Managed Municipals
Portfolio Inc.
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QUARTERLY REPORT
August 31, 2002
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Managed Municipals
Portfolio Inc.
Dear Shareholder:
We are pleased to provide the quarterly report for the Managed Municipals
Portfolio Inc. ("Fund") for the three months ended August 31, 2002. In this
report, we summarize what we believe to be the period's prevailing economic and
market conditions and outline our investment strategy. 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.
Special Notice to Shareholders
We are pleased to report that R. Jay Gerken, a managing director of Salomon
Smith Barney Inc., has been elected Chairman, President and Chief Executive
Officer of the board of the Fund replacing Heath B. McLendon, who has been
appointed chairman of Salomon Smith Barney Inc.'s new Equity Research Policy
Committee. Previously, Jay managed the Smith Barney Growth and Income Fund for
six years; developed and managed the Smith Barney Allocation Series Inc. from
inception in 1996 through the end of 2001; and was responsible for the
investment design and implementation of Citigroup Asset Management's college
savings programs with the states of Illinois and Colorado.
Shareholder Dividend Notice
On August 23, 2002, the Fund announced dividend distribution dates for
September, October and November 2002 for an ordinary income dividend of $0.055
per share for each month. The dividend distribution schedule appears below:
Ex-dividend Record Payable
----------- -------- --------
September 9/20/02 9/24/02 9/27/02
October 10/18/02 10/22/02 10/25/02
November 11/21/02 11/25/02 11/29/02
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1
Performance Review/1/
During the period ended August 31, 2002, the Fund distributed income
dividends to shareholders totaling $0.16 per share. The table below shows the
annualized distribution rates and three-month total return based on the Fund's
August 31, 2002 net asset value ("NAV") per share and its New York Stock
Exchange ("NYSE") closing price./2/
Annualized Three-Month
Price Per Share Distribution Rate/3/ Total Return/3/
--------------- ------------------- --------------
$12.08 (NAV) 5.46% 4.82%
$10.94 (NYSE) 6.03% 4.98%
In comparison, the Fund's Lipper Inc. ("Lipper")/4/ peer group of closed-
end general municipal debt funds (leveraged) returned 4.33% based on NAV for
the same period.
-----
1Past performance is not indicative of future results.
2NAV is calculated by subtracting total liabilities and outstanding preferred
stocks 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 changes in the market prices of securities in which the
Fund has invested. However, the price at which an 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.
3Total 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 $0.055 for twelve months.
This rate is as of August 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.
4Lipper is an independent mutual-fund tracking organization. Average annual
returns are based on the three-month period ended August 31, 2002, calculated
among 55 funds in the closed-end general municipal debt funds (leveraged) fund
category.
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2
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./5/
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 quality. Municipal securities include securities issued by any of
the 50 states and certain other municipal issuers, political subdivisions,
agencies 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 30 years. The
Fund can invest up to 20% of its assets in below investment-grade/6/ 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.
Shareholder Notice: The following significant event occurred prior to the
inception of the period and subsequent to the merger of Managed Municipal
Portfolio II Inc. with and into the Fund, which was completed as of the close
of business on April 26, 2002 (with shareholders of Managed Municipals
Portfolio II Inc. becoming shareholders of the Fund): The Fund issued $250
million in municipal auction rate cumulative preferred stock on May 22, 2002.
This offering enabled the Fund to invest proceeds of the offering into
additional securities that met the Fund's objectives. In general, leveraging
techniques (such as this) may be beneficial in periods when interest rates are
declining and short-term rates are substantially lower than intermediate- and
long-term rates, as leveraging potentially tends to enhance both net asset
value and yield. In periods of rising interest rates, however, the opposite
typically happens: drops in per share net asset value are magnified, as falling
prices on the increased asset base are spread over the same amount of common
shares outstanding. Additionally, in this latter scenario, the yield advantage
diminishes as short-term rates rise closer to the yields of the Fund's
longer-term holdings.
-----
5Certain 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.
6Investment-grade bonds are those rated AAA, Aa, A and Baa by Moody's Investors
Service 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 comparable quality.
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3
Portfolio Manager Market and Portfolio Overview
Throughout most of the reporting period, we generally maintained a favorable
view of bonds mainly because of the economic environment in the U.S. In our
opinion, low inflation, an extremely accommodative U.S. Federal Reserve Board
("Fed"), among other factors, were supportive of the fixed-income securities
markets. However, we believe the bond markets were influenced not only by the
economic and interest rate environments, but also by the effects of human
emotion, particularly by investors' concerns that the equity market was
volatile. It seemed to us that as the stock market fell, in an almost knee-jerk
reaction, the bond market rose. So, not only do we feel many bond market
fundamentals look strong, but we also believe that many investors have turned
to government and municipal bonds simply as an emotional response to volatility
in the stock market.
In terms of our investment strategy, we have been repositioning the Fund in
an effort to take advantage of a potential improvement in the U.S. economy,
which we anticipate will gradually occur into next year followed by a more
powerful economic recovery moving into 2004. For example, we have reallocated
capital away from some of the Fund's more aggressive positions, such as bonds
with extremely long maturities, into those fixed-income securities that we
consider to be slightly more conservative alternatives.
Portfolio Manager Market and Portfolio Outlook
In our view, the municipal bond market offers many favorable investment
opportunities, as municipal securities with longer-term maturities offered
yields as high as 95% of those on U.S. Treasury bonds with comparable
maturities during the period. We anticipate that yields on municipals relative
to those on U.S. Treasuries will remain in this territory in the foreseeable
future.
We believe the Federal Open Market Committee ("FOMC")/7/ will likely refrain
from taking any action on maneuvering its short-term interest rate target. In
our view, there are two basic developments that the FOMC would
-----
7The FOMC is a policy-making body of the Federal Reserve System responsible for
the formulation of a policy designed to promote economic growth, full
employment, stable prices, and a sustainable pattern of international trade
and payments.
8The fed funds rate is the interest rate that banks with excess reserves at a
Federal Reserve district bank charge other banks that need overnight loans.
The fed funds rate often points to the direction of U.S. interest rates.
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4
like to see become apparent before it would consider raising its target for the
federal funds rate ("fed funds rate")/8/. First, we believe the FOMC wants firm
evidence that the U.S. economy is well on the road to recovery. Second, we
believe the FOMC is waiting until the enormous amount of capital currently
invested in short-term instruments, such as money market funds and certificates
of deposit ("CDs"), begins to be re-allocated back into the stock market,
long-term bond market and the general economy. In our view, this stockpiling of
assets in extremely short-term investments reflects investors' concerns about
the stock markets. A similar type of build-up in short-term investments
occurred in the early 1980s, although short-term rates during that particular
period were extremely high. However, with current short-term rates hovering at
historically low levels, in our opinion, much of this flight to short-term
investments does not appear justified.
In our view, the U.S. economy appears to have bottomed out. Barring any
further terrorism attacks or acts of war, we believe the economy may recover
faster than what many people expect. Going forward, our plan entails focusing
on municipal securities with higher credit ratings in an effort to avoid
assuming any substantial credit risk.
Looking for Additional Information?
The Managed Municipals Portfolio Inc. is traded on the New York Stock
Exchange under the symbol "MMU" and its closing market price is available in
most newspapers under the New York Stock Exchange listings. Daily net asset
value closing prices are available online under symbol "XMMUX". Barron's and
The Wall Street Journal's Monday editions carry closed-end fund tables that
provide weekly net asset value per share information. In addition, the Fund
issues a quarterly allocation press release that can be found on most major
financial web sites.
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5
Thank you for your investment in the Managed Municipals Portfolio Inc. We
look forward to continuing to help you meet your investment objectives.
Sincerely,
/s/ R Jay Gerken /s/ Joseph P. Deane
R. Jay Gerken Joseph P. Deane
Chairman, President and Vice President and
Chief Executive Officer Investment Officer
September 20, 2002
The information provided in this letter by the portfolio manager represents the
opinion of the portfolio manager and is not intended to be a forecast of future
events, a guarantee of future results or investment advice. Views expressed are
those of the portfolio manager and may differ from those of other portfolio
managers or of the firm as a whole. Furthermore, there is no assurance that
certain securities will remain in or out of the Fund or that the percentage of
the Fund's assets in various sectors will remain the same. Please refer to
pages 8 through 19 for a list and percentage breakdown of the Fund's holdings.
Also, please note that any discussion of the Fund's holdings, the Fund's
performance, and the portfolio manager's views are as of August 31, 2002 and
are subject to change.
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6
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 35.
To find 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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7
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SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited)
Face
Amount Rating(a) Security Value
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MUNICIPAL BONDS AND NOTES -- 100.0%
Alabama -- 3.4%
$24,510,000 AAA Jefferson County, AL Sewer Revenue
Warrants, Series A, FGIC-Insured,
5.375% due 2/1/36 (b) $ 25,167,113
-------------------------------------------------------------------------------
Alaska -- 0.6%
4,000,000 AA+ Valdez, AK Marine Term Revenue Refunding,
BP Pipelines Inc. Project, Series A,
5.850% due 8/1/25 4,100,440
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Arizona -- 1.6%
Arizona State University, COP, MBIA-Insured:
1,500,000 AAA 5.100% due 7/1/24 1,531,275
1,000,000 AAA 5.125% due 7/1/26 1,021,220
4,000,000 AAA Mesa, AZ IDA, Discovery Health Systems,
Series A, MBIA-Insured, 5.625% due 1/1/29 4,223,920
3,000,000 AAA Phoenix, AZ Civic Improvement Corp.
Airport Revenue, Senior Lien, Series B,
FGIC-Insured, 5.250% due 7/1/22 (c) 3,069,120
2,350,000 AA+ Phoenix, AZ GO, Series B, 5.000% due 7/1/27 2,369,810
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12,215,345
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California -- 5.2%
7,040,000 Ba1* California Educational Facilities Authority
Revenue, (Pooled College & University
Projects), Series A, (Partially Pre-
Refunded -- Escrowed with U.S.
government securities to 7/1/08
Call @ 101), 5.625% due 7/1/23 6,751,994
6,000,000 A3* California Health Facilities Authority
Revenue, (Cedars-Sinai Medical Center),
Series A, 6.250% due 12/1/34 6,477,060
1,000,000 A+ California Health Facilities Financing
Authority Revenue, Sutter Health, Series A,
6.250% due 8/15/35 1,079,660
5,000,000 AAA California State Department of Veterans
Affairs, Home Purchase Revenue, Series A,
AMBAC-Insured, 5.350% due 12/1/27 5,164,650
7,000,000 AAA Los Angeles County, CA COP, Antelope
Valley Courthouse, Series A, AMBAC-
Insured, 5.250% due 11/1/33 7,200,550
3,340,000 AAA Rancho Cucamonga, CA Redevelopment
Agency Tax Allocation, (Rancho
Redevelopment Project), MBIA-
Insured, 5.125% due 9/1/30 3,391,670
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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8
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SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
California -- 5.2% (continued)
$ 2,000,000 AAA Riverside, CA Unified School District GO,
Series A, FGIC-Insured 5.000% due 2/1/27 $ 2,017,680
2,750,000 AAA Sacramento County, CA COP,
(Public Facilities Project), MBIA-Insured,
5.375% due 2/1/19 2,920,968
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 2,552,675
1,000,000 AAA San Jose, CA Redevelopment Agency Tax
Allocation, (Merged Area Redevelopment
Project), MBIA-Insured, 5.000% due 8/1/32 1,005,670
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38,562,577
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Colorado -- 11.3%
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 (b) 4,691,800
1,000,000 A- Aspen, CO Sales Tax Revenue,
5.400% due 11/1/19 1,044,520
4,000,000 AAA Colorado Educational & Cultural Facilities
Revenue Refunding, (University of Denver
Project), AMBAC-Insured,
5.375% due 3/1/23 4,158,800
4,000,000 A Colorado Health Facilities Authority
Revenue, Series B, Remarketed 7/8/98,
5.350% due 8/1/15 4,136,520
6,000,000 BBB+ Colorado Springs, CO Airport Revenue,
Series A, 7.000% due 1/1/22 (c) 6,147,480
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 10,396,200
60,000,000 Aaa* Series B, zero coupon due 10/1/22 (b) 20,792,400
Denver, CO City & County Airport Revenue,
Series C:
3,155,000 A 6.750% due 11/15/22 (c) 3,233,970
13,630,000 A 6.125% due 11/15/25 (c) 14,011,367
SEE NOTES TO
FINANCIAL STATEMENTS.
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9
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SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
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Colorado -- 11.3% (continued)
$10,945,000 A Escrowed to maturity with U.S.
government securities,
6.125% due 11/15/25 (c)(d) $ 12,994,123
845,000 Aaa* Pre-Refunded -- Escrowed with U.S.
government securities to 11/15/02
Call @ 102, 6.750% due 11/15/22 (c) 870,713
2,000,000 AAA Denver, CO City & County, COP Series B,
AMBAC-Insured, 5.500% due 12/1/25 2,103,320
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84,581,213
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Connecticut -- 1.0%
Connecticut State GO, Series B:
1,600,000 AA 5.000% due 6/15/02 1,628,368
4,490,000 AA 5.500% due 6/15/21 4,794,063
1,000,000 AAA Connecticut State Health & Education,
(Child Care Facilities Project), Series C,
AMBAC-Insured, 5.625% due 7/1/29 1,060,910
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7,483,341
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Delaware -- 1.4%
10,000,000 AAA Delaware State Economic Development
Authority Revenue, (Polution Control-
Delmarva Project-B), AMBAC-Insured,
5.200% due 2/1/19 10,563,000
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District of Columbia -- 1.5%
Metropolitan Washington Airports, DC
Authority Airport System Revenue,
Series A, FGIC-Insured:
5,355,000 AAA 5.125% due 10/1/22 (c) 5,419,956
6,000,000 AAA 5.125% due 10/1/26 (c) 6,034,920
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11,454,876
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Florida -- 6.1%
5,000,000 AAA Florida State Board & Educational Capital
Outlay GO, FSA-Insured,
5.000% due 6/1/24 5,034,150
Florida State Board of Education GO:
3,000,000 AA+ Series A, 5.125% due 6/1/21 3,083,790
7,500,000 AAA Series F, MBIA-Insured, 5.000% due 6/1/32 7,518,000
3,145,000 AAA Florida State Department of Transportation
GO, FGIC-Insured, 5.000% due 7/1/25 3,165,694
3,000,000 Aaa* Hillsborough County, FL School Board COP,
Series A, MBIA-Insured, 5.000% due 7/1/25 3,015,210
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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10
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SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Florida -- 6.1% (continued)
$ 6,500,000 BBB- Martin County, FL IDA, (Indiantown
Cogeneration Project), Series A,
7.875% due 12/15/25 (c) $ 6,732,700
1,290,000 AAA Miami Beach, FL Stormwater Revenue,
FGIC-Insured, 5.375% due 9/1/30 1,331,267
2,000,000 Aaa* Orange County, FL School Board, COP,
Series A, MBIA-Insured, 5.250% due 8/1/23 2,047,960
900,000 VMIG 1* Palm Beach County, FL Health Authority
Facilities Revenue, (Bethesda Healthcare
System Project), 1.800% due 12/1/31 (g) 900,000
10,000,000 AAA Palm Beach County, FL School Board COP,
Series C, FSA-Insured, 5.000% due 8/1/27 10,030,500
2,500,000 Aaa* South Brevard, FL Recreational Facilities
Improvement, Special District,
AMBAC-Insured, 5.000% due 7/1/20 2,561,600
--------------------------------------------------------------------------------
45,420,871
--------------------------------------------------------------------------------
Georgia -- 1.8%
6,000,000 AAA Augusta, GA Water & Sewer Revenue,
FSA-Insured, 5.250% due 10/1/26 6,134,460
Private Colleges & Universities Authority
Revenue, (Mercer University Project):
2,180,000 A3* 5.750% due 10/1/21 2,315,727
Series A:
2,000,000 A3* 5.250% due 10/1/25 2,021,500
1,000,000 A3* 5.375 due 10/1/29 1,016,830
2,000,000 BBB- Savannah, GA EDA Revenue, College of
Art & Design Inc., 6.900% due 10/1/29 2,130,160
--------------------------------------------------------------------------------
13,618,677
--------------------------------------------------------------------------------
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 4,096,840
--------------------------------------------------------------------------------
Illinois -- 3.4%
4,095,000 AAA Chicago, IL GO, Series D, FGIC-Insured,
5.500% due 1/1/35 4,227,064
7,400,000 AAA Chicago, IL Skyway Toll Bridge Revenue,
AMBAC-Insured, 5.500% due 1/1/31 7,709,024
8,000,000 A Illinois Health Facilities Authority Revenue,
OSF Healthcare Systems,
6.250% due 11/15/29 8,420,480
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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11
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SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
----------------------------------------------------------------------------------
Illinois -- 3.4% (continued)
$ 5,000,000 AAA Illinois State GO, MBIA-Insured,
5.625% due 6/1/25 $ 5,250,450
----------------------------------------------------------------------------------
25,607,018
----------------------------------------------------------------------------------
Indiana -- 0.7%
5,000,000 A1* Indiana Port Commission Revenue Refunding,
(Cargill Inc. Project), 6.875% due 5/1/12 5,124,350
----------------------------------------------------------------------------------
Iowa -- 0.2%
1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project),
6.500% due 7/15/12 (e) 1,533,600
----------------------------------------------------------------------------------
Kansas -- 0.2%
1,250,000 AAA Scott County, KS Unified School District No.
446 GO, FGIC-Insured, 5.000% due 9/1/22 1,275,612
----------------------------------------------------------------------------------
Louisiana -- 0.8%
5,500,000 A1* St. Martin Parish, LA Industrial Revenue,
(Cargill Inc. Project), 6.625% due 10/1/12 (e) 5,621,660
----------------------------------------------------------------------------------
Maine -- 0.4%
2,500,000 AA+ Maine State Housing Authority, Mortgage
Revenue, Series C, 5.300% due 11/15/23 2,560,100
----------------------------------------------------------------------------------
Maryland -- 0.8%
Baltimore, MD Wastewater Project Revenue,
Series A, FGIC-Insured:
2,500,000 AAA 5.125% due 7/1/32 2,537,425
3,385,000 AAA 5.200% due 7/1/32 3,455,239
----------------------------------------------------------------------------------
5,992,664
----------------------------------------------------------------------------------
Massachusetts -- 5.5%
3,000,000 AA+ Massachusetts Bay Transportation
Authority, Sales Tax Revenue, Series A,
5.500% due 7/1/30 3,131,430
1,125,000 Aaa* Massachusetts Development Finance Agency,
(Merrimack College Issue), MBIA-Insured,
5.200% due 7/1/32 1,142,213
1,850,000 AAA Massachusetts Health & Educational
Facilities Authority, (University of
Massachusetts Projects), Series C,
FGIC-Insured, 5.125% due 10/1/27 1,872,440
4,400,000 A-1+ Massachusetts State, Health & Educational
Facilities Authority Revenue GO, Series C,
MBIA-Insured, 1.900% due 7/1/10 (g) 4,400,000
25,000,000 Aa2* Massachusetts State, GO of Commonwealth,
Series C, 5.250% due 11/1/30 (b) 25,591,250
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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12
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SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Massachusetts -- 5.5% (continued)
$ 5,000,000 AAA Massachusetts State Special Obligation
Revenue, Series A, FGIC-Insured,
5.000% due 6/1/21 $ 5,100,100
--------------------------------------------------------------------------------
41,237,433
--------------------------------------------------------------------------------
Michigan -- 3.1%
3,000,000 AAA Anchor Bay, MI School District GO,
Q-SBLF-Insured, 5.000% due 5/1/29 2,991,030
5,000,000 AAA East Lansing, MI School District GO,
Q-SBLF-Insured, 5.625% due 5/1/30
Michigan State COP, AMBAC-Insured: 5,251,500
2,345,000 AAA 5.500% due 6/1/19 2,507,720
6,000,000 AAA 5.500% due 6/1/27 6,236,880
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)(f) 6,000,000
--------------------------------------------------------------------------------
22,987,130
--------------------------------------------------------------------------------
Minnesota -- 1.5%
1,500,000 AAA Dakota County, MN Community
Development Agency, MFH Revenue,
FNMA-Collateralized, 5.625% due 2/1/26 1,547,520
2,500,000 A1* Duluth, MN IDA, Seaway Port Authority,
Dock & Wharf Revenue, (Cargill Inc.
Project), 6.800% due 5/1/12 2,563,550
Minneapolis & St. Paul, MN Community
Airport Revenue, FGIC-Insured:
2,000,000 AAA Series A, 5.125% due 1/1/25 2,026,220
4,000,000 AAA Sub-Series C, 5.250% due 1/1/26 4,094,440
1,225,000 AA+ Minnesota State Housing Financing Agency,
Single-Family Mortgage, Series I,
5.500% due 1/1/17 1,282,526
--------------------------------------------------------------------------------
11,514,256
--------------------------------------------------------------------------------
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 1,540,875
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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13
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SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------
Missouri -- 0.5% (continued)
$ 2,000,000 AAA St. Louis, MO Airport Revenue, (Airport
Development Program), Series A,
MBIA-Insured, 5.125% due 7/1/22 $ 2,049,060
------------------------------------------------------------------------------
3,589,935
------------------------------------------------------------------------------
Montana -- 1.2%
10,095,000 NR Montana State Board Investment Resource
Recovery Revenue, (Yellowstone Energy
L.P. Project), 7.000% due 12/31/19 (c) 8,834,437
------------------------------------------------------------------------------
Nevada -- 0.9%
4,650,000 Baa2* Clark County, NV IDR, (Southwest Gas Corp.
Project), Series B, 7.500% due 9/1/32 (c) 4,758,717
2,250,000 AAA Truckee Meadows, NV Water Authority
Revenue, Series A, FSA-Insured,
5.000% due 7/1/25 2,251,440
------------------------------------------------------------------------------
7,010,157
------------------------------------------------------------------------------
New Jersey -- 4.4%
5,200,000 A+ Hudson County, NJ Improvement Authority,
6.624% due 8/1/25 5,369,468
8,000,000 A+ New Jersey Health Care Facilities Financing
Authority Revenue, Robert Wood Johnson
University Hospital, 5.700% due 7/1/20 8,464,320
2,395,000 AA- New Jersey State Highway Authority,
Garden State Parkway General Revenue,
5.625% due 1/1/30 2,549,310
Tobacco Settlement Financing Corp., NJ
Asset-Backed bonds:
2,000,000 A 5.750% due 6/1/32 1,949,760
15,000,000 A 6.000% due 6/1/37 14,677,050
------------------------------------------------------------------------------
33,009,908
------------------------------------------------------------------------------
New Mexico -- 0.3%
2,360,000 AAA New Mexico Mortgage Financing Authority,
Single-Family Mortgages, Series D-3,
5.625% due 9/1/28 2,430,328
------------------------------------------------------------------------------
New York -- 9.6%
30,000,000 AA- Metropolitan Transportation Authority,
Series A, 5.125% due 1/1/24 (b) 30,309,300
Nassau Health Care Corp., NY Health
Systems Revenue, FSA-Insured:
2,000,000 AAA 5.500% due 8/1/19 2,152,940
3,000,000 AAA 5.750% due 8/1/29 3,220,140
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
14
[GRAPHIC]
SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
New York -- 9.6% (continued)
$ 6,000,000 AA New York City, NY Municipal Water
Financing Authority, Water & Sewer
System Revenue, Series D,
5.250% due 6/15/25 $ 6,156,420
5,000,000 AAA New York State Dormitory Authority
Revenue, Series B, FSA-Insured,
5.500% due 5/15/30 5,224,450
1,000,000 AAA New York State Dormitory Authority
Revenue, (Willow Towers Inc. Project),
GNMA-Collateralized, 5.250% due 2/1/22 1,031,240
3,000,000 AAA New York State Thruway Authority Highway
& Bridge Revenue, Series B-1,
FGIC-Insured, 5.400% due 4/1/17 3,233,010
17,000,000 AAA Port Authority of New York & New Jersey, NY
GO, FGIC-Insured, 5.250 due 5/15/37 (c) 17,146,540
3,000,000 AA- Triborough Bridge & Tunnel Authority, NY
GO, Series A, 5.125% due 1/1/31 3,023,010
--------------------------------------------------------------------------------
71,497,050
--------------------------------------------------------------------------------
Ohio -- 8.4%
4,500,000 Aa2* Bexley, OH City School District GO,
5.125% due 12/1/27 4,540,275
2,000,000 AAA Canton, OH City School District GO, Series A,
MBIA-Insured, 5.500% due 12/1/20 2,140,520
1,300,000 AA+ Cincinnati, OH Water System Revenue,
5.125% due 12/1/21 1,335,373
2,250,000 AAA Cleveland, OH Airport System Revenue,
Series A, FSA-Insured, 5.000% due 1/1/31 2,249,843
2,300,000 A-1+* Cuyahoga County, OH Hospital Revenue,
Series B, 1.400% due 1/1/16 (g) 2,300,000
3,000,000 AAA Cuyahoga County, OH Hospital Revenue
Refunding, University Hospitals Health
System Inc., AMBAC-Insured,
5.500% due 1/15/30 3,116,250
25,000,000 Aaa* Hamilton County, OH Sales Tax Revenue,
AMBAC-Insured, 5.250% due 12/1/32 25,534,250
5,990,000 AAA Lucas County, OH Hospital Revenue,
Promedia Healthcare Obligation Group,
AMBAC-Insured, 5.375% due 11/15/29 6,162,392
3,025,000 Aaa* Muskingum County, OH GO, Refunding,
County Facilities Improvement,
MBIA-Insured, 5.125% due 12/1/19 3,164,089
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
15
[GRAPHIC]
SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Ohio -- 8.4% (continued)
$ 1,375,000 AAA Ohio State Higher Educational Facility
Commission Revenue, (University of
Dayton Project), AMBAC-Insured,
5.500% due 12/1/25 $ 1,450,240
2,500,000 AAA Portage County, OH GO, MBIA-Insured,
5.250% due 12/1/17 2,646,225
1,500,000 A3* Steubenville, OH Hospital Revenue,
6.375% due 10/1/20 1,593,585
Summit County, OH GO, FGIC-Insured:
1,000,000 AAA 5.000% due 12/1/21 1,026,770
500,000 AAA 5.000% due 12/1/22 510,750
1,500,000 Aaa* Trumbull County, OH MBIA-Insured,
5.200% due 12/1/20 1,578,180
2,000,000 AAA University of Cincinnati, OH General Receipts
Revenue, Series A, FGIC-Insured,
5.250% due 6/1/24 2,059,800
1,500,000 AAA Warrensville Heights, OH City School
District, School Improvements,
FGIC-Insured, 5.625% due 12/1/20 1,634,040
--------------------------------------------------------------------------------
63,042,582
--------------------------------------------------------------------------------
Oregon -- 2.5%
3,210,000 AA Clackamas County, OR Hospital Facilities
Authority Revenue, Legacy Health System,
5.750% due 5/1/16 3,494,984
4,895,000 AA+ Oregon State Department of Transportation,
Highway User Tax Revenue Series A,
5.125% due 11/15/23 4,997,942
10,000,000 AA Oregon State Veterans Welfare, GO Series 82,
5.500% due 12/1/42 10,224,400
--------------------------------------------------------------------------------
18,717,326
--------------------------------------------------------------------------------
South Carolina -- 6.4%
6,250,000 AAA Grand Strand Water & Sewer Authority,
SC Waterworks & Sewer System Revenue,
FSA-Insured, 5.000% due 6/1/31 6,278,250
15,000,000 AA- Greenville County, SC School District
Installment Purchase Revenue,
5.500% due 12/1/28 15,388,650
20,000,000 AAA South Carolina State Public Service Authority
Revenue, Series B, FSA-Insured
5.125% due 1/1/37 20,197,800
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
16
[GRAPHIC]
SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
South Carolina -- 6.4% (continued)
South Carolina Transportation Infrastructure
Bank Revenue, Series A:
$ 2,505,000 Aaa* AMBAC-Insured, 5.125% due 10/1/31 $ 2,538,467
3,000,000 AAA MBIA-Insured, 5.500% due 10/1/30 3,126,810
-------------------------------------------------------------------------------
47,529,977
-------------------------------------------------------------------------------
Tennessee -- 3.4%
1,150,000 NR Hardeman County, TN Correctional Facilities
Corp., 7.750% due 8/1/17 1,155,957
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 6,622,230
14,500,000 AAA 5.125% due 11/1/28 14,676,610
3,000,000 AA Tennessee State GO, Series A,
5.250% due 3/1/17 3,188,700
-------------------------------------------------------------------------------
25,643,497
-------------------------------------------------------------------------------
Texas -- 2.4%
1,595,000 AAA Burleson, TX ISD, GO, PSFG,
6.750% due 8/1/24 1,805,030
Fort Worth, TX International Airport
Facility Improvement Corp. Revenue,
(American Airlines Inc. Project):
12,000,000 BB- 6.375% due 5/1/35 (c) 6,943,560
3,400,000 BB- Series A, 5.950% due 5/1/29 (c) 2,959,904
3,000,000 BB- Series B, 6.050% due 5/1/29 (c) 2,612,400
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 1,141,620
2,400,000 A-1+ Lower Neches Valley Authority, Industrial
Development Corp., (Exxon-Mobile Corp.
Project), Series A, 1.800% due 2/1/31 (g) 2,400,000
-------------------------------------------------------------------------------
17,862,514
-------------------------------------------------------------------------------
Virginia -- 3.8%
Virginia State HDA, MFH:
1,245,000 AA+ Series D, Sub-Series D-3-Remarketed
5/30/96, 5.700% due 7/1/09 1,320,397
715,000 AA+ Series F, Sub-Series F-1-Remarketed
9/12/95, 6.400% due 7/1/17 731,867
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
17
[GRAPHIC]
SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Virginia -- 3.8% (continued)
$ 1,235,000 AAA Series H, AMBAC-Insured,
6.300% due 11/1/15 $ 1,307,766
10,000,000 AAA Series H, Sub-Series H-1, MBIA-Insured,
5.350% due 7/1/31 (g) 10,190,000
Series K:
600,000 AA+ 5.800% due 11/1/10 643,386
925,000 AA+ 5.900% due 11/1/11 988,039
13,285,000 AAA Richmond, VA Public Utility Revenue,
FSA-Insured, 5.000% due 1/15/33 13,343,321
-------------------------------------------------------------------------------
28,524,776
-------------------------------------------------------------------------------
Washington -- 2.7%
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 8,016,198
4,750,000 AA Series B, Remarketed 7/1/92, Mandatory
put 7/1/19, 6.750% due 7/1/62 (c) 5,119,597
6,980,000 AAA Washington State GO, Variable Purpose-Series
02-A, FSA-Insured, 5.000% due 7/1/25 6,989,353
-------------------------------------------------------------------------------
20,125,148
-------------------------------------------------------------------------------
West Virginia -- 1.2%
West Virginia State Housing Development
Fund, Housing Finance:
3,845,000 AAA Series B, 5.300% due 5/1/24 3,935,819
5,000,000 AAA Series C, 5.350% due 11/1/27 5,117,850
-------------------------------------------------------------------------------
9,053,669
-------------------------------------------------------------------------------
Wisconsin -- 1.3%
Wisconsin Housing & Economic Development
Authority, Home Ownership Revenue,
Series A:
1,490,000 AA 6.450% due 3/1/17 1,546,992
1,370,000 AA 5.650% due 11/1/23 1,394,619
4,070,000 AA- Wisconsin State GO, Series B,
6.600% due 1/1/22 (c) 4,084,652
1,100,000 A Wisconsin State Health & Educational
Facilities Authority Revenue:
Kenosha Hospital & Medical Center
Project, 5.700% due 5/15/20 1,116,995
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
18
[GRAPHIC]
SCHEDULE OF INVESTMENTS
August 31, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Wisconsin -- 1.3% (continued)
$ 1,250,000 AAA The Medical College of Wisconsin Inc.
Project, MBIA-Insured, 5.400% due
12/1/16 $ 1,325,550
-------------------------------------------------------------------------------
9,468,808
-------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $718,813,510**) $747,058,228
-------------------------------------------------------------------------------
(a)All ratings are by Standard & Poor's Ratings Service, except for those which
are identified by an asterisk (*), are rated by Moody's Investor's Service.
(b)All or a portion of this security has been segregated by the custodian for
futures contract commitments.
(c)Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(d)Pre-Refunded bonds escrowed by U.S. government securities and bonds escrowed
to maturity by U.S. government securities are considered by manager to be
triple-A rated even if issuer has not applied for new ratings.
(e)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.
(f)Security is in default
(g)Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 21 and 22 for definitions of ratings and certain security
descriptions.
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
19
[GRAPHIC]
SUMMARY OF INVESTMENTS BY COMBINED RATINGS
August 31, 2002 (unaudited)
[GRAPHIC OF ]
Percentage of
Moody's and/or Standard & Poor's Total Investments
Aaa AAA 56.7%
Aa AA 20.2
A A 14.4
Baa BBB 2.7
Ba BB 2.6
VMIG 1/P-1 SP-1/A-1 1.4
NR NR 2.0
-----
100.0%
=====
========================
[GRAPHIC]
20
[GRAPHIC]
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 ("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]
21
[GRAPHIC]
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.
[GRAPHIC]
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]
22
[GRAPHIC]
STATEMENT OF ASSETS AND LIABILITIES
(unaudited)
August 31, 2002
-----------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $718,813,510) $747,058,228
Interest receivable 9,115,932
Receivable for securities sold 550,000
Receivable from manager 61,648
Other assets 165,878
----------------------------------------------------------------------------------
Total Assets 756,951,686
----------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 762,173
Payable to bank 318,799
Payable to broker -- variation margin 218,750
Administration fee payable 129,688
Accrued preferred stock distribution payable 28,641
Accrued expenses 75,910
----------------------------------------------------------------------------------
Total Liabilities 1,533,961
----------------------------------------------------------------------------------
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 $505,417,725
---------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 41,856
Capital paid in excess of par value 509,148,009
Undistributed net investment income 524,289
Accumulated net realized loss from security transactions (29,932,085)
Net unrealized appreciation of investments and futures contracts 25,635,656
----------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $12.08 a share on 41,855,576 capital shares of
$0.001 par value outstanding; 500,000,000 capital shares
authorized) $505,417,725
---------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
23
[GRAPHIC]
STATEMENT OF OPERATIONS
(unaudited)
Three Months Ended
August 31, 2002
---------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 9,744,641
---------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 3) 1,163,563
Administration fee (Note 3) 377,456
Auction fees 155,828
Shareholder communications 50,358
Audit and legal 50,059
Shareholder and system servicing fees 23,559
Directors' fees 17,733
Custody 11,947
Registration fees 7,574
Pricing service fees 1,479
Other 39,697
---------------------------------------------------------------------------
Total Expenses 1,899,253
---------------------------------------------------------------------------
Net Investment Income 7,845,388
---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 4):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 44,064,073
Cost of securities sold 43,357,907
---------------------------------------------------------------------------
Net Realized Gain 706,166
---------------------------------------------------------------------------
Increase in Net Unrealized Appreciation (Note 1) 14,855,027
---------------------------------------------------------------------------
Net Gain on Investments 15,561,193
---------------------------------------------------------------------------
Distributions Paid to Auction Rate Cumulative Preferred
Stockholders From Net Investment Income (835,609)
---------------------------------------------------------------------------
Increase in Net Assets From Operations $22,570,972
--------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
24
[GRAPHIC]
STATEMENTS OF CHANGES IN NET ASSETS
Three Months Ended
August 31, 2002 Year Ended
(unaudited) May 31, 2002
---------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 7,845,388 $ 19,666,716
Net realized gain (loss) 706,166 (11,512,844)
Increase in net unrealized appreciation 14,855,027 12,747,045
Distributions Paid to Auction Rate
Cumulative Preferred Stockholders from
net investment income (835,609) (103,927)
--------------------------------------------------------------------------------------
Increase in Net Assets From Operations 22,570,972 20,796,990
--------------------------------------------------------------------------------------
DISTRIBUTIONS PAID TO:
Common Stock shareholders from
net investment income (6,487,614) (19,609,532)
--------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (6,487,614) (19,609,532)
--------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions -- 114,369,040
--------------------------------------------------------------------------------------
Increase in Net Assets 16,083,358 115,556,498
NET ASSETS:
Beginning of period 489,334,367 373,777,869
--------------------------------------------------------------------------------------
End of period* $505,417,725 $489,334,367
-------------------------------------------------------------------------------------
* Includes undistributed net investment income of: $524,289 $2,124
-------------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
25
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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 April 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 three
========================
[GRAPHIC]
26
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
months ended August 31, 2002, interest income decreased by $19,228, net
realized loss increased by $695 and the change in net unrealized appreciation
of investments decreased by $19,923. In addition, on May 31, 2002, 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.
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 three months ended August 31, 2002, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
-----------------------------------------------------------------------------
Purchases $132,915,964
-----------------------------------------------------------------------------
Sales 44,064,073
-----------------------------------------------------------------------------
[GRAPHIC]
27
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
At August 31, 2002, aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
-----------------------------------------------------------------------------
Gross unrealized appreciation $ 40,931,641
Gross unrealized depreciation (12,686,923)
------------------------------------------------------------------------------
Net unrealized appreciation $ 28,244,718
-----------------------------------------------------------------------------
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 August 31, 2002, the Fund had the following open futures contracts:
# of Basis Market Unrealized
Contracts Expiration Value Value Loss
------------------------------------------------------------------
To
Sell:
U.S.
Treasury
Bond 700 9/02 $75,003,438 $77,612,500 $(2,609,062)
------------------------------------------------------------------
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.
[GRAPHIC]
28
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
At August 31, 2002, the Fund did not hold any when-issued securities.
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 1.10%-1.55% for the three
months ended August 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 three months ended August 31, 2002, SSB earned $155,828 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.
========================
[GRAPHIC]
29
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
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
------------------------------------------------------------------------------
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 August 31, 2002, the Fund had 500,000,000 shares of common stock
authorized with a par value of $0.001 per share.
[GRAPHIC]
30
[GRAPHIC]
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year ended May 31,
unless otherwise noted:
2002/(1)/ 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $11.69 $11.74 $10.93 $11.97 $12.37 $11.90
-----------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(2)(3)/ 0.19 0.60 0.60 0.58 0.58 0.54
Net realized and unrealized
gain (loss)/(3)/ 0.38 0.02 0.79 (1.14) (0.32) 0.83
Distributions Paid to Auction Rate
Cumulative Preferred
Stockholders from net
investment income (0.02) (0.00)* -- -- -- --
-----------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.55 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 (0.16) (0.60) (0.60) (0.60) (0.54) (0.61)
Common Stock Shareholders
from net realized gains -- -- -- -- (0.12) (0.29)
-----------------------------------------------------------------------------------------
Total Distributions (0.16) (0.60) (0.60) (0.60) (0.66) (0.90)
-----------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.08 $11.69 $11.74 $10.93 $11.97 $12.37
-----------------------------------------------------------------------------------------
Total Return,
Based on Market Value/(4)/ 4.98%++ 4.79% 20.69% (3.88)% 0.11% 2.08%
-----------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value/(4)/ 4.82%++ 5.33% 13.90% (2.82)% 2.66% 12.14%
-----------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $505 $489 $374 $352 $414 $428
-----------------------------------------------------------------------------------------
========================
[GRAPHIC]
31
[GRAPHIC]
FINANCIAL HIGHLIGHTS
(continued)
For a share of capital stock outstanding throughout each year ended May 31,
unless otherwise noted:
2002/(1)/ 2002 2001 2000 1999 1998
-----------------------------------------------------------------------------------------
Ratios to Average Net Assets Based on
Common Shares Outstanding/(5)/:
Net investment income/(3)/ 6.24%+ 4.84% 5.15% 5.19% 4.72% 4.35%
Auction fees 0.00*+ 0.00* -- -- -- --
Operating expenses/(2)/ 1.51+ 0.52 0.68 0.89 0.94 0.99
Total expenses 1.51+ 0.52 0.68 0.89 0.94 0.99
----------------------------------------------------------------------------------------
Portfolio Turnover Rate 6% 39% 58% 35% 23% 87%
----------------------------------------------------------------------------------------
Market Price, End of Period $10.94 $10.57 $10.67 $9.375 $10.375 $11.00
----------------------------------------------------------------------------------------
(1) For the three months ended August 31, 2002 (unaudited).
(2) 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
(3) Without the adoption of the change in the accounting method discussed in
Note 1 to the financial statements, for the three months ended August 31,
2002, the annualized ratio of net investment income to average net assets
would have been 6.25%. 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.
(4) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
(5) 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.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
========================
[GRAPHIC]
32
[GRAPHIC]
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
6/25/02 6/28/02 10.490 11.76 0.050 10.67
7/23/02 7/26/02 10.740 12.02 0.050 10.80
8/27/02 8/30/02 10.890 12.02 0.055 11.09
------------------------------------------------------
+ As of record date.
========================
[GRAPHIC]
33
[GRAPHIC]
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 75,500
Involuntary Liquidating Preference Per Share 25,000
Average Market Value Per Share/(3)/ 25,000
-------------------------------------------------------
(1)As of August 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
[GRAPHIC]
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 distribution
had been paid in common stock issued by the Fund at such net
========================
[GRAPHIC]
35
[GRAPHIC]
DIVIDEND REINVESTMENT PLAN
(unaudited) (continued)
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.
[GRAPHIC]
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]
36
Managed Municipals
Portfolio Inc.
DIRECTORS
Allan J. Bloostein
Dwight B. Crane
Paolo M. Cucchi
Robert A. Frankel
R. Jay Gerken, Chairman
Paul Hardin
William R. Hutchinson
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]
37
[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.
FD0776 10/02
02-3959