<PAGE>
Managed Municipals
Portfolio II Inc.
ANNUAL REPORT
August 31, 1997
[GRAPHIC]
<PAGE>
Managed Municipals
Portfolio II Inc.
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AUGUST 31, 1997
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Dear Shareholder:
We are pleased to provide the annual report for the Managed Municipals
Portfolio II Inc. ("Portfolio") for the year ended August 31, 1997. During the
past year, the Portfolio distributed income dividends totaling $0.66 per share
and a capital gain dividend of $0.28. The table below shows the annualized
distribution rates and twelve-month total returns based on the Portfolio's
August 31, 1997 net asset value (NAV) per share and its New York Stock Exchange
(NYSE) closing price:
Price Annualized Twelve-Month
Per Share Distribution Rate* Total Return
--------- ------------------ ------------
$12.15 (NAV) 5.53% 9.86%
$11.688 (NYSE) 5.75% 7.75%
In comparison, general closed-end muncipal bond funds posted an average
total return on NAV of 10.58% for the same time period, as reported by Lipper
Analytical Services, Inc. (Lipper is a major fund-tracking organization.)
MUNICIPAL BOND MARKET UPDATE
The past fiscal year in the municipal bond market can be described in
three phases. The first phase was a meaningful rally that began late summer 1996
and culminated in Federal Reserve Board ("Fed") Chairman Alan Greenspan's
"irrational exuberance" speech in early December. The second phase was a notable
increase in rates because of subsequent fears of a major Fed rate action. The
final phase, culminating in today's market, is one in which rates are back to
the levels present before the Fed chairman's speech. We believe that today's
municipal bond prices are quite appropriate, given the low inflation that
continues to be evident.
- ----------
* This distribution rate assumes monthly dividends at the current rate of
$0.056 per share for twelve months.
==================================== 1 =====================================
<PAGE>
INVESTMENT STRATEGY
The Portfolio continues its investment strategy of selecting coupons and
maturities that should benefit the most from a further decline in long-term
interest rates. The Portfolio's average weighted maturity is approximately 23
years. In addition, in every market downturn we have sought out coupons that
would benefit from further drops in interest rates.
As of this report, the 30-year U.S. Treasury bond yield is approximately
6.7%, and it could decline to 6% in the near future if inflation remains at
today's low levels. Given our expectations for a continued moderate U.S.
economy, we continue to emphasize longer-term, deeper-discount bonds with very
high credit quality.
As of August 31, 1997, approximately 82.4% of the Portfolio's holdings
were rated investment grade (BBB/Baa and higher) by either Standard & Poor's
Corporation or Moody's Investors Service Inc., with about 45.0% of the Portfolio
invested in AAA/Aaa bonds, the highest possible rating. (Standard & Poor's and
Moody's are two major credit reporting and bond rating agencies.) The
Portfolio's largest holdings are concentrated in transportation bonds (22.8%),
water/sewer bonds (11.4%), general obligation bonds (10.1%) and housing bonds
(8.2%).
MUNICIPAL BOND MARKET OUTLOOK
Going forward, we expect a drop in long-term rates, probably sooner rather
than later. The inflation rate is still key for us, and until we begin to see
that deteriorate we will continue to maintain our positive outlook on municipal
bonds.
Municipal bonds have continued to be in tight supply, and there is little
reason to believe there is a major supply spike on the horizon. Municipals have
outperformed the taxable bond market in the past year and will be likely to
continue to do so in the near future. In our view, the municipal bond market at
today's levels is very competitively priced and should provide investors with
attractive after-tax yields. Furthermore, municipal bonds may have some capital
appreciation possibilities if the inflation numbers continue on today's steady
path.
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<PAGE>
In closing, thank you for investing in the Managed Municipals Portfolio II
Inc. We look forward to continuing to help you pursue your financial goals.
Sincerely,
/s/Heath B. McLendon /s/Joseph P. Deane
Heath B. McLendon Joseph P. Deane
Chairman Vice President and
Investment Officer
September 24, 1997
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<PAGE>
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SCHEDULE OF INVESTMENTS
August 31, 1997
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<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
==========================================================================================================
<C> <C> <S> <C>
Alaska -- 3.7%
$ 2,895,000 A2* Alaska Industrial Development & Export
Authority, Series A, 6.500% due 4/1/14 (a) $ 3,025,275
2,000,000 AA Valdez, AK Marine Term Revenue, (BP Pipelines
Inc. Project), Series A, 5.850% due 8/1/25 2,012,500
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5,037,775
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California -- 7.4%
1,000,000 AAA Anaheim, CA Public Financing Authority Lease
Revenue, (Public Improvements Project),
FSA-Insured, Series A, 5.000% due 3/1/37 918,750
1,000,000 AAA California State Public Works Board, Lease
Revenue, University of California, Series B,
AMBAC-Insured, 5.375% due 12/1/19 987,500
5,105,000 AAA Los Angeles County, CA Metropolitan
Transportation Authority, Sales Tax Revenue,
Series A, MBIA-Insured, 5.250% due 7/1/18 4,996,519
2,500,000 AAA Metropolitan Water District Southern California
Water Works, MBIA-Insured, Series B,
4.750% due 7/1/21 2,256,250
1,000,000 AAA San Jose, CA Redevelopment Agency, (Tax
Revenue Project), MBIA-Insured,
5.250% due 8/1/16 986,250
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10,145,269
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Colorado -- 16.9%
1,000,000 Baa3* Arapahoe County, CO Capital Improvement
Transportation Fund, Highway Revenue,
(Pre-Refunded -- Escrowed with
U.S. government securities to 8/31/05
Call @ 103), 7.000% due 8/31/26 (b) 1,176,250
4,000,000 BBB+ Colorado Springs, CO Airport Revenue,
Series A, 7.000% due 1/1/22 (a)(c) 4,340,000
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 7,312,500
Denver, CO Airport Revenue, Series C:
3,465,000 Baa1* 6.125% due 11/15/25 (a)(c) 3,546,462
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
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SCHEDULE OF INVESTMENTS
August 31, 1997 (continued)
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<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
==========================================================================================================
<C> <C> <S> <C>
Colorado -- 16.9% (continued)
$ 2,785,000 NR Partially Escrowed to Maturity with
U.S. government securities,
6.125% due 11/15/25 (a)(c) $ 3,035,650
4,000,000 AAA E-470 Public Highway Authority, Colorado
Revenue, Series A, MBIA-Insured
5.000% due 9/1/21 3,745,000
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23,155,862
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Florida -- 7.8%
3,500,000 AAA Dade County, FL Water & Sewer Systems
Revenue, FGIC-Insured, 5.250% due 10/1/26 3,373,125
1,500,000 BBB- Martin County, FL IDA, Indiantown Cogeneration,
Series A, 7.875% due 12/15/25 (a) 1,719,375
1,000,000 Aaa* Sarasota County, FL Public Hospital Board
Revenue Refunding -- (Sarasota Memorial
Hospital Project), Series B, MBIA-Insured,
5.375% due 10/1/20 977,500
4,000,000 NR Tampa, FL Revenue Bonds, (Florida Aquarium Inc.
Project), (Pre-Refunded -- Escrowed with
U.S. government securities to 5/1/02
Call @ 102), 7.750% due 5/1/27 (b)(c) 4,605,000
- ----------------------------------------------------------------------------------------------------------
10,675,000
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Georgia -- 2.1%
3,000,000 AAA Atlanta, GA Water and Sewer Revenue,
FGIC-Insured, 5.250% due 1/1/27 2,880,000
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Iowa -- 1.2%
1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project),
6.500% due 7/15/12 1,614,375
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Maryland -- 0.9%
4,000,000 NR Maryland State Energy Financing Administration,
Solid Waste Disposal Revenue, (Hagerstown
Recycling Project), 9.000% due 10/15/16 (a) 1,240,000
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Massachusetts -- 4.9%
Massachusetts Bay Transportation Authority,
Series B:
1,500,000 AAA General Transportation Revenue,
AMBAC-Insured, 5.375% due 3/1/20 1,475,625
1,000,000 AAA FSA-Insured, 5.250% due 3/1/26 961,250
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
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SCHEDULE OF INVESTMENTS
August 31, 1997 (continued)
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<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
==========================================================================================================
<C> <C> <S> <C>
Massachusetts -- 4.9% (continued)
$ 4,000,000 NR Massachusetts Solid Waste Disposal,
Massachusetts Recycling Association,
Series A, 9.000% due 8/1/16 (a) $1,500,000
1,000,000 AA- Massachusetts State Port Authority Revenue,
Series A, 5.000% due 7/1/27 926,250
Massachusetts State Water Resource Authority,
MBIA-Insured:
1,000,000 AAA Series B, 5.000% due 12/1/25 931,250
1,000,000 AAA Series C, 5.250% due 12/1/20 971,250
- ----------------------------------------------------------------------------------------------------------
6,765,625
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Michigan -- 5.0%
1,000,000 NR Michigan State Strategic Funding, Limited
Obligation Revenue, (Blue Water Fiber Project),
8.000% due 1/1/12 (a)(d) 670,000
5,600,000 NR Midland County, MI Economic Development
Corporation, PCR, Limited Obligation,
Series B, 9.500% due 7/23/09 (a)(c) 6,160,000
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6,830,000
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Mississippi -- 0.2%
300,000 P-1* Jackson County, MS PCR, (Chevron USA Inc.
Project), 3.800% due 6/1/23 (e) 300,000
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Missouri -- 0.7%
1,000,000 AAA Fenton, MO COP (Capital Improvements Project),
MBIA-Insured, 5.125% due 9/1/17 976,250
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Montana -- 1.4%
2,000,000 NR Montana State Board of Investments Resource
Recovery, (Yellowstone Energy Project),
7.000% due 12/31/19 (a) 1,935,000
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Nevada -- 3.8%
4,650,000 Baa2* Clark County, NV IDR, Southwest Gas
Corporation, 7.500% due 9/1/32 (a)(c) 5,144,062
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New Jersey -- 1.7%
780,000 AAA Essex County, NJ Improvement Authority Revenue,
Utility System (Orange Franchise), Series A,
MBIA-Insured, 5.375% due 7/1/18 773,175
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
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<PAGE>
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SCHEDULE OF INVESTMENTS
August 31, 1997 (continued)
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<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
==========================================================================================================
<C> <C> <S> <C>
New Jersey -- 1.7% (continued)
$ 1,500,000 BB Union County, NJ Utilities Authority,
Solid Waste Revenue, Series A,
7.200% due 6/15/14 (a) $1,511,250
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2,284,425
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New York -- 5.7%
1,000,000 AAA Metropolitan Transportation Authority,
New York Dedicated Tax Fund, Series A,
MBIA-Insured, 5.250% due 4/1/26 962,500
1,850,000 A2* New York City Municipal Water Finance
Authority, Water and Sewer Systems Revenue,
Series A, 5.125% due 6/15/17 1,764,438
New York State Dormitory Authority Revenue:
1,135,000 AAA Barnard College, AMBAC-Insured,
5.250% due 7/1/16 1,115,138
2,000,000 AAA Montefiore Medical Center, AMBAC-Insured,
5.250% due 2/1/15 1,977,500
1,000,000 AAA Municipal Health Facility Improvement,
Series A, FSA-Insured, 5.500% due 5/15/16 1,003,750
1,000,000 AAA New York State Medical Care Facilities Finance
Agency Revenue, Series F, FGIC-Insured,
5.250% due 2/15/19 965,000
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7,788,326
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North Carolina -- 1.2%
1,500,000 A* Coastal Regional Solid Waste Management
Disposal Authority, North Carolina Solid
Waste Revenue, 6.500% due 6/1/08 1,603,125
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Ohio -- 0.9%
1,220,000 AAA Ohio State Higher Educational Facility
Community Revenue, University of Dayton,
AMBAC-Insured, 5.350% due 12/1/17 1,215,425
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South Carolina -- 1.6%
2,120,000 BBB+ Myrtle Beach, SC COP, Myrtle Beach
Convention Center, 6.875% due 7/1/07 2,263,100
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Texas -- 11.2%
1,000,000 Aaa* Azle, TX ISD, PSFG, Series C,
5.000% due 2/15/22 937,500
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
==================================== 7 =====================================
<PAGE>
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SCHEDULE OF INVESTMENTS
August 31, 1997 (continued)
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<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
==========================================================================================================
<C> <C> <S> <C>
Texas -- 11.2% (continued)
$ 2,500,000 AAA Bexar County, TX Health Facility Development
Revenue (Baptist Health Systems), MBIA-
Insured, Series A, 5.250% due 11/15/27 $ 2,381,250
Burleson, TX ISD, GO, PSFG:
435,000 Aaa* 6.750% due 8/1/24 481,219
1,065,000 NR Pre-Refunded -- Escrowed with
U.S. government securities to 8/1/06,
Call @ 100, 6.750% due 8/1/24 (b) 1,222,088
2,500,000 AA Harris County, TX (Toll Road Sub Lien),
5.125% due 8/15/17 2,412,500
1,500,000 AAA Leander, TX ISD, PSFG, 5.625% due 8/15/16 1,526,250
2,500,000 AAA Nueces River Authority, TX Water Supply
Facilities, (Corpus Christi Lake Project),
FSA-Insured, 5.500% due 3/1/27 2,490,625
3,000,000 AAA Texas State Turnpike Revenue, George Bush
Toll, FGIC-Insured, 5.250% due 1/1/23 2,891,250
1,000,000 AA Texas State Water Development,
5.250% due 8/1/28 967,500
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15,310,182
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Utah -- 2.3%
3,400,000 A+ Intermountain Power Agency, Utah Power Supply
Refunding, Series D, 5.000% due 7/1/21 3,174,750
- ----------------------------------------------------------------------------------------------------------
Virginia -- 9.3%
2,000,000 AAA Riverside, VA Regional Jail Facility, Revenue
Bonds, MBIA-Insured, 6.000% due 7/1/25 2,097,500
2,000,000 AA Virginia College Building Authority, VA
Educational Facilities Revenue, (21st Century
College Program), 5.125% due 8/1/11 2,010,000
Virginia State Housing Development Authority:
1,245,000 AA+ Commonwealth Mortgage, Series D,
5.700% due 7/1/09 1,285,462
1,000,000 AAA Mortgage Housing Revenue, MBIA-Insured,
5.600% due 7/1/12 1,037,500
4,210,000 AA+ Series F, 6.400% due 7/1/17 4,420,500
925,000 AA+ Series K, 5.900% due 11/1/11 955,062
1,000,000 AA Virginia State Transportation Board, Series A,
5.125% due 5/15/21 957,500
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12,763,524
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</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
==================================== 8 =====================================
<PAGE>
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SCHEDULE OF INVESTMENTS
August 31, 1997 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
==========================================================================================================
<C> <C> <S> <C>
Washington -- 4.8%
$ 22,685,000 AAA Chelan County, WA Public Utility
District No. 1, Columbia River Rock,
MBIA-Insured, zero coupon due 6/1/27 $ 4,196,725
2,500,000 AA+ Washington State GO, Series E,
5.000% due 7/1/22 2,337,500
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6,534,225
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West Virginia -- 1.4%
4,000,000 NR Marion County, WV Solid Waste (American
Power Paper Recycling Project),
7.750% due 12/1/11 (a)(c)(d) 2,000,000
- ----------------------------------------------------------------------------------------------------------
Wisconsin -- 3.9%
Wisconsin Housing & Economic Development
Authority, Series A:
2,000,000 AA Home Ownership Revenue,
6.450% due 3/1/17 2,107,500
1,370,000 A1* Housing Revenue, 5.650% due 11/1/23 1,363,150
Wisconsin State Health & Educational Facilities,
MBIA-Insured:
1,000,000 AAA Aurora Health Care, 5.250% due 8/15/23 951,250
1,000,000 AAA The Medical College of Wisconsin,
5.400% due 12/1/16 976,250
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5,398,150
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TOTAL INVESTMENTS -- 100% ------------
(Cost -- $136,836,478**) $137,034,450
------------
==========================================================================================================
</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
investment adviser to be triple-A rated even if issuer has not applied for
new ratings.
(c) Securities segregated by Custodian for open purchase commitment.
(d) Security is in default.
(e) Variable rate obligation payable at par on demand on no more than seven
days notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 11 and 12 for definition of ratings and certain security
descriptions.
SEE NOTES TO
FINANCIAL STATEMENTS.
==================================== 9 =====================================
<PAGE>
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SUMMARY OF INVESTMENTS BY COMBINED RATINGS
August 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
Percent of
Moody's and/or Standard & Poor's Total Investments
================================================================================
Aaa AAA 45.0%
Aa AA 16.1
A A 8.0
Baa BBB 13.3
Ba BB 1.1
P-1 A-1 0.2
NR NR 16.3
-----
100.0%
=====
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<PAGE>
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BOND RATINGS
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's"),
except those identified by an asterisk (*) are rated by Moody's Investors
Service, Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "AA" to "BB" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standings within the major
rating categories.
AAA -- Bonds that are rated "AAA" have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds that are 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 that are 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 that are rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
BB -- Bonds that are rated "BB" have less near-term vulnerability to
default than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to meet
timely interest and principal payments.
Moody's-- Numerical modifiers 1, 2 and 3 may be applied to each generic rating
from "Aa" to "Baa," where 1 is the highest and 3 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.
==================================== 11 ====================================
<PAGE>
- --------------------------------------------------------------------------------
SHORT-TERM SECURITY RATINGS
- --------------------------------------------------------------------------------
SP-1 -- Standard & Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issued determined
possess overwhelming safety characteristics are denoted with a plus
(+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate
demand obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong;
those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+)sign.
A-2 -- Standard & Poor's second highest commercial paper and VRDO rating
indicating that the degree of safety regarding timely payment is
either overwhelming or very strong; those issues determined to
possess overwhelming safety characteristics are denoted with a plus
(+) sign.
VMIG-1 -- Moody's highest rating for issues having a demand feature --
VRDO.
P-1 -- Moody's highest rating for commerical paper and for VRDO prior to
the advent of the VMIG-1 rating.
- --------------------------------------------------------------------------------
SECURITY DESCRIPTIONS
- --------------------------------------------------------------------------------
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- AMBAC Indemnity 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 -- Financial Security Assurance
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
IFA -- Industrial Finance Agency
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
==================================== 12 ====================================
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1997
================================================================================
ASSETS:
Investments, at value (Cost -- $136,836,478) $137,034,450
Receivable for securities sold 2,376,250
Interest receivable 1,818,411
- --------------------------------------------------------------------------------
Total Assets 141,229,111
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 4,157,239
Dividends payable 332,230
Investment advisory fees payable 84,491
Administration fees payable 23,812
Payable to bank 12,983
Accrued expenses 101,306
- --------------------------------------------------------------------------------
Total Liabilities 4,712,061
- --------------------------------------------------------------------------------
Total Net Assets $136,517,050
================================================================================
NET ASSETS:
Par value of capital shares $ 11,235
Capital paid in excess of par value 134,234,852
Undistributed net investment income 177,336
Accumulated net realized gain from security transactions 1,895,655
Net unrealized appreciation of investments 197,972
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $12.15 a share on 11,234,706 shares of $0.001
par value outstanding; 500,000,000 shares authorized) $136,517,050
================================================================================
SEE NOTES TO
FINANCIAL STATEMENTS.
==================================== 13 ====================================
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
8/31/97
================================================================================
INVESTMENT INCOME:
Interest $ 8,561,123
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3) 946,120
Administration fees (Note 3) 270,320
Shareholder communications 109,941
Audit and legal 56,264
Directors' fees 37,594
Registration fees 24,342
Shareholder and system servicing fees 19,442
Pricing service fees 7,541
Custody 6,758
Other 12,782
- --------------------------------------------------------------------------------
Total Expenses 1,491,104
- --------------------------------------------------------------------------------
Net Investment Income 7,070,019
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 4):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 143,660,664
Cost of securities sold 141,109,705
- --------------------------------------------------------------------------------
Net Realized Gain 2,550,959
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of year (2,533,016)
End of year 197,972
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 2,730,988
- --------------------------------------------------------------------------------
Net Gain on Investments 5,281,947
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 12,351,966
================================================================================
SEE NOTES TO
FINANCIAL STATEMENTS.
==================================== 14 ====================================
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended Year Ended
8/31/97 8/31/96
================================================================================
OPERATIONS:
Net investment income $ 7,070,019 $ 7,408,614
Net realized gain 2,550,959 3,856,189
Increase (decrease) in net
unrealized appreciation 2,730,988 (6,183,178)
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 12,351,966 5,081,625
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income (7,353,773) (7,553,614)
Net realized gains (3,125,168) (1,747,555)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (10,478,941) (9,301,169)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net asset value of shares issued
for reinvestment of dividends 214,541 --
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 214,541 --
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 2,087,566 (4,219,544)
NET ASSETS:
Beginning of year 134,429,484 138,649,028
- --------------------------------------------------------------------------------
End of year* $ 136,517,050 $ 134,429,484
================================================================================
* Includes undistributed net
investment income of: $ 177,336 $ 461,090
================================================================================
SEE NOTES TO
FINANCIAL STATEMENTS.
==================================== 15 ====================================
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Managed Municipals Portfolio II Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end investment management 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 value; (d) gains or losses on the sale of securities are calculated
by using the specific identification method; (e) interest income, adjusted for
amortization of premium and accretion of original issue discount, is recorded on
an accrual basis; market discount is recognized upon the disposition of the
security; (f) dividends and distributions to shareholders are recorded on the
ex-dividend date; (g) the character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At August 31, 1997, reclassifications
were made to undistributed net investment income and accumulated net realized
gains to reflect permanent book/tax differences and income and gains available
for distributions under income tax regulations. Net investment income, net
realized gains and net assets were not affected by this change; (h) the Fund
intends to comply with the applicable provisions of the Internal Revenue Code of
1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; and (i) estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
==================================== 16 ====================================
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(continued)
- --------------------------------------------------------------------------------
2. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from regular Federal income tax and from
designated state income taxes, to retain such tax-exempt status when distributed
to the shareholders of the Fund.
Capital gains distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
3. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS
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.
4. INVESTMENTS
For the year ended August 31, 1997, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $133,431,531
- --------------------------------------------------------------------------------
Sales 143,660,664
================================================================================
At August 31, 1997, aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 8,003,144
Gross unrealized depreciation (7,805,172)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 197,972
================================================================================
==================================== 17 ====================================
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(continued)
- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contracts. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marking-to-market" on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are made or received and recognized as assets
due from or liabilities due to broker, depending upon whether unrealized gains
or losses are incurred. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the proceeds from (or cost of) the
closing transactions and the Fund's basis in the contract.
The Fund enters into such contracts to hedge a portion of its portfolio.
The Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts) and the credit
risk should a counterparty fail to perform under such contracts.
At August 31, 1997, the Fund had no open futures contracts.
6. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
7. CAPITAL SHARES
During the year ended August 31, 1997, capital stock transactions were as
follows:
Shares Amount
================================================================================
Shares issued on reinvestment 18,038 $214,541
================================================================================
==================================== 18 ====================================
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993(1)
============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 11.98 $ 12.36 $ 12.15 $ 13.37 $ 12.00
- ------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.63 0.66 0.69 0.64 0.62
Net realized and unrealized gain (loss) 0.48 (0.21) 0.32 (0.61) 1.34
- ------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.11 0.45 1.01 0.03 1.96
- ------------------------------------------------------------------------------------------------------------
Offering Costs Credited
(Charged) to Paid-In Capital -- -- -- 0.01 (0.04)
- ------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.66) (0.67) (0.68) (0.67) (0.55)
Net realized gains (0.28) (0.16) (0.12) (0.59) --
- ------------------------------------------------------------------------------------------------------------
Total Distributions (0.94) (0.83) (0.80) (1.26) (0.55)
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 12.15 $ 11.98 $ 12.36 $ 12.15 $ 13.37
- ------------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value 7.75% 7.35% 8.86% 0.72% 9.97%++
- ------------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value 9.86% 4.01% 9.20% 0.48% 16.46%++
- ------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $136,517 $134,429 $138,649 $136,248 $149,970
- ------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.10% 1.09% 1.14% 1.12% 1.10%+
Net investment income 5.23 5.31 5.80 5.08 5.21+
- ------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 97% 63% 95% 85% 163%
- ------------------------------------------------------------------------------------------------------------
Market Value, End of Period $ 11.688 $ 11.750 $ 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.
==================================== 19 ====================================
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
MANAGED MUNICIPALS PORTFOLIO II INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Managed Municipals Portfolio II Inc. as of
August 31, 1997, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the two-year
period then ended and financial highlights for each of the years in the
three-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for each of the years in the
two-year period ended August 31, 1994, were audited by other auditors whose
report thereon, dated October 7, 1994, expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997, by correspondence with the custodian. As to securities sold or
purchased but not delivered or received we performed other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Managed Municipals Portfolio II Inc. as of August 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and financial highlights for each of
the years in the three-year period then ended, in conformity with generally
accepted accounting principles.
/s/KPMG Peat Marwick LLP
New York, New York
October 6, 1997
==================================== 20 ====================================
<PAGE>
- --------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Realized Net Increase
and Unrealized (Decrease) in
Investment Net Investment Gain (Loss) on Net Assets From
Income Income Investments Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Per Per Per Per
Quarter Ended Total Share Total Share Total Share Total Share
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
November 30,
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)
August 31,
1996 2,271,619 0.20 1,922,889 0.17 (1,101,944) (0.10) 820,945 0.07
November 30,
1996 2,227,411 0.20 1,879,304 0.17 5,753,327 0.51 7,632,631 0.68
February 28,
1997 2,180,922 0.19 1,839,607 0.16 (3,515,568) (0.31) (1,675,961) (0.15)
May 31,
1997 2,225,788 0.20 1,860,549 0.17 (1,006,118) (0.08) 854,431 0.09
August 31,
1997 1,927,002 0.17 1,490,559 0.13 4,050,306 0.36 5,540,865 0.49
====================================================================================================================================
</TABLE>
==================================== 21 ====================================
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
NYSE Net Dividend
Record Payable Closing Asset Dividend Reinvestment
Date Date Price+ Value+ Paid Price
================================================================================
9/26/95 9/29/95 $11.563 $12.34 $0.063 $11.61
10/24/95 10/27/95 11.750 12.51 0.063 11.83
11/20/95 11/24/95 11.625 12.60 0.063 11.85
12/26/95 12/29/95 12.000 12.72 0.063 12.19
12/26/95* 12/29/95 12.000 12.72 0.036 12.19
1/23/96 1/26/96 12.125 12.69 0.063 12.35
2/20/96 2/23/96 12.125 12.61 0.063 12.09
3/26/96 3/29/96 11.625 12.50 0.059 11.60
4/23/96 4/26/96 11.250 12.27 0.059 11.42
5/28/96 5/31/96 11.500 12.30 0.059 11.48
6/25/96 6/28/96 11.313 12.09 0.059 11.52
7/23/96 7/26/96 11.375 12.07 0.059 11.52
8/27/96* 8/30/96 11.688 12.09 0.120 11.69
9/24/96 9/27/96 11.625 12.09 0.059 11.66
10/22/96 10/25/96 11.500 12.20 0.059 11.63
11/25/96 11/29/96 11.438 12.49 0.059 11.50
12/23/96* 12/27/96 11.375 12.11 0.285++ 11.56
1/28/97 1/31/97 11.500 11.85 0.059 11.52
2/25/97 2/28/97 11.500 12.01 0.059 11.53
3/24/97 3/27/97 11.375 11.68 0.059 11.32
4/22/97 4/25/97 11.375 11.56 0.059 11.38
5/27/97 5/30/97 11.375 11.76 0.059 11.58
6/24/97 6/27/97 11.875 11.99 0.059 11.94
7/22/97 7/25/97 12.000 12.34 0.059 12.06
8/26/97 8/29/97 11.688 12.11 0.059 11.75
================================================================================
+ As of record date.
++ Includes market discount.
* Capital gain distribution.
==================================== 22 ====================================
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL SHAREHOLDER INFORMATION
(unaudited)
- --------------------------------------------------------------------------------
On September 12, 1996, the annual meeting of the shareholders of the Fund
was held for the purpose of voting on the following matters:
1. To approve or disapprove for the Fund, the election of Charles F.
Barber, Dwight B. Crane and William R. Hutchinson as Directors; and
2. To approve or disapprove the selection of KPMG Peat Marwick LLP as
the independent auditors for the current fiscal year of the Fund.
The results of the vote on Proposal 1 were as follows:
% of Votes % of
Directors Votes For Shares Voted Against Shares Voted
================================================================================
Charles F. Barber 10,604,067.000 98.593% 151,302.000 1.407%
Dwight B. Crane 10,627,327.000 98.810 128,042.000 1.190
William R. Hutchinson 10,631,689.000 98.850 123,680.000 1.150
================================================================================
The results of the vote on Proposal 2 were as follows:
% of Votes % of Votes % of
Votes For Shares Voted Against Shares Voted Abstained Shares Voted
================================================================================
10,597,542.000 98.533% 49,740.000 0.463% 108,087.000 1.004%
================================================================================
==================================== 23 ====================================
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
(unaudited)
- --------------------------------------------------------------------------------
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose
shares of Common Stock are registered in his or her own name will have all
distributions from the Fund reinvested automatically by First Data Investor
Services Group, Inc. ("First Data") as 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 or (2) 95% of the
then-current market value.
If the net asset value per share of Common Stock at the time of valuation
exceeds the market price of the Common Stock, or if the Fund declares a dividend
or capital gains distribution payable only in cash, First Data will buy Common
Stock in the open market, on the NYSE or elsewhere, for the participants'
accounts. If, following the commencement of the purchases and before First Data
has completed its purchases, and the market price exceeds the net asset value of
the Common Stock, First Data will attempt to terminate purchases in the open
market and cause the Fund to issue the remaining 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.
==================================== 24 ====================================
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
(unaudited) (continued)
- --------------------------------------------------------------------------------
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
shares of its common stock in the open market.
==================================== 25 ====================================
<PAGE>
- --------------------------------------------------------------------------------
TAX INFORMATION
(unaudited)
- --------------------------------------------------------------------------------
For Federal tax purpose the Fund hereby designates for the fiscal year
ended August 31, 1997:
-- long-term capital gain distributions paid of $1,682,500.
-- 99.03% of the dividends paid from net investment income are
tax-exempt.
==================================== 26 ====================================
<PAGE>
Managed Municipals
Portfolio II Inc.
DIRECTORS
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
William R. Hutchinson
Heath B. McLendon, Chairman
Charles F. Barber, Emeritus
OFFICERS
Heath B. McLendon
Chief Executive Officer
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
==================================== 27 ====================================
<PAGE>
[This page intentionally left blank]
<PAGE>
THIS REPORT IS INTENDED ONLY FOR SHAREHOLDERS OF THE
MANAGED MUNICIPALS PORTFOLIO II INC.
IT IS NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION
INTENDED FOR USE IN THE PURCHASE OR SALE OF SHARES OF
THE FUND OR OF ANY SECURITIES MENTIONED IN THE REPORT.
FD0775 10/97
