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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)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
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, 2004
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ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
Managed Municipals
Portfolio Inc.
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ANNUAL REPORT
May 31, 2004
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Managed Municipals
Portfolio Inc.
WHAT'S INSIDE
Letter from the Chairman............................... 1
Manager Overview....................................... 3
Schedule of Investments................................ 8
Statement of Assets and Liabilities.................... 27
Statement of Operations................................ 28
Statements of Changes in Net Assets.................... 29
Notes to Financial Statements.......................... 30
Financial Highlights................................... 36
Report of Independent Registered Public Accounting Firm 38
Financial Data......................................... 39
Additional Information................................. 40
Tax Information........................................ 42
Dividend Reinvestment Plan............................. 43
Share Repurchase Notice................................ 44
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Managed Municipals
Portfolio Inc.
LETTER FROM THE CHAIRMAN
[PHOTO]
R. Jay Gerken
R. JAY GERKEN, CFA
Chairman, President and Chief Executive Officer
Dear Shareholder,
We are pleased to inform you that the Managed Municipals Portfolio Inc. placed
fourth among 64 funds in its Lipper general municipal debt (leveraged)
closed-end funds category over the 12 months ended May 31, 2004./1/
During the past year, a pronounced pick-up/i/ in the pace of economic growth
from its sluggish state in early 2003 triggered a sea change in the bond
markets. The acceleration in the national economy also trickled down to a state
level to an extent. Even the U.S. labor market, which generated lackluster
results throughout much of the period, grew significantly during the past
several months by some measures./ii/
Although interest rates were on the decline earlier in the period, the shift in
interest rate perceptions triggered volatility in the bond markets and bond
yields spiraled upward, particularly toward the end of the period. However,
given that the fund's manager had anticipated that the U.S. economy could begin
to pick up, the manager maintained a more defensive posture in managing the
fund's exposure to interest rate sensitivity versus prior periods when rates
were declining. Although this approach detracted from the fund's performance
during times when bond prices rose, it diminished some of the
/1/Past performance is no guarantee of future results. A high Lipper ranking
does not necessarily imply that a fund achieved positive results for the
period. Rankings in the Lipper general municipal debt (leveraged) closed-end
funds category are based on average annual total returns assuming the
reinvestment of dividends and capital gains as of May 31, 2004. Each fund is
ranked within a universe of funds similar in portfolio characteristics and
capitalizations, as defined by Lipper, Inc. Rankings are based on
performance that does not include sales charges. Performance results would
have been less favorable had sales charges been included. The fund was
ranked 4 out of 64, 42 out of 50, and 42 out of 46 for the 1-, 5-, and
10-year periods, respectively.
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1
downward pricing pressures on the portfolio when prices retreated and yields
rose, such as in April.
Please read on for a more detailed look at prevailing economic and market
conditions during the fund's fiscal year and to learn how the conditions and
changes made to the portfolio during that time may have affected fund
performance.
Information About Your Fund
In recent months several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. The fund's Adviser and some of its
affiliates have received requests for information from various government
regulators regarding market timing, late trading, fees and other mutual fund
issues in connection with various investigations. The fund has been informed
that the Adviser and its affiliates are responding to those information
requests, but are not in a position to predict the outcome of these requests
and investigations.
In November 2003, Citigroup Asset Management disclosed an investigation by the
Securities and Exchange Commission ("SEC") and the U.S. Attorney relating to
Citigroup Asset Management's entry into the transfer agency business during
1997-1999. On July 20, 2004, Citigroup disclosed that it had been notified by
the Staff of the SEC that the Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against certain advisory
and transfer agent entities affiliated with Citigroup relating to the creation
and operation of its internal transfer agent unit to serve primarily the Smith
Barney family of mutual funds. This internal transfer agent did not provide
services to the Fund. Citigroup is cooperating with the SEC and will seek to
resolve this matter in discussion with the SEC Staff. Although there can be no
assurance, Citigroup does not believe that this matter will have a material
adverse effect on the fund.
As always, thank you for your confidence in our stewardship of your assets. We
look forward to helping you continue to meet your financial goals.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
July 20, 2004
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2
MANAGER OVERVIEW
Performance Review
During the 12 months ended May 31, 2004, the fund returned 5.86% based on its
New York Stock Exchange ("NYSE") market price and 5.63% based on its net asset
value ("NAV")/iii/ per share. In comparison, the Lehman Brothers Municipal Bond
Index/iv/ returned -0.03% over the same period. Based on NAV performance, the
fund's Lipper general municipal debt (leveraged) closed-end funds category
average was 0.64%
[PHOTO]
Joseph P. Deane
JOSEPH P. DEANE
Vice President and Investment Officer
[PHOTO]
David T. Fare
DAVID T. FARE
Vice President and Investment Officer
and the fund ranked fourth among the 64 funds in its Lipper category over this
same time frame. Please note that Lipper performance returns are based on each
fund's NAV.
During the 12-month period, the fund distributed dividends to shareholders
totaling $0.70 per share. The performance table shows the fund's 30-day SEC and
annualized distribution yields as well as its 12-month total return based on
its NAV and market price as of May 31, 2004.
Past performance is no guarantee of future results. The fund's yields will
vary. Certain investors may be subject to the federal Alternative Minimum Tax,
and state
FUND PERFORMANCE AS OF MAY 31, 2004
Price Per 30-Day Annualized 12-Month
Share SEC Yield Distribution Yield Total Return
$11.73 (NAV) 6.16% 5.93% 5.63%
$10.93 (NYSE) 6.62% 6.37% 5.86%
All figures represent past performance and are not a guarantee of future
results. The fund's yields will vary.
Total returns are based on changes in NAV or market price, respectively.
Total returns assume the reinvestment of all dividends and/or capital gains
distributions, if any, in additional 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 "SEC yield" is a
return figure often quoted by bond and other fixed income mutual funds. This
quotation is based on the most recent 30-day (or one month) period covered by
the fund's filings with the SEC. The yield figure reflects the dividends and
interest earned during the period after deduction of the fund's expenses for
the period. The annualized distribution yield assumes a current monthly
income dividend rate of $0.058 for 12 months. These yields are as of May 31,
2004, and are subject to change.
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3
and local taxes may apply. Capital gains, if any, are fully taxable. Please
consult your personal tax adviser.
Market Snapshot
The interest rate environment experienced an about-face over the past year. The
municipal bond markets got off to a relatively strong start last spring as the
economy was still in a relatively sluggish state and interest rates were still
declining. To help boost economic activity, in June 2003 the Fed reduced its
target for the federal funds rate, which dropped to four-decade lows. However,
bond prices retreated through the early summer following comments from the Fed
about its monetary policy and data suggesting a pick-up in economic activity.
Although this led to concerns about rising interest rates, as bond prices move
opposite to anticipated interest rate movements, inflation remained benign.
When the summer came to a close, the broader bond markets stabilized and bonds
traded in a fairly narrower range in the fall versus the summer.
In terms of the national economy, annual growth of real gross domestic
product/v/ rose over the period versus levels in early 2003. In 2004, comments
from the Fed about the improvement in the economy, coupled with stronger
reports on job growth late in the period and a pick-up in inflation, generated
more pronounced concerns about interest rates. As a result, bond prices pulled
back significantly, particularly toward the end of the first and during the
second calendar quarters. Although municipal bond prices fluctuated in May,
they held up better than during March and April./vi/
Factors Influencing Fund Performance
Given that we anticipated that the economy would improve, and eventually lead
to rising bond yields and pressure on bond prices, we took a more cautious
stance in terms of the fund's exposure to interest rate risk than we had in
past years when the Fed was in the middle of its rate-cutting cycle. We
shortened overall duration, which can help cushion the portfolio from the bond
price declines that typically accompany rising interest rates. The fund
maintained an emphasis on longer-term, premium-priced higher-coupon callable
bonds and continued to hold a short position in U.S. Treasury futures to help
hedge the portfolio against some of the effects of a potential rise in interest
rates. Although our conservative approach at times limited the fund's full
participation in market rallies, it helped reduce the negative impact on the
fund during times when bond prices declined, such as during April.
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4
The fund's assets were concentrated in revenue bonds, which are backed by
revenue streams of specific public works. In general, given their yields during
the period, we favored revenue bonds to many comparable-maturity state-backed
general obligation bonds on a risk/reward basis. Rather than target specific
industries, however, we invested in bonds that we felt offered better overall
relative values after taking into account their yields in accordance with their
credit risk.
In the current environment, given the likelihood that interest rates will rise,
we continue to believe that the best offense is a good defense. Therefore, we
will continue to maintain a defensive posture with regard to interest rate and
credit risk.
Looking for Additional Information?
The fund is traded under the symbol "MMU" and its closing market price is
available in most newspapers under the NYSE listings. The daily NAV 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. In addition, the fund issues a quarterly press release that can be
found on most major financial web sites as well as
www.citigroupassetmanagement.com.
In a continuing effort to provide information concerning the fund, 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.
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 /s/ David T. Fare
Joseph P. Deane David T. Fare
Vice President and Vice President and
Investment Officer Investment Officer
June 30, 2004
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5
The information provided 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, 2004 and are subject to
change. Please refer to pages 8 through 24 for a list and percentage breakdown
of the fund's holdings.
RISKS: Fixed-income investments are subject to interest rate risk. As interest
rates rise, the price of fixed-income investments decline. Please note that
derivatives, such as options and futures, can be illiquid and harder to value,
especially in declining markets. A small investment in certain derivatives may
have a potentially large impact on the fund's performance. Derivatives can
disproportionately increase losses as stated in the prospectus.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
/i/Source: Based upon gross domestic product data from the Bureau of Economic
Analysis. Gross domestic product is a market value of goods and services
produced by labor and property in a given country.
/ii/Based upon non-farm payroll growth data from the U.S. Department of Labor.
/iii/NAV is a price that reflects the value of the fund's underlying portfolio
plus other assets, less the fund's liabilities. However, the price at which
an investor may buy or sell shares of the fund is at the fund's market
price as determined by supply of and demand for the fund's common shares,
which may be more or less than the fund's NAV.
/iv/The Lehman Brothers Municipal Bond Index is a broad measure of the
municipal bond market with maturities of at least one year.
/v/Source: Based upon gross domestic product data from the Bureau of Economic
Analysis. Gross domestic product is a market value of goods and services
produced by labor and property in a given country.
/vi/Based upon data derived via Bloomberg L.P.
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6
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 of the Fund that 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 98% of 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 Inc. ("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 98% of 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 44.
To find more detailed information about the Plan and about how you can
participate, please call the Plan Agent at 1 (800) 331-1710.
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7
SCHEDULE OF INVESTMENTS
May 31, 2004
Face
Amount Rating(a) Security Value
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MUNICIPAL BONDS & NOTES -- 100.0%
Alabama -- 3.7%
$24,510,000 AAA Jefferson County, AL Sewer Revenue,
Capital Improvement Warrants (Pre-
Refunded -- Escrowed with state and
local government securities to 2/1/09
Call @ 101), Series A, FGIC-Insured,
5.375% due 2/1/36 (b) $ 27,056,589
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Alaska -- 0.1%
600,000 A-1+ Valdez, AK Marine Terminal Revenue
Refunding (BP Pipelines Inc. Project),
1.100% due 7/1/37 (c) 600,000
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Arizona -- 1.8%
Arizona State University COP,
MBIA-Insured:
1,500,000 AAA 5.100% due 7/1/24 1,522,755
1,000,000 AAA 5.125% due 7/1/26 1,008,840
4,000,000 AAA Mesa, AZ IDA, Discovery Health Systems,
Series A, MBIA-Insured,
5.625% due 1/1/29 4,111,440
3,000,000 AAA Phoenix, AZ Civic Improvement Corp.
Airport Revenue, Sr. Lien, Series B,
FGIC-Insured, 5.250% due 7/1/22 (d) 3,049,230
1,000,000 AA+ Phoenix, AZ GO, Series B,
5.000% due 7/1/27 994,540
2,100,000 A-1+ Tempe, AZ Excise Tax Revenue
(Tempe Center for the Arts Project),
1.080% due 7/1/20 (c) 2,100,000
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12,786,805
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California -- 9.0%
7,040,000 Ba1* California Educational Facilities Authority
Revenue (Pooled College & University
Project), Series A (Call 7/1/08 @ 101),
5.625% due 7/1/23 (e) 6,009,133
6,000,000 A3* California Health Facilities Authority
Revenue, Cedars-Sinai Medical Center,
Series A, 6.250% due 12/1/34 6,390,300
1,000,000 AA- California Health Facilities Financing
Authority Revenue, Sutter Health,
Series A, 6.250% due 8/15/35 1,097,860
SEE NOTES TO FINANCIAL STATEMENTS.
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8
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------
California -- 9.0% (continued)
$ 5,000,000 AAA California Infrastructure and Economic
Development Bank Revenue, Bay Area
Toll Bridges, First Lien, Series A,
FGIC-Insured, 5.000% due 7/1/25 $ 5,003,400
5,000,000 AAA California State Department of Veterans
Affairs, Home Purchase Revenue,
Series A, AMBAC-Insured,
5.350% due 12/1/27 5,054,750
520,000 A-1+ California State Department of Water
Resources Supply Revenue, Series B-3,
1.100% due 5/1/22 (c) 520,000
7,375,000 AAA Garden Grove, CA Agency for
Community Development, Tax
Allocation, AMBAC-Insured,
5.000% due 10/1/29 7,239,374
10,000,000 BBB Golden State Tobacco Securitization
Corp., CA Tobacco Settlement
Revenue, Series 2003-A-1,
6.750% due 6/1/39 (b) 8,908,500
7,000,000 AAA Los Angeles County, CA COP, Antelope
Valley Courthouse, Series A,
AMBAC-Insured, 5.250% due 11/1/33 7,056,490
600,000 VMIG 1* Orange County, CA Improvement Bond
Act of 1915 Special Assessment,
Series A, 1.070% due 9/2/33 (c) 600,000
3,340,000 AAA Rancho Cucamonga, CA Redevelopment
Agency Tax Allocation (Rancho
Redevelopment Project),
MBIA-Insured, 5.125% due 9/1/30 3,337,328
2,750,000 AAA Sacramento County, CA COP (Public
Facilities Project), MBIA-Insured,
5.375% due 2/1/19 2,902,487
5,000,000 AAA San Diego, CA Unified School District,
Series E, FSA-Insured,
5.000% due 7/1/28 4,951,450
3,000,000 AAA San Mateo County Community College
District, COP, MBIA-Insured,
5.000% due 10/1/25 3,014,220
2,500,000 AAA Santa Clara, CA Redevelopment Agency,
Tax Allocation (Bayshore North
Project), MBIA-Insured,
5.000% due 6/1/23 2,514,400
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64,599,692
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SEE NOTES TO FINANCIAL STATEMENTS.
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9
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
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Colorado -- 7.8%
$ 4,000,000 AAA Arapahoe County, CO Capital
Improvement Trust Fund, E-470 Public
Highway Authority Revenue
(Call 8/31/05 @ 103),
7.000% due 8/31/26 (e)(f) $ 4,386,840
1,000,000 A Aspen, CO Sales Tax Revenue,
5.400% due 11/1/19 1,044,710
4,000,000 AAA Colorado Educational & Cultural Facilities
Revenue Refunding (University of
Denver Project), AMBAC-Insured,
5.375% due 3/1/23 4,149,520
4,000,000 A Colorado Health Facilities Authority
Revenue, Series B, Remarketed 7/8/98,
5.350% due 8/1/15 (g) 4,205,120
Denver, CO City & County Airport
Revenue, Series C:
10,945,000 A 6.125% due 11/15/25 (b)(d)(g) 12,268,797
13,630,000 A 6.125% due 11/15/25 (b)(d) 13,888,425
2,000,000 AAA Denver, CO City & County COP, Series B,
AMBAC-Insured (Call 12/1/10 @ 101),
5.500% due 12/1/25 (e) 2,245,300
El Paso County, CO COP (Detention
Facility Project), Series B,
AMBAC-Insured:
1,700,000 AAA 5.000% due 12/1/23 1,721,114
1,500,000 AAA 5.000% due 12/1/27 1,495,890
Garfield County, CO School District
No. 2, GO, FSA-Insured:
2,300,000 Aaa* 5.000% due 12/1/23 2,328,566
1,000,000 Aaa* 5.000% due 12/1/25 1,003,430
7,320,000 AAA University of Colorado COP, Master Lease
Purchase Agreement, Series A,
AMBAC-Insured, 5.000% due 6/1/28 (b) 7,289,549
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56,027,261
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Connecticut -- 1.0%
Connecticut State, GO, Series B:
4,490,000 AA 5.500% due 6/15/21 4,817,994
1,600,000 AA 5.000% due 6/15/22 1,620,032
1,000,000 AAA Connecticut State Health & Education
Revenue (Child Care Facilities Project),
Series C, AMBAC-Insured,
5.625% due 7/1/29 1,039,850
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7,477,876
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SEE NOTES TO FINANCIAL STATEMENTS.
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10
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
-----------------------------------------------------------------------------
Delaware -- 1.4%
$10,000,000 AAA Delaware State EDA PCR (Delmarva
Project), Series B, AMBAC-Insured,
5.200% due 2/1/19 (b) $ 10,422,400
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Florida -- 3.8%
5,000,000 AAA Florida State Board & Educational
Capital Outlay GO, FSA-Insured,
5.000% due 6/1/24 5,032,750
3,000,000 AA+ Florida State Board of Education GO,
Series A, 5.125% due 6/1/21 3,120,570
1,465,000 AAA Florida State Department of
Transportation, GO (Right of Way
Project), FGIC-Insured,
5.000% due 7/1/25 1,469,190
600,000 A-1 Manatee County, FL Pollution Control
Revenue Refunding (Florida Power &
Light Co. Project), 1.100% due 9/1/24 (c) 600,000
6,500,000 BBB- Martin County, FL IDA (Indiantown
Cogeneration Project), Series A,
7.875% due 12/15/25 (d) 6,674,265
1,290,000 AAA Miami Beach, FL Stormwater Revenue,
FGIC-Insured, 5.375% due 9/1/30 1,322,934
Orange County, FL School Board COP,
MBIA-Insured:
2,000,000 Aaa* Series A, 5.250% due 8/1/23 2,064,600
3,335,000 VMIG 1* Series B, 1.080% due 8/1/27 (c) 3,335,000
1,400,000 VMIG 1* Sarasota County Public Hospital Board
Revenue, Sarasota Memorial Hospital,
Series A, AMBAC-Insured,
1.100% due 7/1/37 (c) 1,400,000
2,500,000 Aaa* South Brevard, FL Recreational Facilities
Improvement, Special District,
AMBAC-Insured, 5.000% due 7/1/20 2,553,725
-----------------------------------------------------------------------------
27,573,034
-----------------------------------------------------------------------------
Georgia -- 2.0%
200,000 A-1+ Atlanta, GA Water & Wastewater
Revenue, Series C, FSA-Insured,
1.080% due 11/1/41 (c) 200,000
6,000,000 AAA Augusta, GA Water & Sewer Revenue,
FSA-Insured, 5.250% due 10/1/26 6,098,040
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
11
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
----------------------------------------------------------------------------
Georgia -- 2.0% (continued)
$ 1,000,000 A-1+ Monroe County Development Authority
PCR Refunding, Oglethorpe Power
Corp., Series B, AMBAC-Insured,
1.080% due 1/1/20 (c) $ 1,000,000
2,180,000 Baa1* Private Colleges & Universities Authority
Revenue (Mercer University Project):
5.750% due 10/1/21 2,259,395
Series A:
2,000,000 Baa1* 5.250% due 10/1/25 1,880,160
1,000,000 Baa1* 5.375% due 10/1/29 945,120
2,000,000 BBB- Savannah, GA EDA Revenue (College of
Arts & Design Inc. Project), (Call
10/1/09 @ 102), 6.900% due 10/1/29 (e) 2,354,600
----------------------------------------------------------------------------
14,737,315
----------------------------------------------------------------------------
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 (g) 4,294,920
----------------------------------------------------------------------------
Idaho -- 0.1%
500,000 VMIG 1* Idaho Health Facilities Authority Revenue
(St. Luke's Regional Medical Center
Project), 1.090% due 5/1/22 (c) 500,000
----------------------------------------------------------------------------
Illinois -- 3.9%
4,095,000 AAA Chicago, IL GO, Series D, FGIC-Insured,
5.500% due 1/1/35 4,169,365
7,400,000 AAA Chicago, IL Skyway Toll Bridge Revenue,
AMBAC-Insured, 5.500% due 1/1/31 (b) 7,532,608
2,105,000 VMIG 1* Illinois Finance Authority Revenue
(Francis W. Parker School Project),
1.060% due 4/1/29 (c) 2,105,000
Illinois Health Facilities Authority
Revenue, OSF Healthcare System:
400,000 A-1+ 1.100% due 11/15/27 (c) 400,000
8,000,000 A 6.250% due 11/15/29 (b) 8,357,680
5,000,000 AAA Illinois State GO, First Series,
MBIA-Insured (Call 6/1/10 @ 100),
5.625% due 6/1/25 (e) 5,610,250
----------------------------------------------------------------------------
28,174,903
----------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
12
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
---------------------------------------------------------------------------
Indiana -- 0.4%
$ 3,000,000 BBB+ Indiana State Development Financing
Authority Revenue (USX Corp. Project),
5.250% due 12/1/22 $ 3,211,710
---------------------------------------------------------------------------
Kansas -- 0.5%
2,060,000 A-1 Kansas Development Finance Authority
Revenue, Village Shalom Obligation
Group, Series BB,
1.090% due 11/15/28 (c) 2,060,000
1,250,000 AAA Scott County, KS GO, Unified School
District No. 446, FGIC-Insured,
5.000% due 9/1/22 1,269,313
---------------------------------------------------------------------------
3,329,313
---------------------------------------------------------------------------
Maine -- 0.3%
2,085,000 AA+ Maine State Housing Authority Mortgage
Revenue, Series C, 5.300% due 11/15/23 2,096,405
---------------------------------------------------------------------------
Maryland -- 1.2%
Baltimore, MD Wastewater Project
Revenue, Series A, FGIC-Insured:
2,500,000 AAA 5.125% due 7/1/32 2,522,100
3,385,000 AAA 5.200% due 7/1/32 3,442,883
3,075,000 AA- Maryland State Health & Higher
Educational Facilities Authority
Revenue, John Hopkins Hospital Issue,
5.000% due 11/15/26 3,074,908
---------------------------------------------------------------------------
9,039,891
---------------------------------------------------------------------------
Massachusetts -- 4.9%
2,000,000 Baa3* Boston, MA Industrial Development
Financing Authority, Sr. Revenue Bonds
(Cross-Town Center Project),
Series 2002, 6.500% due 9/1/35 (d) 1,932,440
Massachusetts Bay Transportation
Authority, Sales Tax Revenue, Series A:
2,430,000 AAA Call 7/1/10 @ 100,
5.500% due 7/1/30 (e) 2,713,654
570,000 AAA Unrefunded Balance,
5.500% due 7/1/30 586,860
1,125,000 Aaa* Massachusetts Development Finance
Agency, Merrimack College Issue,
MBIA-Insured, 5.200% due 7/1/32 1,135,294
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
13
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Massachusetts -- 4.9% (continued)
$ 1,850,000 AAA Massachusetts Health & Educational
Facilities Authority, University of
Massachusetts Issue, Series C,
FGIC-Insured, 5.125% due 10/1/27 $ 1,861,710
17,000,000 AA- Massachusetts State GO, Consolidated
Loan of 2002, Series C (Call 11/1/12
@ 100), 5.250% due 11/1/30 (b) 18,555,160
5,000,000 AAA Massachusetts State Special Obligation
Revenue, Series A, FGIC-Insured,
5.000% due 6/1/21 5,122,450
1,200,000 A-1+ Massachusetts State Water Resources
Authority Revenue Refunding,
Sub-Series B, FGIC-Insured,
1.060% due 8/1/37 (c) 1,200,000
2,000,000 A University of Massachusetts Building
Authority Project Revenue Refunding,
Series 2004-1, AMBAC-Insured,
5.250% due 11/1/25 2,040,100
--------------------------------------------------------------------------------
35,147,668
--------------------------------------------------------------------------------
Michigan -- 2.5%
5,000,000 AA+ East Lansing, MI School District GO,
Q-SBLF-Insured, 5.625% due 5/1/30 5,222,950
Michigan State COP, AMBAC-Insured:
2,345,000 AAA 5.500% due 6/1/19 (f) 2,494,846
6,000,000 AAA 5.500% due 6/1/27 6,191,340
2,500,000 AA- Michigan State Hospital Finance Authority
Revenue Refunding, Trinity Health
Credit, Series C, 5.375% due 12/1/23 2,536,575
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 (d)(h) 600,000
1,000,000 A-1+ University of Michigan, MI University
Revenue, Medical Services Plan,
Series A-1, 1.080% due 12/1/21 (c) 1,000,000
--------------------------------------------------------------------------------
18,045,711
--------------------------------------------------------------------------------
Minnesota -- 2.2%
1,500,000 AAA Dakota County, MN Community
Development Agency, MFH Revenue,
FNMA-Collateralized, 5.625% due 2/1/26 1,534,965
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
14
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
-----------------------------------------------------------------------------
Minnesota -- 2.2% (continued)
$ 7,000,000 A3* Minneapolis, MN Healthcare System
Revenue, Allina Health System, Series A,
6.000% due 11/15/23 (b) $ 7,301,000
Minneapolis & St. Paul, MN Community
Airport Revenue, FGIC-Insured:
2,000,000 AAA Series A, 5.125% due 1/1/25 2,019,360
4,000,000 AAA Sub-Series C, 5.250% due 1/1/26 4,062,040
800,000 AA+ Minnesota State Housing Financing
Agency, Single-Family Mortgage,
Series I, 5.500% due 1/1/17 815,192
-----------------------------------------------------------------------------
15,732,557
-----------------------------------------------------------------------------
Missouri -- 3.8%
1,500,000 AAA Greene County, MO Reorganized School
District No. R-8 GO, FSA-Insured,
5.100% due 3/1/22 1,539,450
21,000,000 Aaa* Missouri State Environmental
Improvement & Energy Resource
Authority (Water Pollution Revolving
Funds Program), Series B,
5.000% due 1/1/24 (b) 21,231,210
2,745,000 A-1 Missouri State Health & Educational
Facilities Authority Revenue Refunding,
Cox Health Systems, 1.100% due 6/1/22 (c) 2,745,000
2,000,000 AAA St. Louis, MO Airport Revenue, Airport
Development Program, Series A,
MBIA-Insured, 5.125% due 7/1/22 2,032,540
-----------------------------------------------------------------------------
27,548,200
-----------------------------------------------------------------------------
Montana -- 1.0%
10,080,000 NR Montana State Board Investment Resource
Recovery Revenue (Yellowstone Energy
L.P. Project), 7.000% due 12/31/19 (d) 7,098,840
-----------------------------------------------------------------------------
New Jersey -- 6.9%
5,200,000 A+ Hudson County, NJ Improvement
Authority, 6.624% due 8/1/25 5,245,552
1,000,000 BBB- Middlesex County, NJ Pollution Control
Authority Revenue Refunding, Pollution
Control Financing (Amerada Hess Corp.
Project), 5.750% due 9/15/32 968,700
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
15
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
New Jersey -- 6.9% (continued)
New Jersey EDA:
$ 3,125,000 BBB PCR Refunding (PSEG Power LLC
Project), 5.000% due 3/1/12 $ 3,118,813
1,000,000 AA- Revenue (School Facilities-Construction),
Series F, 5.000% due 6/15/28 982,140
New Jersey Health Care Facilities
Financing Authority Revenue:
3,875,000 AAA Engelwood Hospital, FHA/MBIA-
Insured, 5.000% due 8/1/23 3,921,345
8,000,000 A+ Robert Wood Johnson University
Hospital, 5.700% due 7/1/20 (b) 8,349,600
2,395,000 AAA New Jersey State Highway Authority,
Garden State Parkway General
Revenue (Call 1/1/10 @ 101),
5.625% due 1/1/30 (e) 2,688,650
1,350,000 A South Jersey Port Corp., NJ Revenue
Refunding, 5.000% due 1/1/26 1,304,978
Tobacco Settlement Financing Corp.,
NJ Asset-Backed Bonds:
9,705,000 BBB 5.750% due 6/1/32 (b) 8,224,405
15,000,000 BBB 6.000% due 6/1/37 (b) 11,991,600
3,390,000 BBB 6.125% due 6/1/42 2,684,982
------------------------------------------------------------------------------
49,480,765
------------------------------------------------------------------------------
New Mexico -- 0.2%
1,330,000 AAA New Mexico Mortgage Financing Authority,
Single-Family Mortgages Revenue,
Series D-3, 5.625% due 9/1/28 (f) 1,347,809
------------------------------------------------------------------------------
New York -- 3.9%
900,000 A-1+ Nassau County Industrial Development
Agency Revenue Refunding,
Cold Spring Harbor Laboratory,
1.090% due 1/1/34 (c) 900,000
Nassau Health Care Corp., NY Health
Systems Revenue, FSA-Insured:
2,000,000 AAA 5.500% due 8/1/19 2,124,920
3,000,000 AAA 5.750% due 8/1/29 3,141,150
New York, NY GO:
4,700,000 A-1+ Sub-Series C-4, 1.050% due 8/1/20 (c) 4,700,000
200,000 A-1+ Sub-Series H-3, FSA-Insured,
1.070% due 8/1/21 (c) 200,000
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
16
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
-----------------------------------------------------------------------------
New York -- 3.9% (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 $ 6,102,120
100,000 A-1+ New York City Transitional Finance
Authority Revenue Refunding, NYC
Recovery, Series 3, Sub-Series 3-B,
1.100% due 11/1/22 (c) 100,000
New York State Dormitory Authority
Revenue:
5,000,000 AAA Series B, FSA-Insured (Call 5/15/10
@ 101), 5.500% due 5/15/30 (e) 5,628,000
1,000,000 AAA Willow Towers Inc. Project, GNMA-
Collateralized, 5.250% due 2/1/22 1,022,860
3,000,000 AAA New York State Thruway Authority
Highway & Bridge Revenue, Series B-1,
FGIC-Insured, 5.400% due 4/1/17 3,193,350
1,400,000 A-1+ Port Authority of New York &
New Jersey, Versatile Structure
Obligation Revenue Refunding,
1.100% due 6/1/20 (c) 1,400,000
----------------------------------------------------------------------------
28,512,400
----------------------------------------------------------------------------
North Carolina -- 1.3%
Charlotte, NC COP (Governmental
Facilities Projects), Series G:
1,750,000 AA+ 5.000% due 6/1/28 1,721,178
3,500,000 AA+ 5.000% due 6/1/33 3,421,390
1,615,000 AAA Harnett County, NC GO, Refunded
Custody Receipts, AMBAC-Insured,
5.250% due 6/1/24 1,655,391
North Carolina Capital Facilities Finance
Agency, Educational Facilities Revenue
(Elizabeth City State University Housing
Foundation LLC Project), Series A,
AMBAC-Insured:
1,000,000 AAA 5.000% due 6/1/23 1,013,740
1,250,000 AAA 5.000% due 6/1/33 1,244,300
----------------------------------------------------------------------------
9,055,999
----------------------------------------------------------------------------
Ohio -- 9.2%
4,500,000 Aa2* Bexley, OH City School District GO,
5.125% due 12/1/27 4,506,120
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
17
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
----------------------------------------------------------------------------
Ohio -- 9.2% (continued)
$ 2,000,000 AAA Canton, OH City School District GO,
Series A, MBIA-Insured,
5.500% due 12/1/20 $ 2,132,400
1,300,000 AA+ Cincinnati, OH Water System Revenue,
5.125% due 12/1/21 1,346,709
3,000,000 AAA Cuyahoga County, OH Hospital Revenue
Refunding, University Hospitals Health
System Inc., AMBAC-Insured,
5.500% due 1/15/30 3,056,340
25,000,000 Aaa* Hamilton County, OH Sales Tax Revenue,
AMBAC-Insured, 5.250% due 12/1/32 (b) 25,301,500
7,500,000 AA- Lorain County, OH Hospital Revenue,
Catholic Healthcare Partners,
5.375% due 10/1/30 (b) 7,479,450
5,990,000 AAA Lucas County, OH Hospital Revenue,
Promedic Healthcare Obligation Group,
AMBAC-Insured,
5.375% due 11/15/29 6,087,158
3,025,000 Aaa* Muskingum County, OH GO, Refunding
& County Facilities Improvement,
MBIA-Insured, 5.125% due 12/1/19 3,130,512
1,375,000 AAA Ohio State Higher Educational Facility
Commission Revenue (University of
Dayton Project), AMBAC-Insured,
5.500% due 12/1/25 1,418,395
2,500,000 AAA Portage County, OH GO, MBIA-Insured,
5.250% due 12/1/17 2,649,100
1,500,000 A3* Steubenville, OH Hospital Revenue,
6.375% due 10/1/20 1,568,385
Summit County, OH GO, FGIC-Insured:
1,000,000 AAA 5.000% due 12/1/21 1,021,990
500,000 AAA 5.000% due 12/1/22 507,935
1,500,000 Aaa* Trumbull County, OH GO, MBIA-Insured,
5.200% due 12/1/20 1,563,915
2,000,000 AAA University of Cincinnati, OH General
Receipts Revenue, Series A,
FGIC-Insured, 5.250% due 6/1/24 2,055,160
590,000 A-1+ University of Toledo, OH General Receipts
Revenue, 1.090% due 6/1/32 (c) 590,000
1,500,000 AAA Warrensville Heights, OH GO, City School
District, School Improvements,
FGIC-Insured, 5.625% due 12/1/20 (f) 1,621,185
----------------------------------------------------------------------------
66,036,254
----------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
18
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
----------------------------------------------------------------------------
Oregon -- 2.4%
$ 3,210,000 AA Clackamas County, OR Hospital Facilities
Authority Revenue, Legacy Health
System, 5.750% due 5/1/16 $ 3,437,910
4,895,000 AA+ Oregon State Department of
Transportation, Highway User Tax
Revenue, Series A, 5.125% due 11/15/23 5,021,389
8,410,000 AA Oregon State Veterans Welfare GO,
Series 82, 5.500% due 12/1/42 (b) 8,530,011
----------------------------------------------------------------------------
16,989,310
----------------------------------------------------------------------------
Pennsylvania -- 4.0%
3,000,000 BBB+ Pennsylvania State Higher Educational
Facilities Authority Revenue,
5.000% due 7/15/20 2,903,100
970,000 A-1+ Schuylkill County IDA Revenue Refunding,
Northeastern Power Co.,
1.080% due 12/1/22 (c) 970,000
State Public School Building Authority,
School Revenue (Philadelphia School
District Project), FSA-Insured:
18,745,000 AAA 5.250% due 6/1/26 (b) 19,108,278
5,540,000 AAA 5.250% due 6/1/27 5,643,321
----------------------------------------------------------------------------
28,624,699
----------------------------------------------------------------------------
Puerto Rico -- 0.4%
3,000,000 AAA Puerto Rico Public Buildings Authority
Revenue Refunding, Government
Facilities, Series K, MBIA-Insured,
4.000% due 7/1/26 3,103,620
----------------------------------------------------------------------------
South Carolina -- 4.5%
10,000,000 BBB+ Berkeley County, SC PCR,
4.875% due 10/1/14 (b) 10,223,400
1,000,000 A Dorchester County, SC School District No.
2 Installment Purchase Revenue, Growth
Remedy Opportunity Tax Hike,
5.250% due 12/1/29 968,600
15,000,000 AA- Greenville County, SC School District
Installment Purchase Revenue,
5.500% due 12/1/28 (b) 15,178,800
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
19
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
South Carolina -- 4.5% (continued)
South Carolina Transportation
Infrastructure Bank Revenue, Series A:
$ 2,505,000 Aaa* Pre-Refunded -- Escrowed with state
and local government securities to
10/1/11 (Call @ 100), AMBAC-
Insured, 5.125% due 10/1/31 $ 2,760,886
3,000,000 AAA Pre-Refunded -- Escrowed with state
and local government securities to
10/1/09 (Call @ 101), MBIA-
Insured, 5.500% due 10/1/30 3,351,330
----------------------------------------------------------------------------
32,483,016
----------------------------------------------------------------------------
Tennessee -- 2.9%
Blount County, TN Public Building
Authority Revenue, Local Government
Public Improvement, AMBAC-Insured:
600,000 VMIG 1* Series A-1-G, 1.100% due 6/1/17 (c) 600,000
1,200,000 VMIG 1* Series A-3-A, 1.100% due 6/1/26 (c) 1,200,000
1,150,000 NR Hardeman County, TN Correctional
Facilities Revenue, Correctional
Facilities Corp., 7.750% due 8/1/17 1,189,675
6,420,000 AAA Memphis-Shelby County, TN Sports
Authority Income Revenue (Memphis
Arena Project), Series A, AMBAC-
Insured, 5.125% due 11/1/21 6,621,010
Sevier County, TN Public Building
Authority, Local Government Public
Improvement Revenue:
AMBAC-Insured:
1,000,000 VMIG 1* Series IV-E-3, 1.100% due 6/1/24 (c) 1,000,000
3,420,000 VMIG 1* Series IV-F-1, 1.100% due 6/1/25 (c) 3,420,000
3,300,000 VMIG 1* Series IV-H-1, 1.100% due 6/1/25 (c) 3,300,000
200,000 VMIG 1* FSA-Insured, Series IV-B-12,
1.100% due 6/1/20 (c) 200,000
3,000,000 AA Tennessee State, GO Series A,
5.250% due 3/1/17 3,176,370
----------------------------------------------------------------------------
20,707,055
----------------------------------------------------------------------------
Texas -- 5.3%
3,700,000 A-1+ Bell County, TX Health Facility
Development Corp. Revenue, Scott &
White Memorial Hospital & Sherwood
and Brindley Foundation, 2001-1,
MBIA-Insured, 1.080% due 8/15/31 (c) 3,700,000
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
20
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
----------------------------------------------------------------------------
Texas -- 5.3% (continued)
$ 1,595,000 AAA Burleson, TX ISD, GO, PSFG,
6.750% due 8/1/24 $ 1,735,264
Dallas Fort Worth, TX International
Airport Facility Improvement Corp.
Revenue (American Airlines Inc.
Project):
12,000,000 CCC 6.375% due 5/1/35 (b)(d) 7,951,920
3,000,000 CCC Series B, 6.050% due 5/1/29 (d)(i) 2,786,640
Harris County, TX Health Facilities
Development Corp., Hospital Revenue:
11,000,000 A-1+ Methodist Hospital,
1.080% due 12/1/32 (c) 11,000,000
1,000,000 AAA School Health Care Systems
Refunding, Series B,
5.750% due 7/1/27 (g) 1,095,920
9,540,000 A-1+ St. Luke's Episcopal Hospital
Refunding, Series B,
1.080% due 2/15/31 (c) 9,540,000
100,000 A-1+ Texas Medical Center Project,
MBIA-Insured,
1.080% due 2/15/22 (c) 100,000
600,000 VMIG 1* YMCA-Greater Houston Area,
1.080% due 7/1/37 (c) 600,000
-------------------------------------------------------------------------
38,509,744
-------------------------------------------------------------------------
Virginia -- 4.0%
3,000,000 BBB+ Chesapeake, VA IDA Revenue,
Remarketed 11/8/02,
5.250% due 2/1/08 3,115,290
3,000,000 BBB+ Chesterfield County, VA IDA, PCR,
Virginia Electric & Power Co.,
Remarketed 11/8/02, Series A,
5.875% due 6/1/17 3,239,820
2,500,000 A-1+ Roanoke, VA IDA, Hospital Revenue,
Carilion Health System, Series B,
1.080% due 7/1/27 (c) 2,500,000
10,000,000 AAA Virginia State HDA Commonwealth
Mortgage Revenue, Series H,
Sub-Series H-1, MBIA-Insured,
5.350% due 7/1/31 (b) 10,034,600
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
21
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------
Virginia -- 4.0% (continued)
Virginia State HDA, MFH Revenue:
$ 1,235,000 AAA Series H, AMBAC-Insured,
6.300% due 11/1/15 (f) $ 1,275,471
Series K:
600,000 AA+ 5.800% due 11/1/10 625,998
925,000 AA+ 5.900% due 11/1/11 963,859
7,000,000 BBB+ York County, VA IDA PCR, Virginia
Electrical & Power Co., Remarketed
11/8/02, 5.050% due 7/1/09 (b) 7,404,460
---------------------------------------------------------------------------
29,159,498
---------------------------------------------------------------------------
Washington -- 1.2%
22,685,000 AAA Chelan County, WA GO, Public Utilities,
District No. 1, Columbus River Rock,
Series A, MBIA-Insured,
zero coupon due 6/1/22 (b) 8,545,213
---------------------------------------------------------------------------
West Virginia -- 1.2%
West Virginia State Housing Development
Fund, Housing Finance Revenue:
3,845,000 AAA Series B, 5.300% due 5/1/24 3,907,020
5,000,000 AAA Series C, 5.350% due 11/1/27 5,086,350
---------------------------------------------------------------------------
8,993,370
---------------------------------------------------------------------------
Wisconsin -- 0.5%
1,290,000 AA Wisconsin Housing & Economic
Development Authority, Home
Ownership Revenue, Series A,
5.650% due 11/1/23 1,298,940
Wisconsin State Health & Educational
Facilities Authority Revenue:
1,100,000 A Kenosha Hospital & Medical Center
Project, 5.700% due 5/15/20 1,108,228
1,250,000 AAA The Medical College of Wisconsin Inc.
Project, MBIA-Insured,
5.400% due 12/1/16 1,319,862
---------------------------------------------------------------------------
3,727,030
---------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
22
SCHEDULE OF INVESTMENTS
May 31, 2004 (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------
Wyoming -- 0.1%
Uinta County, WY PCR (Chevron USA
Inc. Project):
$ 100,000 P-1* 1.080% due 4/1/10 (c) $ 100,000
700,000 P-1* 1.080% due 8/15/20 (c) 700,000
--------------------------------------------------------------------
800,000
--------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $717,579,623**) $721,576,872
--------------------------------------------------------------------
(a)All ratings are by Standard & Poor's Ratings Service, except for those which
are identified by an asterisk (*), are rated by Moody's Investors Service.
(b)All or a portion of this security is segregated for open futures contracts.
(c)Variable rate obligation payable at par on demand at any time on no more
than seven days' notice.
(d)Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(e)Pre-Refunded bonds are escrowed with U.S. government securities and are
considered by the Manager to be triple-A rated even if the issuer has not
applied for new ratings.
(f)All or a portion of this security is held as collateral for open futures
contracts.
(g)Bonds are escrowed to maturity with U.S. government securities and are
considered by the Manager to be triple-A rated even if the issuer has not
applied for new ratings.
(h)Security is currently in default.
(i)Variable rate security.
**Aggregate cost for Federal income tax purposes is $717,345,560.
See pages 25 and 26 for definitions of ratings and certain abbreviations.
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
23
SUMMARY OF INVESTMENTS BY INDUSTRY*
May 31, 2004
Hospitals 16.3%
Education 13.5
General Obligation 13.0
Transportation 12.2
Water and Sewer 6.9
Pollution Control 6.7
Single-Family Housing 5.1
Tobacco 4.4
Utilities 3.9
Other 18.0
-----
100.0%
=====
*As a percentage of total investments. Please note that Fund holdings are as of
May 31, 2004, and are subject to change.
[GRAPHIC]
24
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 issues 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 with respect to capacity to pay interest
and CC 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
therefore 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]
25
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 Assurance Corporation
AMT --Alternative Minimum Tax
BAN --Bond Anticipation Notes
BIG --Bond Investors Guaranty
CDA --Community Development Authority
CGIC --Capital Guaranty Insurance Company
CHFCLI --California Health Facility Construction Loan Insurance
CONNIE
LEE --College Construction Loan Insurance Association
COP --Certificate of Participation
CSD --Central School District
CTFS --Certificates
DFA --Development Finance Agency
EDA --Economic Development Authority
EFA --Educational Facilities Authority
ETM --Escrowed to Maturity
FGIC --Financial Guaranty Insurance Company
FHA --Federal Housing Administration
FHLMC --Federal Home Loan Mortgage Corporation
FLAIRS --Floating Adjustable Interest Rate Securities
FNMA --Federal National Mortgage Association
FRTC --Floating Rate Trust Certificates
FSA --Federal Savings Association
GIC --Guaranteed Investment Contract
GNMA --Government National Mortgage Association
GO --General Obligation
HDC --Housing Development Corporation
HEFA --Health & Educational Facilities Authority
HFA --Housing Finance Authority
IBC --Insured Bond Certificates
IDA --Industrial Development Authority
IDB --Industrial Development Board
IDR --Industrial Development Revenue
IFA --Industrial Finance Agency
INFLOS --Inverse Floaters
ISD --Independent School District
ISO --Independent System Operator
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance Corporation
MERLOT --Municipal Exempt Receipts Liquidity Optional Tender
MFH --Multi-Family Housing
MSTC --Municipal Securities Trust Certificates
MUD --Municipal Utilities District
MVRICS --Municipal Variable Rate Inverse Coupon Security
PART --Partnership Structure
PCFA --Pollution Control Finance Authority
PCR --Pollution Control Revenue
PFA --Public Finance Authority
PFC --Public Finance Corporation
PSFG --Permanent School Fund Guaranty
Q-SBLF --Qualified School Bond Loan Fund
Radian --Radian Asset Assurance
RAN --Revenue Anticipation Notes
RAW --Revenue Anticipation Warrants
RDA --Redevelopment Agency
RIBS --Residual Interest Bonds
RITES --Residual Interest Tax-Exempt Securities
SPA --Standby Bond Purchase Agreement
SWAP --Swap Structure
SYCC --Structured Yield Curve Certificate
TAN --Tax Anticipation Notes
TCRS --Transferable Custodial Receipts
TECP --Tax Exempt Commercial Paper
TFA --Transitional Finance Authority
TOB --Tender Option Bond Structure
TRAN --Tax and Revenue Anticipation Notes
UFSD --Unified Free School District
UHSD --Unified High School District
USD --Unified School District
VA --Veterans Administration
VRDD --Variable Rate Daily Demand
VRDO --Variable Rate Demand Obligation
VRWE --Variable Rate Wednesday Demand
XLCA --XL Capital Assurance
-----
*Abbreviations may or may not appear in the Schedule of Investments.
[GRAPHIC]
26
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2004
---------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $717,579,623) $721,576,872
Cash 9,804
Receivable for securities sold 22,914,929
Interest receivable 11,443,500
Receivable from broker -- variation margin 1,484,375
--------------------------------------------------------------------------------
Total Assets 757,429,480
--------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 14,320,170
Dividends payable to Common Stock Shareholders 689,828
Investment advisory fee payable 325,359
Administration fee payable 126,012
Dividends payable to Auction Rate Cumulative
Preferred Stockholders 41,180
Accrued expenses 170,615
--------------------------------------------------------------------------------
Total Liabilities 15,673,164
--------------------------------------------------------------------------------
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 $491,756,316
--------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 41,916
Capital paid in excess of par value 509,780,978
Undistributed net investment income 553,787
Accumulated net realized loss from investment transactions
and futures contracts (37,056,287)
Net unrealized appreciation of investments and futures contracts 18,435,922
--------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.73 per share on 41,915,511 common shares
of $0.001 par value outstanding; 500,000,000 common shares
authorized) $491,756,316
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
27
STATEMENT OF OPERATIONS
Year Ended
May 31, 2004
-------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $37,724,306
------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 3) 4,064,193
Administration fee (Note 3) 1,500,972
Auction participation fees (Note 6) 627,103
Shareholder communications 190,356
Transfer agency services 148,651
Audit and legal 101,979
Custody 62,206
Directors' fees 55,665
Auction agent fees 40,000
Stock exchange listing fees 35,002
Rating agency fees 17,300
Other 22,621
------------------------------------------------------------------------
Total Expenses 6,866,048
------------------------------------------------------------------------
Net Investment Income 30,858,258
------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 4 AND 5):
Realized Gain (Loss) From:
Investments transactions 3,675,558
Futures contracts (4,021,150)
------------------------------------------------------------------------
Net Realized Loss (345,592)
------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and
Futures Contracts:
Beginning of year 21,229,478
End of year 18,435,922
------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (2,793,556)
------------------------------------------------------------------------
Net Loss on Investments and Futures Contracts (3,139,148)
------------------------------------------------------------------------
Distributions Paid to Auction Rate Cumulative Preferred
Stockholders From Net Investment Income (2,305,479)
------------------------------------------------------------------------
Increase in Net Assets From Operations $25,413,631
------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
28
STATEMENTS OF CHANGES IN NET ASSETS
For the Years
Ended May 31,
--------------------------
2004 2003
---------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 30,858,258 $ 31,961,114
Net realized loss (345,592) (6,095,076)
Increase (decrease) in net
unrealized appreciation (2,793,556) 10,448,849
Dividends paid to Auction Rate
Cumulative Preferred Stockholders
from net investment income (2,305,479) (3,092,691)
------------------------------------------------------------------------------
Increase in Net Assets From Operations 25,413,631 33,222,196
------------------------------------------------------------------------------
DISTRIBUTIONS PAID TO COMMON STOCK
SHAREHOLDERS FROM (NOTE 2):
Net investment income (29,138,516) (27,708,391)
------------------------------------------------------------------------------
Decrease in Net Assets From Distributions
Paid to Common Stock Shareholders (29,138,516) (27,708,391)
------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS:
Underwriting commissions and offering
expenses for the issuance of Auction
Rate Cumulative Preferred Stock (Note 6) -- (71,209)
Net asset value of shares issued for
reinvestment of dividends (Note 7) 704,238 --
------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions 704,238 (71,209)
------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (3,020,647) 5,442,596
NET ASSETS:
Beginning of year 494,776,963 489,334,367
------------------------------------------------------------------------------
End of year* $491,756,316 $494,776,963
------------------------------------------------------------------------------
* Includes undistributed net investment income of: $553,787 $1,144,516
------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
[GRAPHIC]
29
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 following are significant accounting policies consistently followed by
the Fund and are in conformity with U.S. generally accepted accounting
principles ("GAAP"): (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 for which market quotations are not available will be valued in good
faith at fair value by or under the direction of the Board of Directors; (d)
securities maturing within 60 days or less are valued at cost plus accreted
discount, or minus amortized premium, which approximates value; (e) gains or
losses on the sale of securities are calculated by using the specific
identification method; (f) interest income, adjusted for amortization of
premium and accretion of discount, is recorded on an accrual basis; (g)
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; (h) 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; (i) the Fund intends to comply with the applicable
provisions of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise
taxes; (j) the character of income and gains to be distributed is determined in
accordance with income tax regulations which may differ from GAAP. At May 31,
2004, reclassifications were made to the Fund's capital accounts to reflect
permanent book/tax differences and income and gains
[GRAPHIC]
30
NOTES TO FINANCIAL STATEMENTS
(continued)
available for distributions under income tax regulations; and (k) estimates and
assumptions are required to be made regarding assets, liabilities and changes
in net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
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 the investment adviser and
administrator to the Fund. For investment advisory and administrative services,
the Fund pays SBFM fees calculated at the annual rate of 0.70% and 0.20% of the
average daily total net assets of the Fund, respectively, for an aggregate
investment advisory and administrative fee of 0.90%. Notwithstanding the
foregoing, by agreement between SBFM and the Fund, the Fund pays SBFM 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
investment advisory fee and the administrative fee are each calculated daily
and paid monthly.
Effective September 1, 2003, the aggregate investment advisory and
administrative fee rate of 0.90% described above was reduced to an aggregate
fee of 0.75%, composed of investment advisory and administrative fees
calculated at the annual rate of 0.55% and 0.20% of the average daily total net
assets of the Fund, respectively. The investment advisory and administrative
fees are otherwise calculated as described in the above paragraph.
All officers and one Director of the Fund are employees of Citigroup or its
affiliates.
[GRAPHIC]
31
NOTES TO FINANCIAL STATEMENTS
(continued)
4. INVESTMENTS
During the year ended May 31, 2004, 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 $234,529,245
-----------------------------------------------------------------------------
Sales 270,719,996
-----------------------------------------------------------------------------
At May 31, 2004, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
------------------------------------------------------------------------------
Gross unrealized appreciation $ 28,506,222
Gross unrealized depreciation (24,274,910)
------------------------------------------------------------------------------
Net unrealized appreciation $ 4,231,312
------------------------------------------------------------------------------
5. FUTURES CONTRACTS
Securities or cash equal to the initial margin amount are either deposited
with the broker or segregated by the custodian upon entering into the futures
contract. Additional securities are also segregated up to the current market
value of the futures contract. 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 typically
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, 2004, the Fund had the following open futures contracts:
Number of Basis Market Unrealized
Contracts Expiration Value Value Gain
-----------------------------------------------------------------------------
Contracts to Sell:
U.S. Treasury
Bonds 2,500 6/04 $280,844,923 $266,406,250 $14,438,673
---------------------------------------------------- ------------ -----------
[GRAPHIC]
32
NOTES TO FINANCIAL STATEMENTS
(continued)
6. AUCTION RATE CUMULATIVE PREFERRED STOCK
As of May 31, 2004, the Fund had 2,000 outstanding shares of Series M,
Series T, Series W, Series Th and Series F, respectively, of Auction Rate
Cumulative Preferred Stock ("ARCPS"). The ARCPS' dividends are cumulative at a
rate determined at an auction and the dividend period is typically 7 days. The
dividend rates ranged from 0.60% to 1.25% during the year ended May 31, 2004.
At May 31, 2004, the dividend rates were as follows:
Series M Series T Series W Series Th Series F
----------------------------------------------------------------------------
Dividend Rates 1.08% 1.05% 1.05% 1.05% 1.05%
----------------------------------------------------------------------------
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 the liquidation preference, which
is the sum 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"), 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, 2004, the Fund
incurred auction participation fees of $627,103 for CGM's services as a
participating broker/dealer.
7. CAPITAL SHARES
Capital stock transactions were as follows:
Year Ended
May 31, 2004
---------------
Shares Amount
----------------------------------------------------------------------------
Shares issued on reinvestment 59,395 $704,238
---------------------------------------------------------------------------
[GRAPHIC]
33
NOTES TO FINANCIAL STATEMENTS
(continued)
8. CAPITAL LOSS CARRYFORWARD
At May 31, 2004, the Fund had, for Federal income tax purposes,
approximately $21,156,000 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:
2008 2011
--------------------------------------------
Carryforward Amounts $10,787,000 $10,369,000
--------------------------------------------
In addition, the Fund had $1,461,142 of capital losses realized after
October 31, 2003, which were deferred for income purposes to the first day of
the following fiscal year.
9. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
At May 31, 2004, the tax basis components of distributable earnings were:
---------------------------------------------
Undistributed tax-exempt income $ 1,096,751
---------------------------------------------
Accumulated capital losses (21,156,474)
---------------------------------------------
Unrealized appreciation 4,231,312
---------------------------------------------
The difference between book basis and tax basis unrealized appreciation and
depreciation is attributable primarily to mark to market of derivative
contracts and the treatment of accretion of discounts and amortization of
premiums.
The tax character of distributions paid during the year ended May 31, was:
2004 2003
-----------------------------------------
Tax-exempt income $31,439,501 $30,794,471
Ordinary income 4,494 6,611
-----------------------------------------
Total $31,443,995 $30,801,082
-----------------------------------------
[GRAPHIC]
34
NOTES TO FINANCIAL STATEMENTS
(continued)
10.ADDITIONAL INFORMATION
Citigroup has been notified by the Staff of the Securities and Exchange
Commission ("SEC") that the Staff is considering recommending a civil
injunctive action and/or an administrative proceeding against Citigroup Asset
Management ("CAM"), including its applicable investment advisory companies and
Citicorp Trust Bank ("CTB"), an internal transfer agent, relating to the
creation and operation of the internal transfer agent unit to serve certain
CAM-managed funds. CTB did not provide services to the Fund. This notification
arises out of a previously disclosed investigation by the SEC and the U.S.
Attorney and relates to CTB's entry in 1999 into the transfer agency business,
CAM's retention of, and agreements with an unaffiliated sub-transfer agent, the
adequacy of the disclosures made to the fund boards that approved the transfer
agency arrangements, (including CAM's failure to disclose a related revenue
guarantee agreement benefiting CAM and its affiliates), and CAM's operation of
and compensation for the transfer agency business. The revenue guarantee
described above was terminated in 1999 and CAM will be paying the applicable
funds, primarily through fee waivers, a total of approximately $17 million
(plus interest) that is the amount of the revenue received by Citigroup
relating to the revenue guarantee. Citigroup is cooperating fully in the
investigation and will seek to resolve the matter in discussions with the SEC
Staff. Although there can be no assurance, Citigroup does not believe that this
matter will have a material adverse effect on the Fund.
[GRAPHIC]
35
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year ended May 31,
unless otherwise noted:
2004 2003 2002 2001 2000
------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.82 $11.69 $11.74 $10.93 $11.97
-----------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(1)(2)/ 0.74 0.76 0.60 0.60 0.58
Net realized and unrealized gain (loss)/(2)/ (0.07) 0.10 0.02 0.79 (1.14)
Dividends paid to Auction Rate Cumulative
Preferred Stockholders from
net investment income (0.06) (0.07) (0.00)* -- --
-----------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.61 0.79 0.62 1.39 (0.56)
-----------------------------------------------------------------------------------------
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 (0.70) (0.66) (0.60) (0.60) (0.60)
-----------------------------------------------------------------------------------------
Total Distributions (0.70) (0.66) (0.60) (0.60) (0.60)
-----------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.73 $11.82 $11.69 $11.74 $10.93
-----------------------------------------------------------------------------------------
Total Return,
Based on Market Value/(3)/ 5.86% 10.60% 4.79% 20.69% (3.88)%
-----------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value/(3)/ 5.63% 7.55% 5.33% 13.90% (2.82)%
-----------------------------------------------------------------------------------------
Net Assets,
End of Year (millions) $492 $495 $489 $374 $352
-----------------------------------------------------------------------------------------
Ratios to Average Net Assets Based on
Common Shares Outstanding/(4)/:
Expenses/(1)/ 1.37% 1.51% 0.52% 0.68% 0.89%
Net investment income/(2)/ 6.17 6.40 4.84 5.15 5.19
-----------------------------------------------------------------------------------------
Portfolio Turnover Rate 34% 28% 39% 58% 35%
-----------------------------------------------------------------------------------------
Market Price, End of Year $10.93 $10.99 $10.57 $10.67 $9.375
-----------------------------------------------------------------------------------------
[GRAPHIC]
36
FINANCIAL HIGHLIGHTS
(continued)
2004 2003 2002 2001 2000
---------------------------------------------------------------------------
Auction Rate Cumulative
Preferred Stock/(5)/:
Total Amount Outstanding (000s) $250,000 $250,000 $250,000 -- --
Asset Coverage Per Share 74,250 74,478 74,000 -- --
Involuntary Liquidating Preference
Per Share/(6)/ 25,000 25,000 25,000 -- --
Average Market Value Per Share/(6)/ 25,000 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 and 2000. 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
(2)Effective June 1, 2001, the Fund adopted a change in 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. 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]
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, 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 the standards of the Public
Company Accounting Oversight Board (United States). 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, 2004, by correspondence
with the custodian or broker. As to securities purchased or sold but not yet
received or delivered, we performed other appropriate auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
the Fund as of May 31, 2004, 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 U.S. generally accepted
accounting principles.
/s/ KPMG LLP
New York, New York
July 19, 2004
[GRAPHIC]
38
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
------------------------------------------------------
Fiscal Year 2003
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
Fiscal Year 2004
6/24/03 6/27/03 10.93 11.77 0.058 11.08
7/22/03 7/25/03 10.62 11.82 0.058 10.79
8/26/03 8/29/03 10.56 11.68 0.058 10.63
9/23/03 9/26/03 10.61 11.83 0.058 10.76
10/28/03 10/31/03 11.11 11.95 0.058 11.17
11/24/03 11/28/03 11.03 12.05 0.058 11.24
12/22/03 12/26/03 11.18 12.06 0.058 11.28
1/27/04 1/30/04 11.69 12.11 0.058 11.67
2/24/04 2/27/04 11.67 12.13 0.058 11.83
3/23/04 3/26/04 11.76 11.99 0.058 11.75
4/27/04 4/30/04 10.63 11.88 0.058 10.61
5/25/04 5/28/04 10.74 11.70 0.058 10.92
------------------------------------------------------
+ As of record date.
[GRAPHIC]
39
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 Other
Office* and Principal Complex Board
Position(s) Length of Occupation(s) Overseen Memberships
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. Bloostein 34 Taubman
27 West 67th Street Director 1992 Associates Centers, Inc.
Apt. 5FW (retail
New York, NY 10023 shopping
Age 74 centers)
Dwight B. Crane Class III Since Professor, Harvard Business 49 None
Harvard Business School Director 1992 School
Soldiers Field
Morgan Hall #375
Boston, MA 02163
Age 66
Paolo M. Cucchi Class I Since Vice President and Dean of 7 None
Drew University Director 2001 College of Liberal Arts at
108 Brothers College Drew University
Madison, NJ 07940
Age 62
Robert A. Frankel Class II Since Managing Partner of Robert 24 None
1961 Deargross Way Director 1994 A. Frankel Management
Carlsbad, CA 92009 Consultants
Age 77
Paul Hardin Class II Since Chancellor Emeritus and 34 None
12083 Morehead Director 2001 Professor of Law at the
Chapel Hill, NC University of North
27514-8426 Carolina at Chapel Hill
Age 72
William R. Hutchinson Class III Since President, W.R. Hutchinson 42 Director,
535 N. Michigan Director 1995 & Associates, Inc.; Associated
Suite 1012 Formerly Group Vice Bank and
Chicago, IL 60611 President, Mergers & Associated
Age 61 Acquisitions BP Amoco Banc-Corp.
p.l.c.
George M. Pavia Class III Since Senior Partner, Pavia & 7 None
600 Madison Avenue Director 2001 Harcourt Attorneys
New York, NY 10022
Age 76
[GRAPHIC]
40
ADDITIONAL INFORMATION
(unaudited) (continued)
Number of
Portfolios
Term of in Fund Other
Office* and Principal Complex Board
Position(s) Length of Occupation(s) Overseen Memberships
Name, Address Held with Time During Past by Held by
and Age Fund Served Five Years Director Director
--------------------------------------------------------------------------------------------------------
Interested Director:
R. Jay Gerken, CFA** Class I Since Managing Director of 221 None
Citigroup Asset Director/ 2002 Citigroup Global Markets
Management ("CAM") Chairman, Inc. ("CGM"); Chairman,
399 Park Avenue also serves President and Chief Executive
4th Floor as President Officer of Smith Barney Fund
New York, NY 10022 and Chief Management LLC ("SBFM"),
Age 53 Executive Travelers Investment Adviser,
Officer Inc. ("TIA") and Citi Fund
Management Inc. ("CFM");
President and Chief Executive
Officer of certain mutual
funds associated with
Citigroup Inc. ("Citigroup");
Formerly Portfolio Manager
of Smith Barney Allocation
Series Inc. (from 1996 to
2001) and Smith Barney
Growth and Income Fund
(from 1996 to 2000)
Officers:
Andrew B. Shoup Senior Vice Since Director of CAM; Senior N/A N/A
CAM President 2003 Vice President and Chief
125 Broad Street and Chief Administrative Officer of
11th Floor Administrative mutual funds associated with
New York, NY 10004 Officer Citigroup; Treasurer of
Age 47 certain mutual funds
associated with Citigroup;
Head of International Funds
Administration of CAM
(from 2001 to 2003);
Director of Global Funds
Administration of CAM
(from 2000 to 2001); Head
of U.S. Citibank Funds
Administration of CAM
(from 1998 to 2000)
Robert J. Brault*** Chief Since Director of CGM; Chief N/A N/A
CAM Financial 2004 Financial Officer and
125 Broad Street Officer and Treasurer of certain mutual
11th Floor Treasurer funds associated with
New York, NY 10004 Citigroup; Director of
Age 38 Internal Control for CAM
U.S. Mutual Fund
Administration (from 2002
to 2004); Director of Project
Management & Information
Systems for CAM U.S.
Mutual Fund Administration
(from 2000 to 2002); Vice
President of Mutual Fund
Administration at Investors
Capital Services (from 1999
to 2000)
[GRAPHIC]
41
ADDITIONAL INFORMATION
(unaudited) (continued)
Number of
Portfolios
Term of in Fund Other
Office* and Principal Complex Board
Position(s) Length of Occupation(s) Overseen Memberships
Name, Address Held with Time During Past by Held by
and Age Fund Served Five Years Director Director
--------------------------------------------------------------------------------------------------------
Joseph P. Deane Vice Since Managing Director of CGM; N/A N/A
CAM President 1993 Investment Officer of SBFM
399 Park Avenue and
4th Floor Investment
New York, NY 10022 Officer
Age 56
David T. Fare Vice Since Director of CGM; N/A N/A
CAM President 1993 Investment Officer of
399 Park Avenue and SBFM
4th Floor Investment
New York, NY 10022 Officer
Age 41
Kaprel Ozsolak Controller Since Vice President of N/A N/A
CAM 2002 CGM; Controller of
125 Broad Street certain mutual funds
11th Floor associated with Citigroup
New York, NY 10004
Age 38
Robert I. Frenkel Secretary Since Managing Director N/A N/A
CAM and Chief 2003 and General Counsel
300 First Stamford Place Legal Officer of Global Mutual
4th Floor Funds for CAM and its
Stamford, CT 06902 predecessor (since 1994);
Age 48 Secretary of CFM
(from 2001 to 2004); Secretary
and Chief Legal Officer of
mutual funds associated with
Citigoup
-----
*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.
***As of May 27, 2004.
TAX INFORMATION
(unaudited)
For the year ended May 31, 2004, 99.99% of the dividends paid by the Fund
from net investment income were tax exempt for regular Federal income tax
purposes.
[GRAPHIC]
42
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 Inc. ("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 98% of 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) 98% of 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]
43
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 Inc., P.O. Box 43027, Providence, Rhode
Island 02940-3027 or by telephone at 1 (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]
44
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
Andrew B. Shoup
Senior Vice President and Chief Administrative Officer
Robert J. Brault*
Chief Financial Officer and Treasurer
Joseph P. Deane
Vice President and Investment Officer
David T. Fare
Vice President and
Investment Officer
Kaprel Ozsolak
Controller
Robert I. Frenkel
Secretary and
Chief Legal Officer
-----
* As of May 27, 2004.
INVESTMENT ADVISER AND ADMINISTRATOR
Smith Barney Fund Management LLC
399 Park Avenue
New York, New York 10022
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, Rhode Island 02940-3027
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
[GRAPHIC]
45
[GRAPHIC]
THIS REPORT IS ONLY INTENDED FOR SHAREHOLDERS OF THE
MANAGED MUNICIPALS PORTFOLIO INC.
IT IS NOT A PROSPECTUS,
CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE
PURCHASE OR SALE OF SHARES OF THE FUND OR OF ANY
SECURITIES MENTIONED IN THE REPORT.
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.
FD2246 7/04
04-6812
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Directors of the registrant has determined that
William R. Hutchinson, a member of the Board's Audit Committee,
possesses the technical attributes identified in Instruction 2(b) of
Item 3 to Form N-CSR to qualify as an "audit committee financial
expert," and has designated Mr.Hutchinson as the Audit Committee's
financial expert. Mr.Hutchinson is an "independent" Director pursuant to
paragraph (a)(2) of Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees for the Managed Municipals Portfolio Inc. of $34,250
and $36,000 for the years ended 5/31/04 and 5/31/03.
(b) Audit-Related Fees for the Managed Municipals Portfolio Inc. of
$10,000 and $10,000 for the years ended 5/31/04 and 5/31/03.
(c) Tax Fees for Managed Municipals Portfolio Inc. of $2,100 and
$2,100 for the years ended 5/31/04 and 5/31/03. These amounts
represent aggregate fees paid for tax compliance, tax advice and
tax planning services, which include (the filing and amendment of
federal, state and local income tax returns, timely RIC
qualification review and tax distribution and analysis planning)
rendered by the Accountant to Managed Municipals Portfolio Inc.
(d) All Other Fees for Managed Municipals Portfolio Inc. of $0 and $0
for the years ended 5/31/04 and 5/31/03.
(e) (1) Audit Committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
The Charter for the Audit Committee (the "Committee") of the Board of
each registered investment company (the "Fund") advised by Smith
Barney Fund Management LLC or Salomon Brothers Asset Management Inc
or one of their affiliates (each, an "Adviser") requires that the
Committee shall approve (a) all audit and permissible non-audit
services to be provided to the Fund and (b) all permissible non-audit
services to be provided by the Fund's independent auditors to the
Adviser and any Covered Service Providers if the engagement relates
directly to the operations and financial reporting of the Fund. The
Committee may implement policies and procedures by which such services
are approved other than by the full Committee.
The Committee shall not approve non-audit services that the Committee
believes may impair the independence of the auditors. As of the date
of the approval of this Audit Committee Charter, permissible non-audit
services include any professional services (including tax services),
that are not prohibited services as described below, provided to the
Fund by the independent auditors, other than those provided to the
Fund in connection with an audit or a review of the financial
statements of the Fund. Permissible non-audit services may not
include: (i) bookkeeping or other services related to the accounting
records or financial statements of the Fund; (ii) financial
information systems design and implementation; (iii) appraisal or
valuation services, fairness opinions or contribution-in-kind reports;
(iv) actuarial services; (v) internal audit outsourcing services; (vi)
management functions or human resources; (vii) broker or dealer,
investment adviser or investment banking services; (viii) legal
services and expert services unrelated to the audit; and (ix) any
other service the Public Company Accounting Oversight Board
determines, by regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit services is
not required so long as: (i) the aggregate amount of all such
permissible non-audit services provided to the Fund, the Adviser and
any service providers controlling, controlled by or under common
control with the Adviser that provide ongoing services to the Fund
("Covered Service Providers") constitutes not more than 5% of the
total amount of revenues paid to the independent auditors during the
fiscal year in which the permissible non-audit services are provided
to (a) the Fund, (b) the Adviser and (c) any entity controlling,
controlled by or under common control with the Adviser that provides
ongoing services to the Fund during the fiscal year in which the
services are provided that would have to be approved by the Committee;
(ii) the permissible non-audit services were not recognized by the
Fund at the time of the engagement to be non-audit services; and (iii)
such services are promptly brought to the attention of the Committee
and approved by the Committee (or its delegate(s)) prior to the
completion of the audit.
(f) N/A
(g) Non-audit fees billed by the Accountant for services rendered to
Managed Municipals Portfolio Inc. and CAM and any entity
controlling, controlled by, or under common control with CAM that
provides ongoing services to Managed Municipals Portfolio Inc.
were $0 and $0 for the years ended 5/31/04 and 5/31/03.
(h) Yes. The Managed Municipals Portfolio Inc.'s Audit Committee has
considered whether the provision of non-audit services that were
rendered to Service Affiliates which were not pre-approved (not
requiring pre-approval) is compatible with maintaining the
Accountant's independence. All services provided by the
Accountant to the Managed Municipals Portfolio Inc. or to Service
Affiliates which were required to be pre-approved were
pre-approved as required.
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- 3(c)
under the Investment Company Act of 1940, as amended (the "1940
Act")) are effective as of a date within 90 days of the filing
date of this report that includes the disclosure required by
this paragraph, based on their evaluation of the disclosure
controls and procedures required by Rule 30a-3(b) under the 1940
Act and 15d-15(b) under the Securities Exchange Act of 1934.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940
Act) that occurred during the registrant's last fiscal half-year
(the registrant's second fiscal half-year in the case of an
annual report) that have materially affected, or are likely to
materially affect the registrant's internal control over
financial reporting.
ITEM 10.EXHIBITS.
(a) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(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 9, 2004
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 9, 2004
By: /s/ Andrew B. Shoup
---------------------------------
Andrew B. Shoup
Chief Administrative Officer of
Managed Municipals Portfolio Inc.
Date: August 9, 2004