Managed Municipals
Portfolio II Inc.
Annual Report
August 31, 1995
[ARTWORK APPEARS HERE]
<PAGE>
Managed Municipals
Portfolio II Inc.
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to provide the annual report for Managed Municipals
Portfolio II Inc. for the year ended August 31, 1995. During the past 12 months
the Portfolio distributed income dividends totaling $0.677 per share. The
Portfolio has declared monthly dividends payable in October and November of
$0.063 per share. The table below shows the annualized distribution rates based
on the Portfolio's August 31, 1995 net asset value (NAV) per share and New York
Stock Exchange closing price:
<TABLE>
<CAPTION>
Annualized
Distribution Rate
-----------------
<S> <C>
$12.36 (NAV) 6.12%
$11.625 (NYSE) 6.50%
</TABLE>
The Portfolio's total return for the past three months was 0.82%. For the
year ended August 31, 1995, the total return was 8.86%. In comparison, the
average total return for all 61 closed-end municipal funds were 0.72% and 8.80%,
respectively, for the same periods, as reported by Lipper Analytical Services
Inc. Although the Portfolio performed well it continues to trade at discount to
its net asset value, as do many other closed-end funds.
Fall 1994 was a difficult time in the municipal market. Interest rates had
been pushed upward by the Federal Reserve Board in an effort to control
inflation causing turmoil in both the fixed income and equity markets.
Nevertheless, we chose to view these trying conditions as an opportunity. To
position the Portfolio for what we believed would be a better environment for
bonds in 1995, we concentrated on buying high-quality bonds with fairly long
maturities and discount coupons. These securities enabled us to maximize our
participation in the rally that began in December 1994.
1
<PAGE>
The bond markets rallied on news of a moderating economy and a positive
inflation outlook. These conditions still prevail and should continue for the
balance of 1995. We will maintain our current approach unless the economic
picture changes or the rally gets close to the peak bond prices of 1993. If
either event occurs we will invest in higher-coupon bonds and maturities of
shorter duration than currently comprise the Portfolio.
We have not altered our late-fall 1994 approach to any degree because the
economic climate is quite favorable for the fixed-income markets. We believe,
however, that bond prices will not rise much further from today's levels. In our
view, if economic growth remains slow and inflation stays under control then
municipals should stay comfortably in their current price range for the
remainder of 1995.
Thank you for your confidence in our investment management. If you have any
questions about the Portfolio, please call The Shareholder Services Group at
(800) 331-1710.
Sincerely,
/s/ Heath B. McLendon /s/ Joseph P. Deane
Heath B. McLendon Joseph P. Deane
Chairman and Investment Officer Vice President
September 22, 1995
2
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------------
- ----------------------------------
Municipal Bonds and Notes -- 93.8%
- ----------------------------------
<C> <C> <S> <C>
Alaska -- 2.1%
$ 2,895,000 A* Alaska Industrial Development & Export
Authority, Series A, 6.500% due 4/1/14 $ 2,945,663
- -------------------------------------------------------------------------------------------------------------
California -- 9.3%
4,240,000 AA California State, Department of Water
Resources, (Central Valley Project), Series L,
5.750% due 12/1/19 4,065,100
Los Angeles, California:
4,000,000 AAA Convention & Exhibition Center, Authority
Lease Revenue, MBIA-Insured,
5.125% due 8/15/21 3,530,000
2,000,000 AAA Waste Water System Revenue, Series D,
FGIC-Insured, 5.200% due 11/1/21 1,782,500
2,000,000 AAA Los Angeles County, CA Metropolitan
Transportation Authority, MBIA-Insured,
5.625% due 7/1/18 1,912,500
835,000 A* Redding, CA Joint Powers Authority,
Solid Waste and Corporation Yard, Series A,
5.000% due 1/1/05 775,506
1,000,000 AAA San Jose, CA Redevelopment Agency,
Tax Revenue Project, MBIA-Insured,
5.250% due 8/1/16 913,750
- -------------------------------------------------------------------------------------------------------------
12,979,356
- -------------------------------------------------------------------------------------------------------------
Colorado -- 12.0%
2,000,000 Baa* Arapahoe County, CO Improvement
Highway Revenue, 7.000% due 8/31/26 2,052,500
4,000,000 BBB Colorado Spring, CO Airport Revenue,
Series A, 7.000% due 1/1/22 4,155,000
30,000,000 Aaa* Dawson Ridge, CO Metropolitan District #1,
Series A, (Escrowed to Maturity with
U.S. Government Securities), zero coupon
due 10/1/22+ 4,537,500
6,250,000 Baa* Denver, CO Airport Revenue, Series C,
6.125% due 11/15/25 5,906,250
- -------------------------------------------------------------------------------------------------------------
16,651,250
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
3
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments
August 31, 1995 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
- ----------------------------------------------
Municipal Bonds and Notes -- 93.8% (continued)
- ----------------------------------------------
Connecticut -- 1.4%
Connecticut State, GO Bonds, Series A:
$ 1,000,000 Aa* 5.800% due 3/15/12 $ 1,010,000
1,000,000 Aa* 5.800% due 3/15/13 1,006,250
- -------------------------------------------------------------------------------------------------------------
2,016,250
- -------------------------------------------------------------------------------------------------------------
Florida -- 10.3%
3,000,000 Aaa* Dade County, FL Aviation Agency Revenue,
Series B, MBIA-Insured, 6.000% due 10/1/24 2,996,250
6,000,000 AA Florida State Board of Education, Capital
Outlay, Series E, 5.250% due 6/1/23 5,452,500
1,500,000 BBB- Martin County, FL Industrial Development
Project, Indiantown Cogeneration, Series A,
7.875% due 12/15/25 1,642,500
4,000,000 NR Tampa, FL Revenue Bonds, (Aquarium Project),
7.750% due 5/1/27 4,150,000
- -------------------------------------------------------------------------------------------------------------
14,241,250
- -------------------------------------------------------------------------------------------------------------
Illinois -- 0.7%
1,000,000 AA- Chicago, IL Gas Supply Revenue,
6.100% due 6/1/25 995,000
- -------------------------------------------------------------------------------------------------------------
Iowa -- 1.1%
1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project),
6.500% due 7/15/12 1,565,625
- -------------------------------------------------------------------------------------------------------------
Maryland -- 3.9%
4,000,000 NR Maryland State Energy Financing
Administration, Solid Waste Disposal
Revenue, (Hagerstown Project),
9.000% due 10/15/16 4,060,000
1,650,000 A* Prince George's County, MD Refunding
Revenue, (Dimension Health Corporation),
5.300% due 7/1/24 1,388,063
- -------------------------------------------------------------------------------------------------------------
5,448,063
- -------------------------------------------------------------------------------------------------------------
Massachusetts -- 5.8%
2,000,000 AAA Commonwealth of Massachusetts, Health
and Education Revenue, Series G,
MBIA-Insured, 5.375% due 7/1/24 1,850,000
2,000,000 Aaa* Commonwealth of Massachusetts State
Housing Finance Authority, Series A,
MBIA-Insured, 6.100% due 7/1/15 1,987,500
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
4
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments
August 31, 1995 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
- ----------------------------------------------
Municipal Bonds and Notes -- 93.8% (continued)
- ----------------------------------------------
Massachusetts -- 5.8% (continued)
$ 4,000,000 NR Commonwealth of Massachusetts, Industrial
Financing Agency, (Fitchburg Recycling),
9.000% due 8/1/16 $ 4,160,000
- -------------------------------------------------------------------------------------------------------------
7,997,500
- -------------------------------------------------------------------------------------------------------------
Michigan -- 6.8%
1,000,000 AAA Michigan State Housing Development
Authority Revenue, 6.150% due 10/1/15 992,500
1,000,000 NR Michigan State Strategic Funding, Limited
Obligation Revenue, (Blue Water Fiber
Project), 8.000% due 1/1/12 952,500
5,600,000 NR Midland County, MI Economic
Development Corporation, PCR, Limited
Obligation, Series B, 9.500% due 7/23/09 6,048,000
1,500,000 AA University of Michigan, Hospital Revenue,
Series A, 5.750% due 12/1/12 1,486,875
- -------------------------------------------------------------------------------------------------------------
9,479,875
- -------------------------------------------------------------------------------------------------------------
Montana -- 1.4%
2,000,000 NR Montana State Board Investment Resources
Recovery, (Yellowstone Energy Project),
7.000% due 12/31/19 1,912,500
- -------------------------------------------------------------------------------------------------------------
Nevada -- 5.3%
4,650,000 BBB- Clark County, NV IDR, (Southwest Gas
Corporation), 7.500% due 9/1/32 4,841,812
2,485,000 AAA Clark County, NV School District, Series A,
MBIA-Insured, 5.875% due 6/15/14 2,488,106
- -------------------------------------------------------------------------------------------------------------
7,329,918
- -------------------------------------------------------------------------------------------------------------
New Hampshire -- 1.4%
2,100,000 AAA New Hampshire Higher Education and
Health, (Mary Hitchcock Hospital),
FGIC-Insured, 5.250% due 8/15/21 1,913,625
- -------------------------------------------------------------------------------------------------------------
New Jersey -- 1.1%
1,500,000 A- Union County, NJ Utilities Authority,
Solid Waste Revenue, Series A,
7.200% due 6/15/14 1,563,750
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments
August 31, 1995 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
- ----------------------------------------------
Municipal Bonds and Notes -- 93.8% (continued)
- ----------------------------------------------
New York -- 7.1%
$ 3,000,000 AA Battery Park City, NY Authority Revenue,
Series A, 5.250% due 11/1/17 $ 2,688,750
2,445,000 AA New York State Housing Corporation,
Revenue Refunding, (Battery Park City),
5.500% due 11/1/20 2,218,837
5,000,000 A* New York City Municipal Water Finance
Authority, Water & Sewer System Revenue,
6.000% due 6/15/25 4,918,750
- -------------------------------------------------------------------------------------------------------------
9,826,337
- -------------------------------------------------------------------------------------------------------------
North Carolina -- 1.1%
1,500,000 A* Coastal Regional Solid Waste Management
Disposal Authority, NC Solid Waste Revenue,
6.500% due 6/1/08 1,571,250
- -------------------------------------------------------------------------------------------------------------
Ohio -- 0.7%
1,000,000 AAA Ohio State, Water Development Authority
Revenue, Fresh Water Services,
AMBAC-Insured, 5.900% due 12/1/21 1,001,250
- -------------------------------------------------------------------------------------------------------------
South Carolina -- 1.6%
2,120,000 BBB+ Myrtle Beach, SC COP,
(Myrtle Beach Convention Center),
6.875% due 7/1/07 2,228,650
- -------------------------------------------------------------------------------------------------------------
Tennessee -- 2.2%
3,000,000 AA Loudon County, TN IDR, Solid Waste
Revenue, (Kimberly Clark),
6.200% due 2/2/23 3,011,250
- -------------------------------------------------------------------------------------------------------------
Texas -- 5.8%
3,000,000 Aaa* Arlington, TX Independent School District,
5.750% due 2/15/21 2,955,000
1,500,000 Aaa* Burleson, TX Independent School District,
6.750% due 8/1/24 1,601,250
1,500,000 Aaa* Leander, TX Independent School District,
5.625% due 8/15/16 1,445,625
2,000,000 AAA Matagorda County, TX District No. 1,
6.100% due 7/1/28 2,007,500
- -------------------------------------------------------------------------------------------------------------
8,009,375
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments
August 31, 1995 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
- ----------------------------------------------
Municipal Bonds and Notes -- 93.8% (continued)
- ----------------------------------------------
Virginia -- 2.8%
$ 2,000,000 AAA Riverside, VA Regional Jail Facility,
Revenue Bonds, MBIA-Insured,
6.000% due 7/1/25 $ 2,000,000
1,810,000 AA+ Virginia State Housing Development Authority,
Series F, 6.400% due 7/1/28 1,830,363
- -------------------------------------------------------------------------------------------------------------
3,830,363
- -------------------------------------------------------------------------------------------------------------
Washington -- 4.9%
2,000,000 Aa* Clark County, WA School District No. 037,
5.900% due 12/1/12 2,015,000
3,000,000 AA Washington State, GO Bonds, Series A,
5.750% due 9/1/19 2,932,500
2,000,000 AAA Washington State Public Power, (Nuclear
Project No. 3), Series B, MBIA-Insured,
5.600% due 7/1/15 1,885,000
- -------------------------------------------------------------------------------------------------------------
6,832,500
- -------------------------------------------------------------------------------------------------------------
West Virginia -- 2.6%
4,000,000 NR Marion County, Community Solid Waste
Disposal, (American Recycle Inc.),
7.750% due 12/1/11 3,645,000
- -------------------------------------------------------------------------------------------------------------
Wisconsin -- 2.4%
Wisconsin Housing & Economic
Development Authority, Series A:
2,000,000 AA Home Ownership Revenue,
6.450% due 3/1/17 2,032,500
1,370,000 A1* Housing Revenue, 5.650% due 11/1/23 1,236,425
- -------------------------------------------------------------------------------------------------------------
3,268,925
- -------------------------------------------------------------------------------------------------------------
Total Municipal Bonds and Notes
(Cost -- $126,395,613) 130,264,525
=============================================================================================================
- -------------------------------------------
Short-Term Tax-Exempt Investments++ -- 6.2%
- -------------------------------------------
Florida -- 2.7%
3,800,000 VMIG 1* Hillsborough County, FL IDA, PCR (Tampa
Electric Co. Project), 3.300% due 9/1/25 3,800,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments
August 31, 1995 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
- -------------------------------------------------------
Short-Term Tax-Exempt Investments++ -- 6.2% (continued)
- -------------------------------------------------------
Louisiana -- 2.2%
$ 1,000,000 VMIG 1* Calcasieu Parish Inc., LA IDB, Environmental
Revenue, (Citgo Petroleum Corp. Project),
3.500% due 12/1/24 $ 1,000,000
2,000,000 VMIG 1* Louisiana State Offshore Terminal Authority,
(Loop Inc. Project), 3.200% due 9/1/06 2,000,000
- -------------------------------------------------------------------------------------------------------------
3,000,000
- -------------------------------------------------------------------------------------------------------------
Texas -- 0.6%
800,000 A-1+ Lubbock, TX Health Facilities Development
Corp. Revenue, (St. Joseph), 3.300% due 7/1/13 800,000
- -------------------------------------------------------------------------------------------------------------
Washington -- 0.7%
1,000,000 A-1+ Washington State Health Care Facility,
3.200% due 10/1/05++ 1,000,000
- -------------------------------------------------------------------------------------------------------------
Total Short-Term Tax-Exempt Investments
(Cost -- $8,600,000) 8,600,000
=============================================================================================================
Total Investments -- 100%
(Cost -- $134,995,613*) $138,864,525
=============================================================================================================
</TABLE>
+ Pre-refunded bonds escrowed by U.S. Government Securities and bonds escrowed
to maturity with U.S. Government Securities are considered by manager to be
triple-A rated even if issuer has not applied for new ratings.
++ Variable rate municipal bonds and notes are payable upon not more than one
business day's notice.
++ Security partially segregated by custodian for futures contracts commitments.
* Aggregate cost for Federal income tax purposes is substantially the same.
See pages 10 & 11 for definition of ratings and certain security
descriptions.
See Notes to
Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Summary of Investments by Combined Ratings
August 31, 1995 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
Moody's and/or S&P Total Investments
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Aaa AAA 27.0%
Aa AA 16.8
A A 14.8
Baa BBB 16.1
VMIG 1 A-1 6.2
NR NR 19.1
-----
100.0%
=====
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Corporation, except those identified by
an asterisk (*) are rated by Moody's Investors Services. The definitions of
the applicable rating symbols are set forth below:
Standard & Poor's -- Rating from "AA" to "BBB" 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. 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.
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 the lowest ranking
within its generic category.
Aaa -- Bonds that are 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 that are 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 that are 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 that are 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 Corporation
or Moody's Investors Services.
10
<PAGE>
- --------------------------------------------------------------------------------
Short-Term Securities Ratings
- --------------------------------------------------------------------------------
SP-1 -- Standard & Poor's highest rate rating indicating very strong or strong
capacity to pay principal and interest; those issues determined to
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.
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
- --------------------------------------------------------------------------------
ABAG -- Association of Bay Area Governors
AIG -- American International Guaranty
AMBAC -- American Municipal Bond Assurance Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility Construction Loan Insurance
COP -- Certificate of Participation
EDA -- Economic Development Authority
ETM -- Escrowed To Maturity
FAIRS -- Floating Adjustable Interest Rate Securities
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Federal Savings Association
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
ISD -- Independent School District
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PCR -- Pollution Control Revenue
PSF -- Permanent School Fund
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
SYCC -- Structured Yield Curve Certificate
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday Demand
11
<PAGE>
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 31, 1995
<S> <C>
Assets:
Investments, at value (Cost -- $134,995,613) $138,864,525
Cash 90,323
Interest receivable 2,099,043
Total Assets 141,053,891
Liabilities:
Investment advisory fees payable 80,249
Administration fees payable 22,928
Dividends payable 298,024
Payable for securities purchased 1,807,263
Payable to broker 59,375
Accrued expenses 137,024
- ---------------------------------------------------------------------------------------------
Total Liabilities 2,404,863
- ---------------------------------------------------------------------------------------------
Total Net Assets $138,649,028
=============================================================================================
Net Assets:
Par value of capital shares $ 11,217
Capital paid in excess of par value 134,020,329
Undistributed net investment income 605,716
Accumulated net realized gain
on security transactions and futures 361,604
Net unrealized appreciation of investments and futures 3,650,162
- ---------------------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $12.36 a share on 11,216,668 shares of $0.001
par value outstanding; 500,000,000 shares authorized) $138,649,028
=============================================================================================
</TABLE>
See Notes to
Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
8/31/95
- -----------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $ 9,271,574
- -----------------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 934,964
Administration fees (Note 2) 267,133
Audit and legal 79,597
Shareholder communications 66,123
Directors' fees 44,191
Shareholder and system servicing fees 37,844
Custody 37,171
Registration fees 221
Other 55,370
- -----------------------------------------------------------------------------------------
Total Expenses 1,522,614
- -----------------------------------------------------------------------------------------
Net Investment Income 7,748,960
- -----------------------------------------------------------------------------------------
Realized and Unrealized Gain on
Investments and Futures (Notes 3 and 4):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) (196,557)
Futures contracts 557,787
- -----------------------------------------------------------------------------------------
Net Realized Gain 361,230
- -----------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments
and Futures:
Beginning of year 370,628
End of year 3,650,162
- -----------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 3,279,534
- -----------------------------------------------------------------------------------------
Net Gain on Investments and Futures 3,640,764
- -----------------------------------------------------------------------------------------
Increase in Net Assets From Operations $11,389,724
=========================================================================================
</TABLE>
See Notes to
Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
8/31/95 8/31/94
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income $ 7,748,960 $ 7,207,830
Net realized gain 361,230 1,512,132
Increase (decrease) in net
unrealized appreciation 3,279,534 (8,435,959)
- -----------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 11,389,724 284,003
- -----------------------------------------------------------------------------------------------
Offering Costs Credited (Charged)
To Paid-In Capital -- 102,055
- -----------------------------------------------------------------------------------------------
Distributions to Shareholders From:
Net investment income (7,593,684) (7,526,384)
Net realized gains (1,395,354) (6,617,834)
- -----------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (8,989,038) (14,144,218)
- -----------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 2,400,686 (13,758,160)
Net Assets:
Beginning of year 136,248,342 150,006,502
- -----------------------------------------------------------------------------------------------
End of year* $138,649,028 $136,248,342
===============================================================================================
* Includes undistributed net
investment income of: $605,716 $450,440
===============================================================================================
</TABLE>
See Notes to
Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
August 31, 1995
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Managed Municipals Portfolio II Inc. ("Portfolio"), 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 Portfolio
are: (a) security transactions are accounted for on trade date; (b) securities
are valued at the mean between bid and ask 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) short-term
securities maturing within 60 days are valued at cost plus accreted discount, or
minus amortized premium, as applicable; (d) gains or losses on the sale of
securities are calculated by using the specific identification method; (e)
interest income, adjusted for amortization of premiums and accretion of original
issue discounts, is recorded on the accrual basis; market discount is recognized
upon the disposition of the security; (f) direct expenses are charged to the
Portfolio; (g) dividends and distributions to shareholders are recorded on the
ex-dividend date; (h) the Portfolio 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) certain prior year numbers have been restated to reflect current year's
presentation. Net investment income, net realized gains, and net assets were not
affected by this change.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), through its Greenwich Street Advisors division,
acts as investment adviser to the Portfolio. The Portfolio pays SBMFM an
advisory fee calculated at an annual rate of 0.70% of the average daily net
assets of the Portfolio. This fee is calculated daily and paid monthly.
SBMFM also acts as the Portfolio's administrator for which the Portfolio
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.
In addition, The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank Corporation, acted as sub-
administratator to the Portfolio. SBMFM paid Boston Advisors a portion of its
administration fee at a rate agreed upon from time to time between
15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
August 31, 1995 (continued)
- --------------------------------------------------------------------------------
SBMFM and Boston Advisors. As of July 10, 1995 this relationship was terminated.
3. Securities Transactions
For the year ended August 31, 1995, cost of purchase and proceeds from
sales of investment securities (excluding short-term investments) aggregated
$125,869,373 and $141,294,516, respectively.
At August 31, 1995, aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost amounted
to $4,923,408 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value amounted to $1,054,496
or a net unrealized appreciation of $3,868,912.
4. Futures Contracts
Initial margin deposits are made upon entering into futures contracts and
are recognized as assets. The initial margin is segregated by the custodian as
is noted in the schedule of investments. 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 Portfolio records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Portfolio's basis in the contract.
At August 31, 1995 the Portfolio had the following open futures contracts:
<TABLE>
<CAPTION>
Futures Expiration # of Basis Market Unrealized
contracts sold Month/Year Contracts Value Value Loss
====================================================================================
<S> <C> <C> <C> <C> <C>
U.S. Government
Long Bond Index 9/95 100 $11,096,875 $11,315,625 $218,750
====================================================================================
</TABLE>
5. Off Balance Sheet Risk
During the year ended August 31, 1995, the Portfolio entered into
transactions with off-balance-sheet risk in order to reduce its exposure to
market risk. These financial instruments include the short selling of futures.
These instruments contain off-balance-sheet risk whereby changes in market
values of the instruments may be in excess of the amounts recognized in the
schedule of investments.
16
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of capital stock outstanding througout each year:
<TABLE>
<CAPTION>
1995 1994 1993(1)
================================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $12.15 $13.37 $12.00
- ------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.69 0.64 0.62
Net realized and unrealized gain
(loss) on investments 0.32 (0.61) 1.34
- ------------------------------------------------------------------------------------------------
Total Income From Operations 1.01 0.03 1.96
- ------------------------------------------------------------------------------------------------
Offering Costs Credited (Charged)
to Paid-In Capital: -- 0.01 (0.04)
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.68) (0.67) (0.55)
Net realized gains (0.12) (0.59) --
- ------------------------------------------------------------------------------------------------
Total Distributions (0.80) (1.26) (0.55)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.36 $12.15 $13.37
- ------------------------------------------------------------------------------------------------
Total Return 8.86% 0.72% 9.97%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $138,649 $136,248 $149,970
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.14% 1.12% 1.10%+
Net investment income 5.80 5.08 5.21+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 95% 85% 163%
================================================================================================
Market Value, End of Year $11.625 $11.500 $12.625
================================================================================================
</TABLE>
(1) For the period from September 24, 1992 (commencement of operations) to
August 31, 1993.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
17
<PAGE>
- --------------------------------------------------------------------------------
Quarterly Results of Operations
August 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Realized and Net Increase
Unrealized Gain (Decrease) in Net
Investment Net Investment (Loss) on 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,
1992* $1,569,794 $0.14 $1,322,744 0.12 $ 136,467 $0.01 $ 1,459,211 $0.13
February 28,
1993 2,224,608 0.20 1,853,650 0.17 11,113,679 0.99 12,967,329 1.16
May 31,
1993 2,293,737 0.20 1,954,811 0.17 (896,302) (0.08) 1,058,509 0.09
August 31,
1993 2,259,898 0.20 1,762,090 0.16 4,727,465 0.42 6,489,555 0.58
November 30,
1993 2,192,534 0.20 1,765,112 0.16 2,478,339 0.22 4,243,451 0.38
February 28,
1994 2,185,398 0.19 1,776,196 0.16 (3,377,219) (0.30) (1,601,023) (0.14)
May 31,
1994 2,214,185 0.20 1,821,700 0.16 11,695,051 1.04 13,516,751 1.20
August 31,
1994 2,209,646 0.20 1,844,822 0.16 (17,719,998) (1.57) (15,875,176) (1.41)
November 30,
1994 2,285,035 0.20 1,903,928 0.17 (11,803,746) (1.05) (9,899,818) (0.88)
February 28,
1995 2,274,910 0.20 1,924,466 0.17 11,970,538 1.06 13,895,004 1.23
May 31,
1995 2,370,604 0.21 1,965,482 0.18 4,883,683 0.43 6,849,165 0.61
August 31,
1995 2,341,025 0.21 1,955,084 0.17 (1,409,711) (0.12) 545,373 0.05
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the period from September 24, 1992 (commencement of operations) to
November 30, 1992.
18
<PAGE>
- --------------------------------------------------------------------------------
Financial Data
August 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period.
<TABLE>
<CAPTION>
Capital
NYSE Net Gains Dividend
Closing Asset Dividend Dividend Reinvestment
Payable Date Price+ Value+ Paid Paid Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
September 30, 1994 $11.125 $11.84 $0.061 -- $11.26
October 31, 1994 11.125 11.61 0.061 -- 10.98
November 30, 1994 10.250 10.81 0.061 -- 10.52
December 31, 1994 10.250 11.21 -- $0.1244 10.91
January 31, 1995 11.000 11.44 0.061 -- 11.23
February 28, 1995 11.375 11.94 0.061 -- 11.47
March 31, 1995 11.250 12.11 0.061 -- 11.35
April 30, 1995 11.125 12.25 0.061 -- 11.40
May 31, 1995 11.250 12.36 0.061 -- 11.59
June 30, 1995 11.563 12.26 0.063 -- 11.72
July 31, 1995 11.625 12.28 0.063 -- 11.72
August 31, 1995 11.500 12.22 0.063 -- 11.68
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
+ As of record date, September 23, 1994, October 24, 1994, November 22, 1994,
December 22, 1994, January 24, 1995, February 21, 1995, March 24, 1995, April
21, 1995, May 23, 1995, June 27, 1995, July 28, 1995 and August 25, 1995,
respectively.
19
<PAGE>
- --------------------------------------------------------------------------------
Additional Information
- --------------------------------------------------------------------------------
Change in Independent Auditor: On October 20, 1994, based upon the
recommendation of the Audit Committee of the Portfolio, the Board of Directors
determined not to retain Coopers & Lybrand L.L.P. ("Coopers & Lybrand") as the
Portfolio's independent auditor and voted to appoint KPMG Peat Marwick LLP.
During the Portfolio's two most recent fiscal years, Coopers & Lybrand's audit
reports contained no adverse opinion or disclaimer of opinion; nor were the
reports qualified or modified as to uncertainty, audit scope, or accounting
principles. Further, during this same period there were no disagreements with
Coopers & Lybrand on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Coopers & Lybrand, would have caused it to
make reference to the subject matter of such disagreements in connection with
its audit reports. The Portfolio has requested Coopers & Lybrand to provide a
letter to the Securities & Exchange Commission stating whether Coopers & Lybrand
agrees with the foregoing statements, and to provide the Portfolio with a copy
of such letter. A copy of this letter is available upon request by calling the
Portfolio at (212) 723-9218.
20
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
- --------------------------------------------------------------------------------
The Portfolio expects to pay monthly dividends of substantially all its net
investment income (that is, income (including its tax-exempt income and its
accrued original issue discount income) other than net realized capital gains)
to the holders of Common Stock. Under the Portfolio's current policy, which may
be changed at any time by its Board of Directors, the Portfolio's monthly
dividends will be made at a level that reflects the past and projected
performance of the Portfolio, which policy over time will result in the
distribution of all net investment income of the Portfolio. Expenses of the
Portfolio are accrued each day. Net realized capital gains, if any, will be
distributed to the shareholders at least once a year.
Under the Portfolio's Dividend Reinvestment Plan (the "Plan"), a
shareholder whose shares of Common Stock are registered in his or her own name
will have all distributions from the Portfolio reinvested automatically by The
Shareholder Services Group, Inc. ("TSSG") as 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 Portfolio 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 TSSG 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 at the time shares are valued for purposes of determining the number
of shares equivalent to the cash dividend or capital gains distribution, Plan
participants will be issued shares of Common Stock valued at the greater of (1)
the net asset value per share most recently determined as described under "Net
Asset Value" or (2) 95% of the market value. To the extent the Portfolio issues
shares to participants in the Plan at a discount to net asset value, the
remaining shareholders' interests in the Portfolio's net assets will be
proportionately diluted.
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 Portfolio declares a
dividend or capital gains distribution payable only in cash, TSSG 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 TSSG has
completed its purchases, and the market price exceeds the net asset value of the
Common Stock, TSSG will attempt to terminate
21
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
(continued)
- --------------------------------------------------------------------------------
purchases in the open market and cause the Portfolio to issue the remaining
dividend or distribution in shares at net asset value per share. 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 Portfolio issues the remaining shares. To the
extent TSSG is unable to stop open market purchases and cause the Portfolio to
issue the remaining shares, the average per share purchase price paid by TSSG
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 Portfolio at net asset value. TSSG will begin to
purchase Common Stock on the open market as soon as practicable after the record
date of the dividend or capital gains distribution, but in no event shall such
purchases continue later than 30 days after the payment date thereof, except
when necessary to comply with applicable provisions of the Federal securities
laws.
TSSG 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 TSSG in uncertificated form in the name of each Plan participant, and
each shareholder's proxy will include those shares purchased pursuant to the
Plan.
Experience under the Plan may indicate that changes to it are desirable.
The Portfolio 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 TSSG, with the Portfolio'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 The Shareholders Services Group, Inc., P.O.
Box 1376, Boston, Massachusetts 02104 or by telephone at (800) 331-1710.
22
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
August 31, 1995
- --------------------------------------------------------------------------------
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, 1995, and the related statement of operations, statement of changes
in net assets, and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of changes
in net assets for the year ended August 31, 1994 and the financial highlights
for the year and period in the two-year period then ended, were audited by other
auditors whose report thereon, dated October 7, 1994, expressed an unqualified
opinion on that statement of changes in net assets and those financial
highlights.
We conducted our audit 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, 1995, by
correspondence with the custodian. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Managed Municipals Portfolio II
Inc. as of August 31, 1995, and the results of its operations, changes in its
net assets and financial highlights for the year then ended, in conformity with
generally accepted accounting principles.
New York, New York
October 13, 1995
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 and
Investment Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Treasurer and
Senior Vice President
Joseph P. Deane
Vice President
Investment Officer
David Fare
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Custodian
PNC Bank
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
Investment Adviser
Smith Barney Mutual Funds
Management Inc.
388 Greenwich Street
New York, New York 10013
Transfer Agent
The Shareholder Services Group, Inc.
P.O. Box 1376
Boston, Massachusetts 02104
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 10/95
