||||||||
Investment in Master, at fair value (Note 1)
|
$ | 285,810,508 | $ | 310,396,043 | ||||
Cash (Note 3c)
|
169,528 | 163,730 | ||||||
Total assets
|
$ | 285,980,036 | $ | 310,559,773 | ||||
Liabilities and Partners Capital:
|
||||||||
Liabilities:
|
||||||||
Accrued expenses:
|
||||||||
Brokerage commissions (Note 3c)
|
$ | 1,337,299 | $ | 1,371,845 | ||||
Management fees (Note 3b)
|
474,144 | 515,036 | ||||||
Professional fees
|
99,622 | 103,124 | ||||||
Other
|
56,471 | 63,365 | ||||||
Redemptions payable (Note 5)
|
1,720,377 | 6,705,722 | ||||||
Total liabilities
|
3,687,913 | 8,759,092 | ||||||
Partners Capital (Notes 1 and 5):
|
||||||||
General Partner, 292.7225 and 830.6049 Unit Equivalents
outstanding at December 31, 2009 and 2008, respectively
|
3,218,876 | 8,554,400 | ||||||
Special Limited Partner, 118.5047 and 1,035.1345 Redeemable
Units of Limited Partnership Interest outstanding at
December 31, 2009 and 2008, respectively
|
1,303,118 | 10,660,850 | ||||||
Limited Partners, 25,260.2367 and 27,438.1447 Redeemable Units
of Limited Partnership Interest outstanding at December 31,
2009 and 2008, respectively
|
277,770,129 | 282,585,431 | ||||||
Total partners capital
|
282,292,123 | 301,800,681 | ||||||
Total liabilities and partners capital
|
$ | 285,980,036 | $ | 310,559,773 | ||||
See accompanying notes to financial statements.
F-9
AAA Capital
Energy Fund L.P.
Statements of Income and Expenses
for the years ended December 31, 2009, 2008 and 2007
Statements of Income and Expenses
for the years ended December 31, 2009, 2008 and 2007
2009 | 2008 | 2007 | ||||||||||
Income:
|
||||||||||||
Net realized gains (losses) on closed contracts allocated from
Master
|
$ | 127,314,866 | $ | 89,348,243 | $ | 34,823,784 | ||||||
Change in net unrealized gains (losses) on open contracts
allocated from Master
|
(91,641,952 | ) | 46,013,052 | (3,629,060 | ) | |||||||
Interest income allocated from Master
|
142,784 | 1,194,256 | 6,743,998 | |||||||||
Expenses allocated from Master
|
(910,836 | ) | (967,985 | ) | (933,591 | ) | ||||||
Total income (loss)
|
34,904,862 | 135,587,566 | 37,005,131 | |||||||||
Expenses:
|
||||||||||||
Brokerage commissions (Note 3c)
|
3,318,932 | 4,118,393 | 3,026,804 | |||||||||
Management fees (Note 3b)
|
6,021,067 | 5,437,800 | 5,033,763 | |||||||||
Professional fees
|
195,332 | 215,114 | 187,541 | |||||||||
Other
|
33,341 | 68,981 | 75,282 | |||||||||
Total expenses
|
9,568,672 | 9,840,288 | 8,323,390 | |||||||||
Net income (loss) before allocation to Special Limited Partner
|
25,336,190 | 125,747,278 | 28,681,741 | |||||||||
Allocation to Special Limited Partner (Note 3b)
|
(5,141,561 | ) | (24,914,378 | ) | (4,492,189 | ) | ||||||
Net income (loss) after allocation to Special Limited Partner
|
$ | 20,194,629 | $ | 100,832,900 | $ | 24,189,552 | ||||||
Net income (loss) per Redeemable Unit of Limited Partnership
Interest and General Partner Unit Equivalents (Notes 1 and
6)
|
$ | 697.34 | $ | 3,239.79 | $ | 655.84 | ||||||
Weighted average units outstanding
|
27,376.2981 | 31,845.2438 | 37,361.4409 | |||||||||
See accompanying notes to financial statements.
F-10
AAA Capital
Energy Fund L.P.
Statements of Changes in Partners Capital
for the years ended December 31, 2009, 2008 and 2007
Statements of Changes in Partners Capital
for the years ended December 31, 2009, 2008 and 2007
Special |
||||||||||||||||
Limited |
Limited |
General |
||||||||||||||
Partners | Partner | Partner | Total | |||||||||||||
Partners Capital at December 31, 2006
|
$ | 245,327,808 | $ | 5,878,789 | $ | 5,852,546 | $ | 257,059,143 | ||||||||
Redemption of 5,293.7553 Redeemable Units of Limited Partnership
Interest
|
(35,330,949 | ) | | | (35,330,949 | ) | ||||||||||
Redemption of 1,514.3085 Redeemable Units of Special Limited
Partnership Interest
|
| (10,537,346 | ) | | (10,537,346 | ) | ||||||||||
Redemption of 83.3741 General Partner Unit Equivalents
|
| | (531,546 | ) | (531,546 | ) | ||||||||||
Allocation of net income (loss) for the year ended
December 31, 2007:
|
||||||||||||||||
Allocation of 651.8834 Redeemable Units of Limited Partnership
Interest to the Special Limited Partner (Note 3b)
|
| 4,492,189 | | 4,492,189 | ||||||||||||
Net income (loss) available for pro rata distribution
|
23,087,909 | 559,229 | 542,414 | 24,189,552 | ||||||||||||
Partners Capital at December 31, 2007
|
233,084,768 | 392,861 | 5,863,414 | 239,341,043 | ||||||||||||
Sale of 102.0000 Redeemable Units of Limited Partnership Interest
|
1,006,658 | | | 1,006,658 | ||||||||||||
Redemption of 5,682.3887 Redeemable Units of Limited Partnership
Interest
|
(47,287,192 | ) | | | (47,287,192 | ) | ||||||||||
Redemption of 1,773.3087 Redeemable Units of Special Limited
Partnership Interest
|
| (17,007,106 | ) | | (17,007,106 | ) | ||||||||||
Allocation of net income (loss) for the year ended
December 31, 2008:
|
||||||||||||||||
Allocation of 2,752.7909 Redeemable Units of Limited Partnership
Interest to the Special Limited Partner (Note 3b)
|
| 24,914,378 | | 24,914,378 | ||||||||||||
Net income (loss) available for pro rata distribution
|
95,781,197 | 2,360,717 | 2,690,986 | 100,832,900 | ||||||||||||
Partners Capital at December 31, 2008
|
282,585,431 | 10,660,850 | 8,554,400 | 301,800,681 | ||||||||||||
Redemption of 2,177.9080 Redeemable Units of Limited Partnership
Interest
|
(23,620,701 | ) | | | (23,620,701 | ) | ||||||||||
Redemption of 1,389.5644 Redeemable Units of Special Limited
Partnership Interest
|
| (15,224,202 | ) | | (15,224,202 | ) | ||||||||||
Redemption of 537.8824 General Partner Unit Equivalents
|
| | (5,999,845 | ) | (5,999,845 | ) | ||||||||||
Allocation of net income (loss) for the year ended
December 31, 2009:
|
||||||||||||||||
Allocation of 472.9346 Redeemable Units of Limited Partnership
Interest to the Special Limited Partner (Note 3b)
|
| 5,141,561 | | 5,141,561 | ||||||||||||
Net income (loss) available for pro rata distribution
|
18,805,399 | 724,909 | 664,321 | 20,194,629 | ||||||||||||
Partners Capital at December 31, 2009
|
$ | 277,770,129 | $ | 1,303,118 | $ | 3,218,876 | $ | 282,292,123 | ||||||||
Net Asset Value Per Unit:
|
2007:
|
$ | 7,059.21 | ||
2008:
|
$ | 10,299.00 | ||
2009:
|
$ | 10,996.34 | ||
See accompanying notes to financial statements.
F-11
AAA Capital
Energy Fund L.P.
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
1. | Partnership Organization: |
AAA Capital Energy Fund L.P. (formerly, 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, 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. In addition, the
Partnership may enter into swap contracts on energy related
products. During the initial offering period (February 12,
1998 through March 15, 1998), the Partnership sold 49,538
redeemable units of limited partnership interest
(Redeemable Units). 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 Partnership no longer offers Redeemable Units for
sale. During 2008, the Special Limited Partner (defined herein)
donated 102 Redeemable Units to the Limited Partners.
Ceres Managed Futures LLC (formerly Citigroup Managed Futures
LLC), a Delaware limited liability company, acts as the general
partner (the General Partner) and commodity pool
operator of the Partnership. The General Partner is wholly owned
by Morgan Stanley Smith Barney Holdings LLC (MSSB
Holdings), a newly registered non-clearing futures
commission merchant and a member of the National Futures
Association (NFA). Morgan Stanley, indirectly
through various subsidiaries, owns 51% of MSSB Holdings.
Citigroup Global Markets Inc. (CGM), the commodity
broker and a selling agent for the Partnership, owns 49% of MSSB
Holdings. Citigroup Inc. (Citigroup), indirectly
through various subsidiaries, wholly owns CGM. Prior to
July 31, 2009, the date as of which MSSB Holdings became
its owner, the General Partner was wholly owned by Citigroup
Financial Products Inc., a wholly owned subsidiary of Citigroup
Global Markets Holdings Inc., the sole owner of which is
Citigroup.
On September 1, 2001, the Partnership allocated
substantially all of its capital to the AAA Master
Fund LLC, (formerly known as Citigroup AAA Master
Fund LLC), a New York Limited Liability Company (the
Master). The Partnership purchased
128,539.1485 units of the Master with a fair value of
$128,539,149 (including unrealized appreciation of $7,323,329).
The Master was formed in order to permit commodity pools managed
now or in the future by AAA Capital Management Advisors, Ltd.
(successor to AAA Capital Management, Inc.) (the
Advisor) using the Energy Program
Futures and Swaps, a proprietary, discretionary trading program,
to invest together in one trading vehicle. In addition, the
Advisor is a special limited partner (the Special Limited
Partner) (as described below) of the Partnership. The
General Partner and the Advisor believe that trading through
this master/feeder structure promotes efficiency and economy in
the trading process. Expenses to investors as a result of the
investment in the Master are approximately the same and
redemption rights are not affected. The Masters commodity
broker is CGM and its managing member is CMF. The Master may
trade commodity futures and options contracts of any kind, but
trades solely energy, energy-related products and grains. In
addition, the Master may enter into swap contracts or trade in
energy-related products. The commodity interests that are traded
by the Master are volatile and involve a high degree of market
risk.
The financial statements of the Master, including the Condensed
Schedules of Investments, are included elsewhere in this report
and should be read together with the Partnerships
financial statements.
At December 31, 2009 and 2008, the Partnership owned
approximately 23.3% and 23.2%, respectively, of the Master. It
is the Partnerships 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.
The General Partner and each Limited Partner share in the
profits and losses of the Partnership, after the allocation to
the Special Limited Partner, in proportion to the amount of
partnership interest owned by each except that no Limited
Partner shall be liable for obligations of the Partnership in
excess of its initial capital contribution and profits, if any,
net of distributions.
F-12
AAA Capital
Energy Fund L.P.
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
The Partnership will be liquidated upon the first to occur of
the following: December 31, 2018; the Net Asset Value per
Redeemable Unit decreases to less than $400 per Redeemable Unit
as of the 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 of the Partnership (the Limited
Partnership Agreement).
On July 1, 2009, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (FAS) No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles, also known as FASB Accounting Standards
Codification (ASC) 105, Generally Accepted
Accounting Principles (ASC 105) (the
Codification). ASC 105 established the exclusive
authoritative reference for U.S. generally accepted
accounting principles (GAAP) for use in financial
statements except for Securities and Exchange Commission
(SEC) rules and interpretive releases, which are
also authoritative GAAP for SEC registrants. The Codification
supersedes all existing non-SEC accounting and reporting
standards. The Codification is the single source of
authoritative accounting principles generally accepted in the
United States and applies to all financial statements issued
after September 15, 2009.
2. | Accounting Policies: |
a. | Use of Estimates. The preparation of financial statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. In making these estimates and assumptions, management has considered the effects, if any, of events occurring after the date of the Partnerships Statements of Financial Condition through the date the financial statements were issued. As a result, actual results could differ from these estimates. | |
b. | Statement of Cash Flows. The Partnership is not required to provide a Statement of Cash Flows as permitted by ASC 230, Statement of Cash Flows (formerly, FAS No. 102, Statement of Cash Flows Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale). | |
c. | Partnerships Investments. The Partnership values its investment in the Master at its net asset value per unit as calculated by the Master. The Master values its investments as described in note 2 of the Masters notes to the annual financial statements as of December 31, 2009. |
Partnerships Fair Value
Measurements. The Partnership adopted ASC 820,
Fair Value Measurements and Disclosures (formerly,
FAS No. 157, Fair Value Measurements) as
of January 1, 2008 which defines fair value as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. ASC 820 establishes a framework
for measuring fair value and expands disclosures regarding fair
value measurements in accordance with GAAP. The fair value
hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities
(Level 1) and the lowest priority to fair values
derived from unobservable inputs (Level 3). The level in
the fair value hierarchy within which the fair value measurement
in its entirety falls shall be determined based on the lowest
level input that is significant to the fair value measurement in
its entirety. The Partnership did not apply the deferral allowed
by ASC 820 for non financial assets and non financial
liabilities measured at fair value on a nonrecurring basis.
In 2009, the Partnership adopted amendments to ASC 820 Fair
Value Measurements and Disclosures (formerly,
FAS No. 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly) which
reaffirms that fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
F-13
AAA Capital
Energy Fund L.P.
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
measurement date under current market conditions. These
amendments to ASC 820 also reaffirm the need to use judgment in
determining if a formerly active market has become inactive and
in determining fair values when the market has become inactive.
These amendments to ASC 820 are required for interim and annual
reporting periods ending after June 15, 2009. Management
has concluded that based on available information in the
marketplace, there has not been a decrease in the volume and
level of activity in the Partnerships Level 2 assets
and liabilities. The adoption of the amendments to ASC 820 had
no effect on the Partnerships Financial Statements.
The Partnership values investments in the Master where there are
no other rights or obligations inherent within the ownership
interest held by the Partnership based on the end of the day net
asset value of the Master (Level 2). The value of the
Partnerships investments in the Master reflects its
proportional interest in the Master. As of and for the years
ended December 31, 2009 and 2008, the Partnership did not
hold any derivative instruments that are based on unadjusted
quoted prices in active markets for identical assets
(Level 1) or priced at fair value using unobservable
inputs through the application of managements assumptions
and internal valuation pricing models (Level 3).
Quoted Prices |
||||||||||||||||
in Active |
Significant |
|||||||||||||||
Markets for |
Other |
Significant |
||||||||||||||
Identical |
Observable |
Unobservable |
||||||||||||||
Assets |
Inputs |
Inputs |
||||||||||||||
12/31/2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Investment in Master
|
$ | 285,810,508 | $ | | $ | 285,810,508 | $ | | ||||||||
Total fair value
|
$ | 285,810,508 | $ | | $ | 285,810,508 | $ | | ||||||||
Quoted Prices |
||||||||||||||||
in Active |
Significant |
|||||||||||||||
Markets for |
Other |
Significant |
||||||||||||||
Identical |
Observable |
Unobservable |
||||||||||||||
Assets |
Inputs |
Inputs |
||||||||||||||
12/31/2008 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Investment in Master
|
$ | 310,396,043 | $ | | $ | 310,396,043 | $ | | ||||||||
Total fair value
|
$ | 310,396,043 | $ | | $ | 310,396,043 | $ | | ||||||||
Masters Investments. All commodity
interests of the Master (including derivative financial
instruments and derivative commodity instruments) are held for
trading purposes. The commodity interests are recorded on trade
date and open contracts are recorded at fair value (as described
below) at the measurement date. Investments in commodity
interests denominated in foreign currencies are translated into
U.S. dollars at the exchange rates prevailing at the
measurement date. Gains or losses are realized when contracts
are liquidated. Unrealized gains or losses on open contracts are
included as a component of equity in trading account on the
Statements of Financial Condition. Realized gains or losses and
any change in net unrealized gains or losses from the preceding
period are reported in the Statements of Income and Expenses.
Masters Fair Value Measurements. The
Master adopted ASC 820, Fair Value Measurements and Disclosures
(formerly, FAS No. 157, Fair Value
Measurements) as of January 1, 2008 which defines
fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC 820
establishes a framework for measuring fair value and expands
disclosures regarding fair value measurements in accordance with
GAAP. The fair value hierarchy gives the highest priority to
F-14
AAA Capital
Energy Fund L.P.
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1) and the lowest priority to
fair values derived from unobservable inputs (Level 3). The
level in the fair value hierarchy within which the fair value
measurement in its entirety falls shall be determined based on
the lowest level input that is significant to the fair value
measurement in its entirety. The Master did not apply the
deferral allowed by ASC 820 for non financial assets and non
financial liabilities measured at fair value on a nonrecurring
basis.
The Master considers prices for exchange traded commodity
futures, forwards and options contracts to be based on
unadjusted quoted prices in active markets for identical assets
(Level 1). The values of non-exchange traded forwards,
swaps and certain options contracts for which market quotations
are not readily available are priced by broker-dealers who
derive fair values for those assets from observable inputs
(Level 2). As of and for the years ended December 31,
2009 and 2008, the Master did not hold any derivative
instruments for which market quotations are not readily
available and which are priced by broker-dealers who derive fair
values for those assets from observable inputs
(Level 2) or that are priced at fair value using
unobservable inputs through the application of managements
assumptions and internal valuation pricing models (Level 3).
Quoted |
||||||||||||||||
Prices |
||||||||||||||||
in Active |
Significant |
|||||||||||||||
Markets for |
Other |
Significant |
||||||||||||||
Identical |
Observable |
Unobservable |
||||||||||||||
Assets |
Inputs |
Inputs |
||||||||||||||
12/31/2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Options owned
|
$ | 741,495,723 | $ | 741,495,723 | $ | | $ | | ||||||||
Total assets
|
741,495,723 | 741,495,723 | | | ||||||||||||
Liabilities
|
||||||||||||||||
Futures and Exchange Cleared Swaps
|
$ | 50,857,890 | $ | 50,857,890 | $ | | $ | | ||||||||
Options written
|
352,233,900 | 352,233,900 | | | ||||||||||||
Total liabilities
|
403,091,790 | 403,091,790 | | | ||||||||||||
Total fair value
|
$ | 338,403,933 | $ | 338,403,933 | $ | | $ | | ||||||||
Quoted |
||||||||||||||||
Prices |
||||||||||||||||
in Active |
Significant |
|||||||||||||||
Markets for |
Other |
Significant |
||||||||||||||
Identical |
Observable |
Unobservable |
||||||||||||||
Assets |
Inputs |
Inputs |
||||||||||||||
12/31/2008 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Futures and Exchange Cleared Swaps
|
$ | 268,819,884 | $ | 268,819,884 | $ | | $ | | ||||||||
Options owned
|
906,666,577 | 906,666,577 | | | ||||||||||||
Total assets
|
1,175,486,461 | 1,175,486,461 | | | ||||||||||||
Liabilities
|
||||||||||||||||
Options written
|
$ | 624,018,932 | $ | 624,018,932 | $ | | $ | | ||||||||
Total liabilities
|
624,018,932 | 624,018,932 | | | ||||||||||||
Total fair value
|
$ | 551,467,529 | $ | 551,467,529 | $ | | $ | | ||||||||
Futures Contracts. The Master trades futures contracts.
Exchange cleared swaps included in futures and exchange cleared
swaps are swaps that are traded as futures. A futures contract
is a
F-15
AAA Capital
Energy Fund L.P.
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
firm commitment to buy or sell a specified quantity of
investments, currency or a standardized amount of a deliverable
grade commodity, at a specified price on a specified future
date, unless the contract is closed before the delivery date or
if the delivery quantity is something where physical delivery
cannot occur (such as the S&P 500 Index), whereby such
contract is settled in cash. Payments (variation
margin) may be made or received by the Master each
business day, depending on the daily fluctuations in the value
of the underlying contracts, and are recorded as unrealized
gains or losses by the Master. When the contract is closed, the
Master records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and
the value at the time it was closed. Because transactions in
futures contracts require participants to make both initial
margin deposits of cash or other assets and variation margin
deposits, through the futures broker, directly with the exchange
on which the contracts are traded, credit exposure is limited.
Realized gains (losses) and changes in unrealized gains (losses)
on futures contracts are included in the Statements of Income
and Expenses.
Options. The Master may purchase and write (sell), both
exchange listed and
over-the-counter
options on commodities or financial instruments. 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 Statements of
Financial Condition and marked to market daily. When the Master
purchases an option, the premium paid is recorded as an asset in
the Statements of Financial Condition and marked to market
daily. Realized gains (losses) and changes in unrealized gains
(losses) on options contracts are included in the Statements of
Income and Expenses.
Brokerage Commissions. Commission charges to open and
close futures and exchange traded swap contracts are expensed at
the time the positions are opened. Commission charges on option
contracts are expensed at the time the position is established
and when the option contract is closed.
d. | Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on their share of the Partnerships income and expenses. |
In 2007, the Partnership adopted ASC 740, Income Taxes
(formerly, FAS No. 48, Accounting for
Uncertainty in Income Taxes). ASC 740 provides guidance
for how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. ASC 740
requires the evaluation of tax positions taken or expected to be
taken in the course of preparing the Partnerships
financial statements to determine whether the tax positions are
more-likely-than-not to be sustained by the
applicable tax authority. Tax positions with respect to tax at
the Partnership level not deemed to meet the
more-likely-than-not threshold would be recorded as
a tax benefit or expense in the current year. The General
Partner concluded that no provision for income tax is required
in the Partnerships financial statements.
The following is the major tax jurisdiction for the Partnership
and the earliest tax year subject to examination: United
States 2006.
e. | Subsequent Events. In 2009, the Partnership adopted ASC 855, Subsequent Events (formerly, FAS No. 165, Subsequent Events). The objective of ASC 855 is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. Management has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements. |
f. | Recent Accounting Pronouncements. In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Improving Disclosures about Fair Value Measurements, which , among other things, amends ASC 820 to require entities to separately present purchases, |
F-16
AAA Capital
Energy Fund L.P.
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
sales, issuances, and settlements in their reconciliation of Level 3 fair value measurements (i.e. to present such items on a gross basis rather than on a net basis), and which clarifies existing disclosure requirements provided by ASC 820 regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements (which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years). Management is currently assessing the impact that the adoption of ASU 2010-06 will have on the Partnerships financial statements disclosures. |
In February 2010, the FASB issued Accounting Standards Update
No. 2010-09
(ASU
2010-09),
Subsequent Events (Topic 855): Amendments to Certain
Recognition and Disclosure Requirements, which among other
things amended ASC 855 to remove the requirement for an SEC
filer to disclose the date through which subsequent events have
been evaluated. This change alleviates potential conflicts
between ASC 855 and the SECs requirements. All of the
amendments in this update are effective upon issuance of this
update. Management has included the provisions of these
amendments in the financial statements.
g. | Certain prior period amounts have been reclassified to conform to current period presentation. | |
h. | Net Income (Loss) per Redeemable Unit. Net income (loss) per Redeemable Unit is calculated in accordance with investment company guidance. See footnote 6 for Financial Highlights. |
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. The General Partner has
agreed to make capital contributions, if necessary, so that its
general partnership interest will be equal to the greater of
(i) 1% of the partners contributions to the
Partnership or (ii) $25,000.
b. | Management Agreement: |
The General Partner, on behalf of the Partnership, has entered
into a management agreement with the Advisor (the
Management Agreement), a registered commodity
trading advisor. 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 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 the current
months profit share allocation accrual, the monthly
management fee and any redemption or distributions as of the end
of such month. The Management Agreement may be terminated upon
notice by either party.
In addition the Advisor is a Special Limited Partner of the
Partnership and receives a quarterly profit share allocation to
its capital account in the Partnership in the form of units of
the Partnership, the value of which shall be equal to 20% of New
Trading Profits, as defined in the Management Agreement, earned
on behalf of the Partnership during each calendar quarter and
are issued as Special Limited Partner Units.
In allocating substantially all of the assets of the Partnership
to the Master, the General Partner considered the Advisors
past performance, trading style, volatility of markets traded
and fee requirements. The General Partner may modify or
terminate the allocation of assets to the Advisor at any time.
F-17
AAA Capital
Energy Fund L.P.
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
c. | Customer Agreement: |
The Partnership entered into a customer agreement (the
Customer Agreement) which provided that the
Partnership pay CGM brokerage commissions at $18 per round turn
for futures, $5 per round turn for swap transactions and $9 per
side for options. The brokerage commissions were inclusive of
applicable floor brokerage fees. All exchange, clearing, user,
give-up, and
NFA fees (collectively, the clearing fees) are borne
by the Master and allocated to the Partnership through its
investment in the Master. The Partnership pays CGM brokerage
commissions at the above rates based on its proportional share
of the Masters trades. CGM will pay a portion of its
brokerage fees to financial advisors who have sold Redeemable
Units in the Partnership. The Partnerships assets, not
held in the Masters account at CGM are held in the
Partnerships account at CGM. The Partnerships assets
are deposited by CGM in segregated bank accounts to the extent
required by Commodity Futures Trading Commission regulations.
Cash margin requirements are maintained by the Master. CGM will
pay the Partnership interest on its allocable share of 80% of
the average daily equity maintained in cash in the Masters
account during each month at a
30-day
U.S. Treasury bill rate determined weekly by CGM 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. Alternatively, CGM may
place up to all of the Masters assets in
90-day
U.S. Treasury bills and pay the Partnership its allocable
share of 80% of the interest earned on Treasury bills purchased.
Twenty percent of the interest earned on Treasury bills
purchased may be retained by CGM
and/or
credited to the General Partner. The Customer Agreement may be
terminated upon notice by either party.
4. | Trading Activities: |
The results of the Masters trading activities are shown in
the Statements of Income and Expenses.
The Customer Agreements between the Partnership and CGM and the
Master and CGM gives the Partnership and the Master,
respectively, the legal right to net unrealized gains and losses
on open futures and exchange cleared swaps contracts. The Master
nets, for financial reporting purposes, the unrealized gains and
losses on open futures and exchange cleared swaps contracts on
the Statements of Financial Condition as the criteria under
ASC 210, Balance Sheet (formerly, FASB
Interpretation No. 39, Offsetting of Amounts
Related to Certain Contracts) have been met.
Brokerage commissions are based on the number of trades executed
by the Advisor and the Partnerships ownership percentage
of the Master.
The Master adopted ASC 815, Derivatives and Hedging (formerly,
FAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities) as of January 1,
2009 which requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. ASC 815 only
expands the disclosure requirements for derivative instruments
and related hedging activities and has no impact on the
Statements of Financial Condition, Statements of Income and
Expenses and Statements of Changes in Partners Capital.
All of the commodity interests owned by the Master are held for
trading purposes. The average number of futures and exchange
cleared swap contracts and options contracts traded for the year
ended December 31, 2009
F-18
AAA Capital
Energy Fund L.P.
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
based on a quarterly calculation, was 312,729. The following
table indicates the fair values of derivative instruments of
futures and exchange cleared swaps and options contracts as
separate assets and liabilities.
December 31, 2009 | ||||
Assets
|
||||
Futures and Exchange Cleared Swap Contracts
|
||||
Energy
|
$ | 274,140,959 | ||
Total unrealized appreciation on
open futures and exchange cleared swap contracts |
$ | 274,140,959 | ||
Liabilities
|
||||
Futures and Exchange Cleared Swap Contracts
|
||||
Energy
|
$ | (324,998,849 | ) | |
Total unrealized depreciation on open futures and exchange
cleared swap contracts
|
$ | (324,998,849 | ) | |
Net unrealized depreciation on open futures and exchange cleared
swap contracts
|
$ | (50,857,890 | )* | |
Assets
|
||||
Options Owned
|
||||
Energy
|
$ | 741,495,723 | ||
Options owned
|
$ | 741,495,723 | ** | |
Liabilities
|
||||
Options Written
|
||||
Energy
|
$ | 352,233,900 | ||
Options written
|
$ | 352,233,900 | *** | |
* | This amount is in Net unrealized depreciation on open futures and exchange cleared swap contracts on the Masters Statements of Financial Condition. | |
** | This amount is in Options owned, at fair value on the Masters Statements of Financial Condition. | |
*** | This amount is in Options written, at fair value on the Masters Statements of Financial Condition. |
The following table indicates the trading gains and losses, by
market sector, on derivative instruments for the year ended
December 31, 2009.
December 31, 2009 |
||||
Sector
|
Gain (loss) from trading | |||
Energy
|
$ | 154,505,739 | ||
Total
|
$ | 154,505,739 | **** | |
**** | This amount is in Gain (loss) from trading, net on the Masters Statement of Income and Expenses. |
5. | Subscriptions, Distributions and Redemptions: |
Subscriptions are accepted monthly from investors and they
become Limited Partners on the first day of the month after
their subscription is processed. 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. A Limited
Partner may require the Partnership to redeem its Redeemable
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-19
AAA Capital
Energy Fund L.P.
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
6. | Financial Highlights: |
Changes in the Net Asset Value per Redeemable Unit of Limited
Partnership Interest for the years ended December 31, 2009,
2008 and 2007 were as follows:
2009 | 2008 | 2007 | ||||||||||
Net realized and unrealized gains (losses)*
|
$ | 1,104.17 | $ | 4,192.14 | $ | 741.55 | ||||||
Interest income
|
5.16 | 36.89 | 179.39 | |||||||||
Expenses and allocation to Special Limited Partner**
|
(411.99 | ) | (989.24 | ) | (265.10 | ) | ||||||
Increase (decrease) for year
|
697.34 | 3,239.79 | 655.84 | |||||||||
Net Asset Value per Redeemable Unit, beginning of year
|
10,299.00 | 7,059.21 | 6,403.37 | |||||||||
Net Asset Value per Redeemable Unit, end of year
|
$ | 10,996.34 | $ | 10,299.00 | $ | 7,059.21 | ||||||
* | Includes Partnership commissions and expense allocated from Master. | |
** | Excludes Partnership commissions and expense allocated from Master and includes allocation to Special Limited Partner. |
2009 | 2008 | 2007 | ||||||||||
Ratios to average net assets:
|
||||||||||||
Net investment income (loss) before allocation to Special
Limited Partner ***
|
(3.5 | )% | (3.7 | )% | (1.0 | )% | ||||||
Operating expenses
|
3.6 | % | 4.1 | % | 3.7 | % | ||||||
Allocation to Special Limited Partner
|
1.8 | % | 9.5 | % | 1.8 | % | ||||||
Total expenses and allocation to Special Limited Partner
|
5.4 | % | 13.6 | % | 5.5 | % | ||||||
Total return:
|
||||||||||||
Total return before allocation to Special Limited Partner
|
8.7 | % | 57.9 | % | 12.3 | % | ||||||
Allocation to Special Limited Partner
|
(1.9 | )% | (12.0 | )% | (2.1 | )% | ||||||
Total return after allocation to Special Limited Partner
|
6.8 | % | 45.9 | % | 10.2 | % | ||||||
*** | Interest income allocated from Master less total expenses (exclusive of allocation to Special Limited Partner). |
The above ratios may vary for individual investors based on the
timing of capital transactions during the year. Additionally,
these ratios are calculated for the Limited Partner class using
the Limited Partners share of income, expenses and average
net assets.
7. | Financial Instrument Risks: |
In the normal course of its business, the Partnership, through
its 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 balances, 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, 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 forwards and options contracts.
OTC contracts are negotiated between contracting parties and
include forwards and certain options. Specific market movements
of commodities or futures contracts underlying an option cannot
accurately be predicted. The purchaser of an option may lose the
entire premium paid for the option. The writer, or seller, of an
option has unlimited risk. Each of these instruments is subject
to various risks similar to those
F-20
AAA Capital
Energy Fund L.P.
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
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/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
by the Master. The Partnership/Master is exposed to a market
risk equal to the value of futures and forward contracts
purchased and unlimited liability on such contracts sold short.
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. The Partnerships/Masters risk of loss in
the event of a counterparty default is typically limited to the
amounts recognized in the Statements of Financial Condition and
not represented by the contract or notional amounts of the
instruments. The Partnerships/Masters risk of loss
is reduced through the use of legally enforceable master netting
agreements with counterparties that permit the
Partnership/Master to offset unrealized gains and losses and
other assets and liabilities with such counterparties upon the
occurrence of certain events. The Partnership/Master has credit
risk and concentration risk as the sole counterparty or broker
with respect to the Partnerships/Masters assets is
CGM or a CGM affiliate. Credit risk with respect to
exchange-traded instruments is reduced to the extent that
through CGM, the Partnerships/Masters counterparty
is an exchange or clearing organization.
The Advisor will concentrate the
Partnerships/Masters trading in energy related
markets. Concentration in a limited number of commodity
interests may subject the Partnerships/Masters
account to greater volatility than in if a more diversified
portfolio of contracts were traded on behalf of the
Partnership/Master.
As both a buyer and seller of options, the Master pays or
receives a premium at the outset and then bears the risk of
unfavorable changes in the price of the contract underlying the
option. Written options expose the Master to potentially
unlimited liability; for purchased options the risk of loss is
limited to the premiums paid. Certain written put options permit
cash settlement and do not require the option holder to own the
reference asset. The Master does not consider these contracts to
be guarantees as described in ASC 460 Guarantees (formerly,
FAS No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees).
The General Partner monitors and attempts to control the
Partnerships/Masters 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 may be subject. These
monitoring systems generally 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
and exchange cleared swaps, 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 the
inception date. However, due to the nature of the
Partnerships/Masters business, these instruments may
not be held to maturity.
F-21
Selected unaudited quarterly financial data for the Partnership for the years ended December 31,
2009 and 2008 is summarized below:
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2009 to | July 1, 2009 to | April 1, 2009 to | January 1, 2009 to | |||||||||||||
December 31, 2009 | September 30, 2009 | June 30, 2009 | March 31, 2009 | |||||||||||||
Net realized and unrealized trading gains (losses) net of brokerage commissions and clearing fees including interest income |
$ | 1,007,923 | $ | 8,112,874 | $ | 1,935,687 | $ | 20,529,446 | ||||||||
Net income (loss) before allocation to Special Limited Partner |
$ | (503,234 | ) | $ | 6,572,341 | $ | 360,511 | $ | 18,906,572 | |||||||
Net income (loss) after allocation to Special Limited Partner |
$ | (503,234 | ) | $ | 5,266,586 | $ | 296,847 | $ | 15,134,430 | |||||||
Increase (decrease) in Net Asset Value per Unit |
$ | (22.25 | ) | $ | 191.51 | $ | 4.69 | $ | 523.39 |
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2008 to | July 1, 2008 to | April 1, 2008 to | January 1, 2008 to | |||||||||||||
December 31, 2008 | September 30, 2008 | June 30, 2008 | March 31, 2008 | |||||||||||||
Net realized and unrealized trading gains (losses) net of brokerage commissions and clearing fees including interest income |
$ | 40,018,033 | $ | 44,770,520 | $ | 37,993,457 | $ | 8,687,163 | ||||||||
Net income (loss) before allocation to Special Limited Partner |
$ | 38,407,154 | $ | 43,267,393 | $ | 36,648,202 | $ | 7,424,529 | ||||||||
Net income (loss) after allocation to Special Limited Partner |
$ | 30,741,338 | $ | 34,685,958 | $ | 29,347,762 | $ | 6,057,842 | ||||||||
Increase (decrease) in Net Asset Value per Unit |
$ | 1,024.90 | $ | 1,111.97 | $ | 920.42 | $ | 182.50 |
F-22
To the Members
of
AAA Master Fund LLC
AAA Master Fund LLC
To the best of the knowledge and belief of the undersigned, the
information contained herein is accurate and complete.
By: |
Jennifer Magro Chief Financial Officer and Director Ceres Managed Futures LLC Managing Member, AAA Master Fund LLC |
Ceres Managed Futures LLC
55 East 59th Street
10th Floor
New York, N.Y. 10022
212-559-2011
55 East 59th Street
10th Floor
New York, N.Y. 10022
212-559-2011
F-23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
AAA Master Fund LLC:
AAA Master Fund LLC:
We have audited the accompanying statement of financial condition of AAA Master Fund LLC
(the Company), including the condensed schedule of investments, as of December 31, 2009, and the
related statements of income and expenses, and changes in members capital for the year then ended.
These financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audit. The financial
statements of the Company for the years ended December 31, 2008 and 2007 were audited by other
auditors whose reports, dated March 26, 2009 and March 24, 2008, expressed unqualified opinions on
those statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also 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 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, such financial statements present fairly, in all material respects, the financial
position of AAA Master Fund LLC as of December 31, 2009, and the results of its operations and its
changes in members capital for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
New York, New York
March 19, 2010
F-24
Report of Independent Auditors
To the Members of
AAA Master Fund LLC:
AAA Master Fund LLC:
In our opinion, the accompanying statement of financial condition, including the condensed schedule of
investments, and the related statement of income and expenses, and statement of changes in members
capital present fairly, in all material respects, the financial position of AAA Master Fund LLC
(formerly known as Citigroup AAA Master Fund LLC) at December 31, 2008, and the results of
its operations for the year then ended in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these statements 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, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 26, 2009
March 26, 2009
F-25
Report of Independent Registered Public Accounting Firm
The Members
AAA Master Fund LLC:
AAA Master Fund LLC:
We have audited the accompanying statements of income and expenses and changes in members capital
of AAA Master Fund LLC (formerly, Citigroup AAA Master Fund LLC) for the year ended December 31,
2007. These financial statements are the responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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, 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 results of operations and changes in members capital of AAA Master Fund LLC for the
year ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
March 24, 2008
March 24, 2008
F-26
AAA Master
Fund LLC
Statements of Financial Condition
December 31, 2009 and 2008
Statements of Financial Condition
December 31, 2009 and 2008
2009 | 2008 | |||||||
Assets:
|
||||||||
Equity in trading account:
|
||||||||
Cash (Note 3c)
|
$ | 778,736,469 | $ | 696,338,412 | ||||
Cash margin (Note 3c)
|
112,350,862 | 90,640,874 | ||||||
Net unrealized appreciation on open futures and exchange cleared
swap contracts
|
| 268,819,884 | ||||||
Options owned, at fair value (cost $885,211,273 and
$867,124,483, respectively)
|
741,495,723 | 906,666,577 | ||||||
1,632,583,054 | 1,962,465,747 | |||||||
Due from brokers
|
| 518,950 | ||||||
Total assets
|
$ | 1,632,583,054 | $ | 1,962,984,697 | ||||
Liabilities and Members Capital:
|
||||||||
Liabilities:
|
||||||||
Net unrealized depreciation on open futures and exchange cleared
swap contracts
|
$ | 50,857,890 | $ | | ||||
Options written, at fair value (premium $435,825,576 and
$600,446,669, respectively)
|
352,233,900 | 624,018,932 | ||||||
Accrued expenses:
|
||||||||
Professional fees
|
296,072 | 334,666 | ||||||
Total liabilities
|
403,387,862 | 624,353,598 | ||||||
Members Capital:
|
||||||||
Members Capital, 123,710.6078 and 150,805.9242 Units of
Member Interest outstanding at December 31, 2009 and 2008,
respectively
|
1,229,195,192 | 1,338,631,099 | ||||||
Total liabilities and members capital
|
$ | 1,632,583,054 | $ | 1,962,984,697 | ||||
See accompanying notes to financial statements.
F-27
AAA Master
Fund LLC
Condensed Schedule of Investments
December 31, 2009
Condensed Schedule of Investments
December 31, 2009
Number of |
% of Members |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures and Exchange Cleared Swap Contracts Purchased
|
||||||||||||
Energy
|
76,309 | $ | (83,380,536 | ) | (6.78 | )% | ||||||
Total futures and exchange cleared swap contracts purchased
|
(83,380,536 | ) | (6.78 | ) | ||||||||
Futures and Exchange Cleared Swap Contracts Sold
|
||||||||||||
Energy
|
68,230 | 32,522,646 | 2.65 | |||||||||
Total futures and exchange cleared swap contracts sold
|
32,522,646 | 2.65 | ||||||||||
Options Owned
|
||||||||||||
Energy
|
||||||||||||
Call
|
||||||||||||
NYMEX LT Crude Oil Feb 10 Dec 12
|
10,366 | 130,224,950 | 10.59 | |||||||||
NYMEX Natural Gas E Feb 10 Oct 14
|
23,072 | 135,333,168 | 11.01 | |||||||||
Other
|
8,589 | 115,880,958 | 9.43 | |||||||||
Call options owned
|
381,439,076 | 31.03 | ||||||||||
Put
|
||||||||||||
NYMEX Crude Oil E Dec 10 Dec 16
|
13,074 | 127,745,250 | 10.39 | |||||||||
NYMEX LT Crude Oil Feb 10 Dec 13
|
10,761 | 73,976,480 | 6.02 | |||||||||
NYMEX Natural Gas E Feb 10 May 14
|
9,735 | 116,193,705 | 9.45 | |||||||||
Other
|
8,960 | 42,141,212 | 3.43 | |||||||||
Put options owned
|
360,056,647 | 29.29 | ||||||||||
Total options owned
|
741,495,723 | 60.32 | ||||||||||
Options Written
|
||||||||||||
Energy
|
||||||||||||
Call
|
||||||||||||
NYMEX Heating Oil Feb 10 Dec 10
|
6,014 | (61,856,584 | ) | (5.03 | ) | |||||||
NYMEX Natural Gas E Feb 10 Oct 14
|
18,423 | (77,041,748 | ) | (6.27 | ) | |||||||
Other
|
19,042 | (109,221,068 | ) | (8.89 | ) | |||||||
Call options owned
|
(248,119,400 | ) | (20.19 | ) | ||||||||
Put
|
||||||||||||
Other
|
21,738 | (104,114,500 | ) | (8.47 | ) | |||||||
Put options written
|
(104,114,500 | ) | (8.47 | ) | ||||||||
Total options written
|
(352,233,900 | ) | (28.66 | ) | ||||||||
Total fair value
|
$ | 338,403,933 | 27.53 | % | ||||||||
See accompanying notes to financial statements.
F-28
AAA Master
Fund LLC
Condensed Schedule of Investments
December 31, 2008
Condensed Schedule of Investments
December 31, 2008
Number of |
% of Members |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures and Exchange Cleared Swap Contracts Purchased
|
||||||||||||
Energy
|
||||||||||||
NYMEX Heating Oil Feb 09 Aug 11
|
8,011 | $ | (441,745,130 | ) | (33.00 | )% | ||||||
NYMEX HH N Gas Swap Feb 09 Dec 14
|
18,654 | (89,160,340 | ) | (6.66 | ) | |||||||
NYMEX LS Crude Oil Feb 09 Dec 12
|
11,641 | (129,427,041 | ) | (9.67 | ) | |||||||
NYMEX Natural Gas May 09 Dec 13
|
8,255 | (139,708,500 | ) | (10.44 | ) | |||||||
NYMEX NYH RBOB Gas Feb 09 Dec 11
|
4,404 | (119,810,053 | ) | (8.95 | ) | |||||||
NYMEX WTI Financial Jun 09 Dec 16
|
4,936 | (209,218,410 | ) | (15.63 | ) | |||||||
Other
|
16,316 | (151,807,029 | ) | (11.34 | ) | |||||||
Total futures and exchange cleared swap contracts purchased
|
(1,280,876,503 | ) | (95.69 | ) | ||||||||
Futures and Exchange Cleared Swap Contracts Sold
|
||||||||||||
Energy
|
||||||||||||
IPE Brent Crude Oil Mar 09 Dec 14
|
4,692 | 121,030,070 | 9.04 | |||||||||
IPE Gas Oil Jan 09 Jun 11
|
11,819 | 535,126,020 | 39.98 | |||||||||
NYMEX Heating Oil Feb 09 Dec 11
|
3,501 | 166,705,095 | 12.45 | |||||||||
NYMEX HH N Gas Swap Mar 09 Dec 12
|
29,532 | 155,897,847 | 11.65 | |||||||||
NYMEX Natural Gas Feb 09 Dec 14
|
13,299 | 260,526,256 | 19.46 | |||||||||
NYMEX NYH RBOB Gas Apr 09 Apr 10
|
3,293 | 137,456,648 | 10.27 | |||||||||
Other
|
16,695 | 172,954,451 | 12.92 | |||||||||
Total futures and exchange cleared swap contracts sold
|
1,549,696,387 | 115.77 | ||||||||||
Options Owned
|
||||||||||||
Energy
|
||||||||||||
Call
|
||||||||||||
NYMEX Natural Gas EC Feb 09 May 14
|
28,842 | 164,736,675 | 12.31 | |||||||||
Other
|
22,190 | 31,922,424 | 2.38 | |||||||||
Call options owned
|
196,659,099 | 14.69 | ||||||||||
Put
|
||||||||||||
NYMEX Brent Crude EP Jun 09 Dec 10
|
2,533 | 73,938,930 | 5.52 | |||||||||
NYMEX Crude EP Mar 09 Dec 16
|
11,958 | 253,787,240 | 18.96 | |||||||||
NYMEX LS Crude Oil P Feb 09 Dec 12
|
6,383 | 205,040,500 | 15.32 | |||||||||
NYMEX Natural Gas EP Mar 09 Mar 11
|
4,433 | 70,822,470 | 5.29 | |||||||||
Other
|
3,227 | 106,418,338 | 7.95 | |||||||||
Put options owned
|
710,007,478 | 53.04 | ||||||||||
Total options owned
|
906,666,577 | 67.73 | ||||||||||
Options Written
|
||||||||||||
Energy
|
||||||||||||
Call
|
||||||||||||
Other
|
48,267 | (108,711,985 | ) | (8.12 | ) | |||||||
Call options written
|
(108,711,985 | ) | (8.12 | ) | ||||||||
Put
|
||||||||||||
NYMEX LS Crude Oil P Feb 09 Dec 12
|
6,493 | (131,792,570 | ) | (9.84 | ) | |||||||
NYMEX Natural Gas EP Feb 09 May 11
|
6,340 | (209,214,966 | ) | (15.63 | ) | |||||||
Other
|
8,146 | (174,299,411 | ) | (13.02 | ) | |||||||
Put options written
|
(515,306,947 | ) | (38.49 | ) | ||||||||
Total options written
|
(624,018,932 | ) | (46.61 | ) | ||||||||
Total fair value
|
$ | 551,467,529 | 41.20 | % | ||||||||
See accompanying notes to financial statements.
F-29
AAA Master
Fund LLC
Statements of Income and Expenses
for the years ended December 31, 2009, 2008 and 2007
Statements of Income and Expenses
for the years ended December 31, 2009, 2008 and 2007
2009 | 2008 | 2007 | ||||||||||
Income:
|
||||||||||||
Net gains (losses) on trading of commodity interests:
|
||||||||||||
Net realized gains (losses) on closed contracts
|
$ | 550,277,218 | $ | 383,464,674 | $ | 139,780,388 | ||||||
Change in net unrealized gains (losses) on open contracts
|
(395,771,479 | ) | 187,955,527 | (15,598,237 | ) | |||||||
Gain (loss) from trading, net
|
154,505,739 | 571,420,201 | 124,182,151 | |||||||||
Interest income
|
661,850 | 5,262,752 | 27,854,202 | |||||||||
Total income (loss)
|
155,167,589 | 576,682,953 | 152,036,353 | |||||||||
Expenses:
|
||||||||||||
Clearing fees
|
3,343,809 | 3,223,638 | 3,197,637 | |||||||||
Professional fees
|
628,350 | 848,543 | 508,210 | |||||||||
Total expenses
|
3,972,159 | 4,072,181 | 3,705,847 | |||||||||
Net income (loss)
|
$ | 151,195,430 | $ | 572,610,772 | $ | 148,330,506 | ||||||
Net income (loss) per Unit of Member Interest (Notes 1 and
6)
|
$ | 1,064.36 | $ | 3,494.47 | $ | 756.40 | ||||||
Weighted average units outstanding
|
139,419.9283 | 172,420.9234 | 200,906.2331 | |||||||||
See accompanying notes to financial statements.
F-30
AAA Master
Fund LLC
Statements of Changes in Members Capital
for the years ended December 31, 2009, 2008 and 2007
Statements of Changes in Members Capital
for the years ended December 31, 2009, 2008 and 2007
Members |
||||
Capital | ||||
Members Capital at December 31, 2006
|
$ | 993,359,899 | ||
Net income (loss)
|
148,330,506 | |||
Sale of 28,091.0093 Units of Member Interest
|
140,284,151 | |||
Redemption of 50,568.2147 Units of Member Interest
|
(254,888,582 | ) | ||
Distribution of interest income to feeder funds
|
(27,632,438 | ) | ||
Members Capital at December 31, 2007
|
999,453,536 | |||
Net income (loss)
|
572,610,772 | |||
Sale of 26,018.8922 Units of Member Interest
|
176,599,395 | |||
Redemption of 59,881.8271 Units of Member Interest
|
(404,833,765 | ) | ||
Distribution of interest income to feeder funds
|
(5,198,839 | ) | ||
Members Capital at December 31, 2008
|
1,338,631,099 | |||
Net income (loss)
|
151,195,430 | |||
Sale of 18,789.6645 Units of Member Interest
|
178,448,063 | |||
Redemption of 45,884.9809 Units of Member Interest
|
(438,417,550 | ) | ||
Distribution of interest income to feeder funds
|
(661,850 | ) | ||
Members Capital at December 31, 2009
|
$ | 1,229,195,192 | ||
Net Asset Value per Unit of Member Interest:
|
2007:
|
$ | 5,412.14 | ||
2008:
|
$ | 8,876.52 | ||
2009:
|
$ | 9,936.05 | ||
See accompanying notes to financial statements.
F-31
AAA Master
Fund LLC
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
1. | General: |
AAA Master Fund LLC, formerly Citigroup AAA Master
Fund LLC (the Master) is a limited liability
company formed under the New York Limited Liability Company Law.
The Masters purpose is to engage in the speculative
trading of a diversified portfolio of commodity interests
including futures contracts, options, swaps and forward
contracts. The Master may trade commodity futures and option
contracts of any kind but intends initially to trade solely
energy and energy related products. The commodity interests that
are traded by the Master are volatile and involve a high degree
of market risk. The Master is authorized to sell an unlimited
number of units of member interest (Units).
Ceres Managed Futures LLC (formerly Citigroup Managed Futures
LLC), a Delaware limited liability company, acts as the managing
member (the Managing Member) and commodity pool
operator of the Master. The Managing Member is wholly owned by
Morgan Stanley Smith Barney Holdings LLC (MSSB
Holdings), a newly registered non-clearing futures
commission merchant and a member of the National Futures
Association (NFA). Morgan Stanley, indirectly
through various subsidiaries, owns 51% of MSSB Holdings.
Citigroup Global Markets Inc. (CGM), the commodity
broker and a selling agent for the Master, owns 49% of MSSB
Holdings. Citigroup Inc. (Citigroup), indirectly
through various subsidiaries, wholly owns CGM. Prior to
July 31, 2009, the date as of which MSSB Holdings became
its owner, the Managing Member was wholly owned by Citigroup
Financial Products Inc., a wholly owned subsidiary of Citigroup
Global Markets Holdings Inc., the sole owner of which is
Citigroup.
On September 1, 2001 (date Master commenced trading), AAA
Capital Energy Fund L.P. (formerly Smith Barney AAA Energy
Fund L.P.) (AAA) allocated substantially all of
its capital and Orion Futures Fund L.P. (formerly Citigroup
Orion Futures Fund L.P.) (Orion) allocated a
portion of its capital to the Master. The partnerships purchased
133,712.5867 Units of the Master with a fair value of
$133,712,587 (including unrealized appreciation of $7,755,035).
On July 1, 2002, AAA Capital Energy Fund L.P. II
(formerly Citigroup AAA Energy Fund L.P. II) (AAA
II) allocated substantially all of its capital to the
Master and purchased 64,945.0387 Units with a fair value of
$94,925,000. On November 1, 2003, Pinnacle Natural
Resources, L.P. (Pinnacle) allocated a portion of
its capital to the Master and purchased 1,104.9839 Units with a
fair value of $1,500,000. On October 1, 2005, Tactical
Diversified Futures Fund L.P. (formerly Citigroup
Diversified Futures Fund L.P.) (Tactical
Diversified) allocated a portion of its capital to the
Master and purchased 13,956.1190 Units with a fair value of
$50,000,000. On July 1, 2005, Institutional Futures
Portfolio L.P. (formerly CMF Institutional Futures Portfolio
L.P.) (Institutional Portfolio) allocated a portion
of its capital to the Master and purchased 2,386.2338 Units with
a fair value of $7,000,000. On November 1, 2005, a private
investor (Private Investor) purchased 1,196.6879
Units with a fair value of $4,000,000. On February 28,
2006, Pinnacle redeemed its entire investment in the Master.
This redemption amounted to 2,662.7928 Units with a fair
value of $11,982,967. On June 1, 2006, Legion Strategies
LLC (Legion LLC) allocated a portion of its capital
to the Master and purchased 827.0580 Units with a fair value of
$4,000,000. On June 30, 2006, a Private investor redeemed
its entire investment in the Master. This redemption amounted to
951.9315 Units with a fair value of $4,795,926. On
July 1, 2006, Legion Strategies, LTD (Legion
LTD) allocated a portion of its capital to the Master and
purchased 793.9501 Units with a fair value of $4,000,000. On
October 1, 2006, Energy Advisors Portfolio L.P. (formerly
Citigroup Energy Advisors Portfolio L.P.) (Energy
Advisors) allocated a portion of its capital to the Master
and purchased 723.8213 Units with a fair value of $3,315,000. On
March 1, 2007, Global Futures Fund Ltd. (formerly Citigroup
Global Futures Fund Ltd.) (Global Futures) allocated
a portion of its capital to the Master and purchased 344.5961
Units with a fair value of $1,614,644. On December 31,
2007, Legion LLC redeemed its entire investment in the Master.
This redemption amounted to 761.6691 units with a fair
value of $4,129,086, which includes interest income of $6,187.
On April 1, 2009, Orion Futures Fund (Cayman) Ltd.
(formerly Citigroup Orion Futures Fund (Cayman) Ltd.)
(Orion Cayman) allocated a portion of its capital to the
Master and purchased 84.1311 Units with a fair value of
$800,000. The Master was formed to permit commodity pools
managed now or in the future by AAA Capital Management Advisors,
Ltd (successor to AAA Capital Management, Inc.) (the
Advisor) using the Energy Program
Futures and Swaps, the Advisors proprietary, discretionary
trading program, to invest together in one vehicle.
F-32
AAA Master
Fund LLC
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
The Master operates under a structure where its investors
consist of AAA, AAA II, Tactical Diversified, Institutional
Portfolio, Energy Advisors, Global Futures, Legion LTD, Orion
and Orion Cayman (each a Member, collectively the
Funds) owned approximately 23.3%, 40.3%, 6.6%, 2.1%,
0.8%, 2.3%, 1.1%, 23.2% and 0.3% investments in the Master at
December 31, 2009, respectively. AAA, AAA II, Tactical
Diversified, Institutional Portfolio, Energy Advisors, Global
Futures, Legion LTD and Orion had approximately 23.2% 40.6%,
10.2%, 2.0%, 1.2%, 2.0%, 1.0% and 19.8% investments in the
Master at December 31, 2008, respectively.
The Master will be liquidated under certain circumstances as
defined in the Limited Liability Company Agreement of the Master
(the Limited Liability Company Agreement).
On July 1, 2009, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (FAS) No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles, also known as FASB Accounting Standards
Codification (ASC) 105, Generally Accepted
Accounting Principles (ASC 105) (the
Codification). ASC 105 established the
exclusive authoritative reference for U.S. generally accepted
accounting principles (GAAP) for use in financial
statements except for Securities and Exchange Commission
(SEC) rules and interpretive releases, which are
also authoritative GAAP for SEC registrants. The Codification
supersedes all existing non-SEC accounting and reporting
standards. The Codification is the single source of
authoritative accounting principles generally accepted in the
United States and applies to all financial statements issued
after September 15, 2009.
2. | Accounting Policies: |
a. | Use of Estimates. The preparation of financial statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. In making these estimates and assumptions, management has considered the effects, if any, of events occurring after the date of the Masters Statements of Financial Condition through the date the financial statements were issued. As a result, actual results could differ from these estimates. | |
b. | Statement of Cash Flows. The Master is not required to provide a Statement of Cash Flows as permitted by ASC 230, Statement of Cash Flows (formerly, FAS No. 102, Statement of Cash Flows Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale). | |
c. | Masters Investments. All commodity interests of the Master (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition. Realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses. | |
Masters Fair Value Measurements. The Master adopted ASC 820, Fair Value Measurements and Disclosures (formerly, FAS No. 157, Fair Value Measurements) as of January 1, 2008 which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a framework for measuring fair value and expands disclosures regarding fair value measurements in accordance with GAAP. The fair value hierarchy gives the highest priority to |
F-33
AAA Master
Fund LLC
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Master did not apply the deferral allowed by ASC 820 for nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis. |
In 2009, the Master adopted amendments to ASC 820, Fair Value Measurements and Disclosures (formerly, FAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly) which reaffirms that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. These amendments to ASC 820 also reaffirm the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. These amendments to ASC 820 are required for interim and annual reporting periods ending after June 15, 2009. Management has concluded that based on available information in the marketplace, there has not been a decrease in the volume and level of activity in the Masters Level 2 assets and liabilities. The adoption of the amendments to ASC 820 had no effect on the Masters Financial Statements. | ||
The Master considers prices for exchange traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1). The values of non-exchange traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2). As of and for the years ended December 31, 2009 and December 31, 2008, the Master did not hold any derivative instruments for which market quotations are not readily available and which are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2) or that are priced at fair value using unobservable inputs through the application of managements assumptions and internal valuation pricing models (Level 3). |
Significant |
||||||||||||||||
Quoted Prices in |
Other |
Significant |
||||||||||||||
Active Markets for |
Observable |
Unobservable |
||||||||||||||
Identical Assets |
Inputs |
Inputs |
||||||||||||||
12/31/2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Options owned
|
$ | 741,495,723 | $ | 741,495,723 | $ | | $ | | ||||||||
Total assets
|
741,495,723 | 741,495,723 | | | ||||||||||||
Liabilities
|
||||||||||||||||
Futures and Exchange Cleared Swaps
|
$ | 50,857,890 | $ | 50,857,890 | $ | | $ | | ||||||||
Options written
|
352,233,900 | 352,233,900 | | | ||||||||||||
Total liabilities
|
403,091,790 | 403,091,790 | | | ||||||||||||
Total fair value
|
$ | 338,403,933 | $ | 338,403,933 | $ | | $ | | ||||||||
F-34
AAA Master
Fund LLC
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
Significant |
||||||||||||||||
Quoted Prices in |
Other |
Significant |
||||||||||||||
Active Markets for |
Observable |
Unobservable |
||||||||||||||
Identical Assets |
Inputs |
Inputs |
||||||||||||||
12/31/2008 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Futures and Exchange Cleared Swaps
|
$ | 268,819,884 | $ | 268,819,884 | $ | | $ | | ||||||||
Options owned
|
906,666,577 | 906,666,577 | | | ||||||||||||
Total assets
|
1,175,486,461 | 1,175,486,461 | | | ||||||||||||
Liabilities
|
||||||||||||||||
Options written
|
$ | 624,018,932 | $ | 624,018,932 | $ | | $ | | ||||||||
Total liabilities
|
624,018,932 | 624,018,932 | | | ||||||||||||
Total fair value
|
$ | 551,467,529 | $ | 551,467,529 | $ | | $ | | ||||||||
d. | Futures Contracts. The Master trades futures contracts. Exchange cleared swaps included in futures and exchange cleared swaps are swaps that are traded as futures. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (variation margin) may be made or received by the Master each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Master. When the contract is closed, the Master records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits through the futures broker directly with the exchange on which the contracts are traded, credit exposure is limited. Realized gains (losses) and changes in unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses. | |
e. | Options. The Master may purchase and write (sell), both exchange listed and over-the-counter, options on commodities or financial instruments. 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 Statements of Financial Condition and marked to market daily. When the Master purchases an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Realized gains (losses) and changes in unrealized gains (losses) on options contracts are included in the Statements of Income and Expenses. |
f. | Income and Expenses Recognition. All of the 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 Funds at the time of such determination. |
g. | Income Taxes. Income taxes have not been provided as each member is individually liable for the taxes, if any, on their share of the Masters income and expenses. | |
In 2007, the Master adopted ASC 740, Income Taxes (formerly, FAS No. 48, Accounting for Uncertainty in Income Taxes). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the |
F-35
AAA Master
Fund LLC
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
Masters financial statements to determine whether the tax positions are more-likely-than-not to be sustained by the applicable tax authority. Tax positions with respect to tax at the Master level not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The Managing Member concluded that no provision for income tax is required in the Masters financial statements. |
The following is the major tax jurisdiction for the Master and the earliest tax year subject to examination: United States 2006. | ||
h. | Subsequent Events. In 2009, the Master adopted ASC 855, Subsequent Events (formerly, FAS No. 165, Subsequent Events). The objective of ASC 855 is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. Management has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements. |
i. | Recent Accounting Pronouncements. In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Improving Disclosures about Fair Value Measurements, which, among other things, amends ASC 820 to require entities to separately present purchases, sales, issuances, and settlements in their reconciliation of Level 3 fair value measurements (i.e. to present such items on a gross basis rather than on a net basis), and which clarifies existing disclosure requirements provided by ASC 820 regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements (which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years). Management is currently assessing the impact that the adoption of ASU 2010-06 will have on the Masters financial statements disclosures. |
In February 2010, the FASB issued Accounting Standards Update No. 2010-09 (ASU 2010-09), Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements, which among other things amended ASC 855 to remove the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between ASC 855 and the SECs requirements. All of the amendments in this update are effective upon issuance of this update. Management has included the provisions of these amendments in the financial statements. |
j. | Certain prior period amounts have been reclassified to conform to current period presentation. |
k. | Net Income (Loss) per Unit. Net income (loss) per Unit of Member Interest is calculated in accordance with investment company guidance. See footnote 6 for Financial Highlights. |
3. | Agreements: |
a. | Limited Liability Company Agreement: | |
The Managing Member administers the business affairs of the Master including selecting one or more advisors to make trading decisions for the Master. | ||
b. | Management Agreement: | |
The Managing Member, on behalf of the Master has entered into a management agreement (the Management Agreement) with the Advisor, a registered commodity trading advisor. The Advisor is affiliated with the Managing Member and CGM 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 |
F-36
AAA Master
Fund LLC
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
connection with the Management Agreement shall be borne by the Funds. The Management Agreement may be terminated upon notice by either party. |
c. | Customer Agreement: | |
The Master has entered into a customer agreement (the Customer Agreement) with CGM whereby CGM provides services which include, among other things, the execution of transactions for the Masters account in accordance with orders placed by the Advisor. All floor brokerage, exchange, clearing, user, give-up and NFA fees (collectively the clearing fees) are borne by the Master consistent with contractual agreements. All other fees (management fees, administrative fees, incentive fees, brokerage commissions and offering costs) shall be borne by the Funds. All of the Masters cash is deposited by CGM in segregated bank accounts, to the extent required by Commodity Futures Trading Commission regulations. At December 31, 2009 and 2008, the amounts of cash held by the Master for margin requirements was $112,350,862 and $90,640,874, respectively. The Customer Agreement may be terminated by either party. All commissions in connection with the Customer Agreement shall be borne by the Funds. |
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 Masters trading activities are shown in the Statements
of Income and Expenses.
The Customer Agreement between the Master and CGM gives the
Master, respectively, the legal right to net unrealized gains
and losses on open futures and exchange cleared swap contracts.
The Master nets, for financial reporting purposes, the
unrealized gains and losses on open futures and exchange cleared
swap contracts on the Statements of Financial Condition as the
criteria under ASC 210, Balance Sheet (formerly,
FASB Interpretation No. 39, Offsetting of
Amounts Related to Certain Contracts) have been met.
All of the commodity interests owned by the Master are held for
trading purposes. The average number of futures and exchange
cleared swap contracts and options contracts traded for the year
ended December 31, 2009 based on a quarterly calculation,
was 312,729.
The Master adopted ASC 815, Derivatives and Hedging
(formerly, FAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities) as of
January 1, 2009 which requires qualitative disclosures
about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains
and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative
agreements. ASC 815 only expands the disclosure
requirements for derivative instruments and related hedging
activities and has no impact on the Statements of Financial
Condition, Statements of Income and Expenses and Statements of
Changes in Members Capital.
F-37
AAA Master
Fund LLC
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
The following table indicates the fair values of derivative
instruments of futures and options contracts as separate assets
and liabilities.
December 31, 2009 | ||||
Assets
|
||||
Futures and Exchange Cleared Swap Contracts
|
||||
Energy
|
$ | 274,140,959 | ||
Total unrealized appreciation on open futures and exchange
cleared swap contracts
|
$ | 274,140,959 | ||
Liabilities
|
||||
Futures and Exchange Cleared Swap Contracts
|
||||
Energy
|
$ | (324,998,849 | ) | |
Total unrealized depreciation on open futures and exchange
cleared swap contracts
|
$ | (324,998,849 | ) | |
Net unrealized depreciation on open futures and exchange cleared
swap contracts
|
$ | (50,857,890 | )* | |
Assets
|
||||
Options Owned
|
||||
Energy
|
$ | 741,495,723 | ||
Options owned
|
$ | 741,495,723 | ** | |
Liabilities
|
||||
Options Written
|
||||
Energy
|
$ | 352,233,900 | ||
Options written
|
$ | 352,233,900 | *** | |
* | This amount is in Net unrealized depreciation on open futures and exchange cleared swap contracts on the Statements of Financial Condition. | |
** | This amount is in Options owned, at fair value on the Statements of Financial Condition. | |
*** | This amount is in Options written, at fair value on the Statements of Financial Condition. |
The following table indicates the trading gains and losses, by
market sector, on derivative instruments for the year ended
December 31, 2009.
December 31,2009 |
||||
Sector
|
Gain (loss) from trading | |||
Energy
|
$ | 154,505,739 | ||
Total
|
$ | 154,505,739 | **** | |
**** | This amount is in Gain (loss) from trading, net on the Statements of Income and Expenses. |
5. | Subscriptions, Distributions and Redemptions: |
Subscriptions are accepted monthly from investors and they
become non-managing members on the first day of the month after
their subscription is processed. A non-managing member may
withdraw all or part of their capital contribution and
undistributed profits, if any, from the Master in multiples of
the Net Asset Value per Unit of Member Interest as of the end of
any day (the Redemption Date) after a request
for redemption has been made to the Managing Member at least
3 days in advance of the Redemption Date. The Units
are classified as a liability when the non-managing member
elects to redeem and informs the Master.
F-38
AAA Master
Fund LLC
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
6. | Financial Highlights: |
Changes in the Net Asset Value per Unit of Member Interest for
the years ended December 31, 2009, 2008 and 2007 were as
follows:
2009 | 2008 | 2007 | ||||||||||
Net realized and unrealized gains (losses)*
|
$ | 1,064.16 | $ | 3,469.13 | $ | 618.16 | ||||||
Interest income
|
4.82 | 30.48 | 140.84 | |||||||||
Expenses**
|
(4.62 | ) | (5.14 | ) | (2.60 | ) | ||||||
Increase (decrease) for the year
|
1,064.36 | 3,494.47 | 756.40 | |||||||||
Distribution of interest income to feeder funds
|
(4.83 | ) | (30.09 | ) | (139.72 | ) | ||||||
Net Asset Value per Unit of Member Interest, beginning of year
|
8,876.52 | 5,412.14 | 4,795.46 | |||||||||
Net Asset Value per Unit of Member Interest, end of year
|
$ | 9,936.05 | $ | 8,876.52 | $ | 5,412.14 | ||||||
* | Includes brokerage commissions. | |
** | Excludes brokerage commissions. |
Ratio to average net assets:
|
||||||||||||
Net investment income (loss)***
|
(0.3 | )% | 0.1 | % | 2.4 | % | ||||||
Operating expenses
|
0.3 | % | 0.4 | % | 0.4 | % | ||||||
Total return
|
12.0 | % | 64.6 | % | 15.8 | % | ||||||
*** | Interest income less total expenses. |
The above ratios may vary for individual investors based on the
timing of capital transactions during the year. Additionally,
these ratios are calculated for the non-managing member class
using the non-managing members share of income, expenses
and average net assets.
7. | Financial Instrument Risks: |
In the normal course of its business, 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
balances, 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 forwards and option contracts.
OTC contracts are negotiated between contracting parties and
include certain forwards and option contracts. 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. The Master is
exposed to a market risk equal to the value of futures and
forward contracts purchased and unlimited liability on such
contracts sold short.
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. The Masters risk of loss in the event of
counterparty default is typically
F-39
AAA Master
Fund LLC
Notes to Financial Statements
December 31, 2009
Notes to Financial Statements
December 31, 2009
limited to the amounts recognized in the Statements of Financial
Condition and not represented by the contract or notional
amounts of the instruments. The Masters risk of loss is
reduced through the use of legally enforceable master netting
agreements with counterparties that permit the Master to offset
unrealized gains and losses and other assets and liabilities
with such counterparties upon the occurrence of certain events.
The Master has credit risk and concentration risk as the sole
counterparty or broker with respect to the Masters assets
is CGM or a CGM affiliate. Credit risk with respect to
exchange-traded instruments is reduced to the extent that
through CGM, the Masters counterparty is an exchange or
clearing organization. As of December 31, 2009, there are
no OTC swap contracts the Master is a party to.
As both a buyer and seller of options, the Master pays or
receives a premium at the outset and then bears the risk of
unfavorable changes in the price of the contract underlying the
option. Written options expose the Master to potentially
unlimited liability; for purchased options the risk of loss is
limited to the premiums paid. Certain written put options permit
cash settlement and do not require the option holder to own the
reference asset. The Master does not consider these contracts to
be guarantees as described in ASC 460, Guarantees (formerly
FAS Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees).
The Managing Member monitors and attempts to control the
Masters 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 may be
subject. These monitoring systems generally 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, options and swaps positions by sector, margin
requirements, gain and loss transactions and collateral
positions.
The majority of these instruments mature within one year of the
inception date. However, due to the nature of the Masters
business, these instruments may not be held to maturity.
F-40
Selected unaudited quarterly financial data for the Master for the years ended December 31, 2009
and 2008 is summarized below:
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2009 to | July 1, 2009 to | April 1, 2009 to | January 1, 2009 to | |||||||||||||
December 31, 2009 | September 30, 2009 | June 30, 2009 | March 31, 2009 | |||||||||||||
Net realized and unrealized trading gains (losses) net of brokerage commissions and clearing fees including interest income |
$ | 9,738,633 | $ | 39,593,130 | $ | 11,578,159 | $ | 90,913,858 | ||||||||
Net income (loss) |
$ | 9,596,868 | $ | 39,460,830 | $ | 11,401,249 | $ | 90,736,483 | ||||||||
Increase (decrease) in Net Asset Value per Unit of Member Interest |
$ | 61.37 | $ | 289.49 | $ | 79.60 | $ | 633.90 | ||||||||
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2008 to | July 1, 2008 to | April 1, 2008 to | January 1, 2008 to | |||||||||||||
December 31, 2008 | September 30, 2008 | June 30, 2008 | March 31, 2008 | |||||||||||||
Net realized and unrealized trading gains (losses) net of brokerage commissions and clearing fees including interest income |
$ | 175,399,992 | $ | 194,086,196 | $ | 163,785,949 | $ | 40,187,178 | ||||||||
Net income (loss) |
$ | 175,150,122 | $ | 193,836,326 | $ | 163,573,146 | $ | 40,051,178 | ||||||||
Increase (decrease) in Net Asset Value per Unit of Member Interest |
$ | 1,134.53 | $ | 1,182.02 | $ | 954.68 | $ | 223.24 |
F-41
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
KPMG LLP (KPMG) was previously the principal accountant for the Partnership through
June 26, 2008. On June 27, 2008, KPMG was dismissed as principal accountant and
PricewaterhouseCoopers LLP (PwC) was engaged as the independent registered public accounting
firm. From June 27, 2008 through July 22, 2009, PwC was the principal accountant for the
Partnership. On July 22, 2009, PwC was dismissed as principal accountant and on July 23, 2009
Deloitte & Touche LLP (Deloitte) was engaged as the independent registered public accounting
firm. The decision to change accountants was approved by the General Partner of the Partnership.
In connection with the audit of the fiscal year ended December 31, 2008, and through July 22,
2009, and the audit of the fiscal year ended December 31, 2007, and through June 26, 2008, there
were no disagreements with PwC or KPMG, respectively, 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 report
on the financial statements for the corresponding year.
The respective audit report of PwC and KPMG on the financial statements of the Partnership as
of and for the years ended December 31, 2008 and 2007, respectively, did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope,
or accounting principle.
Item 9A(T). | Controls and Procedures. |
The Partnerships disclosure controls and procedures are designed to ensure that information
required to be disclosed under the Securities Exchange Act of 1934 (the Exchange Act) is
accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief
Financial Officer (CFO) of the General Partner, to allow for timely decisions regarding required
disclosure and appropriate SEC filings.
Management is responsible for ensuring that there is an adequate and effective process for
establishing, maintaining and evaluating disclosure controls and procedures for the Partnerships
external disclosures.
The General Partners CEO and CFO have evaluated the effectiveness of the Partnerships
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange
Act) as of December 31, 2009 and, based on that evaluation, the CEO and CFO have concluded that at
that date the Partnerships disclosure controls and procedures were effective.
The Partnerships internal control over financial reporting is a process under the supervision
of the General Partners CEO and CFO to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance with GAAP. These
controls include policies and procedures that:
| pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; | ||
| provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and (ii) the Partnerships receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and | ||
| provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material effect on the financial statements. |
The report included in Item 8. Financial Statements and Supplementary Data. includes
managements report on internal control over financial reporting (Managements Report) and an
attestation report of the Partnerships registered public accounting firm regarding internal
control over financial reporting. Managements Report was not required to be audited by the
Partnerships registered public accounting firm pursuant to temporary rules of the Securities
Exchange Commission that permit the Partnership to provide only managements report in this annual
report. Management elected to have its internal control over financial reporting audited.
There were no changes in the Partnerships internal control over financial reporting during
the fiscal quarter ended December 31, 2009 that materially affected, or are reasonably likely to
materially affect, the Partnerships internal control over financial reporting.
18
Item 9B. | Other Information. |
None.
PART III
Item 10. | Directors, Executive Officers and Corporate Governance. |
The Partnership has no officers or directors and its affairs are managed by its General
Partner, Ceres Managed Futures LLC. Investment decisions are made by the Advisor.
The officers and directors of the General Partner are Jerry Pascucci (President, Chief
Investment Officer and Director), Jennifer Magro (Chief Financial Officer, Vice President and
Director), Daryl Dewbrey (Secretary and Director), Shelley Deavitt Ullman (Senior Vice President
and Director) and Raymond Nolte (Director). Each director holds office until his or her successor
is elected, or until his or her earlier death, resignation or removal. Vacancies on the board of
directors may be filled by appointment by the sole member of the General Partner, Morgan Stanley
Smith Barney Holdings LLC which wholly owns the General Partner, or by unanimous vote of the
remaining directors, depending on the circumstances of the vacancy. The officers of the General
Partner are designated by the General Partners board of directors. Each officer holds office
until his or her death, resignation or removal.
Mr. Pascucci, age 40, is President, Chief Investment Officer and Director of the General
Partner (since March 2007, May 2005 and June 2005, respectively). Mr. Pascuccis principal status
was approved by the NFA in June 2005. He is also registered as an associated person of the General
Partner (since June 2009) and of Morgan Stanley Smith Barney LLC (Morgan Stanley Smith Barney)
(since August 2009). From March 2007 to July 2009, Mr. Pascucci was a Managing Director of
Citigroup Alternative Investments LLC (CAI), a division of Citigroup that administers its hedge
fund and fund of funds businesses, and until July 2009, its commodity pool business. He was also
Chief Investment Officer of CAIs Hedge Fund Management Group from March 2007 to July 2009. He was
registered as an associated person of CGM from February 2006 to July 2009. Mr. Pascucci has been
responsible for trading advisor selection, due diligence and portfolio construction for managed
futures funds and accounts since May 1999. Between May 1996 and May 1999, Mr. Pascucci served as a
Senior Credit Risk Officer for CGM, focused primarily on market and counterparty risks associated
with CMScommodity pool and hedge fund clients. Prior to joining CGM in May 1996, Mr. Pascucci was
employed (from October 1992) by ABN AMRO North America at its European American Bank subsidiary as
a corporate banking officer where he facilitated the establishment of credit lines and other loan
facilities for corporate clients.
Ms. Magro, age 38, is Chief Financial Officer, Director and Vice President of the General
Partner (since October 2006, May 2005 and August 2001, respectively). Ms. Magros principal status
was approved by the NFA in June 2005. She was also a Managing Director of CAI and Chief Operating
Officer of CAIs Hedge Fund Management Group from October 2006 to July 2009. Ms. Magro is
responsible for the financial, administrative and operational functions of the General Partner.
She is also responsible for the accounting and financial and regulatory reporting of the General
Partners managed futures funds. From March 1999 to July 2009, Ms. Magro was responsible for the
accounting and financial and regulatory reporting of Citigroups managed futures funds. She had
similar responsibilities with CAIs Hedge Fund Management Group (from October 2006 to July 2009).
Prior to joining CGM in January 1996, Ms. Magro was employed by Prudential Securities Inc. (from
July 1994) as a staff accountant whose duties included the calculation of net asset values for
commodity pools and real estate investment products.
Mr. Dewbrey, age 39, is Secretary and Director of the General Partner (since July 2009 and
March 2007, respectively). He registered as an associated person of the General Partner in
January 2004 and became a principal of the General Partner in March 2007. He is also
registered as an associated person of Morgan Stanley Smith Barney (since August 2009). He was
registered as an associated person of CGM from March 1998 to July 2009. Mr. Dewbrey has worked
with the General Partner in varying capacities since April 2001, and, since May 2005, Mr. Dewbrey
has been head of managed futures product development. Mr. Dewbrey was a director of CAI
responsible for marketing and client services for CAIs Hedge Fund Management Group from February
2007 to July 2009. From October 1997 to September 2000, Mr. Dewbrey was head of CGMs managed
futures trading desk. In September 2000, Mr. Dewbrey was selected for the Salomon Smith Barney
Sales and Trading Training Program. Mr. Dewbrey began his career in the futures markets with
Rosenthal Collins Group, a futures brokerage firm, where he worked from May 1990 to October 1997 in
varying capacities on the trading floors of the Chicago Board of Trade, COMEX and the New York
Mercantile Exchange. Mr. Dewbrey is a member of the Managed Funds Association and the Futures
Industry Association.
Ms. Ullman, age 51, is a Managing Director of CGMs Futures Division and a Senior Vice
President and Director of the General Partner (since May 1997 and April 1994, respectively). Ms.
Ullmans principal status was approved by the NFA in June 1994. She was registered as an
associated person of the General Partner from January 2004 to July 2009. Ms. Ullman is registered
as an associated person of CGM (since July 1993). She is also the branch manager of the CGM branch
that supports the General Partner (since January 2002). Previously, Ms. Ullman was a Vice
President of Lehman Brothers (October 1985 to July 1993), with responsibility for execution,
administration, operations and performance analysis for managed futures funds and accounts. She
was registered as an associated person of Lehman Brothers Inc. (from February 1983 to July 1993)
and was principal of Lehman Brothers Capital Management Corp. (from April 1989 to July 1993).
Mr. Nolte, age 48, is the Chief Executive Officer and the Chairman of the Investment Committee
of CAIs Hedge Fund Management Group. He registered as an associated person and became a principal
of the General Partner in March 2007. He was appointed a Director of the General Partner in March
2007. He is also registered as an associated person of CGM (since October 2005). He registered as
an associated person and became a principal of CAI in March 2007. Prior to joining CAI in
September 2005, Mr. Nolte worked at Deutsche Bank and its affiliate Deutsche Asset Management (from
June 1999 to September 2005). He was registered as an associated person and was a principal of DB
Capital Advisors Inc. (from July 2000 to May 2005) and DB Investment Managers Inc. (from May 2002
to June 2005). Prior to that, Mr. Nolte worked for Bankers Trust (from May 1983 until the firm was
acquired by Deutsche Bank in June 1999). During his employment at Deutsche Asset Management, Mr.
Nolte served as the Global Head and Chief Investment Officer of the DB Absolute Return Strategies
(DB ARS) Fund of Funds business, the Chairman of the DB ARS Fund of Funds Investment Committee,
the Vice Chairman of DB ARS and Head of the Single Manager Hedge Fund business. While employed at
Deutsche Bank and Deutsche Asset Management, Mr. Noltes duties included overseeing the firms fund
of funds and hedge fund businesses. Mr. Nolte was the founder and head of the Investment Committee
for the Topiary Fund, Deutsche Banks first fund of hedge funds. The DB ARS Fund of Hedge Funds
platform grew to $7 billion in assets under management during Mr. Noltes tenure. That business
was comprised of several multi-manager, multi-strategy funds as well as single strategy funds and
separate accounts.
The Partnership has not adopted a code of ethics that applies to officers because it has no
officers. In addition, the Partnership has not adopted any procedures by which investors may
recommend nominees to the Partnerships board of directors, and has not established an audit
committee because it has no board of directors.
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are managed by its General Partner,
which receives compensation for its services, as set forth under Item 1. Business. CGM,
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, 2009, CGM earned $3,318,932 in brokerage commissions and clearing fees from
the Partnership and through the Partnerships investment in the Master. The Advisor earned
$6,021,067 in management fees for the year ended December 31, 2009. A profit share allocation of
$5,141,561 was earned by the Advisor for the year ended December 31, 2009.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
(a) Security ownership of certain beneficial owners. As of February 28, 2010, the
Partnership knows of no person who beneficially owns more than 5% of the Redeemable Units
outstanding.
(b) Security ownership of management. Under the terms of the Limited Partnership
Agreement, the Partnerships affairs are managed by the General Partner. The General Partner owns
Units of general partnership interest equivalent to 292.7225 (1.1%) of Units of Limited Partnership
Interest as of December 31, 2009.
Principals
of the General Partner
who own Redeemable Units: None.
(c) Changes in control. None.
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
CGM and the General Partner would be considered promoters for purposes of item 404(c) 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. | Principal Accountant Fees and Services. |
(1) Audit Fees. The aggregate fees billed for each of the last two fiscal years for
professional services rendered by Deloitte in the period from
July 23, 2009 through December 31, 2009, PwC in the period from June 27,
2008 through July 22, 2009 and KPMG LLP (KPMG) in the period from January 1, 2008 through
June 26, 2008 for the audit of the Partnerships annual financial statements, review of financial
statements included in the Partnerships Forms 10-Q and 10-K and other services normally provided
in connection with regulatory filings or engagements were:
Deloitte |
$ | 53,000 | ||||
PwC |
$ | 214,900 | ||||
KPMG
|
$ | 25,000 |
19
(2)Audit-Related Fees. None
(3)Tax Fees.
In the last two fiscal years, Deloitte did not provide any professional services for tax compliance, tax advice or tax planning.
The aggregate fees billed for each of the last two fiscal years for
professional services rendered by PwC for tax compliance and tax advice
given in the preparation of the Partnerships Schedule K1s, the preparation of the Partnerships
Form 1065 and preparation of all State Tax Returns were:
2009 |
$ | 25,000 | ||||
2008 |
$ | 15,700 |
(4) All Other Fees. None.
(5) Not Applicable.
(6) Not Applicable.
20
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) | Financial Statements: Statements of Financial Condition at December 31, 2009 and 2008. |
||
Statements of Income and Expenses for the years ended December 31, 2009, 2008 and 2007. | |||
Statements of Changes in Partners Capital for the years ended December 31, 2009, 2008 and 2007. | |||
Notes to Financial Statements | |||
(2) | Exhibits |
3.1 | Certificate of Limited Partnership of the Partnership as filed in the Office of the Secretary of State of the State of New York, dated December 30, 1997 (filed as Exhibit 3.1 to the Partnership Form 10 filed on April 30, 1999 and incorporated herein by reference). | |||||||
(a) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated October 1, 1999 (filed as Exhibit 3.1(a) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |||||||
(b) | Certificate of Change of the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, effective January 31, 2000 (filed as Exhibit 3.1(b) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |||||||
(c) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated May 21, 2003 (filed as Exhibit 3.1(c) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |||||||
(d) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated September 21, 2005 (filed as Exhibit 3.1(d) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |||||||
(e) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated September 19, 2008 (filed as Exhibit 3.1(e) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |||||||
(f) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated September 28, 2009 (filed as Exhibit 99.1 to the Current Report on Form 8-K filed on September 30, 2009 and incorporated herein by reference). | |||||||
3.2 | Amended and Restated Limited Partnership Agreement, dated September 30, 2006 (filed as Exhibit 10.1 to the Form 10-Q filed on November 14, 2006 and incorporated herein by reference). | |||||||
10.1 | Customer Agreement between the Partnership and Smith Barney Inc., dated February 12, 1998 (filed as Exhibit 10.B to the Partnership Form 10 filed on April 30, 1999 and incorporated herein by reference). | |||||||
10.2 | Agency Agreement among the Partnership, Smith Barney Futures Management Inc. and Smith Barney Inc., dated February 12, 1998 (filed as Exhibit 10.2 to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |||||||
10.3 | Joinder Agreement among the Partnership, Citigroup Managed Futures LLC, Citigroup Global Markets Inc. and Morgan Stanley Smith Barney LLC, dated June 1, 2009 (filed as Exhibit 10 to the Form 10-Q filed on August 14, 2009 and incorporated herein by reference). | |||||||
10.4 | Escrow Agreement among the Partnership, Smith Barney Futures Management Inc., Smith Barney Inc. and European American Bank, dated February 9, 1998 (filed as Exhibit 10.4 to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). |
21
10.5 | Advisory Agreement among the Partnership, the General Partner and AAA Capital Management Advisors, Ltd., dated April 3, 2006 (filed as Exhibit 33 to the Form 10-Q filed on August 14, 2006 and incorporated herein by reference). | |||||||
(a) | Letter from the General Partner extending Advisory Agreement with AAA Capital Management Advisory, Ltd. for 2009, dated June 9, 2009 (filed herein). | |||||||
16.1 | Letter from KPMG LLP (filed as Exhibit 16.1 to the Form 8-K filed on July 1, 2008 and incorporated herein by reference). | |||||||
16.2 | Letter from Pricewaterhouse Coopers LLP (filed as Exhibit 16.1 to the Form 8-K filed on July 23, 2009 and incorporated herein by reference). |
The exhibits required to be filed by Item 601 of regulation S-K are incorporated herein by
reference
31.1 | Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director) | ||
31.2 | Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director) | ||
32.1 | Section 1350 Certification (Certification of President and Director) | ||
32.2 | Section 1350 Certification (Certification of Chief Financial Officer and Director) |
22
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 on the
31st day
of March 2010.
AAA CAPITAL ENERGY FUND L.P.
By: |
Ceres Managed Futures LLC
|
(General Partner)
By: |
/s/ Jerry
Pascucci
|
Jerry Pascucci,
President & Director
President & Director
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 date indicated.
/s/ Jerry
Pascucci Jerry Pascucci President and Director Ceres Managed Futures LLC |
/s/ Shelley Deavitt
Ullman Shelley Deavitt Ullman Director Ceres Managed Futures LLC |
|
/s/ Jennifer
Magro Jennifer Magro Chief Financial Officer and Director (Principal Accounting Officer) Ceres Managed Futures LLC |
/s/ Daryl
Dewbrey Director Ceres Managed Futures LLC |
|
/s/ Raymond
Nolte Raymond Nolte Director Ceres Managed Futures LLC |
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.
23