Managed Municipals
Portfolio Inc.
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SEMI-ANNUAL REPORT
November 30, 2002
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Managed Municipals
Portfolio Inc.
Dear Shareholder,
Please allow me to introduce myself as the new Chairman of the Board,
President and Chief Executive Officer of the Managed Municipals Portfolio Inc.
("Fund"), replacing Heath B. McLendon, who has been appointed Chairman of
Salomon Smith Barney Inc.'s new Equity Research Policy Committee. On behalf of
all our shareholders and the Fund's Board of Directors, I would like to extend
my deepest gratitude to Heath for his years of service and for his dedication
to keeping shareholders' needs as the firm's top priority. I look forward to
keeping you informed about the investment perspectives of the Fund's manager by
providing you with these shareholder letters quarterly.
To better acquaint you with my experience, I am currently a managing
director of Salomon Smith Barney Inc., and I have previously managed the Smith
Barney Growth and Income Fund for six years; developed and managed the Smith
Barney Allocation Series Inc. from its inception in 1996 through the end of
2001; and was responsible for the investment design and implementation of
Citigroup Asset Management's college savings programs with the states of
Illinois and Colorado.
Enclosed herein is the semi-annual report for the Fund for the six months
ended November 30, 2002. In this report, the Fund's manager summarizes what he
believes to be the period's prevailing economic and market conditions and
outline the Fund's investment strategy. A detailed summary of the Fund's
performance can be found in the appropriate sections that follow. I hope you
find this report to be useful and informative.
Sincerely,
/s/ R Jay Gerken
R. Jay Gerken
Chairman, President and
Chief Executive Officer
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1
Performance Review/1/
During the past six months ended November 30, 2002, the Fund distributed
income dividends to shareholders totaling $0.32 per share. The table below
details the annualized distribution rate and the six-month total return for the
Fund based on its November 30, 2002 net asset value ("NAV") per share and the
New York Stock Exchange ("NYSE") closing price./2/
Annualized Six-Month
Price Per Share Distribution Rate/3/ Total Return/3/
--------------- ------------------- --------------
$11.94 (NAV) 5.53% 5.21%
$10.43 (NYSE) 6.33% 1.64%
The Fund's Lipper Inc. ("Lipper")/4/ peer group of closed-end general
municipal debt funds (leveraged) returned 3.63% based on NAV for the six months
ended November 30, 2002.
Investment Strategy
The Fund seeks to maximize current interest income, which is excluded from
gross income for regular federal income tax/5/ purposes to the extent
-----
1Past performance is not indicative of future results.
2NAV is calculated by subtracting total liabilities from the closing value of
all securities held by the Fund (plus all other assets) and dividing the
result (total net assets) by the total number of the common shares
outstanding. The NAV fluctuates with changes in the market prices of
securities in which the Fund invests. 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 shares.
3Total returns are based on changes in NAV or the market price, respectively.
Total returns assume the reinvestment of all dividends and/or capital gains
distributions in additional shares. Annualized distribution rate is the Fund's
current monthly income dividend rate, annualized, and then divided by the NAV
or the market value noted in the report. The annualized distribution rate
assumes a current monthly income dividend rate to common shareholders of
$0.055 for twelve months. This rate is as of November 30, 2002 and is subject
to change. The important difference between a total return and an annualized
distribution rate is that the total return takes into consideration a number
of factors including the fluctuation of the NAV or the market value during the
period reported. The NAV fluctuation includes the effects of unrealized
appreciation or depreciation in the Fund. Accordingly, since an annualized
distribution rate only reflects the current monthly income dividend rate
annualized, it should not be used as the sole indicator to judge the return
you receive from your Fund investment.
4Lipper is a major independent mutual fund tracking organization. Average
annual returns are based on the six-month period ended November 30, 2002,
calculated among 58 funds in the closed-end general municipal debt funds
(leveraged) category with reinvestment of dividends and capital gains
excluding sales charges.
5Please note a portion of the Fund's income may be subject to the Alternative
Minimum Tax ("AMT"). State and local income taxes may apply, and capital
gains, if any, are fully taxable. Please consult your personal tax adviser.
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2
consistent with prudent investment management and the preservation of capital.
The Fund invests at least 80% of its assets in municipal securities, which are
rated investment-grade/6/ at the time of investment or are determined to be of
equivalent quality.
Portfolio Manager Market Overview
Macroeconomic fundamentals such as low inflation and low interest rates
proved favorable for fixed-income securities markets, prompting many
risk-adverse investors concerned about stock market volatility to shift their
money from equities into high-grade debt issues. Nevertheless, the slow pace of
economic recovery, weakness in the stock markets and diminished tax revenue
growth presented challenges to many municipalities during the reporting period.
According to a recent report from Standard & Poor's, more than half of the
states nationally experienced revenue declines during the states' fiscal year
2002 (from their fiscal 2001 levels), and nearly all states recorded revenue
shortfalls compared to their original budget forecasts. To help stimulate
economic activity throughout the nation, the Federal Open Market Committee
("FOMC")/7/ reduced its target for the federal funds rate ("fed funds rate")/8/
by half a percentage point to a 40-year low of 1.25%. (Until that point during
the year, the FOMC had kept its target for the rate intact throughout 2002.)
Despite the economic challenges in the recent environment, most U.S.
Treasury and municipal securities indices finished in positive territory on a
total return basis for the period. Prices of municipal bonds (which move
inversely to yields) in general have not rallied as considerably as U.S.
Treasuries have over the past year. As a result, amid a period of historically
high municipal security issuance levels in 2002, municipal securities rated AAA
that have longer maturities have recently offered yields at levels virtually
-----
6Investment-grade bonds are those rated Aaa, Aa, A and Baa by Moody's Investors
Service and AAA, AA, A and BBB by Standard & Poor's Ratings Service, or that
have an equivalent rating by a nationally recognized statistical rating
organization or are determined by the manager to be of equivalent quality.
7The FOMC is a policy-making body of the Federal Reserve System responsible for
the formulation of a policy designed to promote economic growth, full
employment, stable prices, and a sustainable pattern of international trade
and payments.
8The fed funds rate is the interest rate that banks with excess reserves at a
Federal Reserve district bank charge other banks that need overnight loans.
The fed funds rate often points to the direction of U.S. interest rates.
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3
comparable to those on U.S. Treasuries with similar maturities. Unlike U.S.
Treasuries, interest on municipal bonds is not taxable at the federal level. We
believe this added potential tax savings can make municipal bond investing an
even more compelling alternative to Treasuries at this juncture. A portion of
the Fund's income from municipal securities may be subject to certain taxes and
any capital gains are taxable./3/
Portfolio Manager Fund Overview
In our view, many municipal securities offer favorable values versus many
taxable fixed-income alternatives, although we believe that prices of most
municipal bonds -- particularly those in the investment-grade/6/
category -- have approached a peak. We effectively shortened the average
maturity of bonds in the Fund as part of our risk-management strategy. We
pursued this approach because, under normal market conditions, prices of bonds
with longer maturities (i.e., those "coming due" further down the road)
generally tend to decline more than bonds with comparatively shorter maturities
in rising rate environments. Early in the reporting period and in the prior
fiscal year, we targeted municipal issues with maturities of 20 years or more
because, last year, longer-term securities tended to yield more than those with
comparatively shorter maturities. However, because we anticipate that interest
rates will rise, during the latter part of the reporting period we invested in
municipal bonds with slightly shorter maturities -- those with an average life
of approximately 17 to 18 years, while focusing on bonds that offer higher
coupon income. Furthermore, we invested in bond futures to help reduce the
Fund's overall volatility and raised the level of cash-equivalent instruments
in the Fund.
Portfolio Manager Market and Fund Outlook
In our view, it is likely that the FOMC will keep short-term interest rates
low enough and for long enough to help promote a decent economic recovery.
Nevertheless, going into 2003, we think monetary stimulus actions (i.e.,
interest rate cuts and injections of reserves into the monetary system) alone
will not be sufficient to promote economic recovery. Rather, we believe that
fiscal measures are now also required to stimulate business activity. We
anticipate that a fiscal stimulus package will be implemented, which may
include tax cuts, spending increases or other measures. In our opinion, such
pro-growth policies (if implemented) should provide a boost to the U.S.
economy, not necessarily over coming months, but over the next two years or so.
We believe that if the economy were to gradually improve, as we anticipate,
the FOMC may eventually raise short-term rates to help offset
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4
potential inflationary concerns. Given that prices of bonds such as municipals
typically move inversely to interest rates, we anticipate that bond prices in
general may come under pressure. However, considering that many investors
shifted equity holdings into U.S. Treasuries over recent periods (which
contributed to the periodic rises in prices of U.S. Treasuries), in our view
municipal bonds are generally priced less expensively than U.S. Treasuries.
Therefore, we think that municipal securities may be more resilient than U.S.
Treasuries if the economy shows signs of strength and if interest rates were to
rise in the future.
When choosing investment candidates for the Fund, we have taken a
conservative approach to selecting municipal bond issues. We look for
municipalities that we feel are prudently balancing their budgets for the
longer haul -- those governments that are reducing their expenses to meet their
revenue streams rather than those that are merely issuing additional debt. Our
general investment approach is to maintain an open-mind to municipal bond
issuers' budgetary plans, but we have taken a reasonably defensive posture by
avoiding significant exposure to uninsured general obligation bonds of
municipal issuers whose budget outlook, in our view, appears relatively dim. We
will continue to monitor how states address their projected revenues and
proceed to adjust their respective fiscal policies to effectively address any
differences in revenues. We will continue to maintain a constructive investment
approach toward evaluating municipal bonds and adjusting Fund holdings in
consideration of economic and market conditions, and we plan to continue to
follow this conservative course in the foreseeable future.
The risk is present that short-term rates may rise in the future and exhibit
pressure on municipal bond prices. However, considering the favorable yields
that many municipal bonds have offered relative to many taxable fixed-income
investment alternatives, coupled with the tax-treatment advantages of municipal
securities, we believe that individual investors can seek potential values
through a professionally managed portfolio of municipal securities over the
long-term.
Looking for more information?
Managed Municipals Portfolio Inc. is traded on the New York Stock Exchange
under the symbol "MMU." Daily closing prices are available online under symbol
"XMMUX" and in most newspapers under the New York Stock Exchange listings.
Barron's and The Wall Street Journal's Monday editions carry closed-end fund
tables that provide weekly net asset value per share information. In addition,
the Fund issues a quarterly allocation press release that can be found on most
major financial web sites.
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5
Thank you for investing in Managed Municipals Portfolio Inc. We look forward
to continuing to help you meet your investment objectives.
Sincerely,
/s/ Joseph P. Deane
Joseph P. Deane
Vice President and
Investment Officer
December 9, 2002
The information provided in this letter by the portfolio manager represents the
opinion of the portfolio manager and is not intended to be a forecast of future
events, a guarantee of future results or investment advice. Views expressed are
those of the portfolio manager and may differ from those of other portfolio
managers or of the firm as a whole. Furthermore, there is no assurance that
certain securities will remain in or out of the Fund or that the percentage of
the Fund's assets in various sectors will remain the same. Please refer to
pages 8 through 20 for a list and percentage breakdown of the Fund's holdings.
Also, please note that any discussion of the Fund's holdings, the Fund's
performance, and the portfolio manager's views are as of November 30, 2002 and
are subject to change.
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6
Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that Fund investors may reinvest their dividends in an effort to
take advantage of what can be one of the most effective wealth-building tools
available today? When the Fund achieves its objectives, systematic investments
by shareholders put time to work for them through the strength of compounding.
As an investor in the Fund, you can participate in its Dividend Reinvestment
Plan ("Plan"), a convenient, simple and efficient way to reinvest your
dividends and capital gains, if any, in additional shares of the Fund. Below
is a short summary of how the Plan works.
Plan Summary
If you are a Plan participant who has not elected to receive your dividends in
the form of a cash payment, then your dividend and capital gain distributions
will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a
cash dividend is determined in the following manner. If the market price of
the common stock is equal to or exceeds 98% of the net asset value per share
("NAV") on the determination date, you will be issued shares by the Fund at a
price reflecting the NAV, or 95% of the market price, whichever is greater.
If the market price is less than 98% of the NAV at the time of valuation (the
close of business on the determination date), PFPC Global Fund Services ("Plan
Agent"), will buy common stock for your account in the open market.
If the Plan Agent begins to purchase additional shares in the open market and
the market price of the shares subsequently rises above the previously
determined NAV before the purchases are completed, the Plan Agent will attempt
to terminate purchases and have the Fund issue the remaining dividend or
distribution in shares at the greater of the previously determined NAV or 95%
of the market price. In that case, the number of Fund shares you receive will
be based on the weighted average of prices paid for shares purchased in the
open market and the price at which the Fund issues the remaining shares.
A more complete description of the current Plan appears in this report
beginning on page 36.
To find more detailed information about the Plan and about how you can
participate, please call PFPC Global Fund Services at (800) 331-1710.
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7
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SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES -- 100.0%
Alabama -- 3.7%
$24,510,000 AAA Jefferson County, AL Sewer Revenue
Warrants, Series A, FGIC-Insured,
5.375% due 2/1/36 (b) $ 27,406,347
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Alaska -- 2.4%
Valdez, AK Marine Term Revenue
Refunding:
4,000,000 AA+ BP Pipelines Inc. Project, Series A,
5.850% due 8/1/25 4,075,360
13,900,000 VMIG 1* Exxon Mobil Project,
1.250% due 12/1/29 (c) 13,900,000
--------------------------------------------------------------------------------
17,975,360
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Arizona -- 2.3%
3,525,000 AA Arizona Agricultural Improvement & Power
Distribution, (Salt River Project), Electric
System Revenue, Series B,
5.000% due 1/1/31 3,493,346
Arizona State University, COP,
MBIA-Insured:
1,500,000 AAA 5.100% due 7/1/24 1,508,970
1,000,000 AAA 5.125% due 7/1/26 1,007,110
2,600,000 A-1+ Maricopa County, AZ Pollution Control
Corp., PCR Refunding, (AZ Public Service
Co.), Series C, 1.200% due 5/1/29 (c) 2,600,000
4,000,000 AAA Mesa, AZ IDA, Discovery Health Systems,
Series A, MBIA-Insured,
5.625% due 1/1/29 4,177,760
3,000,000 AAA Phoenix, AZ Civic Improvement Corp.
Airport Revenue, Sr. Lien, Series B,
FGIC-Insured, 5.250% due 7/1/22 (d) 3,024,570
1,000,000 AA+ Phoenix, AZ GO, Series B, 5.000% due 7/1/27 992,970
--------------------------------------------------------------------------------
16,804,726
--------------------------------------------------------------------------------
California -- 6.3%
7,040,000 Ba1* California Educational Facilities Authority
Revenue, (Pooled College & University
Projects), Series A, (Partially Pre-
Refunded -- Escrowed with U.S.
government securities to 7/1/08
Call @ 101), 5.625% due 7/1/23 (e) 6,205,408
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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8
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SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------
California -- 6.3% (continued)
$ 6,000,000 A3* California Health Facilities Authority
Revenue, (Cedars-Sinai Medical Center),
Series A, 6.250% due 12/1/34 $ 6,387,480
1,000,000 A+ California Health Facilities Financing
Authority Revenue, Sutter Health,
Series A, 6.250% due 8/15/35 1,063,270
5,000,000 AAA California State Department of Veterans
Affairs, Home Purchase Revenue, Series A,
AMBAC-Insured, 5.350% due 12/1/27 5,125,100
6,000,000 A3* California State Department of Water
Resources, Power Supply Revenue,
Series A, 5.250% due 5/1/20 6,033,180
7,000,000 AAA Los Angeles County, CA COP, Antelope
Valley Courthouse, Series A,
AMBAC-Insured, 5.250% due 11/1/33 7,135,730
3,800,000 VMIG 1* Orange County, CA Improvement Board,
(Assessment District No. 88-1),
1.050% due 9/2/18 (c) 3,800,000
3,340,000 AAA Rancho Cucamonga, CA Redevelopment
Agency Tax Allocation, (Rancho
Redevelopment Project), MBIA-Insured,
5.125% due 9/1/30 3,359,606
2,750,000 AAA Sacramento County, CA COP, (Public
Facilities Project), MBIA-Insured,
5.375% due 2/1/19 2,893,110
2,500,000 AAA San Francisco, CA City & County Airports
Commission, International Airport
Revenue, Second Series-27B,
FGIC-Insured, 5.000% due 5/1/22 2,513,525
2,500,000 AAA San Jose, CA Financing Authority Lease
Revenue, (Civic Center Project), Series B,
5.000% due 6/1/32 2,480,925
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46,997,334
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Colorado -- 9.5%
4,000,000 AAA Arapahoe County, CO Capital Improvement
Trust Fund, E-470 Public Highway
Authority Revenue, (Pre-Refunded --
Escrowed with U.S. government securities
to 8/31/05 Call @ 103),
7.000% due 8/31/26 (b) 4,642,080
1,000,000 A- Aspen, CO Sales Tax Revenue,
5.400% due 11/1/19 1,030,730
SEE NOTES TO
FINANCIAL STATEMENTS.
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9
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SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Colorado -- 9.5% (continued)
$ 4,000,000 AAA Colorado Educational & Cultural Facilities
Revenue Refunding, (University of Denver
Project), AMBAC-Insured,
5.375% due 3/1/23 $ 4,127,240
4,000,000 A Colorado Health Facilities Authority Revenue,
Series B, Remarketed 7/8/98,
5.350% due 8/1/15 4,084,680
6,000,000 A- Colorado Springs, CO Airport Revenue,
Series A, 7.000% due 1/1/22 (d) 6,126,600
Dawson Ridge, CO Metropolitan District No. 1,
(Escrowed to maturity with REFCO Strips):
15,000,000 Aaa* Series A, zero coupon due 10/1/22 5,225,850
47,500,000 Aaa* Series B, zero coupon due 10/1/22 (b) 16,548,525
Denver, CO City & County Airport Revenue,
Series C:
13,630,000 A 6.125% due 11/15/25 (b)(d) 14,153,392
10,945,000 A Escrowed to maturity with
U.S. government securities,
6.125% due 11/15/25 (b)(d)(e) 12,696,747
2,000,000 AAA Denver, CO City & County COP, Series B,
AMBAC-Insured, 5.500% due 12/1/25 2,082,000
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70,717,844
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Connecticut -- 1.1%
Connecticut State GO, Series B:
1,600,000 AA 5.000% due 6/15/02 1,612,048
4,490,000 AA 5.500% due 6/15/21 4,721,055
1,000,000 AAA Connecticut State Health & Education,
(Child Care Facilities Project), Series C,
AMBAC-Insured, 5.625% due 7/1/29 1,054,520
1,000,000 AAA Connecticut State Health & Educational
Facilities Authority Revenue, (Village
Families & Children), Series A,
AMBAC-Insured, 5.000% due 7/1/32 983,270
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8,370,893
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Delaware -- 1.4%
10,000,000 AAA Delaware State Economic Development
Authority Revenue, (Pollution Control-
Delmarva Project-B), AMBAC-Insured,
5.200% due 2/1/19 (b) 10,345,400
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SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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10
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SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
-----------------------------------------------------------------------------
District of Columbia -- 1.4%
Metropolitan Washington Airports, DC
Authority Airport System Revenue,
Series A, FGIC-Insured:
$ 5,355,000 AAA 5.125% due 10/1/22 (d) $ 5,356,660
5,500,000 AAA 5.125% due 10/1/26 (d) 5,399,405
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10,756,065
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Florida -- 5.0%
5,000,000 AAA Florida State Board & Educational Capital
Outlay GO, FSA-Insured,
5.000% due 6/1/24 4,999,950
3,000,000 AA+ Florida State Board of Education GO,
Series A, 5.125% due 6/1/21 3,050,580
3,145,000 AAA Florida State Department of Transportation
GO, FGIC-Insured, 5.000% due 7/1/25 3,140,660
1,500,000 AAA Julington Creek Plantation Community
Development District, FL Special
Assessment Revenue, MBIA-Insured,
5.000% due 5/1/29 1,489,065
6,500,000 BBB- Martin County, FL IDA, (Indiantown
Cogeneration Project), Series A,
7.875% due 12/15/25 (d) 6,675,955
1,290,000 AAA Miami Beach, FL Stormwater Revenue,
FGIC-Insured, 5.375% due 9/1/30 1,322,895
400,000 VMIG 1* Orange County, FL Educational Facilities
Authority Revenue, (Rollins College
Project), 1.250% due 5/1/31 (c) 400,000
2,000,000 Aaa* Orange County, FL School Board COP,
Series A, MBIA-Insured,
5.250% due 8/1/23 2,040,280
1,700,000 VMIG 1* Palm Beach County, FL Health Authority
Facilities Revenue, (Bethesda Healthcare
System Project), 1.800% due 12/1/31 (c) 1,700,000
10,000,000 AAA Palm Beach County, FL School Board COP,
Series C, FSA-Insured, 5.000% due 8/1/27 9,915,300
2,500,000 Aaa* South Brevard, FL Recreational Facilities
Improvement, Special District,
AMBAC-Insured, 5.000% due 7/1/20 2,532,925
-----------------------------------------------------------------------------
37,267,610
-----------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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11
[GRAPHIC]
SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
----------------------------------------------------------------------------------
Georgia -- 1.8%
$ 6,000,000 AAA Augusta, GA Water & Sewer Revenue,
FSA-Insured, 5.250% due 10/1/26 $ 6,127,020
Private Colleges & Universities Authority
Revenue, (Mercer University Project):
2,180,000 A3* 5.750% due 10/1/21 2,283,637
Series A:
2,000,000 A3* 5.250% due 10/1/25 1,991,940
1,000,000 A3* 5.375% due 10/1/29 1,005,150
2,000,000 BBB- Savannah, GA EDA Revenue, College of Art
& Design Inc., 6.900% due 10/1/29 2,114,700
----------------------------------------------------------------------------------
13,522,447
----------------------------------------------------------------------------------
Hawaii -- 0.5%
4,000,000 A Hawaii State Department of Budget &
Finance, Special Purpose Revenue,
Kaiser Permanente, Series A,
5.100% due 3/1/14 4,034,520
----------------------------------------------------------------------------------
Illinois -- 3.4%
4,095,000 AAA Chicago, IL GO, Series D, FGIC-Insured,
5.500% due 1/1/35 4,226,736
7,400,000 AAA Chicago, IL Skyway Toll Bridge Revenue,
AMBAC-Insured, 5.500% due 1/1/31 7,681,274
8,000,000 A Illinois Health Facilities Authority Revenue,
OSF Healthcare Systems,
6.250% due 11/15/29 8,270,800
5,000,000 AAA Illinois State GO, MBIA-Insured,
5.625% due 6/1/25 5,190,100
----------------------------------------------------------------------------------
25,368,910
----------------------------------------------------------------------------------
Indiana -- 0.7%
5,000,000 A1* Indiana Port Commission Revenue Refunding,
(Cargill Inc. Project), 6.875% due 5/1/12 5,165,300
----------------------------------------------------------------------------------
Kansas -- 0.2%
1,250,000 AAA Scott County, KS Unified School District No.
446 GO, FGIC-Insured, 5.000% due 9/1/22 1,252,775
----------------------------------------------------------------------------------
Louisiana -- 0.8%
5,500,000 A1* St. Martin Parish, LA Industrial Revenue,
(Cargill Inc. Project), 6.625% due 10/1/12 (f) 5,659,610
----------------------------------------------------------------------------------
Maine -- 0.3%
2,500,000 AA+ Maine State Housing Authority Mortgage
Revenue, Series C, 5.300% due 11/15/23 2,526,525
----------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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12
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SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Maryland -- 0.8%
Baltimore, MD Wastewater Project Revenue,
Series A, FGIC-Insured:
$ 2,500,000 AAA 5.125% due 7/1/32 $ 2,512,100
3,385,000 AAA 5.200% due 7/1/32 3,420,475
--------------------------------------------------------------------------------
5,932,575
--------------------------------------------------------------------------------
Massachusetts -- 5.1%
2,000,000 Baa3* Boston, Massachusetts Industrial Development
Financing Authority, Sr. Revenue Bonds,
(Crosstown Center Project), Series 2002,
6.500% due 9/1/35 (d) 1,934,080
3,000,000 AAA Massachusetts Bay Transportation Authority,
Sales Tax Revenue, Series A,
5.500% due 7/1/30 3,110,730
1,125,000 Aaa* Massachusetts Development Finance Agency,
(Merrimack College Issue), MBIA-Insured,
5.200% due 7/1/32 1,131,694
1,850,000 AAA Massachusetts Health & Educational Facilities
Authority, (University of Massachusetts
Projects), Series C, FGIC-Insured,
5.125% due 10/1/27 1,856,234
25,000,000 Aa2* Massachusetts State, GO of Commonwealth,
Series C, 5.250% due 11/1/30 (b) 25,326,500
5,000,000 AAA Massachusetts State Special Obligation
Revenue, Series A, FGIC-Insured,
5.000% due 6/1/21 5,030,000
--------------------------------------------------------------------------------
38,389,238
--------------------------------------------------------------------------------
Michigan -- 3.0%
5,000,000 AAA East Lansing, MI School District GO,
Q-SBLF-Insured, 5.625% due 5/1/30 5,191,250
Michigan State COP, AMBAC-Insured:
2,345,000 AAA 5.500% due 6/1/19 2,478,993
6,000,000 AAA 5.500% due 6/1/27 6,212,040
2,500,000 AA- Michigan State Hospital Finance Authority
Revenue Refunding, (Trinity Health Credit),
Series C, 5.375% due 12/1/23 2,470,550
SEE NOTES TO
FINANCIAL STATEMENTS.
[GRAPHIC]
13
[GRAPHIC]
SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
Michigan -- 3.0% (continued)
$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)(g) $ 4,500,000
1,885,000 VMIG 1* University of Michigan Revenue,
(Medical Service Plan), Series A-1,
1.300% due 12/1/21 (c) 1,885,000
-------------------------------------------------------------------------------
22,737,833
-------------------------------------------------------------------------------
Minnesota -- 2.5%
1,500,000 AAA Dakota County, MN Community
Development Agency, MFH Revenue,
FNMA-Collateralized, 5.625% due 2/1/26 1,534,320
2,500,000 A1* Duluth, MN IDA, Seaway Port Authority,
Dock & Wharf Revenue, (Cargill Inc.
Project), 6.800% due 5/1/12 2,558,300
7,000,000 A- Minneapolis, MN Healthcare System
Revenue, (Allina Health System), Series A,
6.000% due 11/15/23 7,067,550
Minneapolis & St. Paul, MN Community
Airport Revenue, FGIC-Insured:
2,000,000 AAA Series A, 5.125% due 1/1/25 1,995,980
4,000,000 AAA Sub-Series C, 5.250% due 1/1/26 4,041,760
1,225,000 AA+ Minnesota State Housing Financing Agency,
Single-Family Mortgage, Series I,
5.500% due 1/1/17 1,263,759
-------------------------------------------------------------------------------
18,461,669
-------------------------------------------------------------------------------
Missouri -- 3.2%
2,000,000 AAA Bi-State Development Agency of the
Missouri-Illinois Metropolitan District,
(Metrolink Cross County Project), Series B,
FSA-Insured, 5.000% due 10/1/32 1,978,440
1,500,000 AAA Greene County, MO Reorganized School,
District No. R-8 GO, FSA-Insured,
5.100% due 3/1/22 1,523,085
2,000,000 Aaa* Jackson County, MO Special Obligation,
MBIA-Insured, 5.000% due 12/1/27 1,977,480
3,600,000 VMIG 1* Missouri Development Finance Board,
Cultural Facilities Revenue, (Nelson
Gallery Foundation), Series B,
1.200% due 12/1/31 (c) 3,600,000
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
14
[GRAPHIC]
SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
Missouri -- 3.2% (continued)
$ 2,000,000 Aaa* Missouri State Environmental Improvement
& Energy Resources Authority, (Water
Pollution -- Drinking Water), Series B,
5.000% due 7/1/23 $ 2,007,780
2,000,000 AAA St. Louis, MO Airport Revenue, (Airport
Development Program), Series A,
MBIA-Insured, 5.125% due 7/1/22 2,028,320
10,600,000 A-1+ University of Missouri Revenue, Series B,
1.200% due 11/1/30 (c) 10,600,000
------------------------------------------------------------------------------
23,715,105
------------------------------------------------------------------------------
Montana -- 1.2%
10,095,000 NR Montana State Board Investment Resource
Recovery Revenue, (Yellowstone Energy
L.P. Project), 7.000% due 12/31/19 (d) 8,680,388
------------------------------------------------------------------------------
Nevada -- 0.9%
4,650,000 Baa2* Clark County, NV IDR, (Southwest Gas Corp.
Project), Series B, 7.500% due 9/1/32 (d) 4,755,834
2,250,000 AAA Truckee Meadows, NV Water Authority
Revenue, Series A, FSA-Insured,
5.000% due 7/1/25 2,231,865
------------------------------------------------------------------------------
6,987,699
------------------------------------------------------------------------------
New Jersey -- 6.8%
5,200,000 A+ Hudson County, NJ Improvement Authority,
6.624% due 8/1/25 5,334,420
1,000,000 BBB Middlesex County, NJ Pollution Control
Authority Revenue Refunding, Pollution
Control Financing, (Amerada Hess Corp.
Project), 5.750% due 9/15/32 973,510
3,125,000 Baa1* New Jersey EDA, PCR Refunding, (PSEG
Power LLC Project), 5.000% due 3/1/12 3,056,938
New Jersey Health Care Facilities Financing
Authority Revenue:
3,875,000 AAA Engelwood Hospital, FHA/MBIA-Insured,
5.000% due 8/1/23 3,864,847
8,000,000 A+ Robert Wood Johnson University
Hospital, 5.700% due 7/1/20 8,364,560
2,395,000 AA- New Jersey State Highway Authority, Garden
State Parkway General Revenue,
5.625% due 1/1/30 2,507,349
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
15
[GRAPHIC]
SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
New Jersey -- 6.8% (continued)
Tobacco Settlement Financing Corp.,
NJ Asset-Backed bonds:
$10,000,000 A 5.750% due 6/1/32 $ 9,432,600
15,000,000 A 6.000% due 6/1/37 (b) 14,228,850
3,390,000 A1* 6.125% due 6/1/42 3,223,822
--------------------------------------------------------------------------------
50,986,896
--------------------------------------------------------------------------------
New Mexico -- 0.3%
2,360,000 AAA New Mexico Mortgage Financing Authority,
Single-Family Mortgages, Series D-3,
5.625% due 9/1/28 2,403,849
--------------------------------------------------------------------------------
New York -- 7.7%
30,000,000 AA- Metropolitan Transportation Authority,
Series A, 5.125% due 1/1/24 (b) 30,077,700
Nassau Health Care Corp., NY Health Systems
Revenue, FSA-Insured:
2,000,000 AAA 5.500% due 8/1/19 2,136,060
3,000,000 AAA 5.750% due 8/1/29 3,227,490
6,000,000 AA New York City, NY Municipal Water
Financing Authority, Water & Sewer System
Revenue, Series D, 5.250% due 6/15/25 6,126,180
New York State Dormitory Authority Revenue:
5,000,000 AAA Series B, FSA-Insured, 5.500% due 5/15/30 5,678,550
1,000,000 AAA Willow Towers Inc. Project, GNMA-
Collateralized, 5.250% due 2/1/22 1,020,040
3,000,000 AAA New York State Thruway Authority Highway
& Bridge Revenue, Series B-1, FGIC-Insured,
5.400% due 4/1/17 3,202,710
6,290,000 AAA Port Authority of New York & New Jersey,
NY GO, FGIC-Insured,
5.250% due 5/15/37 (d) 6,354,535
--------------------------------------------------------------------------------
57,823,265
--------------------------------------------------------------------------------
North Carolina -- 0.3%
1,900,000 AAA University of North Carolina, System Pool
Revenue, Series A, AMBAC-Insured,
5.000% due 4/1/27 1,891,925
--------------------------------------------------------------------------------
Ohio -- 7.9%
4,500,000 Aa2* Bexley, OH City School District GO,
5.125% due 12/1/27 4,507,290
2,000,000 AAA Canton, OH City School District GO, Series A,
MBIA-Insured, 5.500% due 12/1/20 2,113,760
1,300,000 AA+ Cincinnati, OH Water System Revenue,
5.125% due 12/1/21 1,324,635
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
16
[GRAPHIC]
SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
---------------------------------------------------------------------------------
Ohio -- 7.9% (continued)
$ 1,250,000 AAA Cleveland, OH Airport System Revenue,
Series A, FSA-Insured, 5.000% due 1/1/31 $ 1,224,087
3,000,000 AAA Cuyahoga County, OH Hospital Revenue
Refunding, University Hospitals Health
System Inc., AMBAC-Insured,
5.500% due 1/15/30 3,093,180
25,000,000 Aaa* Hamilton County, OH Sales Tax Revenue,
AMBAC-Insured, 5.250% due 12/1/32 (b) 25,407,500
5,990,000 AAA Lucas County, OH Hospital Revenue, Promedic
Healthcare Obligation Group,
AMBAC-Insured, 5.375% due 11/15/29 6,111,297
3,025,000 Aaa* Muskingum County, OH GO, Refunding,
County Facilities Improvement,
MBIA-Insured, 5.125% due 12/1/19 3,131,843
1,375,000 AAA Ohio State Higher Educational Facility
Commission Revenue, (University of Dayton
Project), AMBAC-Insured, 5.500% due 12/1/25 1,439,501
2,500,000 AAA Portage County, OH GO, MBIA-Insured,
5.250% due 12/1/17 2,652,950
1,500,000 A3* Steubenville, OH Hospital Revenue,
6.375% due 10/1/20 1,574,625
Summit County, OH GO, FGIC-Insured:
1,000,000 AAA 5.000% due 12/1/21 1,012,660
500,000 AAA 5.000% due 12/1/22 503,360
1,500,000 Aaa* Trumbull County, OH MBIA-Insured,
5.200% due 12/1/20 1,554,675
2,000,000 AAA University of Cincinnati, OH General Receipts
Revenue, Series A, FGIC-Insured,
5.250% due 6/1/24 2,049,560
1,500,000 AAA Warrensville Heights, OH City School District,
School Improvements, FGIC-Insured,
5.625% due 12/1/20 1,598,535
---------------------------------------------------------------------------------
59,299,458
---------------------------------------------------------------------------------
Oregon -- 2.9%
3,210,000 AA Clackamas County, OR Hospital Facilities
Authority Revenue, Legacy Health System,
5.750% due 5/1/16 3,443,560
3,000,000 AAA Oregon Health Sciences University Revenue,
Series A, MBIA-Insured, 5.000% due 7/1/32 2,963,340
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
17
[GRAPHIC]
SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
Oregon -- 2.9% (continued)
$ 4,895,000 AA+ Oregon State Department of Transportation,
Highway User Tax Revenue, Series A,
5.125% due 11/15/23 $ 4,992,362
10,000,000 AA Oregon State Veterans Welfare GO, Series 82,
5.500% due 12/1/42 (b) 10,134,400
-------------------------------------------------------------------------------
21,533,662
-------------------------------------------------------------------------------
South Carolina -- 3.6%
6,250,000 AAA Grand Strand Water & Sewer Authority, SC
Waterworks & Sewer System Revenue,
FSA-Insured, 5.000% due 6/1/31 6,231,125
15,000,000 AA- Greenville County, SC School District
Installment Purchase Revenue,
5.500% due 12/1/28 (b) 15,065,250
South Carolina Transportation
Infrastructure Bank Revenue, Series A:
2,505,000 Aaa* AMBAC-Insured, 5.125% due 10/1/31 2,523,387
3,000,000 AAA MBIA-Insured, 5.500% due 10/1/30 3,111,660
-------------------------------------------------------------------------------
26,931,422
-------------------------------------------------------------------------------
Tennessee -- 3.5%
1,150,000 NR Hardeman County, TN Correctional
Facilities Corp., 7.750% due 8/1/17 1,145,837
Memphis-Shelby County, TN Sports
Authority Income Revenue, (Memphis
Arena Project), Series A, AMBAC-Insured:
6,420,000 AAA 5.125% due 11/1/21 6,537,101
14,500,000 AAA 5.125% due 11/1/28 (b) 14,549,590
500,000 VMIG 1* Sevier County, TN Public Building Authority
Revenue, Local Government Public
Improvements, Series IV-G-3,
1.300% due 6/1/22 (c) 500,000
3,000,000 AA Tennessee State GO, Series A,
5.250% due 3/1/17 3,150,780
-------------------------------------------------------------------------------
25,883,308
-------------------------------------------------------------------------------
Texas -- 1.6%
1,595,000 AAA Burleson, TX ISD, GO, PSFG,
6.750% due 8/1/24 1,806,609
Fort Worth, TX International Airport
Facility Improvement Corp. Revenue,
(American Airlines Inc. Project):
12,000,000 BB- 6.375% due 5/1/35 (d) 4,800,120
3,400,000 BB- Series A, 5.950% due 5/1/29 (d) 2,715,444
3,000,000 BB- Series B, 6.050% due 5/1/29 (d) 1,505,880
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
18
[GRAPHIC]
SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
-----------------------------------------------------------------------------
Texas -- 1.6% (continued)
$ 1,000,000 AAA Harris County, TX Health Facilities,
Development Corp., Hospital Revenue,
School Health Care Systems, Series B,
(Escrowed to maturity with U.S.
government securities), 5.750% due 7/1/27 $ 1,114,500
-----------------------------------------------------------------------------
11,942,553
-----------------------------------------------------------------------------
Virginia -- 3.7%
3,000,000 A3* Chesapeake, VA IDA Revenue, Remarketed
11/8/02, 5.250% due 2/1/08 3,050,130
3,000,000 A3* Chesterfield County, VA IDA, PCR
Revenue, (VA Electric & Power),
Remarketed 11/8/02, Series A,
5.875% due 6/1/17 3,026,730
Virginia State HDA, MFH:
1,245,000 AA+ Series D, Sub-Series D-3, Remarketed
5/30/96, 5.700% due 7/1/09 1,308,707
355,000 AA+ Series F, Sub-Series F-1-Remarketed
9/12/95, 6.400% due 7/1/17 362,153
Series H:
1,235,000 AAA AMBAC-Insured, 6.300% due 11/1/15 1,296,898
10,000,000 AAA Sub-Series H-1, MBIA-Insured,
5.350% due 7/1/31 (b)(c) 10,054,900
Series K:
600,000 AA+ 5.800% due 11/1/10 637,824
925,000 AA+ 5.900% due 11/1/11 979,797
7,000,000 A3* York County, VA IDA, PCR, (VA Electrical
& Power Co.), Remarketed 11/8/02,
5.000% due 7/1/09 7,203,490
-----------------------------------------------------------------------------
27,920,629
-----------------------------------------------------------------------------
Washington -- 1.8%
Chelan County, WA GO, Public Utilities,
District No. 1, Columbus River Rock:
22,685,000 AAA Series A, MBIA-Insured,
zero coupon due 6/1/22 7,819,066
4,750,000 AA Series B, Remarketed 7/1/92,
Mandatory put 7/1/19,
6.750% due 7/1/62 (d) 5,065,068
600,000 VMIG 1* Washington State Housing Finance
Commission, Non-Profit Housing
Revenue, (Rockwood Retirement
Program), Series A, 1.250% due 1/1/30 (c) 600,000
-----------------------------------------------------------------------------
13,484,134
-----------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
19
[GRAPHIC]
SCHEDULE OF INVESTMENTS
November 30, 2002 (unaudited) (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
West Virginia -- 1.2%
West Virginia State Housing Development
Fund, Housing Finance:
$ 3,845,000 AAA Series B, 5.300% due 5/1/24 $ 3,902,098
5,000,000 AAA Series C, 5.350% due 11/1/27 5,074,100
----------------------------------------------------------------------------
8,976,198
----------------------------------------------------------------------------
Wisconsin -- 1.2%
Wisconsin Housing & Economic Development
Authority, Home Ownership Revenue,
Series A:
1,490,000 AA 6.450% due 3/1/17 1,537,918
1,370,000 AA 5.650% due 11/1/23 1,386,248
3,865,000 AA- Wisconsin State GO, Series B,
6.600% due 1/1/22 (b)(d) 3,876,866
Wisconsin State Health & Educational
Facilities Authority Revenue:
1,100,000 A Kenosha Hospital & Medical Center
Project, 5.700% due 5/15/20 1,105,258
1,250,000 AAA The Medical College of Wisconsin Inc.
Project, MBIA-Insured,
5.400% due 12/1/16 1,323,875
----------------------------------------------------------------------------
9,230,165
----------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $733,767,706**) $747,383,637
----------------------------------------------------------------------------
(a)All ratings are by Standard & Poor's Ratings Service, except for those
identified by an asterisk (*), which are rated by Moody's Investors Service.
(b)All or a portion of this security has been segregated by the custodian for
futures contract commitments.
(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 escrowed by U.S. government securities and bonds escrowed
to maturity by U.S. government securities are considered by manager to be
triple-A rated even if issuer has not applied for new ratings.
(f)Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(g)Security is currently in default.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 22 and 23 for definitions of ratings and certain security
descriptions.
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
20
[GRAPHIC]
SUMMARY OF INVESTMENTS BY COMBINED RATINGS
November 30, 2002 (unaudited)
[GRAPHIC OF ]
Percentage of
Moody's and/or Standard & Poor's Total Investments
Aaa AAA 49.1%
Aa AA 19.5
A A 19.6
Baa BBB 2.6
Ba BB 2.0
VMIG 1/P-1 SP-1/A-1 5.3
NR NR 1.9
-----
100.0%
=====
========================
[GRAPHIC]
21
[GRAPHIC]
BOND RATINGS
(unaudited)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard and Poor's") -- Ratings from "AA"
to "B" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
AAA --Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
AA --Bonds rated "AA" have a very strong capacity to pay interest and repay principal and
differ from the highest rated issue only in a small degree.
A --Bonds rated "A" have a strong capacity to pay interest and repay principal although
they are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories.
BBB --Bonds rated "BBB" are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds in this category than
in higher rated categories.
BB --Bonds rated "BB" and "B" are regarded, on balance, as predominantly speculative
and B with respect to the issuer's capacity to pay interest and repay principal in accordance
with the terms of the obligation. "BB" indicates the lowest degree of speculation and
"B" the highest degree of speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
Moody's Investors Service ("Moody's") -- Numerical modifiers 1, 2 and 3 may be applied to each
generic rating from "Aa" to "Ba," where 1 is the highest and 3 the lowest ranking within its
generic category.
Aaa --Bonds rated "Aaa" are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa --Bonds rated "Aa" are judged to be of high quality by all standards. Together with the
"Aaa" group they comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may not be as large in
"Aaa" securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
A --Bonds rated "A" possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa --Bonds rated "Baa" are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
Ba --Bonds rated "Ba" are judged to have speculative elements; their future cannot be
considered as well assured. Often the protection of interest and principal payments
may be very moderate thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
NR --Indicates that the bond is not rated by Standard & Poor's or Moody's.
========================
[GRAPHIC]
22
[GRAPHIC]
SHORT-TERM SECURITY RATINGS
(unaudited)
SP-1 --Standard & Poor's highest rating indicating very strong
or strong capacity to pay principal and interest; those
issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign.
A-1 --Standard & Poor's highest commercial paper and
variable-rate demand obligation (VRDO) rating indicating
that the degree of safety regarding timely payment is
either overwhelming or very strong; those issues
determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign.
VMIG 1 --Moody's highest rating for issues having a demand
feature -- VRDO.
P-1 --Moody's highest rating for commercial paper and for VRDO
prior to the advent of the VMIG 1 rating.
[GRAPHIC]
SECURITY DESCRIPTIONS
(unaudited)
ABAG --Association of Bay Area Governments
AIG --American International Guaranty
AMBAC --AMBAC Indemnity Corporation
BAN --Bond Anticipation Notes
BIG --Bond Investors Guaranty
CDA --Community Development Administration
CGIC --Capital Guaranty Insurance Company
CHFCLI --California Health Facility Construction Loan Insurance
COP --Certificate of Participation
EDA --Economic Development Authority
ETM --Escrowed To Maturity
FAIRS --Floating Adjustable Interest Rate Securities
FGIC --Financial Guaranty Insurance Company
FHA --Federal Housing Administration
FHLMC --Federal Home Loan Mortgage Corporation
FNMA --Federal National Mortgage Association
FRTC --Floating Rate Trust Certificates
FSA --Financial Security Assurance
GIC --Guaranteed Investment Contract
GNMA --Government National Mortgage Association
GO --General Obligation
HDA --Housing Development Authority
HDC --Housing Development Corporation
HFA --Housing Finance Authority
IDA --Industrial Development Authority
IDB --Industrial Development Board
IDR --Industrial Development Revenue
INFLOS --Inverse Floaters
ISD --Independent School District
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance Corporation
MFH --Multi-Family Housing
MVRICS --Municipal Variable Rate Inverse Coupon Security
PCR --Pollution Control Revenue
PFA --Public Finance Authority
PSFG --Permanent School Fund Guaranty
Q-SBLF --Qualified School Bond Loan Fund
RAN --Revenue Anticipation Notes
RIBS --Residual Interest Bonds
RITES --Residual Interest Tax-Exempt Securities
SYCC --Structured Yield Curve Certificate
TAN --Tax Anticipation Notes
TECP --Tax Exempt Commercial Paper
TOB --Tender Option Bonds
TRAN --Tax and Revenue Anticipation Notes
VAN --Veterans Administration
VRDD --Variable Rate Daily Demand
VRWE --Variable Rate Wednesday Demand
========================
[GRAPHIC]
23
[GRAPHIC]
STATEMENT OF ASSETS AND LIABILITIES
(unaudited)
November 30, 2002
---------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $733,767,706) $747,383,637
Cash 43,466
Interest receivable 10,864,418
Receivable for securities sold 5,798,138
--------------------------------------------------------------------------------
Total Assets 764,089,659
--------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 12,121,771
Payable to broker -- variation margin 890,625
Dividends payable 730,523
Investment advisory fee payable 420,752
Administration fee payable 125,221
Accrued preferred stock distribution payable 28,413
Accrued expenses 172,406
--------------------------------------------------------------------------------
Total Liabilities 14,489,711
--------------------------------------------------------------------------------
Series M, T, W, Th and F Auction Rate Cumulative Preferred Stock
(10,000 shares authorized and issued at $25,000 per share
for each Series) (Note 7) 250,000,000
--------------------------------------------------------------------------------
Total Net Assets $499,599,948
--------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 41,856
Capital paid in excess of par value 509,076,800
Undistributed net investment income 616,233
Accumulated net realized loss from security transactions
and futures contracts (27,935,716)
Net unrealized appreciation of investments and futures contracts 17,800,775
--------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.94 a share on 41,855,576 shares of
$0.001 par value outstanding; 500,000,000 capital shares
authorized) $499,599,948
--------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
[GRAPHIC]
24
[GRAPHIC]
STATEMENT OF OPERATIONS
(unaudited)
Six Months Ended
November 30, 2002
---------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $19,627,892
------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 3) 2,329,989
Administration fee (Note 3) 755,242
Auction fees 331,825
Shareholder communications 92,445
Audit and legal 75,155
Shareholder and system servicing fees 39,737
Directors' fees 29,864
Custody 23,586
Rating agency fees 20,053
Registration fees 15,092
Other 194,673
------------------------------------------------------------------------------
Total Expenses 3,907,661
------------------------------------------------------------------------------
Net Investment Income 15,720,231
------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS (NOTES 4 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) 6,272,243
Futures contracts (3,569,708)
------------------------------------------------------------------------------
Net Realized Gain 2,702,535
------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments
and Futures Contracts:
Beginning of period 10,780,629
End of period 17,800,775
------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 7,020,146
------------------------------------------------------------------------------
Net Gain on Investments and Futures Contracts 9,722,681
------------------------------------------------------------------------------
Distributions Paid to Auction Rate Cumulative Preferred
Stockholders From Net Investment Income (1,712,338)
------------------------------------------------------------------------------
Increase in Net Assets From Operations $23,730,574
------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
25
[GRAPHIC]
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended
November 30, 2002 Year Ended
(unaudited) May 31, 2002
----------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 15,720,231 $ 19,666,716
Net realized gain (loss) 2,702,535 (11,512,844)
Increase in net unrealized appreciation 7,020,146 12,747,045
Distributions Paid to Auction Rate
Cumulative Preferred Stockholders from net
investment income (1,712,338) (103,927)
----------------------------------------------------------------------------------
Increase in Net Assets From Operations 23,730,574 20,796,990
----------------------------------------------------------------------------------
DISTRIBUTIONS PAID TO:
Common Stock shareholders from net
investment income (13,393,784) (19,609,532)
----------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (13,393,784) (19,609,532)
----------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTES 7 AND 8):
Underwriting commissions and expenses for the
issuance of Auction Rate Cumulative Preferred
Stock (Note 7) (71,209) (2,793,000)
Net asset value of shares issued in connection
with the transfer of Managed Municipals
Portfolio II Inc.'s net assets -- 117,162,040
----------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Fund Share Transactions (71,209) 114,369,040
----------------------------------------------------------------------------------
Increase in Net Assets 10,265,581 115,556,498
NET ASSETS:
Beginning of period 489,334,367 373,777,869
----------------------------------------------------------------------------------
End of period* $499,599,948 $489,334,367
----------------------------------------------------------------------------------
* Includes undistributed net investment income of: $616,233 $2,124
---------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
26
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Managed Municipals Portfolio Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between bid and ask prices provided by an independent
pricing service that are based on transactions in municipal obligations,
quotations from municipal bond dealers, market transactions in comparable
securities and various relationships between securities; (c) securities
maturing within 60 days or less are valued at cost plus accreted discount, or
minus amortized premium, which approximates value; (d) gains or losses on sale
of securities are calculated by using the specific identification method; (e)
interest income, adjusted for amortization of premium and accretion of
discount, is recorded on an accrual basis; (f) dividends and distributions to
shareholders are recorded on the ex-dividend date; (g) the Fund intends to
comply with the applicable provisions of the Internal Revenue Code of 1986, as
amended, pertaining to regulated investment companies and to make distributions
of taxable income sufficient to relieve it from substantially all Federal
income and excise taxes; (h) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from accounting principles generally accepted in the United States of
America. At May 31, 2002, reclassifications were made to the Fund's capital
accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Accordingly, a
portion of overdistributed net investment income amounting to $13,447 was
reclassified from paid-in capital. Net investment income, net realized gains
and net assets were not affected by this adjustment; and (i) estimates and
assumptions are required to be made regarding assets, liabilities and changes
in net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
In November 2000, the American Institute of Certified Public Accountants
("AICPA") issued a revised Audit and Accounting Guide for Investment Companies
("Guide"). This revised version is effective for financial statements issued
for fiscal years beginning after December 15, 2000. The revised Guide requires
the Fund to amortize premium and accrete all discounts on all fixed-income
securities. The Fund adopted this requirement effective April 1, 2001. This
change does not affect the Fund's net asset value, but does change the
classification of certain amounts in the statement of operations. For the six
========================
[GRAPHIC]
27
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
months ended November 30, 2002, interest income increased by $31,290, net
realized gain decreased by $13,439 and the change in net unrealized
appreciation of investments decreased by $17,851. In addition, on May 31, 2002,
the Fund recorded adjustments to increase the cost of securities and increase
accumulated undistributed net investment income by $59,169 to reflect the
cumulative effect of this change up to the date of the adoption.
2. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from regular Federal income tax and from
designated state income taxes, to retain such tax-exempt status when
distributed to the shareholders of the Fund.
Capital gain distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
3. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS
Smith Barney Fund Management LLC ("SBFM"), a subsidiary of Salomon Smith
Barney Holdings Inc., which, in turn, is a subsidiary of Citigroup Inc.
("Citigroup"), acts as investment adviser to the Fund. The Fund pays SBFM a fee
calculated at an annual rate of 0.70% of the average daily total net assets of
the Fund. This fee is calculated daily and paid monthly. However, effective May
22, 2002, SBFM agreed to reduce its aggregate investment advisory and
administrative fees to an aggregate annual rate of 0.65% on those assets of the
Fund equal to the product of the number of preferred shares outstanding
multiplied by the liquidation value of such shares.
SBFM also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily total net assets.
This fee is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Citigroup or its
affiliates.
[GRAPHIC]
28
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
4. INVESTMENTS
During the six months ended November 30, 2002, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
-----------------------------------------------------------------------------
Purchases $201,681,792
-----------------------------------------------------------------------------
Sales 133,588,696
-----------------------------------------------------------------------------
At November 30, 2002, aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
-----------------------------------------------------------------------------
Gross unrealized appreciation $ 32,865,920
Gross unrealized depreciation (19,249,989)
------------------------------------------------------------------------------
Net unrealized appreciation $ 13,615,931
-----------------------------------------------------------------------------
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities
are also segregated up to the current market value of the futures contracts.
During the period the futures contract is open, changes in the value of the
contract are recognized as unrealized gains or losses by "marking-to-market" on
a daily basis to reflect the market value of the contract at the end of each
day's trading. Variation margin payments are received or made and recognized as
assets due from or liabilities due to broker, depending upon whether unrealized
gains or losses are incurred. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the proceeds from (or
cost of) the closing transactions and the Fund's basis in the contract.
The Fund enters into such contracts to hedge a portion of its portfolio. The
Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At November 30, 2002, the Fund had the following open futures contracts:
Number of Basis Market Unrealized
Contracts Expiration Value Value Gain
------------------------------------------------------------------
To
Sell:
U.S.
Treasury
Bonds 1,900 12/02 $211,641,094 $207,456,250 $4,184,844
------------------------------------------------------------------
[GRAPHIC]
29
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
6. SECURITIES TRADED ON A WHEN-ISSUED BASIS
In a when-issued transaction, the Fund commits to purchasing securities for
which specific information is not yet known at the time of the trade.
Securities purchased on a when-issued basis are not settled until they are
delivered to the Fund. Beginning on the date the Fund enters into the
when-issued transaction, the custodian maintains cash, U.S. government
securities or other liquid high grade debt obligations in a segregated account
equal in value to the purchase price of the when-issued security. These
transactions are subject to market fluctuations and their current value is
determined in the same manner as for other securities.
At November 30, 2002, the Fund did not hold any when-issued securities.
7. AUCTION RATE CUMULATIVE PREFERRED STOCK
On May 22, 2002, the Fund issued 2,000 shares of Series M, Series T, Series
W, Series Th and Series F, respectively, of Auction Rate Cumulative Preferred
Stock ("ARCPS"). The underwriting discount of $2,500,000 and offering expenses
of $293,000 associated with the ARCPS offering were recorded as a reduction of
the capital paid in excess of par value of common stock. The ARCPS' dividends
are cumulative at a rate determined at an auction and the dividend period is
typically 7 days. The dividend rates ranged from 1.15%-1.75% for the six months
ended November 30, 2002.
The ARCPS are redeemable under certain conditions by the Fund, or subject to
mandatory redemption (if the Fund is in default of certain coverage
requirements) at a redemption price equal to $25,000 per share plus accumulated
and unpaid dividends. ARCPS have a liquidation preference of $25,000 per share
plus accumulated and unpaid dividends. The Fund is required to maintain certain
asset coverages with respect to the ARCPS under the Investment Company Act of
1940.
Salomon Smith Barney Inc. ("SSB"), another subsidiary of Citigroup also
currently acts as a broker/dealer in connection with the auction of ARCPS.
After each auction, the auction agent will pay to each broker/dealer, from
monies the Fund provides a participation fee at the annual rate of 0.25% of the
purchase price of the ARCPS that the broker/dealer places at the auction. For
the six months ended November 30, 2002, SSB earned $311,772 as the
broker/dealer.
========================
[GRAPHIC]
30
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
Under Emerging Issues Task Force ("EITF") announcement Topic D-98,
Classification and Measurement of Redeemable Securities, which was issued on
July 19, 2001, preferred securities that are redeemable for cash or other
assets are to be classified outside of permanent equity to the extent that the
redemption is at a fixed or determinable price and at the option of the holder
or upon the occurrence of an event that is not solely within the control of the
issuer.
8. TRANSFER OF NET ASSETS
On April 26, 2002, the Fund acquired the assets and certain liabilities of
Managed Municipals Portfolio II Inc. pursuant to a plan of reorganization
approved by Managed Municipals Portfolio II Inc. shareholders on April 10,
2002. Total shares issued by the Fund and the total net assets of the Managed
Municipals Portfolio II Inc. and the Fund on the date of the transfer were as
follows:
Acquired Shares Issued Total Net Assets of Total Net Assets
Fund by the Fund Managed Municipals Portfolio II Inc. of the Fund
------------------------------------------------------------------------------
Managed
Municipals
Portfolio
II
Inc. 10,006,932 $117,162,040 $372,831,933
------------------------------------------------------------------------------
The total net assets of Managed Municipals Portfolio II Inc. before
acquisition included unrealized depreciation of $2,101,130, accumulated net
realized loss of $5,251,582, and overdistributed net investment income of
$14,313. Total net assets of the Fund immediately after the transfer were
$489,993,973. The transaction was structured to qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended.
9. CAPITAL LOSS CARRYFORWARD
At May 31, 2002, the Fund had, for Federal income tax purposes,
approximately $18,142,000 of unused capital loss carryforwards available to
offset future capital gains. To the extent that these carryforward losses are
used to offset capital gains, it is probable that the gains so offset will not
be distributed. Expirations occur on May 31 of the years below:
2006 2007 2008
-------------------------------------------------------------------------------
Carryforward Amounts $302,000 $4,855,000 $12,985,000
-------------------------------------------------------------------------------
10. CAPITAL SHARES
At November 30, 2002, the Fund had 500,000,000 shares of common stock
authorized with a par value of $0.001 per share.
[GRAPHIC]
31
[GRAPHIC]
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year ended May 31,
unless otherwise noted:
2002/(1)/ 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $11.69 $11.74 $10.93 $11.97 $12.37 $11.90
-----------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(2)(3)/ 0.38 0.60 0.60 0.58 0.58 0.54
Net realized and unrealized
gain (loss)/(3)/ 0.23 0.02 0.79 (1.14) (0.32) 0.83
Distributions Paid to Auction Rate
Cumulative Preferred
Stockholders from net
investment income (0.04) (0.00)* -- -- -- --
-----------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.57 0.62 1.39 (0.56) 0.26 1.37
-----------------------------------------------------------------------------------------
Gain From Repurchase of
Treasury Stock -- -- 0.02 0.12 -- --
-----------------------------------------------------------------------------------------
Underwriting Commission and
Expenses of Issuance of Auction
Rate Cumulative Preferred Stock (0.00)* (0.07) -- -- -- --
-----------------------------------------------------------------------------------------
Distributions Paid To:
Common Stock Shareholders
from net investment income (0.32) (0.60) (0.60) (0.60) (0.54) (0.61)
Common Stock Shareholders
from net realized gains -- -- -- -- (0.12) (0.29)
-----------------------------------------------------------------------------------------
Total Distributions (0.32) (0.60) (0.60) (0.60) (0.66) (0.90)
-----------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.94 $11.69 $11.74 $10.93 $11.97 $12.37
-----------------------------------------------------------------------------------------
Total Return,
Based on Market Value/(4)/ 1.64%++ 4.79% 20.69% (3.88)% 0.11% 2.08%
-----------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value/(4)/ 5.21%++ 5.33% 13.90% (2.82)% 2.66% 12.14%
-----------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $500 $489 $374 $352 $414 $428
-----------------------------------------------------------------------------------------
========================
[GRAPHIC]
32
[GRAPHIC]
FINANCIAL HIGHLIGHTS
(continued)
For a share of capital stock outstanding throughout each year ended May 31,
unless otherwise noted:
2002/(1)/ 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------
Ratios to Average Net Assets
Based on Common Shares
Outstanding/(5)/:
Net investment income/(3)/ 6.23%+ 4.84% 5.15% 5.19% 4.72% 4.35%
Auction fees 0.12+ 0.00** -- -- -- --
Operating expenses/(2)/ 1.43+ 0.52 0.68 0.89 0.94 0.99
Total expenses 1.55+ 0.52 0.68 0.89 0.94 0.99
--------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 39% 58% 35% 23% 87%
--------------------------------------------------------------------------------
Market Price, End of Period $10.43 $10.57 $10.67 $9.375 $10.375 $11.00
--------------------------------------------------------------------------------
(1) For the six months ended November 30, 2002 (unaudited).
(2) The investment adviser waived a portion of its fees for the years ended May
31, 2002, 2001 and 2000. In addition, the investment adviser and
administrator waived a portion of their fees for the year ended May 31,
1999. If such fees were not waived, the per share decreases in net
investment income and actual expense ratios would have been as follows:
Per share decreases in Expense ratios
net investment income without fee waivers
---------------------- -------------------
2002 $0.05 1.01%
2001 0.04 1.01
2000 0.02 1.04
1999 0.01 1.02
(3)Without the adoption of the change in the accounting method discussed in
Note 1 to the financial statements, for the six months ended November 30,
2002, those amounts would have been $0.37, $0.24 and 6.22% for net
investment income, net realized and unrealized gain and the annualized ratio
of net investment income to average net assets, respectively. Per share,
ratios and supplemental data for the periods prior to June 1, 2001 have not
been restated to reflect this change in presentation.
(4) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
(5) Calculated on basis of average net assets of common shareholders. Ratios do
not reflect the effect of dividend payments to preferred shareholders.
* Amount represents less than $0.01 per share.
** Percentage represents less than 0.01%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
[GRAPHIC]
33
[GRAPHIC]
FINANCIAL DATA
(unaudited)
For a share of capital stock outstanding throughout each period:
NYSE Net Dividend
Record Payable Closing Asset Dividend Reinvestment
Date Date Price+ Value+ Paid Price
-------------------------------------------------------
6/27/00 6/30/00 $ 9.750 $11.20 $0.050 $ 9.91
7/25/00 7/28/00 9.688 11.37 0.050 9.89
8/22/00 8/25/00 10.000 11.54 0.050 10.04
9/26/00 9/29/00 9.688 11.42 0.050 9.80
10/24/00 10/27/00 9.688 11.49 0.050 9.78
11/20/00 11/24/00 9.750 11.47 0.050 9.80
12/26/00 12/29/00 9.938 11.85 0.050 10.25
1/23/01 1/26/01 10.688 11.92 0.050 10.70
2/20/01 2/23/01 10.770 11.88 0.050 10.81
3/27/01 3/30/01 10.450 11.89 0.050 10.58
4/24/01 4/27/01 10.370 11.65 0.050 10.55
5/22/01 5/25/01 10.650 11.71 0.050 10.69
6/26/01 6/29/01 10.400 11.80 0.050 10.61
7/24/01 7/27/01 10.590 11.88 0.050 10.71
8/28/01 8/31/01 10.830 12.09 0.050 11.00
9/25/01 9/28/01 10.330 11.87 0.050 10.65
10/23/01 10/26/01 10.640 11.93 0.050 10.82
11/27/01 11/30/01 10.580 11.83 0.050 10.51
12/24/01 12/28/01 10.310 11.63 0.050 10.43
1/22/02 1/25/02 10.600 11.81 0.050 10.74
2/19/02 2/22/02 10.600 11.77 0.050 10.72
3/25/02 3/28/02 10.250 11.55 0.050 10.43
4/23/02 4/26/02 10.300 11.66 0.050 10.51
5/28/02 5/31/02 10.500 11.65 0.050 10.62
6/25/02 6/28/02 10.490 11.76 0.050 10.67
7/23/02 7/26/02 10.740 12.02 0.050 10.80
8/27/02 8/30/02 10.890 12.02 0.055 11.09
9/24/02 9/27/02 11.100 12.35 0.055 11.15
10/22/02 10/25/02 10.480 11.79 0.055 10.55
11/25/02 11/29/02 10.350 11.93 0.055 10.49
------------------------------------------------------
+ As of record date.
========================
[GRAPHIC]
34
[GRAPHIC]
OTHER FINANCIAL INFORMATION
(unaudited)
The table below sets out information with respect to Auction Rate Cumulative
Preferred Stock:
2002/(1)/
---------------------------------------------------------------------------
Auction Rate Cumulative Preferred Stock/(2)/:
Total Amount Outstanding (000s) 250,000
Asset Coverage Per Share 75,000
Involuntary Liquidating Preference Per Share 25,000
Average Market Value Per Share/(3)/ 25,000
-------------------------------------------------------------------------
(1)As of November 30, 2002.
(2)On May 22, 2002, the Fund issued 2,000 shares of Auction Rate Cumulative
Preferred Stock at $25,000 a share, for Series M, Series T, Series W, Series
Th and Series F, respectively.
(3)Excludes accrued interest or accumulated undeclared dividends.
========================
[GRAPHIC]
35
[GRAPHIC]
DIVIDEND REINVESTMENT PLAN
(unaudited)
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose
shares of common stock are registered in his own name will have all
distributions from the Fund reinvested automatically by PFPC Global Fund
Services ("PFPC"), as purchasing agent under the Plan, unless the shareholder
elects to receive cash. Distributions with respect to shares registered in the
name of a broker-dealer or other nominee (that is, in street name) will be
reinvested by the broker or nominee in additional shares under the Plan, unless
the service is not provided by the broker or nominee or the shareholder elects
to receive distributions in cash. Investors who own common stock registered in
street name should consult their broker-dealers for details regarding
reinvestment. All distributions to shareholders who do not participate in the
Plan will be paid by check mailed directly to the record holder by or under the
direction of PFPC as dividend paying agent.
The number of shares of common stock distributed to participants in the Plan
in lieu of a cash dividend is determined in the following manner. When the
market price of the common stock is equal to or exceeds 98% of the net asset
value per share of the common stock on the determination date (generally, the
record date for the distribution), Plan participants will be issued shares of
common stock by the Fund at a price equal to the greater of net asset value
determined as described below under "Net Asset Value" or 95% of the market
price of the common stock.
If the market price of the common stock is less than 98% of the net asset
value of the common stock at the time of valuation (which is the close of
business on the determination date), PFPC will buy common stock in the open
market, on the NYSE or elsewhere, for the participants' accounts. If following
the commencement of the purchases and before PFPC has completed its purchases,
the market price exceeds the net asset value of the common stock as of the
valuation time, PFPC will attempt to terminate purchases in the open market and
cause the Fund to issue the remaining portion of the dividend or distribution
in shares at a price equal to the greater of (a) net asset value as of the
valuation time or (b) 95% of the then current market price. In this case, the
number of shares received by a Plan participant will be based on the weighted
average of prices paid for shares purchased in the open market and the price at
which the Fund issues the remaining shares. To the extent PFPC is unable to
stop open market purchases and cause the Fund to issue the remaining shares,
the average per share purchase price paid by PFPC may exceed the net asset
value of the common stock as of the valuation time, resulting in the
acquisition of fewer shares than if the dividend or capital gains distribution
had been paid in common stock issued by the Fund at such net
========================
[GRAPHIC]
36
[GRAPHIC]
DIVIDEND REINVESTMENT PLAN
(unaudited) (continued)
asset value. PFPC will begin to purchase common stock on the open market as
soon as practicable after the determination date for the dividend or capital
gains distribution, but in no event shall such purchases continue later than 30
days after the payment date for such dividend or distribution, or the record
date for a succeeding dividend or distribution, except when necessary to comply
with applicable provisions of the federal securities laws.
PFPC maintains all shareholder accounts in the Plan and furnishes written
confirmations of all transactions in each account, including information needed
by a shareholder for personal and tax records. The automatic reinvestment of
dividends and capital gains distributions will not relieve Plan participants of
any income tax that may be payable on the dividends or capital gains
distributions. Common stock in the account of each Plan participant will be
held by PFPC in uncertificated form in the name of the Plan participant.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions under the Plan. PFPC's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. No brokerage charges apply with respect to shares of common stock issued
directly by the Fund under the Plan. Each Plan participant will, however, bear
a proportionate share of any brokerage commissions actually incurred with
respect to any open market purchases made under the Plan.
Experience under the Plan may indicate that changes to it are desirable. The
Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by PFPC, with the Fund's prior written consent, on at least 30 days'
written notice to Plan participants. All correspondence concerning the plan
should be directed by mail to PFPC Global Fund Services, P.O. Box 8030, Boston,
Massachusetts 02266-8030 or by telephone at (800) 331-1710.
[GRAPHIC]
SHARE REPURCHASE NOTICE
(unaudited)
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
========================
[GRAPHIC]
37
Managed Municipals
Portfolio Inc.
DIRECTORS
Allan J. Bloostein
Dwight B. Crane
Paolo M. Cucchi
Robert A. Frankel
R. Jay Gerken, Chairman
Paul Hardin
William R. Hutchinson
George M. Pavia
OFFICERS
R. Jay Gerken
President and Chief
Executive Officer
Lewis E. Daidone
Senior Vice President and Chief Administrative Officer
Richard L. Peteka
Chief Financial Officer and Treasurer
Joseph P. Deane
Vice President and Investment Officer
David Fare
Investment Officer
Kaprel Ozsolak
Controller
Christina T. Sydor
Secretary
INVESTMENT ADVISER AND ADMINISTRATOR
Smith Barney Fund Management LLC
399 Park Avenue
New York, New York 10022
TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 8030
Boston, Massachusetts 02266-8030
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
========================
[GRAPHIC]
38
[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.
FD0837 1/03
03-4307