<PAGE>
MANAGED MUNICIPALS
PORTFOLIO II INC.
ANNUAL REPORT
August 31, 1998
[GRAPHIC]
<PAGE>
[GRAPHIC]
Managed Municipals
Portfolio II Inc.
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August 31, 1998
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Dear Shareholder:
We are pleased to provide the annual report for the Managed Municipal
Portfolio II Inc. ("Portfolio") for the year ended August 31, 1998. Over the
period covered by this report, the Portfolio distributed income dividends
totaling $0.58 and capital gain distributions of $0.17 per share. The table
below shows the annualized distribution rate and twelve-month total return based
on the Portfolio's August 31, 1998 net asset value ("NAV") per share and its New
York Stock Exchange ("NYSE") closing price:
Price Annualized Twelve-Month
Per Share Distribution Rate* Total Return
-------------- ------------------ ------------
$12.48 (NAV) 4.62% 9.57%
$10.813 (NYSE) 5.33% (1.34)%
In comparison, general closed-end municipal bond funds posted a negative
average total return on NAV of 2.37% for the same time period, as reported by
Lipper Analytical Services, Inc. (Lipper is a major fund-tracking organization.)
In an attempt to reduce the difference between the market price and the
Fund's NAV, the Fund's investment adviser, Mutual Management Corp., is
voluntarily waivering a portion of its managemnent fees as of September 1, 1998.
This waiver is a temporary measure, which may be discontinued at any time
without notice. This waiver has the effect of increasing the Fund's dividend
yield.
Municipal Bond Market Update
The municipal bond market has been in a positive state for quite a while
now. Recent events in Asia and Russia have accelerated the flow of investments
into U.S. government bonds. These factors have created a
- -------------
* This distribution assumes a current monthly income dividend rate of $0.048 per
share for twelve months.
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1
<PAGE>
very positive interest rate backdrop for the tax-exempt market, with investment
flows into the U.S., very modest inflation and a potential slowing of the U.S.
economy due to the economic slowdown of several foreign trading partners. This
is the lowest long-term interest rate we have seen since the 1960's.
The rates for municipal bonds have also moved lower, but not to the same
degree as U.S. government bonds. Municipal bonds do not benefit from foreign
money flows, because the benefits of tax-exemption are only valuable to U.S.
taxpayers.
New-issue supply of municipal bonds in 1998 has been quite heavy. The
municipal bond market is on pace to surpass the record volume underwritten in
1993. These two factors -- pressure toward lower rates and heavy municipal bond
issuance -- have led to a market that we believe is very attractively priced
versus taxable bonds, and has led to a flatter yield curve than we've seen in
many years. (A flat yield curve is when there is little difference between
short-and long-term rates.) The difference in yields between intermediate
municipal bonds maturity and very long-term bonds is minimal. In our view, the
yield differential between very high-grade paper and much weaker credits has
never been lower. Because of this narrow difference in yields, we believe that
investors are not being adequately compensated for the added risk of investing
in longer-maturity issues.
Investment Strategy
Recently, we have avoided very long-term debt and what we believe are
very weak credits. We have been concentrating our purchases in very high-grade
bonds with maturities between 12 and 20 years. Our coupon structure has also
become somewhat higher. Quite simply, at today's record low interest rates, we
are taking a more conservative approach to the market. Our experience indicates
conditions are near perfect for bonds at the moment and prudence suggests we
take advantage of these conditions.
As of August 31, 1998, approximately 80% of the Portfolio's holdings
were rated investment grade**, with about 45% of the Portfolio invested in
AAA/Aaa bonds, the highest possible rating. The Portfolio's largest holdings are
concentrated in utility bonds (11.7%), transportation bonds (10.8%) and general
obligation bonds (10.6%).
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** Investment-grade bonds are those rated Aaa, Aa, A and Baa by Moody's
Investors Service, Inc. or AAA, AA, A and BBB by Standard & Poor's Ratings
Group, or have an equivalent rating by any nationally recognized statistical
rating organization, or determined by the manager to be of equivalent
quality.
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2
<PAGE>
Municipal Bond Market Outlook
Our outlook for the municipal bond market for the next six months
carries a caveat. If economic conditions around the world do not get much worse,
then interest rates have fallen to levels that seem appropriate. If things
continue to deteriorate beyond today's levels, then there could be more downward
pressure on interest rates in the U.S. We will be monitoring these events very
closely for our shareholders.
In closing, thank you for investing in the Managed Municipals Portfolio
II Inc. We look forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ J P Deane
Heath B. McLendon Joseph P. Deane
Chairman Vice President and
Investment Officer
September 15, 1998
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<PAGE>
Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that Fund investors who reinvest their dividends are taking
advantage of one of the most effective wealth-building tools available today?
Systematic investments put time to work for you through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend Reinvestment
Plan ("Plan"), a convenient, simple and efficient way to reinvest your dividends
and capital gains, if any, in additional shares of the Fund. The Fund's complete
Plan begins on page 25. Below is a short summary of how the Plan works.
Plan Summary
If you are a Plan participant who has not elected to receive your dividends in
the form of a cash payment, then your dividend and capital gain distributions
will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a cash
dividend is determined in the following manner. If the market price of the
common stock is equal to or exceeds the net asset value ("NAV") per share on the
date of valuation, you will be issued shares for the equivalent of the most
recently determined NAV per share or 95% of the market price, whichever is
greater.
If the NAV per share at the time of valuation is greater than the market price
of the common stock, or if the Fund declares a dividend or capital gains
distribution payable only in cash, the Fund will buy common stock for your
account in the open market or on the New York Stock Exchange.
If the Fund begins to purchase additional shares in the open market and the
market price of the shares subsequently rises above the NAV before the purchases
are completed, the Fund will attempt to cancel any remaining orders and issue
the remaining dividend or distribution in shares at the Fund's NAV per share. In
that case, the number of Fund shares you receive will be based on the weighted
average of prices paid for shares purchased in the open market and the price at
which the Fund issues the remaining shares.
To find out more detailed information about the Plan and about how
you can participate, please call First Data Investors Services Group at
(800) 331-1710.
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4
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Schedule of Investments
August 31, 1998
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
==============================================================================================
<S> <C> <C> <C>
Alaska -- 2.2%
$ 2,895,000 A2* Alaska Industrial Development & Export
Authority, Series A, 6.500% due 4/1/14 (a) $ 3,083,175
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California -- 10.3%
2,500,000 Baa3* California Educational Facilities Authority
Revenue, (Pooled College & University
Projects), Series A, 5.625% due 7/1/23 2,584,375
1,000,000 AAA California Health Facilities Finance Authority
Revenue, Kaiser Permanente, Series A,
FSA-Insured, 5.500% due 6/1/22 1,048,750
5,105,000 AAA Los Angeles, CA Metropolitan Transportation
Authority, Sales Tax Revenue, Series A,
MBIA-Insured, 5.250% due 7/1/18 5,200,719
1,000,000 AAA Los Angeles, CA Public Works Finance
Authority Revenue, Series A, Multiple
Capital Facilities, (Project V),
AMBAC-Insured, 5.125% due 6/1/17 1,012,500
1,465,000 AA Metropolitan Water District, Southern
California Water Works, Series A,
5.000% due 7/1/16 1,477,819
2,200,000 AAA Roseville, CA Water Utility Revenue, COP,
FGIC-Insured, 5.200% due 12/1/18 2,238,500
1,000,000 AAA San Jose, CA Redevelopment Agency,
(Tax Revenue Project), MBIA-Insured,
5.250% due 8/1/16 1,021,250
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14,583,913
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Colorado -- 16.8%
1,000,000 Aaa* Arapahoe County, CO Capital Improvement
Transportation Fund, Highway Revenue,
(Pre-Refunded -- Escrowed with U.S.
government securities to 8/31/05
Call @ 103), 7.000% due 8/31/26 1,197,500
1,000,000 A Colorado Health Facilities Authority Revenue,
Series B, 5.350% due 8/1/15 1,018,750
4,000,000 BBB+ Colorado Springs, CO Airport Revenue,
Series A, 7.000% due 1/1/22 (a)(b) 4,410,000
30,000,000 Aaa* Dawson Ridge, CO Metropolitan District No. 1,
Series A, (Escrowed to maturity with Refco
Strips), zero coupon bond to yield
6.644% due 10/1/22 8,212,500
</TABLE>
See Notes to
Financial Statements.
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5
<PAGE>
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Schedule of Investments
August 31, 1998 (continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
=====================================================================================
<S> <C> <C> <C>
Colorado -- 16.8% (continued)
Denver, CO Airport Revenue, Series C:
$ 3,465,000 Baa1* 6.125% due 11/15/25 (a)(b) $3,629,588
2,785,000 NR Partially Escrowed to maturity with
U.S. government securities,
6.125% due 11/15/25 (a)(b) 3,206,231
2,000,000 AAA E-470 Public Highway Authority,
CO Revenue, Series A, MBIA-Insured,
5.000% due 9/1/15 2,020,000
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23,694,569
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Florida -- 5.6%
1,500,000 BBB- Martin County, FL IDA, Indiantown
Cogeneration, Series A,
7.875% due 12/15/25 (a) 1,751,250
1,390,000 A-1+ Saint Lucie County, FL PCR, (Florida
Power & Light Company Project),
3.350% due 1/1/26 (c) 1,390,000
4,000,000 NR Tampa, FL Revenue Bonds, (Florida Aquarium
Inc. Project), (Pre-Refunded -- Escrowed
with U.S. government securities to 5/1/02
Call @ 102), 7.750% due 5/1/27 (b)(d) 4,595,000
- -------------------------------------------------------------------------------------
7,736,250
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Hawaii -- 1.4%
2,000,000 AAA Hawaii State GO, Series CP, FGIC-Insured,
5.000% due 10/1/16 2,007,500
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Illinois -- 3.1%
1,000,000 Aaa* Illinois Health Facilities Authority, Memorial
Health System, MBIA-Insured,
5.250% due 10/1/18 1,018,750
Kane County, IL GO, School District No. 129,
Aurora West Side, FGIC-Insured:
590,000 Aaa* 5.500% due 2/1/11 625,400
675,000 Aaa* 5.500% due 2/1/12 715,500
1,000,000 Aaa* 5.125% due 2/1/14 1,016,250
1,000,000 Aaa* 5.000% due 2/1/16 1,001,250
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4,377,150
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Indiana -- 0.1%
200,000 A-1 Jasper County, IN PCR, Northern Public
Service, 3.300% due 8/1/10 (c) 200,000
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</TABLE>
See Notes to
Financial Statements.
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6
<PAGE>
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Schedule of Investments
August 31, 1998 (continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
=====================================================================================
<S> <C> <C> <C>
Iowa -- 1.2%
$ 1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project),
6.500% due 7/15/12 $ 1,635,000
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Maryland -- 0.9%
4,000,000 NR Maryland State Energy Financing Administration,
Solid Waste Disposal Revenue, (Hagerstown
Recycling Project), 9.000% due 10/15/16 (a)(e) 1,240,000
Massachusetts -- 3.2%
4,000,000 NR Massachusetts Solid Waste Disposal Revenue,
Massachusetts Recycling Association,
Series A, 9.000% due 8/1/16 (a)(e) 1,500,000
1,000,000 AAA Massachusetts State Housing Finance Agency,
Housing Development, Series B, MBIA-Insured,
5.300% due 12/1/17 1,016,250
Massachusetts State Water Resource Authority,
MBIA-Insured:
1,000,000 AAA Series B, 5.000% due 12/1/25 993,750
1,000,000 AAA Series C, 5.250% due 12/1/20 1,013,750
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4,523,750
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Michigan -- 7.2%
4,000,000 NR Michigan State Strategic Fund Resource
Recovery, Central Wayne Energy, Series A,
7.000% due 7/1/27 4,075,000
5,600,000 NR Midland County, MI Economic Development
Corp., PCR, Limited Obligation, Series B,
9.500% due 7/23/09 (a)(b) 6,118,000
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10,193,000
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Missouri -- 1.4%
1,000,000 AAA Fenton, MO COP, (Capital Improvements
Project), MBIA-Insured, 5.125% due 9/1/17 1,013,750
1,000,000 AAA St. Louis, MO Board of Education, GO,
Missouri Direct Deposit Program, Series B,
FGIC-Insured, 5.000% due 4/1/16 1,006,250
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2,020,000
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Montana -- 1.4%
2,000,000 NR Montana State Board of Investments Resource
Recovery, (Yellowstone Energy Project),
7.000% due 12/31/19 (a) 2,037,500
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</TABLE>
See Notes to
Financial Statements.
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7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments
August 31, 1998 (continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
=====================================================================================
<S> <C> <C> <C>
Nevada -- 3.7%
$ 4,650,000 Baa2* Clark County, NV IDR, Southwest Gas
Corporation, 7.500% due 9/1/32 (a)(b) $ 5,178,937
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New Jersey -- 1.3%
780,000 AAA Essex County, NJ Improvement Authority
Revenue, Utility System (Orange Franchise),
Series A, MBIA-Insured, 5.375% due 7/1/18 806,325
1,000,000 AAA Middlesex County, NJ COP, MBIA-Insured,
5.200% due 6/15/18 1,023,750
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1,830,075
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New York -- 5.6%
2,000,000 A- Long Island Power Authority, NY Electric
System Revenue, Series A, 5.500% due 12/1/29 2,052,500
New York State Dormitory Authority Revenue:
1,135,000 AAA Barnard College, AMBAC-Insured,
5.250% due 7/1/16 1,167,631
1,000,000 AAA City University System, Series A,
FGIC-Insured, 5.000% due 7/1/16 1,007,500
1,500,000 AAA Mental Health Services Facilities,
FSA-Insured, 5.125% due 8/15/17 1,515,000
1,000,000 AAA Montefiore Medical Center, AMBAC/
FHA-Insured, 5.250% due 2/1/15 1,018,750
1,000,000 AAA Municipal Health Facility Improvement,
Series A, FSA-Insured, 5.500% due 5/15/16 1,057,500
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7,818,881
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North Carolina -- 1.1%
1,500,000 A* Coastal Regional Solid Waste Management
Disposal Authority, North Carolina Solid
Waste Revenue, 6.500% due 6/1/08 1,620,000
- -------------------------------------------------------------------------------------
Ohio -- 0.9%
1,220,000 AAA Ohio State Higher Educational Facility
Community Revenue, University of Dayton,
AMBAC-Insured, 5.350% due 12/1/17 1,277,950
- -------------------------------------------------------------------------------------
Pennsylvania -- 1.8%
2,500,000 AAA Altoona, PA City Authority Water Revenue,
FGIC-Insured, 5.000% due 11/1/19 2,493,750
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Puerto Rico -- 0.7%
1,000,000 AAA Puerto Rico Commonwealth Infrastructure
Financing Authority, Series A,
AMBAC-Insured, 5.000% due 7/1/16 1,008,750
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</TABLE>
See Notes to
Financial Statements.
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8
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments
August 31, 1998 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
===================================================================================
<S> <C> <C> <C>
South Carolina -- 4.6%
$ 2,000,000 AAA Lexington County, SC Health Services District,
Hospital Revenue, FSA-Insured,
5.250% due 11/1/17 $ 2,042,500
2,120,000 A3* Myrtle Beach, SC COP, Myrtle Beach
Convention Center, 6.875% due 7/1/07 2,377,050
2,000,000 AAA Piedmont Municipal Power Agency, South
Carolina Electric Revenue, Series A,
MBIA-Insured, 4.875% due 1/1/16 1,985,000
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6,404,550
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Tennessee -- 0.7%
1,000,000 AA Metropolitan Government Nashville &
Davidson County, TN Electrical Revenue,
Series A, 5.125% due 5/15/15 1,018,750
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Texas -- 7.8%
1,000,000 Aaa* Azle, TX ISD, PSFG, Series C,
5.000% due 2/15/22 995,000
2,000,000 BBB Brazos River Authority, TX PCR, Utility
Electric Company, 5.550% due 6/1/30 2,015,000
Burleson, TX ISD GO, PSFG:
435,000 Aaa* 6.750% due 8/1/24 492,094
1,065,000 Aaa* Pre-Refunded -- Escrowed with U.S.
government securities to 8/1/06
Call @ 100, 6.750% due 8/1/24 1,242,056
400,000 A-1+ Guadalupe-Blanco River Authority, TX PCR,
(Central Power & Light Company Project),
3.300% due 11/1/15 (c) 400,000
1,000,000 AA Harris County, TX GO, (Toll Road Sub Lien),
5.125% due 8/15/17 1,006,250
1,830,000 AA Texas State GO, Water Development, Series D,
5.000% due 8/1/16 1,836,863
1,500,000 AAA Texas Water Development Board Revenue,
State Revolving Fund, Senior Lien-B,
5.000% due 7/15/15 1,520,625
1,520,000 AAA West Texas Municipal Power Agency Revenue,
MBIA-Insured, 5.000% due 2/15/16 1,527,600
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11,035,488
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Utah -- 1.4%
2,000,000 AAA Intermountain Power Agency, UT Power
Supply Revenue, MBIA-Insured,
5.250% due 7/1/15 2,042,500
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</TABLE>
See Notes to
Financial Statements.
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9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments
August 31, 1998 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
===================================================================================
<S> <C> <C> <C>
Virgin Islands -- 0.7%
$ 1,000,000 BBB- Virgin Islands Public Finance Authority
Revenue, Series A, 5.500% due 10/1/22 $ 1,013,750
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Virginia -- 8.4%
2,000,000 AAA Riverside, VA Regional Jail Facility,
Revenue Bonds, MBIA-Insured, 6.000% due
7/1/25 2,190,000
2,000,000 AA Virginia College Building Authority, VA
Educational Facilities Revenue, (21st Century
College Program), 5.125% due 8/1/11 2,090,000
Virginia State Housing Development Authority:
1,245,000 AA+ Commonwealth Mortgage, Series D,
5.700% due 7/1/09 1,325,925
1,000,000 AAA Mortgage Housing Revenue, MBIA-Insured,
5.600% due 7/1/12 1,070,000
3,985,000 AA+ Series F, 6.400% due 7/1/17 4,249,006
925,000 AA+ Series K, 5.900% due 11/1/11 986,281
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11,911,212
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Washington -- 0.7%
1,000,000 AAA Washington State Public Power Supply System,
(Nuclear Project No. 2), Series A,
FSA-Insured, 5.125% due 7/1/11 1,041,250
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West Virginia -- 1.4%
Marion County, WV County Commissioner,
Solid Waste Disposal Facilities Revenue,
Adirondak Recycling, Series A:
1,689,766 NR 8.000% due 12/1/25 (a) 1,689,766
237,705 NR 10.000% due 12/1/25 (a) 237,705
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1,927,471
- -----------------------------------------------------------------------------------
Wisconsin -- 3.3%
Wisconsin Housing & Economic Development
Authority, Series A:
2,000,000 AA Home Ownership Revenue,
6.450% due 3/1/17 2,150,000
1,370,000 A1* Housing Revenue, 5.650% due 11/1/23 1,399,112
1,000,000 AAA Wisconsin State Health & Educational
Facilities, The Medical College of Wisconsin,
MBIA-Insured, 5.400% due 12/1/16 1,038,750
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4,587,862
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</TABLE>
See Notes to
Financial Statements.
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10
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments
August 31, 1998 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
================================================================================================
<S> <C> <C> <C>
Wyoming -- 1.1%
$1,500,000 P-1* Unita County, WY PCR,
(Chevron USA Incorporated Project),
3.250% due 8/15/20 (c) $ 1,500,000
- ------------------------------------------------------------------------------------------------
Total Investments -- 100%
(Cost -- $135,954,712**) $141,042,983
================================================================================================
</TABLE>
(a) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(b) Security segregated by Custodian for open purchase commitment.
(c) Variable rate obligation payable at par at any time on no more than seven
days notice.
(d) Pre-Refunded bonds escrowed with U.S. government securities are considered
by the investment adviser to be triple-A rated even if issuer has not
applied for new ratings.
(e) Security is in default.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 12 and 13 for definition of ratings and certain security
descriptions.
- -------------------------------------------------------------------------------
Summary of Investments by Combined Ratings
August 31, 1998 (unaudited)
- -------------------------------------------------------------------------------
Percent of
Moody's and/or Standard & Poor's Total Investments
Aaa AAA 44.6%
Aa AA 12.6
A A 8.2
Baa BBB 14.6
P-1 A-1 2.5
NR NR 17.5
-----
100.0%
=====
See Notes to
Financial Statements.
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11
<PAGE>
- -------------------------------------------------------------------------------
Bond Ratings
(unaudited)
- -------------------------------------------------------------------------------
All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's"),
except those identified by an asterisk (*) are rated by Moody's Investors
Service, Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "AA" to "BB" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standings within the major
rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issue only in a
small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments.
Moody's -- Numerical modifiers 1, 2 and 3 may be applied to each generic
rating from "Aa" to "Baa," where 1 is the highest and 3 is the lowest ranking
within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large in
"Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in "Aaa"
securities.
A -- Bonds rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to
impairment some time in the future.
Baa -- Bonds rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
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12
<PAGE>
- -------------------------------------------------------------------------------
Short-Term Security Ratings
(unaudited)
- -------------------------------------------------------------------------------
SP-1 -- Standard & Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issued determined
possess overwhelming safety characteristics are denoted with a
plus (+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate
demand obligation (VRDO) rating indicating that the degree of
safety regarding timely payment is either overwhelming or very
strong; those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign.
A-2 -- Standard & Poor's second highest commercial paper and VRDO rating
indicating that the degree of safety regarding timely payment is
either overwhelming or very strong; those issues determined to
possess overwhelming safety characteristics are denoted with a
plus (+) sign.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO.
P-1 -- Moody's highest rating for commercial paper and for VRDO prior to
the advent of the VMIG-1 rating.
- -------------------------------------------------------------------------------
Security Descriptions
(unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
ABAG -- Association of Bay Area HFA -- Housing Finance Authority
Governments IDA -- Industrial Development
AIG -- American International Guaranty Authority
AMBAC -- AMBAC Indemnity Corporation IDB -- Industrial Development Board
BAN -- Bond Anticipation Notes IDR -- Industrial Development Revenue
BIG -- Bond Investors Guaranty IFA -- Industrial Finance Agency
CGIC -- Capital Guaranty Insurance INFLOS -- Inverse Floaters
Company ISD -- Independent School District
CHFCLI -- California Health Facility LOC -- Letter of Credit
Construction Loan Insurance MBIA -- Municipal Bond Investors
COP -- Certificate of Participation Assurance Corporation
EDA -- Economic Development Authority MVRICS -- Municipal Variable Rate Inverse
FAIRS -- Floating Adjustable Interest Rate Coupon Security
Securities PCR -- Pollution Control Revenue
FGIC -- Financial Guaranty Insurance PSFG -- Permanent School Fund
Company Guaranty
FHA -- Federal Housing Administration RAN -- Revenue Anticipation Notes
FHLMC -- Federal Home Loan Mortgage RIBS -- Residual Interest Bonds
Corporation RITES -- Residual Interest Tax-Exempt
FNMA -- Federal National Mortgage Securities
Association SYCC -- Structured Yield Curve
FRTC -- Floating Rate Trust Certificates Certificate
FSA -- Financial Security Assurance TAN -- Tax Anticipation Notes
GIC -- Guaranteed Investment Contract TECP -- Tax Exempt Commercial Paper
GNMA -- Government National Mortgage TOB -- Tender Option Bonds
Association TRAN -- Tax and Revenue Anticipation
GO -- General Obligation Notes
HDC -- Housing Development VA -- Veterans Administration
Corporation VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday
Demand
</TABLE>
- -----------------------------------[GRAPHIC]-----------------------------------
13
<PAGE>
- ------------------------------------------------------------------------------
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
August 31, 1998
==============================================================================
Assets:
Investments, at value (Cost -- $135,954,712) $141,042,983
Interest receivable 1,822,673
- ------------------------------------------------------------------------------
Total Assets 142,865,656
- ------------------------------------------------------------------------------
Liabilities:
Payable for securities purchased 2,043,563
Dividends payable 246,488
Payable to bank 89,988
Investment advisory fees payable 85,763
Administration fees payable 24,175
Accrued expenses 146,124
- ------------------------------------------------------------------------------
Total Liabilities 2,636,101
- ------------------------------------------------------------------------------
Total Net Assets $140,229,555
==============================================================================
Net Assets:
Par value of capital shares $ 11,235
Capital paid in excess of par value 134,234,852
Overdistributed net investment income (106,481)
Accumulated net realized gain from security transactions 1,001,678
Net unrealized appreciation of investments 5,088,271
- ------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $12.48 a share on 11,234,706 shares of $0.001
par value outstanding; 500,000,000 shares authorized) $140,229,555
==============================================================================
See Notes to
Financial Statements.
- -----------------------------------[GRAPHIC]----------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended
August 31, 1998
================================================================================
Investment Income:
Interest $ 7,728,562
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 3) 972,743
Administration fees (Note 3) 277,927
Shareholder communications 120,000
Audit and legal 54,265
Directors' fees 41,975
Registration fees 25,000
Shareholder and system servicing fees 19,476
Pricing service fees 8,935
Custody 6,948
Other 5,579
- --------------------------------------------------------------------------------
Total Expenses 1,532,848
- --------------------------------------------------------------------------------
Net Investment Income 6,195,714
- --------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments (Note 4):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 98,993,690
Cost of securities sold 97,986,108
- --------------------------------------------------------------------------------
Net Realized Gain 1,007,582
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 197,972
End of year 5,088,271
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 4,890,299
- --------------------------------------------------------------------------------
Net Gain on Investments 5,897,881
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 12,093,595
================================================================================
See Notes to
Financial Statements.
- -----------------------------------[GRAPHIC]-----------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
August 31, 1998 August 31, 1997
- --------------------------------------------------------------------------------
Operations:
Net investment income $ 6,195,714 $ 7,070,019
Net realized gain 1,007,582 2,550,959
Increase in net unrealized appreciation 4,890,299 2,730,988
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 12,093,595 12,351,966
- --------------------------------------------------------------------------------
Distributions To Shareholders
From (Note 2):
Net investment income (6,479,500) (7,353,773)
Net realized gains (1,901,590) (3,125,168)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (8,381,090) (10,478,941)
- --------------------------------------------------------------------------------
Fund Share Transactions (Note 7):
Net asset value of shares issued
for reinvestment of dividends -- 214,541
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions -- 214,541
- --------------------------------------------------------------------------------
Increase in Net Assets 3,712,505 2,087,566
Net Assets:
Beginning of year 136,517,050 134,429,484
- --------------------------------------------------------------------------------
End of year* $140,229,555 $136,517,050
================================================================================
* Includes undistributed (overdistributed)
net investment income of: $(106,481) $177,336
================================================================================
See Notes to
Financial Statements.
- -----------------------------------[GRAPHIC]-----------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Managed Municipals Portfolio II Inc. ("Fund"), a Maryland corporation,
is registered under the Investment Company Act of 1940, as amended, as a non-
diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund
are: (a) security transactions are accounted for on trade date; (b) securities
are valued at the mean between bid and asked prices provided by an independent
pricing service that are based on transactions in municipal obligations,
quotations from municipal bond dealers, market transactions in comparable
securities and various relationships between securities; (c) securities maturing
within 60 days are valued at cost plus accreted discount, or minus amortized
premium, which approximates value; (d) gains or losses on the sale of securities
are calculated by using the specific identification method; (e) interest income,
adjusted for amortization of premium and accretion of original issue discount,
is recorded on an accrual basis; market discount is recognized upon the
disposition of the security; (f) dividends and distributions to shareholders are
recorded on the ex-dividend date; (g) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At August 31, 1998,
reclassifications were made to undistributed net investment income and
accumulated net realized gains to reflect permanent book/tax differences and
income and gains available for distributions under income tax regulations. Net
investment income, net realized gains and net assets were not affected by this
change; (h) the Fund intends to comply with the applicable provisions of the
Internal Revenue Code of 1986, as amended, pertaining to regulated investment
companies and to make distributions of taxable income sufficient to relieve it
from substantially all Federal income and excise taxes; and (i) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
- -----------------------------------[GRAPHIC]-----------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(continued)
- --------------------------------------------------------------------------------
2. Exempt-Interest Dividends and Other Distributions
The Fund intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from regular Federal income tax and from
designated state income taxes, to retain such tax-exempt status when distributed
to the shareholders of the Fund.
Capital gains distributions, if any, are taxable to shareholders, and
are declared and paid at least annually.
3. Investment Advisory Agreement, Administration
Agreement and Other Transactions
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), acts as investment adviser to the Fund. The Fund pays
MMC an advisory fee calculated at an annual rate of 0.70% of the average daily
net assets of the Fund. This fee is calculated daily and paid monthly.
MMC also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Smith Barney
Inc., another subsidiary of SSBH.
4. Investments
For the year ended August 31, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
===============================================================================
Purchases $93,476,190
- -------------------------------------------------------------------------------
Sales 98,993,690
===============================================================================
At August 31, 1998, aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
===============================================================================
Gross unrealized appreciation $10,348,271
Gross unrealized depreciation (5,260,000)
- -------------------------------------------------------------------------------
Net unrealized appreciation $ 5,088,271
===============================================================================
- -----------------------------------[GRAPHIC]-----------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(continued)
- --------------------------------------------------------------------------------
5. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contracts. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marking-to-market" on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are made or received and recognized as assets
due from or liabilities due to broker, depending upon whether unrealized gains
or losses are incurred. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the proceeds from (or cost of) the
closing transactions and the Fund's basis in the contract.
The Fund enters into such contracts to hedge a portion of its portfolio.
The Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At August 31, 1998, the Fund had no open futures contracts.
6. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S.
government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Fund requires
continual maintenance of the market value of the collateral in amounts at least
equal to the repurchase price.
7. Capital Shares
During the years ended August 31, 1998 and August 31, 1997, capital
stock transactions were as follows:
Year Ended Year Ended
August 31, 1998 August 31, 1997
----------------- -----------------
Shares Amount Shares Amount
===============================================================================
Shares issued on reinvestment -- -- 18,038 $214,541
===============================================================================
- -----------------------------------[GRAPHIC]-----------------------------------
19
<PAGE>
- -------------------------------------------------------------------------------
Financial Highlights
- -------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year:
1998 1997 1996 1995 1994
===============================================================================
Net Asset Value,
Beginning of Year $ 12.15 $ 11.98 $ 12.36 $ 12.15 $ 13.37
- -------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.55 0.63 0.66 0.69 0.64
Net realized and
unrealized gain (loss) 0.53 0.48 (0.21) 0.32 (0.61)
- -------------------------------------------------------------------------------
Total Income From Operations 1.08 1.11 0.45 1.01 0.03
- -------------------------------------------------------------------------------
Offering Costs Credited
(Charged) to Paid-In
Capital -- -- -- -- 0.01
- -------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.58) (0.66) (0.67) (0.68) (0.67)
Net realized gains (0.17) (0.28) (0.16) (0.12) (0.59)
- -------------------------------------------------------------------------------
Total Distributions (0.75) (0.94) (0.83) (0.80) (1.26)
- -------------------------------------------------------------------------------
Net Asset Value,
End of Year $ 12.48 $ 12.15 $ 11.98 $ 12.36 $ 12.15
- -------------------------------------------------------------------------------
Total Return, Based on
Market Value* (1.34)% 7.75% 7.35% 8.86% 0.72%
- -------------------------------------------------------------------------------
Total Return, Based on
Net Asset Value* 9.57% 9.86% 4.01% 9.20% 0.48%
- -------------------------------------------------------------------------------
Net Assets,
End of Year (000s) $140,230 $136,517 $134,429 $138,649 $136,248
- -------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.10% 1.10% 1.09% 1.14% 1.12%
Net investment income 4.46 5.23 5.31 5.80 5.08
- -------------------------------------------------------------------------------
Portfolio Turnover Rate 66% 97% 63% 95% 85%
- -------------------------------------------------------------------------------
Market Value, End of Year $10.813 $11.688 $11.750 $11.625 $11.500
===============================================================================
* The total return assumes that dividends are reinvested in accordance with the
Fund's dividend reinvestment plan.
- -----------------------------------[GRAPHIC]-----------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Managed Municipals Portfolio II Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Managed Municipals Portfolio II Inc. as of
August 31, 1998, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the two-year
period then ended and financial highlights for each of the years in the four-
year period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the year ended August 31, 1994, were
audited by other auditors whose report thereon, dated October 7, 1994, expressed
an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998, by correspondence with the custodian. As to securities
purchased but not yet received, we performed other appropriate auditing
procedures. 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of
Managed Municipals Portfolio II Inc. as of August 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and financial highlights for each of
the years in the four-year period then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
October 15, 1998
- -----------------------------------[GRAPHIC]-----------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
Quarterly Results of Operations
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Realized Net Increase
and Unrealized (Decrease) in
Investment Net Investment Gain (Loss) on Net Assets From
Income Income Investments Operations
=================================================================================================================
Per Per Per Per
Quarter Ended Total Share Total Share Total Share Total Share
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
November 30,
1996 $2,227,411 $0.20 $1,879,304 $0.17 $ 5,753,327 $ 0.51 $ 7,632,631 $ 0.68
February 28,
1997 2,180,922 0.19 1,839,607 0.16 (3,515,568) (0.31) (1,675,961) (0.15)
May 31,
1997 2,225,788 0.20 1,860,549 0.17 (1,006,118) (0.08) 854,431 0.09
August 31,
1997 1,927,002 0.17 1,490,559 0.13 4,050,306 0.36 5,540,865 0.49
November 30,
1997 1,867,638 0.17 1,459,739 0.13 2,741,066 0.25 4,200,805 0.38
February 28,
1998 1,928,672 0.17 1,555,286 0.14 2,311,045 0.20 3,866,331 0.34
May 31,
1998 1,932,962 0.17 1,563,665 0.14 (4,226) (0.00) 1,559,439 0.14
August 31,
1998 1,999,290 0.18 1,617,024 0.14 849,996 0.08 2,467,020 0.22
=================================================================================================================
</TABLE>
- -----------------------------------[GRAPHIC]-----------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
Financial Data
(unaudited)
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
NYSE Net Dividend
Record Payable Closing Asset Dividend Reinvestment
Date Date Price+ Value+ Paid Price
===============================================================================
9/24/96 9/27/96 $11.625 $12.09 $ 0.059 $11.66
10/22/96 10/25/96 11.500 12.20 0.059 11.63
11/25/96 11/29/96 11.438 12.49 0.059 11.50
12/23/96* 12/27/96 11.375 12.11 0.285++ 11.56
1/28/97 1/31/97 11.500 11.85 0.059 11.52
2/25/97 2/28/97 11.500 12.01 0.059 11.53
3/24/97 3/27/97 11.375 11.68 0.059 11.32
4/22/97 4/25/97 11.375 11.56 0.059 11.38
5/27/97 5/30/97 11.375 11.76 0.059 11.58
6/24/97 6/27/97 11.875 11.99 0.059 11.94
7/22/97 7/25/97 12.000 12.34 0.059 12.06
8/26/97 8/29/97 11.688 12.11 0.059 11.75
9/23/97 9/26/97 11.563 12.25 0.056 11.71
10/28/97 10/31/97 11.438 12.27 0.056 11.47
11/24/97 11/28/97 11.500 12.36 0.056 11.55
12/22/97* 12/26/97 11.625 12.41 0.170 11.57
1/27/98 1/30/98 12.188 12.44 0.056 12.12
2/24/98 2/27/98 11.875 12.42 0.056 11.62
3/24/98 3/27/98 11.250 12.40 0.050 11.37
4/21/98 4/24/98 11.125 12.28 0.050 11.10
5/26/98 5/29/98 10.813 12.38 0.050 11.14
6/23/98 6/26/98 11.063 12.34 0.050 11.12
7/28/98 7/31/98 10.813 12.33 0.048 10.86
8/25/98 8/28/98 10.875 12.43 0.048 10.97
===============================================================================
+ As of record date.
++ Includes market discount.
* Capital gain distribution.
- -----------------------------------[GRAPHIC]-----------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
Additional Shareholder Information
(unaudited)
- --------------------------------------------------------------------------------
On December 17, 1997, an annual meeting of the shareholders of the Fund
was held for the purpose of voting on the following matters:
1. To approve or disapprove for the Fund, the election of Allan J.
Bloostein and Martin Brody as Directors; and
2. To approve or disapprove the selection of KPMG Peat Marwick LLP as
the independent auditors for the current fiscal year of the Fund.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares % of Shares Voted % of
Directors Voted For Shares Voted Against Shares Voted
===============================================================================================
<S> <C> <C> <C> <C>
Allan J. Bloostein 10,560,822.276 99.677% 32,246.507 0.323%
Martin Brody 10,564,228.276 99.709 30,840.507 0.291
===============================================================================================
<CAPTION>
The results of the vote on Proposal 2 were as follows:
% of Votes % of Votes % of
Votes For Shares Voted Against Shares Voted Abstained Shares Voted
===============================================================================================
<S> <C> <C> <C> <C> <C>
10,561,807.038 99.686% 18,840.000 0.178% 14,421.745 0.136%
===============================================================================================
</TABLE>
- -----------------------------------[GRAPHIC]-----------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
(unaudited)
- --------------------------------------------------------------------------------
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder
whose shares of Common Stock are registered in his or her own name will have all
distributions from the Fund reinvested automatically by First Data Investor
Services Group, Inc. ("First Data") as purchasing agent under the Plan, unless
the shareholder elects to receive cash. Distributions with respect to shares
registered in the name of a broker-dealer or other nominee (that is, in "street
name") will be reinvested by the broker or nominee in additional shares under
the Plan, unless the service is not provided by the broker or nominee or the
shareholder elects to receive distributions in cash. Investors who own Common
Stock registered in street name should consult their broker-dealers for details
regarding reinvestment. All distributions to Fund shareholders who do not
participate in the Plan will be paid by check mailed directly to the record
holder by or under the direction of First Data as dividend-paying agent.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. Whenever
the market price of the Common Stock is equal to or exceeds the net asset value
per share on the date of valuation, Plan participants will be issued shares of
Common Stock at a price equal to the greater of (1) the net asset value per
share most recently determined or (2) 95% of the market price.
If the net asset value per share of Common Stock at the time of
valuation exceeds the market price of the Common Stock, or if the Fund declares
a dividend or capital gains distribution payable only in cash, First Data will
buy Common Stock in the open market, on the NYSE or elsewhere, for the
participants' accounts. If, following the commencement of the purchases and
before First Data has completed its purchases, and the market price exceeds the
net asset value of the Common Stock, First Data will attempt to terminate
purchases in the open market and cause the Fund to issue the remaining portion
of the dividend or distribution by issuing shares at a price equal to the
greater of (a) net asset value or (b) 95% of the then current market price. In
this case, the number of shares of Common Stock received by a Plan participant
will be based on the weighted average of prices paid for shares purchased in the
open market and the price at which the Fund issues the remaining shares. To the
extent First Data is unable to stop open market purchases and cause the Fund to
issue the remaining shares, the average per share purchase price paid by First
Data may exceed the net asset value of the Common Stock, resulting in the
acquisition of fewer shares than if the dividend or capital gains distribution
had been paid in Common Stock issued by the Fund at net asset value. First Data
will begin to purchase Common Stock on the open market as soon as practicable
after the payment date of the dividend or capital gains distribution, but in no
event shall such purchases
- -----------------------------------[GRAPHIC]-----------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
(unaudited) (continued)
- --------------------------------------------------------------------------------
continue later than 30 days after that date, except when necessary to comply
with applicable provisions of the Federal securities laws.
First Data maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvestment
of dividends and capital gains distributions will not relieve Plan participants
of any income tax that may be payable on the dividends or capital gains
distributions. Common Stock in the account of each Plan participant, will be
held by First Data in uncertificated form in the name of each Plan participant.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions under the Plan. First Data's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. No brokerage charges apply with respect to shares of Common Stock issued
directly by the Fund under the Plan. Each Plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to any open
market purchases made under the plan.
Experience under the Plan may indicate that changes to it are desirable.
The Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by First Data, with the Fund's prior written consent, on at least 30
days' written notice to Plan participants. All correspondence concerning the
Plan should be directed by mail to First Data Investor Services Group, P.O. Box
8030, Boston, Massachusetts 02266-8030 or by telephone at 1-800-331-1710.
-------------------------------------
Notice is hereby given in accordance with Section 23(c) of the
Investment Company Act of 1940, as amended, that from time to time the Fund may
purchase shares of its common stock in the open market.
- -----------------------------------[GRAPHIC]-----------------------------------
26
<PAGE>
- --------------------------------------------------------------------------------
Tax Information
(unaudited)
- --------------------------------------------------------------------------------
For Federal tax purposes the Fund hereby designates for the fiscal year
ended August 31, 1998:
. 99.87% of the dividends paid by the fund from net investment income as tax
exempt for regular Federal income tax purposes.
. The Taxpayer Relief Act of 1997 enacted differing rates of tax on various
long-term capital gain transactions. As a result, the Fund designates:
. Total long-term capital gain distributions paid of $117,905 are
considered "20 percent rate gains".
- -----------------------------------[GRAPHIC]-----------------------------------
27
<PAGE>
MANAGED MUNICIPALS
PORTFOLIO II INC.
Directors Investment Adviser
Allan J. Bloostein Mutual Management Corp.
Martin Brody 388 Greenwich Street
Dwight B. Crane New York, New York 10013
Robert A. Frankel
William R. Hutchinson
Heath B. McLendon, Chairman Transfer Agent
Charles F. Barber, Emeritus First Data Investor Services
Group, Inc.
P.O. Box 8030
Officers Boston, Massachusetts 02266-8030
Heath B. McLendon
President and Custodian
Chief Executive Officer
PNC Bank, N.A.
Lewis E. Daidone 17th and Chestnut Streets
Senior Vice President Philadelphia, Pennsylvania 19103
and Treasurer
Joseph P. Deane
Vice President and
Investment Officer
David Fare
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
- -----------------------------------[GRAPHIC]-----------------------------------
28
<PAGE>
This report is intended only for shareholders of the
Managed Municipals Portfolio II Inc.
It is not a Prospectus, circular or representation
intended for use in the purchase or sale of shares of
the Fund or of any securities mentioned in the report.
FD0775 10/98
