<PAGE>
Managed Municipals
Portfolio II Inc.
Quarterly Report
May 31, 1996
SMITH BARNEY
------------
<PAGE>
Managed Municipals
Portfolio II Inc.
May 31, 1996
Dear Shareholder:
We are pleased to provide you with the quarterly report for the Managed
Municipals Portfolio II Inc. for the nine months ended May 31, 1996. During the
past quarter, the Portfolio distributed dividends totaling $0.177 per share and
currently pays monthly dividends of $0.059 per share. The table below shows the
annualized distribution rates based on the Portfolio's May 31, 1996 NAV per
share and New York Stock Exchange closing price.
Price Annualized
Per Share Distribution Rate
--------- -----------------
$12.15 (NAV) 5.83%
$11.63 (NYSE) 6.09%
For your convenience, we have summarized the quarter's prevailing
economic and market conditions and outlined the investment strategy employed by
the Portfolio during this time. A detailed summary of performance and current
holdings for the Portfolio can be found in the appropriate sections that follow
in the quarterly report.
Market and Economic Overview
The past year, and certainly the most recent quarter, has been
interesting for the municipal bond market. The year was characterized by low
inflation, somewhat weaker U.S. economic growth, and a modest supply of new
issue volume. On the surface, you would think these conditions would result in a
quiet and uneventful bond market. However, the reality was quite different. The
period from June through December 1995 saw an extension of the year's bond
market rally, while the period of January through May 1996 witnessed a
meaningful rise in interest rates and a corresponding decline in the bond
market.
In our view, the catalyst for this increased bond market volatility came
primarily from the U.S. government securities market. By the end of 1995, U.S.
Treasuries were driven to extremely low interest rates through purchases by
foreign central banks, leveraged hedge funds, and, in some cases, equity fund
managers seeking investment opportunities outside the stock market. Interest
rates have risen this year because many large investors gradually reversed their
positions as the 1995 year-end
1
<PAGE>
bond market euphoria began to fade. More recently, long municipal bond yields
have approached 6% plus, and long-term U.S. securities are yielding
approximately 7%. This is the buying opportunity we have been waiting for, and
we will begin to become more aggressive at today's lower bond prices.
Portfolio Update
The Managed Municipals Portfolio II was well-positioned for the rally
that occurred in 1995 with lower coupon discount bonds being our key position.
However, when the market continued to rally past levels that we believed to be
its maximum potential upside, we shortened our maturities, raised coupons,
increased our cash position and became more conservative in late fall 1995. The
Portfolio's conservative investment philosophy remained the same as interest
rates rose during the first quarter of 1996. However, we have become more
positive about the municipal bond market's prospects as both taxable and tax-
exempt yields have retreated by more than 1% in recent months. In anticipation
of lower long-term interest rates we have recently lowered our cash position,
slightly lengthened the Portfolio's maturity, and emphasized more high-grade
discounts than we had earlier in the quarter.
As of May 31, 1996, 83% of the Portfolio's holdings were rated
investment grade (BBB/Baa and higher) by Standard and Poor's Corporation or
Moody's Investors Service Inc., two major credit reporting and bond rating
agencies. The Portfolio's holdings are primarily concentrated in general
obligations (18.0%), industrial revenue bonds (17.8%), housing bonds (14.9%),
and utility bonds (11.4%). The average weighted maturity of the Managed
Municipals Portfolio II was approximately 22 years as of May 31, 1996.
In closing, we believe many investors may have become too pessimistic
about the municipal bond market's prospects over the near term. If the economic
and inflation numbers stay moderate, we expect a gradual decline in long-term
interest rates from today's levels. Because of our expectations, we believe
today's municipal bond market represents fair value and prime buying
opportunities. We believe that the second half of 1996 should be a more positive
environment for municipal bond investors than 1996 has been so far.
Sincerely,
/s/ Heath B. McLendon /s/ Joseph P. Deane
Heath B. McLendon Joseph P. Deane
Chairman and Vice President and
Chief Executive Officer Investment Officer
June 28, 1996
2
<PAGE>
Schedule of Investments
May 31, 1996 (unaudited)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -----------------------------------------------------------------------------------------------------------------
Municipal Bonds and Notes -- 99.2%
<S> <C> <C> <C>
Alabama -- 2.8%
$4,000,000 AAA Wilsonville, AL IDB, PCR, MBIA-Insured,
5.500% due 1/1/24 $ 3,680,000
- -----------------------------------------------------------------------------------------------------------------
Alaska -- 2.2%
2,895,000 A* Alaska Industrial Development & Export
Authority, Series A, 6.500% due 4/1/14(a) 2,942,044
- -----------------------------------------------------------------------------------------------------------------
California -- 7.3%
4,240,000 AA California State Department of Water
Resources, (Central Valley Project),
Series L, 5.750% due 12/1/19 4,054,500
1,000,000 AAA California Statewide Communities,
Multi-Family Mortgage Revenue, Series E,
FNMA-Collateralized, 6.400% due 6/1/28(a) 986,250
2,000,000 AAA California State Public Works Authority
Lease Revenue, Department of Correction,
California Prison-D, MBIA-Insured,
5.375% due 6/1/18 1,845,000
1,000,000 AAA El Dorado, CA Irrigation District
Revenue, FGIC-Insured, 5.600% due 2/15/12 972,500
1,000,000 AAA Los Angeles County, CA Metropolitan
Transportation Authority, MBIA-Insured,
5.625% due 7/1/18 952,500
1,000,000 AAA San Jose, CA Redevelopment Agency,
(Tax Revenue Project), MBIA-Insured,
5.250% due 8/1/16 916,250
- -----------------------------------------------------------------------------------------------------------------
9,727,000
- -----------------------------------------------------------------------------------------------------------------
Colorado -- 12.6%
2,000,000 Baa* Arapahoe County, CO Improvement Highway
Revenue, 7.000% due 8/31/26 2,060,000
4,000,000 BBB+ Colorado Springs, CO Airport Revenue,
Series A, 7.000% due 1/1/22(a) 4,140,000
30,000,000 Aaa* Dawson Ridge, CO Metropolitan District
No. 1, Series A, (Escrowed to Maturity with
Refco Strips), zero coupon due 10/1/22(b) 4,762,500
6,250,000 BBB Denver, CO Airport Revenue, Series C,
6.125% due 11/15/25(a) 5,867,188
- -----------------------------------------------------------------------------------------------------------------
16,829,688
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
3
<PAGE>
Schedule of Investments
May 31, 1996 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- --------------------------------------------------------------------------------------------
Connecticut -- 2.6%
<S> <C> <C> <C>
Connecticut State, GO, Series A:
$1,000,000 AA- 5.800% due 3/15/12 $1,003,750
1,500,000 AA- 5.375% due 5/15/12 1,441,875
1,000,000 AA- 5.800% due 3/15/13 1,000,000
- --------------------------------------------------------------------------------------------
3,445,625
- --------------------------------------------------------------------------------------------
Florida -- 6.0%
1,000,000 AAA Escambia County, FL School Board,
COP, Master Lease, MBIA-Insured,
5.500% due 2/1/16 953,750
1,500,000 AA Florida HFA, Series 1B, 6.000% due 7/1/17 1,498,125
1,500,000 BBB- Martin County, FL IDA, Indiantown
Cogeneration, Series A, 7.875%
due 12/15/25(a) 1,668,750
4,000,000 NR Tampa, FL Revenue Bonds, (Aquarium Project),
7.750% due 5/1/27 3,925,000
- --------------------------------------------------------------------------------------------
8,045,625
- --------------------------------------------------------------------------------------------
Illinois -- 0.7%
1,000,000 AA- Chicago, IL Gas Supply Revenue,
6.100% due 6/1/25 981,250
- --------------------------------------------------------------------------------------------
Indiana -- 0.8%
1,000,000 Aaa* Indiana Housing Finance Authority, Single-
Family Mortgage Revenue, GNMA &
FNMA-Collateralized, 6.250% due 7/1/28 1,006,250
- --------------------------------------------------------------------------------------------
Iowa -- 1.2%
1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project),
6.500% due 7/15/12 1,560,000
- --------------------------------------------------------------------------------------------
Maryland -- 2.8%
4,000,000 NR Maryland State Energy Financing Administration,
Solid Waste Disposal Revenue, (Hagerstown
Project), 9.000% due 10/15/16 3,690,000
- --------------------------------------------------------------------------------------------
Massachusetts -- 4.1%
4,000,000 NR Commonwealth of Massachusetts Industrial
Financing Agency, Fitchburg Recycling,
9.000% due 8/1/16 3,460,000
2,000,000 AAA Commonwealth of Massachusetts State Housing
Finance Authority, Series A, MBIA-Insured,
6.100% due 7/1/15 2,025,000
- --------------------------------------------------------------------------------------------
5,485,000
- --------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
4
<PAGE>
Schedule of Investments
May 31, 1996 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michigan -- 7.1%
$1,000,000 AAA Michigan State Housing Development
Authority Revenue, MBIA-Insured,
6.150% due 10/1/15 $ 1,005,000
1,000,000 NR Michigan State Strategic Funding, Limited
Obligation Revenue, (Blue Water Fiber
Project), 8.000% due 1/1/12 887,500
5,600,000 NR Midland County, MI Economic Development
Corporation, PCR, Limited Obligation,
Series B, 9.500% due 7/23/09(a) 6,118,000
1,500,000 AA University of Michigan, Hospital Revenue,
Series A, 5.750% due 12/1/12 1,453,125
- ---------------------------------------------------------------------------------------------------------------------
9,463,625
- ---------------------------------------------------------------------------------------------------------------------
Missouri -- 1.9%
1,000,000 AAA Missouri Health & Education, St. Louis
University Education Facility,
AMBAC-Insured, 5.125% due 10/1/16 913,750
1,600,000 AAA University City, MO Industrial Development,
Multi-Family Mortgage Revenue, GNMA-
Collateralized, 5.900% due 12/20/20 1,570,000
- ---------------------------------------------------------------------------------------------------------------------
2,483,750
- ---------------------------------------------------------------------------------------------------------------------
Montana -- 1.4%
2,000,000 NR Montana State Board Investment Resource
Recovery, (Yellowstone Energy Project),
7.000% due 12/31/19(a) 1,860,000
- ---------------------------------------------------------------------------------------------------------------------
Nevada -- 5.5%
4,650,000 BBB- Clark County, NV IDR, Southwest Gas
Corporation, 7.500% due 9/1/32(a) 4,882,500
2,485,000 AAA Clark County, NV School District GO,
MBIA-Insured, Series A,
5.875% due 6/15/14 2,453,937
- ---------------------------------------------------------------------------------------------------------------------
7,336,437
- ---------------------------------------------------------------------------------------------------------------------
New Jersey -- 3.0%
1,565,000 AAA Monmouth County, NJ Improvement Authority,
FSA-Insured, 5.400% due 7/15/11 1,498,488
1,000,000 AAA New Jersey State Housing & Mortgage Finance
Agency Revenue, Series O, MBIA-Insured
6.350% due 10/1/27(a) 1,008,750
</TABLE>
See Notes to
Financial Statements.
5
<PAGE>
Schedule of Investments
May 31, 1996 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Jersey -- 3.0% (continued)
$1,500,000 A- Union County, NJ Utilities Authority,
Solid Waste Revenue, Series A,
7.200% due 6/15/14(a) $1,498,125
- ----------------------------------------------------------------------------------------------------------
4,005,363
- ----------------------------------------------------------------------------------------------------------
New Mexico -- 0.3%
500,000 AAA Las Cruces, NM Utility Revenue,
MBIA-Insured, 5.500% due 12/1/11(a) 478,750
- ----------------------------------------------------------------------------------------------------------
New York -- 9.2%
2,000,000 AA Battery Park City Authority Revenue, Series A,
5.500% due 11/1/20 1,792,500
2,970,000 BBB City University of New York, John Jay College,
5.750% due 8/15/04 2,988,562
2,700,000 BBB+ New York City, NY GO, Series I, 5.750%
due 3/15/08 2,568,375
5,000,000 A* New York City, NY Municipal Water Finance
Authority, Water & Sewer System Revenue,
6.000% due 6/15/25 3,890,000
1,000,000 Aa* New York State Dormitory Authority Revenue,
6.125% due 7/1/25 986,250
- ----------------------------------------------------------------------------------------------------------
12,225,687
- ----------------------------------------------------------------------------------------------------------
North Carolina -- 1.2%
1,500,000 A* Coastal Regional Solid Waste Management
Disposal Authority, Solid Waste Revenue,
6.500% due 6/1/08 1,560,000
- ----------------------------------------------------------------------------------------------------------
North Dakota -- 0.7%
1,000,000 AAA Mercer County, ND PCR, Basin Electric
Power, AMBAC-Insured, 6.050% due 1/1/19 1,005,000
- ----------------------------------------------------------------------------------------------------------
Ohio -- 0.6%
1,000,000 AAA Ohio State Water Development Authority
Revenue, Fresh Water Services, AMBAC-
Insured, 5.900% due 12/1/21 997,500
- ----------------------------------------------------------------------------------------------------------
South Carolina -- 1.7%
2,120,000 BBB+ Myrtle Beach, SC COP, Myrtle Beach
Convention Center, 6.875% due 7/1/07 2,210,100
- ----------------------------------------------------------------------------------------------------------
Texas -- 6.7%
3,000,000 Aaa* Arlington, TX Independent School District,
PSFG, 5.750% due 2/15/21 2,898,750
</TABLE>
See Notes to
Financial Statements.
6
<PAGE>
Schedule of Investments
May 31, 1996 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas -- 6.7% (continued)
$1,000,000 AAA Bexar County, TX Health Facilities Development,
FSA-Insured, 6.100% due 11/15/23 $1,008,750
1,500,000 Aaa* Burleson, TX Independent School District,
PSFG, 6.750% due 8/1/24 1,578,750
1,500,000 Aaa* Leander, TX Independent School District,
PSFG, 5.625% due 8/15/16 1,421,250
2,000,000 AAA Matagorda County, TX District No. 1,
MBIA-Insured, 6.100% due 7/1/28 1,987,500
- ----------------------------------------------------------------------------------------------------------
8,895,000
- ----------------------------------------------------------------------------------------------------------
Virginia -- 7.1%
2,000,000 AAA Riverside, VA Regional Jail Facility, Revenue
Bonds, MBIA-Insured, 6.000% due 7/1/25 2,000,000
Virginia State Housing Development Authority:
1,245,000 AA+ Commonwealth Mortgage, Series D,
5.700% due 7/1/09 1,235,662
1,000,000 AAA Mortgage Housing Revenue, MBIA-Insured,
5.600% due 7/1/12 990,000
4,210,000 AA+ Series F, 6.400% due 7/1/17 4,278,413
925,000 AA+ Series K, 5.900% due 11/1/11 918,062
- ----------------------------------------------------------------------------------------------------------
9,422,137
- ----------------------------------------------------------------------------------------------------------
Washington -- 5.1%
2,000,000 Aa* Clark County, WA GO, School District No. 37,
5.900% due 12/1/12 2,002,500
3,000,000 AA Washington State GO, Series A,
5.750% due 9/1/19 2,876,250
2,000,000 AAA Washington State Public Power, (Nuclear
Project No. 3), Series B, MBIA-Insured,
5.600% due 7/1/15 1,900,000
- ----------------------------------------------------------------------------------------------------------
6,778,750
- ----------------------------------------------------------------------------------------------------------
West Virginia -- 2.1%
4,000,000 NR Marion County, WV Community Solid
Waste Disposal, American Recycle Inc.,
7.750% due 12/1/11(a) 2,800,000
- ----------------------------------------------------------------------------------------------------------
Wisconsin -- 2.5%
Wisconsin Housing & Economic Development
Authority, Series A:
2,000,000 AA Home Ownership Revenue, 6.450%
due 3/1/17 2,042,500
</TABLE>
See Notes to
Financial Statements.
7
<PAGE>
Schedule of Investments
May 31, 1996 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wisconsin -- 2.5% (continued)
$1,370,000 A1* Housing Revenue, 5.650% due 11/1/23 $ 1,258,688
3,301,188
Total Municipal Bonds and Notes
(Cost -- $132,897,566) 132,215,769
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Short-Term Tax-Exempt Investments(c) -- 0.8%
<S> <C> <C> <C>
California -- 0.2%
200,000 A-1+ California Health Facility, St. Joseph Hospital,
3.400% due 7/1/09 200,000
- -------------------------------------------------------------------------------------------------------------
New York -- 0.4%
500,000 A-1+ New York City, NY Series B6,
3.650% due 8/15/05 500,000
- -------------------------------------------------------------------------------------------------------------
Wyoming -- 0.2%
200,000 VMIG 1* Unita County, WY PCR, Chevron USA,
3.600% due 8/15/20 200,000
- -------------------------------------------------------------------------------------------------------------
Total Short-Term Tax-Exempt Investments
(Cost -- $900,000) 900,000
- -------------------------------------------------------------------------------------------------------------
Total Investments -- 100%
(Cost -- $133,797,566**) $133,115,769
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(b) Pre-Refunded bonds escrowed by U.S. Government Securities and bonds
escrowed to maturity with U.S. Government Securities are considered by the
Adviser to be triple-A rated even if issuer has not applied for new
ratings.
(c) Variable rate obligations payable at par on demand at any time on no more
than seven days notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 10 and 11 for definition of ratings and certain security
descriptions.
See Notes to
Financial Statements.
8
<PAGE>
Summary of Investments by Combined Ratings
May 31, 1996 (unaudited)
<TABLE>
<CAPTION>
Percent of
Moody's and/or Standard & Poor's Total Investments
<S> <C> <C> <C>
Aaa AAA 32.2%
Aa AA 21.8
A A 8.4
Baa BBB 19.8
VMIG 1 A-1 0.7
NR NR 17.1
-----
100.0%
=====
</TABLE>
9
<PAGE>
Bond Ratings
All ratings are by Standard & Poor's Corporation ("Standard & Poor's"), except
those identified by an asterisk (*) are rated by Moody's Investors Services
("Moody's"). The definitions of the applicable rating symbols are set forth
below:
Standard & Poor's -- Ratings 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 or Moody's.
10
<PAGE>
Short-Term Securities Ratings
SP-1 -- Standard & Poor's highest 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
PSFG -- Permanent School Fund Guaranty
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>
Statement of Assets and Liabilities
(unaudited)
<TABLE>
<CAPTION>
May 31, 1996
------------
<S> <C>
Assets:
Investments, at value (Cost -- $133,797,566) $133,115,769
Receivable for securities sold 1,008,357
Interest receivable 2,781,401
------------
Total Assets 136,905,527
------------
Liabilities:
Dividends payable 332,294
Investment advisory fees payable 84,302
Payable to bank 27,440
Administration fees payable 21,830
Accrued expenses 158,891
------------
Total Liabilities 624,757
------------
Total Net Assets $136,280,770
============
Net Assets:
Par value of capital shares $ 11,217
Capital paid in excess of par value 134,020,329
Overdistributed net investment income (133,810)
Accumulated net realized gain
on security transactions and futures 3,064,831
Net unrealized depreciation of investments (681,797)
------------
Total Net Assets
(Equivalent to $12.15 a share on 11,216,668 shares of $0.001
par value outstanding; 500,000,000 shares authorized) $136,280,770
------------
</TABLE>
See Notes to
Financial Statements.
12
<PAGE>
Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
5/31/96
-----------
<S> <C>
Investment Income:
Interest $ 6,663,495
-----------
Expenses:
Investment advisory fees (Note 2) 738,804
Administration fees (Note 2) 211,087
Shareholder communications 88,054
Audit and legal 47,508
Directors' fees 33,481
Registration fees 22,624
Shareholder and system servicing fees 15,384
Custody 6,079
Pricing service fees 5,702
Other 9,047
-----------
Total Expenses 1,177,770
-----------
Net Investment Income 5,485,725
-----------
Realized and Unrealized Gain (Loss) on
Investments and Futures (Notes 3 and 4):
Realized Gain From:
Security transactions (excluding short-term
securities) 2,587,133
Futures contracts 519,781
-----------
Net Realized Gain 3,106,914
-----------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of period 3,650,162
End of period (681,797)
-----------
Increase in Net Unrealized Depreciation (4,331,959)
-----------
Net Loss on Investments and Futures (1,225,045)
-----------
Increase in Net Assets From Operations $ 4,260,680
===========
</TABLE>
See Notes to
Financial Statements.
13
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Nine Months
Ended
5/31/96 Year Ended
(unaudited) 8/31/95
------------ ------------
<S> <C> <C>
Operations:
Net investment income $ 5,485,725 $ 7,748,960
Net realized gain 3,106,914 361,230
Increase in net unrealized
appreciation (depreciation) (4,331,959) 3,279,534
------------ ------------
Increase in Net Assets From Operations 4,260,680 11,389,724
------------ ------------
Distributions to Shareholders From:
Net investment income (6,225,251) (7,593,684)
Net realized gains (403,687) (1,395,354)
------------ ------------
Decrease in Net Assets From
Distributions to Shareholders (6,628,938) (8,989,038)
------------ ------------
Increase (Decrease) in Net Assets (2,368,258) 2,400,686
Net Assets:
Beginning of period 138,649,028 136,248,342
------------ ------------
End of period* $136,280,770 $138,649,028
============ ============
* includes undistributed (overdistributed) net
investment income of: $ (133,810) $ 605,716
============ ============
</TABLE>
See Notes to
Financial Statements.
14
<PAGE>
Notes to Financial Statements
May 31, 1996 (unaudited)
1. Significant Accounting Policies
Managed Municipals Portfolio II Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a non-
diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between bid and 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) securities maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which
approximates market value; (d) gains or losses on the sale of securities are
calculated by using the specific identification method; (e) interest income,
adjusted for amortization of premium and accretion of original issue discount,
is recorded on the accrual basis; market discount is recognized upon the
disposition of the security; (f) dividends and distributions to shareholders are
recorded on the ex-dividend date; (g) the Fund intends to comply with the
applicable provisions of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (h) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
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 Fund. The Fund pays SBMFM an advisory fee
calculated at an annual rate of 0.70% of the average daily net assets of the
Fund. This fee is calculated daily and paid monthly.
SBMFM also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Smith Barney
Inc.
15
<PAGE>
Notes to Financial Statements
May 31, 1996 (unaudited) (continued)
3. Security Transactions
For the nine months ended May 31, 1996, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were $48,425,165 and $44,956,604, respectively.
At May 31, 1996, aggregate gross unrealized appreciation for all securities
in which there was an excess of market value over tax cost amounted to
approximately $2,847,001 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value amounted
to approximately $3,528,798, or a net unrealized depreciation of $681,797.
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 Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract.
At May 31, 1996, the Fund had no open futures contracts.
5. Off Balance Sheet Risk
During the nine months ended May 31, 1996, the Fund 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 throughout each period:
<TABLE>
<CAPTION>
1996(1) 1995 1994 1993(2)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.36 $ 12.15 $ 13.37 $12.00
Income From Operations:
Net investment income 0.49 0.69 0.64 0.62
Net realized and unrealized gain (loss) (0.11) 0.32 (0.61) 1.34
-------- -------- -------- --------
Total Income From Operations 0.38 1.01 0.03 1.96
-------- -------- -------- --------
Offering Costs Credited
(Charged) to Paid-In Capital -- -- 0.01 (0.04)
-------- -------- -------- --------
Less Distributions From:
Net investment income (0.55) (0.68) (0.67) (0.55)
Net realized gains (0.04) (0.12) (0.59) --
-------- -------- -------- --------
Total Distributions (0.59) (0.80) (1.26) (0.55)
-------- -------- -------- --------
Net Asset Value, End of Period $12.15 $ 12.36 $ 12.15 $13.37
-------- -------- -------- --------
Total Return 3.05%++ 8.86% 0.72% 9.97%++
-------- -------- -------- --------
Net Assets, End of Period (000s) $136,281 $138,649 $136,248 $149,970
-------- -------- -------- --------
Ratios to Average Net Assets:
Expenses 1.12%+ 1.14% 1.12% 1.10%+
Net investment income 5.21+ 5.80 5.08 5.21+
-------- -------- -------- --------
Portfolio Turnover Rate 34% 95% 85% 163%
-------- -------- -------- --------
Market Value, End of Period $ 11.625 $ 11.625 $ 11.500 $ 12.625
======== ======== ======== ========
</TABLE>
(1) For the nine months ended May 31, 1996 (unaudited).
(2) 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
May 31, 1996 (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
November 30,
1995 2,247,062 0.20 1,848,446 0.17 4,293,829 0.38 6,142,275 0.55
February 29,
1996 2,168,432 0.19 1,762,535 0.16 356,980 0.03 2,119,515 0.19
May 31,
1996 2,248,001 0.20 1,874,744 0.16 (5,875,854) (0.52) (4,001,110) (0.36)
=============================================================================================================================
</TABLE>
* For the period from September 24, 1992 (commencement of operations) to
November 30, 1992.
18
<PAGE>
Financial Data
May 31, 1996 (unaudited)
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Capital
NYSE Net Income 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 30, 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 28, 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 25, 1995 11.500 12.22 0.063 -- 11.68
September 29, 1995 11.563 12.39 0.063 -- 11.61
October 27, 1995 11.563 12.54 0.063 -- 11.83
November 24, 1995 11.875 12.72 0.063 -- 11.85
December 29, 1995 12.250 12.74 0.063 0.0360 12.19
January 26, 1996 12.375 12.72 0.063 -- 12.35
February 23, 1996 12.125 12.72 0.063 -- 12.09
March 29, 1996 11.625 12.47 0.059 -- 11.60
April 26, 1996 11.438 12.26 0.059 -- 11.42
May 31, 1996 11.625 12.15 0.059 -- 11.48
==============================================================================
</TABLE>
+ As of record date.
19
<PAGE>
Dividend Reinvestment Plan
The Fund 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 Fund's current policy, which may be
changed at any time by its Board of Directors, the Fund's monthly dividends will
be made at a level that reflects the past and projected performance of the Fund,
which policy over time will result in the distribution of all net investment
income of the Fund. Expenses of the Fund are accrued each day. Net realized
capital gains, if any, will be distributed to the shareholders at least once a
year.
Under the Fund'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 Fund reinvested automatically by First Data Investor
Services Group, Inc. ("First Data") 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 Fund shareholders who do not
participate in the Plan will be paid by check mailed directly to the record
holder by or under the direction of First Data as dividend-paying agent.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. Whenever
the market price of the Common Stock is equal to or exceeds the net asset value
per share 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 Fund issues
shares to participants in the Plan at a discount to net asset value, the
remaining shareholders' interests in the Fund'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 Fund declares a dividend
or capital gains distribution payable only in cash, First Data will buy Common
Stock in the open market, on the NYSE or elsewhere, for the participants'
accounts. If, following the commencement of the purchases and before First Data
has completed its purchases, and the market price exceeds the net asset value of
the Common Stock, First Data will attempt to terminate
20
<PAGE>
Dividend Reinvestment Plan
(continued)
purchases in the open market and cause the Fund 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 Fund issues the remaining shares. To the extent First Data is
unable to stop open market purchases and cause the Fund to issue the remaining
shares, the average per share purchase price paid by First Data may exceed the
net asset value of the Common Stock, resulting in the acquisition of fewer
shares than if the dividend or capital gains distribution had been paid in
Common Stock issued by the Fund at net asset value. First Data will begin to
purchase Common Stock on the open market as soon as practicable after the 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.
First Data maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvestment
of dividends and capital gains distributions will not relieve Plan participants
of any income tax that may be payable on the dividends or capital gains
distributions. Common Stock in the account of each Plan participant, will be
held by First Data in non-certified 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 Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by First Data, with the Fund's prior written consent, on at least 30
days' written notice to Plan participants. All correspondence concerning the
Plan should be directed by mail to First Data, P.O. Box 1376, Boston,
Massachusetts 02104 or by telephone at (800) 331-1710.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase at
market prices shares of its common stock in the open market.
21
<PAGE>
Managed Municipals
Portfolio II Inc.
Directors
Charles F. Barber
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
William R. Hutchinson
Heath B. McLendon, Chairman
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Joseph P. Deane
Vice President and
Investment Officer
David Fare
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Adviser
Smith Barney Mutual Funds
Management Inc.
388 Greenwich Street
New York, New York 10013
Transfer Agent
First Data Investor Services
Group, Inc.
P.O. Box 1376
Boston, Massachusetts 02104
Custodian
PNC Bank, N.A.
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
22
<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 Fund or of any
securities mentioned in the report.
FD0836 7/96
