Managed Municipals
Portfolio Inc.
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ANNUAL REPORT
May 31, 2002
[GRAPHIC]
Managed Municipals
Portfolio Inc.
Dear Shareholder:
We are pleased to provide the annual report for the Managed Municipals
Portfolio Inc. ("Fund") for the year ended May 31, 2002. In this report, we
summarize what we believe to be the period's prevailing global economic and
market conditions and outline our investment strategies. A detailed summary of
the Fund's performance can be found in the appropriate sections that follow. We
hope you find this report to be useful and informative.
We are also pleased to inform you during the quarter ended May 31, 2002
shareholders approved two significant events in the life of the Fund. The first
event was the merger of Managed Municipals Portfolio II Inc. with and into
Managed Municipals Portfolio Inc. This merger was completed as of the close of
business on April 26, 2002, with shareholders of Managed Municipals Portfolio
II Inc. becoming shareholders of the Managed Municipals Portfolio Inc. The
conversion was done on a net asset value ("NAV")/1/ basis, which translated
into a ratio of 0.98036 shares of Managed Municipals Portfolio II Inc.
exchanged for each Managed Municipals Portfolio Inc. share received. This
transaction was followed by the second significant event in the life of Managed
Municipals Portfolio Inc. during the quarter -- the issuance of $250 million in
municipal auction rate cumulative "preferred stock" on May 22, 2002. This
offering enabled the Fund to invest the proceeds of the offering into
additional securities that met the Fund's objectives.
While the Fund has grown through these changes, neither the leadership of
the Fund nor the objective will change. Joseph P. Deane will continue to serve
as the Fund's manager in the same capacity as he has since 1988.
-----
1The NAV is calculated by subtracting total liabilities and outstanding
preferred stock from the closing value of all securities held by the Fund
(plus all other assets) and dividing the result (total net assets of common
stockholders) by the total number of the Fund's common shares outstanding. The
NAV fluctuates with the changes in the market price of the securities in which
the Fund has invested. However, the price at which the investor may buy or
sell shares of the Fund is at their market (NYSE) price as determined by
supply of and demand for the Fund's shares.
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1
Performance Update
During the year, the Fund distributed income dividends to common stock
shareholders totaling $0.60 per share. The table below details the annualized
distribution rate and the twelve-month total return for the Fund based on its
May 31, 2002 NAV per share and the New York Stock Exchange ("NYSE") closing
price.
Annualized Twelve-Month
Price Per Share Distribution Rate/2/ Total Return/2/
--------------- ------------------- --------------
$11.69 (NAV) 5.13% 5.33%
$10.57 (NYSE) 5.68% 4.79%
During the period the Fund generated a total return based on NAV of 5.33%.
In comparison, the Fund's Lipper Inc. ("Lipper")/3/ peer group of closed-end
general and insured municipal funds (unleveraged) returned 4.91% based on NAV
for the same period.
Investment Strategy
The Fund seeks to maximize current interest income, which is excluded from
gross income for regular federal income tax purposes to the extent consistent
with prudent investment management and the preservation of capital./4/
The Fund invests at least 80% of its assets in municipal securities, which
are rated investment-grade at the time of investment or are determined to be of
equivalent equality. Municipal securities include securities issued by any of
the 50 states and certain other municipal issuers, political subdivisions,
agencies
-----
2Total returns are based on changes in NAV or the market price, respectively.
Total returns assume the reinvestment of all dividends and/or capital gains
distributions in additional shares. Annualized distribution rate is the Fund's
current monthly income dividend rate, annualized, and then divided by the NAV
or the market price noted in this report. The annualized distribution rate
assumes a current monthly income dividend rate of $0.050 for 12 months. This
rate is as of May 31, 2002 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 price during the period reported. The NAV fluctuation
includes the effects of unrealized appreciation or depreciation in the Fund.
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 Fund investment. Past
performance is not indicative of future results.
3Lipper is a major independent mutual fund tracking organization.
4Certain investors may be subject to the Federal Alternative Minimum Tax
("AMT"), and state and local taxes may apply. Capital gains, if any, are fully
taxable.
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2
and public authorities that pay interest which is excluded from gross income
for federal income tax purposes. The Fund focuses primarily on
intermediate-term and long-term municipal securities, which have remaining
maturities at the time of purchase of from three to more than thirty years. The
Fund can invest up to 20% of its assets in below investment-grade/5/ or in
unrated securities of equivalent quality (commonly known as "junk bonds").
Investment-grade bonds are those rated in any of the four highest long-term
rating categories, or if unrated, of comparable quality.
Market Review
Since December 11, 2001 the U.S. Federal Reserve Board ("Fed") has held
interest rates near 40 year lows, citing the uncertain strength in final demand
at its last meeting as a reason to hold steady. We feel the U.S. economic
rebound indeed remains soft, a point reflected in weak corporate earnings.
Those earnings are also reflective of what we see as a very conservative
approach to corporate reporting due to the recent accounting morass. We believe
this conservative approach could be maintained through the third quarter of
this year and could act as a drag on the economy given the expected negative
impact on the stock market. As a result, we feel the environment has been and
will remain constructive for bonds, especially in the tax-exempt area.
Market Outlook
We feel U.S. economic growth will remain tepid through the third quarter of
this year before the pace picks up as a result of increased corporate spending
and a vibrant consumer. We also expect inflation to remain subdued with little
threat of higher prices before 2003, a point that would further support the
case for steady interest rates. In general, we think the Fed will stay the
course until it is assured the U.S. economy is strong enough to withstand an
increase in short-term interest rates. We would also not be surprised to see
the Fed hold monetary policy steady until there is evidence cash is moving out
of short-term instruments such as Certificates of Deposits and money market
funds and into the stock and bond markets as well as the real economy. We feel
the time horizon for an increase in interest rates is three to six months.
-----
5Investment-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 Service, or
that have an equivalent rating by any nationally recognized statistical rating
organization, or are determined by the Manager to be of equivalent quality.
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3
Thank you for your investment in the Managed Municipals Portfolio Inc. We
look forward to helping you pursue your investment goals in the years to come.
Sincerely,
/s/ Heath B. McLendon /s/ Joseph P. Deane
Heath B. McLendon Joseph P. Deane
Chairman Vice President and
Investment Officer
June 18, 2002
The information provided in this letter represents the opinion of the manager
and is not intended to be a forecast of future events, a guarantee of future
results nor investment advice. Further, there is no assurance that certain
securities will remain in or out of the Fund. Please refer to pages 6 through
18 for a list and percentage breakdown of the Fund's holdings. Also, please
note any discussion of the Fund's holdings is as of May 31, 2002 and is subject
to change.
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4
Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that Fund investors may reinvest their dividends in an effort to
take advantage of what can be one of the most effective wealth-building tools
available today? When the Fund achieves its objectives, systematic investments
by shareholders put time to work for them 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 98% of 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 98% of the NAV at the time of valuation (the
close of business on the determination date), 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 in this report
beginning on page 38.
To find more detailed information about the Plan and about how you can
participate, please call PFPC Global Fund Services at (800) 331-1710.
5
SCHEDULE OF INVESTMENTS
May 31, 2002
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES -- 100.0%
Alabama -- 3.2%
$24,510,000 AAA Jefferson County, AL Sewer Revenue
Warrants, Series A, FGIC-Insured,
5.375% due 2/1/36 (b) $ 24,634,511
-------------------------------------------------------------------------------
Alaska -- 0.9%
2,895,000 A2* Alaska Industrial Development & Export
Authority Revolving Fund GO, Series A,
6.500% due 4/1/14 (c) 2,963,814
4,000,000 AA+ Valdez, AK Marine Terminal Revenue
Refunding, BP Pipelines Inc. Project,
Series A, 5.850% due 8/1/25 4,040,880
-------------------------------------------------------------------------------
7,004,694
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Arizona -- 1.4%
4,000,000 AAA Mesa, AZ IDA, Discovery Health Systems,
Series A, MBIA-Insured, 5.625% due 1/1/29 4,130,160
3,000,000 AAA Phoenix, AZ Civic Improvement Corp.
Airport Revenue, Senior Lien, Series B,
FGIC-Insured, 5.250% due 7/1/22 (c) 3,004,530
Phoenix, AZ GO, Series B:
400,000 AA+ 5.000% due 7/1/22 395,988
575,000 AA+ 5.000% due 7/1/23 566,875
2,350,000 AA+ 5.000% due 7/1/27 2,303,822
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10,401,375
-------------------------------------------------------------------------------
California -- 10.1%
4,000,000 A-1+ Bay Area Toll Authority, CA Toll Bridge
Revenue, Series A, 1.300% due 4/1/36 (d) 4,000,000
7,040,000 Ba1* California Educational Facilities Authority
Revenue, (Pooled College & University
Projects), Series A, 5.625% due 7/1/23 6,465,958
6,000,000 A3* California Health Facilities Authority
Revenue, (Cedars-Sinai Medical Center),
Series A, 6.250% due 12/1/34 6,331,020
1,000,000 A+ California Health Facilities Financing
Authority Revenue, Sutter Health, Series A,
6.250% due 8/15/35 1,052,720
5,000,000 AAA California State Department of Veterans
Affairs, Home Purchase Revenue, Series A,
AMBAC-Insured, 5.350% due 12/1/27 5,015,200
2,000,000 AAA California State GO, AMBAC-Insured,
5.000% due 4/1/27 1,952,620
SEE NOTES TO
FINANCIAL STATEMENTS.
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6
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------
California -- 10.1% (continued)
$ 7,000,000 AAA Los Angeles County, CA COP, Antelope
Valley Courthouse, Series A, AMBAC-
Insured, 5.250% due 11/1/33 $ 7,032,690
11,400,000 A-1+ Los Angeles County, CA MFH, Series K,
1.400% due 7/1/10 (d) 11,400,000
Orange County, CA Sanitation District
COP:
4,500,000 A-1+ Series A, 1.550% due 8/1/29 (d) 4,500,000
5,900,000 A-1+ Series B, 1.550% due 8/1/30 (d) 5,900,000
3,340,000 AAA Rancho Cucamonga, CA Redevelopment
Agency Tax Allocation, (Rancho
Redevelopment Project ), MBIA-
Insured, 5.125% due 9/1/30 3,312,645
2,000,000 AAA Riverside, CA Unified School District
GO, Series A, FGIC-Insured,
5.000% due 2/1/27 1,955,500
2,750,000 AAA Sacramento County, CA COP, (Public
Facilities Project), MBIA-Insured,
5.375% due 2/1/19 2,846,910
2,500,000 AAA San Francisco, CA City & County
Airports Commission, International
Airport Revenue, Second Series-27B,
FGIC-Insured, 5.000% due 5/1/22 2,478,100
5,000,000 AAA San Francisco, CA City & County
Airports Commission, Second
Series-28B, MBIA-Insured,
5.000% due 5/1/32 4,863,650
1,000,000 AAA San Jose, CA Redevelopment Agency
Tax Allocation, (Merged Area
Redevelopment Project), MBIA-
Insured, 5.000% due 8/1/32 972,620
7,965,000 VMIG 1* Santa Clara, CA Electric Revenue,
Series A, 1.300% due 7/1/10 (d) 7,965,000
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78,044,633
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Colorado -- 10.2%
4,000,000 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 4,634,320
SEE NOTES TO
FINANCIAL STATEMENTS.
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7
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Colorado -- 10.2% (continued)
$ 1,000,000 A- Aspen, CO Sales Tax Revenue,
5.400% due 11/1/19 $ 1,019,490
4,000,000 AAA Colorado Educational & Cultural Facilities
Revenue Refunding, (University of
Denver Project), AMBAC-Insured,
5.375% due 3/1/23 4,068,000
4,000,000 A Colorado Health Facilities Authority Revenue,
Series B, Remarketed 7/8/98,
5.350% due 8/1/15 4,020,640
6,000,000 BBB+ Colorado Springs, CO Airport Revenue,
Series A, 7.000% due 1/1/22 (c) 6,147,840
Dawson Ridge, CO Metropolitan District No. 1,
(Escrowed to maturity with REFCO Strips):
30,000,000 Aaa* Series A, zero coupon due 10/1/22 (b) 8,488,200
60,000,000 Aaa* Series B, zero coupon due 10/1/22 (b) 16,976,400
Denver, CO City & County Airport Revenue,
Series C:
3,155,000 A 6.750% due 11/15/22 (c) 3,248,546
13,630,000 A 6.125% due 11/15/25 (c) 14,140,035
10,945,000 A Escrowed to maturity with U.S.
government securities,
6.125% due 11/15/25 (b)(c)(e) 12,468,872
845,000 Aaa* Pre-Refunded -- Escrowed with U.S.
government securities to 11/15/02
Call @ 102, 6.750% due 11/15/22 (c) 881,276
2,000,000 AAA Denver, CO City & County COP, Series B,
AMBAC-Insured, 5.500% due 12/1/25 2,055,040
--------------------------------------------------------------------------------
78,148,659
--------------------------------------------------------------------------------
Connecticut -- 0.1%
1,000,000 AAA Connecticut State Health & Education,
(Child Care Facilities Project), Series C,
AMBAC-Insured, 5.625% due 7/1/29 1,039,920
--------------------------------------------------------------------------------
Delaware -- 2.2%
7,000,000 A-1+ Delaware State Economic Development
Authority, Hospital Billing Revenue,
Series C, AMBAC-Insured,
1.350% due 12/1/15 (d) 7,000,000
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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8
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
-----------------------------------------------------------------------------
Delaware -- 2.2% (continued)
$10,000,000 AAA Delaware State Economic Development
Authority Revenue, (Pollution Control-
Delmarva Project-B), AMBAC-Insured,
5.200% due 2/1/19 $ 10,197,100
-----------------------------------------------------------------------------
17,197,100
-----------------------------------------------------------------------------
District of Columbia -- 1.4%
Metropolitan Washington Airports, DC
Authority Airport System Revenue,
Series A, FGIC-Insured:
5,355,000 AAA 5.125% due 10/1/22 (c) 5,284,742
6,000,000 AAA 5.125% due 10/1/26 (c) 5,856,960
-----------------------------------------------------------------------------
11,141,702
-----------------------------------------------------------------------------
Florida -- 4.7%
5,000,000 AAA Florida State Board & Educational
Capital Outlay GO, FSA-Insured,
5.000% due 6/1/24 4,908,400
3,000,000 AA+ Florida State Board of Education GO,
Series A, 5.125% due 6/1/21 3,020,400
3,145,000 AAA Florida State Department of Transportation
GO, FGIC-Insured, 5.000% due 7/1/25 3,077,445
3,000,000 Aaa* Hillsborough County, FL School Board
COP, Series A, MBIA-Insured,
5.000% due 7/1/25 2,935,560
6,500,000 BBB- Martin County, FL IDA, (Indiantown
Cogeneration Project), Series A,
7.875% due 12/15/25 (c) 6,676,800
1,290,000 AAA Miami Beach, FL Stormwater Revenue,
FGIC-Insured, 5.375% due 9/1/30 1,305,338
2,000,000 Aaa* Orange County, FL School Board
COP, Series A, MBIA-Insured,
5.250% due 8/1/23 2,018,340
10,000,000 AAA Palm Beach County, FL School Board
COP, Series C, FSA-Insured,
5.000% due 8/1/27 9,747,800
2,500,000 Aaa* South Brevard, FL Recreational Facilities
Improvement, Special District,
AMBAC-Insured, 5.000% due 7/1/20 2,503,200
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36,193,283
-----------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
9
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
----------------------------------------------------------------------------
Georgia -- 2.1%
$ 2,800,000 VMIG 1* Atlanta, GA Water & Wastewater
Revenue, Series C, FSA-Insured,
1.550% due 11/1/41 (d) $ 2,800,000
6,000,000 AAA Augusta, GA Water & Sewer Revenue,
FSA-Insured, 5.250% due 10/1/26 6,030,300
Private Colleges & Universities Authority
Revenue, (Mercer University Project):
2,180,000 A3* 5.750% due 10/1/21 2,227,132
Series A:
2,000,000 A3* 5.250% due 10/1/25 1,965,520
1,000,000 A3* 5.375% due 10/1/29 992,130
2,000,000 BBB- Savannah, GA EDA Revenue, College of
Art & Design Inc., 6.900% due 10/1/29 2,080,540
----------------------------------------------------------------------------
16,095,622
----------------------------------------------------------------------------
Hawaii -- 0.5%
4,000,000 A Hawaii State Department of Budget &
Finance, Special Purpose Revenue, Kaiser
Permanente, Series A, 5.100% due 3/1/14 3,961,400
----------------------------------------------------------------------------
Illinois -- 3.9%
4,095,000 AAA Chicago, IL GO, Series D, FGIC-Insured,
5.500% due 1/1/35 4,139,431
5,300,000 P-1* Chicago, IL O'Hare International
Airport, (American Airlines Inc.
Project), 1.650% due 12/1/17 (d) 5,300,000
7,400,000 AAA Chicago, IL Skyway Toll Bridge Revenue,
AMBAC-Insured, 5.500% due 1/1/31 7,542,524
8,000,000 A Illinois Health Facilities Authority
Revenue, OSF Healthcare Systems,
6.250% due 11/15/29 8,223,520
5,000,000 AAA Illinois State GO, MBIA-Insured,
5.625% due 6/1/25 5,144,000
----------------------------------------------------------------------------
30,349,475
----------------------------------------------------------------------------
Indiana -- 0.7%
5,000,000 A1* Indiana Port Commission Revenue
Refunding, (Cargill Inc. Project),
6.875% due 5/1/12 5,153,600
----------------------------------------------------------------------------
Iowa -- 0.2%
1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project),
6.500% due 7/15/12 1,539,135
----------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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10
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------
Kentucky -- 0.8%
$ 6,400,000 VMIG 1* Breckinridge County, KY Lease Program
Revenue, 1.600% due 2/1/32 (d) $ 6,400,000
------------------------------------------------------------------------------
Louisiana -- 0.7%
5,500,000 A1* St. Martin Parish, LA Industrial Revenue,
(Cargill Inc. Project), 6.625% due 10/1/12 5,653,340
------------------------------------------------------------------------------
Maine -- 0.3%
2,500,000 AA+ Maine State Housing Authority, Mortgage
Revenue, Series C, 5.300% due 11/15/23 2,509,125
------------------------------------------------------------------------------
Maryland -- 1.4%
Baltimore, MD Wastewater Project
Revenue, Series A, FGIC-Insured:
2,500,000 AAA 5.125% due 7/1/32 2,482,825
3,385,000 AAA 5.200% due 7/1/32 3,392,752
5,000,000 AAA 5.125% due 7/1/42 4,887,500
------------------------------------------------------------------------------
10,763,077
------------------------------------------------------------------------------
Massachusetts -- 1.3%
3,000,000 AA+ Massachusetts Bay Transportation
Authority, Sales Tax Revenue, Series A,
5.500% due 7/1/30 3,064,530
1,850,000 AAA Massachusetts Health & Educational
Facilities Authority, (University of
Massachusetts Projects), Series C,
FGIC-Insured, 5.125% due 10/1/27 1,827,874
5,000,000 AAA Massachusetts State Special Obligation
Revenue, Series A, FGIC-Insured,
5.000% due 6/1/21 4,957,600
------------------------------------------------------------------------------
9,850,004
------------------------------------------------------------------------------
Michigan -- 2.9%
3,000,000 AAA Anchor Bay, MI School District GO,
Q-SBLF-Insured, 5.000% due 5/1/29 2,884,080
5,000,000 AAA East Lansing, MI School District GO,
Q-SBLF-Insured, 5.625% due 5/1/30 5,152,400
Michigan State COP, AMBAC-Insured:
2,345,000 AAA 5.500% due 6/1/19 2,438,659
6,000,000 AAA 5.500% due 6/1/27 6,124,260
12,000,000 NR Michigan State Strategic Fund Resources
Recovery, Limited Obligation Revenue,
(Central Wayne Energy Recovery L.P.
Project), Series A, 7.000% due 7/1/27 (c) 6,000,000
------------------------------------------------------------------------------
22,599,399
------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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11
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------
Minnesota -- 1.5%
$ 1,500,000 AAA Dakota County, MN Community
Development Agency, MFH Revenue,
FNMA-Collateralized, 5.625% due 2/1/26 $ 1,519,350
2,500,000 A1* Duluth, MN IDA, Seaway Port Authority,
Dock & Wharf Revenue, (Cargill Inc.
Project), 6.800% due 5/1/12 2,561,300
Minneapolis & St. Paul, MN Community
Airport Revenue, FGIC-Insured:
2,000,000 AAA Series A, 5.125% due 1/1/25 1,982,740
4,000,000 AAA Sub-Series C, 5.250% due 1/1/26 4,024,520
1,225,000 AA+ Minnesota State Housing Financing Agency,
Single-Family Mortgage, Series I,
5.500% due 1/1/17 1,259,594
------------------------------------------------------------------------------
11,347,504
------------------------------------------------------------------------------
Missouri -- 0.5%
1,500,000 AAA Greene County, MO Reorganized School,
District No. R-8 GO, FSA-Insured,
5.100% due 3/1/22 1,503,300
2,000,000 AAA St. Louis, MO Airport Revenue, (Airport
Development Program), Series A,
MBIA-Insured, 5.125% due 7/1/22 2,009,280
------------------------------------------------------------------------------
3,512,580
------------------------------------------------------------------------------
Montana -- 1.2%
10,000,000 NR Montana State Board Investment Resource
Recovery Revenue, (Yellowstone Energy
L.P. Project), 7.000% due 12/31/19 (c) 9,072,800
------------------------------------------------------------------------------
Nevada -- 0.9%
4,650,000 Baa2* Clark County, NV IDR, (Southwest Gas Corp.
Project), Series B, 7.500% due 9/1/32 (c) 4,768,064
2,250,000 AAA Truckee Meadows, NV Water Authority
Revenue, Series A, FSA-Insured,
5.000% due 7/1/25 2,172,263
------------------------------------------------------------------------------
6,940,327
------------------------------------------------------------------------------
New Jersey -- 2.5%
5,200,000 A+ Hudson County, NJ Improvement Authority,
6.625% due 8/1/25 5,324,800
2,800,000 A-1 Municipal Securities Trust Certificates, NJ
GO, Series 2001-174,
1.500% due 2/26/15 (d)(f) 2,800,000
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
12
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------
New Jersey -- 2.5% (continued)
$ 8,000,000 A+ New Jersey Health Care Facilities Financing
Authority Revenue, Robert Wood Johnson
University Hospital, 5.700% due 7/1/20 $ 8,271,280
2,395,000 AA- New Jersey State Highway Authority,
Garden State Parkway General Revenue,
5.625% due 1/1/30 2,507,852
------------------------------------------------------------------------------
18,903,932
------------------------------------------------------------------------------
New Mexico -- 0.3%
2,585,000 AAA New Mexico Mortgage Financing Authority,
Single-Family Mortgages, Series D-3,
5.625% due 9/1/28 2,624,551
------------------------------------------------------------------------------
New York -- 11.5%
Nassau Health Care Corp., NY Health
Systems Revenue, FSA-Insured:
2,000,000 AAA 5.500% due 8/1/19 2,086,040
3,000,000 AAA 5.750% due 8/1/29 3,132,090
6,000,000 AA New York City, NY Municipal Water
Financing Authority, Water & Sewer System
Revenue, Series D, 5.250% due 6/15/25 6,023,100
14,300,000 A-1+ New York City, NY Transitional Finance
Authority, Future Tax Secured, Series A-2,
1.300% due 11/15/27 (d) 14,300,000
New York, NY GO:
4,800,000 A-1+ Series F-6, 1.450% due 2/15/18 (d) 4,800,000
20,000,000 A-1+ Sub-Series J3-Remarketed 5/3/99,
1.300% due 2/15/16 (d) 20,000,000
5,000,000 AAA New York State Dormitory Authority Revenue,
Series B, FSA-Insured, 5.500% due 5/15/30 5,115,150
1,000,000 AAA New York State Dormitory Authority
Revenue, (Willow Towers Inc. Project),
GNMA-Collateralized, 5.250% due 2/1/22 1,005,290
3,000,000 AAA New York State Thruway Authority Highway
& Bridge Revenue, Series B-1,
FGIC-Insured, 5.400% due 4/1/17 3,136,800
17,000,000 AAA Port Authority of New York & New Jersey, NY
GO, FGIC-Insured, 5.250% due 5/15/37 (c) 16,600,500
Triborough Bridge & Tunnel Authority, NY
GO, Series A:
3,000,000 AA- 5.125% due 1/1/31 2,910,150
10,000,000 AA- 5.000% due 1/1/32 9,554,100
------------------------------------------------------------------------------
88,663,220
------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
13
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
North Carolina -- 1.3%
$10,000,000 A-1+ North Carolina State GO, Public Improvement,
Series E, 1.350% due 5/1/21 (d) $ 10,000,000
--------------------------------------------------------------------------------
Ohio -- 6.6%
4,500,000 Aa2* Bexley, OH City School District GO,
5.125% due 12/1/27 4,402,845
2,000,000 AAA Canton, OH City School District GO, Series A,
MBIA-Insured, 5.500% due 12/1/20 2,081,100
1,300,000 AA+ Cincinnati, OH Water System Revenue,
5.125% due 12/1/21 1,303,237
4,500,000 AAA Cleveland, OH Airport System Revenue,
Series A, FSA-Insured, 5.000% due 1/1/31 4,353,660
6,600,000 A-1+ Cuyahoga County, OH Hospital Revenue,
(The Clinic Foundation Project), Series D,
1.600% due 1/1/26 (d) 6,600,000
3,000,000 AAA Cuyahoga County, OH Hospital Revenue
Refunding, University Hospitals Health
System Inc., AMBAC-Insured,
5.500% due 1/15/30 3,051,420
8,000,000 Aaa* Hamilton County, OH Sales Tax Revenue,
AMBAC-Insured, 5.250% due 12/1/32 8,021,680
5,990,000 AAA Lucas County, OH Hospital Revenue,
Promedia Healthcare Obligation Group,
AMBAC-Insured, 5.375% due 11/15/29 6,031,690
3,025,000 Aaa* Muskingum County, OH GO, Refunding,
County Facilities Improvement,
MBIA-Insured, 5.125% due 12/1/19 3,071,555
1,375,000 AAA Ohio State Higher Educational Facility
Commission Revenue, (University of
Dayton Project), AMBAC-Insured,
5.500% due 12/1/25 1,421,186
2,500,000 AAA Portage County, OH GO, MBIA-Insured,
5.250% due 12/1/17 2,579,575
1,500,000 A3* Steubenville, OH Hospital Revenue,
6.375% due 10/1/20 1,557,150
Summit County, OH GO, FGIC-Insured:
1,000,000 AAA 5.000% due 12/1/21 995,070
500,000 AAA 5.000% due 12/1/22 494,940
1,500,000 Aaa* Trumbull County, OH MBIA-Insured,
5.200% due 12/1/20 1,528,605
2,000,000 AAA University of Cincinnati, OH General Receipts
Revenue, Series A, FGIC-Insured,
5.250% due 6/1/24 2,017,000
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
14
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Ohio -- 6.6% (continued)
$ 1,500,000 AAA Warrensville Heights, OH City School
District, School Improvements,
FGIC-Insured, 5.625% due 12/1/20 $ 1,586,400
--------------------------------------------------------------------------------
51,097,113
--------------------------------------------------------------------------------
Oregon -- 2.4%
3,210,000 AA Clackamas County, OR Hospital Facilities
Authority Revenue, Legacy Health System,
5.750% due 5/1/16 3,370,500
4,895,000 AA+ Oregon State Department of Transportation,
Highway User Tax Revenue, Series A,
5.125% due 11/15/23 4,912,524
10,000,000 AA Oregon State Veterans Welfare GO, Series 82,
5.500% due 12/1/42 10,029,200
--------------------------------------------------------------------------------
18,312,224
--------------------------------------------------------------------------------
South Carolina -- 6.0%
6,250,000 AAA Grand Strand Water & Sewer Authority, SC
Waterworks & Sewer System Revenue,
FSA-Insured, 5.000% due 6/1/31 6,036,625
15,000,000 AA- Greenville County, SC School District
Installment Purchase Revenue,
5.500% due 12/1/28 (b) 14,794,050
20,000,000 AAA South Carolina State Public Service Authority
Revenue, Series B, FSA-Insured,
5.125% due 1/1/37 (b) 19,509,000
South Carolina Transportation Infrastructure
Bank Revenue, Series A:
3,000,000 AAA AMBAC-Insured, 5.500% due 10/1/30 3,063,990
2,505,000 Aaa* MBIA-Insured, 5.125% due 10/1/31 2,465,596
--------------------------------------------------------------------------------
45,869,261
--------------------------------------------------------------------------------
Tennessee -- 3.7%
1,150,000 NR Hardeman County, TN Correctional Facilities
Corp., 7.750% due 8/1/17 1,136,729
Memphis-Shelby County, TN Sports
Authority Income Revenue, (Memphis
Arena Project), Series A, AMBAC-Insured:
6,420,000 AAA 5.125% due 11/1/21 6,442,791
14,500,000 AAA 5.125% due 11/1/28 14,262,200
SEE NOTES TO
FINANCIAL STATEMENTS.
[GRAPHIC]
15
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
-----------------------------------------------------------------------------
Tennessee -- 3.7% (continued)
$ 3,600,000 VMIG 1* Montgomery County, TN Authority
Pooled Financing Revenue,
1.650% due 4/1/32 (d) $ 3,600,000
3,000,000 AA Tennessee State GO, Series A,
5.250% due 3/1/17 3,105,780
--------------------------------------------------------------------------
28,547,500
--------------------------------------------------------------------------
Texas -- 2.4%
1,595,000 AAA Burleson, TX ISD, GO, PSFG,
6.750% due 8/1/24 1,767,085
Fort Worth, TX International Airport
Facility Improvement Corp. Revenue,
(American Airlines Inc. Project):
12,000,000 BB- 6.375% due 5/1/35 (b)(c) 9,473,399
3,400,000 BB- Series A, 5.950% due 5/1/29 (c) 3,339,888
3,000,000 BB- Series B, 6.050% due 5/1/29 (c) 2,871,990
1,000,000 AAA Harris County, TX Health Facilities,
Development Corp., Hospital Revenue,
School Health Care Systems, Series B,
(Escrowed to maturity with U.S.
government securities),
5.750% due 7/1/27 1,092,850
--------------------------------------------------------------------------
18,545,212
--------------------------------------------------------------------------
Utah -- 1.0%
7,900,000 A-1+ Utah State GO, Series A,
1.400% due 7/1/16 (d) 7,900,000
--------------------------------------------------------------------------
Virginia -- 2.2%
Virginia State HDA, MFH:
1,655,000 AA+ Series D, 6.250% due 1/1/15 1,716,616
1,245,000 AA+ Series D, Sub-Series D-3-
Remarketed 5/30/96,
5.700% due 7/1/09 1,306,528
715,000 AA+ Series F, Sub-Series F-1-Remarketed
9/12/95, 6.400% due 7/1/17 731,095
1,235,000 AAA Series H, AMBAC-Insured,
6.300% due 11/1/15 1,297,874
10,000,000 AA+ Series H, Sub-Series H-1, MBIA-
Insured, 5.350% due 7/1/31 (b) 10,000,300
600,000 AA+ Series K, 5.800% due 11/1/10 636,030
925,000 AA+ Series K, 5.900% due 11/1/11 976,504
--------------------------------------------------------------------------
16,664,947
--------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
[GRAPHIC]
16
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Washington -- 2.5%
Chelan County, WA GO, Public Utilities,
District No. 1, Columbus River Rock:
$22,685,000 AAA Series A, MBIA-Insured, zero coupon
due 6/1/22 (b) $ 7,653,919
4,750,000 AA Series B, Remarketed 7/1/92, Mandatory
put 7/1/19, 6.750% due 7/1/62 (c) 5,098,223
6,980,000 AAA Washington State GO, Variable Purpose-Series
02-A, FSA-Insured, 5.000% due 7/1/25 (b) 6,738,841
-------------------------------------------------------------------------------
19,490,983
-------------------------------------------------------------------------------
West Virginia -- 1.2%
West Virginia State Housing Development
Fund, Housing Finance:
3,845,000 AAA Series B, 5.300% due 5/1/24 3,861,034
5,000,000 AAA Series C, 5.350% due 11/1/27 5,020,800
-------------------------------------------------------------------------------
8,881,834
-------------------------------------------------------------------------------
Wisconsin -- 1.3%
Wisconsin Housing & Economic Development
Authority, Home Ownership Revenue,
Series A:
1,815,000 AA 6.450% due 3/1/17 1,878,561
1,370,000 AA 5.650% due 11/1/23 1,384,727
4,070,000 AA- Wisconsin State GO, Series B,
6.600% due 1/1/22 (c) 4,082,006
Wisconsin State Health & Educational
Facilities Authority Revenue, MBIA-Insured:
1,100,000 A Kenosha Hospital & Medical Center
Project, 5.700% due 5/15/20 1,084,171
1,250,000 AAA The Medical College of Wisconsin Inc.
Project, MBIA-Insured,
5.400% due 12/1/16 1,297,025
-------------------------------------------------------------------------------
9,726,490
-------------------------------------------------------------------------------
Wyoming -- 2.0%
1,400,000 A-1+ Kemmerer, WY Pollution Control Revenue,
(Exxon Mobil Corp. Project),
1.500% due 11/1/14 (d) 1,400,000
13,200,000 A-1+ Lincoln County, WY Pollution Control
Revenue, (Exxon Mobil Corp. Project),
1.600% due 8/1/15 (d) 13,200,000
SEE NOTES TO
FINANCIAL STATEMENTS.
[GRAPHIC]
17
SCHEDULE OF INVESTMENTS
May 31, 2002 (continued)
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------
Wyoming -- 2.0% (continued)
$ 600,000 P-1* Uinta County, WY Pollution Control
Revenue, (Chevron USA Inc. Project),
1.550% due 8/15/20 (d) $ 600,000
------------------------------------------------------------------------
15,200,000
------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $759,199,903**) $769,980,532
------------------------------------------------------------------------
(a)All ratings are by Standard & Poor's Ratings Service, except for those which
are identified by an asterisk (*), are rated by Moody's Investors Service,
Inc.
(b)All or a portion of this security has been segregated by the custodian for
extended settlements.
(c)Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(d)Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
(e)Pre-Refunded bonds escrowed by U.S. government securities and bonds escrowed
to maturity by U.S. government securities are considered by the investment
adviser to be triple-A rated even if issuer has not applied for new ratings.
(f)Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 20 and 21 for definitions of ratings and certain security
descriptions.
SEE NOTES TO
FINANCIAL STATEMENTS.
[GRAPHIC]
18
SUMMARY OF INVESTMENTS BY COMBINED RATINGS
May 31, 2002 (unaudited)
[GRAPHIC OF ]
Percentage of
Moody's and/or Standard & Poor's Total Investments
Aaa AAA 48.0%
Aa AA 14.2
A A 12.0
Baa BBB 2.6
Ba BB 2.9
VMIG 1/P-1 SP-1/A-1 18.2
NR NR 2.1
-----
100.0%
=====
========================
[GRAPHIC]
19
BOND RATINGS
(unaudited)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard and Poor's") -- Ratings from "AA"
to "B" 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 debt 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" and "B" are regarded, on balance, as predominantly speculative
and B with respect to the issuer's capacity to pay interest and repay principal in accordance
with the terms of the obligation. "BB" indicates the lowest degree of speculation and
"B" the highest degree of speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3 may be applied to
each generic rating from "Aa" to "Ba," where 1 is the highest and 3 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 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.
========================
[GRAPHIC]
20
SHORT-TERM SECURITY RATINGS
(unaudited)
SP-1 --Standard & Poor's highest rating indicating very strong
or strong capacity to pay principal and interest; those
issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign.
A-1 --Standard & Poor's highest commercial paper and
variable-rate demand obligation (VRDO) rating indicating
that the degree of safety regarding timely payment is
either overwhelming or very strong; those issues
determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign.
VMIG 1 --Moody's highest rating for issues having a demand
feature -- VRDO.
P-1 --Moody's highest rating for commercial paper and for VRDO
prior to the advent of the VMIG 1 rating.
SECURITY DESCRIPTIONS
(unaudited)
ABAG --Association of Bay Area Governments
AIG --American International Guaranty
AMBAC --AMBAC Indemnity Corporation
BAN --Bond Anticipation Notes
BIG --Bond Investors Guaranty
CDA --Community Development Administration
CGIC --Capital Guaranty Insurance Company
CHFCLI --California Health Facility Construction Loan Insurance
COP --Certificate of Participation
EDA --Economic Development Authority
ETM --Escrowed To Maturity
FAIRS --Floating Adjustable Interest Rate Securities
FGIC --Financial Guaranty Insurance Company
FHA --Federal Housing Administration
FHLMC --Federal Home Loan Mortgage Corporation
FNMA --Federal National Mortgage Association
FRTC --Floating Rate Trust Certificates
FSA --Financial Security Assurance
GIC --Guaranteed Investment Contract
GNMA --Government National Mortgage Association
GO --General Obligation
HDA --Housing Development Authority
HDC --Housing Development Corporation
HFA --Housing Finance Authority
IDA --Industrial Development Authority
IDB --Industrial Development Board
IDR --Industrial Development Revenue
INFLOS --Inverse Floaters
ISD --Independent School District
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance Corporation
MFH --Multi-Family Housing
MVRICS --Municipal Variable Rate Inverse Coupon Security
PCR --Pollution Control Revenue
PFA --Public Finance Authority
PSFG --Permanent School Fund Guaranty
Q-SBLF --Qualified School Bond Loan Fund
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
VAN --Veterans Administration
VRDD --Variable Rate Daily Demand
VRWE --Variable Rate Wednesday Demand
========================
[GRAPHIC]
21
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2002
-------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $759,199,903) $ 769,980,532
Cash 727,134
Receivable for securities sold 43,236,200
Interest receivable 8,490,061
Receivable from manager 495,018
-------------------------------------------------------------------------------
Total Assets 822,928,945
-------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 82,299,772
Dividends payable 743,773
Administration fee payable 96,986
Accrued preferred stock distribution payable 48,984
Accrued expenses 405,063
-------------------------------------------------------------------------------
Total Liabilities 83,594,578
-------------------------------------------------------------------------------
Series M, T, W, Th and F Auction Rate Cumulative Preferred Stock
(10,000 shares authorized; 10,000 shares issued at $25,000 per
share for each Series) (Note 7) 250,000,000
-------------------------------------------------------------------------------
Total Net Assets $ 489,334,367
------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 41,856
Capital paid in excess of par value 509,148,009
Undistributed net investment income 2,124
Accumulated net realized loss from security transactions (30,638,251)
Net unrealized appreciation of investments 10,780,629
-------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.69 a share on 41,855,576 capital shares of
$0.001 par value outstanding; 500,000,000 capital shares
authorized) $489,334,367
------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
22
STATEMENT OF OPERATIONS
Year Ended
May 31, 2002
----------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 21,791,436
----------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 3) 2,739,884
Administration fee (Note 3) 787,716
Shareholder communications 166,998
Shareholder and system servicing fees 100,507
Audit and legal 95,676
Directors' fees 60,333
Custody 18,705
Pricing service fees 13,858
Registration fees 13,000
Other 94,514
----------------------------------------------------------------------------------
Total Expenses 4,091,191
Less: Investment advisory fee waiver (Note 3) (1,966,471)
----------------------------------------------------------------------------------
Net Expenses 2,124,720
----------------------------------------------------------------------------------
Net Investment Income 19,666,716
----------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 4):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 157,654,209
Cost of securities sold 169,167,053
----------------------------------------------------------------------------------
Net Realized Loss (11,512,844)
----------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation (Note 1) 12,747,045
----------------------------------------------------------------------------------
Net Gain on Investments 1,234,201
----------------------------------------------------------------------------------
Distributions Paid to Auction Rate Cumulative Preferred Stockholders
From Net Investment Income (103,927)
----------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 20,796,990
---------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
23
STATEMENTS OF CHANGES IN NET ASSETS
For the Years
Ended May 31,
--------------------------
2002 2001
----------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 19,666,716 $ 19,132,327
Net realized gain (loss) (11,512,844) 3,688,224
Increase in net unrealized appreciation 12,747,045 21,646,189
Distributions Paid to Auction Rate
Cumulative Preferred Stockholders from
net investment income (103,927) --
---------------------------------------------------------------------------------
Increase in Net Assets From Operations 20,796,990 44,466,740
---------------------------------------------------------------------------------
DISTRIBUTIONS PAID TO:
Common Stock shareholders from
net investment income (19,609,532) (19,162,536)
---------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (19,609,532) (19,162,536)
---------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTES 7 AND 8):
Underwriting commissions and expenses for the
issuance of Auction Rate Cumulative Preferred
Stock (Note 7) (2,793,000) --
Net asset value of shares issued in connection with
the transfer of Managed Municipals
Portfolio II Inc.'s net assets 117,162,040 --
Treasury stock acquired -- (3,648,358)
---------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions 114,369,040 (3,648,358)
---------------------------------------------------------------------------------
Increase in Net Assets 115,556,498 21,655,846
NET ASSETS:
Beginning of year 373,777,869 352,122,023
---------------------------------------------------------------------------------
End of year* $489,334,367 $373,777,869
--------------------------------------------------------------------------------
* Includes undistributed net investment income of: $2,124 $22,877
--------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
24
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Managed Municipals Portfolio Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between bid and ask prices provided by an independent
pricing service that are based on transactions in municipal obligations,
quotations from municipal bond dealers, market transactions in comparable
securities and various relationships between securities; (c) securities
maturing within 60 days or less are valued at cost plus accreted discount, or
minus amortized premium, which approximates value; (d) gains or losses on sale
of securities are calculated by using the specific identification method; (e)
interest income, adjusted for amortization of premium and accretion of
discount, is recorded on an accrual basis; (f) dividends and distributions to
shareholders are recorded on the ex-dividend date; (g) the Fund intends to
comply with the applicable provisions of the Internal Revenue Code of 1986, as
amended, pertaining to regulated investment companies and to make distributions
of taxable income sufficient to relieve it from substantially all Federal
income and excise taxes; (h) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from accounting principles generally accepted in the United States of
America. At May 31, 2002, reclassifications were made to the Fund's capital
accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Accordingly, a
portion of overdistributed net investment income amounting to $13,447 was
reclassified from paid-in capital. Net investment income, net realized gains
and net assets were not affected by this adjustment; 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.
In November 2000, the American Institute of Certified Public Accountants
("AICPA") issued a revised Audit and Accounting Guide for Investment Companies
("Guide"). This revised version is effective for financial statements issued
for fiscal years beginning after December 15, 2000. The revised Guide requires
the Fund to amortize premium and accrete all discounts on all fixed-income
securities. The Fund adopted this requirement effective June 1, 2001. This
change does not affect the Fund's net asset value, but does change the
classification of certain amounts in the statement of operations. For the year
ended May 31, 2002, interest income increased by $89,361, net realized loss
========================
[GRAPHIC]
25
NOTES TO FINANCIAL STATEMENTS
(continued)
increased by $5,419 and the change in net unrealized appreciation of
investments decreased by $83,942. In addition, the Fund recorded adjustments to
increase the cost of securities and increase accumulated undistributed net
investment income by $59,169 to reflect the cumulative effect of this change up
to the date of the adoption.
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 gain distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
3. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS
Smith Barney Fund Management LLC ("SBFM"), a subsidiary of Salomon Smith
Barney Holdings Inc., which, in turn, is a subsidiary of Citigroup Inc.
("Citigroup"), acts as investment adviser to the Fund. The Fund pays SBFM a fee
calculated at an annual rate of 0.70% of the average daily total net assets of
the Fund. This fee is calculated daily and paid monthly. For the year ended May
31, 2002, SBFM waived $1,966,471 of its investment advisory fee.
SBFM 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 total net assets.
This fee is calculated daily and paid monthly.
However, effective upon the issuance of the Fund's preferred shares, SBFM
agreed to reduce its aggregate investment advisory and administrative fees to
an aggregate annual rate of 0.65% on those assets of the Fund equal to the
product of the number of preferred shares outstanding multiplied by the
liquidation value of such shares.
All officers and one Director of the Fund are employees of Citigroup or its
affiliates.
4. INVESTMENTS
During the year ended May 31, 2002, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
-----------------------------------------------------------------------------
Purchases $413,336,306
-----------------------------------------------------------------------------
Sales 157,654,209
-----------------------------------------------------------------------------
[GRAPHIC]
26
NOTES TO FINANCIAL STATEMENTS
(continued)
At May 31, 2002, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
----------------------------------------------------------------------------
Gross unrealized appreciation $20,414,380
Gross unrealized depreciation (9,633,751)
-----------------------------------------------------------------------------
Net unrealized appreciation $10,780,629
----------------------------------------------------------------------------
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 received or made 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, 2002, the Fund did not hold any futures contracts.
6. SECURITIES TRADED ON A WHEN-ISSUED BASIS
In a when-issued transaction, the Fund commits to purchasing securities for
which specific information is not yet known at the time of the trade.
Securities purchased on a when-issued basis are not settled until they are
delivered to the Fund. Beginning on the date the Fund enters into the
when-issued transaction, the custodian maintains cash, U.S. government
securities or other liquid high grade debt obligations in a segregated account
equal in value to the purchase price of the when-issued security. These
transactions are subject to market fluctuations and their current value is
determined in the same manner as for other securities.
At May 31, 2002, the Fund did not hold any when-issued securities.
[GRAPHIC]
27
NOTES TO FINANCIAL STATEMENTS
(continued)
7. AUCTION RATE CUMULATIVE PREFERRED STOCK
On May 22, 2002, the Fund issued 2,000 shares of Series M, Series T, Series
W, Series Th and Series F, respectively, of Auction Rate Cumulative Preferred
Stock ("ARCPS"). The underwriting discount of $2,500,000 and offering expenses
of $293,000 associated with the ARCPS offering were recorded as a reduction of
the capital paid in excess of par value of common stock. The ARCPS' dividends
are cumulative at a rate determined at an auction and the dividend period is
typically 7 days. The dividend rates ranged from 1.50%-1.55% for the year ended
May 31, 2002.
The ARCPS are redeemable under certain conditions by the Fund, or subject to
mandatory redemption (if the Fund is in default of certain coverage
requirements) at a redemption price equal to $25,000 per share plus accumulated
and unpaid dividends. ARCPS have a liquidation preference of $25,000 per share
plus accumulated and unpaid dividends. The Fund is required to maintain certain
asset coverages with respect to the ARCPS under the Investment Company Act of
1940.
Salomon Smith Barney Inc. ("SSB"), another subsidiary of Citigroup also
currently acts as a broker/dealer in connection with the auction of ARCPS.
After each auction, the auction agent will pay to each broker/dealer, from
monies the Fund provides a participation fee at the annual rate of 0.25% of the
purchase price of the ARCPS that the broker/dealer places at the auction. For
the year ended May 31, 2002, SSB earned $2,057 as the broker/dealer.
Under Emerging Issues Task Force ("EITF") announcement Topic D-98,
Classification and Measurement of Redeemable Securities, which was issued
on July 19, 2001, preferred securities that are redeemable for cash or other
assets are to be classified outside of permanent equity to the extent that the
redemption is at a fixed or determinable price and at the option of the holder
or upon the occurrence of an event that is not solely within the control of the
issuer.
8. TRANSFER OF NET ASSETS
On April 26, 2002, the Fund acquired the assets and certain liabilities of
Managed Municipals Portfolio II Inc. pursuant to a plan of reorganization
approved by Managed Municipals Portfolio II Inc. shareholders on April 10,
2002. Total shares issued by the Fund and the total net assets of the Managed
Municipals Portfolio II Inc. and the Fund on the date of the transfer were as
follows:
Acquired Shares Issued Total Net Assets of Total Net Assets
Fund by the Fund Managed Municipals Portfolio II Inc. of the Fund
------------------------------------------------------------------------------
Managed
Municipals
Portfolio
II
Inc. 10,006,932 $117,162,040 $372,831,933
------------------------------------------------------------------------------
========================
[GRAPHIC]
28
NOTES TO FINANCIAL STATEMENTS
(continued)
The total net assets of Managed Municipals Portfolio II Inc. before
acquisition included unrealized depreciation of $2,101,130, accumulated net
realized loss of $5,251,582, and overdistributed net investment income of
$14,313. Total net assets of the Fund immediately after the transfer were
$489,993,973. The transaction was structured to qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended.
9. CAPITAL LOSS CARRYFORWARD
At May 31, 2002, the Fund had, for Federal income tax purposes,
approximately $18,142,000 of unused capital loss carryforwards available to
offset future capital gains. 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. Expirations occur on May 31 of the years below:
2006 2007 2008
-----------------------------------------------------------------------------------------
Carryforward Amounts $302,000 $4,855,000 $12,985,000
-----------------------------------------------------------------------------------------
10. CAPITAL SHARES
At May 31, 2002, the Fund had 500,000,000 shares of common stock authorized
with a par value of $0.001 per share.
On June 21, 1999, the Fund commenced a share repurchase plan. Since the
inception of the repurchase plan, the Fund repurchased and retired 2,758,300
shares with a total cost of $26,171,171. For the year ended May 31, 2001, the
Fund repurchased and retired 370,700 shares with a total cost of $3,648,358.
On January 16, 2001, the Fund suspended the share repurchase plan.
[GRAPHIC]
29
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year ended May 31,
unless otherwise noted:
2002 2001 2000 1999 1998
-----------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.74 $10.93 $11.97 $12.37 $11.90
----------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(1)(2)/ 0.60 0.60 0.58 0.58 0.54
Net realized and unrealized gain (loss)/(2)/ 0.02 0.79 (1.14) (0.32) 0.83
Distributions Paid to Auction Rate
Cumulative Preferred Stockholders from
net investment income (0.00)* -- -- -- --
----------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.62 1.39 (0.56) 0.26 1.37
----------------------------------------------------------------------------------------
Gain From Repurchase of Treasury Stock -- 0.02 0.12 -- --
----------------------------------------------------------------------------------------
Underwriting Commission and Expenses
of Issuance of Auction Rate
Cumulative Preferred Stock (0.07) -- -- -- --
----------------------------------------------------------------------------------------
Distributions Paid To:
Common Stock Shareholders from
net investment income (0.60) (0.60) (0.60) (0.54) (0.61)
Common Stock Shareholders from
net realized gains -- -- -- (0.12) (0.29)
----------------------------------------------------------------------------------------
Total Distributions (0.60) (0.60) (0.60) (0.66) (0.90)
----------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.69 $11.74 $10.93 $11.97 $12.37
----------------------------------------------------------------------------------------
Total Return,
Based on Market Value/(3)/ 4.79% 20.69% (3.88)% 0.11% 2.08%
----------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value/(3)/ 5.33% 13.90% (2.82)% 2.66% 12.14%
----------------------------------------------------------------------------------------
Net Assets,
End of Year (millions) $489 $374 $352 $414 $428
----------------------------------------------------------------------------------------
========================
[GRAPHIC]
30
FINANCIAL HIGHLIGHTS
(continued)
For a share of capital stock outstanding throughout each year ended May 31,
unless otherwise noted:
2002 2001 2000 1999 1998
-------------------------------------------------------------------------------
Ratios to Average Net Assets Based on
Common Shares Outstanding/(4)/:
Net investment income/(2)/ 4.84% 5.15% 5.19% 4.72% 4.35%
Auction fees 0.00* -- -- -- --
Operating expenses/(1)/ 0.52 0.68 0.89 0.94 0.99
Total expenses 0.52 0.68 0.89 0.94 0.99
------------------------------------------------------------------------------
Portfolio Turnover Rate 39% 58% 35% 23% 87%
------------------------------------------------------------------------------
Market Price, End of Year $10.57 $10.67 $9.375 $10.375 $11.00
------------------------------------------------------------------------------
(1) The investment adviser waived a portion of its fees for the years ended May
31, 2002, 2001 and 2000. In addition, the investment adviser and
administrator waived a portion of their fees for the year ended May 31,
1999. If such fees were not waived, the per share decreases in net
investment income and actual expense ratios would have been as follows:
Per share decreases in Expense ratios
net investment income without fee waivers
---------------------- -------------------
2002 $0.05 1.01%
2001 0.04 1.01
2000 0.02 1.04
1999 0.01 1.02
(2) Without the adoption of the change in the accounting method discussed in
Note 1 to the financial statements, for the year ended May 31, 2002, the
ratio of net investment income to average net assets would have been 4.81%.
Per share, ratios and supplemental data for the periods prior to June 1,
2001 have not been restated to reflect this change in presentation. In
addition, the impact of this change to net investment income and net
realized and unrealized gain per share was less than $0.01.
(3) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
(4) Calculated on basis of average net assets of common shareholders. Ratios do
not reflect the effect of dividend payments to preferred shareholders.
* Amount represents less than $0.01 per share.
========================
[GRAPHIC]
31
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of Managed Municipals Portfolio Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Managed Municipals Portfolio Inc.
("Fund") as of May 31, 2002, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the years
in the two-year period then ended and financial highlights for each of the
years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of May 31, 2002, by correspondence
with the custodian. As to securities purchased or sold but not yet received or
delivered, we performed other appropriate auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
the Fund as of May 31, 2002, the results of its operations for the year then
ended, the changes in its net assets for each of the years in the two-year
period then ended and financial highlights for each of the years in the
five-year period then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
New York, New York
July 10, 2002
========================
[GRAPHIC]
32
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
-------------------------------------------------------
6/27/00 6/30/00 $ 9.750 $11.20 $0.050 $ 9.91
7/25/00 7/28/00 9.688 11.37 0.050 9.89
8/22/00 8/25/00 10.000 11.54 0.050 10.04
9/26/00 9/29/00 9.688 11.42 0.050 9.80
10/24/00 10/27/00 9.688 11.49 0.050 9.78
11/20/00 11/24/00 9.750 11.47 0.050 9.80
12/26/00 12/29/00 9.938 11.85 0.050 10.25
1/23/01 1/26/01 10.688 11.92 0.050 10.70
2/20/01 2/23/01 10.770 11.88 0.050 10.81
3/27/01 3/30/01 10.450 11.89 0.050 10.58
4/24/01 4/27/01 10.370 11.65 0.050 10.55
5/22/01 5/25/01 10.650 11.71 0.050 10.69
6/26/01 6/29/01 10.400 11.80 0.050 10.61
7/24/01 7/27/01 10.590 11.88 0.050 10.71
8/28/01 8/31/01 10.830 12.09 0.050 11.00
9/25/01 9/28/01 10.330 11.87 0.050 10.65
10/23/01 10/26/01 10.640 11.93 0.050 10.82
11/27/01 11/30/01 10.580 11.83 0.050 10.51
12/24/01 12/28/01 10.310 11.63 0.050 10.43
1/22/02 1/25/02 10.600 11.81 0.050 10.74
2/19/02 2/22/02 10.600 11.77 0.050 10.72
3/25/02 3/28/02 10.250 11.55 0.050 10.43
4/23/02 4/26/02 10.300 11.66 0.050 10.51
5/28/02 5/31/02 10.500 11.65 0.050 10.62
------------------------------------------------------
+ As of record date.
========================
[GRAPHIC]
33
OTHER FINANCIAL INFORMATION
(unaudited)
The table below sets out information with respect to Auction Rate Cumulative
Preferred Stock:
2002/(1)/
---------------------------------------------------------
Auction Rate Cumulative Preferred Stock/(2)/:
Total Amount Outstanding (000s) 250,000
Asset Coverage Per Share 74,000
Involuntary Liquidating Preference Per Share 25,000
Average Market Value Per Share/(3)/ 25,000
-------------------------------------------------------
(1)As of May 31, 2002.
(2)On May 22, 2002, the Fund issued 2,000 shares of Auction Rate Cumulative
Preferred Stock at $25,000 a share, for Series M, Series T, Series W, Series
Th and Series F, respectively.
(3)Excludes accrued interest or accumulated undeclared dividends.
[GRAPHIC]
34
ADDITIONAL INFORMATION
(unaudited)
Information about Directors and Officers
The business and affairs of Managed Municipals Portfolio Inc., ("Investment
Company") are managed under the direction of the Board of Directors.
Information pertaining to the Directors and Officers of the Investment Company
is set forth below.
Number of
Investment
Term of Companies
Office* and Principal in Fund Other
Position(s) Length of Occupation(s) Complex Directorships
Name, Address Held with Time During Past Overseen Held by
and Age Fund Served 5 Years by Director Director
----------------------------------------------------------------------------------------------
Non-Interested Directors:
Allan J. Bloostein Class I Since President, Allan 16 Taubman
27 West 67th Street Director 1992 J. Bloostein Realty
New York, NY 10023 Associates; Vice Corporation
Age 72 Chairman (a NYSE
(retired), May listed real
Department estate
Stores investment
trust)
Dwight B. Crane Class III Since Professor, 23 None
Harvard Business School Director 1992 Harvard
Soldiers Field Road Business School
Morgan Hall #375
Boston, MA 02163
Age 64
Paulo M. Cucchi Class I Since Vice President 7 None
Drew University Director 2001 and Dean of
108 Brothers College College of
Madison, NJ 07940 Liberal Arts
Age 60 at Drew
University
Robert A. Frankel Class II Since Managing 9 None
8 John Walsh Blvd. Director 1994 Partner of
Peekskill, NY 10566 Robert A.
Age 75 Frankel
Management
Consultants
Dr. Paul Hardin Class II Since Chancellor 16 None
12083 Morehead Director 2001 Emeritus and
Chapel Hill, NC 27514 Professor of
Age 71 Law at the
University of
North Carolina
at Chapel Hill
William R. Hutchinson Class III Since President, WR 7 Director of
535 N. Michigan Director 1995 Hutchinson & Associate
Suite 1012 Associates, Inc.; Bank
Chicago, IL 60611 formerly Group and Associated
Age 59 Vice President, Banc-Corp
Mergers &
Acquisitions BP
Amoco
[GRAPHIC]
35
ADDITIONAL INFORMATION
(unaudited) (continued)
Number of
Investment
Term of Companies
Office* and Principal in Fund Other
Position(s) Length of Occupation(s) Complex Directorships
Name, Address Held with Time During Past Overseen Held by
and Age Fund Served 5 Years by Director Director
-----------------------------------------------------------------------------------------------
George M. Pavia Class III Since Senior Partner, 7 None
600 Madison Avenue Director 2001 Pavia & Harcourt
New York, NY 10022 Attorneys
Age 73
Interested Directors:
Heath B. McLendon Class II Since Managing Director 74 None
SSB Director/ 1992 of Salomon Smith
125 Broad Street Chairman Barney
9th Floor Inc. ("SSB");
New York, NY 10004 President and
Age 69 Director of
Smith Barney Fund
Management LLC
("SBFM") and
Travelers
Investment
Adviser, Inc.
("TIA");
Director of
The Travelers
Investment
Management
Company
R. Jay Gerken Class I Since Managing 41 None
SSB Director, 2002 Director of SSB
125 Broad Street Also serves
9th Floor as
New York, NY 10004 President
Age 51
-----
*Directors are elected for a term of three years.
Officers:
Lewis E. Daidone Senior Vice Since Managing Director N/A N/A
SSB President and 1994 of SSB; Chief
125 Broad Street Chief Administration
11th Floor Administrative Officer of the
New York, NY 10004 Officer Smith Barney
Age 44 Mutual Funds;
Director and Senior
Vice President of
SBFM and TIA
[GRAPHIC]
36
ADDITIONAL INFORMATION
(unaudited) (continued)
Number of
Investment
Term of Companies
Office and Principal in Fund Other
Position(s) Length of Occupation(s) Complex Directorships
Name, Address Held with Time During Past Overseen Held by
and Age Fund Served 5 Years by Director Director
-------------------------------------------------------------------------------------------------
Richard L. Peteka Chief Since Chief Financial N/A N/A
SSB Financial 2002 Officer and
125 Broad Street Officer and Treasurer of certain
11th Floor Treasurer Smith Barney
New York, NY 10004 Mutual Funds;
Age 40 Director and Head
of Internal Control
for Citigroup Asset
Management U.S.
Mutual Fund
Administration
from 1999-2002
Vice President
Head of Mutual
Fund
Administration and
Treasurer at
Oppenheimer
Capital from 1996-
1999
Joseph P. Deane Vice President Since Managing Director N/A N/A
SSB and 1993 of SBFM
333 W 34th Street Investment
New York, NY 10001 Officer
Age 46
Kaprel Ozsolak Controller Since Vice President of N/A N/A
SSB 2002 SSB
125 Broad Street
9th Floor
New York, NY 10004
Age 36
Christina T. Sydor Secretary Since Managing Director N/A N/A
SSB 1994 of SSB; General
300 First Stamford Place Counsel and
Stamford, CT 06902 Secretary of SBFM
Age 51 and TIA
TAX INFORMATION
(unaudited)
For Federal tax purposes the Fund hereby designates for the fiscal year
ended May 31, 2002:
. 99.90% of the dividends paid by the Fund from net investment income as tax
exempt for regular Federal income tax purposes.
[GRAPHIC]
37
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 98% of 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 98% of the net asset
value of the common stock at the time of valuation (which is the close of
business on the determination date), PFPC 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 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
========================
[GRAPHIC]
38
DIVIDEND REINVESTMENT PLAN
(unaudited) (continued)
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 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
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 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 (800) 331-1710.
SHARE REPURCHASE NOTICE
(unaudited)
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.
========================
[GRAPHIC]
39
Managed Municipals
Portfolio Inc.
DIRECTORS
Allan J. Bloostein
Dwight B. Crane
Paolo M. Cucchi
Robert A. Frankel
R. Jay Gerken
Paul Hardin
William R. Hutchinson
Heath B. McLendon, Chairman
George M. Pavia
OFFICERS
R. Jay Gerken
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Chief Administrative Officer
Richard L. Peteka
Chief Financial Officer and Treasurer
Joseph P. Deane
Vice President and Investment Officer
David Fare
Investment Officer
Kaprel Ozsolak
Controller
Christina T. Sydor
Secretary
INVESTMENT ADVISER AND ADMINISTRATOR
Smith Barney Fund Management LLC
333 W. 34th Street
New York, New York 10001
TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 8030
Boston, Massachusetts 02266-8030
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
========================
[GRAPHIC]
40
[GRAPHIC]
THIS REPORT IS ONLY INTENDED FOR SHAREHOLDERS OF THE
MANAGED MUNICIPALS PORTFOLIO 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.
FD2246 7/02