MANAGED MUNICIPALS
PORTFOLIO II INC.
QUARTERLY REPORT
November 30, 1996
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SMITH BARNEY
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A Member of TravelersGroup[Logo]
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MANAGED MUNICIPALS
PORTFOLIO II INC.
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November 30, 1996
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Dear Shareholder:
We are pleased to provide you with the first quarter report for the Managed
Municipals Portfolio II Inc. ("Portfolio") for the period ended November 30,
1996. Over the three-months covered by this report, the Portfolio distributed
dividends totaling $0.18 per share. The table below details the annualized
distribution rates and the three-month total returns based on the Portfolio's
November 30, 1996 net asset value (NAV) per share and New York Stock Exchange
(NYSE) closing price:
Price Annualized
Per Share Distribution Rate Total Return
------------- --------------------- ----------------
$12.49 (NAV) 5.67% 5.86%
$11.50 (NYSE) 6.16% 0.40%
In comparison, closed-end municipal bond funds posted an average total return
of 5.19% based on NAV for the same time period, as reported by Lipper Analytical
Services, Inc. (Lipper is an independent fund tracking organization.)
Market and Economic Overview
Throughout 1996, the U.S. economy has continued to enjoy a healthy recovery
which began over six years ago. The unemployment rate has fallen from around
7.5% in 1992, to just over 5% in 1996. Consumer price inflation has remained
virtually unchanged since the end of 1991, and producer prices still appear to
be declining on a long-term basis. Although there were little signs of inflation
in 1996, the strength of the U.S. economy, particularly during the first two
quarters of 1996, caused inflation fears to rise among many investors throughout
most of the year. In addition, the debate over whether or not the Federal
Reserve Board would raise interest rates continued to linger over the U.S. bond
markets, which added to bond market volatility between April and September.
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However, during the third quarter of 1996, U.S. economic growth moderated and
fears of inflation subsided. As a result, the bond market in general and
municipal bonds specifically, responded positively to benign inflation numbers
and moderate economic growth. The election results with the Republicans
maintaining control of Congress was clearly a plus as far as the bond market was
concerned. It provided an excellent backdrop for lower interest rates and the
market responded with a powerful post-election rally.
Portfolio's Investment Strategy
The Portfolio's main investment thrust during the reporting period was to
concentrate primarily on high grade discount coupon bonds because they would
maximize performance in a lower interest rate environment. In addition, we have
attempted to increase the call protection of the bonds in the Portfolio, and at
today's attractive spreads, have added a larger number of insured bonds for
increased marketability. Our goal is to provide shareholders with an attractive
level of tax-exempt income consistent with a good total return, believing that
this is the best way to maximize shareholder value.
As of November 30, 1996, approximately 84% of the Portfolio's holdings were
rated investment grade (BBB/Baa and higher) by either Standard and Poor's
Corporation or Moody's Investors Service Inc., with about 39% of the Portfolio
invested in triple-A bonds, the highest possible rating. (Standard and Poor's
and Moody's are two major credit reporting and bond rating agencies.) The
Portfolio's largest holdings are concentrated in transportation bonds (17.4%),
general obligation bonds (10.5%), utility bonds (9.9%) and housing bonds (9.0%).
As of November 30, 1996 the average weighted maturity of the Portfolio was 23.2
years.
Outlook
We believe our current investment strategy of focusing on high grade discount
coupon bonds will enable the Portfolio to be well-positioned going into the
first quarter of 1997. Interest rates should continue to decline, but as the
Spring approaches we will take a fresh look at the
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level of interest rates, the rate of U.S. economic growth and the pattern of
foreign capital flows into the U.S., and reassess our position at that time.
In closing, thank you for investing in the Managed Municipals Portfolio II,
Inc. We look forward to continuing to help you achieve your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ J P Deane
Heath B. McLendon Joseph P. Deane
Chairman and Vice President and
Chief Executive Officer Investment Officer
December 24, 1996
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Schedule of Investments
November 30, 1996 (unaudited)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
==============================================================================================
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 100.0%
Alabama -- 0.7%
$ 1,000,000 AAA Birmingham, AL Baptist Medical Center,
MBIA-Insured, 5.800% due 11/15/16 $ 1,017,500
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Alaska -- 6.2%
2,895,000 A* Alaska Industrial Development & Export
Authority, Series A, 6.500% due 4/1/14(a) 3,032,513
Valdez, AK Marine Term Revenue, (BP Pipelines
Inc. Project):
4,000,000 AA Series A, 5.850% due 8/1/25 3,920,000
2,000,000 AA Series C, 5.650% due 12/1/28 1,957,500
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8,910,013
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California -- 8.5%
2,000,000 AAA California State GO, FGIC-Insured,
5.375% due 6/1/26 1,970,000
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 1,962,500
2,000,000 AAA California State Public Works Corrections,
Series B, MBIA-Insured, 5.625% due 11/1/16 2,025,000
1,000,000 AAA East Bay, CA Municipal Utility, District 1,
Series E, FGIC-Insured, 5.000% due 4/1/15 945,000
1,500,000 AAA Los Angeles County, CA Metropolitan
Transportation Authority, AMBAC-Insured,
5.250% due 7/1/23 1,441,875
1,500,000 AAA Northern California Transmission Agency,
Series A, MBIA-Insured, 5.250% due 5/1/20 1,445,625
1,525,000 AAA San Francisco State Building Authority
Lease Revenue, AMBAC-Insured,
5.250% due 12/1/16 1,490,688
1,000,000 AAA San Jose, CA Redevelopment Agency, (Tax
Revenue Project), MBIA-Insured,
5.250% due 8/1/16 983,750
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12,264,438
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Colorado -- 14.2%
1,000,000 Baa* Arapahoe County, CO Improvement Highway
Revenue, 7.000% due 8/31/26 1,108,750
</TABLE>
See Notes to Financial Statements.
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Schedule of Investments
November 30, 1996 (unaudited)(continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
==============================================================================================
<S> <C> <C> <C>
Colorado -- 14.2% (continued)
$ 4,000,000 BBB+ Colorado Springs, CO Airport Revenue,
Series A, 7.000% due 1/1/22(a)(c) $ 4,250,000
3,545,000 AA Colorado Springs, CO Utility Revenue,
5.125% due 11/15/23 3,389,906
30,000,000 Aaa* Dawson Ridge, CO Metropolitan District No. 1,
Series A, (Escrowed to Maturity with U.S.
Government Securities), zero coupon due
10/1/22 5,400,000
6,250,000 BBB Denver, CO Airport Revenue, Series C, 6.125%
due 11/15/25(a)(c) 6,328,125
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20,476,781
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District of Columbia -- 2.1%
1,000,000 AAA District of Columbia, Howard University,
MBIA-Insured, 5.750% due 10/1/17 1,008,750
2,000,000 AAA District of Columbia, The American University,
AMBAC-Insured, 5.625% due 10/1/26 1,995,000
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3,003,750
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Florida -- 7.6%
1,000,000 AAA Broward County, FL Professional Sports Facility,
MBIA-Insured, 5.625% due 9/1/28 1,005,000
2,500,000 AAA Dade County, FL School Board, COP, Series B,
AMBAC-Insured, 5.600% due 8/1/26 2,518,750
1,000,000 AAA Escambia County, FL School Board COP Master
Lease, MBIA-Insured, 5.500% due 2/1/16 1,008,750
1,500,000 BBB- Martin County, FL IDA, Indiantown Cogeneration,
Series A, 7.875% due 12/15/25(a) 1,725,000
4,000,000 NR Tampa, FL Revenue Bonds, (Aquarium Project),
(Pre-Refunded--Escrowed with
U.S Government Securities to 5/1/02 Call
@ 102), 7.750% due 5/1/27(b)(c) 4,680,000
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10,937,500
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Illinois -- 3.3%
Chicago, IL Skyway Bridge Revenue, Series
1996, MBIA-Insured:
1,000,000 AAA 5.375% due 1/1/10 1,006,250
1,000,000 AAA 5.500% due 1/1/23 981,250
2,000,000 AAA Chicago, IL Waste Water Revenue,
FGIC-Insured, 5.000% due 1/1/15 1,885,000
</TABLE>
See Notes to Financial Statements.
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Schedule of Investments
November 30, 1996 (unaudited)(continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
==============================================================================================
<S> <C> <C> <C>
Illinois -- 3.3% (continued)
$ 1,000,000 AAA Metropolitan Pier & Exposition Authority,
(McCormick Plan Project), Series A,
AMBAC-Insured, 5.250% due 6/15/27 $ 963,750
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4,836,250
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Indiana -- 0.7%
1,000,000 Aaa* Indiana HFA, Single-Family Mortgage
Revenue, GNMA & FNMA-Collateralized,
6.250% due 7/1/28 1,026,250
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Iowa -- 1.1%
1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project),
6.500% due 7/15/12 1,608,750
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Maryland -- 3.0%
1,000,000 AA* Maryland State Community Development
Administration, Series A, 5.875% due 7/1/16 1,006,250
4,000,000 NR Maryland State Energy Financing Administration,
Solid Waste Disposal Revenue, (Hagerstown
Project), 9.000% due 10/15/16(a) 3,320,000
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4,326,250
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Massachusetts -- 3.3%
2,000,000 AAA Massachusetts Bay Transportation Authority,
Series B, FSA-Insured, 5.250% due 3/1/26 1,930,000
4,000,000 NR Massachusetts Solid Waste Management,
9.000% due 8/1/16 2,000,000
1,000,000 AAA Massachusetts Turnpike Authority Revenue,
MBIA-Insured, 5.000% due 1/1/20 933,750
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4,863,750
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Michigan -- 4.8%
1,000,000 NR Michigan State Strategic Funding, Limited
Obligation Revenue, (Blue Water Fiber Project),
8.000% due 1/1/12 751,250
5,600,000 NR Midland County, MI Economic Development
Corporation, PCR, Limited Obligation,
Series B, 9.500% due 7/23/09(a)(c) 6,139,000
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6,890,250
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</TABLE>
See Notes to Financial Statements.
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Schedule of Investments
November 30, 1996 (unaudited)(continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
==============================================================================================
<S> <C> <C> <C>
Montana -- 1.3%
$ 2,000,000 NR Montana State Board of Investments
Resource Recovery, (Yellowstone Energy
Project), 7.000% due 12/31/19(a) $ 1,965,000
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Nevada -- 5.2%
4,650,000 BBB- Clark County, NV IDR, Southwest Gas
Corporation, 7.500% due 9/1/32(a)(c) 5,016,188
2,485,000 AAA Clark County, NV School District GO,
MBIA-Insured, Series A,
5.875% due 6/15/14 2,559,550
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7,575,738
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New Jersey -- 1.1%
1,500,000 A- Union County, NJ Utilities Authority, Solid Waste
Revenue, Series A, 7.200% due 6/15/14(a) 1,535,625
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New York -- 6.4%
2,970,000 BBB City University of New York, John Jay College,
5.750% due 8/15/04 3,040,537
1,000,000 AAA New York City, NY Dormitory Authority Lease
Revenue, Health Facility, FSA-Insured,
5.500% due 5/15/16 1,007,500
1,000,000 AAA New York City, NY Education Construction
Revenue, AMBAC-Insured, 5.500% due 4/1/26 1,001,250
3,000,000 A New York State Local Assistance Corporation,
5.000% due 4/1/23 2,775,000
1,500,000 A+ Triborough Bridge & Tunnel Authority of New
York, 5.000% due 1/1/24 1,400,625
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9,224,912
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North Carolina -- 2.5%
1,500,000 A* Coastal Regional Solid Waste Management
Disposal Authority, North Carolina Solid Waste
Revenue, 6.500% due 6/1/08(d) 1,605,000
2,000,000 AAA New Hanover County, NC Hospital Revenue,
Regional Medical Center, AMBAC-Insured,
5.750% due 10/1/16 2,052,500
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3,657,500
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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 2,271,050
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</TABLE>
See Notes to Financial Statements.
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Schedule of Investments
November 30, 1996 (unaudited)(continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
==============================================================================================
<S> <C> <C> <C>
Texas -- 6.3%
$ 1,000,000 AAA Austin, TX Utility Revenue, MBIA-Insured,
5.600% due 5/15/25 $ 1,002,500
Burleson, TX ISD, GO:
1,065,000 NR Pre-Refunded--Escrowed with U.S.
Government Securities to 8/1/06
Call @ 100, 6.750% due 8/1/24(c) 1,219,425
435,000 NR 6.750% due 8/1/24 482,306
1,500,000 Aaa* Leander, TX ISD, PSFG, 5.625% due 8/15/16 1,528,125
5,000,000 AAA Texas State Turnpike Revenue, George Bush Toll,
FGIC-Insured, 5.250% due 1/1/23 4,862,500
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9,094,856
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Utah -- 3.8%
6,000,000 AA+ Intermountain Power Agency, Utah Power Supply
Refunding, Series D, 5.000% due 7/1/21 5,565,000
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Virginia -- 8.4%
1,560,000 AAA Hampton Roads, VA Regional Jail Authority,
MBIA-Insured, 5.500% due 7/1/24 1,569,750
2,000,000 AAA Riverside, VA Regional Jail Facility, Revenue
Bonds, MBIA-Insured, 6.000% due 7/1/25 2,080,000
Virginia State Housing Development Authority:
1,245,000 AA+ Commonwealth Mortgage, Series D,
5.700% due 7/1/09 1,265,231
1,000,000 AAA Mortgage Housing Revenue, MBIA-Insured,
5.600% due 7/1/12 1,021,250
4,210,000 AA+ Series F, 6.400% due 7/1/17 4,352,087
925,000 AA+ Series K, 5.900% due 11/1/11 940,031
1,000,000 AA Virginia State Transportation Board, Series A,
5.125% due 5/15/21 958,751
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12,187,100
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Washington -- 2.8%
2,000,000 Aa* Clark County, WA GO, School District No. 37,
5.900% due 12/1/12 2,075,000
2,000,000 AAA Washington State Public Power, (Nuclear
Project No. 3), Series B, MBIA-Insured,
5.600% due 7/1/15 1,990,000
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4,065,000
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</TABLE>
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
Schedule of Investments
November 30, 1996 (unaudited)(continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
==============================================================================================
<S> <C> <C> <C>
West Virgina -- 1.4%
$ 4,000,000 NR Marion County, WV Solid Waste American
Recycle, 7.750% due 12/1/11(c) $ 2,000,000
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Wisconsin -- 3.7%
Wisconsin Housing & Economic Development
Authority, Series A:
2,000,000 AA Home Ownership Revenue,
6.450% due 3/1/17 2,080,000
1,370,000 A1* Housing Revenue, 5.650% due 11/1/23 1,320,337
2,000,000 AAA Wisconsin State Health & Education,
Aurora Health Care, MBIA-Insured,
5.250% due 8/15/23 1,912,500
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5,312,837
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Total Investments -- 100%
(Cost -- $142,332,096**) $144,616,100
==============================================================================================
</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. Governmment 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.
** 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.
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Summary of Investments by Combined Ratings
November 30, 1996 (unaudited) (continued)
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Percent of
Moody's and/or Standard & Poor's Total Investments
================================================================================
Aaa AAA 39.8%
Aa AA 20.1
A A 8.1
Baa BBB 16.4
NR NR 15.6
-----
100.0%
=====
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Bond Ratings
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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 "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.
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Security Descriptions
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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
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
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- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 30, 1996
================================================================================
<S> <C>
Assets:
Investments, at value (Cost -- $142,332,096) $144,616,100
Interest receivable 2,637,681
- --------------------------------------------------------------------------------
Total Assets 147,253,781
- --------------------------------------------------------------------------------
Liabilities:
Payable for securities purchased 6,388,452
Dividends payable 324,950
Payable to bank 288,691
Investment advisory fees payable 82,327
Administration fees payable 23,194
Accrued expenses 69,402
- --------------------------------------------------------------------------------
Total Liabilities 7,177,016
- --------------------------------------------------------------------------------
Total Net Assets $140,076,765
================================================================================
Net Assets:
Par value of capital shares $ 11,217
Capital paid in excess of par value 134,020,329
Undistributed net investment income 355,044
Accumulated net realized gain on security transactions 3,406,171
Net unrealized appreciation of investments 2,284,004
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $12.49 a share on 11,216,668 shares of $0.001
par value outstanding; 500,000,000 shares authorized) $140,076,765
================================================================================
</TABLE>
See Notes to Financial Statements.
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Statement of Operations
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended
11/30/96
===============================================================================
<S> <C>
Investment Income:
Interest $ 2,227,411
- -------------------------------------------------------------------------------
Expenses:
Investment advisory fees (Note 2) 239,405
Administration fees (Note 2) 68,401
Audit and legal 11,068
Directors' fees 10,484
Shareholder communications 9,000
Shareholder and system servicing fees 4,821
Pricing service fees 1,880
Custody 1,710
Other 1,338
- -------------------------------------------------------------------------------
Total Expenses 348,107
- -------------------------------------------------------------------------------
Net Investment Income 1,879,304
- -------------------------------------------------------------------------------
Realized And Unrealized Gain
On Investments (Note 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 43,621,440
Cost of securities sold 42,685,133
- -------------------------------------------------------------------------------
Net Realized Gain 936,307
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of period (2,533,016)
End of period 2,284,004
- -------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 4,817,020
- -------------------------------------------------------------------------------
Net Gain on Investments 5,753,327
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Increase in Net Assets From Operations $ 7,632,631
===============================================================================
</TABLE>
See Notes to Financial Statements.
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- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended
11/30/96 Year Ended
(unaudited) 8/31/95
================================================================================
<S> <C> <C>
Operations:
Net investment income $ 1,879,304 $ 7,408,614
Net realized gain 936,307 3,856,189
Increase (decrease) in net
unrealized appreciation 4,817,020 (6,183,178)
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 7,632,631 5,081,625
- --------------------------------------------------------------------------------
Distributions to Shareholders
From (Note 4):
Net investment income (1,985,350) (7,553,614)
Net realized gains -- (1,747,555)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (1,985,350) (9,301,169)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 5,647,281 (4,219,544)
Net Assets:
Beginning of period 134,429,484 138,649,028
- --------------------------------------------------------------------------------
End of period* $140,076,765 $134,429,484
================================================================================
* Includes undistributed net
investment income of: $355,044 $461,090
================================================================================
</TABLE>
See Notes to Financial Statements.
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Notes to Financial Statements
(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 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 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) expenses are charged to the Fund; (h) 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, 1996, reclassifications were made to the Fund's
capital accounts to reflect permanent book/tax differences and income and gains
available for distribution under income tax regulations. Net investment income,
net realized gains and net assets were not affected by this change; (i) 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 (j) 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.
[GRAPHIC]
16
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(unaudited) (continued)
- --------------------------------------------------------------------------------
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), 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.
3. Investments
For the three months ended November 30, 1996, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
================================================================================
Purchase $41,189,756
- --------------------------------------------------------------------------------
Sales $43,621,440
================================================================================
At November 30, 1996, aggregate gross unrealized appreciation and
depreciation of investments were as follows:
================================================================================
Gross unrealized appreciation $ 7,306,362 *
Gross unrealized depreciation (5,022,358)*
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 2,284,004 *
================================================================================
*Substantially the same for Federal income tax purposes.
4. 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.
[GRAPHIC]
17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(unaudited) (continued)
- --------------------------------------------------------------------------------
5. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and 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 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 November 30, 1996, the Fund had no open futures contracts.
[GRAPHIC]
18
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
1996(1) 1996 1995 1994 1993(2)
========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.98 $12.36 $12.15 $13.37 $12.00
- --------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.17 0.66 0.69 0.64 0.62
Net realized and unrealized gain (loss) 0.52 (0.21) 0.32 (0.61) 1.34
- --------------------------------------------------------------------------------------------------------
Total Income From Operations 0.69 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 (0.18) (0.67) (0.68) (0.67) (0.55)
Net realized gains -- (0.16) (0.12) (0.59) --
- --------------------------------------------------------------------------------------------------------
Total Distributions (0.18) (0.83) (0.80) (1.26) (0.55)
- --------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.49 $11.98 $12.36 $12.15 $13.37
- --------------------------------------------------------------------------------------------------------
Total Return, Based on Market Value 0.40%+++ 7.35% 8.86% 0.72% 9.97%+++
- --------------------------------------------------------------------------------------------------------
Total Return, Based on NAV 5.86%+++ 4.01% 9.20% 0.48% 16.46%+++
- --------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $140,077 $134,429 $138,649 $136,248 $149,970
- --------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.02%+ 1.09% 1.14% 1.12% 1.10%+
Net investment income 5.50+ 5.31 5.80 5.08 5.21+
- --------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 29% 63% 95% 85% 163%
- --------------------------------------------------------------------------------------------------------
Market Value, End of Year $11.500 $11.750 $11.625 $11.500 $12.625
========================================================================================================
</TABLE>
(1) For the three months ended November 30, 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.
[GRAPHIC]
19
<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,
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)
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
========================================================================================================================
</TABLE>
[GRAPHIC]
20
<PAGE>
- --------------------------------------------------------------------------------
Financial Data
(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
June 28, 1996 11.375 12.21 0.059 -- 11.52
July 26, 1996 11.375 12.08 0.059 -- 11.52
August 30, 1996 11.750 11.98 -- 0.1200 11.69
September 30, 1996 11.625 12.19 0.059 -- 11.66
October 31, 1996 11.625 12.32 0.059 -- 11.63
November 30, 1996 11.500 12.49 0.059 -- 11.50
================================================================================
</TABLE>
+ As of record date.
[GRAPHIC]
21
<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 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:
<TABLE>
<CAPTION>
% of % of
Directors Votes For Shares Voted Against Shares Voted
====================================================================================
<S> <C> <C> <C> <C>
Charles Barber 10,604,067.000 98.593% 151,302.000 1.407%
Dwight B. Crane 10,627,328.000 98.810 128,042.000 1.190
William R. Hutchinson 10,631,689.000 98.850 123,680.000 1.150
====================================================================================
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
% of Votes % of Votes % of
Votes For Shares Voted Against Shares Voted Abstained Shares Voted
====================================================================================
<S> <C> <C> b <C> <C> <C>
10,597,542.000 98.533% 49,740.000 0.463% 108,087.000 1.005%
====================================================================================
</TABLE>
There were no broker non-votes.
[GRAPHIC]
22
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
(unaudited)
- --------------------------------------------------------------------------------
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
[GRAPHIC]
23
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
(unaudited) (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.
[GRAPHIC]
24
<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
<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 1/97
