SALOMON SMITH BARNEY AAA ENERGY FUND II LP
There were no matters submitted to the security holders for a vote during the last fiscal year covered by this report. 11     PART II Item 5.    Market for Registrant's Common Equity and Related Security Holder Matters.  (a)    Market Information. The Partnership has issued no stock. There is no public market for the Redeemable Units of Limited Partnership Interest. (b)    Holders. The number of holders of Redeemable Units of Partnership Interest as of December 31, 2005, was 2,995. (c)    Dividends. The Partnership did not declare a distribution in 2005 or 2004. (d)    Use of Proceeds. For the twelve months ended December 31, 2005 there were additional sales of 122,647.4741 Redeemable Units totaling $202,886,547. For the twelve months ended December 31, 2004, there were additional sales of 10,998.9458 Redeemable Units totaling $11,781,000 and contributions by the General Partner representing 25 Unit equivalents totaling $19,735. For the twelve months ended December 31, 2003, there were additional sales of 21,674.2111 Redeemable Units totaling $22,541,000. (e)    Compensation Plans. None Proceeds from the sale of additional Redeemable Units are used in the trading of commodity interests including futures contracts, options, swaps and forward contracts. Item 6.    Selected Financial Data.  The Partnership commenced trading operations on July 1, 2002. Net realized and unrealized trading gains (losses) from Master, interest income allocated from Master, net income (loss) and increase (decrease) in Net Asset Value per Redeemable Unit for the year ended December 31, 2005, 2004, 2003 and the period from July 1, 2002 (commencement of trading operations) to December 31, 2002 and total assets at December 31, 2005, 2004, 2003 and 2002 were as follows:                              2005  2004  2003  2002   Net realized and unrealized trading gains (losses) net of expenses allocated from Master, brokerage commissions (including clearing fees) of $6,272,480, $3,692,595, $5,822,971 and $5,422,049, respectively  $ 202,242,056    $ 42,925,509    $                (36,992,242 )   $ 12,739,048     Interest income allocated from Master    6,199,984      1,088,006      977,786      731,136        $ 208,442,040    $ 44,013,515    $                (36,014,456 )   $ 13,470,184     Net income (loss) before Allocation to Special Limited Partner  $ 200,854,431    $ 41,115,934    $                (38,965,212 )   $ 11,945,991     Allocation to Special Limited Partner    38,930,890      1,708,907      —      2,240,668     Net income (loss) available for pro rata distribution to Partners  $ 161,923,541    $ 39,407,027    $                (38,965,212 )   $ 9,705,323     Increase (decrease) in Net Asset Value per Redeemable Unit  $ 1,022.63    $ 360.35    $                (289.27 )   $ 80.92     Total assets  $ 500,859,262    $ 120,302,312    $ 99,038,186    $ 130,433,981          12
Overview The Partnership, through its investment in the Master, seeks to achieve capital appreciation through speculative trading, directly or indirectly, in commodity interests generally including, commodity futures and commodity option contracts 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 Partnerhship has invested all of its assets 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 Partnership's assets to AAA. 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 use proprietary technology and on-site evaluations to monitor new and existing futures money managers. The accounting and operations staff provide processing of trading activity and reporting to limited partners and regulatory authorities. In selecting the advisor for the Partnership, 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. The General Partner/Managing Member reviews at least annually, the brokerage rates charged to commodity pools similar to the Partnership/Master to determine that the brokerage fee the Partnership/Master pays is competitive with other rates. The Partnership's assets allocated to AAA for trading are not invested in commodity interests directly. AAA's allocation of the Partnership's assets is currently invested in the Master. AAA trades the Master's, and thereby the Partnership's, assets in accordance with its Energy with Swaps Program. 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. AAA generally bases its trading decisions on "fundamental" factors, namely supply and demand for a particular group or type of commodity. AAA attempts to buy undervalued commodities and sell overvalued commodities, often but not always simultaneously. AAA uses options to attempt either to reduce or define risks. 13     AAA is aware of price trends but does not trade upon trends. AAA often takes profits in positions with specific trends even though that trend may still be intact or perhaps even strong. AAA occasionally establishes positions that are countertrend. Effective risk management is a crucial aspect of AAA's 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 AAA's 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. Such substantial losses could lead to a material decrease in liquidity. In the first quarter of 2003, the Master and therefore the Partnership experienced a cumulative loss of 25%. This loss was primarily attributable to extraordinary price activity during the first quarter of 2003 in U.S. natural gas and crude oil markets which led to losses in the Master's energy market positions. In February 2003, the Master had a short position in the April natural gas futures contract as a partial offset to an overall long position in delivery months later in the year in the same contract. During the last week of February, natural gas prices rose sharply reflecting relatively high short-term demand in the eastern and mid-continental United States along with a reduced ability of natural gas suppliers to deliver natural gas from storage due to low storage inventories. Volatility in the natural gas markets was exacerbated during that period as the markets became relatively illiquid when many traders stayed out of the market to wait for the volatility to pass. During this period, the April natural gas futures contract experienced an upward increase in price of over 50% in two days and related cash market prices experienced a 300% increase in price. Deferred delivery months in the natural gas futures contract did not experience comparable price increases. The spread between the price of the April contract and those of the deferred months changed suddenly and unexpectedly. Such extreme moves generally happen only in exceptionally rare circumstances and can lead to illiquid market conditions. In March 2003, volatility struck the crude oil market, and the Master again experienced losses as prices for crude oil dropped over $8.00 per barrel, or 21%, in the course of a week. The Master's and the Partnership's liquidity was not hindered as a result of these market movements as the Master and the Partnership each had adequate cash reserves to absorb market volatility and to meet redemption requests during that period. The performance for the years ended December 31, 2005 and 2004 is discussed in (c) Results of Operations. 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 Master's 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.   14           (v)  The Master does not utilize borrowings except 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.   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.  The Master is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments in the normal course of its business. These financial instruments include forwards, futures, options and swaps, whose values are based upon an underlying asset, index or reference rate, and generally represent future commitments to exchange currencies or cash flows, or to purchase or sell other financial instruments at 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 and certain option contracts. OTC contracts are negotiated between contracting parties and include forwards, swaps and certain options. 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. Market risk is the potential for changes in the value of the financial instruments traded by the Master due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk with respect to exchange traded instruments is reduced to the extent that an exchange or clearing organization acts as counterparty to the transactions. The Master's risk of loss in the event of counterparty default is typically limited to the amounts recognized in the statement of financial condition and not represented by the contract or notional amounts of the instruments. The Master has credit risk and concentration risk because the sole counterparty or broker with respect to the Master's assets is CGM. The General Partner/Managing Member monitors and controls the Master's risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Master is subject. These monitoring systems allow the 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 Master's 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  15      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 Partnership's 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 moves 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 Advisors 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. For the year ended December 31, 2005, there were additional sales of 122,647.4741 Redeemable Units totaling $202,886,547. For the year ended December 31, 2004, there were additional sales of 10,998.9458 Redeemable Units totaling $11,781,000 and contributions by the General Partner representing 25 Unit equivalents totaling $19,735. For the year ended December 31, 2003, there were additional sales of 21,674.2111 Redeemable Units totaling $22,541,000. No forecast can be made as to the level of redemptions in any given period. A limited partner may require the Partnership to redeem their Redeemable Units at their Net Asset Value as of the last day of a month on 10 business days notice to the General Partner. For the year ended December 31, 2005 13,010.6482 Redeemable Units were redeemed totaling $22,009,451 and 15,296.1443 Units of Special Limited Partnership Interest totaling $32,881,363 were redeemed. For the year ended December 31, 2004, 32,234.8932 Redeemable Units were redeemed totaling $31,496,364. For the year ended December 31, 2003, 16,891.2743 Redeemable Units were redeemed totaling $13,818,158. Redeemable Units of Limited Partnership Interest were sold to persons and entities who are accredited investors as that term is defined in rule 501(a) of Regulation D under the Securities Act of 1933, as well as to those persons who are not accredited investors but who have either a net worth (exclusive of home, furnishings and automobile) either individually or jointly with the investor's spouse of at least three times their investment in the Partnership (the minimum investment for which was $25,000) or gross income for the two previous years and projected gross income for the current fiscal year of not less than three times their investment in the Partnership for each year. (c)    Results of Operations. For the year ended December 31, 2005 the Net Asset Value per Redeemable Unit increased 88.9% from $1,149.74 to $2,172.37. For the year ended December 31, 2004, the Net Asset Value per Redeemable Unit increased 45.6% from $789.39 to $1,149.74. For the year ended December 31, 2003 the Net Asset Value per Redeemable Unit decreased 26.8% from $1,078.66 to $789.39. For the three years ended December 31, 2005 the Net Asset Value per Redeemable Unit increased 101.4% from $1,078.66 to $2,172.37. The Partnership, for its own account, through its investment in the Master, experienced a net trading gain of $208,514,536 before commissions and expenses for the year ended December 31, 2005. Gains were primarily attributable to the trading of NYMEX Crude Oil, NYMEX energy swaps, NYMEX Heating Oil, NYMEX Natural Gas and OTC energy swaps and were partially offset by losses in IPE Gas Oil, Gasoline and NYMEX Unleaded Gas. The Partnership's extraordinary year was the result of adept and astute trading by the Partnership's advisor through challenging and fundamentally changed markets. The most significant change has been the increased flow of speculative money into the markets and the disequilibrium to historical fundamental relationships this money causes. The new money has pushed prices to unprecedented differentials and destroyed many of the reliable and traditional price relationships. The nebulous price relationships fueled higher volatility and reduced  16      liquidity. This increased break in traditional relationships between the long-term and short-term fundamentals provided treacherous short-term trading but at the same time provided an opportunity in all but the 10th month to generate above substantial returns. The year started with continued pressure on crude oil prices with a carry-over to natural gas as the price of a barrel rose over 30% to a high of $57 a barrel and natural gas rose 25%. The first quarter was the Partnership's most profitable quarter and the one driven by historical price relationships where the advisor's trading strategies were particularly effective. The second quarter began the period where speculative money started to flow into the energy markets and volatility increased. Crude oil rose to over $60 a barrel and natural gas and gasoline started showing seasonal price increases. Both these markets began to show evidence of overbought conditions in the near-term prices which led to wider price ranges and disequilibrium in terms of location and calendar relationships. While rising prices attracted new speculative funds to the energy markets, the twin hurricanes striking the Gulf Coast in early September exacerbated an already highly sensitive market. For a quick period of four to six weeks, crude oil prices peaked and heating oil and gasoline set new highs as well. Natural gas reached nearly $16 dollars per MBTU, more than double earlier in the year. Again speculative flows chased an anticipated supply squeeze that never materialized. That led to many price corrections in October and the year's only losing month. The whole year could be condensed into the last two months where market events resulted in losing periods at the beginning of each month and recovery late in the month. The advisor traded these markets with a bias toward shorting the near term contracts and staying effectively long the long-dated contracts. The Partnership, for its own account, through its investment in the Master, experienced a net trading gain of $46,618,104 before commissions and expenses for the year ended December 31, 2004. Gains were primarily attributable to the trading of NYMEX Natural Gas, NYMEX Heating Oil, NYMEX Crude Oil and IPE Gas Oil and were partially offset by losses in NYMEX Unleaded Gas. Trading results for the year 2004 were positive as strong trends and market volatility across the energy sector provided profitable trading opportunities for the Advisor. The results for the year were primarily influenced by one historic trend and one volatile but adeptly traded market: the price of crude oil rose to over $50 a barrel while the price of natural gas experienced nearly 50% swings at least twice during the year. The first quarter began with a fairly static January performance as crude oil oscillated in a narrow range. Natural gas prices dropped nearly $2.00/MM BTU in January and continued a bearish trend through the quarter. A large portion of the profits for this period was the result of a bearish short option/volatility position on the front end of the market combined with a long futures positions in the summer months. The second quarter likewise started off mixed but quickly developed momentum as crude oil moved past the psychological $40 barrier in May. The high prices did not persist and swung lower later in the quarter. Trading was mixed as prices moved rapidly in short timeframes. The Partnership's only profitable month for the quarter was May as the Partnership's natural gas trading profited from near-term price stability but declining long-term prices. The third quarter witnessed the first big move in crude oil to nearly $50 a barrel by late September. Prices were effected by the occurrence of several simultaneous global events, specifically, the hurricane season in the Caribbean, turmoil in Russia, Iran and Iraq, and low inventories ahead of the northern hemisphere winter. After grinding lower much of the summer, natural gas futures posted a low of $4.52/MM BTU in August only to explode to over $7.00/MM BTU by late September. The Advisor benefited from long futures positions and long volatility positions in this market during this period. These price rallies were short lived, particularly in natural gas, as the supplies built up, winter weather was mild, and political tensions eased. While October was profitable for the Partnership, natural gas decreased from over $7.00/MM BTU to a low of $6.00/MM BTU by the end of December and resulted in losses for the Partnership's natural gas long positions. Crude oil fluctuated nearly $10.00 a barrel in the  17      last two months of the year, so the focus was on profit preservation and adjusting positions to a long term view. Overall, it was a successful trading year for the Partnership illustrating the benefits of patience, agility and a market diversification The Partnership, through its investment in the Master, experienced a net trading loss of $31,169,271 before commissions and expenses for the year ended December 31, 2003. Losses were primarily attributable to the trading of NYMEX Natural Gas, NYMEX Heating Oil, NYMEX Unleaded Gas and energy swaps and were partially offset by gains in, IPE Gas Oil and NYMEX Crude Oil. Commodity markets are highly volatile. Broad price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase the possibility of profit. The profitability of the Master and the Partnership depends on the Advisor's ability to forecast changes in energy and energy related commodities. Such price changes are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that the Advisor correctly makes such forecasts, the Master and the Partnership expect to increase capital through operations. (d)    Operational Risk. The Partnership 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 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 its trading activities in emerging market securities, where clearance, settlement, and custodial risks are often greater than in more established markets.  Technological Risk — the risk of loss attributable to technological limitations or hardware failure that constrain the Partnership/Master's ability to gather, process, and communicate information efficiently and securely, without interruption, to customers, among Redeemable Units within the Partnership/Master, 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 management's authorization, and that financial information utilized by management and communicated to external parties, including the Partnership's unit holders, creditors, and regulators, is free of material errors. (e)    Critical Accounting Policies. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. All commodity interests (including derivative financial instruments and derivative commodity instruments) are used for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded in the statement of financial condition at fair value on the last business day of the period, which represents market value for those commodity interests for which market quotations are readily available or other measures of fair value deemed appropriate by management of the General  18      Partner for those commodity interests and foreign currencies for which market quotations are not readily available, including dealer quotes for swaps and certain option contracts. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing on the last business day of the period. Realized gains (losses) and changes in unrealized values on commodity interests and foreign currencies are recognized in the period in which the contract is closed or the changes occur and are included in net gains (losses) on trading of commodity interests. Foreign currency contracts are those contracts where the Partnership/Master agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign currency contracts are valued daily, and the Partnership/Master's net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting dates, is included in the statement of financial condition. Realized gains (losses) and changes in unrealized values on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur and are included in the statement of income and expenses and partners' capital. The General Partner believes that the accounting policies that will be most critical to the Partnership's financial condition and results of operations relate to the valuation of the Master's positions. The majority of the Master's positions will be exchange-traded futures contracts, which will be valued daily at settlement prices published by the exchanges. Swap contracts generally will be valued by reference to published settlement prices or dealers' quotes in related markets or other measures of fair value deemed appropriate by the General Partner. The General Partner expects that under normal circumstances substantially all of the Partnership/Master's assets will be valued by objective measures and without difficulty. Item 7A.    Quantitative and Qualitative Disclosures About Market Risk  The Master is a speculative commodity pool. The market sensitive instruments held by the Master are acquired for speculative trading purposes, and all or substantially all of the Partnership's assets are subject to the risk of trading loss through its investment in the Master. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Master's and the Partnership's 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 Master's open positions and, consequently, in its earnings and cash flow. The Master's and the Partnership's market risk is influenced by a wide variety of factors. These primarily include factors which affect energy price levels, including supply factors and weather conditions, the diversification effects among the Master's open positions and the liquidity of the markets in which it trades. The Master rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Master's past performance is not necessarily indicative of its future results. Value at Risk is a measure of the maximum amount which the Master could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Master's speculative trading and the recurrence in the markets traded by the Master of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Master's experience to date (i.e., "risk of ruin"). In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the Master's losses in any market sector will be limited to Value at Risk or by the Master's attempts to manage its market risk. Quantifying the Partnership's Trading Value at Risk The following quantitative disclosures regarding the Master's and the Partnership's market risk exposures contain "forward-looking statements" within the meaning of the safe harbor from civil liability  19      provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor except for statements of historical fact (such as the terms of particular contracts and the number of market risk sensitive instruments held during or at the end of the reporting period). The Master's and the Partnership's risk exposure in the various market sectors traded by the Advisor is quantified below in terms of Value at Risk. Due to the Master's mark-to-market accounting, any loss in the fair value of the Master's open positions is directly reflected in the Master's earnings (realized or unrealized) and cash flow. Exchange maintenance margin requirements have been used by the Master as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%–99% of any one-day intervals. The maintenance margin levels are established by dealers and 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 Master's futures and forward positions does not have any optionality component. However, the Advisor does trade commodity options. The Value at Risk associated with options is reflected in the following table as the margin requirement attributable to the instrument underlying each option. Where this instrument is a futures contract, the futures margin, and where this instrument is a physical commodity, the futures-equivalent maintenance margin has been used. This calculation is conservative in that it assumes that the fair value of an option will decline by the same amount as the fair value of the underlying instrument, whereas, in fact, the fair values of the options traded by the Master in almost all cases fluctuate to a lesser extent than those of the underlying instruments. In quantifying the Master's Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been added to determine each trading category's aggregate Value at Risk. The diversification effects resulting from the fact that the Master's positions are rarely, if ever, 100% positively correlated have not been reflected. The Master's Trading Value at Risk in Different Market Sectors The following table indicates the trading Value at Risk associated with the Master's open positions by market category as of December 31, 2005, and the highest, lowest and average value at any point during the year. All open position trading risk exposures of the Master have been included in calculating the figures set forth below. As of December 31, 2005, the Master's total capitalization was $954,082,152. December 31, 2005                               Market Sector  Value at Risk  % of TotalCapitalization  High Value at Risk  Low Value at Risk  Average Valueat Risk*   Energy  $  72,448,403      7.60 %   $  112,520,135    $  20,895,649    $  54,201,104     Energy Swaps    4,130,046      0.43 %   $  4,130,046    $  3,300,000    $  3,678,364     Total  $  76,578,449      8.03 %                                                  * Average of month-end Value at Risk   20     The Master's Trading Value at Risk in Different Market Sectors The following table indicates the trading Value at Risk associated with the Master's open positions by market category as of December 31, 2004. As of December 31, 2004 the Master's total capitalization was $336,495,535. December 31, 2004                               Market Sector  Value at Risk  % of TotalCapitalization  High Value at Risk  Low Value at Risk  Average Valueat Risk*   Energy  $ 20,193,006      6.00 %   $ 40,780,129    $ 10,664,222    $ 20,757,158     Energy Swaps    3,300,000      0.98 %   $ 3,788,189    $ 1,698,904    $ 2,605,289     Total  $ 23,493,006      6.98 %                                                  * Average of month-end Value 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 Master's open positions creates a "risk of ruin" not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions — unusual, but historically recurring from time to time — could cause the Master to incur severe losses over a short period of time. The foregoing Value at Risk table — as well as the past performance of the Partnership — give no indication of this "risk of ruin." Materiality as used in this section, "Qualitative and Quantitative Disclosures About Market Risk," is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of the Master's market sensitive instruments. Qualitative Disclosures Regarding Primary Trading Risk Exposures The following qualitative disclosures regarding the Master's market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Master manages its primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Master's primary market risk exposures as well as the strategies used and to be used by the General Partner and the Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Master's risk control to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant Fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the management strategies of the Master. There can be no assurance that the Master's current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short or long term. Investors must be prepared to lose all or substantially all of their investment in the Partnership. The following were the primary trading risk exposures of the Master as of December 31, 2005, 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. 21     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 Master's risk of loss consists of the net amount of payments that the Master is contractually entitled to receive. The Master may also enter into spot transactions to purchase or sell commodities with 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.  Other Commodity Interests. The Master primarily emphasizes the trading of energy products, but may also trade some portion of its assets in other commodity interests, including, but not limited to, commodity interest contracts on the Goldman Sachs Commodity Index (an index future comprised primarily of energy products). Commodity interest prices can be affected by numerous factors, including political developments, weather conditions, seasonal effects and other factors which affect supply and demand for the underlying commodity. Qualitative Disclosures Regarding Means of Managing Risk Exposure The General Partner monitors and controls the Partnership's, through its investment in the Master, risk exposure on a daily basis through financial, credit and risk management monitoring systems and accordingly believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Master and the Partnership are subject. The General Partner monitors the Master's performance and the concentration of its open positions, and consults with the Advisor concerning the Master's overall risk profile. If the General Partner felt it necessary to do so, the General Partner could require the Advisor to close out individual positions as well as enter programs traded on behalf of the Master. However, any such intervention would be a highly unusual event. The General Partner primarily relies on the Advisor's own risk control policies while maintaining a general supervisory overview of the Master's market risk exposures. The Advisor applies its own risk management policies to its trading. The Advisor often follows diversification guidelines, margin limits and stop loss points to exit a position. The Advisor's research of risk management often suggests ongoing modifications to its trading programs. As part of the General Partner's risk management, the General Partner periodically meets with the Advisor to discuss its risk management and to look for any material changes to the Advisor's portfolio balance and trading techniques. The Advisor is required to notify the General Partner of any material changes to its programs. 22     Item 8.    Financial Statements and Supplementary Data.  SALOMON SMITH BARNEY AAA ENERGY FUND L.P. II INDEX TO FINANCIAL STATEMENTS                  Page Number   Oath or Affirmation  F-2   Management's Report on Internal Control over Financial Reporting  F-3   Reports of Independent Registered Public Accounting Firm  F-4 – F-5   Financial Statements:      Statements of Financial Condition at December 31, 2005 and 2004  F-6   Statements of Income and Expenses for the years ended December 31, 2005, 2004 and 2003   F-7   Statements of Changes in Partners' Capital for the years ended December 31, 2005, 2004 and 2003   F-8   Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003   F-9   Notes to Financial Statements  F-10 – F-14   Selected Unaudited Quarterly Financial Data  F-15   Financial Statements of SB AAA Master Fund LLC      Oath or Affirmation  F-16   Independent Auditors' Report  F-17   Statements of Financial Condition at December 31, 2005 and 2004  F-18   Condensed Schedules of Investments at December 31, 2005 and 2004  F-19 – F-20   Statements of Income and Expenses for the years ended December 31, 2005, 2004 and  2003   F-21   Statements of Changes in Members' Capital for the years ended December 31, 2005, 2004 and 2003   F-22   Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003  F-23   Notes to Financial Statements  F-24 – F-27   Selected Unaudited Quarterly Financial Data  F-28        F-1     To the Limited Partners ofSalomon Smith Barney AAA Energy Fund L.P. II To the best of the knowledge and belief of the undersigned, the information contained herein is accurate and complete.                       By:   Daniel R. McAuliffe, Jr.           Chief Financial Officer and Director          Citigroup Managed Futures LLC          General Partner, Salomon Smith Barney AAA           Energy Fund L.P. II        Citigroup Managed Futures LLC 731 Lexington Avenue25th FloorNew York, N.Y. 10022212-559-2011    F-2     Management's Report on Internal Control overFinancial Reporting The management of Salomon Smith Barney AAA Energy Fund L.P. II (the "Partnership"), Citigroup Managed Futures LLC, is responsible for establishing and maintaining adequate internal control over financial reporting. The Partnership's internal control system was designed to provide reasonable assurance to the Partnership's management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Management maintains a comprehensive system of controls intended to ensure that transactions are executed in accordance with management's authorization, assets are safeguarded, and financial records are reliable. Management also takes steps to see that information and communication flows are effective and to monitor performance, including performance of internal control procedures.  The Partnership's management assessed the effectiveness of the Partnership's internal control over financial reporting as of December  31, 2005 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that, as of December  31, 2005, the Partnership's internal control over financial reporting is effective.  Management's assessment of the effectiveness of the Company's internal control over financial reporting as of December  31, 2005 has been audited by KPMG LLP, the Partnership's independent registered public accounting firm, as stated in their reports appearing on the following pages, which express unqualified opinions on management's assessment and on the effectiveness of the Partnership's internal control over financial reporting as of December  31, 2005. F-3     Report of Independent Registered Public Accounting Firm To the Partners of Salomon Smith Barney AAA Energy Fund L.P. II: We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Salomon Smith Barney AAA Energy Fund L.P. II (the "Partnership") maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The Partnership's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Partnership's internal control over financial reporting 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A partnership's 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 partnership's 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 company; (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 directors of the partnership; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the partnership's 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. In our opinion, management's assessment that Salomon Smith Barney AAA Energy Fund L.P. II maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Also, in our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statements of financial condition of the Partnership as of December 31, 2005 and 2004, and the related statements of income and expenses, changes in partners' capital, and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated March 13, 2006 expressed an unqualified opinion on those financial statements.                                                    New York, New York March 13, 2006 F-4     Report of Independent Registered Public Accounting Firm To the Partners of Salomon Smith Barney AAA Energy Fund L.P. II: We have audited the accompanying statements of financial condition of Salomon Smith Barney AAA Energy Fund L.P. II (the "Partnership") as of December 31, 2005 and 2004, and the related statements of income and expenses, changes in partners' capital, and cash flows for each of the years in the three-year period ended December 31, 2005. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Salomon Smith Barney AAA Energy Fund L.P. II as of December 31, 2005 and 2004, and the results of its operations, changes in its partners' capital, and its cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Partnership's internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), and our report dated March 13, 2006 expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting.                                                    New York, New York March 13, 2006 F-5     Salomon Smith Barney AAAEnergy Fund L.P. IIStatements of Financial ConditionDecember 31, 2005 and 2004                       2005  2004   Assets:                 Investment in Master, at fair value  $ 500,832,721    $ 120,251,909     Cash    26,541      50,403        $ 500,859,262    $ 120,302,312     Liabilities and Partners' Capital:                 Liabilities:                 Accrued expenses:                 Management fees (Note 3b)  $ 850,749    $ 203,734     Administrative fees (Note 3a)    212,687      50,933     Professional fees    11,311      31,706     Other    3,572      1,856     Redemptions payable (Note 5)    32,907,562      1,990,866          33,985,881      2,279,095     Partners' capital (Notes 1 and 5):                 General Partner, 2,501.2826 Unit equivalents outstanding in 2005 and 2004    5,433,711      2,875,825     Special Limited Partner, 4,111.1273 and 1,486.3421 Redeemable Units of Limited Partnership Interest outstanding in 2005 and 2004, respectively    8,930,890      1,708,907     Limited Partners, 208,301.6497 and 98,664.8238 Redeemable Units of Limited Partnership Interest outstanding in 2005 and 2004, respectively    452,508,780      113,438,485          466,873,381      118,023,217        $ 500,859,262    $ 120,302,312          See accompanying notes to financial statements. F-6     Salomon Smith Barney AAAEnergy Fund L.P. IIStatements of Income and Expensesfor the years ended December 31, 2005, 2004 and 2003                          2005  2004  2003   Income:                        Realized gains (losses) on closed positions from Master  $ 30,944,651    $ 36,038,622    $                (37,025,140 )    Change in unrealized gains on open positions from Master    177,569,885      10,579,482      5,855,869     Interest income allocated from Master    6,199,984      1,088,006      977,786     Expenses allocated from Master    (6,272,480 )     (3,692,595 )     (5,822,971 )         208,442,040      44,013,515      (36,014,456 )    Expenses:                        Management fees (Note 3b)    5,868,947      2,154,945      2,233,848     Administrative fees (Note 3a)    1,467,235      538,736      558,459     Professional fees    210,601      192,562      142,414     Other expenses    40,826      11,338      16,035          7,587,609      2,897,581      2,950,756     Net income (loss) before allocation to the Special Limited Partner    200,854,431      41,115,934      (38,965,212 )    Allocation to the Special Limited Partner (Note 3b)    38,930,890      1,708,907      —     Net income (loss) available for pro rata distribution  $ 161,923,541    $ 39,407,027    $                (38,965,212 )    Net income (loss) per Redeemable Unit of Limited Partnership Interest and General Partner Unit equivalent (Notes 1 and 6)  $ 1,022.63    $ 360.35    $                (289.27 )         See accompanying notes to financial statements. F-7     Salomon Smith Barney AAA Energy Fund L.P. II Statements of Changes in Partners' Capital for the years ended December 31, 2005, 2004 and 2003                              LimitedPartners  SpecialLimitedPartner  GeneralPartner  Total   Partners' capital at December 31, 2002  $ 124,174,215    $ —    $ 2,671,067    $ 126,845,282     Net loss available for pro rata distribution    (38,248,898 )     —      (716,314 )     (38,965,212 )    Sale of 21,674.2111 Redeemable Units of Limited Partnership Interest    22,541,000      —      —      22,541,000     Redemption of 16,891.2743 Redeemable Units of Limited Partnership Interest    (13,818,158 )     —      —      (13,818,158 )    Partners' capital at December 31, 2003    94,648,159      —      1,954,753      96,602,912     Sale of 10,998.9458 Redeemable Units of Limited Partnership Interest and General Partner's contribution representing 25 Unit equivalents    11,781,000      —      19,735      11,800,735     Redemption of 32,234.8932 Redeemable Units of Limited Partnership Interest    (31,496,364 )     —      —      (31,496,364 )    Allocation of net income for the year ended December 31, 2004:                               Allocation of 1,486.3421 Redeemable Units of Limited Partnership Interest to the Special Limited Partner (Note 3b)    —      1,708,907      —      1,708,907     Net income available for pro rata distribution    38,505,690      —      901,337      39,407,027     Partners' capital at December 31, 2004    113,438,485      1,708,907      2,875,825      118,023,217     Sale of 122,647.4741 Redeemable Units of Limited Partnership Interest    202,886,547                    202,886,547     Redemption of 13,010.6482 Redeemable Units of Limited Partnership Interest    (22,009,451 )     —      —      (22,009,451 )    Redemption of 15,296.1443 Redeemable Units of Special Limited Partnership Interest    —      (32,881,363 )     —      (32,881,363 )    Allocation of net income for the year ended December 31, 2005:                               Allocation of 17,920.9295 Redeemable Units of Limited Partnership Interest to the Special                               Limited Partner (Note 3b)    —      38,930,890      —      38,930,890     Net income available for pro rate distribution    158,193,199      1,172,456      2,557,886      161,923,541     Partners' capital at December 31, 2005  $  452,508,780    $  8,930,890    $  5,433,711    $  466,873,381                                                                          Net Asset Value Per Redeemable Unit:                  2003  $ 789.39     2004  $ 1,149.74     2005  $ 2,172.37          See accompanying notes to financial statements. F-8     Salomon Smith Barney AAA Energy Fund L.P. II Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003                          2005  2004  2003   Cash flows from operating activities:                        Net income (loss)  $  161,923,541    $  39,407,027    $                (38,965,212 )    Adjustments to reconcile net income to net cash provided by (used in) operating activities:                        Changes in operating assets and liabilities:                        Purchase of investment in Master    (204,595,454 )     (11,781,000 )     (22,541,000 )    Proceeds from sale of investment in Master    26,325,594      33,465,468      17,055,479     Net unrealized appreciation (depreciation) on investment in Master    (202,310,952 )     (42,940,823 )     36,891,991     Accrued expenses:                        Increase (decrease) in management fees    647,015      35,572      (53,321 )    Increase (decrease) in administrative fees    161,754      8,892      (13,330 )    Increase (decrease) in professional fees    (20,395 )     (4,569 )     (2,475 )    Increase (decrease) in other    1,716      (1,458 )     (929 )    Increase (decrease) in due to CGM    —      —      (40,426 )    Net cash provided by (used in) operating activities    (217,867,181 )     18,189,109      (7,669,223 )    Cash flows from financing activities:                        Proceeds from additions — General Partner    —      19,735      —     Proceeds from additions — Limited Partners    202,886,547      11,781,000      22,541,000     Allocation of units — Special Limited Partner    38,930,890      1,708,907      —     Payments for redemptions — Limited Partners    (21,092,755 )     (31,690,980 )     (14,861,102 )    Payments for redemptions — Special Limited Partner    (2,881,363 )     —      —     Net cash provided by (used in) financing activities    217,843,319      (18,181,338 )     7,679,898     Net change in cash    (23,862 )     7,771      10,675     Cash, at beginning of year    50,403      42,632      31,957     Cash, at end of year  $  26,541    $  50,403    $ 42,632          See accompanying notes to financial statements. F-9     Salomon Smith Barney AAAEnergy Fund L.P. IINotes to Financial Statements       1.  Partnership Organization:   Salomon Smith Barney AAA Energy Fund L.P. II (the "Partnership") is a limited partnership which was organized on March 25, 2002 under the partnership laws of the State of New York to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests, including commodity options and commodity futures contracts on United States exchanges and certain foreign exchanges. The Partnership may trade commodity futures and options contracts of any kind but intends initially to trade solely energy and energy related products. In addition, the Partnership may enter into swap contracts on energy related products. The commodity interests that are traded by the Partnership are volatile and involve a high degree of market risk. The Partnership was authorized to sell 150,000 redeemable units of Limited Partnership Interest ("Redeemable Units"). During the initial offering period, the Partnership sold 93,975 Redeemable Units of Limited Partnership Interest. The Partnership commenced trading on July 1, 2002. The Partnership continues to offer Redeemable Units. Effective July 1, 2002, the Partnership allocated all of its capital to the SB AAA Master Fund LLC, a New York Limited Liability Company (the "Master"). With this cash, the Partnership purchased 64,945.0387 Units of the Master with a fair value of $94,925,000. The Master was formed in order to permit commodity pools managed now or in the future by AAA Capital Management, Inc. (the "Advisor") using the Energy with Swaps Program, the Advisor's proprietary trading program, to invest together in one trading vehicle. In addition, the Advisor is a Special Limited Partner of the Partnership. Individual and pooled accounts currently managed by the Advisor, including the Partnership (collectively, the "Feeder Funds"), are permitted to be non-managing members of the Master. The General Partner and the Advisor believe that trading through this master/feeder structure should promote 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 financial statements of the Master (attached), including the condensed schedules of investments, should be read together with the Partnership's financial statements. At December 31, 2005 and 2004, the Partnership owned 52.4% and 35.7%, respectively, of the Master. It is the Partnership's intention to continue to invest substantially all of its assets in the Master. The performance of the Partnership is directly affected by the performance of the Master. Citigroup Managed Futures LLC acts as the general partner (the "General Partner") of the Partnership and a managing member of the Master. The Partnership's/Master's commodity broker is Citigroup Global Markets Inc. ("CGM"). CGM is an affiliate of the General Partner. The General Partner is wholly owned by Citigroup Global Markets Holdings Inc. ("CGMHI"), which is the sole owner of CGM. CGMHI is a wholly owned subsidiary of Citigroup Inc. ("Citigroup"). The General Partner and each limited partner share in the profits and losses of the Partnership, after the allocation to the Special Limited Partner (as defined in Note 3b), in proportion to the amount of partnership interest owned by each except that no limited partner shall be liable for obligations of the Partnership in excess of its initial capital contribution and profits, if any, net of distributions. The Partnership will be liquidated upon the first to occur of the following: December 31, 2018; the net asset value of a Redeemable Unit decreases to less than $400 per Redeemable Unit as of a close of any business day; the aggregate net assets of the Partnership decline to less than $1,000,000; or under certain other circumstances as defined in the Limited Partnership Agreement.       2.  Accounting Policies:         a.  The value of the Partnership's investment in the Master reflects the Partnership's proportional interest in the members' capital of the Master. All of the unrealized and realized gains and losses from the commodity transactions of the Master are allocated pro rata among the    F-10     Salomon Smith Barney AAAEnergy Fund L.P. IINotes to Financial Statements          investors at the time of such determination. All commodity interests (including derivative financial instruments and derivative commodity instruments) held by the Master are used for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded in the statements of financial condition at fair value on the last business day of the year, which represents market value for those commodity interests for which market quotations are readily available or other measures of fair value deemed appropriate by management of the General Partner for those commodity interests and foreign currencies for which market quotations are not readily available, including dealer quotes for swaps and certain option contracts. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing on the last business day of the year. Realized gains (losses) and changes in unrealized gains (losses) on open positions are recognized in the period in which the contract is closed or the changes occur and are included in net gains (losses).         b.  Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnership's income and expenses.         c.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.         d.  Certain prior period amounts have been reclassified to conform to current year presentation.         3.  Agreements:         a.  Limited Partnership Agreement:   The General Partner administers the business and affairs of the Partnership including selecting one or more advisors to make trading decisions for the Partnership. The Partnership will pay the General Partner a monthly administrative fee in return for its services equal to 1/12 of 0.50% (0.50% per year) of month-end Net Assets of the Partnership. Month-end Net Assets, for the purpose of calculating administrative fees are Net Assets, as defined in the Limited Partnership Agreement, prior to the reduction of redemptions and incentive fees.       b.  Management Agreement:   The General Partner, on behalf of the Partnership, has entered into a Management Agreement with the Advisor, a registered commodity trading advisor. The Partnership is obligated to pay the Advisor a monthly management fee equal to 1/6 of 1% (2% per year) of month-end Net Assets allocated by the Master. Month-end Net Assets, for the purpose of calculating management fees are Net Assets, as defined in the Limited Partnership Agreement, prior to the reduction of redemptions and incentive fees. In addition, the Advisor is a Special Limited Partner of the Partnership and receives an annual profit share allocation to its capital account in the Partnership equal to 20% of New Trading Profits, as defined in the Management Agreement, earned on behalf of the Partnership during each calendar year in the form of Special Limited Partner Units.       c.  Customer Agreement:   All brokerage commissions, exchange, clearing, user, give-up, and National Futures Association fees will be borne by the Master and allocated to the Partnership through its investment in the Master. CGM will pay a portion of brokerage fees to its financial advisors who have sold  F-11     Salomon Smith Barney AAAEnergy Fund L.P. IINotes to Financial Statements  Redeemable Units in this Partnership. The Partnership's assets not held at the Master are held in the Partnership's account at CGM. The Partnership's cash is deposited by CGM in segregated bank accounts to the extent required by Commodity Futures Trading Commission regulations. CGM will pay the Partnership interest on 80% of the average daily equity allocated to the Partnership by the Master during each month at a 30-day U.S. Treasury bill rate determined weekly by 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. The Customer Agreement between CGM and the Master gives the Master the legal right to net unrealized gains and losses. The Customer Agreement may be terminated upon notice by either party.       4.  Trading Activities:   The results of the Master's trading activities are shown in the statements of income and expenses.       5.  Distributions and Redemptions:   Distributions of profits, if any, will be made at the sole discretion of the General Partner and at such times as the General Partner may decide. Beginning with the first full month ending at least three months after the commencement of trading, a limited partner may require the Partnership to redeem its Redeemable Units at the 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-12     Salomon Smith Barney AAAEnergy Fund L.P. IINotes to Financial Statements       6.  Financial Highlights:   Changes in the Net Asset Value per Redeemable Unit of Partnership interest for the years ended December  31, 2005 and 2004 and 2003 were as follows:                          2005  2004  2003   Net realized and unrealized gains (losses)*  $ 1,279.15    $ 392.92    $                (273.05 )    Interest income    37.96      10.02      7.42     Expenses**    (294.48 )     (42.59 )     (23.64 )    Increase (decrease) for the year    1,022.63      360.35      (289.27 )    Net asset value per Redeemable Unit, beginning of year    1,149.74      789.39      1,078.66     Net asset value per Redeemable Unit, end of year  $ 2,172.37    $ 1,149.74    $ 789.39                             *  Includes commissions expense allocated from Master         **  Excludes commissions expense allocated from Master and includes allocation to Special Limited Partner.                            2005  2004  2003   Ratios to average net assets:                        Net investment loss before allocation to Special Limited Partner****    (3.0 )%     (5.3 )%     (7.0 )%    Operating expenses    5.4 %     6.3 %     7.8 %    Allocation to Special Limited Partner    15.0 %     1.7 %     — %    Total expenses and allocation to Special Limited Partner    20.4 %     8.0 %     7.8 %                             Total return:                        Total return before allocation to Special Limited Partner    104.7 %     47.8 %     (26.8 )%    Allocation to Special Limited Partner    (15.8 )%     (2.1 )%     — %    Total return after allocation to Special Limited Partner    88.9 %     45.7 %     (26.8 )%                            ****  Interest income 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 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 flows, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash or with another financial instrument. These instruments may be traded on an exchange or over-the-counter ("OTC"). Exchange traded instruments are standardized and include futures and certain option contracts. OTC contracts are negotiated between contracting parties and include forwards and certain options. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments  F-13     Salomon Smith Barney AAAEnergy Fund L.P. IINotes to Financial Statements  including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange traded instruments because of the greater risk of default by the counterparty to an OTC contract. The Master's swap contracts are OTC contracts. Market risk is the potential for changes in the value of the financial instruments traded by the Master due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk with respect to exchange traded instruments is reduced to the extent that an exchange or clearing organization acts as a counterparty to the transactions. The Partnership's/Master's risk of loss in the event of counterparty default is typically limited to the amounts recognized in the statements of financial condition and not represented by the contract or notional amounts of the instruments. The Partnership through its investment in the Master has concentration risk because a significant counterparty or broker with respect to the Master's assets is CGM. The General Partner monitors and controls the Partnership's/Master's risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership/ Master is subject. These monitoring systems allow the General Partner to statistically analyze actual trading results with risk adjusted performance indicators and correlation statistics. In addition, on-line monitoring systems provide account analysis of futures, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions. The majority of these instruments mature within one year of December 31, 2005. However, due to the nature of the Partnership's/Master's business, these instruments may not be held to maturity. F-14     Selected unaudited quarterly financial data for the Partnership for the years ended December 31, 2005 and December 31, 2004 is summarized below:                              For the period from October 1, 2005 to December 31, 2005  For the period from July 1, 2005 to September 30, 2005  For the period from April 1, 2005 to June 30, 2005  For the period from January 1, 2005 to March 31, 2005   Net realized and unrealized trading gains net of brokerage fees commissions and clearing fees plus interest income  $ 42,665,185    $ 69,427,317    $ 47,895,867    $ 48,655,169     Net Income  $ 32,351,903    $ 54,095,209    $ 37,304,123    $ 38,172,306     Increase in Net Asset Value perRedeemable Unit  $ 138.60    $ 321.78    $ 261.85    $ 300.40                                       For the period from October 1, 2004 to December 31, 2004  For the period from July 1, 2004 to September 30, 2004  For the period from April 1, 2004 to June 30, 2004  For the period from January 1, 2004 to March 31, 2004   Net realized and unrealized trading gains net of brokerage commissions and clearing fees plus interest income  $ 8,838,422    $ 23,335,080    $ 3,730,544    $ 8,197,683     Net Income  $ 6,397,247    $ 22,351,623    $ 3,092,705    $ 7,565,452     Increase in Net Asset Valueper Unit  $ 57.21    $ 209.37    $ 27.97    $ 65.80          F-15     To the Members ofSB AAA Master Fund LLC To the best of the knowledge and belief of the undersigned, the information contained herein is accurate and complete.                       By:   Daniel R. McAuliffe, Jr.           Chief Financial Officer and Director          Citigroup Managed Futures LLC          Managing Member, SB AAA Master Fund LLC         Citigroup Managed Futures LLC 731 Lexington Avenue25th FloorNew York, N.Y. 10022212-559-2011    F-16     Independent Auditors' Report To the Members ofSB AAA Master Fund LLC: We have audited the accompanying statements of financial condition of SB AAA Master Fund LLC (the "Company"), including the condensed schedules of investments, as of December  31, 2005 and 2004, and the related statements of income and expenses, changes in members' capital, and cash flows for each of the years in the three-year period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards as established by the Auditing Standards Board (United States) and in accordance with the auditing 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 Company's 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SB AAA Master Fund LLC as of December  31, 2005 and 2004, and the results of its operations, changes in its members' capital, and its cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.                                                New York, New York March 13, 2006 F-17     SB AAA Master Fund LLCStatements of Financial ConditionDecember 31, 2005 and 2004                      2005  2004   Assets:                 Equity in commodity futures trading account:                 Cash (restricted $4,130,046 and $29,327,275, respectively)  $ 557,878,760    $ 302,866,457     Net unrealized appreciation on open futures positions    260,548,395      33,027,068     Unrealized appreciation on open swaps contracts    193,692,178      93,606,729     Commodity options owned, at fair value (cost $129,024,667 and $39,565,244, respectively)    225,052,075      51,017,766          1,237,171,408      480,518,020     Due from brokers    14,310,966      2,425,135     Interest receivable    1,813,732      459,835        $ 1,253,296,106    $ 483,402,990                       Liabilities and Members' Capital:                 Liabilities:                 Unrealized depreciation on open swap contracts  $ 165,265,325    $ 89,659,294     Commodity options written, at market value (premium $147,363,753 and $54,943,984, respectively)    114,859,048      52,353,395     Accrued expenses:                 Commissions    3,198,816      1,662,591     Professional fees    143,268      2,000     Due to brokers    13,948,544      2,753,610     Due to CGM    —      22,978     Distribution Payable    1,798,953      453,587          299,213,954      146,907,455     Members' Capital:                 Members' Capital, 246,785.2714 and 185,364.2361 Units outstanding in 2005 and 2004, respectively    954,082,152      336,495,535        $ 1,253,296,106    $ 483,402,990           See accompanying notes to financial statements.  F-18     SB AAA Master Fund LLCCondensed Schedule of InvestmentsDecember 31, 2005                          Number ofContracts  Fair Value  % of Partners'Capital   Futures Contracts Purchased                        Energy                        NYMEX Henry Hub Natural Gas Swap- April 07 - Dec. 09    6,496    $ 61,657,788      6.46 %    NYMEX Natural Gas Aug. 06 - Dec. 10    9,869      107,175,497      11.23     Other           45,857,146      4.81     Total futures contracts purchased           214,690,431      22.50                              Futures Contracts Sold                        Energy           45,857,964      4.81     Total futures contracts           260,548,395      27.31                              Options Owned                        Energy                        NYMEX Natural Gas Feb. 06 - July 06    4,778      78,598,570      8.24     Other           146,453,505      15.35     Total options owned           225,052,075      23.59                              Options Written                        Energy           (114,859,048 )     (12.04 )                             Unrealized Appreciation on Swap Contracts                        Energy                        Gulf Coast Unleaded Gas Calendar 2006    1,750      67,563,451      7.08     Other           126,128,727      13.22     Total unrealized appreciation on swap contracts           193,692,178      20.30                              Unrealized Depreciation on Swap Contracts                        Energy                        Gulf Coast Unleaded Gas Calendar 2006    1,750      (65,229,496 )     (6.84 )    Other           (100,035,829 )     (10.48 )    Total depreciation on swap contracts           (165,265,325 )     (17.32 )    Total Energy Fair Value         $ 399,168,275      41.84 %                Percentages are based on Members' Capital unless otherwise indicated.    See accompanying notes to financial statements.  F-19     SB AAA Master Fund LLCCondensed Schedule of InvestmentsDecember 31, 2004                          Number ofContracts  Fair Value  % of Partners'Capital   Futures Contracts Purchased                        Energy         $ 1,240,430      0.37 %                             Futures Contracts Sold                        Energy                        NYMEX Natural Gas Feb. 05 - May 09    2,626      22,776,795      6.77     Other           9,009,843      2.68     Total futures contracts sold           31,786,638      9.45                              Options Owned                        Energy           51,017,766      15.16                              Options Written                        Energy                        NYMEX Natural Gas Feb. 05 - Jan 06    6,992      (25,794,540 )     (7.67 )    Other           (26,558,855 )     (7.89 )    Total futures contracts written           (52,353,395 )     (15.56 )                             Unrealized Appreciation on Swap Contracts                        Energy                        Gulf Coast Unleaded Gas Calendar 2005     1,080      23,491,972      6.98     NYMEX Heating Oil Calendar 2006    1,450      21,867,545      6.50     Other           48,247,212      14.34     Total unrealized appreciation on swap contracts           93,606,729      27.82                              Unrealized Depreciation on Swap Contracts                        Energy                        Gulf Coast Unleaded Gas Calendar 2006    1,450      (18,846,201 )     (5.60 )    NYMEX Unleaded Gas Calendar 2005    820      (21,159,503 )     (6.29 )    Other           (49,653,590 )     (14.76 )    Total depreciation on swap contracts           (89,659,294 )     (26.65 )                             Total Energy Fair Value         $ 35,638,874      10.59 %                Percentages are based on Members' Capital unless otherwise indicated.    See accompanying notes to financial statements.  F-20     SB AAA Master Fund LLCStatements of Income and Expensesfor the years ended December 31, 2005, 2004 and 2003                          2005  2004  2003   Income:                        Net gains (losses) on trading of commodity interests:                        Realized gains (losses) on closed positions  $ 75,334,314    $ 98,726,739    $                (89,228,388 )    Change in unrealized gains on open positions    366,489,747      28,044,756      12,929,224          441,824,061      126,771,495      (76,299,164 )    Interest income    13,332,089      3,078,611      2,459,477          455,156,150      129,850,106      (73,839,687 )                             Expenses:                        Brokerage commissions including clearing fees of $1,569,668 $1,255,894 and $2,041,075, respectively    13,333,992      9,941,386      14,015,096     Professional fees    107,937      68,096      210,070          13,441,929      10,009,482      14,225,166     Net income (loss)  $ 441,714,221    $ 119,840,624    $                (88,064,853 )    Net income (loss) per Unit of Member Interest (Notes 1 and 6)  $ 2,112.50    $ 622.49    $                (400.99 )          See accompanying notes to financial statements.  F-21     SB AAA Master Fund LLCStatements of Changes in Members' Capitalfor the years ended December 31, 2005, 2004 and 2003                  Members'Capital   Members' Capital at December 31, 2002  $ 350,283,453     Net Loss    (88,064,853 )    Sale of 39,745.9253 Units of Member Interest    54,393,460     Redemptions of 44,880.6036 Units of Member Interest    (59,184,213 )    Distribution of Interest to feeder funds    (2,370,210 )    Members' Capital at December 31, 2003    255,057,637     Net Income    119,840,624     Sale of 20,423.0579 Units of Member Interest    32,767,686     Redemption of 46,082.5538 Units of Member Interest    (68,133,449 )    Distribution of Interest to feeder funds    (3,036,963 )    Members' Capital at December 31, 2004    336,495,535     Net Income    441,714,221     Sale of 99,379.4923 Units of Member Interest    288,276,627     Redemption of 37,958.4570 Units of Member Interest    (99,220,693 )    Distribution of Interest to feeder funds    (13,183,538 )    Members' Capital at December 31, 2005  $ 954,082,152          Net Asset Value Per Unit:                  2003:  $ 1,208.66     2004:  $ 1,815.32     2005:  $ 3,866.04           See accompanying notes to financial statements.  F-22     SB AAA Master Fund LLCStatements of Cash Flowsfor the years ended December 31, 2005, 2004 and 2003                          2005  2004  2003   Cash flows from operating activities:                        Net Income (loss)  $ 441,714,221    $ 119,840,624    $                (88,064,853 )    Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                        Changes in operating assets and liabilities:                        (Increase) decrease in restricted cash    25,197,229      19,144,722      5,050,258     (Increase) decrease in net unrealized appreciation/depreciation on open futures positions    (227,521,327 )     (24,181,529 )     342,944     (Increase) decrease in unrealized appreciation on open swaps contracts    (100,085,449 )     (43,512,817 )     (12,082,141 )    (Increase) decrease in commodity options owned at fair value    (174,034,309 )     (8,387,536 )     40,621,872     (Increase) decrease in due from brokers    (11,885,831 )     (276,445 )     10,447,102     (Increase) decrease in interest receivable    (1,353,897 )     (300,785 )     124,570     Increase (decrease) in unrealized depreciation on open swap contracts    75,606,031      71,004,728      (29,815,656 )    Increase (decrease) in commodity options written, at fair value    62,505,653      (5,451,202 )     (9,920,180 )    Accrued expenses:                        Increase (decrease) in commissions    1,536,225      (7,834 )     (3,539,742 )    Increase (decrease) in professional fees    141,268      (57,625 )     39,508     Increase (decrease) in due to brokers    11,194,934      938,595      273,792     Increase (decrease) in due to CGM    (22,978 )     —      —     Net cash provided by (used in) operating activities    102,991,770      128,752,896      (86,522,526 )    Cash flows from financing activities:                        Proceeds from additions     288,276,627      32,767,686      54,393,460     Payments for redemptions     (99,220,693 )     (68,133,449 )     (59,184,213 )    Distribution of interest to feeder funds    (11,838,172 )     (2,737,057 )     (2,493,437 )    Net cash provided by (used in) financing activities    177,217,762      (38,102,820 )     (7,284,190 )    Net change in cash    280,209,532      90,650,076      (93,806,716 )    Unrestricted cash, at beginning of year    273,539,182      182,889,106      276,695,822     Unrestricted cash, at end of year  $ 553,748,714    $ 273,539,182    $ 182,889,106           See accompanying notes to financial statements.  F-23     SB AAA Master Fund LLCNotes to Financial Statements 1.    General: SB AAA Master Fund LLC (the "Master") is a limited liability company formed under the New York Limited Liability Company Law. The Master's purpose is to engage in the speculative trading of a diversified portfolio of commodity interests including commodity futures contracts and commodity options contracts on United States exchanges and certain foreign exchanges. The Master may trade commodity futures and option contracts of any kind but intends initially to trade solely energy and energy related products. In addition, the Master may enter into swap contracts. The Master is authorized to sell an unlimited number of units ("Units") of member interest. On September 1, 2001 (date Master commenced trading), Smith Barney AAA Energy Fund  L.P. ("AAA") allocated substantially all of its capital and Salomon Smith Barney Orion Futures Fund L.P. ("Orion") allocated a portion of its capital to the Master. With this cash, 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, Salomon Smith Barney 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, Citigroup Diversified Futures Fund L.P. ("CitiDiv") 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, CMF Institutional Futures Portfolio L.P. ("CMF Institutional") 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. The Master was formed to permit commodity pools managed now or in the future by AAA Capital Management, Inc. (the "Advisor") using the Energy with Swaps Program, the Advisor's proprietary trading program, to invest together in one vehicle. The Master operates under a structure where its investors consist of AAA, AAA II, CitiDiv, CMF Institutional, private investor, Orion and Pinnacle Natural Resources, LP (each a "Member", collectively the "Funds") with 32.3%, 52.5%, 5.6%, 0.6%, 1.0%, 6.9% and 1.1% investments in the Master at December 31, 2005, respectively. Citigroup Managed Futures LLC acts as the managing member (the "Managing Member") of the Master. The Master's commodity broker is Citigroup Global Markets Inc. ("CGM"). CGM is an affiliate of the Managing Member. The Managing Member is wholly-owned by Citigroup Global Markets Holdings Inc. ("CGMHI"), which is the sole owner of CGM. CGMHI is a wholly-owned subsidiary of Citigroup Inc. All trading decisions for the Master are made by the Advisor. 2.    Accounting Policies:       a.  All commodity interests (including derivative financial instruments and derivative commodity instruments) are used for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded in the statements of financial condition at fair value on the last business day of the year, which represents market value for those commodity interests for which market quotations are readily available or other measures of fair value deemed appropriate by management of the Managing Member for those commodity interests and foreign currencies for which market quotations are not readily available, including dealer quotes for swaps and certain option contracts. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing on the last business day of the year. Realized gains (losses) and changes in unrealized gains (losses) on open positions are recognized in the period in which the contract is closed or the changes occur and are included in net gains (losses) on trading of commodity interests.   F-24     SB AAA Master Fund LLCNotes to Financial Statements       b.  The Master may purchase and write (sell) options. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Master writes an option, the premium received is recorded as a liability in the 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.         c.  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.         d.  Income taxes have not been provided as each partner of each of the members (the Funds) is individually liable for the taxes, if any, on their share of the Master's income and expenses.         e.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.         f.  Certain prior period amounts have been reclassified to conform to current year presentation.         3.  Agreements:         a.  Managing Member Agreement:   The Managing Member administers the business affairs of the Master.       b.  Management Agreement:   The Managing Member, on behalf of the Master has entered into a Management Agreement with the Advisor, a registered commodity trading advisor. The Advisor is affiliated with the Managing Member and 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 connection with the Management Agreement shall be borne by the Funds.       c.  Customer Agreement:   The Master has entered into a Customer Agreement with CGM whereby CGM provides services which include, among other things, the execution of transactions for the Master's account in accordance with orders placed by the Advisor. The Master will pay CGM brokerage commissions at $18 per round turn for futures, options and swap transactions. The brokerage fee is inclusive of applicable floor brokerage. All exchange, clearing, user, give-up and National Futures Association fees are borne by the Master. All other fees (management fees, administrative fees, incentive fees and offering costs) shall be borne by the Funds. All of the Master's cash is deposited by CGM in segregated bank accounts, to the extent required by Commodity Futures Trading Commission regulations. At December 31, 2005 and 2004, the amount of cash held by the Master for margin requirements was $4,130,046 and $29,327,275, respectively. The Customer Agreement between the Master and CGM gives the Master the legal right to net unrealized gains and losses. The Customer Agreement may be terminated by either party. All commissions in connection with the Customer Agreement shall be borne by the Funds. F-25     SB AAA Master Fund LLCNotes to Financial Statements 4.    Trading Activities: The Master was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The results of the Master's trading activities are shown in the statements of income and expenses. All of the commodity interests owned by the Master are held for trading purposes. The average fair values for the years ended December 31, 2005 and 2004 based on a monthly calculation, were $199,595,694 and $37,750,006, respectively. The fair values of these commodity interests, including options thereon, if applicable, at December 31, 2005 and 2004 were $399,168,275 and $35,638,874, respectively. 5.    Distributions and Redemptions: Distributions of profits, if any, will be made at the sole discretion of the Managing Member and at such time as the Managing Member may decide. A member may require the Master to redeem their Units at their Net Asset Value as of the last day of the month. The Managing Member, at its sole discretion, may permit redemptions more frequently than monthly. There is no fee charged to members in connection with redemptions. 6.    Financial Highlights: Changes in the Net Asset Value per Unit of Member interest for the years ended December 31, 2005, 2004 and 2003 were as follows:                          2005  2004  2003   Net realized and unrealized gains (losses)*  $ 2,051.93    $ 607.73    $                (410.62 )    Interest income    62.49      16.06      11.23     Expenses**    (1.92 )     (1.30 )     (1.60 )    Increase (decrease) for year    2,112.50      622.49      (400.99 )    Distributions    (61.78 )     (15.83 )     (10.84 )    Net asset value per Unit, beginning of year    1,815.32      1,208.66      1,620.49     Net asset value per Unit, end of year  $ 3,866.04    $ 1,815.32    $ 1,208.66     *   Includes brokerage commissions                        ** Excludes brokerage commissions                        Ratio to average net assets:                        Net investment loss***    (0.0) %****     (2.4 )%     (4.1 )%    Operating expenses    2.3 %     3.5 %     5.0 %    Total return    116.4 %     51.5 %     (24.7 )%               *** Interest income less total expenses         **** Due to rounding   The above ratios may vary for individual investors based on the timing of capital transactions during the year. 7.    Financial Instrument Risks: In the normal course of its business, the 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 and options, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange  F-26     SB AAA Master Fund LLCNotes to Financial Statements  currencies or cash flows, to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter ("OTC"). Exchange traded instruments are standardized and include futures and certain option contracts. OTC contracts are negotiated between contracting parties and include forwards and certain options. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange traded instruments because of the greater risk of default by the counterparty to an OTC contract. Market risk is the potential for changes in the value of the financial instruments traded by the Master due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk with respect to exchange traded instruments is reduced to the extent that an exchange or clearing organization acts as a counterparty to the transactions. The Master's risk of loss in the event of counterparty default is typically limited to the amounts recognized in the statements of financial condition and not represented by the contract or notional amounts of the instruments. The Master has concentration risk because a significant counterparty or broker with respect to the Master's assets is CGM. As of December 31, 2005, the counterparties to the Master's swap contracts were Citibank, N.A., which is affiliated with the Master, Morgan Stanley Capital Group Inc., J.  Aron & Company, Hess Trading Company, LLC and BP Corporation North America, Inc. The Managing Member monitors and controls the Master's risk exposure on a daily basis through financial, credit and risk management monitoring systems and, accordingly believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Master is subject. These monitoring systems allow the Managing Member to statistically analyze actual trading results with risk adjusted performance indicators and correlation statistics. In addition, on-line monitoring systems provide account analysis of futures, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions. The majority of these instruments mature within one year of December 31, 2005. However, due to the nature of the Master's business, these instruments may not be held to maturity. F-27     Selected unaudited quarterly financial data for the Master for the years ended December 31, 2005 and December 31, 2004 is summarized below:                              For the period fromOctober 1, 2005 toDecember 31, 2005  For the period fromJuly 1, 2005 toSeptember 30, 2005  For the period fromApril 1, 2005 toJune 30, 2005  For the period fromJanuary 1, 2005 toMarch 31, 2005   Net realized and unrealized trading gains net of brokerage fees commissions and clearing fees plus interest income  $ 78,571,053    $ 139,754,428    $ 105,296,290    $ 118,510,387     Net Income  $ 78,379,858    $ 139,650,072    $ 105,228,428    $ 118,455,863     Increase in Net Asset Value per Redeemable Unit  $ 304.38    $ 666.56    $ 535.54    $ 606.02                                       For the period from October 1, 2004 to December 31, 2004  For the period from July 1, 2004 to September 30, 2004  For the period from April 1, 2004 to June 30, 2004  For the period from January 1, 2004 to March 31, 2004   Net realized and unrealized trading gains net of brokerage commissions and clearing fees plus interest income  $ 23,925,828    $ 64,277,686    $ 10,197,155    $ 21,684,305     Net Income  $ 23,724,769    $ 64,261,824    $ 10,181,466    $ 21,672,565     Increase in Net Asset Value per Redeemable Unit  $ 122.43    $ 338.61    $ 52.27    $ 109.18          F-28
None. Item 9A.    Controls and Procedures  Based on their evaluation of the Partnership's disclosure controls and procedures as of year end, the Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are effective. There were no significant changes in the Partnership's internal controls over financial reporting or in other factors that could significantly affect such controls subsequent to the date of their evaluation. Management's report on internal control over financial reporting and KPMG LLP's related opinion are included in the Partnership's annual financial statements under "Item 8. Financial Statements and Supplementary Data." Item 9B.    Other Information.  The Partnership previously filed report(s) as an "accelerated filer" (as defined in Rule 12b-2 of the Exchange Act). The Partnership has been advised by SEC Staff that it is not an accelerated filer and that it is not, therefore, required to file as such. PART III Item 10.    Directors and Executive Officers of the Registrant.  The Partnership has no officers or directors and its affairs are managed by its General Partner, Citigroup Managed Futures LLC. Investment decisions are made by the Advisor, AAA Capital Management, Inc. The Partnership has not adopted a code of ethics that applies to officers because it has no officers. Item 11.    Executive Compensation.  The Partnership has no directors or officers. Its affairs are managed by Citigroup Managed Futures LLC, 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, 2005, CGM earned $6,070,982 in brokerage commissions and clearing fees from the Partnership and through the Partnership's investment in the Master. The Advisor earned $5,868,947 in management fees during 2005. The General Partner earned $1,467,235 in administrative fees during 2005. Item 12.    Security Ownership of Certain Beneficial Owners and Management.  (a)    Security ownership of certain beneficial owners. The Partnership knows of no person who beneficially owns more than 5% of the Redeemable Units outstanding. (b)    Security ownership of management. Under the terms of the Limited Partnership Agreement, the Partnership's affairs are managed by the General Partner. The General Partner owns Units of general partnership interest equivalent to 2,501.2826 (1.16%) Units of Limited Partnership Interest as of December 31, 2005. Principals who own Redeemable Units of the Partnership:* * David J. Vogel                      20.0000 Redeemable Units * Maureen O'Toole                    23.4030 Redeemable Units              * No one principal owns more than 1% of Redeemable Units of Limited Partnership Interest. (c)    Changes in control. None. 23
Citigroup Global Markets and Citigroup Managed Futures LLC would be considered promoters for purposes of item 404(d) of Regulation S-K. The nature and the amounts of compensation each promoter will receive from the Partnership are set forth under "Item 1. Business.", "Item 8. Financial Statements and Supplementary Data." and "Item 11. Executive Compensation." Item 14.    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 KPMG LLP for the audit of the Partnership's annual financial statements, review of financial statements included in the Partnership's Forms 10-Q and 10-K and other services normally provided in connection with regulatory filings or engagements are as follows: 2005            $61,765 2004            $44,560 (2)    Audit-Related Fees. None (3)    Tax Fees. The aggregate fees billed for each of the last two fiscal years for professional services rendered by KPMG LLP for tax compliance and tax advice given in the preparation of the Partnership's Schedule K1s, the preparation of the Partnership's Form 1065 and preparation of all State Tax Returns are as follows: 2005            $7,606 2004            $5,136 (4)    All Other Fees. None. (5)    Not Applicable. (6)    Not Applicable. PART IV Item 15.    Exhibits and Financial Statement Schedules.        (a) (1)  Financial Statements: Statements of Financial Condition at December 31, 2005 and 2004.           Statements of Income and Expenses for the years ended December 31, 2005, 2004 and 2003.           Statements of Changes in Partners' Capital for the years ended December 31, 2005, 2004 and 2003.           Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003.           Notes to Financial Statements         (2)  Exhibits:           3.1 Certificate of Limited Partnership (previously filed).           3.2 Limited Partnership Agreement (previously filed).           10.1 – Advisory Agreement among the Partnership, the General Partner and AAA Capital Management, Inc. (previously filed).           10.2 – Customer Agreement between the Partnership, Salomon Smith Barney Inc. (the predecessor to CGM) and the Master Partnership (previously filed).           10.3 – Customer Agreement between the Master Partnership and Salomon Smith Barney Inc. (the predecessor to CGM) (previously filed).   24             10.4 – Agency Agreement between the Partnership, Citigroup Managed Futures LLC and Salomon Smith Barney Inc. (the predecessor to CGM) (previously filed).           10.5 – Form of Subscription Agreement (previously filed).           10.6 – Letter from General Partner to AAA Capital Management, Inc. extending the Advisory Agreement for 2003 (previously filed).           10.7 – Letter from General Partner to AAA Capital Management, Inc. extending the Advisory Agreement for 2004 (previously filed).           10.8 – Letter from General Partner to AAA Capital Management, Inc. extending the Advisory Agreement for 2005 (filed herein).           16.1 – Letter from PricewaterhouseCoopers LLP (previously filed).           The exhibits required to be filed by Item 601 of Regulations 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).   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. 25     SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on the 28th day of March 2006. Salomon Smith Barney AAA Energy Fund L.P. II By:    /s/ Citigroup Managed Futures LLC             (General Partner) By:    /s/ David J. Vogel             David J. Vogel, President & Director Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.               /s/ David J. Vogel  /s/ Shelley Ullman   David J. Vogel  Shelley Ullman   President and Director  Director   /s/ Maureen O'Toole  /s/ Jennifer Magro   Maureen O'Toole  Jennifer Magro   Director  Director   /s/ Daniel R. McAuliffe, Jr.  /s/ Jerry Pascucci   Daniel R. McAuliffe, Jr.  Jerry Pascucci   Chief Financial Officer and  Director   Director         /s/ Ihor Rakowsky      Ihor Rakowsky      Secretary and Director        26         GRAPHIC 2 html_99412daniel.jpg GRAPHIC  begin 644 html_99412daniel.jpg M_]C_X``02D9)1@`!`0$!(`$@``#__@`V($EM86=E(&=E;F5R871E9"!B>2!' 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M/S\ZUKW]?UKY?=3R].M?=)_=92G_`!_EK3]*V]JT_;MY>7IUM;9;;]FVE.]> 1]>U/O]/[=;='1T='1T=?_]D_ ` end    GRAPHIC 5 spacer.gif GRAPHIC  begin 644 spacer.gif K1TE&.#EA`0`!`(```````````"'Y!`$`````+``````!``$```("1`$`.S\_ ` end    EX-10.8 6 file002.htm MANAGEMENT AGREEMENT RENEWAL         Exhibit 10.8 June 15, 2005 AAA Capital Management Inc.5051 Westheimer – Suite 2100 Houston, Texas 77056 Attention: Mr. Anthony Annunziato Re: Management Agreements Renewal Dear Mr. Annunziato: We are writing with respect to your management agreements concerning the commodity pools to which reference is made below (the "Management Agreements"). We are extending the term of the Management Agreements through June 30, 2006 and all other provisions of the Management Agreements will remain unchanged. •    SB AAA Master Fund LLC•    Salomon Smith Barney Orion Futures Fund L.P.•    Aurora 2001•    Salomon Smith Barney AAA Energy Fund L.P. II•    Aurora III Please acknowledge receipt of this modification by signing one copy of this letter and returning it to the attention of Mr. Daniel McAuliffe at the address above or fax to 212-793-1986. If you have any questions I can be reached at 212-559-5043. Very truly yours, CITIGROUP MANAGED FUTURES LLC       By:  /s/ Daniel R. McAuliffe Jr. Daniel R. McAuliffe, Jr.Chief Financial Officer & Director         By:  /s/ Anthony Annunziato   Print Name    Anthony Annunziato  DRMcA/sr         EX-31.1 7 file003.htm CERTIFICATION         Exhibit 31.1 CERTIFICATION I, David J. Vogel, certify that:       1.  I have reviewed this annual report on Form 10-K of Salomon Smith Barney AAA Energy Fund L.P. II (the "registrant");         2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;         3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;         4.  The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:            a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;            b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;            c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and            d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and         5.  The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):            a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and            b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.      Date:   March 28, 2006                                                /s/ David J. Vogel                                          David J. Vogel Citigroup Managed Futures LLC President and Director            EX-31.2 8 file004.htm CERTIFICATION         Exhibit 31.2 CERTIFICATION I, Daniel R. McAuliffe, Jr., certify that:       1.  I have reviewed this annual report on Form 10-K of Salomon Smith Barney AAA Energy Fund L.P. II (the "registrant");         2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;         3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;         4.  The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:            a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;            b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;            c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and            d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and         5.  The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):            a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and            b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.      Date:   March 28, 2006                                                   /s/ Daniel R. McAuliffe, Jr.                              Daniel R. McAuliffe, Jr. Citigroup Managed Futures LLCChief Financial Officer and Director             EX-32.1 9 file005.htm CERTIFICATION         Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Salomon Smith Barney AAA Energy Fund L.P. II (the "Partnership") on Form 10-K for the year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David J. Vogel, President and Director of Citigroup Managed Futures LLC, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.  /s/ David J. Vogel David J. Vogel Citigroup Managed Futures LLC President and Director  March 28, 2006 Date         EX-32.2 10 file006.htm CERTIFICATION         Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Salomon Smith Barney AAA Energy Fund L.P. II (the "Partnership") on Form 10-K for the year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel R. McAuliffe, Jr., Chief Financial Officer and Director of Citigroup Managed Futures LLC, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.  /s/ Daniel R. McAuliffe, Jr. Daniel R. McAuliffe, Jr. Citigroup Managed Futures LLCChief Financial Officer and Director  March 28, 2006 Date         -----END PRIVACY-ENHANCED MESSAGE-----