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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarter Ended March 31, 2005

Commission File Number 0-50272

SALOMON SMITH BARNEY AAA ENERGY FUND L.P. II

(Exact name of registrant as specified in its charter)


New York 03-0407557

(State or other jurisdiction of
incorporation or organization
(I.R.S. Employer
Identification No.)

c/o Citigroup Managed Futures LLC
399 Park Avenue. – 7th Fl.
New York, New York 10022

(Address and Zip Code of principal executive offices)

(212) 559-2011

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X        No    

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes X        No    




SALOMON SMITH BARNEY AAA ENERGY FUND L.P. II

FORM 10-Q

INDEX


    Page
Number
PART I - Financial Information:
    Item 1. Financial Statements:
  Statements of Financial Condition at March 31, 2005 and December 31, 2004 (unaudited) 3
  Statements of Income and Expenses and Partners' Capital for the three months ended March 31, 2005 and 2004 (unaudited) 4
  Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited) 5
  Notes to Financial Statements, including the Financial Statements of SB AAA Master Fund LLC (unaudited) 6 – 14
    Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations     
15 – 17
    Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
    Item 4. Controls and Procedures 19
PART II - Other Information 20

2




PART I

Item 1. Financial Statements

Salomon Smith Barney AAA Energy Fund L.P. II
Statements of Financial Condition
(Unaudited)


  March 31,
2005
December 31,
2004
Assets:            
Investment in the Master, at fair value $ 200,758,047   $ 120,251,909  
Cash   102,360     50,403  
  $ 200,860,407   $ 120,302,312  
Liabilities and Partners' Capital:            
Liabilities:            
Accrued expenses:            
Management fees $ 341,069   $ 203,734  
Administrative fees   85,267     50,933  
Other   69,842     33,562  
Due to Special Limited Partner   9,349,327      
Redemptions payable   1,885,807     1,990,866  
    11,731,312     2,279,095  
Partners' Capital:            
General Partner, 2,501.2826 Unit equivalents outstanding in 2005 and 2004   3,627,210     2,875,825  
Special Limited Partner, 1,486.3421 Redeemable Units of Limited Partnership Interest outstanding in 2005 and 2004   2,155,404     1,708,907  
Limited Partners, 126,433.9069 and 98,664.8238 Redeemable Units of Limited Partnership Interest outstanding in 2005 and 2004, respectively   183,346,481     113,438,485  
    189,129,095     118,023,217  
  $ 200,860,407   $ 120,302,312  

See Accompanying Notes to Financial Statements.

3




Salomon Smith Barney AAA Energy Fund L.P. II
Statements of Income and Expenses and Partners' Capital
(Unaudited)


  Three Months Ended
March 31,
  2005 2004
Income:            
Realized gains on closed positions from Master $ 11,856,999   $ 9,398,089  
Change in unrealized gains (losses) on open positions from Master   37,234,390     (495,383
Income allocated from Master   774,999     169,351  
Expenses allocated from Master   (1,233,536   (878,831
    48,632,852     8,193,226  
Expenses:            
Management fee   859,952     479,986  
Administrative fee   214,987     119,997  
Other expenses   36,280     27,791  
    1,111,219     627,774  
Net income before allocation to Special Limited Partner   47,521,633     7,565,452  
Allocation to Special Limited Partner   (9,349,327    
Net income after allocation to Special Limited Partner   38,172,306     7,565,452  
Additions – Limited Partners   36,875,000      
Redemptions – Limited Partners   (3,941,428   (8,875,891
Net increase (decrease) in Partners' capital   71,105,878     (1,310,439
Partners' capital, beginning of period   118,023,217     96,602,912  
             
Partners' capital, end of period $ 189,129,095   $ 95,292,473  
Net asset value per Redeemable Unit (130,421.5316 and 111,427.9026 Redeemable Units outstanding at March 31, 2005 and 2004, respectively) $ 1,450.14   $ 855.19  
Net income per Redeemable Unit of Limited Partnership Interest and General Partner Unit equivalent $ 300.40   $ 65.80  

See Accompanying Notes to Financial Statements.

4




Salomon Smith Barney AAA Energy Fund L.P. II
Statements of Cash Flows
(Unaudited)


  Three Months Ended
March 31,
  2005 2004
Cash flows from operating activities:            
Net income $ 38,172,306   $ 7,565,452  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:            
Changes in operating assets and liabilities:            
(Increase) decrease in investment in Master, at fair value   (80,506,138   855,232  
Accrued expenses:            
Increase (decrease) in management fees   137,335     (1,858
Increase (decrease) in administrative fees   34,334     (465
Increase (decrease) in other   36,280     21,791  
Increase (decrease) in due to Special Limited Partner   9,349,327      
Increase (decrease) in redemptions payable   (105,059   487,319  
Net cash provided by (used in) operating activities   (32,881,615   8,927,471  
Cash flows from financing activities:            
Proceeds from additions – Limited Partners   36,875,000      
Payments for redemptions – Limited Partners   (3,941,428   (8,875,891
Net cash provided by (used in) financing activities   32,933,572     (8,875,891
Net change in cash   51,957     51,580  
Cash, at beginning of period   50,403     42,632  
Cash, at end of period $ 102,360   $ 94,212  

See Accompanying Notes to Financial Statements

5




Salomon Smith Barney AAA Energy Fund L.P. II
Notes to Financial Statements
March 31, 2005
(Unaudited)

1.    General:

Salomon Smith Barney AAA Energy Fund L.P. II (the "Partnership") is a limited partnership 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 currently trades 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. During the initial offering period (May 31, 2002 through July 1, 2002), the Partnership sold 93,975 redeemable units of Limited Partnership Interest ("Redeemable Units"). The Partnership commenced trading on July 1, 2002.

Citigroup Managed Futures LLC acts as the General Partner (the "General Partner") of the Partnership and the managing member of the Master, as defined below. 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").

Effective July 1, 2002, the Partnership allocated all of its capital to 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 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, an employee of CGM and a related party. 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.

As of March 31, 2005, the Partnership owned approximately 42.0% 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. The Master's Statements of Financial Condition, Statements of Income and Expenses and Members' Capital, Condensed Schedules of Investments and Statements of Cash Flows are included herein.

The accompanying financial statements are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnership's financial condition at March 31, 2005 and December 31, 2004 and the results of its operations and cash flows for the three months ended March 31, 2005 and 2004. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2004.

Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.

The Master's Statements of Financial Condition and Condensed Schedules of Investments as of March 31, 2005 and December 31, 2004 and Statements of Income and Expenses and Members' Capital and Statements of Cash Flows for the three months ended March 31, 2005 and 2004 are presented below:

6




Salomon Smith Barney AAA Energy Fund L.P. II
Notes to Financial Statements
March 31, 2005
(Unaudited)

SB AAA Master Fund LLC
Statements of Financial Condition
(Unaudited)


  March 31,
2005
December 31,
2004
Assets:
Equity in commodity futures trading account:
Cash (restricted $3,300,000 and $29,327,275, respectively) $ 335,287,915   $ 302,866,457  
Net unrealized appreciation on open futures positions   77,650,465     33,027,068  
Unrealized appreciation on open swaps positions   218,994,790     93,606,729  
Commodity options owned, at fair value (cost $72,111,136 and $39,565,244, respectively)   106,753,225     51,017,766  
    738,686,395     480,518,020  
             
Due from brokers   7,307,463     2,425,135  
Interest receivable   835,736     459,835  
  $ 746,829,594   $ 483,402,990  
Liabilities and Members' Capital:
Liabilities:            
Unrealized depreciation on open swap positions $ 198,809,665   $ 89,659,294  
Commodity options written, at market value (premium received $67,888,321 and $54,943,984, respectively)   59,652,679     52,353,395  
Accrued expenses:            
Commissions   2,638,446     1,662,591  
Professional fees   56,524     2,000  
Due to brokers   6,987,149     2,753,610  
Due to CGM       22,978  
Distribution payable   828,238     453,587  
    268,972,701     146,907,455  
Members' Capital:            
Members' Capital, 198,146.0961 and 185,364.2361 Units outstanding in 2005 and 2004, respectively   477,856,893     336,495,535  
  $ 746,829,594   $ 483,402,990  

7




Salomon Smith Barney AAA Energy Fund L.P. II
Notes to Financial Statements
March 31, 2005
(Unaudited)

SB AAA Master Fund LLC
Condensed Schedule of Investments
March 31, 2005
(Unaudited)


Sector Number of
Contracts
Contract Fair Value
Energy        
        Futures contracts purchased 33.15%
    8,624   NYMEX Crude Oil May 05 - Dec. 08 5.34% $ 25,515,970  
    4,653   NYMEX Natural Gas July 05 - Dec. 09 13.41%   64,088,337  
        Other 14.40%   68,806,852  
            158,411,159  
               
        Futures contracts sold (16.90)%   (80,760,694
        Total futures contracts 16.25%   77,650,465  
               
        Options owned 22.34%   106,753,225  
        Options written (12.48)%   (59,652,679
        Total options 9.86%   47,100,546  
               
        Unrealized appreciation on Swaps contracts 45.58%
    1,000   Gulf Coast Unleaded Gas Calendar 2005 5.88%   28,080,112  
    1,750   Gulf Coast Unleaded Gas Calendar 2006 10.49%   50,144,156  
    1,150   NYMEX Unleaded Gas Calendar 2005 7.60%   36,349,297  
        Other 21.61%   103,267,120  
            217,840,685  
               
        Unrealized depreciation on Swaps contracts (41.36)%      
    1,000   Gulf Coast Unleaded Gas Calendar 2005 (5.22)%   (24,933,372
    1,750   Gulf Coast Unleaded Gas Calendar 2006 (9.93)%   (47,465,498
    933   NYMEX Unleaded Gas Calendar 2005 (6.57)%   (31,375,248
    900   NYMEX Heating Oil Calendar 2006 (5.32)%   (25,447,046
        Other (14.32)%   (68,434,396
            (197,655,560
               
  Total Energy Fair Value 30.33% $ 144,936,136  

Country Composition Investments at
Fair Value
% of Investments at
Fair Value
United Kingdom $ 4,005,173     2.76
United States   140,930,963     97.24  
  $ 144,936,136     100.00

Percentages are based on Members' Capital unless otherwise indicated.

8




Salomon Smith Barney AAA Energy Fund L.P. II
Notes to Financial Statements
March 31, 2005
(Unaudited)

SB AAA Master Fund LLC
Condensed Schedule of Investments
December 31, 2004


Sector Number of
Contracts
Contract Fair Value
Energy        
        Futures contracts purchased 0.37% $ 1,240,430  
        Futures contracts sold 9.45%      
    2,626   NYMEX Natural Gas Feb. 05 – May 09 6.77%   22,776,795  
        Other 2.68%   9,009,843  
            31,786,638  
        Total futures contracts 9.82%   33,027,068  
         
        Options owned 15.16%   51,017,766  
 
        Options written (15.56)%
    6,992   NYMEX Natural Gas Feb. 05 – Jan 06 (7.67)%   (25,794,540
        Other (7.89)%   (26,558,855
            (52,353,395
 
        Unrealized appreciation on Swaps contracts 27.82%      
    1,450   Gulf Coast Unleaded Gas Calendar 2006 6.50%   21,867,545  
    1,080   NYMEX Unleaded Gas Calendar 2005 6.98%   23,491,972  
        Other 14.34%   48,247,212  
            93,606,729  
        Unrealized depreciation on Swaps contracts (26.65)%      
    1,450   Gulf Coast Unleaded Gas Calendar 2006 (5.60)%   (18,846,201
    820   NYMEX Unleaded Gas Calendar 2005 (6.29)%   (21,159,503
        Other (14.76)%   (49,653,590
            (89,659,294
Total Energy Fair Value 10.59% $ 35,638,874  

Country Composition Investments at
Fair Value
% of Investments at
Fair Value
United Kingdom $ 1,752,837     4.92
United States   33,886,037     95.08  
  $ 35,638,874     100.00

Percentages are based on Members' Capital unless otherwise indicated.

9




Salomon Smith Barney AAA Energy Fund L.P. II
Notes to Financial Statements
March 31, 2005
(Unaudited)

SB AAA Master Fund LLC
Statements of Income and Expenses and Members' Capital
(Unaudited)


  Three Months Ended
March 31,
  2005 2004
Income:
Net gains (losses) on trading of commodity interests:
Realized gains on closed positions $ 29,816,228   $ 24,591,283  
Change in unrealized gains (losses) on open positions   89,695,707     (1,039,194
    119,511,935     23,552,089  
Interest income   1,940,110     459,513  
    121,452,045     24,011,602  
Expenses:
Brokerage commissions including clearing fees of $317,204 and $269,728, respectively   2,941,658     2,327,297  
Professional fees   54,524     11,740  
    2,996,182     2,339,037  
Net income   118,455,863     21,672,565  
Additions   43,025,479     1,539,508  
Redemptions   (18,223,345   (17,282,974
Distribution of interest to feeder funds   (1,896,639   (449,958
Net increase in Members' capital   141,361,358     5,479,141  
Members' capital, beginning of period   336,495,535     255,057,637  
Members' capital, end of period $ 477,856,893   $ 260,536,778  
Net asset value per Unit (198,146.0961 and 198,036.9344 Units outstanding in March 31, 2005 and 2004, respectively) $ 2,411.64   $ 1,315.61  
Net income per Unit of Member Interest $ 606.03   $ 109.18  

10




Salomon Smith Barney AAA Energy Fund L.P. II
Notes to Financial Statements
March 31, 2005
(Unaudited)

SB AAA Master Fund LLC
Statements of Cash Flows
(Unaudited)


  Three Months Ended
March 31,
  2005 2004
Cash flows from operating activities:
Net income $ 118,455,863   $ 21,672,565  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:      
Changes in operating assets and liabilities:
(Increase) decrease in restricted cash   26,027,275     17,048,241  
(Increase) decrease in net unrealized appreciation/depreciation on open futures positions   (44,623,397   736,070  
(Increase) decrease in unrealized appreciation on open swaps contracts   (125,388,061   9,931,257  
(Increase) decrease in commodity options owned, at fair value   (55,735,459   6,512,237  
(Increase) decrease in due from brokers   (4,882,328   1,137,391  
(Increase) decrease in interest receivable   (375,901   (11,298
Increase (decrease) in unrealized depreciation on open swaps contracts   109,150,371     9,338,472  
Increase (decrease) in commodity options written, at fair value   7,299,284     (12,478,986
Accrued expenses:
Increase (decrease) in commissions   975,855     62,823  
Increase (decrease) in professional fees   54,524     (8,560
Increase (decrease) in due to brokers   4,233,539     (1,478,140
Increase (decrease) in due to CGM   (22,978    
Increase (decrease) in distribution payable   374,651     14,021  
Net cash provided by (used in) operating activities   35,543,238     52,476,093  
Cash flows from financing activities:
Proceeds from additions   43,025,479     1,539,508  
Payments for redemptions   (18,223,345   (17,282,974
Distribution of interest to feeder funds   (1,896,639   (449,958
Net cash provided by (used in) financing activities   22,905,495     (16,193,424
Net change in cash   58,448,733     36,282,669  
Unrestricted cash, at beginning of period   273,539,182     182,889,106  
Unrestricted cash, at end of period $ 331,987,915   $ 219,171,775  

11




Salomon Smith Barney AAA Energy Fund L.P. II
Notes to Financial Statements
March 31, 2005
(Unaudited)

2.    Financial Highlights:

Changes in Net Asset Value per Redeemable Unit for the three months ended March 31, 2005 and 2004 were as follows:


  Three Months Ended
March 31,
 
  2005 2004
Net realized and unrealized gains * $ 376.84   $ 69.72  
Interest income   6.10     1.43  
Expenses **   (82.54   (5.35
Increase for the period   300.40     65.80  
Net Asset Value per Redeemable Unit, beginning of period   1,149.74     789.39  
Net Asset Value per Redeemable Unit, end of period $ 1,450.14   $ 855.19  
*  Includes brokerage commissions allocated from the Master.
**  Excludes brokerage commissions allocated from the Master.
Ratios to average net assets:***            
Net investment loss before incentive fee allocation****   (4.1 )%    (5.7 )% 
Operating expense   6.2   6.4
Incentive fee allocation   6.1    
Total expenses and incentive fee allocation   12.3   6.4
Total return:            
Total return before incentive fee allocation   32.4   8.3
Incentive fee allocation   (6.3 )%     
Total return after incentive fee allocation   26.1   8.3
*** Annualized (except for incentive fee allocation)
**** Interest income less total expenses (exclusive of incentive fee allocation)

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.

12




Salomon Smith Barney AAA Energy Fund L.P. II
Notes to Financial Statements
March 31, 2005
(Unaudited)

Financial Highlights of the Master:


  Three Months Ended
March 31,
  2005 2004
Net realized and unrealized gains * $ 596.38   $ 106.95  
Interest Income   9.93     2.27  
Expenses **   (0.28   (0.04
Increase for the period   606.03     109.18  
Distributions   (9.71   (2.23
Net Asset Value per Unit, beginning of period   1,815.32     1,208.66  
Net Asset Value per Unit, end of period $ 2,411.64   $ 1,315.61  
*  Includes brokerage commissions
**  Excludes brokerage commissions
Ratios to average net assets:***
Net investment loss****   (1.1 )%    (3.0 )% 
Operating expense   3.0   3.7
Total return   33.4   9.0
*** Annualized
**** Interest income less total expenses

The above ratios may vary for individual investors based on the timing of capital transactions during the year.

3.    Trading Activities:

The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The Partnership invests the majority of its assets through a "master fund/feeder fund" structure. The results of the Partnership's investment in the Master are shown in the Statements of Income and Expenses and Partners' Capital and are discussed in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

The respective Customer Agreements between the Partnership and CGM and the Master and CGM give the Partnership and the Master, respectively, the legal right to net unrealized gains and losses.

All of the commodity interests owned by the Master are held for trading purposes. The average fair values of these interests during the three and twelve months ended March 31, 2005 and December 31, 2004, based on a monthly calculation, were $77,106,493 and $37,750,006, respectively. The fair values of these commodity interests, including options and swaps thereon, if applicable, at March 31, 2005 and December 31, 2004 were $144,936,136 and $35,638,874, respectively. Fair values for exchange traded commodity futures and options are based on quoted market prices for those futures and options. Fair values for all other financial instruments for which market quotations are not readily available are based on calculations approved by the General Partner.

13




Salomon Smith Barney AAA Energy Fund L.P. II
Notes to Financial Statements
March 31, 2005
(Unaudited)

4.    Financial Instrument Risks:

In the normal course of its business, the Partnership, through its investment in the Master, is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options and swaps, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash 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. The Master's swaps 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 the sole 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 March 31, 2005. However, due to the nature of the Partnership's/Master's business, these instruments may not be held to maturity.

14




Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

Liquidity and Capital Resources

The Partnership does not engage in the sale of goods or services. Its only assets are its 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 futures trading, relatively small price movements may result in substantial losses to the Partnership. While substantial losses could lead to a decrease in liquidity, no such losses occurred during the first quarter of 2005.

The Partnership's capital consists of the capital contributions of the partners as increased or decreased by its investment in the Master, expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.

For the three months ended March 31, 2005, Partnership capital increased 60.2% from $118,023,217 to $189,129,095. This increase was attributable to net income from operations of $38,172,306 coupled with the addition of 30,697.3909 Redeemable Units totaling $36,875,000, partially offset by the redemption of 2,928.3077 Redeemable Units totaling $3,941,428. Future redemptions can impact the amount of funds available for investment in the Master in subsequent periods.

The Master's capital consists of the capital contributions of the members as increased or decreased by realized and/or unrealized gains or losses on commodity futures trading, expenses, interest income, redemptions of Units and distributions of profits, if any.

For the three months ended March 31, 2005, the Master's capital increased 42.0% from $336,495,535 to $477,856,893. This increase was attributable to net income from operations of $118,455,863, coupled with the addition of 22,540.8173 Units totaling $43,025,479 which was partially offset by the redemption of 9,758.9573 Units totaling $18,223,345 and distributions of interest totaling $1,896,639 to the non-managing members of the Master. Future redemptions can impact the amount of funds available for investments in commodity contract positions in subsequent periods.

Critical Accounting Policies

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 disclosures 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.

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 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.

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 income and expenses and unrealized and realized gains and losses from the commodity transactions of the Master are allocated pro rata among the investors at the time of such determination.

Foreign currency contracts are those contracts where the Partnership 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's net equity therein, representing unrealized gain or loss

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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 statements of income and expenses and partners' capital.

Results of Operations

During the Partnership's first quarter of 2005, the Net Asset Value per Redeemable Unit increased 26.1% from $1,149.74 to $1,450.14 as compared to an increase of 8.3% in the first quarter of 2004. The Partnership experienced a net trading gain before brokerage commissions and related fees in the first quarter of 2005 of $49,091,389. Gains were primarily attributable to the Master's trading of commodity futures in NYMEX Crude Oil, NYMEX Natural Gas, NYMEX Heating Oil and energy swaps and were partially offset by losses in NYMEX Unleaded Gas and IPE Gas Oil. The Partnership experienced a net trading gain before brokerage commissions and related fees in the first quarter of 2004 of $8,902,706. Gains were primarily attributable to the Master's trading of commodity futures in energy swaps, NYMEX Crude Oil, NYMEX Natural Gas and NYMEX Unleaded Gas and were partially offset by losses in IPE Brent Crude and NYMEX Heating Oil.

The first quarter was a particularly strong period for the Partnership's advisor as global energy prices continued their historic rise and trading opportunities abounded in the short term. Crude oil price moves rebounded in January and led to a nearly $8.00/barrel rally but encountered resistance just above $50.00/barrel before settling back to the mid-$40s. A combination of long futures and short options provided profits during this period. February saw follow-through on this move with crude oil moving to low $50s and ultimately to an intra-month all-time high of over $57/barrel in March. These conditions were profitable for the Partnership's outright and spread positions.

Natural gas trading was also successful for the quarter as the lack of price volatility helped short option positions early in the quarter and later yielded profits when prices began to move upward in February. In a relatively short time, natural gas moved from a low of $5.71/MMBTU to close to $7.00/MMBTU. This contributed to profits on the near-term positions as well as aided the bullish long-term positions.

Overall, the Partnership's advisor is participating in the secular long-term rise in energy prices, managing downside exposure and actively diversifying the Partnership's positions by sector, time-frame and trading strategy.

Commodity futures markets are highly volatile. The potential for broad and rapid price fluctuations increases the risks involved in commodity trading, but also increases the possibility of profit. The profitability of the Partnership (and the Master) depends on the Advisor's ability to forecast price 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 Partnership (and the Master) expects to increase capital through operations.

Interest income on 80% of the Partnership's average daily equity allocated to it by the Master was earned at a 30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days. CGM may continue to maintain the Master's assets in cash and/or place all of the Master's assets in 90-day Treasury bills and pay the Partnership its allocated share of 80% of the interest earned on the Treasury bills purchased. CGM will retain 20% of any interest earned on Treasury bills purchased. Interest income allocated from Master for the three months ended March 31, 2005 increased by $605,648, as compared to the corresponding period in 2004. The increase in interest income is primarily due to an increase in interest rates during the three months ended March 31, 2005 as compared to 2004.

Management fees are calculated as a percentage of the Partnership's net asset value as of the end of each month and are affected by trading performance and redemptions. Management fees for the three

16




months ended March 31, 2005 increased by $379,966, as compared to the corresponding period in 2004. The increase in management fees is due to an increase in net assets during the three months ended March 31, 2005 as compared to 2004.

Administrative fees are calculated as a percentage of the Partnership's net asset value as of the end of each month and are affected by trading performance and redemptions. Administrative fees for the three months ended March 31, 2005 increased by $94,990, as compared to the corresponding period in 2004. The increase in administrative fees is due to an increase in net assets during the three months ended March 31, 2005 as compared to 2004.

Special limited partner profit share allocations (incentive fees) are based on the new trading profits generated by the Advisor at the end of the year, as defined in the advisory agreements between the Partnership, the General Partner and the Advisor. The profit share allocation accrued for the three months ended March 31, 2005 was $9,349,327. There was no allocation accrued for the three months ended March 30, 2004.

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Item 3.    Quantitative and Qualitative Disclosures about Market Risk

All of the Partnership's assets are subject to the risk of trading loss through its investment in the Master. The Master is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or substantially all of the Master's assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Master's main line of business.

Market movements result in frequent changes in the fair value of the Master's open positions and, consequently, in its earnings and cash flow. The Master's market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the value of financial instruments and contracts, the diversification effects of 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 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 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.

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 interval. 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.

The following table indicates the trading Value at Risk associated with the Master's open positions by market category as of March 31, 2005 and the highest, lowest and average value during the three months ended March 31, 2005. All open position trading risk exposures of the Master have been included in calculating the figures set forth below. As of March 31, 2005, the Master's total capitalization was $477,856,893. There has been no material change in the trading Value at Risk information previously disclosed in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2004.

March 31, 2005


      Three Months Ended March 31, 2005
Market Sector Value at Risk % of Total
Capitalization
High
Value at Risk
Low
Value at Risk
Average
Value at Risk*
Energy $ 34,337,497     7.19 $ 70,573,078   $ 20,895,649   $ 35,657,856  
Energy Swaps   3,300,000     0.69 $ 3,300,000   $ 3,300,000   $ 3,300,000  
Total $ 37,637,497     7.88                  
* Average monthly Values at Risk

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Item 4.    Controls and Procedures

Based on their evaluation of the Partnership's disclosure controls and procedures as of March 31, 2005, the President and Chief Financial Officer of the General Partner have concluded that such controls and procedures are effective.

During the Partnership's last fiscal quarter, no changes occurred in the Partnership's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

The following information supplements and updates our discussion set forth under Item 3 "Legal Proceedings" in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

Enron Corp.

In April 2005, Citigroup, along with other financial institution defendants, reached an agreement-in-principle to settle four state-court actions brought by various investment funds, which were not previously consolidated or coordinated with the NEWBY action. The four cases are OCM OPPORTUNITIES FUND III, L.P., et al. v. CITIGROUP INC., et al.; PACIFIC INVESTMENT MANAGEMENT CO. LLC, et al. v. CITIGROUP INC., et al.; AUSA LIFE INSURANCE v. CITIGROUP INC., et al. and PRINCIPAL GLOBAL INVESTORS v. CITIGROUP INC., et al. The amounts to be paid in settlement of these actions are covered by existing litigation reserves.

Dynegy Inc.

The court had previously denied lead plaintiff's motion for leave to amend; no appeal was yet timely while the remainder of the case remained pending. On April 15, 2005, as part of a global settlement involving all defendants, Citigroup entered into a memorandum of understanding to settle this case. The amount to be paid in settlement is covered by existing litigation reserves.

WorldCom, Inc.

The District Court approved the settlement of the IN RE TARGETS SECURITIES LITIGATION on April 22, 2005.

Global Crossing

The plaintiffs and the Citigroup Related Defendants have entered into a definitive settlement agreement in the IN RE GLOBAL CROSSING, LTD SECURITIES LITIGATION; the settlement was preliminarily approved by the Court on March 8, 2005. The amount to be paid in settlement is covered by existing litigation reserves.

Research

Two putative class actions against CGMI asserting common law claims on behalf of CGMI customers in connection with published investment research have been dismissed by United States District Courts, the dismissals of which were affirmed by the United States Court of Appeals for the Third and Ninth Circuits, respectively. Plaintiffs in the Ninth Circuit case have sought review by the United States Supreme Court; their petition for a writ of certiorari, which CGMI opposed, is pending before that court.

Mutual Funds

CGMHI entered into a settlement with the SEC with respect to revenue sharing and sales of classes of funds.

Investigations of Euro Zone Government Bonds Trade

The German prosecutors have declined to take any actions against the employees in connection with this matter.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

For the three months ended March 31, 2005 there were additional sales of 37,648.4439 Redeemable Units totaling $36,875,000. The Redeemable Units were issued in reliance upon applicable exemptions

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from registration under Section 4(2) of the Securities Act of 1933, as amended, and Section 506 of Regulation D promulgated thereunder.

Proceeds from the sale of additional Redeemable Units are used in the trading of commodity interests including futures contracts, options, forwards and swap contracts.

The following chart sets forth the purchases of Redeemable Units by the Partnership.


Period (a) Total Number
of Shares
(or Units) Purchased*
(b) Average
Price Paid per
Share (or Unit)**
(c) Total Number
of Shares (or Units)
Purchased as Part
of Publicly Announced
Plans or Programs
(d) Maximum Number
(or Approximate
Dollar Value) of Shares
(or Units) that
May Yet Be
Purchased Under the
Plans or Programs
January 1, 2005 - -
January 31, 2005
  977.1872   $ 1,220.88     N/A     N/A  
February 1, 2005 -
February 28, 2005
  650.6897   $ 1,325.66     N/A     N/A  
March 1, 2005 -
March 31, 2005
  1,300.4308   $ 1,450.14     N/A     N/A  
Total   2,928.3077   $ 1,332.23     N/A     N/A  
* Generally, Limited Partners are permitted to redeem their Redeemable Units as of the end of each month on 10 days' notice to the General Partner. Under certain circumstances, the General Partner can compel redemption but to date, the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnership's business in connection with effecting redemptions for Limited Partners.
** Redemptions of Redeemable Units are effected as of the last day of each month at the Net Asset Value per Redeemable Unit as of that day.

Item 3.    Defaults Upon Senior Securities – None

Item 4.    Submission of Matters to a Vote of Security Holders – None

Item 5.    Other Information – None

Item 6.    Exhibits

  The exhibits required to be filed by Item 601 of Regulation S-K are incorporated herein by reference to the exhibit index of the Partnership's Annual Report on Form 10-K for the period ended December 31, 2004.

Exhibit - 31.1 - Rule 13a-14(a)/15d-14(a) Certification
(Certification of President and Director).

Exhibit – 31.2 – Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director).

Exhibit – 32.1 – Section 1350 Certification (Certification of President and Director).

Exhibit – 32.2 – Section 1350 Certifications (Certification of Chief Financial Officer and Director).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SALOMON SMITH BARNEY AAA ENERGY FUND L.P. II


By: Citigroup Managed Futures LLC
  (General Partner)
By: /s/ David J. Vogel
  David J. Vogel
President and Director
Date: May 10, 2005
By: /s/ Daniel R. McAuliffe, Jr.
  Daniel R. McAuliffe, Jr.
Chief Financial Officer and
Director
Date: May 10, 2005

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