<PAGE>
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MANAGED MUNICIPALS
PORTFOLIO II INC.
ANNUAL REPORT
August 31, 1994
[LOGO]
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Front cover showing an emblem on the bottom of page with an eagle and two cupids
at the top of the page is the fund name centered.
<PAGE>
MANAGED MUNICIPALS
PORTFOLIO II INC.
AUGUST 31, 1994
DEAR SHAREHOLDER:
We are pleased to provide the Annual Report for Managed Municipals
Portfolio II Inc. for the fiscal year ended August 31, 1994. During the past
twelve months, the Portfolio paid dividends from investment income totaling
$0.671 per share, equivalent to an annualized distribution rate of 6.02%
based on the August 31, 1994 net asset value of $12.15 per share and 6.37%
based on the New York Stock Exchange, Inc. closing price of $11.50 per
share.
ECONOMIC OVERVIEW
The economy has continued to experience steady, healthy growth during
the past twelve months. After turning in a very powerful fourth quarter in
1993, economic growth moderated somewhat but was solid and steady through
the end of August, 1994.
The continued strength in the economy and some very early signs of an
increase in inflation caused the Federal Reserve Board to raise the Federal
funds rate (a sensitive indicator of the direction of interest rates) to
4.75% in two separate moves between May and August of this year. Long-term
interest rates also rose, causing a decline in the price of bonds because of
the inverse relationship between yield and price. Between now and the end of
the year, we would not be surprised to see the Federal Reserve Board raise
the Federal funds rate to 5%. Looking out from where we are right now, we
would expect the economy to slow somewhat over the next three to four months
as the effect of this significant rise in interest rates works its way
through the economy. Interest rates, both taxable and tax-exempt, appear to
now represent very fair values. Long-term rates will probably move lower
from where they are right now as the economy begins to slow.
CONTINUED
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<PAGE>
THE MUNICIPAL MARKET AND PORTFOLIO STRATEGY
The municipal market had been quite volatile between late October 1993
and April 1994. In our opinion, the worst of the market volatility is now
behind us, and we believe that volatility will continue to decline as
municipal new issuance declines and investor demand for tax-exempt income
continues to increase. In 1993, there was $300 billion in municipal
issuance; in contrast, new issuance in 1994 is likely to be approximately
$140 to $170 billion -- a reduction of nearly 50 percent. Once interest
rates began to rise, issuance virtually disappeared.
As you will recall, we had defensively positioned the Portfolio by
shortening its average maturity, raising cash, and hedging the Portfolio
using futures contracts. When 30-year Treasury bond yields came close to
7.50%, we believed that the worst of the market volatility was over and
changed our investment stance. We began lengthening the Portfolio's average
maturity and began buying high-quality, investment grade bonds.
Callable and pre-refunded bonds are still an ongoing source of concern
for municipal investors. We are working very hard at keeping low (which we
define as approximately 5%) the number of bonds in the Portfolio that have
call dates within the next 15 to 18 months. A large number of callable bonds
could potentially impact a fund's income stream fairly dramatically if it
loses a lot of its older, higher coupon bonds.
On a final note, we are pleased to tell you that Joseph Deane, your
portfolio manager, continues to be recognized in the national press as one
of the leading municipal bond portfolio managers in the country. In addition
to his frequent appearances in The Wall Street Journal and The Bond Buyer,
Joe recently was profiled in the October 3rd issue of Barron's.
We appreciate your continued confidence in our management skills during
this difficult market environment. As we have since its inception two years
ago, we will continue to manage the Portfolio with the goal of providing
investors with a competitive level of tax-free income consistent with a
prudent, conservative approach to credit quality, and preservation of
capital based on a total-return philosophy of managing assets. If you
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<PAGE>
have any questions or comments about your investment in the Portfolio,
please do not hesitate to contact either us or The Shareholder Services
Group, Inc. at (800) 331-1710.
Sincerely,
Heath B. McLendon Joseph P. Deane
CHAIRMAN OF THE BOARD VICE PRESIDENT AND
INVESTMENT OFFICER
October 24, 1994
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<PAGE>
Unaudited Financial Data
Per Share of Common Stock
<TABLE>
<CAPTION>
CAPITAL
NYSE NET GAINS DIVIDEND
CLOSING ASSET DIVIDEND DIVIDEND REINVESTMENT
PRICE VALUE PAID PAID PRICE
-------- ------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
September 30, 1993..... $12.500 $13.44 $0.061 -- $12.72
October 31, 1993....... 12.750 13.39 0.061 -- 12.78
November 30, 1993...... 12.500 13.29 0.061 -- 12.51
December 31, 1993...... 12.125 12.95 -- $0.590 12.76
January 31, 1994....... 12.375 12.95 0.061 -- 12.70
February 28, 1994...... 12.000 12.71 0.061 -- 12.12
March 31, 1994......... 11.375 12.08 0.061 -- 11.81
April 30, 1994......... 11.375 12.08 0.061 -- 11.80
May 31, 1994........... 11.500 12.07 0.061 -- 11.77
June 30, 1994.......... 11.250 11.95 0.061 -- 11.53
July 31, 1994.......... 11.625 12.17 0.061 -- 12.00
August 31, 1994........ 11.500 12.15 0.061 -- 11.66
</TABLE>
Dividend Data*
For the Year Ended August 31, 1994
<TABLE>
<CAPTION>
EQUIVALENT TAXABLE DISTRIBUTION RATE
--------------------------------------------------------------------
ASSUMING
PER SHARE ANNUALIZED ASSUMING ASSUMING ASSUMING 39.6%
DIVIDEND DISTRIBUTION 28% FEDERAL 31% FEDERAL 36% FEDERAL FEDERAL
DISTRIBUTIONS RATE TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.061 6.02% 8.36% 8.72% 9.41% 9.97%
<FN>
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* Based on August 31, 1994 net asset value of $12.15 per share.
</TABLE>
Each registered shareholder is considered a participant in the Portfolio's
Dividend Reinvestment Plan, unless the shareholder elects to receive all
dividends and distributions in cash, or unless the shareholder's shares are
registered in the name of a broker, bank or nominee (other than Smith Barney
Inc.) which does not provide the service. Questions and correspondence
concerning the Dividend Reinvestment Plan should be directed to The Shareholder
Services Group, Inc., P.O. Box 1376, Boston, Massachusetts 02104.
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<PAGE>
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994
<TABLE>
<S> <C> <C> <C>
KEY TO INSURANCE ABBREVIATIONS
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Federal Guaranty Insurance Corporation
MBIA -- Municipal Bond Investors Assurance
</TABLE>
<TABLE>
<CAPTION>
Rating Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
<C> <S> <C> <C> <C>
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MUNICIPAL BONDS AND NOTES--104.0%
ALASKA -- 6.2%
$ 3,145,000 Alaska Industrial Development & Export, Series A,
6.500% due 4/1/14 A A- $ 3,148,931
6,000,000 Valdez, Alaska, Marine Terminal Revenue, (B.P. Pipelines
Project), Series C,
5.650% due 12/1/28 A1 AA- 5,257,500
CALIFORNIA -- 10.8%
Los Angeles, California:
2,000,000 Convention & Exhibition Center, Authority Lease Revenue,
(MBIA insured),
5.125% due 8/15/21 Aaa AAA 1,685,000
3,500,000 Waste Water System Revenue, Series D, (FGIC insured),
5.200% due 11/1/21 Aaa AAA 2,992,500
2,000,000 Los Angeles County, California, Metropolitan
Transportation Authority, Sales Tax Revenue, Series B,
(AMBAC insured),
5.250% due 7/1/23 Aaa AAA 1,715,000
835,000 Redding, California, Joint Powers Authority, Solid Waste
and Corporation Yard, Series A,
5.000% due 1/1/05 A BBB+ 770,288
10,000,000 San Joaquin Hills, California, Transportation Corridor
Agency, Toll Road Revenue, Senior Lien,
Zero Coupon due 1/1/20 NR NR 1,512,500
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
Rating Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
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<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
CALIFORNIA (CONTINUED)
Santa Margarita, California, Dana Point Authority Revenue,
Series B, (MBIA insured):
$ 2,000,000 7.250% due 8/1/14 Aaa AAA $ 2,287,500
2,000,000 5.750% due 8/1/20 Aaa AAA 1,887,500
1,820,000 Torrance, California, Hospital Revenue, (Little Company of
Mary Hospital),
6.875% due 7/1/15 NR A 1,845,025
COLORADO -- 9.9%
4,000,000 Colorado Springs, Colorado, Airport Revenue, Series A,
7.000% due 1/1/22 NR BBB 4,095,000
30,000,000 Dawson Ridge, Colorado, Metropolitan District #1, Series
A,
Zero Coupon due 10/1/22 Aaa NR 4,237,500
6,250,000 Denver, Colorado, Airport Revenue, Series C,
6.125% due 11/15/25 Baa BBB 5,132,812
DISTRICT OF COLUMBIA -- 2.8%
4,250,000 Metropolitan Washington, D.C. Airport Authority, VA.,
General Airport Revenue,
(MBIA insured),
5.500% due 10/1/24 Aaa AAA 3,766,562
FLORIDA -- 8.4%
2,000,000 Florida Housing Finance Agency, Single Mortgage Revenue,
Series B,
6.650% due 7/1/26 Aa AA 2,015,000
6,000,000 Florida State, Board of Education, Capital Outlay, Series
E,
5.250% due 6/1/23 Aa AA 5,190,000
4,000,000 Tampa, Florida, Revenue Bonds, (Aquarium Project),
7.750% due 5/1/27 NR NR 4,295,000
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
Rating Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
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<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
HAWAII -- 1.4%
$ 2,000,000 Honolulu, Hawaii, City & County General Obligation, Series
B,
5.500% due 10/1/11 Aa AA $ 1,890,000
ILLINOIS -- 2.8%
2,000,000 Illinois Educational Facilities Authority Revenue,
(University of Chicago),
5.700% due 12/1/25 Aaa AA 1,840,000
2,000,000 Illinois Housing Development Revenue, Series A-2,
6.700% due 8/1/25 Aa AA 2,012,500
IOWA -- 1.1%
1,500,000 Dawson City, Iowa, Industrial Development Revenue,
(Cargill Inc., Project),
6.500% due 7/15/12 NR AA- 1,543,125
LOUISIANA -- 0.7%
1,000,000 Tangipahoa Parish, Louisiana, District #1 Hospital
Revenue, (AMBAC insured),
6.250% due 2/1/24 Aaa AAA 988,750
MARYLAND -- 4.4%
2,720,000 Anne Arundel County, Maryland, Water and Sewer Revenue,
G.O.,
5.250% due 4/15/11 Aa AA+ 2,499,000
2,140,000 Maryland State Community Development Administration,
Single Family Housing Revenue,
6.450% due 4/1/14 Aa NR 2,174,775
1,650,000 Prince George's County, Maryland, Refunding Revenue,
(Dimension Health Corporation),
5.300% due 7/1/24 A NR 1,355,063
MASSACHUSETTS -- 6.2%
2,000,000 Commonwealth of Massachusetts, Conservation Loan, Series
D,
5.750% due 5/1/12 A A+ 1,917,500
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
Rating Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
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<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
MASSACHUSETTS (CONTINUED)
$ 3,910,000 Commonwealth of Massachusetts, Housing Finance Agency,
Housing Revenue, Series A, (AMBAC insured),
6.650% due 7/1/19 Aaa AAA $ 3,929,550
3,000,000 Commonwealth of Massachusetts, Turnpike Authority,
Turnpike Revenue,
5.000% due 1/1/20 A1 A+ 2,538,750
MICHIGAN -- 8.9%
2,100,000 Michigan State Housing Development Authority, Single
Family Mortgage, Series D,
6.850% due 6/1/26 NR AA+ 2,110,500
1,000,000 Michigan State Strategic Funding, Limited Obligation
Revenue, (Blue Water Fiber Project),
8.000% due 1/1/12 NR NR 985,000
5,600,000 Midland County, Michigan, Economic Development
Corporation, Pollution Control Revenue, Series B,
9.500% due 7/23/09 NR NR 6,160,000
3,000,000 University of Michigan, Hospital Revenue, Series A,
5.750% due 12/1/12 Aa AA 2,872,500
MINNESOTA -- 1.1%
1,500,000 Minnesota State, Housing Finance Agency, Single Family
Mortgage, Series M,
6.700% due 7/1/26 Aa AA+ 1,522,500
MONTANA -- 1.4%
2,000,000 Montana State Board Investment Resources Recovery Revenue,
(Yellowstone Energy Project),
7.000% due 12/31/19 NR NR 1,932,500
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
Rating Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
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<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
NEVADA -- 3.5%
$ 4,650,000 Clark County, Nevada, Industrial Development Revenue,
(Southwest Gas Corporation),
7.500% due 9/1/32 Baa BBB- $ 4,824,375
NEW HAMPSHIRE -- 1.9%
3,000,000 New Hampshire Higher Education & Health Revenue, (Mary
Hitchcock Memorial Hospital), (FGIC insured),
5.250% due 8/15/21 Aaa AAA 2,598,750
NEW JERSEY -- 1.1%
1,500,000 Union County, New Jersey, Utilities Authority, Solid Waste
Revenue, Series A,
7.200% due 6/15/14 NR A- 1,539,375
NEW YORK -- 7.2%
1,000,000 New York State Housing Finance Authority, Mortgage
Revenue, Multifamily Housing, Series A,
6.250% due 8/15/25 Aa NR 997,500
6,555,000 New York State Local Government Assistance, Series C,
5.500% due 4/1/22 A A 5,866,725
3,000,000 New York State Thruway Authority, Local Highway & Bridge
Transportation,
(MBIA insured),
5.750% due 4/1/13 Aaa AAA 2,887,530
NORTH CAROLINA -- 2.6%
1,500,000 Coastal Regional Solid Waste Management Disposal
Authority, North Carolina, Solid Waste Revenue,
6.500% due 6/1/08 A BBB 1,531,875
2,000,000 North Carolina Housing Revenue, Single Family Mortgage,
Series Z,
6.600% due 9/1/26 Aa A+ 2,002,500
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
Rating Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
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<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
RHODE ISLAND -- 5.5%
Rhode Island Housing & Mortgage Finance Agency, Home
Ownership Revenue:
$ 850,000 5.850% due 4/1/13 Aa AA+ $ 788,375
3,000,000 6.750% due 10/1/25 Aa AA+ 3,037,500
4,000,000 Rhode Island State, Public Buildings Authority, Series A,
(AMBAC insured),
5.250% due 2/1/09 Aaa AAA 3,690,000
SOUTH CAROLINA -- 4.6%
Myrtle Beach, South Carolina, (Myrtle Beach Convention
Center), Certificates of Participation:
2,120,000 6.875% due 7/1/07 Baa1 BBB+ 2,162,400
4,000,000 6.875% due 7/1/17 Baa1 BBB+ 4,045,000
TEXAS -- 5.7%
3,000,000 Port of Arthur, Texas, Navigation District,
(AMBAC insured),
6.000% due 3/1/15 Aaa AAA 2,955,000
5,000,000 Sam Rayburn, Texas, Municipal Power Agency, Series A,
6.750% due 10/1/14 Baa BB 4,856,250
WEST VIRGINIA -- 2.2%
3,000,000 Marion County, West Virginia, Community Solid Waste
Disposal Facilities Revenue,
7.750% due 12/1/11 NR NR 2,947,500
WISCONSIN -- 3.6%
Wisconsin Housing & Economic Development Authority, Home
Ownership, Series A:
2,000,000 Home Ownership Revenue,
6.450% due 3/1/17 Aa AA 2,007,500
1,370,000 Housing Revenue,
5.650% due 11/1/23 A1 A 1,221,013
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
Rating Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
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<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
WISCONSIN (CONTINUED)
$ 2,000,000 Wisconsin State Health and Educational Facilities, Aurora
Healthcare Obligation,
(MBIA insured),
5.250% due 8/15/23 Aaa AAA $ 1,707,500
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TOTAL MUNICIPAL BONDS AND NOTES
(COST $141,628,379) 141,772,299
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SHORT-TERM TAX-EXEMPT INVESTMENTS -- 3.4%
CALIFORNIA -- 0.1%
100,000 Richmond, California, Tax and Revenue Anticipation Notes,
3.100% due 8/7/95+ VMIG-1 NR 100,000
GEORGIA -- 0.3%
400,000 Coweta County, Georgia, Industrial Development Authority,
3.350% due 3/1/09+ NR NR 400,000
KENTUCKY -- 1.1%
1,500,000 Daviess County, Kentucky, Solid Waste Disposal Revenue,
(Scott Paper),
3.250% due 12/1/23+ NR A-1+ 1,500,000
NEW YORK -- 0.1%
100,000 Port Authority of New York & New Jersey, Special
Obligation Revenue, Series 1,
3.300% due 8/1/28+ VMIG-1 A-1+ 100,000
TEXAS -- 1.8%
2,500,000 Gulf Coast Waste Disposal Authority, Pollution Control
Revenue, (Amoco Oil
Company Project),
3.050% due 10/1/17+ VMIG-1 A-1+ 2,500,000
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
Market
Value
(Note 1)
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<C> <S> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS (CONTINUED)
TOTAL SHORT-TERM
TAX-EXEMPT INVESTMENTS
(COST $4,600,000) $ 4,600,000
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TOTAL INVESTMENTS
(COST $146,228,379*) 107.4% 146,372,299
OTHER ASSETS AND LIABILITIES (NET) (7.4) (10,123,957)
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NET ASSETS 100.0% $136,248,342
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<FN>
* Aggregate cost for Federal tax purposes.
+ Variable rate municipal bonds and notes are payable upon not more than one
business day's notice.
Abbreviation:
G.O. - General Obligation
</TABLE>
SUMMARY OF MUNICIPAL BONDS BY COMBINED RATINGS
(UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
MOODY'S S & P OF VALUE
<S> <C> <C> <C>
Aaa or AAA 26.8%
Aa AA 25.9
A A 14.8
Baa BBB 17.2
VMIG-1 A-1 2.9
NR NR 12.4
----------
100.0%
----------
----------
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $146,228,379) (Note 1)
See accompanying schedule $146,372,299
Cash 27,766
Interest receivable 2,246,155
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TOTAL ASSETS 148,646,220
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LIABILITIES:
Payable for investment securities purchased $11,832,397
Dividends payable 381,339
Investment advisory fee payable (Note 2) 80,662
Administration fee payable (Note 2) 23,046
Custodian fees payable (Note 2) 9,000
Transfer agent fees payable (Note 2) 4,000
Directors' fees and expenses (Note 2) 3,333
Accrued expenses and other payables 64,101
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TOTAL LIABILITIES 12,397,878
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NET ASSETS $136,248,342
- ----------------------------------------------------------------------------
NET ASSETS consist of:
Undistributed net investment income $ 450,440
Accumulated net realized gain on investments sold 1,395,728
Unrealized appreciation of investments 143,920
Par value 11,217
Paid-in capital in excess of par value 134,247,037
- ----------------------------------------------------------------------------
TOTAL NET ASSETS $136,248,342
- ----------------------------------------------------------------------------
NET ASSET VALUE per share
($136,248,342 DIVIDED BY 11,216,668 shares of
common stock outstanding) $12.15
- ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 8,801,763
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $993,763
Administration fee (Note 2) 283,932
Legal and audit fees 66,942
Transfer agent fees (Note 2) 64,629
Directors' fees and expenses (Note 2) 36,937
Custodian fees (Note 2) 31,584
Other 116,146
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TOTAL EXPENSES 1,593,933
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME 7,207,830
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS (Notes 1 and 3):
Net realized gain/(loss) on:
Securities (986,818)
Futures contracts 2,498,950
- ----------------------------------------------------------------------------
Net realized gain on investments during the
year 1,512,132
Net unrealized depreciation of investments
during the year (8,435,959)
- ----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (6,923,827)
- ----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 284,003
- ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 14
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<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
AUGUST 31, 1994
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
8/31/94 8/31/93*
<S> <C> <C>
- ----------------------------------------------------------------------------
Net investment income $ 7,207,830 $ 6,893,295
Net realized gain on investments and futures contracts during the
period 1,512,132 6,501,430
Net unrealized appreciation/(depreciation) of investments during
the period (8,435,959) 8,579,879
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations 284,003 21,974,604
Offering costs credited/charged to paid-in capital (Note 4) 102,055 (443,817)
Distributions to shareholders from:
Net investment income (7,526,384) (6,124,301)
Net realized gain on investments (6,617,834) --
Net increase in net assets from Fund share transactions (Note 4) -- 134,500,008
- ----------------------------------------------------------------------------
Net increase/(decrease) in net assets (13,758,160) 149,906,494
NET ASSETS:
Beginning of period 150,006,502 100,008
- ----------------------------------------------------------------------------
End of period (including undistributed net investment income of
$450,440 and $768,994, respectively) $136,248,342 $150,006,502
- ----------------------------------------------------------------------------
<FN>
* The Portfolio commenced operations on September 24, 1992.
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 15
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<PAGE>
FINANCIAL HIGHLIGHTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
8/31/94 8/31/93*
<S> <C> <C>
- ----------------------------------------------------------------------------
Operating performance:
Net asset value, beginning of period $13.37 $12.00
- ----------------------------------------------------------------------------
Net investment income 0.64 0.62
Net realized and unrealized gain/(loss) on investments (0.61) 1.34
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations 0.03 1.96
- ----------------------------------------------------------------------------
Offering costs credited/charged to paid-in capital 0.01 (0.04)
Less distributions:
Dividends from net investment income (0.67) (0.55)
Distributions from net realized capital gains (0.59) --
- ----------------------------------------------------------------------------
Net asset value, end of period $12.15 $13.37
- ----------------------------------------------------------------------------
Market value, end of period $11.500 $12.625
- ----------------------------------------------------------------------------
Total return** 0.72% 9.97%
- ----------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 136,248 $ 149,970
Ratio of operating expenses to average net assets 1.12% 1.10%
Ratio of net investment income to average net assets 5.08% 5.21%+
Portfolio turnover rate 85% 163%+
- ----------------------------------------------------------------------------
<FN>
* The Portfolio commenced operations on September 24, 1992.
** Total return represents aggregate total returns based on market value for the
periods.
+ Annualized.
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 16
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES.
Managed Municipals Portfolio II Inc. (the "Portfolio") was organized as a
corporation under the laws of the State of Maryland on July 23, 1992 and is
registered with the Securities and Exchange Commission as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The policies described below are followed consistently by the
Portfolio in the preparation of its financial statements in conformity with
generally accepted accounting principles.
PORTFOLIO VALUATION: Investments are valued by The Boston Company Advisors,
Inc. ("Boston Advisors") after consultation with an independent pricing service
(the "Service") approved by the Portfolio's Board of Directors. When, in the
judgment of the Service, quoted bid prices for investments are readily available
and are representative of the bid side of the market, these investments are
valued at the mean between the quoted bid prices and asked prices. Investments
for which, in the judgment of the Service, no readily obtainable market
quotations are available, are carried at fair value as determined by the
Service, based on methods that include consideration of: yields or prices of
municipal obligations of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. The
Service may use electronic data processing techniques and/or a matrix system to
determine valuations. Short-term investments that mature in fewer than 60 days
are valued at amortized cost.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after trade date. Realized
gains and losses on investments sold are recorded on the basis of identified
cost. Interest income is recorded on the accrual basis.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of the
Portfolio to make monthly distributions of substantially of all its net
investment income to shareholders. Net realized capital gains, if any, will be
distributed to shareholders at least once a year. In addition, in order to avoid
the application of a 4% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Portfolio may make an
additional distribution shortly before December 31 in each year of any
undistributed ordinary income or capital gains and expects to make any other
distributions as are necessary to avoid the application of this tax. To the
extent that net realized capital gains can be offset by capital losses and loss
carryforwards, it is the policy of the Portfolio not to distribute such gains.
- ------------------------------ 17
------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994 (CONTINUED)
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by the Portfolio, timing
differences and differing characterization of distributions made by the
Portfolio.
FUTURES CONTRACTS: Upon entering into a futures contract, the Portfolio is
required to deposit with the broker an amount of cash or cash equivalents equal
to a certain percentage of the contract amount. This is known as the "initial
margin." Subsequent payments ("variation margin") are made or received by the
Portfolio each day, depending on the daily fluctuation of the value of the
contract.
For financial statement purposes, an amount equal to the settlement amount of
the contract is included in the Portfolio's Statement of Assets and Liabilities
as an asset and as an equivalent liability. For long futures positions, the
asset is marked-to-market daily. For short futures positions, the liability is
marked-to-market daily. The daily changes in the contract are recorded as
unrealized gains or losses. The Portfolio recognizes a realized gain or loss
when the contract is closed.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments or index, which may not correlate
with the change in value of the hedged investments. In addition, there is the
risk that the Portfolio may not be able to enter into a closing transaction
because of an illiquid secondary market.
FEDERAL INCOME TAXES: It is the policy of the Portfolio to qualify as a
regulated investment company, if such qualification is in the best interest of
its shareholders, by complying with the requirements of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its earnings to its shareholders. Therefore,
no Federal income tax provision is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS.
The Portfolio has entered into an investment advisory agreement (the
"Advisory Agreement") with Greenwich Street Advisors, a division of Mutual
Management Corp., which is controlled by Smith Barney Holdings Inc.
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------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994 (CONTINUED)
("Holdings"). Holdings is a wholly owned subsidiary of The Travelers Inc. Under
the Advisory Agreement, the Portfolio pays a monthly fee at the annual rate of
0.70% of the value of its average daily net assets.
Prior to June 1, 1994, the Portfolio was party to an administration agreement
with Boston Advisors, an indirect wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"). Under this agreement, the Portfolio paid a monthly fee
at the annual rate of 0.20% of the value of its average daily net assets.
On June 1, 1994, Smith, Barney Advisers, Inc. ("SBA"), which is controlled by
Holdings, succeeded Boston Advisors as the Portfolio's administrator. The new
administration agreement contains substantially the same terms and conditions,
including the level of fees, as the predecessor agreement.
On June 1, 1994, the Portfolio also entered into a sub-administration
agreement (the "Sub-Administration Agreement") with Boston Advisors. Under the
Sub-Administration Agreement, SBA pays Boston Advisors a portion of its fee at a
rate agreed upon from time to time between SBA and Boston Advisors.
No officer, director, or employee of Smith Barney Inc. ("Smith Barney") or
any of its affiliates receives any compensation from the Portfolio for serving
as a Director or officer of the Portfolio. The Portfolio pays each Director, who
is not an officer, director or employee of Smith Barney or any of its
affiliates, $5,000 per annum plus $500 per meeting attended and reimburses each
such Director for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Portfolio's custodian. The Shareholder Services Group,
Inc., a subsidiary of First Data Corporation, serves as the Portfolio's transfer
agent.
3. SECURITIES TRANSACTIONS.
For the year ended August 31, 1994, cost of purchases and proceeds from sales
of investment securities (excluding short-term investments) aggregated
$114,728,086 and $107,389,006, respectively.
At August 31, 1994, aggregate gross unrealized appreciation and depreciation
for all securities in which there was an excess of value over tax cost amounted
to $1,507,162 and $1,363,242, respectively.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994 (CONTINUED)
4. PORTFOLIO SHARES.
At August 31, 1994, 500 million shares of common stock, with a par value of
$.001 per share were authorized.
Common stock transactions were as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
8/31/94 8/31/93*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------
<CAPTION>
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------
INITIAL PUBLIC OFFERING (9/24/92) -- $ -- 10,500,000 $126,000,000
SUBSEQUENT OFFERING (10/7/92) -- -- 708,334 8,500,008
- --------------------------------------------------------------------
TOTAL INCREASE -- $ -- 11,208,334 $134,500,008+
- --------------------------------------------------------------------
<FN>
* The Portfolio commenced operations on September 24, 1992.
+ Before estimated offering costs charged to paid-in capital of $443,817. As of
August 31, 1994 the estimated offering costs were reduced by $102,055 to
reflect the actual offering costs incurred.
</TABLE>
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------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
NET REALIZED AND NET INCREASE/
UNREALIZED GAIN/
INVESTMENT NET INVESTMENT (LOSS) ON (DECREASE) IN NET
INCOME INCOME INVESTMENTS ASSETS FROM OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------
<CAPTION>
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,
1992* $1,569,794 $.14 $1,322,744 $.12 $ 136,467 $.01 $ 1,459,211 $.13
February 28,
1993 2,224,608 .20 1,853,650 .17 11,113,679 .99 12,967,329 1.16
May 31,
1993 2,293,737 .20 1,954,811 .17 (896,302) (.08 ) 1,058,509 .09
August 31,
1993 2,259,898 .20 1,762,090 .16 4,727,465 .42 6,489,555 .58
November 30,
1993 2,192,534 .20 1,765,112 .16 2,478,339 .22 4,243,451 .38
February 28,
1994 2,185,398 .19 1,776,196 .16 (3,377,219) (.30 ) (1,601,023) (.14 )
May 31,
1994 2,214,185 .20 1,821,700 .16 11,695,051 1.04 13,516,751 1.20
August 31,
1994 2,209,646 .20 1,844,822 .16 (17,719,998) (1.57 ) (15,875,176) (1.41 )
--------------------------------------------------------------------------------------
<FN>
* The Portfolio commenced operations on September 24, 1992.
</TABLE>
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
AUGUST 31, 1994
To the Shareholders and Board of Directors of
Managed Municipals Portfolio II Inc.:
We have audited the accompanying statement of assets and liabilities of
Managed Municipals Portfolio II Inc., including the schedule of portfolio
investments, as of August 31, 1994, the related statement of operations for the
year then ended, and the statements of changes in net assets and the financial
highlights for the year then ended and for the period from September 24, 1992
(commencement of operations) to August 31, 1993. 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.
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, 1994 by correspondence with the custodian and brokers. 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, 1994, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the year then ended and for the period from September
24, 1992 (commencement of operations) through August 31, 1993, in conformity
with generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Boston, Massachusetts
October 7, 1994
- ------------------------------ 22
------------------------------
<PAGE>
TAX INFORMATION (UNAUDITED)
FISCAL YEAR ENDED AUGUST 31, 1994
MANAGED MUNICIPALS PORTFOLIO II INC.
The capital gains distribution paid to shareholders for the fiscal year ended
August 31, 1994, whether taken in shares or in cash, is as follows:
The Portfolio........................................................$116,404
Of the dividends paid by the Fund from net investment income for the year
ended August 31, 1994, 100% is tax exempt for regular Federal income tax
purposes.
The above figures may differ from those cited elsewhere in this report due to
differences in the calculations of income and capital gains for Securities and
Exchange Commission (book) purposes and Internal Revenue Service (tax) purposes.
- ------------------------------ 23
------------------------------
<PAGE>
MANAGED MUNICIPALS
PORTFOLIO II INC.
DIRECTORS
Charles F. Barber
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
Heath B. McLendon
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD AND
INVESTMENT OFFICER
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT
Joseph P. Deane
VICE PRESIDENT
INVESTMENT OFFICER
David Fare
INVESTMENT OFFICER
Lewis E. Daidone
TREASURER
Christina T. Sydor
SECRETARY
INVESTMENT ADVISER
Greenwich Street Advisors
388 Greenwich Street
New York, New York 10013
ADMINISTRATOR
Smith, Barney Advisers, Inc.
388 Greenwich Street
New York, New York 10013
SUB-ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
- ------------------------------ 24
------------------------------
<PAGE>
- --------------------------------------------------------------------------------
THIS REPORT IS SENT TO THE SHAREHOLDERS OF THE
MANAGED MUNICIPALS PORTFOLIO II INC.
FOR THEIR INFORMATION. IT IS NOT A PROSPECTUS,
CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE
PURCHASE OR SALE OF SHARES OF THE PORTFOLIO OR OF ANY
SECURITIES MENTIONED IN THE REPORT.
FD0775 J4
- --------------------------------------------------------------------------------
