<PAGE>
- -------------------------------------------------------------------------------
MANAGED MUNICIPALS
PORTFOLIO II INC.
SEMI-ANNUAL REPORT
February 28, 1995
[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.
FEBRUARY 28, 1995
DEAR SHAREHOLDER:
The last six months could once again be characterized as the worst of
times and the best of times in the bond market. The municipal market
experienced a rather chaotic selloff in October and November that in
retrospect made little sense. The market subsequently began to realize that
the fears of significant inflation and much more stringent Federal Reserve
Board policy which would drive interest rates higher was severely
exaggerated. The economic numbers began to gradually ease and the
possibility of that elusive "soft landing" has become more realistic.
This change in attitude has had a profound impact on the municipal
marketplace. It went from a tax-loss driven wave of selling in mid-November
to a market that is now performing brilliantly and starved for new
issuance. We expect this tight supply condition to be with us for the
next several years, and contribute to strong relative performance by the
municipal market.
The most recent rally vindicates the investment strategy that we have
been pursuing. As the market weakened, we used the selloff to reposition
the fund with maturities that were somewhat longer, and to increase its
holdings of discount coupons (bonds that are selling below their redemption
value). In a market rally, discount-coupon bonds provide two important
features: They will clearly be the best-performing asset class in an up
market and also provide a great deal of call protection, which reduces
the chance of having bonds called away as interest rates decline. Until
we see real inflationary trends or a significant pickup in economic
activity, we will maintain this strategy of investing in high-quality,
discount bonds.
We have attempted to position the Fund in essential service revenue
bonds with a preference for credits rated AA or higher. At the end of this
quarter, 56% of the Fund's assets were rated AA or AAA. Orange
CONTINUED
- ------------------------------ 1
------------------------------
<PAGE>
County has once again pointed out that there are still risks in the
municipal market to be avoided, and that the real value is found in the
highest quality, not the highest yields.
The Fund's investment performance in the latest quarter was what we had
anticipated it would be in a better market environment. The net asset value
of the Fund increased by $1.00 per share during the past three months, to
$12.07 from $11.07. We would expect the net asset value to continue to
improve if the Federal Reserve Board is successful in engineering a "soft
landing."
We look forward to reporting to you in May in the Fund's quarterly
report to investors. Should you have any questions about your investment in
the Fund, please call The Shareholder Services Group at (800) 331-1710.
Sincerely,
Heath B. McLendon Joseph P. Deane
CHAIRMAN OF THE BOARD VICE PRESIDENT AND
INVESTMENT OFFICER
April 3, 1995
JOE DEANE WILL BE APPEARING AS A SPECIAL GUEST ON
WALL $TREET WEEK WITH LOUIS RUKEYSER
ON MAY 5TH, ON THE PBS TELEVISION NETWORK.
CHECK YOUR LOCAL LISTINGS FOR TIME AND CHANNEL.
- ------------------------------ 2
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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>
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
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
</TABLE>
DIVIDEND DATA*
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1995
<TABLE>
<CAPTION>
EQUIVALENT TAXABLE DISTRIBUTION RATE
--------------------------------------
PER SHARE ANNUALIZED ASSUMING ASSUMING ASSUMING ASSUMING
DIVIDEND DISTRIBUTION 28% FEDERAL 31% FEDERAL 36% FEDERAL 39.6% FEDERAL
DISTRIBUTION RATE TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
- ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.061 6.06% 8.42% 8.78% 9.47% 10.03%
<FN>
- -------------
* Based on February 28, 1995 net asset value of $12.07 per share.
+ As of record date, September 23, 1994, October 24, 1994, November 22, 1994,
December 22, 1994, January 24, 1995 and February 21, 1995, respectively.
</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.
- --------------------------- 3
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<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
KEY TO INSURANCE ABBREVIATIONS
FGIC -- Federal Guaranty Insurance Corporation
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
</TABLE>
<TABLE>
<CAPTION>
Market
Rating Value
Face Value Moody's S&P (Note 1)
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES--100.3%
ALASKA -- 7.4%
$ 2,895,000 Alaska Industrial Development & Export Authority, Series
A,
6.500% due 4/1/14 A A- $ 2,895,000
Valdez, Alaska, Marine Terminal Revenue:
1,000,000 (Mobil Alaska Pipeline),
5.750% due 11/1/28 Aa2 AA 913,750
7,000,000 Series C, (B.P. Pipelines Project),
5.650% due 12/1/28 A1 AA- 6,168,750
ARIZONA -- 0.7%
1,000,000 Greenlee County, Arizona, Industrial Development Authority
Revenue,
5.450% due 6/1/09 A3 A 933,750
CALIFORNIA -- 12.9%
4,240,000 California State, Department of Water Resources, (Central
Valley Project),
5.750% due 12/1/19 Aa AA 4,017,400
Los Angeles, California:
6,000,000 Convention & Exhibition Center, Authority Lease Revenue,
(MBIA insured),
5.125% due 8/15/21 Aaa AAA 5,190,000
5,500,000 Waste Water System Revenue, Series D, (FGIC insured),
5.200% due 11/1/21 Aaa AAA 4,805,625
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 4
- ------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Market
Rating Value
Face Value Moody's S&P (Note 1)
- ---------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
CALIFORNIA (CONTINUED)
$ 2,000,000 Los Angeles County, California, Metropolitan
Transportation Authority, (MBIA insured),
5.625% due 7/1/18 Aaa AAA $ 1,867,500
835,000 Redding, California, Joint Powers Authority, Solid Waste
and Corporation Yard, Series A,
5.000% due 1/1/05 A BBB+ 750,456
1,000,000 San Jose, California, Redevelopment Agency, Tax Revenue
Project, (MBIA insured),
5.250% due 8/1/16 Aaa AAA 897,500
COLORADO -- 10.4%
4,000,000 Colorado Springs, Colorado, Airport Revenue, Series A,
7.000% due 1/1/22 NR BBB 4,090,000
30,000,000 Dawson Ridge, Colorado, Metropolitan District #1, Series
A, Escrowed to Maturity,
Zero Coupon due 10/1/22 Aaa NR 4,575,000
6,250,000 Denver, Colorado, Airport Revenue, Series C,
6.125% due 11/15/25 Baa BB 5,453,125
FLORIDA -- 8.1%
6,000,000 Florida State, Board of Education, Capital Outlay, Series
E,
5.250% due 6/1/23 Aa AA 5,332,500
1,500,000 Martin County, Florida, Industrial Development Project,
Indiantown Cogeneration, Series A,
7.875% due 12/15/25 Baa3 BBB- 1,591,875
4,000,000 Tampa, Florida, Revenue Bonds, (Aquarium Project),
7.750% due 5/1/27 NR NR 4,105,000
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 5
- ------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Market
Rating Value
Face Value Moody's S&P (Note 1)
- ---------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
ILLINOIS -- 3.5%
$ 2,000,000 Illinois Educational Facilities Authority Revenue,
(University of Chicago),
5.700% due 12/1/25 Aaa AA $ 1,847,500
3,000,000 Metropolitan Pier & Exhibition Authority, Illinois,
Dedicated State Tax Revenue, (MBIA insured),
6.000% due 6/15/27 Aaa AAA 2,876,250
IOWA -- 1.1%
1,500,000 Dawson, Iowa, Industrial Development Revenue, (Cargill
Inc., Project),
6.500% due 7/15/12 NR AA- 1,516,875
MARYLAND -- 4.0%
4,000,000 Maryland State Energy Financing Administration Revenue,
Solid Waste Disposal Revenue, (Hagerstown Project),
9.000% due 10/15/16 NR NR 4,135,000
1,650,000 Prince George's County, Maryland, Refunding Revenue,
(Dimension Health Corporation),
5.300% due 7/1/24 A NR 1,334,437
MASSACHUSETTS -- 10.6%
2,000,000 Commonwealth of Massachusetts, Health and Education
Revenue, Series G, (MBIA insured),
5.375% due 7/1/24 Aaa AAA 1,765,000
4,000,000 Commonwealth of Massachusetts, Industrial Financing
Agency, (Fitchburg Recycling),
9.000% due 8/1/16 NR NR 4,165,000
6,000,000 Commonwealth of Massachusetts, State Water Resources
Authority, Series A, (MBIA insured),
6.000% due 8/1/24 Aaa AAA 5,865,000
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 6
- ------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Market
Rating Value
Face Value Moody's S&P (Note 1)
- ---------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
MASSACHUSETTS (CONTINUED)
$ 3,000,000 Commonwealth of Massachusetts, Turnpike Authority,
Turnpike Revenue,
5.000% due 1/1/20 A1 A+ $ 2,523,750
MICHIGAN -- 6.6%
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 5,985,000
2,000,000 University of Michigan, Hospital Revenue, Series A,
5.750% due 12/1/12 Aa AA 1,947,500
MONTANA -- 1.4%
2,000,000 Montana State Board Investment Resources Recovery Revenue,
(Yellowstone Energy Project),
7.000% due 12/31/19 NR NR 1,830,000
NEBRASKA -- 1.5%
2,000,000 Nebraska Investment Financing Authority, Single Family
Housing Revenue, Series A, (GNMA insured),
6.700% due 9/1/26 NR AAA 2,020,000
NEVADA -- 3.5%
4,650,000 Clark County, Nevada, Industrial Development Revenue,
(Southwest Gas Corporation),
7.500% due 9/1/32 Ba1 BBB- 4,772,063
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 2,628,750
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 7
- ------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Market
Rating Value
Face Value Moody's S&P (Note 1)
- ---------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
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- $ 1,494,375
NEW YORK -- 4.3%
3,000,000 Battery Park City, New York, Authority Revenue, Series A,
5.250% due 11/1/17 A1 AA 2,595,000
2,445,000 New York State Housing Corporation Revenue, Refunding,
(Battery Park City),
5.500% due 11/1/20 A1 AA 2,228,006
1,000,000 New York State Housing Finance Authority, Mortgage
Revenue, Multifamily Housing, Series A,
6.250% due 8/15/25 Aa NR 983,750
NORTH CAROLINA -- 1.1%
1,500,000 Coastal Regional Solid Waste Management Disposal
Authority, North Carolina, Solid Waste Revenue,
6.500% due 6/1/08 A BBB 1,528,125
SOUTH CAROLINA -- 3.5%
2,120,000 Myrtle Beach, South Carolina, Certificates of
Participation, (Myrtle Beach Convention Center),
6.875% due 7/1/07 Baa1 BBB+ 2,167,700
3,000,000 South Carolina State Public Services Authority, (FGIC
insured),
5.000% due 1/1/25 Aaa AAA 2,505,000
TENNESSEE -- 2.2%
3,000,000 Loudon County, Tennessee, Industrial Development Board,
Solid Waste Disposal Revenue,
6.200% due 2/1/23 Aa2 AA 2,955,000
TEXAS -- 6.7%
1,500,000 Arlington, Texas, Independent School District,
5.750% due 2/15/21 Aaa NR 2,872,500
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 8
- ------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Market
Rating Value
Face Value Moody's S&P (Note 1)
- ---------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
TEXAS (CONTINUED)
$ 1,500,000 Burleson, Texas, Independent School District,
6.750% due 8/1/24 Aaa NR $ 1,571,250
5,000,000 Sam Rayburn, Texas, Municipal Power Agency, Series A,
6.750% due 10/1/14 Baa BB 4,568,750
WASHINGTON -- 2.1%
3,000,000 Washington State, General Obligation Bonds, Series A,
5.750% due 9/1/19 Aa AA 2,861,250
WEST VIRGINIA -- 2.1%
3,000,000 Marion County, West Virginia, Community Solid Waste
Disposal Facilities Revenue, (American Recycle Project),
7.750% due 12/1/11 NR NR 2,775,000
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 1,967,500
1,370,000 Housing Revenue,
5.650% due 11/1/23 A1 A 1,239,850
2,000,000 Wisconsin State Health and Educational Facilities, Aurora
Healthcare Obligation, (MBIA insured),
5.250% due 8/15/23 Aaa AAA 1,692,500
- ---------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $134,085,238*) 100.3% 135,789,912
OTHER ASSETS AND LIABILITIES (NET) (0.3) (363,943)
- ---------------------------------------------------------------------------
NET ASSETS 100.0% $135,425,969
- ---------------------------------------------------------------------------
<FN>
* Aggregate cost for Federal tax purposes.
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 9
- ------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED) (CONTINUED)
SUMMARY OF MUNICIPAL BONDS BY COMBINED RATINGS
<TABLE>
<CAPTION>
PERCENT
MOODY'S S & P OF VALUE
<S> <C> <C> <C>
Aaa or AAA 31.6%
Aa AA 24.7
A A 9.3
Baa BBB 16.7
NR NR 17.7
----------
100.0%
----------
----------
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 10
- ------------------------------
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $134,085,238) (Note 1)
See accompanying schedule $135,789,912
Interest receivable 2,123,536
Receivable for investment securities sold 5,670,720
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TOTAL ASSETS 143,584,168
- ----------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased $7,502,284
Dividends payable 377,647
Due to custodian 98,272
Investment advisory fee payable (Note 2) 71,757
Administration fee payable (Note 2) 20,502
Transfer agent fees payable (Note 2) 9,496
Custodian fees payable (Note 2) 8,800
Directors' fees and expenses (Note 2) 5,833
Accrued expenses and other payables 63,608
- ----------------------------------------------------------------------------
TOTAL LIABILITIES 8,158,199
- ----------------------------------------------------------------------------
NET ASSETS $135,425,969
- ----------------------------------------------------------------------------
NET ASSETS consist of:
Undistributed net investment income $ 857,750
Accumulated net realized loss on investments sold (1,394,709)
Unrealized appreciation of investments 1,704,674
Par value 11,217
Paid-in capital in excess of par value 134,247,037
- ----------------------------------------------------------------------------
TOTAL NET ASSETS $135,425,969
- ----------------------------------------------------------------------------
NET ASSET VALUE per share
($135,425,969 DIVIDED BY 11,216,668 shares of
common stock outstanding) $12.07
- ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 11
- ------------------------------
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 4,559,945
- ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $449,184
Administration fee (Note 2) 128,338
Legal and audit fees 33,685
Directors' fees and expenses (Note 2) 24,793
Custodian fees (Note 2) 17,656
Transfer agent fees (Note 2) 16,838
Other 61,057
- ----------------------------------------------------------------------------
TOTAL EXPENSES 731,551
- ----------------------------------------------------------------------------
NET INVESTMENT INCOME 3,828,394
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS (Notes 1 and 3):
Net realized loss on investments during the
period (1,393,962)
Net unrealized appreciation of investments
during the period 1,560,754
- ----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 166,792
- ----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 3,995,186
- ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 12
- ------------------------------
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
2/28/95 YEAR ENDED
(UNAUDITED) 8/31/94
<S> <C> <C>
- ----------------------------------------------------------------------------
Net investment income $ 3,828,394 $ 7,207,830
Net realized gain/(loss) on investments and futures contracts
during the period (1,393,962) 1,512,132
Net unrealized appreciation/(depreciation) of investments during
the period 1,560,754 (8,435,959)
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,995,186 284,003
Offering costs credited to paid-in capital (Note 4) -- 102,055
Distributions to shareholders from:
Net investment income (3,421,084) (7,526,384)
Net realized gain on investments (1,396,475) (6,617,834)
- ----------------------------------------------------------------------------
Net decrease in net assets (822,373) (13,758,160)
NET ASSETS:
Beginning of period 136,248,342 150,006,502
- ----------------------------------------------------------------------------
End of period (including undistributed net investment income of
$857,750 and $450,440, respectively) $135,425,969 $136,248,342
- ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 13
- ------------------------------
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
2/28/94 ENDED PERIOD ENDED
(UNAUDITED) 8/31/94 8/31/93*
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Operating performance:
Net asset value, beginning of period$ 12.15 $ 13.37 $ 12.00
- ----------------------------------------------------------------------------
Net investment income 0.34 0.64 0.62
Net realized and unrealized
gain/(loss) on investments 0.01 (0.61) 1.34
- ----------------------------------------------------------------------------
Net increase in net assets
from operations 0.35 0.03 1.96
- ----------------------------------------------------------------------------
Offering costs credited/charged
to paid-in capital -- 0.01 (0.04)
Less distributions:
Dividends from net investment
income (0.31) (0.67) (0.55)
Distributions from net
realized capital gains (0.12) (0.59) --
- ----------------------------------------------------------------------------
Net asset value, end of period $ 12.07 $ 12.15 $ 13.37
- ----------------------------------------------------------------------------
Market value, end of period $ 11.625 $ 11.500 $ 12.625
- ----------------------------------------------------------------------------
Total return** 3.84% 0.72% 9.97%
- ----------------------------------------------------------------------------
Ratios to average net assets/ supplemental data:
Net assets, end of period
(in 000's) $ 135,426 $ 136,248 $ 149,970
Ratio of operating expenses
to average net assets 1.14%+ 1.12% 1.10%+
Ratio of net investment
income to average net assets 5.97%+ 5.08% 5.21%+
Portfolio turnover rate 54% 85% 163%
- ----------------------------------------------------------------------------
<FN>
* The Portfolio commenced operations on September 24, 1992.
** Total return represents aggregate total return based on market value for the
periods indicated.
+ Annualized.
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
- ---------------------------------- 14
- ------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995 (UNAUDITED)
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 4.00% 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.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
- ------------------------------ 15
------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995 (UNAUDITED) (CONTINUED)
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 was transferred effective November 7, 1994 to Smith
Barney Mutual Funds Management Inc. ("SBMFM"). Mutual Management Corp. and
SBMFM are both wholly owned subsidiaries of Smith Barney Holdings Inc.
("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.
- ------------------------------ 16
------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995 (UNAUDITED) (CONTINUED)
The Portfolio has entered into an administration agreement with SBMFM
(formerly known as Smith, Barney Advisers, Inc.). Under this agreement, the
Portfolio pays a monthly fee at the annual rate of 0.20% of the value of the
Portfolio's average daily net assets.
The Portfolio and SBMFM have entered into a sub-administration agreement
(the "Sub-Administration Agreement") with Boston Advisors, an indirect wholly
owned subsidiary of Mellon Bank Corporation ("Mellon"). Under the
Sub-Administration Agreement, SBMFM pays Boston Advisors a portion of its
administration fee at a rate agreed upon from time to time between SBMFM 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 six months ended February 28, 1995, cost of purchases and proceeds
from sales of investment securities (excluding short-term investments)
aggregated $70,912,062 and $77,425,367, respectively.
At February 28, 1995, aggregate gross unrealized appreciation and
depreciation for all securities in which there was an excess of value over tax
cost amounted to $3,127,519 and $1,422,845, respectively.
4. PORTFOLIO SHARES.
At February 28, 1995, 500 million shares of common stock, with a par value
of $.001 per share, were authorized.
For the six months ended February 28, 1995 and the year ended August 31,
1994, there were no issuance or redemption of the Fund's common stock.
As of August 31, 1994, the estimated offering costs were reduced by $102,055
to reflect the actual offering costs incurred.
- ------------------------------ 17
------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS
NET REALIZED AND NET INCREASE/
NET UNREALIZED GAIN/ (DECREASE) IN NET
INVESTMENT INVESTMENT (LOSS) ON ASSETS FROM
INCOME INCOME INVESTMENTS OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------
<CAPTION>
PER PER PER PER
QUARTER TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
ENDED
<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)
November 30,
1994 2,285,035 .20 1,903,928 .17 (11,803,746) (1.05) (9,899,818) (.88)
February 28,
1995 2,274,910 .20 1,924,466 .17 11,970,538 1.06 13,895,004 1.23
---------------------------------------------------------------------------
<FN>
* The Portfolio commenced operations on September 24, 1992.
</TABLE>
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------------------------------
<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
Jessica Bibliowicz
PRESIDENT
Joseph P. Deane
VICE PRESIDENT
AND INVESTMENT OFFICER
David Fare
INVESTMENT OFFICER
Lewis E. Daidone
SENIOR VICE PRESIDENT
AND TREASURER
Christina T. Sydor
SECRETARY
INVESTMENT ADVISER
Greenwich Street Advisors
388 Greenwich Street
New York, New York 10013
ADMINISTRATOR
Smith, Barney Mutual Funds
Management 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
KPMG Peat Marwick L.L.P.
345 Park Avenue
New York, NY 10054
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
- --------------------------- 19
------------------------------
<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.
FD0880 D5
- ---------------------------------------------------------------------------
