Managed Municipals
Portfolio Inc.
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QUARTERLY REPORT
February 28, 2003
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Managed Municipals
Portfolio Inc.
LETTER FROM THE CHAIRMAN
[PHOTO]
R. Jay Gerken
Chairman, President and Chief Executive Officer
Dear Shareholder,
A persistent pessimistic climate fed by the situation in Iraq, the threat of
terrorism at home, the dubious strength of corporate earnings, and concerns
over consumer spending, continued to prompt many investors to seek safer
alternatives to equity investing. The resulting increased demand for municipal
securities caused their prices to rally. Recent yields for many municipal
securities are at historic highs relative to U.S. Treasuries, which has also
made them a compelling alternative for many investors. However, many market
pundits have voiced concerns that this dramatic price increase may not be
sustainable, especially if the Federal Reserve raises interest rates.
No matter what the future holds, there are several things you can do now to
best position your investment portfolio for whatever comes next.
. First and foremost, you should talk with your financial adviser, who will
work with you to find the best solutions for your individual investing
needs.
. Secondly, now is a great time to review your investment plan. Every
successful investment strategy begins with a plan, so whether you already
have one or not, times like these provide the perfect opportunity to make
sure your portfolio is on track. Even if your long-term goals haven't
changed, your financial adviser can help you to decide what you can do now
to achieve them in the ever-changing market.
As always, thank you for your confidence in our investment management teams.
Please read on to learn more about your Fund's performance and the Manager's
strategy.
Sincerely,
/s/ R Jay Gerken
R. Jay Gerken
Chairman, President and Chief
Executive Officer
March 14, 2003
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1
MANAGER OVERVIEW
[PHOTO] Joseph P. Deane
Vice President and Investment Officer
Performance Review
During the nine months ended February 28, 2003, the Managed Municipals
Portfolio Inc. ("Fund") distributed income dividends to shareholders totaling
$0.49 per share. The table below shows the annualized distribution yield and
nine-month total return based on the Fund's February 28, 2003 net asset value
("NAV") per share and its New York Stock Exchange ("NYSE") closing price./i/
Past performance is not indicative of future results.
Annualized Total Return
Price Distribution for the Nine-
Per Share Yield/ii/ Month Period/ii/
------------- ------------ ---------------
$11.70 (NAV) 5.74% 4.75%
$10.52 (NYSE) 6.39% 4.16%
Based on NAV, the Fund underperformed its Lipper peer group of closed-end
general municipal debt funds (leveraged), which returned 8.17% for the same
period./iii/ Bonds with longer maturities are typically more sensitive to
interest rate movements. In order to minimize fluctuations in the Fund that may
occur if interest rates were to rise, we reduced the average maturity of issues
held in the portfolio. This more conservative investment approach resulted in
the Fund's underperformance relative to its Lipper peers, as bonds with shorter
maturities tend to have lower yields. Although this approach resulted in
short-term underperformance, we believe it will benefit the Fund in the
longer-term when interest rates rise. Another advantage to this approach is
that the Fund's shorter average duration will enable us to more quickly access
potentially higher-yielding issues in the future.
Bonds Bolstered By Economic Concerns
When the period began in June, lingering concerns about the integrity of
corporate financial reporting practices and the strength of the U.S. economy
prompted investors to shift money from stocks into more conservative
investments, specifically fixed-income securities with higher credit ratings.
The demand boosted prices of higher-rated municipal bonds through the early
fall, although U.S. Treasury securities generated the strongest performances in
the investment-grade arena./iv/
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2
Shift in Sentiment
Following an economic report released in October that reflected a weak labor
market, the Federal Reserve ("Fed")/v/ cut short-term interest rates to a
41-year low to help stimulate the economy. (Lower rates can encourage consumers
to borrow and subsequently spend more, thereby increasing economic activity.)
That month, investors reallocated investment capital from Treasuries and
investment-grade municipal securities into higher-yielding, riskier securities
in other fixed-income asset classes anticipating that the economy would improve
and help strengthen issuers' credit profiles. As concerns regarding Iraq and
the economy resurfaced, however, investors again gravitated to higher-rated
bond issues. In contrast to these short-term shifts in sentiment throughout the
period, we maintained a long-term perspective and defensive posture in the Fund
by maintaining a shorter duration that favors preserving capital over attaining
higher yields. Our rationale has been that once the uncertainties associated
with Iraq subside, the economy will begin to improve and the Fed may
subsequently raise interest rates.
Interest Rate Changes Expected
During the past two years, the bond markets have been driven higher to a large
extent by rate reductions triggered by the Fed, as bond prices move opposite to
interest rate movements. Going forward through 2003 and 2004 (the latter being
a presidential year), however, we believe that fiscal stimulus policies such as
taxation measures put into place by Congress and the Bush Administration will
play a greater role in influencing the direction of the economy and bond
markets. If these policy decisions are successfully implemented, which we
believe will be the case, the economic climate should improve later this year
and into 2004. Our optimistic outlook of the economy is supported, in part, by
comments from the Fed released after it opted not to change its interest rate
targets at its meeting in January. According to the Fed's statement, as
concerns regarding rising oil prices and geopolitical risks lift, "the
accommodative stance of monetary policy, coupled with ongoing growth in
productivity, will provide support to an improving economic climate over time."
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3
Once economic activity gains sufficient momentum, we believe the Fed may be
inclined to raise its interest rate targets to help keep the economy from
becoming "overheated" and minimize inflationary concerns. Furthermore, the
expanding federal budget deficit may oblige the U.S. Treasury Department to
increase its borrowing, which may also contribute to a higher-yield environment
later this year. Given our view of the interest rate environment ahead, we have
maintained a conservative posture in the Fund.
Our Defensive Approach
To help minimize fluctuations in the Fund that may arise associated with
potential interest rate hikes ahead, we plan to continue maintaining a shorter
average life of bonds in the Fund than we have in recent years, given that
bonds with longer maturities are more sensitive to interest rate swings. We
also plan to continue seeking out issues with higher coupons payments, as these
issues often tend to be less volatile to interest rate hikes versus bonds with
lower coupon rates. Furthermore, we will continue to use U.S. Treasury futures
to help reduce fluctuations in the net asset value of the Fund in the event
rates were to rise. We have maintained some cash on the sidelines to invest
when higher-yielding opportunities present themselves.
In terms of our securities selection, we will continue to target higher-rated
essential service revenue bonds, such as water-and-sewer and transportation
issues. We have tended to avoid uninsured hospital issues but have invested in
them where we perceived value on a risk/reward basis. We invested in a
diversified array of sectors where we perceived relative values, rather than
focus on specific sectors.
Although many municipalities have been faced with budgetary challenges due to
weaker tax receipts, when choosing municipal bond investment candidates, we
focus on searching for bonds issued by municipalities that we feel are
prudently balancing their budgets for the longer haul. For example, we favor
those governments with relatively better credit profiles that are reducing
their expenses to meet their revenue streams rather than those that are merely
issuing additional debt to raise cash as part of short-term budgetary
solutions. Although we anticipate the economy will improve, we intend to
continue focusing on higher-rated issues, which are more liquid than
lower-rated higher-yielding issues.
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4
Going forward, we plan to pursue these more conservative approaches as we keep
a close eye on the global economy and the financial markets.
Experience Counts
Given that the prices of Treasuries have rallied considerably during the past
two years, the yields on many municipal bonds are hovering at very competitive
levels versus those on Treasuries. However, because the interest paid by
municipal bonds is exempt from federal income taxes,/vi/ we believe they are a
particularly favorable alternative to Treasuries on an after-tax basis. Even on
a pre-tax basis, however, the average yields on 10-year investment-grade
municipal bonds were hovering at historically high levels exceeding 95% of
those on Treasuries with comparable maturities, as of the period's close.
Furthermore, if interest rates were to rise, investment-grade municipals may
prove more resilient than Treasuries given that municipal bond prices have not
risen as much during the period. However, when investing in municipal bonds, we
believe that our experience can make a difference when it comes to securities-
and maturity-selection, particularly when navigating through the current market
environment.
Looking for Additional Information?
The Managed Municipals Portfolio Inc. is traded 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 your investment in the 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
March 14, 2003
The information provided in this letter by the Manager is not intended to be a
forecast of future events, a guarantee of future results or investment advice.
Views expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of February 28, 2003 and are subject
to change. Please refer to pages 8 through 19 for a list and percentage
breakdown of the Fund's holdings.
-----
/i/ NAV is a price that reflects the value of the Fund's underlying portfolio.
However, the price at which an investor may buy or sell shares of the Fund
is at the Fund's market price as determined by supply of and demand for
the Fund's common shares.
/ii/ Total returns are based on changes in NAV or the market price,
respectively. Total returns assume the reinvestment of all dividends
and/or capital gains distributions in additional shares. Annualized
distribution yield is the Fund's current monthly income dividend rate,
annualized, and then divided by the NAV or the market price noted in this
report. The annualized distribution yield assumes a current monthly income
dividend rate of $0.056 for 12 months. This rate is as of February 28,
2003 and is subject to change.
/iii/ Lipper is a major independent mutual-fund tracking organization. Average
annual returns are based on the nine-month period ended February 28, 2003,
calculated among 58 funds in the general municipal debt fund (leveraged)
category with reinvestment of dividends and capital gains, excluding sales
charges.
/iv/ Investment-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.
/v/ The Fed is 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.
/vi/ Please note that a portion of the Fund's income may be subject to the
Alternative Minimum Tax. State and local taxes may apply. Capital gains,
if any, are fully taxable. Please consult your tax advisor.
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6
Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that Fund investors may reinvest their dividends in an effort to
take advantage of what can be one of the most effective wealth-building tools
available today? When the Fund achieves its objectives, systematic investments
by shareholders put time to work for them through the strength of compounding.
As an investor in the Fund, you can participate in its Dividend Reinvestment
Plan ("Plan"), a convenient, simple and efficient way to reinvest your
dividends and capital gains, if any, in additional shares of the Fund. Below
is a short summary of how the Plan works.
Plan Summary
If you are a Plan participant who has not elected to receive your dividends in
the form of a cash payment, then your dividend and capital gain distributions
will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a
cash dividend is determined in the following manner. If the market price of
the common stock is equal to or exceeds 98% of the net asset value per share
("NAV") on the determination date, you will be issued shares by the Fund at a
price reflecting the NAV, or 95% of the market price, whichever is greater.
If the market price is less than 98% of the NAV at the time of valuation (the
close of business on the determination date), PFPC Global Fund Services ("Plan
Agent"), will buy common stock for your account in the open market.
If the Plan Agent begins to purchase additional shares in the open market and
the market price of the shares subsequently rises above the previously
determined NAV before the purchases are completed, the Plan Agent will attempt
to terminate purchases and have the Fund issue the remaining dividend or
distribution in shares at the greater of the previously determined NAV or 95%
of the market price. In that case, the number of Fund shares you receive will
be based on the weighted average of prices paid for shares purchased in the
open market and the price at which the Fund issues the remaining shares.
A more complete description of the current Plan appears in this report
beginning on page 35.
To find more detailed information about the Plan and about how you can
participate, please call PFPC Global Fund Services at (800) 331-1710.
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7
SCHEDULE OF INVESTMENTS
February 28, 2003 (unaudited)
Face
Amount Rating(a) Security Value
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MUNICIPAL BONDS AND NOTES -- 100.0%
Alabama -- 3.9%
$24,510,000 AAA Jefferson County, AL Sewer Revenue Warrants,
Series A, FGIC-Insured, 5.375% due 2/1/36 (b) $28,174,000
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Alaska -- 0.6%
4,000,000 AA+ Valdez, AK Marine Term Revenue Refunding,
(BP Pipelines Inc. Project), Series A,
5.850% due 8/1/25 4,096,880
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Arizona -- 2.0%
3,525,000 AA Arizona Agricultural Improvement & Power
Distribution, (Salt River Project), Electric
System Revenue, Series B, 5.000% due 1/1/31 3,593,315
Arizona State University, COP, MBIA-Insured:
1,500,000 AAA 5.100% due 7/1/24 1,549,350
1,000,000 AAA 5.125% due 7/1/26 1,030,950
4,000,000 AAA Mesa, AZ IDA, Discovery Health Systems,
Series A, MBIA-Insured, 5.625% due 1/1/29 4,261,120
3,000,000 AAA Phoenix, AZ Civic Improvement Corp. Airport
Revenue, Sr. Lien, Series B, FGIC-Insured,
5.250% due 7/1/22 (c) 3,095,730
1,000,000 AA+ Phoenix, AZ GO, Series B, 5.000% due 7/1/27 1,023,130
----------------------------------------------------------------------------------
14,553,595
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California -- 7.4%
7,040,000 Ba1* California Educational Facilities Authority
Revenue, (Pooled College & University
Projects), Series A, (Partially Pre-Refunded --
Escrowed with U.S. government securities to
7/1/08 Call @ 101), 5.625% due 7/1/23 (d) 6,420,762
6,000,000 A3* California Health Facilities Authority Revenue,
(Cedars-Sinai Medical Center), Series A,
6.250% due 12/1/34 6,406,740
1,000,000 A+ California Health Facilities Financing Authority
Revenue, Sutter Health, Series A,
6.250% due 8/15/35 1,085,740
5,000,000 AAA California State Department of Veterans Affairs,
Home Purchase Revenue, Series A, AMBAC-
Insured, 5.350% due 12/1/27 5,205,200
6,000,000 A3* California State Department of Water Resources,
Power Supply Revenue, Series A,
5.250% due 5/1/20 6,229,320
10,000,000 A1* Golden State Tobacco Securitization Corp.,
California Tobacco Settlement Revenue,
Series 2003-A-1, 6.750% due 6/1/39 (b) 9,878,500
SEE NOTES TO
FINANCIAL STATEMENTS.
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8
SCHEDULE OF INVESTMENTS
February 28, 2003 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
California -- 7.4% (continued)
$ 7,000,000 AAA Los Angeles County, CA COP, Antelope Valley
Courthouse, Series A, AMBAC-Insured,
5.250% due 11/1/33 $ 7,267,470
3,340,000 AAA Rancho Cucamonga, CA Redevelopment
Agency Tax Allocation, (Rancho
Redevelopment Project), MBIA-Insured,
5.125% due 9/1/30 3,443,106
2,750,000 AAA Sacramento County, CA COP, (Public Facilities
Project), MBIA-Insured, 5.375% due 2/1/19 2,949,045
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 2,594,775
2,500,000 AAA San Jose, CA Financing Authority Lease
Revenue, (Civic Center Project), Series B,
5.000% due 6/1/32 2,546,125
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54,026,783
--------------------------------------------------------------------------------
Colorado -- 6.8%
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) 4,679,320
1,000,000 A- Aspen, CO Sales Tax Revenue,
5.400% due 11/1/19 1,063,020
4,000,000 AAA Colorado Educational & Cultural Facilities
Revenue Refunding, (University of Denver
Project), AMBAC-Insured,
5.375% due 3/1/23 4,218,960
4,000,000 A Colorado Health Facilities Authority Revenue,
Series B, Remarketed 7/8/98,
5.350% due 8/1/15 4,147,400
Denver, CO City & County Airport Revenue,
Series C:
13,630,000 A 6.125% due 11/15/25 (b)(c) 14,019,136
10,945,000 A Escrowed to maturity with U.S.
government securities,
6.125% due 11/15/25 (b)(c)(d) 13,060,887
2,000,000 AAA Denver, CO City & County COP, Series B,
AMBAC-Insured, 5.500% due 12/1/25 2,132,620
El Paso County, CO COP, (Detention Facility
Project), Series B, AMBAC-Insured:
1,700,000 AAA 5.000% due 12/1/23 1,748,739
1,500,000 AAA 5.000% due 12/1/27 1,533,555
SEE NOTES TO
FINANCIAL STATEMENTS.
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9
SCHEDULE OF INVESTMENTS
February 28, 2003 (unaudited) (continued)
Face
Amount Rating(a) Security Value
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Colorado -- 6.8% (continued)
Garfield County, CO School District No. 2 GO,
FSA-Insured:
$ 2,300,000 Aaa* 5.000% due 12/1/23 $ 2,365,941
1,000,000 Aaa* 5.000% due 12/1/25 1,029,460
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49,999,038
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Connecticut -- 1.2%
Connecticut State GO, Series B:
1,600,000 AA 5.000% due 6/15/02 1,658,800
4,490,000 AA 5.500% due 6/15/21 4,873,266
1,000,000 AAA Connecticut State Health & Education,
(Child Care Facilities Project), Series C,
AMBAC-Insured, 5.625% due 7/1/29 1,077,480
1,000,000 AAA Connecticut State Health & Educational
Facilities Authority Revenue, (Village
Families & Children), Series A,
AMBAC-Insured, 5.000% due 7/1/32 1,015,250
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8,624,796
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Delaware -- 1.5%
10,000,000 AAA Delaware State EDA Revenue, (Pollution
Control-Delmarva Project-B), AMBAC-
Insured, 5.200% due 2/1/19 (b) 10,659,700
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District of Columbia -- 1.5%
Metropolitan Washington Airports, DC
Authority Airport System Revenue, Series A,
FGIC-Insured:
5,355,000 AAA 5.125% due 10/1/22 (c) 5,482,984
5,500,000 AAA 5.125% due 10/1/26 (c) 5,576,670
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11,059,654
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Florida -- 4.9%
5,000,000 AAA Florida State Board & Educational Capital
Outlay GO, FSA-Insured, 5.000% due 6/1/24 5,122,300
3,000,000 AA+ Florida State Board of Education GO, Series A,
5.125% due 6/1/21 3,146,640
3,145,000 AAA Florida State Department of Transportation
GO, FGIC-Insured, 5.000% due 7/1/25 3,221,266
1,500,000 AAA Julington Creek Plantation Community
Development District, FL Special Assessment
Revenue, MBIA-Insured, 5.000% due 5/1/29 1,528,635
SEE NOTES TO
FINANCIAL STATEMENTS.
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10
SCHEDULE OF INVESTMENTS
February 28, 2003 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Florida -- 4.9% (continued)
$ 6,500,000 BBB- Martin County, FL IDA, (Indiantown
Cogeneration Project), Series A,
7.875% due 12/15/25 (c) $ 6,775,080
1,290,000 AAA Miami Beach, FL Stormwater Revenue,
FGIC-Insured, 5.375% due 9/1/30 1,353,133
2,000,000 Aaa* Orange County, FL School Board COP,
Series A, MBIA-Insured, 5.250% due 8/1/23 2,096,060
10,000,000 AAA Palm Beach County, FL School Board COP,
Series C, FSA-Insured, 5.000% due 8/1/27 (b) 10,157,100
2,500,000 Aaa* South Brevard, FL Recreational Facilities
Improvement, Special District,
AMBAC-Insured, 5.000% due 7/1/20 2,605,600
--------------------------------------------------------------------------------
36,005,814
--------------------------------------------------------------------------------
Georgia -- 1.9%
6,000,000 AAA Augusta, GA Water & Sewer Revenue,
FSA-Insured, 5.250% due 10/1/26 6,269,160
Private Colleges & Universities Authority
Revenue, (Mercer University Project):
2,180,000 Baa1* 5.750% due 10/1/21 2,383,765
Series A:
2,000,000 Baa1* 5.250% due 10/1/25 2,009,500
1,000,000 Baa1* 5.375% due 10/1/29 1,009,870
2,000,000 BBB- Savannah, GA EDA Revenue, College of Art
& Design Inc., 6.900% due 10/1/29 2,164,440
--------------------------------------------------------------------------------
13,836,735
--------------------------------------------------------------------------------
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 4,121,640
--------------------------------------------------------------------------------
Illinois -- 3.5%
4,095,000 AAA Chicago, IL GO, Series D, FGIC-Insured,
5.500% due 1/1/35 4,320,798
7,400,000 AAA Chicago, IL Skyway Toll Bridge Revenue,
AMBAC-Insured, 5.500% due 1/1/31 7,834,676
8,000,000 A Illinois Health Facilities Authority Revenue,
OSF Healthcare Systems,
6.250% due 11/15/29 (b) 8,433,040
5,000,000 AAA Illinois State GO, MBIA-Insured,
5.625% due 6/1/25 5,293,200
--------------------------------------------------------------------------------
25,881,714
--------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
[GRAPHIC]
11
SCHEDULE OF INVESTMENTS
February 28, 2003 (unaudited) (continued)
Face
Amount Rating(a) Security Value
----------------------------------------------------------------------------------
Indiana -- 1.1%
$ 5,000,000 A1* Indiana Port Commission Revenue Refunding,
(Cargill Inc. Project), 6.875% due 5/1/12 $ 5,112,300
3,000,000 BBB+ Indiana State Development Financing
Authority Revenue, (USX Corp. Project),
5.250% due 12/1/22 3,053,760
----------------------------------------------------------------------------------
8,166,060
----------------------------------------------------------------------------------
Kansas -- 0.2%
1,250,000 AAA Scott County, KS Unified School District No.
446 GO, FGIC-Insured, 5.000% due 9/1/22 1,291,975
----------------------------------------------------------------------------------
Louisiana -- 0.8%
5,500,000 A1* St. Martin Parish, LA Industrial Revenue,
(Cargill Inc. Project), 6.625% due 10/1/12 (e) 5,622,430
----------------------------------------------------------------------------------
Maine -- 0.3%
2,500,000 AA+ Maine State Housing Authority Mortgage
Revenue, Series C, 5.300% due 11/15/23 2,578,850
----------------------------------------------------------------------------------
Maryland -- 0.8%
Baltimore, MD Wastewater Project Revenue,
Series A, FGIC-Insured:
2,500,000 AAA 5.125% due 7/1/32 2,569,775
3,385,000 AAA 5.200% due 7/1/32 3,511,328
----------------------------------------------------------------------------------
6,081,103
----------------------------------------------------------------------------------
Massachusetts -- 5.4%
2,000,000 Baa3* Boston, MA Industrial Development
Financing Authority, Sr. Revenue Bonds,
(Crosstown Center Project), Series 2002,
6.500% due 9/1/35 (c) 1,989,260
3,000,000 AAA Massachusetts Bay Transportation Authority,
Sales Tax Revenue, Series A,
5.500% due 7/1/30 3,150,810
1,125,000 Aaa* Massachusetts Development Finance Agency,
(Merrimack College Issue), MBIA-Insured,
5.200% due 7/1/32 1,160,134
1,850,000 AAA Massachusetts Health & Educational Facilities
Authority, (University of Massachusetts
Projects), Series C, FGIC-Insured,
5.125% due 10/1/27 1,898,507
25,000,000 Aa2* Massachusetts State, GO of Commonwealth,
Series C, 5.250% due 11/1/30 (b) 25,996,750
5,000,000 AAA Massachusetts State Special Obligation
Revenue, Series A, FGIC-Insured,
5.000% due 6/1/21 5,209,950
----------------------------------------------------------------------------------
39,405,411
----------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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12
SCHEDULE OF INVESTMENTS
February 28, 2003 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Michigan -- 2.7%
$ 5,000,000 AAA East Lansing, MI School District, GO,
Q-SBLF-Insured, 5.625% due 5/1/30 $ 5,284,150
Michigan State COP, AMBAC-Insured:
2,345,000 AAA 5.500% due 6/1/19 2,537,994
6,000,000 AAA 5.500% due 6/1/27 6,336,420
2,500,000 AA- Michigan State Hospital Finance Authority
Revenue Refunding, (Trinity Health Credit),
Series C, 5.375% due 12/1/23 2,561,700
12,000,000 NR Michigan State Strategic Fund Resources
Recovery, Limited Obligation Revenue,
(Central Wayne Energy Recovery L.P.
Project), Series A, 7.000% due 7/1/27 (c)(f) 3,000,000
--------------------------------------------------------------------------------
19,720,264
--------------------------------------------------------------------------------
Minnesota -- 2.6%
1,500,000 AAA Dakota County, MN Community Development
Agency, MFH Revenue, FNMA-Collateralized,
5.625% due 2/1/26 1,559,040
2,500,000 A1* Duluth, MN IDA, Seaway Port Authority Dock
& Wharf Revenue, (Cargill Inc. Project),
6.800% due 5/1/12 2,584,250
7,000,000 A3* Minneapolis, MN Healthcare System Revenue,
(Allina Health System), Series A,
6.000% due 11/15/23 7,405,160
Minneapolis & St. Paul, MN Community
Airport Revenue, FGIC-Insured:
2,000,000 AAA Series A, 5.125% due 1/1/25 2,065,540
4,000,000 AAA Sub-Series C, 5.250% due 1/1/26 4,166,240
1,140,000 AA+ Minnesota State Housing Financing Agency,
Single-Family Mortgage, Series I,
5.500% due 1/1/17 1,191,938
--------------------------------------------------------------------------------
18,972,168
--------------------------------------------------------------------------------
Missouri -- 2.5%
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 2,046,120
1,500,000 AAA Greene County, MO Reorganized School
District No. R-8 GO, FSA-Insured,
5.100% due 3/1/22 1,567,050
2,000,000 Aaa* Jackson County, MO Special Obligation,
MBIA-Insured, 5.000% due 12/1/27 2,047,880
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
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13
SCHEDULE OF INVESTMENTS
February 28, 2003 (unaudited) (continued)
Face
Amount Rating(a) Security Value
----------------------------------------------------------------------------------
Missouri -- 2.5% (continued)
$ 2,000,000 Aaa* Missouri State Environmental Improvement
& Energy Resources Authority, (Water
Pollution -- Drinking Water), Series B,
5.000% due 7/1/23 $ 2,067,320
8,000,000 AA+ Missouri State Health & Educational Facilities
Authority Revenue, (Washington University
Project), Series A, 5.000% due 2/15/33 (b) 8,169,520
2,000,000 AAA St. Louis, MO Airport Revenue, (Airport
Development Program), Series A,
MBIA-Insured, 5.125% due 7/1/22 2,062,020
---------------------------------------------------------------------------------
17,959,910
---------------------------------------------------------------------------------
Montana -- 1.0%
10,090,000 NR Montana State Board Investment Resource
Recovery Revenue, (Yellowstone Energy
L.P. Project), 7.000% due 12/31/19 (b)(c) 7,637,323
---------------------------------------------------------------------------------
Nevada -- 1.0%
4,650,000 Baa2* Clark County, NV IDR, (Southwest Gas Corp.
Project), Series B, 7.500% due 9/1/32 (c) 4,792,848
2,250,000 AAA Truckee Meadows, NV Water Authority
Revenue, Series A, FSA-Insured,
5.000% due 7/1/25 2,286,608
---------------------------------------------------------------------------------
7,079,456
---------------------------------------------------------------------------------
New Jersey -- 7.3%
5,200,000 A+ Hudson County, NJ Improvement Authority,
6.624% due 8/1/25 5,341,180
1,000,000 BBB Middlesex County, NJ Pollution Control
Authority Revenue Refunding, Pollution
Control Financing, (Amerada Hess Corp.
Project), 5.750% due 9/15/32 1,008,740
3,125,000 Baa1* New Jersey EDA, PCR Refunding, (PSEG
Power LLC Project), 5.000% due 3/1/12 3,127,219
New Jersey Health Care Facilities Financing
Authority Revenue:
3,875,000 AAA Engelwood Hospital, FHA/MBIA-Insured,
5.000% due 8/1/23 3,974,239
8,000,000 A+ Robert Wood Johnson University Hospital,
5.700% due 7/1/20 (b) 8,505,440
2,395,000 AA- New Jersey State Highway Authority, Garden
State Parkway General Revenue,
5.625% due 1/1/30 2,567,823
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
14
SCHEDULE OF INVESTMENTS
February 28, 2003 (unaudited) (continued)
Face
Amount Rating(a) Security Value
-------------------------------------------------------------------------------
New Jersey -- 7.3% (continued)
South Jersey Port Corp., NJ Revenue
Refunding:
$ 1,350,000 A 5.000% due 1/1/26 $ 1,350,945
2,000,000 A 5.100% due 1/1/33 2,028,880
Tobacco Settlement Financing Corp.,
NJ Asset-Backed Bonds:
10,000,000 A1* 5.750% due 6/1/32 (b) 9,230,800
15,000,000 A1* 6.000% due 6/1/37 (b) 13,089,450
3,390,000 A1* 6.125% due 6/1/42 3,006,523
-------------------------------------------------------------------------------
53,231,239
-------------------------------------------------------------------------------
New Mexico -- 0.3%
2,085,000 AAA New Mexico Mortgage Financing Authority,
Single-Family Mortgages, Series D-3,
5.625% due 9/1/28 2,154,973
-------------------------------------------------------------------------------
New York -- 8.4%
1,100,000 A-1+ Jay Street Development Corp., NY Courts
Facility Lease Revenue, (NYC Jay Street
Project), Series A-2, 1.130% due 5/1/20 (g) 1,100,000
30,000,000 AA- Metropolitan Transportation Authority,
Series A, 5.125% due 1/1/24 (b) 30,678,600
Nassau Health Care Corp., NY Health Systems
Revenue, FSA-Insured:
2,000,000 AAA 5.500% due 8/1/19 2,188,280
3,000,000 AAA 5.750% due 8/1/29 3,309,990
6,000,000 AA New York City, NY Municipal Water Financing
Authority, Water & Sewer System Revenue,
Series D, 5.250% due 6/15/25 6,268,320
New York State Dormitory Authority Revenue:
5,000,000 AAA Series B, FSA-Insured, 5.500% due 5/15/30 5,872,000
1,000,000 AAA Willow Towers Inc. Project, GNMA-
Collateralized, 5.250% due 2/1/22 1,042,700
3,000,000 AAA New York State Thruway Authority Highway
& Bridge Revenue, Series B-1, FGIC-Insured,
5.400% due 4/1/17 3,284,910
1,000,000 AA New York State Urban Development Corp.
Revenue, (Personal Income Tax Project),
Series C-1, 5.000% due 3/15/24 1,014,170
6,290,000 AAA Port Authority of New York & New
Jersey, NY GO, FGIC-Insured,
5.250% due 5/15/37 (c) 6,521,409
-------------------------------------------------------------------------------
61,280,379
-------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
15
SCHEDULE OF INVESTMENTS
February 28, 2003 (unaudited) (continued)
Face
Amount Rating(a) Security Value
---------------------------------------------------------------------------------
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 $ 1,946,417
---------------------------------------------------------------------------------
Ohio -- 9.2%
4,500,000 Aa2* Bexley, OH City School District GO,
5.125% due 12/1/27 4,602,015
2,000,000 AAA Canton, OH City School District GO, Series A,
MBIA-Insured, 5.500% due 12/1/20 2,164,640
1,300,000 AA+ Cincinnati, OH Water System Revenue,
5.125% due 12/1/21 1,365,377
3,000,000 AAA Cuyahoga County, OH Hospital Revenue
Refunding, University Hospitals Health System
Inc., AMBAC-Insured, 5.500% due 1/15/30 3,152,790
25,000,000 Aaa* Hamilton County, OH Sales Tax Revenue,
AMBAC-Insured, 5.250% due 12/1/32 (b) 25,947,250
7,500,000 AA- Lorain County, OH Hospital Revenue, Catholic
Healthcare Partners, 5.375% due 10/1/30 7,601,025
5,990,000 AAA Lucas County, OH Hospital Revenue, Promedic
Healthcare Obligation Group,
AMBAC-Insured, 5.375% due 11/15/29 6,249,367
3,025,000 Aaa* Muskingum County, OH GO, Refunding,
County Facilities Improvement,
MBIA-Insured, 5.125% due 12/1/19 3,223,168
1,375,000 AAA Ohio State Higher Educational Facility
Commission Revenue, (University of Dayton
Project), AMBAC-Insured, 5.500% due 12/1/25 1,473,340
2,500,000 AAA Portage County, OH GO, MBIA-Insured,
5.250% due 12/1/17 2,710,050
1,500,000 A3* Steubenville, OH Hospital Revenue,
6.375% due 10/1/20 1,601,355
Summit County, OH GO, FGIC-Insured:
1,000,000 AAA 5.000% due 12/1/21 1,048,230
500,000 AAA 5.000% due 12/1/22 520,205
1,500,000 Aaa* Trumbull County, OH MBIA-Insured,
5.200% due 12/1/20 1,605,705
2,000,000 AAA University of Cincinnati, OH General Receipts
Revenue, Series A, FGIC-Insured,
5.250% due 6/1/24 2,099,880
1,500,000 AAA Warrensville Heights, OH City School District,
School Improvements, FGIC-Insured,
5.625% due 12/1/20 1,653,885
---------------------------------------------------------------------------------
67,018,282
---------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
16
SCHEDULE OF INVESTMENTS
February 28, 2003 (unaudited) (continued)
Face
Amount Rating(a) Security Value
--------------------------------------------------------------------------------
Oregon -- 2.7%
$ 3,210,000 AA Clackamas County, OR Hospital Facilities
Authority Revenue, Legacy Health System,
5.750% due 5/1/16 $ 3,510,392
1,000,000 AAA Oregon Health Sciences University Revenue,
Series A, MBIA-Insured, 5.000% due 7/1/32 1,021,740
4,895,000 AA+ Oregon State Department of Transportation,
Highway User Tax Revenue, Series A,
5.125% due 11/15/23 5,148,610
10,000,000 AA Oregon State Veterans Welfare GO, Series 82,
5.500% due 12/1/42 (b) 10,328,200
--------------------------------------------------------------------------------
20,008,942
--------------------------------------------------------------------------------
South Carolina -- 3.8%
6,250,000 AAA Grand Strand Water & Sewer Authority, SC
Waterworks & Sewer System Revenue,
FSA-Insured, 5.000% due 6/1/31 6,402,875
15,000,000 AA- Greenville County, SC School District
Installment Purchase Revenue,
5.500% due 12/1/28 (b) 15,470,250
South Carolina Transportation Infrastructure
Bank Revenue, Series A:
2,505,000 Aaa* AMBAC-Insured, 5.125% due 10/1/31 2,572,209
3,000,000 AAA MBIA-Insured, 5.500% due 10/1/30 3,176,790
--------------------------------------------------------------------------------
27,622,124
--------------------------------------------------------------------------------
Tennessee -- 3.6%
1,150,000 NR Hardeman County, TN Correctional
Facilities Corp., 7.750% due 8/1/17 1,159,648
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 6,731,049
14,500,000 AAA 5.125% due 11/1/28 (b) 14,916,295
3,000,000 AA Tennessee State GO, Series A,
5.250% due 3/1/17 3,232,350
--------------------------------------------------------------------------------
26,039,342
--------------------------------------------------------------------------------
Texas -- 2.0%
1,595,000 AAA Burleson, TX ISD, GO, PSFG,
6.750% due 8/1/24 1,834,090
Fort Worth, TX International Airport Facility
Improvement Corp. Revenue, (American
Airlines Inc. Project):
12,000,000 B- 6.375% due 5/1/35 (c) 2,940,120
3,400,000 B- Series A, 5.950% due 5/1/29 (c) 1,266,500
3,000,000 B- Series B, 6.050% due 5/1/29 (c) 909,750
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
17
SCHEDULE OF INVESTMENTS
February 28, 2003 (unaudited) (continued)
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------------
Texas -- 2.0% (continued)
$ 2,175,000 A-1+ Gulf Coast Waste Disposal Authority, TX
PCR, Refunding, (Amoco Oil Co. Project),
1.100% due 10/1/17 (g) $ 2,175,000
Harris County, TX Health Facilities
Development Corp., Hospital Revenue:
1,000,000 AAA School Health Care Systems, Series B,
(Escrowed to maturity with U.S.
government securities), 5.750% due 7/1/27 1,160,760
700,000 A-1+ Texas Childrens Hospital, Series B-1,
MBIA-Insured, 1.200% due 10/1/29 (g) 700,000
3,475,000 A-1+ Lower Neches Valley Authority, TX Industrial
Development Corp., Exempt Facilities
Revenue, (Exxon Mobil Project), Series A,
1.100% due 2/1/31 (g) 3,475,000
---------------------------------------------------------------------------------
14,461,220
---------------------------------------------------------------------------------
Virginia -- 3.9%
3,000,000 A3* Chesapeake, VA IDA Revenue, Remarketed
11/8/02, 5.250% due 2/1/08 3,129,420
3,000,000 A3* Chesterfield County, VA IDA, PCR, (VA Electric
& Power), Remarketed 11/8/02, Series A,
5.875% due 6/1/17 3,167,010
Virginia State HDA, MFH:
1,245,000 AA+ Series D, Sub-Series D-3, Remarketed
5/30/96, 5.700% due 7/1/09 1,321,281
Series H:
1,235,000 AAA AMBAC-Insured, 6.300% due 11/1/15 1,300,183
10,000,000 AAA Sub-Series H-1, MBIA-Insured,
5.350% due 7/1/31 (b) 10,303,800
Series K:
600,000 AA+ 5.800% due 11/1/10 640,704
925,000 AA+ 5.900% due 11/1/11 984,487
7,000,000 A3* York County, VA IDA, PCR, (VA Electrical &
Power Co.), Remarketed 11/8/02,
5.000% due 7/1/09 (b) 7,366,520
---------------------------------------------------------------------------------
28,213,405
---------------------------------------------------------------------------------
Washington -- 1.9%
Chelan County, WA GO, Public Utilities,
District No. 1, Columbus River Rock:
22,685,000 AAA Series A, MBIA-Insured,
zero coupon due 6/1/22 (b) 8,480,787
4,750,000 AA Series B, Remarketed 7/1/92, Mandatory
put 7/1/19, 6.750% due 7/1/62 (c) 5,049,250
---------------------------------------------------------------------------------
13,530,037
---------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
18
SCHEDULE OF INVESTMENTS
February 28, 2003 (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 $ 3,968,002
5,000,000 AAA Series C, 5.350% due 11/1/27 5,159,600
----------------------------------------------------------------------------
9,127,602
----------------------------------------------------------------------------
Wisconsin -- 1.2%
Wisconsin Housing & Economic Development
Authority, Home Ownership Revenue,
Series A:
1,100,000 AA 6.450% due 3/1/17 1,135,926
1,370,000 AA 5.650% due 11/1/23 1,394,824
3,665,000 AA- Wisconsin State GO, Series B,
6.600% due 1/1/22 (b)(c) 3,681,016
Wisconsin State Health & Educational
Facilities Authority Revenue:
1,100,000 A Kenosha Hospital & Medical Center
Project, 5.700% due 5/15/20 1,124,618
1,250,000 AAA The Medical College of Wisconsin Inc.
Project, MBIA-Insured,
5.400% due 12/1/16 1,346,200
----------------------------------------------------------------------------
8,682,584
----------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $713,019,003**) $728,871,845
----------------------------------------------------------------------------
(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 has been segregated for futures contracts
commitments.
(c)Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(d)Pre-Refunded bonds escrowed with U.S. government securities and bonds
escrowed to maturity with U.S. government securities are considered by the
investment adviser to be triple-A rated even if issuer has not applied for
new ratings.
(e)Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(f)Security is currently in default.
(g)Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 21 and 22 for definitions of ratings and certain security
descriptions.
SEE NOTES TO FINANCIAL STATEMENTS.
========================
[GRAPHIC]
19
SUMMARY OF INVESTMENTS BY COMBINED RATINGS
February 28, 2003 (unaudited)
Percentage of
Moody's and/or Standard & Poor's Total Investments
Aaa AAA 49.0%
Aa AA 22.6
A A 20.3
Baa BBB 3.9
Ba BB 0.9
B B 0.7
VMIG 1/P-1 SP-1/A-1 1.0
NR NR 1.6
-----
100.0%
=====
========================
[GRAPHIC]
20
BOND RATINGS
(unaudited)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard and Poor's") -- Ratings from "AA"
to "B" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
AAA --Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
AA --Bonds rated "AA" have a very strong capacity to pay interest and repay principal and
differ from the highest rated issue only in a small degree.
A --Bonds rated "A" have a strong capacity to pay interest and repay principal although
they are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories.
BBB --Bonds rated "BBB" are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds in this category than
in higher rated categories.
BB --Bonds rated "BB" and "B" are regarded, on balance, as predominantly speculative
and B with respect to the issuer's capacity to pay interest and repay principal in accordance
with the terms of the obligation. "BB" indicates the lowest degree of speculation and
"B" the highest degree of speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
Moody's Investors Service ("Moody's") -- Numerical modifiers 1, 2 and 3 may be applied to each
generic rating from "Aa" to "Ba," where 1 is the highest and 3 the lowest ranking within its
generic category.
Aaa --Bonds rated "Aaa" are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa --Bonds rated "Aa" are judged to be of high quality by all standards. Together with the
"Aaa" group they comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may not be as large in
"Aaa" securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
A --Bonds rated "A" possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa --Bonds rated "Baa" are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
Ba --Bonds rated "Ba" are judged to have speculative elements; their future cannot be
considered as well assured. Often the protection of interest and principal payments
may be very moderate thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
NR --Indicates that the bond is not rated by Standard & Poor's or Moody's.
========================
[GRAPHIC]
21
SHORT-TERM SECURITY RATINGS
(unaudited)
SP-1 --Standard & Poor's highest rating indicating very strong
or strong capacity to pay principal and interest; those
issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign.
A-1 --Standard & Poor's highest commercial paper and
variable-rate demand obligation (VRDO) rating indicating
that the degree of safety regarding timely payment is
either overwhelming or very strong; those issues
determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign.
VMIG 1 --Moody's highest rating for issues having a demand
feature -- VRDO.
P-1 --Moody's highest rating for commercial paper and for VRDO
prior to the advent of the VMIG 1 rating.
SECURITY DESCRIPTIONS
(unaudited)
ABAG --Association of Bay Area Governments
AIG --American International Guaranty
AMBAC --AMBAC Indemnity Corporation
BAN --Bond Anticipation Notes
BIG --Bond Investors Guaranty
CDA --Community Development Administration
CGIC --Capital Guaranty Insurance Company
CHFCLI --California Health Facility Construction Loan Insurance
COP --Certificate of Participation
EDA --Economic Development Authority
ETM --Escrowed To Maturity
FAIRS --Floating Adjustable Interest Rate Securities
FGIC --Financial Guaranty Insurance Company
FHA --Federal Housing Administration
FHLMC --Federal Home Loan Mortgage Corporation
FNMA --Federal National Mortgage Association
FRTC --Floating Rate Trust Certificates
FSA --Financial Security Assurance
GIC --Guaranteed Investment Contract
GNMA --Government National Mortgage Association
GO --General Obligation
HDA --Housing Development Authority
HDC --Housing Development Corporation
HFA --Housing Finance Authority
IDA --Industrial Development Authority
IDB --Industrial Development Board
IDR --Industrial Development Revenue
INFLOS --Inverse Floaters
ISD --Independent School District
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance Corporation
MFH --Multi-Family Housing
MVRICS --Municipal Variable Rate Inverse Coupon Security
PCR --Pollution Control Revenue
PFA --Public Finance Authority
PSFG --Permanent School Fund Guaranty
Q-SBLF --Qualified School Bond Loan Fund
RAN --Revenue Anticipation Notes
RIBS --Residual Interest Bonds
RITES --Residual Interest Tax-Exempt Securities
SYCC --Structured Yield Curve Certificate
TAN --Tax Anticipation Notes
TECP --Tax Exempt Commercial Paper
TOB --Tender Option Bonds
TRAN --Tax and Revenue Anticipation Notes
VAN --Veterans Administration
VRDD --Variable Rate Daily Demand
VRWE --Variable Rate Wednesday Demand
========================
[GRAPHIC]
22
STATEMENT OF ASSETS AND LIABILITIES
(unaudited)
February 28, 2003
---------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $713,019,003) $728,871,845
Cash 2,977,468
Interest receivable 10,434,883
Receivable for securities sold 815,000
--------------------------------------------------------------------------------
Total Assets 743,099,196
--------------------------------------------------------------------------------
LIABILITIES:
Payable to broker -- variation margin 1,990,625
Dividends payable 731,743
Investment advisory fee payable 415,074
Administration fee payable 123,599
Distributions payable to Auction Rate Cumulative
Preferred Stockholders 30,991
Accrued expenses 128,934
--------------------------------------------------------------------------------
Total Liabilities 3,420,966
--------------------------------------------------------------------------------
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 7) 250,000,000
--------------------------------------------------------------------------------
Total Net Assets $489,678,230
--------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 41,856
Capital paid in excess of par value 509,076,800
Undistributed net investment income 1,173,117
Accumulated net realized loss from security transactions
and futures contracts (21,445,329)
Net unrealized appreciation of investments and futures contracts 831,786
--------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.70 a share on 41,855,576 capital shares of
$0.001 par value outstanding; 500,000,000 capital shares
authorized) $489,678,230
--------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
23
STATEMENT OF OPERATIONS
(unaudited)
Nine Months Ended
February 28, 2003
---------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $29,768,663
------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 3) 3,492,876
Administration fee (Note 3) 1,132,505
Auction fees (Note 7) 469,714
Shareholder communications 135,508
Audit and legal 96,032
Directors' fees 43,572
Custody 42,565
Shareholder servicing fees 41,418
Rating agency fees 30,135
Registration fees 22,692
Other 233,059
------------------------------------------------------------------------------
Total Expenses 5,740,076
------------------------------------------------------------------------------
Net Investment Income 24,028,587
------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS (NOTES 4 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) 12,040,536
Futures contracts (2,847,614)
------------------------------------------------------------------------------
Net Realized Gain 9,192,922
------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and
Futures Contracts:
Beginning of period 10,780,629
End of period 831,786
------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (9,948,843)
------------------------------------------------------------------------------
Net Loss on Investments and Futures Contracts (755,921)
------------------------------------------------------------------------------
Distributions Paid to Auction Rate Cumulative Preferred
Stockholders From Net Investment Income (2,432,073)
------------------------------------------------------------------------------
Increase in Net Assets From Operations $20,840,593
------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
24
STATEMENTS OF CHANGES IN NET ASSETS
Nine Months Ended
February 28, 2003 Year Ended
(unaudited) May 31, 2002
------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 24,028,587 $ 19,666,716
Net realized gain (loss) 9,192,922 (11,512,844)
Increase (decrease) in net unrealized appreciation (9,948,843) 12,747,045
Distributions Paid to Auction Rate
Cumulative Preferred Stockholders from
net investment income (2,432,073) (103,927)
-----------------------------------------------------------------------------------
Increase in Net Assets From Operations 20,840,593 20,796,990
-----------------------------------------------------------------------------------
DISTRIBUTIONS PAID TO COMMON STOCK
SHAREHOLDERS FROM (NOTE 2):
Net investment income (20,425,521) (19,609,532)
-----------------------------------------------------------------------------------
Decrease in Net Assets From Distributions
Paid to Common Stock Shareholders (20,425,521) (19,609,532)
-----------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTES 7 AND 9):
Underwriting commissions and expenses for the
issuance of Auction Rate Cumulative
Preferred Stock (71,209) (2,793,000)
Net asset value of shares issued in connection
with the transfer of Managed Municipals
Portfolio II Inc.'s net assets -- 117,162,040
-----------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Fund Share Transactions (71,209) 114,369,040
-----------------------------------------------------------------------------------
Increase in Net Assets 343,863 115,556,498
NET ASSETS:
Beginning of period 489,334,367 373,777,869
-----------------------------------------------------------------------------------
End of period* $489,678,230 $489,334,367
-----------------------------------------------------------------------------------
* Includes undistributed net investment income of: $1,173,117 $2,124
----------------------------------------------------------------------------------
SEE NOTES TO
FINANCIAL STATEMENTS.
========================
[GRAPHIC]
25
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 asked prices provided by an independent
pricing service that are based on transactions in municipal obligations,
quotations from municipal bond dealers, market transactions in comparable
securities and various relationships between securities; (c) securities
maturing within 60 days or less are valued at cost plus accreted discount, or
minus amortized premium, which approximates value; (d) gains or losses on sale
of securities are calculated by using the specific identification method; (e)
interest income, adjusted for amortization of premium and accretion of
discount, is recorded on an accrual basis; (f ) dividends and distributions to
shareholders are recorded 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 and
recorded adjustments to increase the cost of securities and increase
accumulated undistributed net investment income by $59,169 to reflect the
========================
[GRAPHIC]
26
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
cumulative effect of this change up to the date of the adoption. This change
does not affect the Fund's net asset value, but does change the classification
of certain amounts in the statement of operations.
2. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from regular Federal income tax and from
designated state income taxes, to retain such tax-exempt status when
distributed to the shareholders of the Fund.
Capital gain distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
3. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS
Smith Barney Fund Management LLC ("SBFM"), an indirect wholly-owned
subsidiary of Citigroup Inc. ("Citigroup"), acts as investment adviser to the
Fund. The Fund pays SBFM a fee calculated at an annual rate of 0.70% of the
average daily total net assets of the Fund. 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.
4. INVESTMENTS
During the nine months ended February 28, 2003, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
-----------------------------------------------------------------------------
Purchases $244,430,172
-----------------------------------------------------------------------------
Sales 171,126,839
-----------------------------------------------------------------------------
[GRAPHIC]
27
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
At February 28, 2003, aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
-----------------------------------------------------------------------------
Gross unrealized appreciation $ 42,707,831
Gross unrealized depreciation (26,854,989)
------------------------------------------------------------------------------
Net unrealized appreciation $ 15,852,842
-----------------------------------------------------------------------------
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 February 28, 2003, the Fund had the following open futures contracts:
Number of Basis Market Unrealized
Contracts Expiration Value Value Loss
----------------------------------------------------------------------
Contracts
to
Sell:
U.S.
Treasury
Bonds 2,450 3/03 $268,719,569 $283,740,625 $(15,021,056)
----------------------------------------------------------------------
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
[GRAPHIC]
28
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
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 February 28, 2003, 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 for the year ended May
31, 2002. Additional offering costs of $71,209 were incurred and recorded as a
reduction of the capital paid in excess of par value of common stock for the
nine months ended February 28, 2003. 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 0.90% to 1.70% for the nine months ended February
28, 2003.
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.
Effective April 7, 2003, Salomon Smith Barney Inc.'s name changed to
Citigroup Global Markets Inc. ("CGM"). CGM, another 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 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 nine months ended February 28, 2003, CGM earned $469,714 as the
broker/dealer.
Under Emerging Issues Task Force ("EITF") announcement Topic D-98,
Classification and Measurement of Redeemable Securities, which was issued on
July 19, 2001, preferred securities that are redeemable for cash or other
assets are to be classified outside of permanent equity to the extent that the
redemption is at a fixed or determinable price and at the option of the holder
or upon the occurrence of an event that is not solely within the control of the
issuer.
========================
[GRAPHIC]
29
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
8. ASSET MAINTENANCE AND ASSET COVERAGE REQUIREMENTS
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.
9. 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.
10. 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
-------------------------------------------------------------------------------
11. CAPITAL SHARES
At February 28, 2003, the Fund had 500,000,000 shares of common stock
authorized with a par value of $0.001 per share.
[GRAPHIC]
30
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year ended May 31,
unless otherwise noted:
2003/(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)/ 0.57 0.60 0.60 0.58 0.58 0.54
Net realized and unrealized
gain (loss)/(3)/ (0.01) 0.02 0.79 (1.14) (0.32) 0.83
Distributions Paid to Auction
Rate Cumulative Preferred
Stockholders from net
investment income (0.06) (0.00)* -- -- -- --
----------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.50 0.62 1.39 (0.56) 0.26 1.37
----------------------------------------------------------------------------------------
Gain From Repurchase of
Treasury Stock -- -- 0.02 0.12 -- --
----------------------------------------------------------------------------------------
Underwriting Commissions and
Expenses For the Issuance of
Auction Rate Cumulative
Preferred Stock (0.00)* (0.07) -- -- -- --
----------------------------------------------------------------------------------------
Distributions Paid To Common
Stock Shareholders From:
Net investment income (0.49) (0.60) (0.60) (0.60) (0.54) (0.61)
Net realized gains -- -- -- -- (0.12) (0.29)
----------------------------------------------------------------------------------------
Total Distributions (0.49) (0.60) (0.60) (0.60) (0.66) (0.90)
----------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.70 $11.69 $11.74 $10.93 $11.97 $12.37
----------------------------------------------------------------------------------------
Total Return,
Based on Market Value/(4)/ 4.16%++ 4.79% 20.69% (3.88)% 0.11% 2.08%
----------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value/(4)/ 4.75%++ 5.33% 13.90% (2.82)% 2.66% 12.14%
----------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $490 $489 $374 $352 $414 $428
----------------------------------------------------------------------------------------
Ratios to Average Net Assets Based
on Common Shares Outstanding/(5)/:
Net investment income/(3)/ 6.36%+ 4.84% 5.15% 5.19% 4.72% 4.35%
Auction fees 0.12+ 0.00** -- -- -- --
Operating expenses/(2)/ 1.40+ 0.52 0.68 0.89 0.94 0.99
Total expenses 1.52+ 0.52 0.68 0.89 0.94 0.99
----------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 39% 58% 35% 23% 87%
----------------------------------------------------------------------------------------
Market Price, End of Period $10.52 $10.57 $10.67 $9.375 $10.375 $11.00
----------------------------------------------------------------------------------------
========================
[GRAPHIC]
31
FINANCIAL HIGHLIGHTS
(continued)
2003/(1)/ 2002 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------
Auction Rate Cumulative
Preferred Stock/(6)/:
Total Amount Outstanding (000s) $250,000 $250,000 -- -- -- --
Asset Coverage Per Share 73,968 74,000 -- -- -- --
Involuntary Liquidating Preference Per Share/(7)/ 25,000 25,000 -- -- -- --
Average Market Value Per Share/(7)/ 25,000 25,000 -- -- -- --
------------------------------------------------------------------------------------------------------
(1) For the nine months ended February 28, 2003 (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 year ended May 31, 2002, the
ratio of net investment income to average net assets would have been 4.81%.
Per share, ratios and supplemental data for the periods prior to June 1,
2001 have not been restated to reflect this change in presentation. In
addition, the impact of this change to net investment income and net
realized and unrealized gain was less than $0.01 per share.
(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.
(6) 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.
(7)Excludes accrued interest or accumulated undeclared dividends.
* 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]
32
FINANCIAL DATA
(unaudited)
For a share of capital stock outstanding throughout each period:
NYSE Net Dividend
Record Payable Closing Asset Dividend Reinvestment
Date Date Price+ Value+ Paid Price
-------------------------------------------------------
6/27/00 6/30/00 $ 9.750 $11.20 $0.050 $ 9.91
7/25/00 7/28/00 9.688 11.37 0.050 9.89
8/22/00 8/25/00 10.000 11.54 0.050 10.04
9/26/00 9/29/00 9.688 11.42 0.050 9.80
10/24/00 10/27/00 9.688 11.49 0.050 9.78
11/20/00 11/24/00 9.750 11.47 0.050 9.80
12/26/00 12/29/00 9.938 11.85 0.050 10.25
1/23/01 1/26/01 10.688 11.92 0.050 10.70
2/20/01 2/23/01 10.770 11.88 0.050 10.81
3/27/01 3/30/01 10.450 11.89 0.050 10.58
4/24/01 4/27/01 10.370 11.65 0.050 10.55
5/22/01 5/25/01 10.650 11.71 0.050 10.69
6/26/01 6/29/01 10.400 11.80 0.050 10.61
7/24/01 7/27/01 10.590 11.88 0.050 10.71
8/28/01 8/31/01 10.830 12.09 0.050 11.00
9/25/01 9/28/01 10.330 11.87 0.050 10.65
10/23/01 10/26/01 10.640 11.93 0.050 10.82
11/27/01 11/30/01 10.580 11.83 0.050 10.51
12/24/01 12/28/01 10.310 11.63 0.050 10.43
1/22/02 1/25/02 10.600 11.81 0.050 10.74
2/19/02 2/22/02 10.600 11.77 0.050 10.72
3/25/02 3/28/02 10.250 11.55 0.050 10.43
4/23/02 4/26/02 10.300 11.66 0.050 10.51
5/28/02 5/31/02 10.500 11.65 0.050 10.62
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
12/23/02 12/27/03 10.390 11.97 0.056 10.51
1/28/03 1/31/03 10.400 11.84 0.056 10.52
2/25/03 2/28/03 10.470 11.75 0.056 10.56
------------------------------------------------------
+ As of record date.
========================
[GRAPHIC]
33
ADDITIONAL SHAREHOLDER INFORMATION
(unaudited)
Result of Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Managed Municipals Portfolio Inc. was
held on September 12, 2002, for the purpose of considering and voting upon the
election of three Directors, each for a three year term. The following table
provides information concerning the matters voted upon at the Meeting:
1. Election of Directors*
Nominees Votes For Votes Withheld
-------- --------- --------------
Dwight B. Crane 40,459,314 455,209
William R. Hutchinson 40,459,119 455,404
George M. Pavia 40,458,243 456,281
-----
*The following Directors, representing the balance of the Board of Directors,
continue to serve as Directors: Allan J. Bloostein, Paolo M. Cucchi, Robert A.
Frankel, R. Jay Gerken and Paul Hardin.
[GRAPHIC]
34
DIVIDEND REINVESTMENT PLAN
(unaudited)
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose
shares of common stock are registered in his own name will have all
distributions from the Fund reinvested automatically by PFPC Global Fund
Services ("PFPC"), as purchasing agent under the Plan, unless the shareholder
elects to receive cash. Distributions with respect to shares registered in the
name of a broker-dealer or other nominee (that is, in street name) will be
reinvested by the broker or nominee in additional shares under the Plan, unless
the service is not provided by the broker or nominee or the shareholder elects
to receive distributions in cash. Investors who own common stock registered in
street name should consult their broker-dealers for details regarding
reinvestment. All distributions to shareholders who do not participate in the
Plan will be paid by check mailed directly to the record holder by or under the
direction of PFPC as dividend paying agent.
The number of shares of common stock distributed to participants in the Plan
in lieu of a cash dividend is determined in the following manner. When the
market price of the common stock is equal to or exceeds 98% of the net asset
value per share of the common stock on the determination date (generally, the
record date for the distribution), Plan participants will be issued shares of
common stock by the Fund at a price equal to the greater of net asset value
determined as described below under "Net Asset Value" or 95% of the market
price of the common stock.
If the market price of the common stock is less than 98% of the net asset
value of the common stock at the time of valuation (which is the close of
business on the determination date), PFPC will buy common stock in the open
market, on the NYSE or elsewhere, for the participants' accounts. If following
the commencement of the purchases and before PFPC has completed its purchases,
the market price exceeds the net asset value of the common stock as of the
valuation time, PFPC will attempt to terminate purchases in the open market and
cause the Fund to issue the remaining portion of the dividend or distribution
in shares at a price equal to the greater of (a) net asset value as of the
valuation time or (b) 95% of the then current market price. In this case, the
number of shares received by a Plan participant will be based on the weighted
average of prices paid for shares purchased in the open market and the price at
which the Fund issues the remaining shares. To the extent PFPC is unable to
stop open market purchases and cause the Fund to issue the remaining shares,
the average per share purchase price paid by PFPC may exceed the net asset
value of the common stock as of the valuation time, resulting in the
acquisition of fewer shares than if the dividend or capital gains distribution
had been paid in common stock issued by the Fund at such net
========================
[GRAPHIC]
35
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.
SHARE REPURCHASE NOTICE
(unaudited)
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
========================
[GRAPHIC]
36
Managed Municipals
Portfolio Inc.
DIRECTORS
Allan J. Bloostein
Dwight B. Crane
Paolo M. Cucchi
Robert A. Frankel
R. Jay Gerken, Chairman
Paul Hardin
William R. Hutchinson
George M. Pavia
OFFICERS
R. Jay Gerken
President and Chief
Executive Officer
Lewis E. Daidone
Senior Vice President and Chief Administrative Officer
Richard L. Peteka
Chief Financial Officer and Treasurer
Joseph P. Deane
Vice President and Investment Officer
David Fare
Investment Officer
Kaprel Ozsolak
Controller
Christina T. Sydor
Secretary
INVESTMENT ADVISER AND ADMINISTRATOR
Smith Barney Fund Management LLC
399 Park Avenue
New York, New York 10022
TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 8030
Boston, Massachusetts 02266-8030
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
THIS REPORT IS ONLY INTENDED FOR SHAREHOLDERS OF THE
MANAGED MUNICIPALS PORTFOLIO INC.
IT IS NOT A PROSPECTUS,
CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE
PURCHASE OR SALE OF SHARES OF THE FUND OR OF ANY
SECURITIES MENTIONED IN THE REPORT.
FD0879 4/03
03-4653