<PAGE>
Managed Municipals
Portfolio II Inc.
Quarterly Report
May 31, 2000
[LOGO]
<PAGE>
Managed Municipals
Portfolio II Inc.
Dear Shareholder:
We are pleased to provide the quarterly report for the Managed Municipals
Portfolio II Inc. ("Portfolio") for the nine months ended May 31, 2000. During
the nine months covered by this report, the Portfolio distributed income
dividends totaling $0.45 per share. The table below shows the annualized
distribution rate and nine-month total return based on the Portfolio's May 31,
2000 net asset value ("NAV") per share and its New York Stock Exchange ("NYSE")
closing price.1
Price Annualized Nine-Month
Per Share Distribution Rate2 Total Return2
------------- ------------------ -------------
$10.93 (NAV) 5.49% 1.46%
$ 9.25 (NYSE) 6.49% (3.58)%
In comparison, general closed-end municipal bond funds posted an average
total return on NAV of 0.72% for the same period, as reported by Lipper, Inc
("Lipper"). (Lipper is a nationally recognized organization that
-----------------
1 The NAV is calculated by subtracting total liabilities from the closing
value of all securities held by the Portfolio (plus all other assets) and
dividing the result (total net assets) by the total number of shares
outstanding. The NAV fluctuates with the changes in the market price of the
securities in which the Portfolio has invested. However, the price at which
an investor may buy or sell shares of the Portfolio is at their market
(NYSE) price as determined by supply and demand.
2 Total returns are based on changes in net asset value ("NAV") or the market
value, respectively. Total returns assume the reinvestment of all dividends
and/or capital gains distributions in additional shares. The annualized
distribution rate is the Portfolio's current monthly income dividend rate,
annualized, and then divided by the NAV or the market value noted in this
report. The annualized distribution rate assumes a current monthly income
dividend rate of $0.05. This rate is as of June 30, 2000 and is subject to
change. The important difference between a total return and an annualized
distribution rate is that the total return takes into consideration a
number of factors including the fluctuation of the NAV or the market value
during the period reported. The NAV fluctuation includes the effects of
unrealized appreciation or depreciation in the Portfolio. Accordingly,
since an annualized distribution rate only reflects the current monthly
income dividend rate annualized, it should not be used as the sole
indicator to judge the return you receive from your Portfolio investment.
Past performance is not indicative of future results.
1
<PAGE>
reports on mutual fund total return performance and calculates fund rankings.
Lipper peer averages are based on universes of funds with similar investment
objectives.)
Special Shareholder Notice
We are pleased to report that our effort to reduce the Portfolio's shares
discount to NAV has continued. We believe that the share repurchase program,
that started on July 27, 1999, is an opportunity to take advantage of market
price fluctuations with the objective of offering increased value to the
Portfolio's shareholders. The Managed Municipals Portfolio II Inc. intends to
continue to purchase and then retire shares of its stock in the open market at
such times, prices and amounts deemed advisable.
The Portfolio's share repurchase program has also added liquidity to the
market for the benefit of investors who wish to sell their shares, while also
seeking to benefit current shareholders by increasing the Portfolio's shares'
NAV. Since the inception of the program, the Portfolio has repurchased and
retired 925,600 shares with an average buyback price of $9.40. As of May 31,
2000, this repurchase program has increased the Portfolio's shares' NAV by over
$0.14 and increased the Portfolio's shares' total return by approximately 1.30%
when measured by NAV.
Municipal Bond Market Update
On May 16, 2000, the Federal Reserve Board ("Fed") enacted the sixth in a
series of interest rate hikes that began June 30, 1999 when the federal funds
rate was at 4.75%. (The federal funds rate is the interest rate charged by banks
with excess reserves at a Federal Reserve district bank to banks needing
overnight loans to meet reserve requirements.) With the federal funds rate
presently at 6.50%, the cumulative effect of the interest rate increases so far,
in our view, may begin to have a more pronounced effect in reducing inflationary
pressures. In our opinion, changes in the Fed's monetary policy generally take
time to be absorbed into the economy. We believe that the recent market rallies
are a result of monetary changes enacted six to nine months ago. In addition, we
think that, barring a major change in the economy or the rate of inflation, it
is likely that the Fed's monetary policy may be relatively benign for the
remainder of 2000.
Over the past several weeks, the performance of the bond market has shown
signs of improvement amid a series of economic reports that suggest the economy
is slowing and that the Fed may be close to completing its series of interest
rate hikes. However, we also think that any further Fed policy actions may have
already been comfortably priced into the bond market.
2
<PAGE>
The inversion of the yield curve, which has made us somewhat cautious, in
our view also shows that the market believes inflation is under control. (The
yield curve is the graphical depiction of the relationship between the yield on
bonds of the same credit quality but different maturities. An inverted yield
curve represents a unique situation whereby short-term interest rates are higher
than long-term rates.) While the fundamentals in the higher-quality tier
securities are still sound and valuations have improved, poor technical
conditions, most notably large pent-up issuance needs, have created concern
among many investors about the future prospects for municipal bonds. Yet, as we
discuss later in the report, we are optimistic about current municipal bond
opportunities.
The prospect of further Fed tightening may result in modest further
increases in interest rates on securities with shorter maturities. In contrast,
we believe that long-term rates are not likely to rise much. Our favorable
outlook for inflation, plus the ongoing reduction in the supply of U.S.
Treasuries may help to contain the rise in long-term rates and further invert
the U.S. Treasury yield curve (that is, long-term yields should fall even
further below short-term yields).
In our view, modestly higher U.S. Treasury yields and a further increase in
the inversion of the yield curve are likely as the Fed continues to push up
short-term rates. A decrease in the amount of new issuance and more buybacks of
currently outstanding debt, while already largely discounted by the market, may
reinforce the inversion of the yield curve. In addition, we are presently
witnessing general market sentiment towards bonds of higher credit quality. We
think that the short-end of the curve is racing to stay ahead of short-term
rates. The inversion is not just a factor of the U.S. Treasury buyback program,
but rather, it indicates that inflation may be under control and rates on
longer-term paper still represent fair value.
Investment Strategy
The Managed Municipals Portfolio II Inc. seeks as high a level of current
income exempt from federal income tax as is consistent with preservation of
principal.3
During the past year, the Portfolio focused on transportation (15.4%),
hospital bonds (11.0%), and general obligation bonds (9.4%) because we believe
they offered good relative values. At the end of May,
-------------
3 Please note that a portion of the Portfolio's income may be subject to the
Alternative Minimum Tax ("AMT").
3
<PAGE>
the Fund's weighted average maturity was approximately 20.8 years. In addition,
as of May 31, 2000, 83.8% of the Fund's holdings were rated investment grade4 by
either Standard & Poor's Ratings Group or Moody's Investors Services, Inc., with
37.9% of the Fund invested in AAA bonds, the highest possible rating.
The Portfolio's investment strategy going forward will be three-fold:
. We are lengthening maturities in the Portfolio to take advantage
of the inexpensive valuations of municipal bonds relative to U.S.
Treasuries;
. We are focusing on investing in high-grade issues; and
. We are investing in discount paper, as this is where we believe
we can obtain the best value.
Our goal is to sell off some of our shorter-term maturities that were
defensive and stretch out longer on the yield curve to lock in today's higher
rates. We see the best opportunity for potential reward right now at the long
end of the yield curve.
Under "normal" market conditions, municipal investors pay for the tax-free
income benefits by receiving a lower return on their investment. Today, however,
investors are saving on taxes without sacrificing returns. It is possible to buy
double- and triple-A-rated bonds yielding nearly 100% or more of similar
maturity U.S. Treasury bonds, well above the historical average of roughly 80%.
We think these yields represent extraordinarily good value for municipal
securities.
In our view, the municipal bond market has provided us with excellent
opportunities during the reporting period. Since interest rates have increased,
we have been able to invest our cash at higher yields.
Municipal Bond Market Outlook
In our judgment, a number of influences remain favorable for the municipal
bond market. We believe the new-issue municipals might decline this year,
boosting the demand for bonds currently outstanding and enhancing interest for
the new municipals expected in 2000.
-------------
4 Investment-grade bonds are those rated Aaa, Aa, A and Baa by Moody's
Investors Service, Inc. or AAA, AA, A and BBB by Standard & Poor's Ratings
Group, or that have an equivalent rating by any nationally recognized
statistical rating organization, or are determined by the manager to be of
equivalent quality.
4
<PAGE>
Fiscal trends are another major positive. During past economic downturns,
some municipal issuers facing declining tax receipts and were hard-pressed to
repay their bond obligations. Today, many state and local governments have
budget surpluses. We believe these surpluses may make investors more comfortable
holding municipals, even in a downturn. Lastly, recent narrowing of spreads in
the taxable market has made other fixed income alternatives less attractive on a
relative basis. All of these trends help to explain why we remain optimistic
about the long-term prospects for the municipal bond market.
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 in
the future.
Sincerely,
/s/ Heath B. McLendon /s/ Joseph P. Deane
Heath B. McLendon Joseph P. Deane
Chairman Vice President and
Investment Officer
June 30, 2000
5
<PAGE>
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Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that Fund investors who reinvest their dividends are taking
advantage of one of the most effective wealth-building tools available today?
Systematic investments put time to work for you through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend Reinvestment
Plan ("Plan"), a convenient, simple and efficient way to reinvest your dividends
and capital gains, if any, in additional shares of the Fund. Below is a short
summary of how the Plan works.
Plan Summary
If you are a Plan participant who has not elected to receive your dividends in
the form of a cash payment, then your dividend and capital gain distributions
will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a cash
dividend is determined in the following manner. If the market price of the
common stock is equal to or exceeds the net asset value per share ("NAV") on the
determination date, you will be issued shares by the Fund at a price reflecting
the NAV, or 95% of the market price, whichever is greater.
If the market price is less than the NAV at the time of valuation (the close of
business on the determination date), or if the Fund declares a dividend or
capital gains distribution payable only in cash, PFPC Global Fund Services
("Plan Agent"), will buy common stock for your account in the open market.
If the Plan Agent begins to purchase additional shares in the open market and
the market price of the shares subsequently rises above the previously
determined NAV before the purchases are completed, the Plan Agent will attempt
to terminate purchases and have the Fund issue the remaining dividend or
distribution in shares at the greater of the previously determined NAV or 95% of
the market price. In that case, the number of Fund shares you receive 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.
A more complete description of the current Plan appears beginning on page 25. To
find out more detailed information about the Plan and about how you can
participate, please call PFPC Global Fund Services at (800) 331-1710.
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6
<PAGE>
Schedule of Investments
May 31, 2000 (unaudited)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Alaska -- 2.7%
$ 2,895,000 A2* Alaska Industrial Development & Export
Authority Revolving Fund, Series A,
6.500% due 4/1/14 (b) $ 2,985,469
------------------------------------------------------------------------------------------
Alabama -- 1.0%
1,270,000 AAA Jefferson County, AL Sewer Revenue, Capital
Improvements, FGIC-Insured, Series A,
5.375% due 2/1/36 1,117,600
------------------------------------------------------------------------------------------
California -- 3.7%
2,500,000 Ba1* California Educational Facilities Authority
Revenue, (Pooled College & University
Projects), Series A, 5.625% due 7/1/23 2,153,125
2,000,000 A2* California Health Facilities, Cedar Sinai Medical
Center, Series A, 6.250% due 12/1/34 1,970,000
------------------------------------------------------------------------------------------
4,123,125
------------------------------------------------------------------------------------------
Colorado -- 18.4%
1,000,000 AAA Arapahoe County, CO Capital Improvement
Trust Fund, E-470 Public Highway Authority
Revenue, (Pre-Refunded -- Escrowed with
U.S. government securities to 8/31/05
Call @ 103), 7.000% due 8/31/26 1,108,750
1,000,000 A- Aspen, CO Sales Tax Revenue, Series A,
5.400% due 11/1/19 911,250
Colorado Health Facilities Authority Revenue:
1,000,000 AA- Series A, 5.000% due 12/1/28 806,250
1,000,000 A Series B, Remarketed 7/8/98, 5.350% due 8/1/15 897,500
4,000,000 BBB+ Colorado Springs, CO Airport Revenue, Series A,
7.000% due 1/1/22 (b) 4,065,000
30,000,000 Aaa* Dawson Ridge, CO Metropolitan District No. 1,
Series A, (Escrowed to Maturity with
REFCO Strips), zero coupon bond to yield
5.213% due 10/1/22 6,412,500
Denver, CO City & County Airport Revenue,
Series C:
3,465,000 A 6.125% due 11/15/25 (b) 3,482,325
2,785,000 A Partially Escrowed to maturity with
U.S. government securities,
6.125% due 11/15/25 (b)(c) 2,798,925
-----------------------------------------------------------------------------------------
20,482,500
-----------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
7
<PAGE>
Schedule of Investments
May 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Florida -- 5.2%
$ 1,500,000 BBB- Martin County, FL IDA, (Indiantown
Cogeneration Project), Series A,
7.875% due 12/15/25 (b) $1,501,875
4,000,000 NR Tampa, FL Revenue, (Florida Aquarium Inc.
Project), (Pre-Refunded -- Escrowed with
U.S. government securities to 5/1/02
Call @ 102), 7.750% due 5/1/27 (c) 4,275,000
-----------------------------------------------------------------------------------------
5,776,875
-----------------------------------------------------------------------------------------
Georgi -- 3.6%
2,500,000 AAA Atlanta, GA Water & Wastewater Revenue,
Series A, FGIC Insured, 5.000% due 11/1/38 2,075,000
1,000,000 A3* Private Colleges & Universities Authority Revenue
(Mercer University Project), Series A,
5.375% due 10/1/29 871,250
1,000,000 BBB- Savannah, GA EDA Revenue, (College of
Art & Design Inc. Project), Series A,
6.900% due 10/1/29 998,750
-----------------------------------------------------------------------------------------
3,945,000
-----------------------------------------------------------------------------------------
Hawaii -- 3.2%
2,000,000 A Hawaii State Department of Budget & Finance,
Special Purpose Revenue, Kaiser Permanente,
Series A, 5.100% due 3/1/14 1,762,500
2,000,000 AAA Hawaii State GO, Series CP, FGIC-Insured,
5.000% due 10/1/16 1,802,500
-----------------------------------------------------------------------------------------
3,565,000
-----------------------------------------------------------------------------------------
Illinois -- 1.7%
1,000,000 Aaa* Illinois HFA, Memorial Health System,
MBIA-Insured, 5.250% due 10/1/18 896,250
1,000,000 Aaa* Kane County, IL GO, School District No. 129,
Aurora West Side, FGIC-Insured,
5.125% due 2/1/14 932,500
-----------------------------------------------------------------------------------------
1,828,750
-----------------------------------------------------------------------------------------
Iowa -- 1.4%
1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project),
6.500% due 7/15/12 1,541,250
-----------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
8
<PAGE>
Schedule of Investments
May 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Louisiana -- 0.7%
$ 1,000,000 AAA Louisiana Local Government Environment
Facilities, Community Development Authority
Revenue, Capital Projects & Equipment
Acquisition, AMBAC-Insured,
4.500% due 12/1/18 $ 817,500
-------------------------------------------------------------------------------------------------
Maryland -- 1.4%
4,000,000 NR Maryland State Energy Financing Administration,
Solid Waste Disposal Revenue, (Hagerstown
Recycling Project), 9.000% due 10/15/16 (b)(d) 360,000
1,500,000 A Maryland State Health & Higher Educational
Facilities Authority Revenue, Loyola College
Issue, 5.000% due 10/1/39 1,231,875
-------------------------------------------------------------------------------------------------
1,591,875
-------------------------------------------------------------------------------------------------
Massachusetts -- 4.2%
1,000,000 Aaa* Massachusetts State College Building Authority
Revenue, Series 1, MBIA-Insured,
5.375% due 5/1/39 875,000
1,000,000 AAA Massachusetts State Health & Educational Facilities
Authority Revenue, Northeastern University,
Series I, MBIA-Insured, 5.000% due 10/1/29 835,000
1,000,000 AAA Massachusetts State HFA, Housing Development,
Series B, MBIA-Insured, 5.300% due 12/1/17 925,000
2,000,000 AAA Massachusetts State Turnpike Authority,
Metropolitan Highway System Revenue, Sub.
Series A, AMBAC-Insured, 4.750% due 1/1/34 1,587,500
510,000 AAA Massachusetts State Water Resource Authority,
MBIA-Insured, Series C, 5.250% due 12/1/20 460,275
-------------------------------------------------------------------------------------------------
4,682,775
-------------------------------------------------------------------------------------------------
Michigan -- 8.4%
4,000,000 NR Michigan State Strategic Fund Resource
Recovery, Limited Obligation Revenue,
Central Wayne Energy Recovery L.P.,
Series A, 7.000% due 7/1/27 (b) 3,590,000
5,600,000 NR Midland County, MI Economic Development
Corp., PCR, Limited Obligation, Series B,
9.500% due 7/23/09 (b) 5,720,960
-------------------------------------------------------------------------------------------------
9,310,960
-------------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
9
<PAGE>
Schedule of Investments
May 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Minnesota -- 0.8%
$ 1,000,000 AAA Minneapolis & Saint Paul, MN Community
Airport Revenue, Series A, FGIC-Insured,
5.125% due 1/1/25 $ 872,500
-----------------------------------------------------------------------------------------
Missouri -- 2.8%
1,000,000 AAA Fenton, MO COP, (Capital Improvements Project),
MBIA-Insured, 5.125% due 9/1/17 908,750
2,500,000 AAA Kansas City, MO Municipal Assistance Corp.,
Leasehold Revenue, H. Roe Bartle
Convention Center, Series A, MBIA-Insured,
5.000% due 4/15/20 2,184,375
-----------------------------------------------------------------------------------------
3,093,125
-----------------------------------------------------------------------------------------
Montana -- 1.7%
2,000,000 NR Montana State Board of Investment Resource
Recovery Revenue, (Yellowstone Energy L.P.
Project), 7.000% due 12/31/19 (b) 1,875,000
-----------------------------------------------------------------------------------------
Nevada -- 4.3%
4,650,000 Baa2* Clark County, NV IDR, Southwest Gas Corp.,
Series B, 7.500% due 9/1/32 (b) 4,836,000
-----------------------------------------------------------------------------------------
New Jersey -- 1.2%
1,500,000 AAA Middlesex County, NJ COP, MBIA-Insured,
5.000% due 2/15/19 1,306,875
-----------------------------------------------------------------------------------------
New Mexico -- 0.9%
1,095,000 AAA New Mexico Mortgage Financing Authority,
Single-Family Mortgages, Series D-3,
5.625% due 9/1/28 1,021,087
-----------------------------------------------------------------------------------------
New York -- 5.7%
2,000,000 AAA Nassau Health Care Corp., New York Health
System Revenue, Nassau County Guaranteed,
FSA-Insured, Series A, 5.500% due 8/1/19 1,872,500
2,000,000 AA New York, NY Transitional Finance Authority
Revenue, Future Tax Secured, Series C,
5.500% due 11/1/29 1,840,000
3,000,000 AAA New York State Thruway Authority, Highway &
Bridge Transportation Fund, FGIC Insured,
Series A, 5.000% due 4/1/18 2,643,750
-----------------------------------------------------------------------------------------
6,356,250
-----------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
10
<PAGE>
Schedule of Investments
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
North Carolina -- 1.4%
$ 1,500,000 A3* Coastal Regional Solid Waste Management
Disposal Authority, Solid Waste Disposal
Revenue, 6.500% due 6/1/08 $1,571,250
-----------------------------------------------------------------------------------------
Ohio -- 3.4%
1,000,000 AAA Cuyahoga County, OH Hospital Revenue,
AMBAC-Insured, 5.500% due 1/15/30 905,000
1,990,000 AAA Lucas County, OH Hospital Revenue, Promedia
Healthcare Obligation Group, AMBAC Insured,
5.375% due 11/15/29 1,763,637
1,220,000 AAA Ohio State Higher Educational Facility
Commission Revenue, University of Dayton,
AMBAC-Insured, 5.350% due 12/1/17 1,155,950
-----------------------------------------------------------------------------------------
3,824,587
-----------------------------------------------------------------------------------------
South Carolina -- 4.8%
500,000 AAA Lexington County, SC Health Services District,
Hospital Revenue, FSA-Insured,
5.250% due 11/1/17 457,500
2,120,000 A3* Myrtle Beach, SC COP, (Myrtle Beach
Convention Center Project), 6.875% due 7/1/07 2,236,600
3,000,000 Aaa* South Carolina Transportation Infrastructure
Bank Revenue, Series A, AMBAC-Insured,
5.250% due 10/1/21 2,685,000
-----------------------------------------------------------------------------------------
5,379,100
-----------------------------------------------------------------------------------------
Texas -- 8.6%
1,000,000 Aaa* Azle, TX ISD, PSFG, Series C, 5.000% due 2/15/22 861,250
2,000,000 A3* Brazos River Authority, TX PCR, Utility
Electric Co., Series C, 5.550% due 6/1/30 (b) 1,660,000
435,000 Aaa* Burleson, TX ISD, GO, PSFG, 6.750% due 8/1/24 456,750
2,000,000 Baa1* Dallas-Fort Worth, TX International Airport
Facilities Revenue, American Airlines,
6.375% due 5/1/35 (b) 1,845,000
1,000,000 AA Harris County, TX Health Facilities Development
Corp., Hospital Revenue, (Texas Childrens
Hospital Project), 5.250% due 10/1/19 868,750
1,830,000 Aa1* Texas State GO, Water Development, Series D,
5.000% due 8/1/16 1,649,288
1,000,000 AAA Texas Water Development Board Revenue,
State Revolving Fund, Sr. Lien, Series B,
5.000% due 7/15/19 870,000
</TABLE>
See Notes to
Financial Statements.
11
<PAGE>
Schedule of Investments
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Texas -- 8.6% (continued)
$ 1,520,000 AAA West Texas Municipal Power Agency Revenue,
MBIA-Insured, 5.000% due 2/15/16 $ 1,375,600
-----------------------------------------------------------------------------------------
9,586,638
-----------------------------------------------------------------------------------------
Virgin Islands -- 0.8%
1,000,000 BBB- Virgin Islands Public Finance Authority Revenue,
Sr. Lien, Series A, 5.500% due 10/1/22 858,750
-----------------------------------------------------------------------------------------
Virginia -- 4.1%
Virginia State Housing Development Authority:
Commonwealth Mortgage Revenue:
1,245,000 AA+ Series D, Sub. Series D-3, Remarketed
5/30/96, 5.700% due 7/1/09 1,251,225
2,350,000 AA+ Series F, Sub. Series F-1, Remarketed
9/12/95, 6.400% due 7/1/17 2,394,063
925,000 AA+ Multi-Family Housing Revenue, Series K,
5.900% due 11/1/11 928,469
-----------------------------------------------------------------------------------------
4,573,757
-----------------------------------------------------------------------------------------
Wisconsin -- 3.9%
Wisconsin Housing EDA, Series A:
2,000,000 AA Home Ownership Revenue, 6.450% due 3/1/17 2,035,000
1,370,000 AA- Housing Revenue, 5.650% due 11/1/23 1,294,650
1,000,000 AAA Wisconsin State Health & Educational
Facilities Authority Revenue, (Medical College
of Wisconsin Project), MBIA-Insured,
5.400% due 12/1/16 951,250
-----------------------------------------------------------------------------------------
4,280,900
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS-- 100%
(Cost-- $117,944,392**) $111,204,498
-----------------------------------------------------------------------------------------
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) are rated by Moody's Investor's Service, Inc.
(b) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(c) 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.
(d) Security in default.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 14 and 15 for definitions of ratings and certain security
descriptions.
See Notes to
Financial Statements.
12
<PAGE>
Summary of Investments by Combined Ratings
May 31, 2000 (unaudited)
Percent of
Moody's and/or Standard & Poor's Total Investments
-------------------------------------------------------------------------------
Aaa AAA 37.9%
Aa AA 13.1
A A 20.1
Baa BBB 12.7
Ba BB 1.9
NR NR 14.3
-----
100.0%
=====
See Notes to
Financial Statements.
13
<PAGE>
Bond Ratings
(unaudited)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("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 rated "AAA" have the highest rating assigned by Standard &
Poor's to a debt obligation. 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.
BB -- Bonds 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 Investors Service, Inc. ("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 is the lowest ranking within its generic category.
Aaa -- Bonds 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 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 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 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.
Ba -- Bonds rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
14
<PAGE>
Short-Term Security Ratings
(unaudited)
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 commercial paper and for VRDO prior to the
advent of the VMIG-1 rating.
Security Descriptions
(unaudited)
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
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
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday Demand
15
<PAGE>
Statement of Assets and Liabilities
(unaudited)
<TABLE>
<CAPTION>
May 31, 2000
------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (Cost -- $117,944,392) $111,204,498
Interest receivable 1,829,387
Receivable from Investment Advisor 75,080
------------------------------------------------------------------------------------
Total Assets 113,108,965
------------------------------------------------------------------------------------
LIABILITIES:
Payable to bank 181,501
Dividends payable 176,428
Accrued expenses 44,872
------------------------------------------------------------------------------------
Total Liabilities 402,801
------------------------------------------------------------------------------------
Total Net Assets $112,706,164
====================================================================================
NET ASSETS:
Par value of capital shares $ 10,309
Capital paid in excess of par value 134,235,778
Treasury Stock, at cost (Note 7) (8,719,939)
Undistributed net investment income 573,245
Accumulated net realized loss from security transactions (6,653,335)
Net unrealized depreciation of investments (6,739,894)
------------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $10.93 a share on 10,309,106 shares of $0.001
par value outstanding; 500,000,000 shares authorized) $112,706,164
====================================================================================
</TABLE>
See Notes to
Financial Statements.
16
<PAGE>
Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Nine
Months Ended
May 31, 2000
===================================================================================
<S> <C>
INVESTMENT INCOME:
Interest $ 6,110,828
-----------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3) 620,192
Administration fees (Note 3) 177,198
Shareholder communications 86,594
Audit and legal 41,094
Directors' fees 31,341
Shareholder and system servicing fees 14,624
Pricing service fees 6,855
Registration fees 6,062
Custody 4,430
Other 6,407
------------------------------------------------------------------------------------
Total Expenses 994,797
Less: Investment advisory and administration fee waivers (Note 3) (169,824)
------------------------------------------------------------------------------------
Net Expenses 824,973
------------------------------------------------------------------------------------
Net Investment Income 5,285,855
------------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 4):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 34,317,677
Cost of securities sold 35,435,731
------------------------------------------------------------------------------------
Net Realized Loss (1,118,054)
------------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period (1,922,405)
End of period (6,739,894)
------------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (4,817,489)
------------------------------------------------------------------------------------
Net Loss on Investments (5,935,543)
------------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (649,688)
====================================================================================
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Nine Months Ended
May 31, 2000 Year Ended
(unaudited) August 31, 1999
====================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,285,855 $ 6,292,028
Net realized loss (1,118,054) (4,551,659)
Increase in net unrealized depreciation (4,817,489) (7,010,676)
------------------------------------------------------------------------------------
Decrease in Net Assets From Operations (649,688) (5,270,307)
------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income (4,806,478) (6,088,436)
Net realized gain -- (1,988,543)
------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (4,806,478) (8,076,979)
------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Treasury stock acquired (8,451,377) (268,562)
------------------------------------------------------------------------------------
Decrease in Net Assets (13,907,543) (13,615,848)
NET ASSETS:
Beginning of period 126,613,707 140,229,555
------------------------------------------------------------------------------------
End of period* $112,706,164 $126,613,707
====================================================================================
* Includes undistributed
net investment income of: $573,245 $93,868
====================================================================================
</TABLE>
See Notes to
Financial Statements.
18
<PAGE>
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 management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between bid and asked 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, 1999,
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.
19
<PAGE>
Notes To Financail Statements
(unaudited)(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
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup Inc., acts
as investment adviser to the Fund. The Fund pays SSBC 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. For the nine months ended May 31, 2000,
SSBC waived $132,086 of its investment advisory fee.
SSBC 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. For the nine months ended May 31, 2000,
SSBC waived $37,738 of its administration fee.
All officers and one Director of the Fund are employees of Salomon Smith
Barney Inc., another subsidiary of SSBH.
4. Investments
For the nine months ended May 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $26,709,239
--------------------------------------------------------------------------------
Sales 34,317,677
================================================================================
At May 31, 2000, aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 2,154,810
Gross unrealized depreciation (8,894,704)
--------------------------------------------------------------------------------
Net unrealized depreciation $(6,739,894)
================================================================================
20
<PAGE>
Notes to Financial Statements
(unaudited) (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).
At May 31, 2000, 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
At May 31, 2000, the Fund had 500,000,000 shares of common stock authorized
with a par value of $0.001.
On July 27, 1999, the Fund commenced a share repurchase plan. As of May 31,
2000, repurchased shares totaled 925,600.
8. Capital Loss Carryforward
At August 31, 1999, the Fund had, for Federal income tax purposes, $972,645
of unused capital loss carryforwards available to offset future capital gains
expiring August 31, 2007. To the extent that these carryforward losses are used
to offset capital gains, it is probable that the gains so offset will not be
distributed.
21
<PAGE>
Financial Highlights
For a share of capital stock outstanding throughout each year ended August 31,
except where noted:
<TABLE>
<CAPTION>
2000(1) 1999 1998 1997 1996 1995
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $11.30 $12.48 $12.15 $11.98 $12.36 $12.15
-------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(2) 0.50 0.56 0.55 0.63 0.66 0.69
Net realized and
unrealized gain (loss) (0.55) (1.02) 0.53 0.48 (0.21) 0.32
-------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.05) (0.46) 1.08 1.11 0.45 1.01
-------------------------------------------------------------------------------------------------------------
Gains from Repurchase
of Treasury Stock 0.13 -- -- -- -- --
-------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.45) (0.54) (0.58) (0.66) (0.67) (0.68)
Net realized gains -- (0.18) (0.17) (0.28) (0.16) (0.12)
-------------------------------------------------------------------------------------------------------------
Total Distributions (0.45) (0.72) (0.75) (0.94) (0.83) (0.80)
-------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.93 $11.30 $12.48 $12.15 $11.98 $12.36
-------------------------------------------------------------------------------------------------------------
Total Return, Based on
Market Value(3) (3.58)++ (0.59)% (1.31)% 7.75% 7.35% 8.86%
-------------------------------------------------------------------------------------------------------------
Total Return, Based on
Net Asset Value(3) 1.46%++ (3.29)% 9.57% 9.86% 4.01% 9.20%
-------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $113 $127 $140 $137 $134 $139
-------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.93%+ 1.03% 1.10% 1.10% 1.09% 1.14%
Net investment income 5.98+ 4.62 4.46 5.23 5.31 5.80
-------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 23% 27% 66% 97% 63% 95%
-------------------------------------------------------------------------------------------------------------
Market Value, End of Period $9.250 $10.063 $10.813 $11.688 $11.750 $11.625
=============================================================================================================
</TABLE>
(1) For the nine months ended May 31, 2000 (unaudited).
(2) The investment adviser and administrator waived a portion of their fees for
the period ended May 31, 2000 and the year ended August 31, 1999. If such
fees were not waived, the per share decreases in net investment income and
the annualized ratios of expenses to average net assets would have been as
follows:
Per share decreases in Expense ratios
net investment income without fee waivers
---------------------- -------------------
2000 $0.02 1.12%+
1999 0.01 1.09
(3) The total return assumes that dividends are reinvested in accordance with
the Fund's dividend reinvestment plan.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
22
<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,
1997 $1,867,638 $0.17 $1,459,739 $0.13 $ 2,741,066 $ 0.25 $ 4,200,805 $ 0.38
February 28,
1998 1,928,672 0.17 1,555,286 0.14 2,311,045 0.20 3,866,331 0.34
May 31,
1998 1,932,962 0.17 1,563,665 0.14 (4,226) (0.00) 1,559,439 0.14
August 31,
1998 1,999,290 0.18 1,617,024 0.14 849,996 0.08 2,467,020 0.22
November 30,
1998 1,919,936 0.17 1,605,790 0.14 (355,751) (0.02) 1,250,039 0.12
February 28,
1999 1,897,767 0.17 1,556,424 0.14 (1,135,437) (0.10) 420,987 0.04
May 31,
1999 1,916,457 0.17 1,545,491 0.14 (3,064,199) (0.28) (1,518,708) (0.14)
August 31,
1999 1,956,606 0.17 1,584,323 0.14 (7,006,948) (0.62) (5,422,625) (0.48)
November 30,
1999 1,886,025 0.17 1,543,056 0.14 (2,887,971) (0.26) (1,344,915) (0.12)
February 29,
2000 2,458,949 0.23 2,200,351 0.21 (2,979,232) (0.28) (778,881) (0.07)
May 31,
2000 1,765,854 0.17 1,542,448 0.15 (68,340) (0.01) 1,474,108 0.14
===============================================================================================================
</TABLE>
23
<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
================================================================================
12/22/97* 12/26/97 $11.625 $12.41 $0.170 $11.57
1/27/98 1/30/98 12.188 12.44 0.056 12.12
2/24/98 2/27/98 11.875 12.42 0.056 11.62
3/24/98 3/27/98 11.250 12.40 0.050 11.37
4/21/98 4/24/98 11.125 12.28 0.050 11.10
5/26/98 5/29/98 10.813 12.38 0.050 11.14
6/23/98 6/26/98 11.063 12.34 0.050 11.12
7/28/98 7/31/98 10.813 12.33 0.048 10.86
8/25/98 8/28/98 10.875 12.43 0.048 10.97
9/22/98 9/25/98 11.313 12.52 0.049 11.52
10/27/98 10/30/98 11.688 12.46 0.049 11.66
11/23/98 11/27/98 11.563 12.45 0.049 11.55
12/21/98* 12/24/98 11.250 12.28 0.177 11.24
1/26/99 1/29/99 11.125 12.32 0.049 11.10
2/23/99 2/26/99 10.875 12.25 0.049 10.93
3/23/99 3/26/99 10.563 12.15 0.049 10.67
4/27/99 4/30/99 10.375 12.12 0.049 10.41
5/25/99 5/28/99 10.188 11.96 0.049 10.40
6/22/99 6/25/99 10.563 11.61 0.050 10.51
7/27/99 7/30/99 9.875 11.60 0.050 9.98
8/24/99 8/27/99 9.875 11.25 0.050 10.00
9/21/99 9/24/99 9.625 11.22 0.050 9.69
10/26/99 10/29/99 9.438 10.88 0.050 9.56
11/22/99 11/26/99 9.563 11.08 0.050 9.26
12/27/99 12/30/99 9.063 10.91 0.050 9.07
1/25/00 1/28/00 9.438 10.79 0.050 9.52
2/22/00 2/25/00 9.438 10.86 0.050 9.49
3/28/00 3/31/00 9.188 11.15 0.050 9.34
4/25/00 4/28/00 9.313 11.11 0.050 9.34
5/23/00 5/26/00 9.125 10.81 0.050 9.26
================================================================================
+ As of record date.
* Capital gain distribution.
24
<PAGE>
Dividend Reinvestment Plan
(unaudited)
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose
shares of common stock are registered in his own name will have all
distributions from the Fund reinvested automatically by PFPC Global Fund
Services ("PFPC"), as purchasing 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 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 PFPC 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. When the
market price of the common stock is equal to or exceeds the net asset value per
share of the common stock on the determination date (generally, the record date
for the distribution), Plan participants will be issued shares of common stock
by the Fund at a price equal to the greater of net asset value determined as
described below under "Net Asset Value" or 95% of the market price of the common
stock.
If the market price of the common stock is less than the net asset value of
the common stock at the time of valuation (which is the close of business on the
determination date), or if the Fund declares a dividend or capital gains
distribution payable only in cash, PFPC will buy common stock in the open
market, on the AMEX or elsewhere, for the participants' accounts. If following
the commencement of the purchases and before PFPC has completed its purchases,
the market price exceeds the net asset value of the common stock as of the
valuation time, PFPC will attempt to terminate purchases in the open market and
cause the Fund to issue the remaining portion of the dividend or distribution in
shares at a price equal to the greater of (a) net asset value as of the
valuation time or (b) 95% of the then current market price. In this case, the
number of shares 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 PFPC is unable to stop
open market purchases and cause the Fund to issue the remaining shares, the
average per share purchase price paid by PFPC may exceed the net asset value of
the common stock as of the valuation time, 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 such net asset value. PFPC will begin to
purchase common stock on the open market as soon as practicable after the
determination date for the
25
<PAGE>
dividend or capital gains distribution, but in no event shall such purchases
continue later than 30 days after the payment date for such dividend or
distribution, or the record date for a succeeding dividend or distribution,
except when necessary to comply with applicable provisions of the federal
securities laws.
PFPC maintains all shareholder accounts in the Plan and furnishes written
confirmation 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 PFPC in uncertificated form in the name of the Plan participant.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions under the Plan. PFPC's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. No brokerage charges apply with respect to shares of common stock issued
directly by the Fund under the Plan. Each Plan participant will, however, bear a
proportionate share of any brokerage commissions actually incurred with respect
to any open market purchases made under 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 PFPC, 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 PFPC Global Fund Services, P.O. Box 8030, Boston,
Massachusetts 02266-8030 or by telephone at 1-800-331-1710.
------------------------
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.
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
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Joseph P. Deane
Vice President and
Investment Officer
David Fare
Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser
SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
Transfer Agent
PFPC Global Fund Services
P.O. Box 8030
Boston, Massachusetts 02266-8030
Custodian
PFPC Trust Company
8800 Tinicom Blvd.
Suite 220
Philadelphia, Pennsylvania 19153
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.
FD0836 7/00
