UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-6629
Managed Municipals Portfolio Inc.
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Christina T. Sydor, Esq.
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code:
(800) 451-2010
Date of fiscal year end: May 31
Date of reporting period: May 31, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
Managed Municipals
Portfolio Inc.
ANNUAL REPORT
May 31, 2003
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Managed Municipals
Portfolio Inc.
WHAT'S INSIDE
Letter From the Chairman......................................... 1
Manager Overview................................................. 2
Schedule of Investments.......................................... 7
Statement of Assets and Liabilities.............................. 23
Statement of Operations.......................................... 24
Statements of Changes in Net Assets.............................. 25
Notes to Financial Statements.................................... 26
Financial Highlights............................................. 31
Independent Auditors' Report..................................... 33
Financial Data................................................... 34
Additional Shareholder Information............................... 35
Additional Information........................................... 36
Tax Information.................................................. 38
Dividend Reinvestment Plan....................................... 39
Share Repurchase Notice.......................................... 40
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Managed Municipals
Portfolio Inc.
LETTER FROM THE CHAIRMAN
[PHOTO]
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
Dear Shareholder,
The philosopher Bertrand Russell famously remarked that, "Change is one thing,
progress is another." You will notice in the following pages that we have begun
to implement some changes to your shareholder report and we will be reflecting
other changes in future reports. Our aim is to make meaningful improvements in
reporting on the management of your Fund and its performance, not just to enact
change for change's sake. Please bear with us during this transition period.
We know that you have questions about fund managers' decisions and plans, and
we want to be sure that you have easy access to the information you need.
Keeping investors informed is, and always will be, one of my top priorities as
Chairman of your Fund. To that end, we encourage you to contact Investor
Relations at 1-888-735-6507.
As always, thank you for entrusting your assets to us. We look forward to
helping you continue to meet your financial goals. Please read on to learn more
about your Fund's performance and the Manager's strategy.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief
Executive Officer
June 18, 2003
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1
MANAGER OVERVIEW
[PHOTO]
Joseph P. Deane
Vice President and Investment Officer
Performance Review
During the 12 months ended May 31, 2003, the Managed Municipals Portfolio Inc.
("Fund") distributed income dividends to common stock shareholders totaling
$0.66 per common share. The table below shows the annualized distribution
yields and 12-month total returns based on the Fund's May 31, 2003 net asset
value ("NAV") per common share and its New York Stock Exchange ("NYSE") closing
price./i/ Certain investors may be subject to the federal Alternative Minimum
Tax, and state and local taxes may apply. Capital gains, if any, are fully
taxable. Please consult your personal tax adviser. Past performance is not
indicative of future results.
During the period we reduced the Fund's duration (its sensitivity to interest
rate movements). Although no one can say for sure where interest rates are
headed, considering that interest rates are hovering at historic lows, we
reduced the Fund's duration to position the portfolio for a possible rise in
interest rates. While this strategy hampered the Fund's short-term performance,
our goal has been to prudently position the Fund for the long term.
Price Per Total Return
Common Share as Annualized for the 12-
of May 31, 2003 Distribution Yield/ii/ Month Period/ii/
--------------- --------------------- ----------------
$11.82 (NAV) 5.89% 7.55%
$10.99 (NYSE) 6.33% 10.60%
The yield earned by the Fund's common stock shareholders during the past year
was enhanced by the leverage achieved as a result of the Fund's outstanding
Auction Rate Cumulative Preferred Stock./iii/
Market Review
Municipal bonds collectively generated strong results over the reporting
period, although the market vacillated throughout the year due to swings in
investor sentiment. When the period began, concerns about the health of the
economy and corporate accounting practices prompted many investors to shift
money from riskier assets into higher-rated fixed-income securities,
specifically U.S. Treasuries, as well as into investment-grade municipal bonds.
Bonds lost a little ground to equities when the Fed cut short-term interest
rates last November to their lowest levels in over 40 years. However, as
concerns
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2
regarding the prospects of war in Iraq and the U.S. economy became more
pronounced, many investors again shifted assets into higher-rated debt issues.
Over the last 12 months, the total return of the Lehman Brothers Municipal Bond
Index/iv/was 10.36%.
Our Approach to Securities Selection
The recession and stock market's retreat last year negatively impacted the tax
collections of many municipalities, so we remained particularly attentive to
diligently evaluating investment candidates on a risk/reward basis. Given the
relatively lower yields offered by higher-rated state-backed general obligation
bonds during the period, the Fund maintained significant exposure to essential
services revenue bonds, such as those in the water-and-sewer sectors. (Revenue
bonds are supported directly by the operating revenues of the projects of their
issuers.) The Fund was concentrated primarily in the transportation, hospital
(which offered relatively higher tax-exempt yields than many other sectors) and
education industries. Rather than target specific sectors, however, the Fund
invested in issues that appeared competitively priced to us in a broad range of
sectors.
We reduced the Fund's duration by targeting issues with higher coupons, which
is the fixed rate that the issuer promises to pay the bondholder until
maturity, and selling bonds with lower coupons. Furthermore, we continued to
use U.S. Treasury futures to help hedge the Fund to an extent against the
possibility of rising rates. While this strategy detracted from the Fund's
returns, we opted to pursue this more conservative course in terms of managing
interest rate risk while seeking bonds that offered reasonable levels of
tax-exempt income.
The Fund's focus on high-quality, investment-grade issues is also indicative of
our conservative approach. As of the period's close, over half of the Fund was
invested in issues rated AAA by Standard and Poor's Ratings Service or Aaa by
Moody's Investors Service, and over 94% of the Fund was invested in issues
rated A or better.
Looking for Additional Information?
The Managed Municipals Portfolio Inc. is traded under the symbol "MMU" and its
closing market price is available in most newspapers under the New York Stock
Exchange listings. The daily net asset value is available online under symbol
XMMUX. Barron's and The Wall Street Journal's Monday editions carry closed-end
fund tables that will provide additional information.
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3
In addition, the Fund issues a quarterly allocation press release that can be
found on most major financial web sites.
In a continuing effort to provide information concerning the Managed Municipals
Portfolio Inc., shareholders may call 1-888-735-6507, Monday through Friday
from 8:00 a.m. to 6:00 p.m. Eastern Time, for the Fund's current net asset
value, market price and other information regarding the Fund's portfolio
holdings and allocations. A description of the policies and procedures that the
Fund uses to determine how to vote proxies relating to portfolio securities is
available without charge, upon request, by telephoning the Fund (toll-free) at
1-800-451-2010 and by visiting the SEC's web site at www.sec.gov.
Thank you for your investment in the Managed Municipals Portfolio Inc. We
appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
/s/ Joseph P. Deane
Joseph P. Deane
Vice President and Investment Officer
June 18, 2003
The information provided in this letter by the Manager is not intended to be a
forecast of future events, a guarantee of future results or investment advice.
Views expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of May 31, 2003 and are subject to
change. Please refer to pages 7 through 19 for a list and percentage breakdown
of the Fund's holdings.
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4
/i/ NAV is a price that reflects the value of the Fund's underlying
portfolio. However, the price at which an investor may buy or sell
common shares of the Fund is the Fund's market price as determined by
supply of and demand for the Fund's common shares.
/ii/ Total 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 common shares.
Annualized distribution yield 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 yield assumes a
current monthly income dividend rate of $0.058 for 12 months. This rate
is as of May 31, 2003 and is subject to change.
/iii/ 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.
/iv/ The Lehman Brothers Municipal Bond Index is a broad measure of the
municipal bond market with maturities of at least one year. Please note
that an investor cannot invest directly in an index.
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5
Take Advantage of the Fund's Dividend Reinvestment Plan!
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 shares of common stock 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 39.
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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6
SCHEDULE OF INVESTMENTS
May 31, 2003
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES -- 100.0%
Alabama -- 3.9%
$24,510,000 AAA Jefferson County, AL Sewer Revenue, Capital
Improvement Warrants, Series A, FGIC-
Insured, 5.375% due 2/1/36 (b) $ 28,730,377
--------------------------------------------------------------------------------
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 4,101,960
--------------------------------------------------------------------------------
Arizona -- 1.5%
Arizona State University COP, MBIA-Insured:
1,500,000 AAA 5.100% due 7/1/24 1,599,780
1,000,000 AAA 5.125% due 7/1/26 1,062,960
4,000,000 AAA Mesa, AZ IDA, Discovery Health Systems,
Series A, MBIA-Insured,
5.625% due 1/1/29 (b) 4,444,880
3,000,000 AAA Phoenix, AZ Civic Improvement Corp.
Airport Revenue, Sr. Lien, Series B,
FGIC-Insured, 5.250% due 7/1/22 (c) 3,189,000
1,000,000 AA+ Phoenix, AZ GO, Series B, 5.000% due 7/1/27 1,055,180
--------------------------------------------------------------------------------
11,351,800
--------------------------------------------------------------------------------
California -- 7.0%
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 (d) 6,196,749
6,000,000 A3* California Health Facilities Authority
Revenue, (Cedars-Sinai Medical Center),
Series A, 6.250% due 12/1/34 6,503,460
1,000,000 A+ California Health Facilities Financing
Authority Revenue, Sutter Health, Series A,
6.250% due 8/15/35 1,103,370
5,000,000 AAA California State Department of Veterans
Affairs, Home Purchase Revenue, Series A,
AMBAC-Insured, 5.350% due 12/1/27 (b) 5,319,950
6,000,000 A3* California State Department of Water
Resources, Power Supply Revenue, Series A,
5.250% due 5/1/20 (b) 6,390,900
SEE NOTES TO FINANCIAL STATEMENTS.
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7
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
California -- 7.0% (continued)
$10,000,000 A- Golden State Tobacco Securitization Corp.,
California Tobacco Settlement Revenue,
Series 2003-A-1, 6.750% due 6/1/39 (b) $ 9,303,500
7,000,000 AAA Los Angeles County, CA COP, Antelope
Valley Courthouse, Series A, AMBAC-
Insured, 5.250% due 11/1/33 7,523,460
3,340,000 AAA Rancho Cucamonga, CA Redevelopment
Agency Tax Allocation, (Rancho
Redevelopment Project), MBIA-Insured,
5.125% due 9/1/30 3,562,745
2,750,000 AAA Sacramento County, CA COP, (Public Facilities
Project), MBIA-Insured, 5.375% due 2/1/19 3,025,935
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 2,669,725
--------------------------------------------------------------------------------
51,599,794
--------------------------------------------------------------------------------
Colorado -- 7.0%
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)(e) 4,635,200
1,000,000 A Aspen, CO Sales Tax Revenue,
5.400% due 11/1/19 1,094,970
4,000,000 AAA Colorado Educational & Cultural Facilities
Revenue Refunding, (University of Denver
Project), AMBAC-Insured, 5.375% due 3/1/23 4,348,960
4,000,000 A Colorado Health Facilities Authority Revenue,
Series B, Remarketed 7/8/98,
5.350% due 8/1/15 (b) 4,184,480
Denver, CO City & County Airport Revenue,
Series C:
13,630,000 A 6.125% due 11/15/25 (b)(c) 14,036,447
10,945,000 A Escrowed to maturity with U.S.
government securities,
6.125% due 11/15/25 (b)(c)(d) 13,674,355
2,000,000 AAA Denver, CO City & County COP, Series B,
AMBAC-Insured, 5.500% due 12/1/25 2,208,780
SEE NOTES TO FINANCIAL STATEMENTS.
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8
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
---------------------------------------------------------------------------------
Colorado -- 7.0% (continued)
El Paso County, CO COP, (Detention Facility
Project), Series B, AMBAC-Insured:
$ 1,700,000 AAA 5.000% due 12/1/23 $ 1,808,290
1,500,000 AAA 5.000% due 12/1/27 1,579,920
Garfield County, CO School District No. 2 GO,
FSA-Insured:
2,300,000 Aaa* 5.000% due 12/1/23 2,446,510
1,000,000 Aaa* 5.000% due 12/1/25 1,062,900
---------------------------------------------------------------------------------
51,080,812
---------------------------------------------------------------------------------
Connecticut -- 1.2%
Connecticut State GO, Series B:
4,490,000 AA 5.500% due 6/15/21 5,045,817
1,600,000 AA 5.000% due 6/15/22 1,713,616
1,000,000 AAA Connecticut State Health & Education,
(Child Care Facilities Project), Series C,
AMBAC-Insured, 5.625% due 7/1/29 1,110,020
1,000,000 AAA Connecticut State Health & Educational
Facilities Authority Revenue, (Village
Families & Children), Series A,
AMBAC-Insured, 5.000% due 7/1/32 1,050,040
---------------------------------------------------------------------------------
8,919,493
---------------------------------------------------------------------------------
Delaware -- 1.5%
10,000,000 AAA Delaware State EDA Revenue, (Pollution
Control-Delmarva Project-B), AMBAC-
Insured, 5.200% due 2/1/19 (b) 10,985,500
---------------------------------------------------------------------------------
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) 5,644,813
5,500,000 AAA 5.125% due 10/1/26 (c) 5,733,530
---------------------------------------------------------------------------------
11,378,343
---------------------------------------------------------------------------------
Florida -- 5.0%
5,000,000 AAA Florida State Board & Educational Capital
Outlay GO, FSA-Insured, 5.000% due 6/1/24 5,293,150
3,000,000 AA+ Florida State Board of Education GO, Series A,
5.125% due 6/1/21 3,249,720
3,145,000 AAA Florida State Department of Transportation
GO, FGIC-Insured, 5.000% due 7/1/25 3,325,995
SEE NOTES TO FINANCIAL STATEMENTS.
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9
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
Florida -- 5.0% (continued)
$ 1,485,000 AAA Julington Creek Plantation Community
Development District, FL Special
Assessment Revenue, MBIA-Insured,
5.000% due 5/1/29 $ 1,560,750
6,500,000 BBB- Martin County, FL IDA, (Indiantown
Cogeneration Project), Series A,
7.875% due 12/15/25 (c) 6,781,645
1,290,000 AAA Miami Beach, FL Stormwater Revenue,
FGIC-Insured, 5.375% due 9/1/30 1,396,618
2,000,000 Aaa* Orange County, FL School Board COP,
Series A, MBIA-Insured
5.250% due 8/1/23 (b) 2,157,660
10,000,000 AAA Palm Beach County, FL School Board
COP, Series C, FSA-Insured,
5.000% due 8/1/27 (b) 10,501,600
2,500,000 Aaa* South Brevard, FL Recreational Facilities
Improvement, Special District,
AMBAC-Insured, 5.000% due 7/1/20 2,685,425
-------------------------------------------------------------------------------
36,952,563
-------------------------------------------------------------------------------
Georgia -- 1.9%
6,000,000 AAA Augusta, GA Water & Sewer Revenue,
FSA-Insured, 5.250% due 10/1/26 6,445,440
Private Colleges & Universities Authority
Revenue, (Mercer University Project):
2,180,000 Baa1* 5.750% due 10/1/21 2,442,755
Series A:
2,000,000 Baa1* 5.250% due 10/1/25 2,032,200
1,000,000 Baa1* 5.375% due 10/1/29 1,021,110
2,000,000 BBB- Savannah, GA EDA Revenue, College of Art
& Design Inc., 6.900% due 10/1/29 2,220,300
-------------------------------------------------------------------------------
14,161,805
-------------------------------------------------------------------------------
Hawaii -- 0.6%
4,000,000 A Hawaii State Department of Budget &
Finance, Special Purpose Revenue, Kaiser
Permanente, Series A, 5.100% due 3/1/14 (b) 4,198,600
-------------------------------------------------------------------------------
Illinois -- 4.3%
4,095,000 AAA Chicago, IL GO, Series D, FGIC-Insured,
5.500% due 1/1/35 4,431,568
5,100,000 A-1+ Chicago, IL Midway Airport Revenue,
Series B, 1.350% due 1/1/29 (f) 5,100,000
SEE NOTES TO FINANCIAL STATEMENTS.
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10
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
-----------------------------------------------------------------------------
Illinois -- 4.3% (continued)
$7,400,000 AAA Chicago, IL Skyway Toll Bridge Revenue,
AMBAC-Insured, 5.500% due 1/1/31 (b) $ 8,057,342
8,000,000 A Illinois Health Facilities Authority
Revenue, OSF Healthcare Systems,
6.250% due 11/15/29 (b) 8,562,240
5,000,000 AAA Illinois State GO, MBIA-Insured,
5.625% due 6/1/25 5,446,750
-----------------------------------------------------------------------------
31,597,900
-----------------------------------------------------------------------------
Indiana -- 1.1%
5,000,000 A1* Indiana Port Commission Revenue
Refunding, (Cargill Inc. Project),
6.875% due 5/1/12 5,168,050
3,000,000 BBB+ Indiana State Development Financing
Authority Revenue, (USX Corp. Project),
5.250% due 12/1/22 (b) 3,142,620
-----------------------------------------------------------------------------
8,310,670
-----------------------------------------------------------------------------
Kansas -- 0.2%
1,250,000 AAA Scott County, KS Unified School District
No. 446 GO, FGIC-Insured,
5.000% due 9/1/22 1,332,762
-----------------------------------------------------------------------------
Kentucky -- 0.1%
700,000 VMIG 1* Berea, KY Educational Facilities Revenue,
(Berea College Project), Series A,
1.250% due 6/1/32 (f) 700,000
-----------------------------------------------------------------------------
Louisiana -- 0.8%
5,500,000 A1* St. Martin Parish, LA Industrial Revenue,
(Cargill Inc. Project), 6.625% due 10/1/12 5,619,295
-----------------------------------------------------------------------------
Maine -- 0.4%
2,500,000 AA+ Maine State Housing Authority Mortgage
Revenue, Series C, 5.300% due 11/15/23 2,630,225
-----------------------------------------------------------------------------
Maryland -- 0.9%
Baltimore, MD Wastewater Project
Revenue, Series A, FGIC-Insured:
2,500,000 AAA 5.125% due 7/1/32 2,657,400
3,385,000 AAA 5.200% due 7/1/32 3,630,209
-----------------------------------------------------------------------------
6,287,609
-----------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
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11
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Massachusetts -- 5.5%
$ 2,000,000 Baa3* Boston, MA Industrial Development
Financing Authority, Sr. Revenue Bonds,
(Crosstown Center Project), Series 2002,
6.500% due 9/1/35 (c) $ 2,044,560
3,000,000 AAA Massachusetts Bay Transportation Authority,
Sales Tax Revenue, Series A,
5.500% due 7/1/30 3,274,830
1,125,000 Aaa* Massachusetts Development Finance Agency,
(Merrimack College Issue), MBIA-Insured,
5.200% due 7/1/32 1,199,509
1,850,000 AAA Massachusetts Health & Educational
Facilities Authority Revenue, University of
Massachusetts Issue, Series C, FGIC-
Insured, 5.125% due 10/1/27 1,963,201
25,000,000 Aa2* Massachusetts State GO, Consolidated Loan
of 2002, Series C, 5.250% due 11/1/30 (b) 26,800,750
5,000,000 AAA Massachusetts State Special Obligation
Revenue, Series A, FGIC-Insured,
5.000% due 6/1/21 5,378,400
--------------------------------------------------------------------------------
40,661,250
--------------------------------------------------------------------------------
Michigan -- 2.8%
5,000,000 AAA East Lansing, MI School District GO,
Q-SBLF-Insured, 5.625% due 5/1/30 5,435,700
Michigan State COP, AMBAC-Insured:
2,345,000 AAA 5.500% due 6/1/19 (e) 2,622,836
6,000,000 AAA 5.500% due 6/1/27 6,551,820
2,500,000 AA- Michigan State Hospital Finance Authority
Revenue Refunding, (Trinity Health
Credit), Series C, 5.375% due 12/1/23 2,631,925
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)(g) 3,000,000
--------------------------------------------------------------------------------
20,242,281
--------------------------------------------------------------------------------
Minnesota -- 2.6%
1,500,000 AAA Dakota County, MN Community
Development Agency, MFH Revenue,
FNMA-Collateralized, 5.625% due 2/1/26 1,584,810
2,500,000 A1* Duluth, MN IDA, Seaway Port Authority,
Dock & Wharf Revenue, (Cargill Inc.
Project), 6.800% due 5/1/12 2,583,275
SEE NOTES TO FINANCIAL STATEMENTS.
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12
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
Minnesota -- 2.6% (continued)
$ 7,000,000 A3* Minneapolis, MN Healthcare System
Revenue, (Allina Health System), Series A,
6.000% due 11/15/23 $ 7,570,990
Minneapolis & St. Paul, MN Community
Airport Revenue, FGIC-Insured:
2,000,000 AAA Series A, 5.125% due 1/1/25 2,102,820
4,000,000 AAA Sub-Series C, 5.250% due 1/1/26 4,261,960
1,140,000 AA+ Minnesota State Housing Financing Agency,
Single-Family Mortgage, Series I,
5.500% due 1/1/17 1,205,413
-------------------------------------------------------------------------------
19,309,268
-------------------------------------------------------------------------------
Missouri -- 1.4%
2,000,000 AAA Bi-State Development Agency of the Missouri-
Illinois Metropolitan District, (Metrolink
Cross County Project), Series B,
FSA-Insured, 5.000% due 10/1/32 (b) 2,115,620
1,500,000 AAA Greene County, MO Reorganized School
District No. R-8 GO, FSA-Insured,
5.100% due 3/1/22 1,620,615
2,000,000 Aaa* Jackson County, MO Special Obligation,
MBIA-Insured, 5.000% due 12/1/27 2,125,800
2,000,000 Aaa* Missouri State Environmental Improvement &
Energy Resources Authority, (Water
Pollution -- Drinking Water), Series B,
5.000% due 7/1/23 2,146,220
2,000,000 AAA St. Louis, MO Airport Revenue, (Airport
Development Program), Series A,
MBIA-Insured, 5.125% due 7/1/22 2,122,700
-------------------------------------------------------------------------------
10,130,955
-------------------------------------------------------------------------------
Montana -- 1.1%
10,090,000 NR Montana State Board Investment Resource
Recovery Revenue, (Yellowstone Energy
L.P. Project), 7.000% due 12/31/19 (b)(c) 7,827,015
-------------------------------------------------------------------------------
Nevada -- 0.4%
800,000 A-1+ Clark County, NV Airport Revenue, Series A,
1.330% due 7/1/36 (f) 800,000
2,250,000 AAA Truckee Meadows, NV Water Authority
Revenue, Series A, FSA-Insured,
5.000% due 7/1/25 2,362,680
-------------------------------------------------------------------------------
3,162,680
-------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
13
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------
New Jersey -- 7.2%
$ 5,200,000 A+ Hudson County, NJ Improvement Authority,
6.624% due 8/1/25 $ 5,297,552
1,000,000 BBB Middlesex County, NJ Pollution Control
Authority Revenue Refunding, Pollution
Control Financing, (Amerada Hess Corp.
Project), 5.750% due 9/15/32 1,028,870
3,125,000 Baa1* New Jersey EDA, PCR Refunding,
(PSEG Power LLC Project),
5.000% due 3/1/12 (b) 3,216,187
New Jersey Health Care Facilities Financing
Authority Revenue:
3,875,000 AAA Engelwood Hospital, FHA/MBIA-
Insured, 5.000% due 8/1/23 4,117,536
8,000,000 A+ Robert Wood Johnson University
Hospital, 5.700% due 7/1/20 (b) 8,661,520
2,395,000 AA- New Jersey State Highway Authority, Garden
State Parkway General Revenue,
5.625% due 1/1/30 2,636,440
South Jersey Port Corp., NJ Revenue
Refunding:
1,350,000 A 5.000% due 1/1/26 1,392,444
2,000,000 A 5.100% due 1/1/33 2,093,720
Tobacco Settlement Financing Corp., NJ
Asset-Backed Bonds:
10,000,000 A- 5.750% due 6/1/32 (b) 9,026,700
15,000,000 A- 6.000% due 6/1/37 (b) 12,725,700
3,390,000 A- 6.125% due 6/1/42 (b) 2,896,687
------------------------------------------------------------------------------
53,093,356
------------------------------------------------------------------------------
New Mexico -- 0.3%
2,085,000 AAA New Mexico Mortgage Financing Authority,
Single Family Mortgages, Series D-3,
5.625% due 9/1/28 (e) 2,183,037
------------------------------------------------------------------------------
New York -- 8.5%
30,000,000 AA- Metropolitan Transportation Authority,
Series A, 5.125% due 1/1/24 (b) 31,635,000
Nassau Health Care Corp., NY Health
Systems Revenue, FSA-Insured:
2,000,000 AAA 5.500% due 8/1/19 2,254,460
3,000,000 AAA 5.750% due 8/1/29 3,433,740
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
14
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
----------------------------------------------------------------------------
New York -- 8.5% (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 $ 6,485,640
New York State Dormitory Authority
Revenue:
5,000,000 AAA Series B, FSA-Insured,
5.500% due 5/15/30 5,982,550
1,000,000 AAA Willow Towers Inc. Project, GNMA-
Collateralized, 5.250% due 2/1/22 1,066,260
3,000,000 AAA New York State Thruway Authority Highway
& Bridge Revenue, Series B-1, FGIC-
Insured, 5.400% due 4/1/17 3,392,280
1,000,000 AA New York State Urban Development Corp.
Revenue, (Personal Income Tax Project),
Series C-1, 5.000% due 3/15/24 1,043,970
6,290,000 AAA Port Authority of New York & New
Jersey, NY GO, FGIC-Insured,
5.250% due 5/15/37 (c) 6,724,387
----------------------------------------------------------------------------
62,018,287
----------------------------------------------------------------------------
North Carolina -- 0.3%
1,900,000 AAA University of North Carolina, System Pool
Revenue, Series A, AMBAC-Insured,
5.000% due 4/1/27 2,019,187
----------------------------------------------------------------------------
Ohio -- 9.4%
4,500,000 Aa2* Bexley, OH City School District GO,
5.125% due 12/1/27 4,732,695
2,000,000 AAA Canton, OH City School District GO,
Series A, MBIA-Insured,
5.500% due 12/1/20 2,244,800
1,300,000 AA+ Cincinnati, OH Water System Revenue,
5.125% due 12/1/21 1,409,369
3,000,000 AAA Cuyahoga County, OH Hospital Revenue
Refunding, University Hospitals Health
System Inc., AMBAC-Insured,
5.500% due 1/15/30 3,246,660
25,000,000 Aaa* Hamilton County, OH Sales Tax Revenue,
AMBAC-Insured, 5.250% due 12/1/32 (b) 26,805,000
7,500,000 AA- Lorain County, OH Hospital Revenue,
Catholic Healthcare Partners,
5.375% due 10/1/30 7,772,625
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
15
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
---------------------------------------------------------------------------------
Ohio -- 9.4% (continued)
$ 5,990,000 AAA Lucas County, OH Hospital Revenue,
Promedic Healthcare Obligation Group,
AMBAC-Insured, 5.375% due 11/15/29 (b) $ 6,447,157
3,025,000 Aaa* Muskingum County, OH GO, Refunding,
County Facilities Improvement,
MBIA-Insured, 5.125% due 12/1/19 3,326,804
1,375,000 AAA Ohio State Higher Educational Facility
Commission Revenue, (University of
Dayton Project), AMBAC-Insured,
5.500% due 12/1/25 1,527,020
2,500,000 AAA Portage County, OH GO, MBIA-Insured,
5.250% due 12/1/17 2,761,725
1,500,000 A3* Steubenville, OH Hospital Revenue,
6.375% due 10/1/20 1,626,990
Summit County, OH GO, FGIC-Insured:
1,000,000 AAA 5.000% due 12/1/21 1,086,780
500,000 AAA 5.000% due 12/1/22 539,385
1,500,000 Aaa* Trumbull County, OH, MBIA-Insured,
5.200% due 12/1/20 1,663,725
2,000,000 AAA University of Cincinnati, OH General Receipts
Revenue, Series A, FGIC-Insured,
5.250% due 6/1/24 2,171,260
1,500,000 AAA Warrensville Heights, OH City School District,
School Improvements, FGIC-Insured,
5.625% due 12/1/20 1,714,695
---------------------------------------------------------------------------------
69,076,690
---------------------------------------------------------------------------------
Oregon -- 2.7%
3,210,000 AA Clackamas County, OR Hospital Facilities
Authority Revenue, Legacy Health System,
5.750% due 5/1/16 3,578,604
4,895,000 AA+ Oregon State Department of Transportation,
Highway User Tax Revenue, Series A,
5.125% due 11/15/23 5,332,662
10,000,000 AA Oregon State Veterans Welfare GO, Series 82,
5.500% due 12/1/42 (b) 10,655,700
---------------------------------------------------------------------------------
19,566,966
---------------------------------------------------------------------------------
Rhode Island -- 0.1%
800,000 A-1 Rhode Island State Health & Educational
Building Corp. Revenue, Series A,
1.300% due 9/1/32 (f) 800,000
---------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
16
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
South Carolina -- 3.9%
$ 6,250,000 AAA Grand Strand Water & Sewer Authority, SC
Waterworks & Sewer System Revenue,
FSA-Insured, 5.000% due 6/1/31 $ 6,630,813
15,000,000 AA- Greenville County, SC School District
Installment Purchase Revenue,
5.500% due 12/1/28 (b) 15,947,550
South Carolina Transportation Infrastructure
Bank Revenue, Series A:
2,505,000 Aaa* AMBAC-Insured, 5.125% due 10/1/31 (b) 2,657,179
3,000,000 AAA MBIA-Insured, 5.500% due 10/1/30 3,275,970
--------------------------------------------------------------------------------
28,511,512
--------------------------------------------------------------------------------
Tennessee -- 4.4%
1,150,000 NR Hardeman County, TN Correctional Facilities
Corp., 7.750% due 8/1/17 1,177,416
5,700,000 A-1+ Knoxville, TN Utilities Board Revenue,
1.280% due 1/15/05 (f) 5,700,000
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 6,976,165
14,500,000 AAA 5.125% due 11/1/28 (b) 15,463,380
3,000,000 AA Tennessee State GO, Series A,
5.250% due 3/1/17 3,329,790
--------------------------------------------------------------------------------
32,646,751
--------------------------------------------------------------------------------
Texas -- 1.7%
1,595,000 AAA Burleson, TX ISD, GO, PSFG,
6.750% due 8/1/24 1,831,523
Fort Worth, TX International Airport Facility
Improvement Corp. Revenue, (American
Airlines Inc. Project):
12,000,000 CC 6.375% due 5/1/35 (c) 4,559,520
3,400,000 CC Series A, 5.950% due 5/1/29 (c) 2,235,500
3,000,000 CC Series B, 6.050% due 5/1/29 (c) 1,651,680
1,100,000 A-1+ Gulf Coast Waste Disposal Authority, TX
Environmental Facilities Revenue,
(Exxon Mobil Project), Series B,
1.350% due 6/1/25 (f) 1,100,000
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
17
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Texas -- 1.7% (continued)
Harris County, TX Health Facilities
Development Corp., Hospital Revenue:
$ 1,000,000 AAA School Health Care Systems, Series B,
(Escrowed to maturity with U.S.
government securities),
5.750% due 7/1/27 $ 1,221,230
100,000 A-1+ Texas Medical Center Project,
1.300% due 9/1/31 (f) 100,000
-----------------------------------------------------------------------------
12,699,453
-----------------------------------------------------------------------------
Virginia -- 3.9%
3,000,000 A3* Chesapeake, VA IDA Revenue, Remarketed
11/8/02, 5.250% due 2/1/08 3,153,510
3,000,000 A3* Chesterfield County, VA IDA, PCR Revenue,
(Virginia Electric & Power), Remarketed
11/8/02, Series A, 5.875% due 6/1/17 3,227,880
Virginia State HDA, MFH:
1,245,000 AA+ Series D, Sub-Series D-3, Remarketed
5/30/96, 5.700% due 7/1/09 1,325,340
Series H:
1,235,000 AAA AMBAC-Insured, 6.300% due 11/1/15 1,303,913
10,000,000 AAA Sub-Series H-1, MBIA-Insured,
5.350% due 7/1/31 (b) 10,487,000
Series K:
600,000 AA+ 5.800% due 11/1/10 643,350
925,000 AA+ 5.900% due 11/1/11 988,825
7,000,000 A3* York County, VA IDA, PCR, (Virginia
Electrical & Power Co.), Remarketed
11/8/02, 5.500% due 7/1/09 (b) 7,440,370
-----------------------------------------------------------------------------
28,570,188
-----------------------------------------------------------------------------
Washington -- 1.9%
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) 9,147,272
4,750,000 AA Series B, Remarketed 7/1/92, Mandatory
put 7/1/19, 6.750% due 7/1/62 (c) 4,996,525
-----------------------------------------------------------------------------
14,143,797
-----------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
18
SCHEDULE OF INVESTMENTS
May 31, 2003 (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
West Virginia -- 1.3%
West Virginia State Housing Development
Fund, Housing Finance:
$ 3,845,000 AAA Series B, 5.300% due 5/1/24 $ 4,037,173
5,000,000 AAA Series C, 5.350% due 11/1/27 5,249,400
----------------------------------------------------------------------------
9,286,573
----------------------------------------------------------------------------
Wisconsin -- 0.7%
Wisconsin Housing & Economic Development
Authority, Home Ownership Revenue,
Series A:
950,000 AA 6.450% due 3/1/17 980,533
1,370,000 AA 5.650% due 11/1/23 1,401,455
Wisconsin State Health & Educational
Facilities Authority Revenue:
1,100,000 A Kenosha Hospital & Medical Center
Project, 5.700% due 5/15/20 1,143,384
1,250,000 AAA The Medical College of Wisconsin Inc.
Project, MBIA-Insured,
5.400% due 12/1/16 1,365,162
----------------------------------------------------------------------------
4,890,534
----------------------------------------------------------------------------
Wyoming -- 0.4%
3,000,000 P-1* Uinta County, WY PCR,
1.250% due 8/15/20 (f) 3,000,000
----------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $699,588,521**) $733,779,288
----------------------------------------------------------------------------
(a)All ratings are by Standard & Poor's Ratings Service, except for those which
are identified by an asterisk (*), which are rated by Moody's Investors
Service.
(b)All or a portion of this security is segregated for open futures contracts
commitments.
(c)Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(d)Pre-Refunded bonds escrowed with U.S. government securities and bonds
escrowed to maturity with U.S. government securities are considered by the
investment adviser to be triple-A rated even if the issuer has not applied
for new ratings.
(e)All or a portion of this security is held as collateral for open futures
contracts commitments.
(f)Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
(g)Security is currently in default.
** Aggregate cost for Federal income tax purposes is $699,403,458.
See page 20 for a summary of investments by industry.
See pages 21 and 22 for definitions of ratings and certain abbreviations.
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
19
SUMMARY OF INVESTMENTS BY INDUSTRY*
Transportation ......................... 20.2%
General Obligation ..................... 13.7
Hospitals .............................. 11.6
Education .............................. 9.4
Water and Sewer ........................ 8.4
Utilities .............................. 5.9
Single-Family Housing .................. 4.6
Tobacco ................................ 4.6
Other .................................. 21.6
-----
100.0%
=====
*As a percentage of total investments. Please note that Fund holdings are as of
May 31, 2003 and are subject to change.
[GRAPHIC]
20
BOND RATINGS
(unaudited)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"CCC" 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, B, --Bonds rated "BB", "B", "CCC" and "CC" are regarded, on balance, as
CCC predominantly speculative and with respect to capacity to pay
and CC interest and repay principal in accordance with the terms of the
obligation. "BB" represents a lower degree of speculation than "B",
and "CC" 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 eachgeneric rating from "Aa" to "Ba," where 1 is the highest
and 3 the lowest ranking within itsgeneric category.
Aaa --Bonds rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by
an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa --Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
A --Bonds rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to
impairment some time in the future.
Baa --Bonds rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba --Bonds rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
NR --Indicates that the bond is not rated by Standard & Poor's or
Moody's.
[GRAPHIC]
21
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.
ABBREVIATIONS*
(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
-----
*Abbreviations may or may not appear on the schedule of investments.
[GRAPHIC]
22
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2003
---------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $699,588,521) $733,779,288
Interest receivable 12,049,073
Receivable from broker -- variation margin 225,000
Receivable for securities sold 212,419
--------------------------------------------------------------------------------
Total Assets 746,265,780
--------------------------------------------------------------------------------
LIABILITIES:
Dividends payable to Common Stock Shareholders 748,342
Investment advisory fee payable 429,234
Administration fee payable 128,134
Dividends payable to Auction Rate Cumulative
Preferred Stockholders 24,898
Bank overdraft 4,331
Accrued expenses 153,878
--------------------------------------------------------------------------------
Total Liabilities 1,488,817
--------------------------------------------------------------------------------
Series M, T, W, Th and F Auction Rate Cumulative Preferred Stock
(2,000 shares authorized and issued at $25,000 per share for each
Series) (Note 6) 250,000,000
--------------------------------------------------------------------------------
Total Net Assets $494,776,963
--------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 41,856
Capital paid in excess of par value 509,076,800
Undistributed net investment income 1,144,516
Accumulated net realized loss from investment transactions
and futures contracts (36,715,687)
Net unrealized appreciation of investments and futures contracts 21,229,478
--------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.82 a share on 41,855,576 common shares of
$0.001 par value outstanding; 500,000,000 common shares
authorized) $494,776,963
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
23
STATEMENT OF OPERATIONS
Year Ended
May 31, 2003
------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 39,488,593
-----------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 3) 4,620,864
Administration fee (Note 3) 1,498,818
Auction participation fees (Note 6) 623,923
Shareholder communications 215,890
Audit and legal 162,117
Shareholder servicing fees 142,895
Custody 63,107
Directors' fees 57,311
Stock exchange listing fees 54,448
Auction agent fees 40,000
Rating agency fees 19,397
Other 28,709
-----------------------------------------------------------------------
Total Expenses 7,527,479
-----------------------------------------------------------------------
Net Investment Income 31,961,114
-----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS (NOTES 4 AND 5):
Realized Gain (Loss) From:
Investment transactions 13,290,280
Futures contracts (19,385,356)
-----------------------------------------------------------------------
Net Realized Loss (6,095,076)
-----------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and
Futures Contracts:
Beginning of year 10,780,629
End of year 21,229,478
-----------------------------------------------------------------------
Increase in Net Unrealized Appreciation 10,448,849
-----------------------------------------------------------------------
Net Gain on Investments and Futures Contracts 4,353,773
-----------------------------------------------------------------------
Dividends Paid to Auction Rate Cumulative Preferred
Stockholders From Net Investment Income (3,092,691)
-----------------------------------------------------------------------
Increase in Net Assets From Operations $ 33,222,196
-----------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
24
STATEMENTS OF CHANGES IN NET ASSETS
For the Years
Ended May 31,
--------------------------
2003 2002
------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 31,961,114 $ 19,666,716
Net realized loss (6,095,076) (11,512,844)
Increase in net unrealized appreciation 10,448,849 12,747,045
Dividends paid to Auction Rate
Cumulative Preferred Stockholders
from net investment income (3,092,691) (103,927)
------------------------------------------------------------------------------
Increase in Net Assets From Operations 33,222,196 20,796,990
------------------------------------------------------------------------------
DISTRIBUTIONS PAID TO COMMON STOCK
SHAREHOLDERS FROM (NOTE 2):
Net investment income (27,708,391) (19,609,532)
------------------------------------------------------------------------------
Decrease in Net Assets From Distributions
Paid to Common Stock Shareholders (27,708,391) (19,609,532)
------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTES 6 AND 7):
Underwriting commissions and offering
expenses for the issuance of Auction
Rate Cumulative Preferred Stock (71,209) (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 (Decrease) in Net Assets
From Fund Share Transactions (71,209) 114,369,040
------------------------------------------------------------------------------
Increase in Net Assets 5,442,596 115,556,498
NET ASSETS:
Beginning of year 489,334,367 373,777,869
------------------------------------------------------------------------------
End of year* $494,776,963 $489,334,367
------------------------------------------------------------------------------
* Includes undistributed net investment income of: $1,144,516 $2,124
------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
25
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 asked prices provided by an independent
pricing service that are based on transactions in municipal obligations,
quotations from municipal bond dealers, market transactions in comparable
securities and various relationships between securities; (c) securities
maturing within 60 days 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 monthly by the Fund on the ex-dividend date for the
shareholders of Common Stock. The holders of the Auction Rate Cumulative
Preferred Stock shall be entitled to receive dividends in accordance with an
auction that will normally be held weekly and out of funds legally available to
shareholders; (g) the net asset value of the Fund's Common Stock is determined
no less frequently than the close of business on the Fund's last business day
of each week (generally Friday). It is determined by dividing the value of the
net assets available to Common Stock by the total number of shares of Common
Stock outstanding. For the purpose of determining the net asset value per share
of the Common Stock, the value of the Fund's net assets shall be deemed to
equal the value of the Fund's assets less (1) the Fund's liabilities, (2) the
aggregate liquidation value (i.e., $25,000 per outstanding share) of the
Auction Rate Cumulative Preferred Stock and (3) accumulated and unpaid
dividends on the outstanding Auction Rate Cumulative Preferred Stock issue; (h)
the Fund intends to comply with the applicable provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated investment companies
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes; (i) 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, 2003, 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; and
(j) estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic
[GRAPHIC]
26
NOTES TO FINANCIAL STATEMENTS
(continued)
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
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"), an indirect wholly-owned
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. For purposes of calculating this
fee, the liquidation value of any outstanding preferred stock of the Fund is
included in determining the Fund's average daily total net assets. 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.
Notwithstanding the foregoing, the Fund and SBFM agreed that the Fund will
pay a reduced aggregate investment advisory and administrative fee on those
assets of the Fund attributable to the Fund's preferred shares such that SBFM
will accept an aggregate investment advisory and administrative fee at an
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. The blended aggregate investment advisory and administrative fees
are equal, on an annual rate, to 82% of the Fund's average daily total net
assets. This fee is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Citigroup or its
affiliates.
4. INVESTMENTS
During the year ended May 31, 2003, the aggregate cost of purchases
and proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments) were as follows:
-----------------------------------------------------------------------------
Purchases $249,317,872
-----------------------------------------------------------------------------
Sales 200,697,954
-----------------------------------------------------------------------------
[GRAPHIC]
27
NOTES TO FINANCIAL STATEMENTS
(continued)
At May 31, 2003, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were as follows:
------------------------------------------------------------------------------
Gross unrealized appreciation $ 59,025,098
Gross unrealized depreciation (24,649,268)
------------------------------------------------------------------------------
Net unrealized appreciation $ 34,375,830
------------------------------------------------------------------------------
5. FUTURES CONTRACTS
Securities or cash equal to the initial margin amount, which is made upon
entering into the futures contract, are either deposited with the broker or
segregated by the custodian. 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.
At May 31, 2003, the Fund had the following open futures contracts:
Number of Basis Market Unrealized
Contracts Expiration Value Value Loss
-------------------------------------------------------------------------------
Contracts to Sell:
U.S. Treasury
Bonds 2,400 6/03 $276,238,711 $289,200,000 $(12,961,289)
-------------------------------------------------------------------------------
6. 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 for the year ended May
31, 2002. Additional offering costs of $71,209 were incurred and recorded as a
reduction of the capital paid in excess of par value of common stock for the
year ended May 31, 2003. The ARCPS'
[GRAPHIC]
28
NOTES TO FINANCIAL STATEMENTS
(continued)
dividends are cumulative at a rate determined at an auction and the dividend
period is typically 7 days. The dividend rates ranged from 0.90% to 1.75%
during the year ended May 31, 2003. At May 31, 2003, the current dividend rates
were as follows:
Series M Series T Series W Series Th Series F
----------------------------------------------------------------------
Current Dividend Rates 1.13% 1.10% 1.12% 1.19% 1.15%
----------------------------------------------------------------------
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. If the Fund fails to maintain these coverages and does not cure any such
failure within the required time period, the Fund is required to redeem a
requisite number of the ARCPS in order to meet the applicable requirement.
Additionally, failure to meet the foregoing asset requirements would restrict
the Fund's ability to pay dividends to common stock shareholders.
Citigroup Global Markets Inc. ("CGM"), formerly known as Salomon Smith
Barney Inc., another indirect wholly-owned subsidiary of Citigroup, currently
acts as a broker/dealer in connection with the auction of ARCPS. After each
auction, the auction agent will pay to each participating 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, 2003, CGM earned $623,923 as a participating
broker/dealer.
7. 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]
29
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.
8. CAPITAL LOSS CARRYFORWARD
At May 31, 2003, the Fund had, for Federal income tax purposes,
approximately $28,511,000 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. The amount and year of expiration for each carryforward loss is
indicated below. Expiration occurs on May 31 of the year indicated:
2006 2007 2008 2011
-------------------------------------------------------------------------------
Carryforward Amounts $302,000 $4,855,000 $12,985,000 $10,369,000
-------------------------------------------------------------------------------
In addition, the Fund had $21,165,662 of capital losses realized after
October 31, 2002, which were deferred for tax purposes to the first day of the
following fiscal year.
9. INCOME TAX INFORMATION AND DISTRIBUTIONS
TO SHAREHOLDERS
At May 31, 2003, the tax basis components of distributable earnings were:
-------------------------------------------------------------------------------
Undistributed tax-exempt income $ 1,806,820
-------------------------------------------------------------------------------
Accumulated capital losses (28,511,316)
-------------------------------------------------------------------------------
Unrealized appreciation 34,375,830
-------------------------------------------------------------------------------
The difference between book basis and tax basis unrealized appreciation is
attributable primarily to mark-to-market of futures contracts.
The tax character of distributions paid during the year ended May 31, 2003
was:
-------------------------------------------------------------------------------
Tax-exempt income $30,794,471
Ordinary income 6,611
-------------------------------------------------------------------------------
Total $30,801,082
-------------------------------------------------------------------------------
[GRAPHIC]
30
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year ended May 31,
unless otherwise noted:
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.69 $11.74 $10.93 $11.97 $12.37
------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(1)(2)/ 0.76 0.60 0.60 0.58 0.58
Net realized and unrealized gain (loss)/(2)/ 0.10 0.02 0.79 (1.14) (0.32)
Dividends paid to Auction Rate
Cumulative Preferred Stockholders
from net investment income (0.07) (0.00)* -- -- --
------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.79 0.62 1.39 (0.56) 0.26
------------------------------------------------------------------------------------------
Gain From Repurchase of Treasury Stock -- -- 0.02 0.12 --
------------------------------------------------------------------------------------------
Underwriting Commissions and Offering
Expenses For the Issuance of Auction
Rate Cumulative Preferred Stock (0.00)* (0.07) -- -- --
------------------------------------------------------------------------------------------
Distributions Paid to Common Stock
Shareholders From:
Net investment income (0.66) (0.60) (0.60) (0.60) (0.54)
Net realized gains -- -- -- -- (0.12)
------------------------------------------------------------------------------------------
Total Distributions (0.66) (0.60) (0.60) (0.60) (0.66)
------------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.82 $11.69 $11.74 $10.93 $11.97
------------------------------------------------------------------------------------------
Total Return,
Based on Market Value/(3)/ 10.60% 4.79% 20.69% (3.88)% 0.11%
------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value/(3)/ 7.55% 5.33% 13.90% (2.82)% 2.66%
------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $495 $489 $374 $352 $414
------------------------------------------------------------------------------------------
Ratios to Average Net Assets Based on
Common Shares Outstanding/(4)/:
Expenses/(1)/ 1.51% 0.52% 0.68% 0.89% 0.94%
Net investment income/(2)/ 6.40 4.84 5.15 5.19 4.72
------------------------------------------------------------------------------------------
Portfolio Turnover Rate 28% 39% 58% 35% 23%
------------------------------------------------------------------------------------------
Market Price, End of Year $10.99 $10.57 $10.67 $9.375 $10.375
------------------------------------------------------------------------------------------
[GRAPHIC]
31
FINANCIAL HIGHLIGHTS
(continued)
2003 2002 2001 2000 1999
----------------------------------------------------------------------------------------
Auction Rate Cumulative Preferred Stock/(5)/:
Total Amount Outstanding (000s) $250,000 $250,000 -- -- --
Asset Coverage Per Share 74,478 74,000 -- -- --
Involuntary Liquidating Preference Per Share/(6)/ 25,000 25,000 -- -- --
Average Market Value Per Share/(6)/ 25,000 25,000 -- -- --
---------------------------------------------------------------------------------------
(1) The investment adviser and/or administrator waived a portion of its fees
for the years ended May 31, 2002, 2001, 2000 and 1999. If such fees had not
been waived, the per share decreases to net investment income and actual
expense ratios would have been as follows:
Per share decreases to 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) Effective June 1, 2001, the Fund adopted a change in the accounting method
that requires the Fund to amortize premiums and accrete all discounts.
Without the adoption of this change, for the year ended May 31, 2002, the
ratio of net investment income to average net assets would have been 4.81%.
Per share information, 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 was less than $0.01 per share.
(3) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan. Performance figures
may reflect fee waivers and/or expense reimbursements. Past performance is
no guarantee of future results. In the absence of fee waivers and/or
expense reimbursements, the total return would be reduced.
(4) Calculated on basis of average net assets of common shareholders. Ratios do
not reflect the effect of dividend payments to preferred shareholders.
(5) 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.
(6) Excludes accumulated undeclared dividends.
* Amount represents less than $0.01 per share.
[GRAPHIC]
32
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, 2003, 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, 2003, by correspondence
with the custodian. As to securities sold but not yet 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, 2003, and 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, 2003
[GRAPHIC]
33
FINANCIAL DATA
(unaudited)
For a share of common stock outstanding throughout each period:
NYSE Net Dividend
Record Payable Closing Asset Dividend Reinvestment
Date Date Price+ Value+ Paid Price
-------------------------------------------------------
6/26/01 6/29/01 $10.40 $11.80 $0.050 $10.61
7/24/01 7/27/01 10.59 11.88 0.050 10.71
8/28/01 8/31/01 10.83 12.09 0.050 11.00
9/25/01 9/28/01 10.33 11.87 0.050 10.65
10/23/01 10/26/01 10.64 11.93 0.050 10.82
11/27/01 11/30/01 10.58 11.83 0.050 10.51
12/24/01 12/28/01 10.31 11.63 0.050 10.43
1/22/02 1/25/02 10.60 11.81 0.050 10.74
2/19/02 2/22/02 10.60 11.77 0.050 10.72
3/25/02 3/28/02 10.25 11.55 0.050 10.43
4/23/02 4/26/02 10.30 11.66 0.050 10.51
5/28/02 5/31/02 10.50 11.65 0.050 10.62
6/25/02 6/28/02 10.49 11.76 0.050 10.67
7/23/02 7/26/02 10.74 12.02 0.050 10.80
8/27/02 8/30/02 10.89 12.02 0.055 11.09
9/24/02 9/27/02 11.10 12.35 0.055 11.15
10/22/02 10/25/02 10.48 11.79 0.055 10.55
11/25/02 11/29/02 10.35 11.93 0.055 10.49
12/23/02 12/27/03 10.39 11.97 0.056 10.51
1/28/03 1/31/03 10.40 11.84 0.056 10.52
2/25/03 2/28/03 10.47 11.75 0.056 10.56
3/25/03 3/28/03 10.30 11.67 0.058 10.48
4/22/03 4/25/03 10.49 11.80 0.058 10.59
5/27/03 5/30/03 10.93 11.86 0.058 11.00
------------------------------------------------------
+ As of record date.
[GRAPHIC]
34
ADDITIONAL SHAREHOLDER INFORMATION
(unaudited)
Result of Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Managed Municipals Portfolio Inc. was
held on September 12, 2002, for the purpose of considering and voting upon the
election of three Directors, each for a three year term. The following table
provides information concerning the matters voted upon at the Meeting:
1. Election of Directors*
Nominees Votes For Votes Withheld
-------- --------- --------------
Dwight B. Crane 40,459,314 455,209
William R. Hutchinson 40,459,119 455,404
George M. Pavia 40,458,243 456,281
-----
* The following Directors, representing the balance of the Board of Directors,
continue to serve as Directors: Allan J. Bloostein, Paolo M. Cucchi, Robert
A. Frankel, R. Jay Gerken and Paul Hardin.
[GRAPHIC]
35
ADDITIONAL INFORMATION
(unaudited)
Information about Directors and Officers
The business and affairs of Managed Municipals Portfolio Inc. ("Fund") are
managed under the direction of the Fund's Board of Directors. Information
pertaining to the Directors and Officers of the Fund is set forth below.
Number of
Portfolios
Term of in Fund
Office* and Principal Complex Other
Position(s) Length of Occupation(s) Overseen Directorships
Name, Address Held with Time During Past by Held by
and Age Fund Served Five Years Director Director
------------------------------------------------------------------------------------------------
Non-Interested Directors:
Allan J. Bloostein Class I Since President, Allan J. 35 Director of
27 West 67th Street Director 1992 Bloostein Associates Taubman
New York, NY 10023 Centers, Inc.
Age 73
Dwight B. Crane Class III Since Professor, Harvard 51 None
Harvard Business School Director 1992 Business School
Soldiers Field
Morgan Hall #375
Boston, MA 02163
Age 65
Paolo M. Cucchi Class I Since Vice President and 7 None
Drew University Director 2001 Dean of College of
108 Brothers College Liberal Arts at Drew
Madison, NJ 07940 University
Age 61
Robert A. Frankel Class II Since Managing Partner of 24 None
8 John Walsh Blvd. Director 1994 Robert A. Frankel
Peekskill, NY 10566 Management
Age 76 Consultants
Paul Hardin Class II Since Chancellor Emeritus 36 None
12083 Morehead Director 2001 and Professor of Law
Chapel Hill, NC at the University of
27514-8426 North Carolina at
Age 72 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 and
Chicago, IL 60611 formerly Group Vice Associated
Age 60 President, Mergers & Banc-Corp
Acquisitions BP
Amoco
George M. Pavia Class III Since Senior Partner, Pavia 7 None
600 Madison Avenue Director 2001 & Harcourt Attorneys
New York, NY 10022
Age 75
[GRAPHIC]
36
ADDITIONAL INFORMATION
(unaudited) (continued)
Number of
Term of Portfolios
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 Five Years by Director Director
-----------------------------------------------------------------------------------------------
Interested Director:
R. Jay Gerken, CFA** Class I Since Managing Director 219 None
CGM Director/ 2002 of Citigroup
399 Park Avenue Chairman, Global Markets Inc.
4th Floor Also serves ("CGM"); Chairman,
New York, NY 10022 as President President and Chief
Age 52 and Chief Executive Officer of
Executive Smith Barney Fund
Officer Management LLC
("SBFM"), Travelers
Investment Adviser,
Inc. ("TIA") and Citi
Fund Management Inc.
Officers:
Lewis E. Daidone Senior Vice Since Managing Director of N/A N/A
CGM President and 1994 CGM; Director and
125 Broad Street Chief Senior Vice President
11th Floor Administrative of SBFM and TIA;
New York, NY 10004 Officer Former Chief
Age 45 Financial Officer and
Treasurer of mutual
funds affiliated with
Citigroup Inc.
Richard L. Peteka Chief Since Director and Head of N/A N/A
CGM Financial 2002 Internal Control for
125 Broad Street Officer and Citigroup Asset
11th Floor Treasurer Management U.S.
New York, NY 10004 Mutual Fund
Age 42 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 of N/A N/A
CGM and 1993 CGM; Investment
399 Park Avenue Investment Officer of SBFM
4th Floor Officer
New York, NY 10022
Age 53
David T. Fare Investment Since Director of CGM; N/A N/A
CGM Officer 1993 Investment Officer of
399 Park Avenue SBFM
4th Floor
New York, NY 10022
Age 40
[GRAPHIC]
37
ADDITIONAL INFORMATION
(unaudited) (continued)
Number of
Term of Portfolios
Office* and Principal in Fund Other
Position(s) Length of Occupation(s) Complex Directorships
Held with Time During Past Overseen Held by
Name, Address and Age Fund Served Five Years by Director Director
------------------------------------------------------------------------------------------------------
Kaprel Ozsolak Controller Since Vice President of N/A N/A
CGM 2002 CGM
125 Broad Street
11th Floor
New York, NY 10004
Age 37
Christina T. Sydor CGM Secretary Since Managing Director of N/A N/A
300 First Stamford Place 1994 CGM; General
4th Floor Counsel and Secretary
Stamford, CT 06902 of SBFM and TIA
Age 52
-----
*Directors are elected for a term of three years.
**Mr. Gerken is a Director who is an "interested person" of the Fund as defined in the Investment
Company Act of 1940, as amended, because Mr. Gerken is an officer of SBFM and certain of its
affiliates.
TAX INFORMATION
(unaudited)
For the year ended May 31, 2003, 99.98% of the dividends paid by the Fund
from net investment income were tax exempt for regular Federal income tax
purposes.
[GRAPHIC]
38
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 asset value. PFPC
will begin to purchase common stock on the open market as
[GRAPHIC]
39
DIVIDEND REINVESTMENT PLAN
(unaudited) (continued)
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]
40
Managed Municipals
Portfolio Inc.
DIRECTORS
Allan J. Bloostein
Dwight B. Crane
Paolo M. Cucchi
Robert A. Frankel
R. Jay Gerken, CFA
Chairman
Paul Hardin
William R. Hutchinson
George M. Pavia
OFFICERS
R. Jay Gerken, CFA
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 T. Fare
Investment Officer
Kaprel Ozsolak
Controller
Christina T. Sydor
Secretary
INVESTMENT ADVISER AND ADMINISTRATOR
Smith Barney Fund Management LLC
399 Park Avenue
New York, New York 10022
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
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 7/03
03-5057
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Board of Directors of the Fund has delegated the authority to
develop policies and procedures relating to proxy voting to the
Manager. The Manager is part of Citigroup Asset Management ("CAM"), a
group of investment adviser affiliates of Citigroup, Inc.
("Citigroup"). Along with the other investment advisers that comprise
CAM, the Manager has adopted a set of proxy voting policies and
procedures (the "Policies") to ensure that the Manager votes proxies
relating to equity securities in the best interest of clients.
In voting proxies, the Manager is guided by general fiduciary
principles and seeks to act prudently and solely in the best interest
of clients. The Manager attempts to consider all factors that could
affect the value of the investment and will vote proxies in the manner
that it believes will be consistent with efforts to maximize
shareholder values. The Manager may utilize an external service
provider to provide it with information and/or a recommendation with
regard to proxy votes. However, such recommendations do not relieve the
Manager of its responsibility for the proxy vote.
In the case of a proxy issue for which there is a stated position in
the Policies, CAM generally votes in accordance with such stated
position. In the case of a proxy issue for which there is a list of
factors set forth in the Policies that CAM considers in voting on such
issue, CAM votes on a case-by-case basis in accordance with the general
principles set forth above and considering such enumerated factors. In
the case of a proxy issue for which there is no stated position or list
of factors that CAM considers in voting on such issue, CAM votes on a
case-by-case basis in accordance with the general principles set forth
above. Issues for which there is a stated position set forth in the
Policies or for which there is a list of factors set forth in the
Policies that CAM considers in voting on such issues fall into a
variety of categories, including election of directors, ratification of
auditors, proxy and tender offer defenses, capital structure issues,
executive and director compensation, mergers and corporate
restructurings, and social and environmental issues. The stated
position on an issue set forth in the Policies can always be
superseded, subject to the duty to act solely in the best interest of
the beneficial owners of accounts, by the investment management
professionals responsible for the account whose shares are being voted.
Issues applicable to a particular industry may cause CAM to abandon a
policy that would have otherwise applied to issuers generally. As a
result of the independent investment advisory services provided by
distinct CAM business units, there may be occasions when different
business units or different portfolio managers within the same business
unit vote differently on the same issue.
In furtherance of the Manager's goal to vote proxies in the best
interest of clients, the Manager follows procedures designed to
identify and address material conflicts that may arise between the
Manager's interests and those of its clients before voting proxies on
behalf of such clients. To seek to identify conflicts of interest, CAM
periodically notifies CAM employees (including employees of the
Manager) in writing that they are under an obligation (i) to be aware
of the potential for conflicts of interest with respect to voting
proxies on behalf of client accounts both as a result of their personal
relationships and due to special circumstances that may arise during
the conduct of CAM's and the Manager's business, and (ii) to bring
conflicts of interest of which they become aware to the attention of
compliance personnel. The Manager also maintains and considers a list
of significant relationships that could present a conflict of interest
for the Manager in voting proxies. The Manager is also sensitive to the
fact that a significant, publicized relationship between an issuer and
a non-CAM affiliate might appear to the public to influence the manner
in which the Manager decides to vote a proxy with respect to such
issuer. Absent special circumstances or a significant, publicized
non-CAM affiliate relationship that CAM or the Manager for prudential
reasons treats as a potential conflict of interest because such
relationship might appear to the public to influence the manner in
which the Manager decides to vote a proxy, the Manager generally takes
the position that non-CAM relationships between Citigroup and an issuer
(e.g. investment banking or banking) do not present a conflict of
interest for the Manager in voting proxies with respect to such issuer.
Such position is based on the fact that the Manager is operated as an
independent business unit from other Citigroup business units as well
as on the existence of information barriers between the Manager and
certain other Citigroup business units.
CAM maintains a Proxy Voting Committee, of which the Manager personnel
are members, to review and address conflicts of interest brought to its
attention by compliance personnel. A proxy issue that will be voted in
accordance with a stated position on an issue or in accordance with the
recommendation of an independent third party is not brought to the
attention of the Proxy Voting Committee for a conflict of interest
review because the Manager's position is that to the extent a conflict
of interest issue exists, it is resolved by voting in accordance with a
pre-determined policy or in accordance with the recommendation of an
independent third party. With respect to a conflict of interest brought
to its attention, the Proxy Voting Committee first determines whether
such conflict of interest is material. A conflict of interest is
considered material to the extent that it is determined that such
conflict is likely to influence, or appear to influence, the Manager's
decision-making in voting proxies. If it is determined by the Proxy
Voting Committee that a conflict of interest is not material, the
Manager may vote proxies notwithstanding the existence of the conflict.
If it is determined by the Proxy Voting Committee that a conflict of
interest is material, the Proxy Voting Committee is responsible for
determining an appropriate method to resolve such conflict of interest
before the proxy affected by the conflict of interest is voted. Such
determination is based on the particular facts and circumstances,
including the importance of the proxy issue and the nature of the
conflict of interest. Methods of resolving a material conflict of
interest may include, but are not limited to, disclosing the conflict
to clients and obtaining their consent before voting, or suggesting to
clients that they engage another party to vote the proxy on their
behalf.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal
financial officer have concluded that the registrant's disclosure
controls and procedures (as defined in Rule 30a-2(c) under the
Investment Company Act of 1940, as amended) are effective based
on their evaluation of the disclosure controls and procedures as
of a date within 90 days of the filing date of this document.
(b) In the last 90 days, there have been no significant changes in
the Registrant's internal controls or in other factors that could
significantly affect these controls.
ITEM 10. EXHIBITS.
(a) Not applicable.
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, there unto duly authorized.
Managed Municipals Portfolio Inc.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Managed Municipals Portfolio Inc.
Date: August 1, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
(R. Jay Gerken)
Chief Executive Officer of
Managed Municipals Portfolio Inc.
Date: August 1, 2003
By: /s/ Richard Peteka
(Richard Peteka)
Chief Financial Officer of
Managed Municipals Portfolio Inc.
Date: August 1, 2003