AGREEMENT
dated as of the 3rd day of April 2006 among CITIGROUP MANAGED
FUTURES LLC, a Delaware limited liability company
(“CMF” or the “General Partner”), SALOMON
SMITH BARNEY AAA ENERGY FUND L.P. II, a New York limited
partnership (the “Partnership”) and AAA CAPITAL
MANAGEMENT ADVISORS, LTD., a Texas limited partnership (the
“Advisor”).
WHEREAS,
CMF is the general partner of SALOMON SMITH BARNEY AAA ENERGY FUND
L.P. II, a limited partnership organized for the purpose of
speculative trading of commodity interests, including futures
contracts, options and forward contracts with the objective of
achieving substantial capital appreciation initially through an
investment in AAA Master Fund LLC (the “Master Fund”);
and
WHEREAS,
the Limited Partnership Agreement establishing the Partnership (the
“Limited Partnership Agreement”) permits CMF to
delegate to one or more commodity trading advisors CMF’s
authority to make trading decisions for the Partnership;
and
WHEREAS,
the Advisor is registered as a commodity trading advisor with the
Commodity Futures Trading Commission (“CFTC”) and is a
member of the National Futures Association (“NFA”);
and
WHEREAS,
CMF is registered as a commodity pool operator with the CFTC and is
a member of the NFA; and
WHEREAS,
CMF, the Partnership and AAA Capital Management, Inc., a Texas
corporation, entered into an advisory agreement dated as of
May 31, 2002 (the “Initial Advisory Agreement”),
pursuant to which AAA Capital Management, Inc. agreed to render and
implement advisory services to the Partnership; and
WHEREAS,
the Advisor and AAA Capital Management, Inc. have the same
beneficial ownership; and
WHEREAS,
AAA Capital Management, Inc. wishes to transfer all of its rights
and obligations under the Initial Advisory Agreement to the
Advisor, and the Advisor wishes to assume all of such rights and
obligations of AAA Capital Management, Inc. under the Initial
Advisory Agreement; and
WHEREAS,
CMF, the Partnership and the Advisor wish to enter into this
Agreement in order to set forth the terms and conditions upon which
the Advisor will (i) render and implement advisory services in
connection with the conduct by the Partnership of its commodity
trading activities during the term of this Agreement and
(ii) assume the rights and obligations of AAA Capital
Management, Inc. under the Initial Advisory Agreement;
NOW,
THEREFORE, the parties agree as follows:
1.
DUTIES OF THE ADVISOR . (a) Upon the commencement of
trading operations by the Partnership and for the period and on the
terms and conditions of this Agreement, the Advisor shall have sole
authority and responsibility, as one of the Partnership’s
agents and attorneys-in-fact, for directing the investment and
reinvestment of the assets and funds of the Partnership allocated
to it by the General Partner in commodity interests, including
commodity futures contracts, options, swaps and forward contracts.
All such trading on behalf of the Partnership shall be in
accordance with the trading strategies and trading policies set
forth in the Private Placement Memorandum and Disclosure Document
dated September 30, 2005, as supplemented (the
“Memorandum”), and as such trading policies may be
changed from time to time upon receipt by the Advisor of prior
written notice of such change and pursuant to the trading strategy
selected by CMF to be utilized by the Advisor in managing the
Partnership’s assets. CMF has initially selected the
Advisor’s Energy Program-Futures and Swaps (the
“Program”) to manage the Partnership’s assets
allocated to it. Any open positions or other investments at the
time of receipt of such notice of a change in trading policy shall
not be deemed to violate the changed policy and shall be closed or
sold in the ordinary course of trading. The Advisor may not deviate
from the trading policies set forth in the Memorandum without the
prior written consent of the Partnership given by CMF. The Advisor
makes no representation or warranty that the trading to be directed
by it for the Partnership will be profitable or will not result in
losses.
(b) CMF
acknowledges receipt of the Advisor’s draft Disclosure
Document dated March 31, 2006, as filed with the NFA and the
CFTC. All trades made by the Advisor for the account of the
Partnership, whether directly or indirectly through the Master
Fund, shall be made through such commodity broker or brokers as CMF
shall direct, and the Advisor shall have no authority or
responsibility for selecting or supervising any such broker in
connection with the execution, clearance or confirmation of
transactions for the Partnership or for the negotiation of
brokerage rates charged therefor. However, the Advisor, with the
prior written permission (by either original or fax copy) of CMF,
may direct all trades in commodity futures and options to a futures
commission merchant or independent floor broker it chooses for
execution with instructions to give-up the trades to the broker
designated by CMF, provided that the futures commission merchant or
independent floor broker and any give-up or floor brokerage fees
are approved in advance by CMF. All give-up or similar fees
relating to the foregoing shall be paid by the Partnership after
all parties have executed the relevant give-up agreements (by
either original or fax copy).
(c) The
allocation of the Partnership’s assets to the Advisor will be
made to the Program. In the event the Advisor wishes to use a
trading system or methodology other than or in addition to the
system or methodology outlined in the Memorandum in connection with
its trading for the Partnership, either in whole or in part, it may
not do so unless the Advisor gives CMF prior written notice of its
intention to utilize such different trading system or methodology
and CMF consents thereto in writing. In addition, the Advisor will
provide five days’ prior written notice to CMF of any change
in the trading system or methodology to be utilized for the
Partnership which the Advisor deems material. If the Advisor deems
such change in system or methodology or in markets traded to be
material, the changed system or methodology or markets traded will
not be utilized for the Partnership without the prior written
consent of CMF. In addition, the Advisor will notify CMF of any
changes to the trading system or methodology that would require a
change in the description of the trading strategy or methods
described in the
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Memorandum.
Further, the Advisor will provide the Partnership with a current
list of all commodity interests to be traded for the
Partnership’s account and will not trade any additional
commodity interests for such account without providing notice
thereof to CMF and receiving CMF’s written approval. The
Advisor also agrees to provide CMF, on a monthly basis, with a
written report of the assets under the Advisor’s management
together with all other matters deemed by the Advisor to be
material changes to its business not previously reported to
CMF.
(d) The
Advisor agrees to make all material disclosures to the Partnership
regarding itself and its principals as defined in Part 4 of
the CFTC’s regulations (“principals”), partners,
shareholders, directors, officers and employees, their trading
performance and general trading methods, its customer accounts (but
not the identities of or identifying information with respect to
its customers) and otherwise as are required in the reasonable
judgment of CMF to be made in any filings required by Federal or
state law or NFA rule or order. Notwithstanding Sections 1(d) and
4(d) of this Agreement, the Advisor is not required to disclose the
actual trading results of proprietary accounts of the Advisor or
its principals unless CMF reasonably determines that such
disclosure is required in order to fulfill its fiduciary
obligations to the Partnership or the reporting, filing or other
obligations imposed on it by Federal or state law or NFA rule or
order. The Partnership and CMF acknowledge that the trading advice
to be provided by the Advisor is a property right belonging to the
Advisor and that they will keep all such advice confidential.
Further, CMF agrees to treat as confidential any results of
proprietary accounts and/or proprietary information with respect to
trading systems obtained from the Advisor.
(e) The
Advisor understands and agrees that CMF may designate other trading
advisors for the Partnership and apportion or reapportion to such
other trading advisors the management of an amount of Net Assets
(as defined in Section 3(b) hereof) as it shall determine in its
absolute discretion. The designation of other trading advisors and
the apportionment or reapportionment of Net Assets to any such
trading advisors pursuant to this Section 1 shall neither
terminate this Agreement nor modify in any regard the respective
rights and obligations of the parties hereunder.
(f) CMF
may, from time to time, in its absolute discretion, select
additional trading advisors and reapportion funds among the trading
advisors for the Partnership as it deems appropriate. CMF shall use
its best efforts to make reapportionments, if any, as of the first
day of a month. The Advisor agrees that it may be called upon at
any time promptly to liquidate positions in CMF’s sole
discretion so that CMF may reallocate the Partnership’s
assets, meet margin calls on the Partnership’s account, fund
redemptions, or for any other reason, except that CMF will not
require the liquidation of specific positions by the Advisor. CMF
will use its best efforts to give two days’ prior notice to
the Advisor of any reallocations or liquidations.
(g) The
Advisor will not be liable for trading losses in the
Partnership’s account including losses caused by errors;
provided, however, that (i) the Advisor will be liable to the
Partnership with respect to losses incurred due to errors committed
or caused by it or any of its principals or employees in
communicating improper trading instructions or orders to any broker
on behalf of the Partnership and (ii) the Advisor will be
liable to the Partnership with respect to losses incurred due to
errors committed or caused by any executing broker (other
than
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any CMF
affiliate) selected by the Advisor, (it also being understood that
CMF, with the assistance of the Advisor, will first attempt to
recover such losses from the executing broker).
2.
INDEPENDENCE OF THE ADVISOR . For all purposes herein, the
Advisor shall be deemed to be an independent contractor and, unless
otherwise expressly provided or authorized, shall have no authority
to act for or represent the Partnership in any way and shall not be
deemed an agent, promoter or sponsor of the Partnership, CMF, or
any other trading advisor.
3.
COMPENSATION . (a) In consideration of and as
compensation for all of the services to be rendered by the Advisor
to the Partnership under this Agreement, the Partnership shall (i)
pay the Advisor a monthly fee for professional advisory services
equal to 1/6 of 1% (2% per year) of the month-end Net Assets of the
Partnership allocated to the Advisor; and (ii) allocate to the
Advisor an annual Profit Share to its capital account in the
Partnership equal to 20% of New Trading Profits (as such term is
defined in the Limited Partnership Agreement) earned by the Advisor
for the Partnership during each calendar year in the form of Units;
provided , that in the event that the Limited Partnership
Agreement is amended to provide that the Profit Share allocation
shall be made on a quarterly rather than an annual basis, this
Section 3(a)(ii) shall be deemed to be amended
accordingly.
(b)
“Net Assets” shall have the meaning set forth in
Paragraph 7(d)(1) of the Limited Partnership Agreement dated
as of March 25, 2002 and without regard to further amendments
thereto, provided that in determining the Net Assets of the
Partnership on any date, no adjustment shall be made to reflect any
distributions, redemptions or Profit Share allocable as of the date
of such determination.
(c) Monthly
Advisory fees shall be paid within twenty (20) business days
following the end of the period, for which such fee is payable. In
the event of the termination of this Agreement as of any date which
shall not be the end of a fiscal year or a calendar month, as the
case may be, the monthly Advisory fee shall be prorated to the
effective date of termination. If, during any month, the
Partnership does not conduct business operations or the Advisor is
unable to provide the services contemplated herein for more than
two successive business days, the monthly Advisory fee shall be
prorated by the ratio which the number of business days during
which CMF conducted the Partnership’s business operations or
utilized the Advisor’s services bears in the month to the
total number of business days in such month.
(d) The
provisions of this Paragraph 3 shall survive the termination
of this Agreement.
4.
RIGHT TO ENGAGE IN OTHER ACTIVITIES . (a) The services
provided by the Advisor hereunder are not to be deemed exclusive.
CMF on its own behalf and on behalf of the Partnership acknowledges
that, subject to the terms of this Agreement, the Advisor and its
officers, directors, employees and shareholder(s), may render
advisory, consulting and management services to other clients and
accounts. The Advisor and its officers, directors, employees and
shareholder(s) shall be free to trade for their own accounts and to
advise other investors and manage other commodity accounts during
the term of this Agreement and to use the same information,
computer programs and trading strategies, programs or
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formulas which
they obtain, produce or utilize in the performance of services to
CMF for the Partnership. However, the Advisor represents, warrants
and agrees that it believes the rendering of such consulting,
advisory and management services to other accounts and entities
will not require any material change in the Advisor’s basic
trading strategies and will not affect the capacity of the Advisor
to continue to render services to CMF for the Partnership of the
quality and nature contemplated by this Agreement.
(b) If,
at any time during the term of this Agreement, the Advisor is
required to aggregate the Partnership’s commodity positions
with the positions of any other person for purposes of applying
CFTC- or exchange-imposed speculative position limits, the Advisor
agrees that it will promptly notify CMF in writing if the
Partnership’s positions are included in an aggregate amount
which exceeds the applicable speculative position limit. The
Advisor agrees that, if its trad
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