-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R7avON1Em9+77/hdUHaYxi9gJrQjjyEcNT+6BcSFHobRiJ39oa8/3/aXHxc9/Oa2 N4mnFlmxyR5Pn+7Z9QeZfw== 0000950130-00-002282.txt : 20000426 0000950130-00-002282.hdr.sgml : 20000426 ACCESSION NUMBER: 0000950130-00-002282 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MANAGED MUNICIPALS PORTFOLIO INC CENTRAL INDEX KEY: 0000886043 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06629 FILM NUMBER: 607890 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2124648068 N-30D 1 MANAGED MUNICIPALS PORTFOLIO INC. Managed Municipals Portfolio Inc. Quarterly Report February 29, 2000 [GRAPHIC] Managed Municipals Portfolio Inc. Dear Shareholder: We are pleased to provide the third quarter report for the Managed Municipals Portfolio Inc. ("Portfolio") for the period ended February 29, 2000. During the nine months covered by this report, the Portfolio distributed income dividends totaling $0.45 per share. The table below shows the annualized distribution rate and nine-month total return based on the Portfolio's February 29, 2000 net asset value ("NAV") per share and its New York Stock Exchange ("NYSE") closing price.1 Price Annualized Nine-Month Per Share Distribution Rate2 Total Return2 --------- ------------------ ------------- $10.91 (NAV) 5.50% (4.53)% $9.50 (NYSE) 6.32% (4.14)% In comparison, general closed-end municipal bond funds posted an average total return on NAV of negative 2.58% for the same time period, as reported by Lipper Inc. (Lipper, Inc. is a nationally recognized - --------- 1 The NAV is calculated by subtracting total liabilities from the closing value of all securities held by the Portfolio, plus all other assets. This result (net assets) is divided by the total number of shares outstanding. The NAV fluctuates with changes in the market price of the securities in which the Portfolio has invested. However, the price at which the investor buys or sells shares of the Portfolio is its market (NYSE) price as determined by supply and demand. 2 Total returns are based on changes in NAV and the market value, respectively. Total returns assume the reinvestment of all dividends and/or capital gains distributions in additional shares. The annualized distribution rate is the Portfolio's current monthly income dividend rate, annualized, and then divided by the NAV or the market value noted in the report. This annualized distribution rate assumes a current monthly income dividend rate of $0.050 for twelve months. This rate is as of March 31, 2000 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 Portfolio. 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 Portfolio investment. Past performance is not indicative of future results. 1 organization that reports on mutual fund total return performance and calculates fund rankings. Lipper peer averages are based on universes of funds with similar investment objectives. Peer group averages include reinvested dividends and capital gains, if any, and exclude sales charges.) Special Shareholder Notice We are pleased to report that we have continued our effort to reduce the Portfolio's shares' discount to NAV. This program, which commenced on June 21, 1999, is believed to be an opportunity to take advantage of market price fluctuations with the objective of offering long-term value to the Fund's shareholders. The Portfolio intends to continue to purchase shares of its stock in the open market at such times, prices and amounts deemed advisable and subsequently retire them. This repurchase program has added liquidity to the market for the benefit of investors who wish to sell their shares, while also seeking to benefit current shareholders by increasing the Portfolio's shares' NAV. Since the inception of the program, the Portfolio has repurchased and retired 1,892,400 shares with an average buyback price of $9.43. As of February 29, 2000, this repurchase program has increased the Portfolio's shares' NAV by over $0.11 and increased the Portfolio's shares' total return by approximately 1% when measured by NAV. Municipal Bond Market Update In our view, bond yields are high enough to adequately reflect the risk of slightly higher inflation. The period covered by this report was marked by continued robust U.S. economic growth, historically low inflation and low unemployment. On February 2, 2000, the Federal Reserve Board ("Fed") raised interest rates for a fourth time in less than eight months, seeking to help reduce inflationary pressures and slow down the nation's rapidly growing economy.3 Perhaps more significant than the Fed's recent policy decisions was its accompanying statement that rapid growth could foster inflationary imbalances that might undermine the U.S. economy's record economic expansion. We believe that this vigilance may hint at a slightly more aggressive approach by the Fed in the months ahead. However, in our view, bond yields are high enough to adequately reflect the risk of slightly higher inflation. Indeed, we think that bond yields may be near their peak. - ------- 3 On Tuesday, March 21, 2000 after this letter was written, the Fed raised interest rates 0.25%. 2 Also, we believe performance in the bond market during the period has been a direct result of Fed decisions. While presumably aimed at the bull market in stocks, the bond market has been negatively impacted on fears of further Fed rate increases. We believe the current lack of inflationary data defies a historically tight labor market and shows the incredible influence of technology and the power of global pricing constraints. The bond market had a tough time in 1999. Tax-loss selling and asset allocation shifts out of municipal securities precipitated massive outflows in the fourth quarter, prompting bond funds to sell their municipal bond holdings. This drove yields even higher and sent the net asset values of many funds lower, accelerating outflows and leaving bond dealers reluctant to hold municipal securities. Additionally, the bond market has suffered in recent months from uncertainty over the outlook for future Fed monetary policy, given the rise of the stock market and the higher consumer demand at year-end. Also, we have noted that supply in the new-issue market is down substantially from last year. Under "normal" market conditions, municipal investors pay for the tax-free income benefits by getting a lower return. Today, however, investors are saving on taxes without sacrificing returns. It is possible to buy double- and triple- A-rated bonds yielding nearly 100% or more of similar maturity U.S. Treasury bonds, well above the historical average of roughly 80%. We think these yields represent extraordinarily good value for municipal securities. Investment Strategy The Portfolio seeks as high a level of current income exempt from Federal income tax as is consistent with preservation of principal.4 During the past year, the Portfolio focused on hospital bonds (16.6%), transportation bonds (14.7%) and general obligation bonds (11.8%) because we believe they offered good relative values. At the end of February, the Portfolio's weighted average maturity was approximately 21.3 years. In addition, as of February 29, 2000, 89.2% of the Portfolio's holdings were rated investment grade5 by either Standard & Poor's 4 Please note that a portion of the Portfolio's income may be subject to the Alternative Minimum Tax ("AMT"). 5 Investment-grade bonds are those rated Aaa, Aa, A and Baa by Moody's Investors Service, Inc. or AAA, AA, A and BBB by Standard & Poor's Ratings Group, or that have an equivalent rating by any nationally recognized statistical rating organization or are determined by the manager to be of equivalent quality. 3 Ratings Group or Moody's Investors Services Inc., with 52.4% of the Portfolio invested in AAA bonds, the highest rating. And while no guarantees can be made, our belief that municipal securities are undervalued has led us to rebalance the Portfolio to capitalize on what we believe will be a future bullish trend. In general, this means buying bonds carrying maturities of 20 years or longer, with solid credit ratings and trading below fair market value in price. We are targeting, among others, general obligation bonds and high-grade revenue credits like water, sewer and toll-road bonds. Our investment strategy for the Portfolio has been to maximize our dividend yield. In our view, the municipal bond market has provided us with excellent opportunities during the reporting period. Since interest rates have gone up to higher levels, we have been able to invest our excess cash at higher yields. In addition, we have also been focusing on adding high-grade bonds to the Portfolio's portfolio. The Portfolio's investment strategy going forward will be three-fold: . We are lengthening maturities in the portfolio to take advantage of the inexpensive valuations of municipal bonds relative to U.S. Treasuries . We are focusing on investing in high-grade issues . We are investing in discount paper because this is where we believe we can obtain the best value Our aim is to sell off some of our intermediate-term maturities that were defensive and stretch out longer on the yield curve to lock in today's higher rates. (The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.) We see the best opportunity for potential reward right now at the long end of the curve. Municipal Bond Market Outlook We think the U.S. economy should remain stable this year, as low unemployment and strong consumer confidence should likely support demand for goods. Moreover, we think that the Fed has engineered a good balance between strong economic growth and an "acceptable" rate of inflation. Regarding further Fed monetary policy tightenings, we believe that such future actions would not be detrimental to the bond market, particularly as the U.S. Treasury continues to pay down debt and inflation appears to be under control. We think that any further Fed policy actions have already 4 been comfortably priced into the bond market. We also believe that the good news is that the economy's "soft landing" is likely to be at a higher annual growth rate than was previously thought possible due to the possible emergence of a "New Economy," where technological advances can spur economic growth without inflationary pressures because of higher productivity. In our judgment, a number of influences remain favorable for the municipal bond market. The new-issue municipals expected to decline this year, boosting demand for bonds currently outstanding and enhancing interest for the roughly $175 billion of new municipals expected in 2000. Fiscal trends are another major positive. During past economic downturns, some municipal issuers facing declining tax receipts were hard-pressed to repay their bond obligations. Today, many state and local governments have budget surpluses. We believe these surpluses indicate that investors will feel more comfortable holding municipals, even in a downturn. Lastly, recent narrowing of spreads in the taxable market has made alternatives less attractive. All of these trends help to explain why we remain optimistic about the long-term prospects for the municipal bond market. In closing, thank you for investing in the Managed Municipals Portfolio Inc. We look forward to continuing to help you pursue your financial goals. Sincerely, /s/ Heath B. McLendon /s/ Joseph P. Deane Heath B. McLendon Joseph P. Deane Chairman Vice President and Investment Officer March 16, 2000 5 Take Advantage of the Fund's Dividend Reinvestment Plan! Did you know that Fund investors who reinvest their dividends are taking advantage of one of the most effective wealth-building tools available today? Systematic investments put time to work for you 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 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 the NAV at the time of valuation (the close of business on the determination date), or if the Fund declares a dividend or capital gains distribution payable only in cash, PFPC Global Fund Services (the "Plan Agent"), formerly known as First Data Investor Services Group, Inc., 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. Restated Plan Adopted A more complete description of the current Plan appears in this report beginning on page 29. The descriptions herein are based on a restated version of the Plan, which was recently adopted to reflect current practices of the Plan Agent and for the purpose of standardizing the terms among all closed-end Mutual Funds managed by SSB Citi Fund Management LLC. To find out more detailed information about the Plan and about how you can participate, please call PFPC Global Fund Services at (800) 331-1710. 6 Schedule of Investments February 29, 2000 (unaudited)
Face Amount Rating(a) Security Value ======================================================================================== MUNICIPAL BONDS AND NOTES -- 100% Alabama -- 0.6% $ 2,500,000 AAA Jefferson County, AL Sewer Revenue, Series A, FGIC-Insured, 5.375% due 2/1/36 $2,200,000 - ---------------------------------------------------------------------------------------- Alaska -- 0.5% Valdez Alaska Marine Term Revenue Refunding: 1,000,000 AA+ BP Pipelines Inc. Project, Series A, 5.850% due 8/1/25 932,500 1,000,000 AAA Exxon Pipeline Co. Project, Series B, 5.500% due 12/1/33 1,000,000 - ---------------------------------------------------------------------------------------- 1,932,500 - ---------------------------------------------------------------------------------------- Arizona -- 1.5% 1,750,000 AAA Maricopa County AZ IDA, Multi-Family Housing Revenue, Metro Gardens-Mesa Ridge PJ, Series A, MBIA-Insured, 5.150% due 7/1/29 1,502,812 4,000,000 AAA Mesa Arizona IDA, Discovery Health Systems, Series A, MBIA-Insured, 5.625% due 1/1/29 3,740,000 - ---------------------------------------------------------------------------------------- 5,242,812 - ---------------------------------------------------------------------------------------- California -- 7.2% 4,540,000 Baa3* California Educational Facilities Authority Revenue, (Pooled College & University Projects), Series A, 5.625% due 7/1/23 3,932,775 4,000,000 A2* California Health Facilities Authority Revenue, (Cedars-Sinai Medical Center), Series A, 6.250% due 12/1/34 3,875,000 1,000,000 AAA California State Public Works Board, Lease Revenue, Department of Corrections, California Prison, AMBAC-Insured, 5.250% due 1/1/21 927,500 1,000,000 AAA Campbell, CA Unified School District, GO, FGIC-Insured, 5.000% due 8/1/17 903,750 3,300,000 A- Los Angeles, CA Regional Airport Improvement Corp., Los Angeles International Airport Lease Revenue, 6.500% due 1/1/32 (b) 3,308,250 2,000,000 AAA Los Angeles, CA University School District, Series A, FGIC-Insured 5.000% due 7/1/21 1,760,000 2,000,000 AA Metropolitan Water District, Southern California Waterworks, Series A, 5.000% due 7/1/17 1,812,500
See Notes to Financial Statements. 7 Schedule of Investments February 29, 2000 (unaudited) (continued)
Face Amount Rating(a) Security Value ======================================================================================== California -- 7.2% (continued) $ 3,140,000 AAA Rancho Mirage, CA Redevelopment Agency, Tax Allocation Refunding, (1984 Project), Series A, MBIA-Insured, 5.000% due 4/1/24 $ 2,708,250 4,250,000 AAA Riverside County, CA COP, (1997 Lease Refunding Project), MBIA-Insured, 5.125% due 11/1/17 3,957,813 2,750,000 AAA Sacramento County, CA COP, (Public Facilities Project), MBIA-Insured, 5.375% due 2/1/19 2,602,188 - ---------------------------------------------------------------------------------------- 25,788,026 - ---------------------------------------------------------------------------------------- Colorado -- 12.8% 3,000,000 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 3,348,750 Colorado Health Facilities Authority Revenue: 1,000,000 AA- Catholic Health Initiatives, Series A, 5.000% due 12/1/28 786,250 3,000,000 A Series B, Remarketed 7/8/98, 5.350% due 8/1/15 2,613,750 2,500,000 AAA Sisters of Charity Leavenworth, MBIA-Insured, 5.125% due 12/1/18 2,215,625 2,000,000 BBB+ Colorado Springs, CO Airport Revenue, Series A, 7.000% due 1/1/22 (b) 2,037,500 60,000,000 Aaa* Dawson Ridge, CO Metropolitan District No. 1, Series B, (Escrowed to maturity with REFCO Strips), zero coupon due 10/1/22 12,750,000 Denver, CO City & County Airport Revenue, Series C: 3,155,000 BBB+ 6.750% due 11/15/22 (b) 3,174,719 10,165,000 BBB+ 6.125% due 11/15/25 (b) 9,516,981 8,160,000 BBB+ Escrowed to maturity with U.S. government securities, 6.125% due 11/15/25 (b)(c) 8,292,600 845,000 AAA Pre-Refunded -- Escrowed with U.S. government securities to 11/15/02 Call @ 102, 6.750% due 11/15/22 (b) 898,869 - ---------------------------------------------------------------------------------------- 45,635,044 - ----------------------------------------------------------------------------------------
See Notes to Financial Statements. 8 Schedule of Investments February 29, 2000 (unaudited) (continued)
Face Amount Rating(a) Security Value - ---------------------------------------------------------------------------------------- Connecticut -- 0.3% $ 1,000,000 AAA Connecticut State Health & Education, (Child Care Facilities Project), Series C, AMBAC-Insured, 5.625% due 7/1/29 $ 940,000 - ---------------------------------------------------------------------------------------- District of Columbia -- 0.1% 500,000 AA- District of Columbia, General Fund Recovery, Series B, 5.000% due 6/1/03 500,000 - ---------------------------------------------------------------------------------------- Florida -- 3.6% 5,000,000 BBB- Martin County, FL IDA, (Indiantown Cogeneration Project), Series A, 7.875% due 12/15/25 (b) 5,000,000 3,500,000 AAA Orange County, FL Tourist Development Tax Revenue, Series A, AMBAC-Insured, 4.750% due 10/1/24 2,878,750 Tampa, FL Revenue, (Florida Aquarium Inc. Project): 2,650,000 NR 7.550% due 5/1/12 (c) 2,845,438 2,000,000 NR Pre-Refunded-- Escrowed with U.S. government securities to 5/1/02 Call @ 102, 7.750% due 5/1/27 (c) 2,157,500 - ---------------------------------------------------------------------------------------- 12,881,688 - ---------------------------------------------------------------------------------------- Georgia -- 1.9% 5,000,000 AAA Atlanta, GA Water & Wastewater Revenue, Series A, FGIC-Insured, 5.000% due 11/1/38 4,125,000 2,000,000 A3* Private Colleges & Universities Authority Revenue, (Mercer University Project), Series A, 5.250% due 10/1/25 1,717,500 1,000,000 BBB- Savannah GA, EDA Revenue, College of Art & Design Inc., 6.900% due 10/1/29 996,250 - ---------------------------------------------------------------------------------------- 6,838,750 - ---------------------------------------------------------------------------------------- Hawaii -- 1.3% 2,000,000 A Hawaii State Department of Budget & Finance, Special Purpose Revenue, Kaiser Permanente, Series A, 5.100% due 3/1/14 1,712,500 3,110,000 AAA Hawaii State GO, Series CP, FGIC-Insured, 5.000% due 10/1/15 2,849,537 - ---------------------------------------------------------------------------------------- 4,562,037 - ---------------------------------------------------------------------------------------- Illinois -- 4.1% 2,000,000 AAA Chicago, IL Water Revenue, FGIC-Insured, 5.250% due 11/1/27 1,730,000
See Notes to Financial Statements. 9 Schedule of Investments February 29, 2000 (unaudited) (continued)
Face Amount Rating(a) Security Value - ---------------------------------------------------------------------------------------- Illinois -- 4.1% (continued) Illinois Health Facilities Authority Revenue: $ 2,000,000 Aaa* Memorial Health Systems, MBIA-Insured, 5.250% due 10/1/18 $ 1,812,500 8,000,000 A OSF Healthcare Systems, 6.250% due 11/15/29 7,510,000 4,000,000 AAA Illinois State GO, FGIC-Insured, 5.250% due 12/1/20 3,605,000 - ---------------------------------------------------------------------------------------- 14,657,500 - ---------------------------------------------------------------------------------------- Indiana -- 1.5% 5,000,000 A1* Indiana Port Commission Revenue Refunding, (Cargill Inc. Project), 6.875% due 5/1/12 5,268,750 - ---------------------------------------------------------------------------------------- Kansas -- 0.1% 500,000 A+ Kansas Development Financing Authority, Health Facilities Revenue, Children's Mercy Hospital, Series N, 5.250% due 5/15/18 440,000 - ---------------------------------------------------------------------------------------- Louisiana -- 2.6% 4,000,000 AAA Louisiana Local Government Environment Facilities, Community Development Authority Revenue, Capital Projects & Equipment Acquisition, AMBAC-Insured, 4.500% due 12/1/18 3,290,000 5,500,000 Aa3* Saint Martin Parish, LA Industrial Revenue, (Cargill Inc. Project), 6.625% due 10/1/12 5,802,500 - ---------------------------------------------------------------------------------------- 9,092,500 - ---------------------------------------------------------------------------------------- Maine -- 0.9% 3,500,000 AAA Maine Muni Bond Bank, Series C, FSA-Insured, 5.350% due 11/1/18 3,285,625 - ---------------------------------------------------------------------------------------- Maryland -- 1.1% 10,000,000 NR Maryland State Energy Financing Administration, Solid Waste Disposal Revenue, (Hagerstown Recycling Project), 9.000% due 10/15/16 (b)(d) 900,000 3,500,000 A Maryland State Health & Higher Educational Facilities Authority Revenue, Loyola College Issue, 5.000% due 10/1/39 2,843,750 - ---------------------------------------------------------------------------------------- 3,743,750 - ----------------------------------------------------------------------------------------
See Notes to Financial Statements. 10 Schedule of Investments February 29, 2000 (unaudited) (continued)
Face Amount Rating(a) Security Value - ---------------------------------------------------------------------------------------- Massachusetts -- 3.9% $ 2,000,000 Aaa* Massachusetts State College Building Authority Revenue, Series 1, MBIA-Insured, 5.375% due 5/1/39 $ 1,765,000 1,000,000 AAA Massachusetts State Health & Educational Facilities Authority Revenue, (Northeastern University Project), Series I, MBIA-Insured, 5.000% due 10/1/29 837,500 2,000,000 AAA Massachusetts State HFA, Housing Development, Series B, MBIA-Insured, 5.300% due 12/1/17 1,865,000 5,000,000 AAA Massachusetts State Turnpike Authority, Metropolitan Highway System Revenue, Subseries A, AMBAC-Insured, 4.750% due 1/1/34 3,956,250 1,000,000 Aaa* Massachusetts State Water Pollution Abatement, New Bedford Project, Series A, FGIC-Insured, 4.750% due 2/1/26 811,250 Massachusetts State Water Resource Authority: 1,380,000 AAA Series A, FSA-Insured, 4.750% due 8/1/27 1,114,350 3,000,000 AAA Series B, MBIA-Insured, 5.000% due 12/1/25 2,565,000 1,025,000 AAA Series C, MBIA-Insured, 5.250% due 12/1/20 926,344 - ---------------------------------------------------------------------------------------- 13,840,694 - ---------------------------------------------------------------------------------------- Michigan -- 7.5% 3,300,000 AAA Ferris State University of Michigan Revenue, AMBAC-Insured, 5.000% due 10/1/23 2,821,500 8,000,000 NR Michigan State Strategic Fund Resources Recovery, Limited Obligation Revenue, Central Wayne Energy Recovery L.P., Series A, 7.000% due 7/1/27 (b) 7,160,000 16,375,000 NR Midland County, MI Economic Development Corp., PCR, Limited Obligation, Series B, 9.500% due 7/23/09 (b) 16,867,233 - ---------------------------------------------------------------------------------------- 26,848,733 - ---------------------------------------------------------------------------------------- Minnesota -- 1.5% 2,500,000 A1* Duluth, MN Seaway Port Authority, IDA, Dock & Wharf Revenue, (Cargill Inc. Project), 6.800% due 5/1/12 2,625,000 1,000,000 AAA Minneapolis & St. Paul, MN Community Airport Revenue, Series A, FGIC-Insured, 5.125% due 1/1/25 877,500
See Notes to Financial Statements. 11 Schedule of Investments February 29, 2000 (unaudited) (continued)
Face Amount Rating(a) Security Value - ---------------------------------------------------------------------------------------- Minnesota -- 1.5% (continued) $ 525,000 A2* Minnesota State Higher Education Facilities Authority Revenue, University St. Thomas Education, Series 3, 5.375% due 4/1/18 $ 486,938 1,225,000 AA+ Minnesota State Housing Financing Agency, Single-Family Mortgage, Series I, 5.500% due 1/1/17 1,177,531 - ---------------------------------------------------------------------------------------- 5,166,969 - ---------------------------------------------------------------------------------------- Missouri -- 1.7% 1,000,000 AAA Fenton, MO COP, (Capital Improvement Projects), MBIA-Insured, 5.125% due 9/1/17 911,250 6,000,000 AAA Kansas City, MO Municipal Assistance, Leasehold-H-Roe Bartle, Series A, MBIA-Insured, 5.000% due 4/15/20 5,220,000 - ---------------------------------------------------------------------------------------- 6,131,250 - ---------------------------------------------------------------------------------------- Montana -- 2.1% 8,000,000 NR Montana State Board Investment Resource Recovery Revenue, (Yellowstone Energy L.P. Project), 7.000% due 12/31/19 (b) 7,500,000 - ---------------------------------------------------------------------------------------- New Jersey -- 2.2% 5,200,000 A+ Hudson County, NJ Improvement Authority, 6.625% due 8/1/25 5,330,000 200,000 AAA New Jersey EDA Water Facilities Revenue, (United Water New Jersey Project), Series C, 5.000% due 11/1/25 200,000 2,395,000 AA- New Jersey State Highway Authority, Garden State Parkway General Revenue, 5.625% due 1/1/30 2,275,250 - ---------------------------------------------------------------------------------------- 7,805,250 - ---------------------------------------------------------------------------------------- New Mexico -- 0.5% 2,000,000 AAA New Mexico Mortgage Financing Authority, Single Family Mortgages, Series D-3, 5.625% due 9/1/28 1,872,500 - ---------------------------------------------------------------------------------------- New York -- 6.8% 2,600,000 A- Long Island Power Authority, Electric System Revenue, Series A, 5.500% due 12/1/29 2,314,000 3,000,000 AAA Metropolitan Transit Authority, NY Transportation Facilities Revenue, Series B, FGIC-Insured, 4.750% due 7/1/26 2,441,250
See Notes to Financial Statements. 12 Schedule of Investments February 29, 2000 (unaudited) (continued)
Face Amount Rating(a) Security Value =========================================================================================== New York -- 6.8% (continued) $ 3,000,000 AAA Nassau Health Care Corporation, NY Health Systems Revenue, Nassau County Guaranteed, FSA-Insured, 5.750% due 8/1/29 $ 2,857,500 New York City, NY Transitional Finance Authority Revenue, Future Tax Secured: 1,000,000 AA Series B, 4.750% due 11/1/17 858,750 2,000,000 AAA Series C, FGIC-Insured, 5.000% due 5/1/17 1,792,500 New York State Dormitory Authority Revenue: 1,000,000 AAA City University System, Series A, FGIC-Insured, 5.000% due 7/1/16 905,000 1,500,000 AAA Montefiore Medical Center, AMBAC-Insured, 5.250% due 2/1/15 1,387,500 1,000,000 AAA New York State Medicare Mental Health Services, FGIC-Insured, 5.250% due 2/15/19 903,750 5,000,000 AAA New York State Thruway Authority, Highway & Bridge Fund, Series B, FGIC-Insured, 5.000% due 4/1/17 4,487,500 Triborough Bridge & Tunnel Authority of NY, Series A: 5,000,000 Aa3* General Purpose, 5.000% due 1/1/24 4,281,250 2,500,000 AAA SPL Obligation, MBIA-Insured, 4.750% due 1/1/24 2,053,125 - ------------------------------------------------------------------------------------------- 24,282,125 - ------------------------------------------------------------------------------------------- North Carolina -- 0.0% 90,000 AA- Wake County, NC Industrial Facilities & Pollution Control Financing Authority Revenue, Series B, 2.950% due 6/15/14 90,000 - ------------------------------------------------------------------------------------------- Ohio -- 6.1% 2,000,000 AAA Akron, OH Economic Development, MBIA-Insured, 5.000% due 12/1/18 1,772,500 1,000,000 AAA Cleveland-Cuyahoga County, OH Port Authority Revenue, Rock & Roll Hall of Fame, AMBAC-Insured, 5.400% due 12/1/15 972,500
See Notes to Financial Statements. 13 Schedule of Investments February 29, 2000 (unaudited) (continued)
Face Amount Rating(a) Security Value - ---------------------------------------------------------------------------------------- Ohio -- 6.1% (continued) Cuyahoga County, OH Hospital Revenue Refunding: $ 5,750,000 AAA Metrohealth System, Series A, MBIA-Insured, 5.125% due 2/15/14 $ 5,412,187 2,000,000 AAA University Hospitals Health System Inc., AMBAC-Insured, 5.500% due 1/15/30 1,830,000 4,000,000 AAA Lucas County, OH Hospital Revenue, Promedia Healthcare Obligation Group, AMBAC-Insured, 5.375% due 11/15/29 3,570,000 2,000,000 AAA Ohio State Higher Educational Facility Commission Revenue, University of Dayton, AMBAC-Insured, 5.350% due 12/1/17 1,930,000 1,645,000 AAA Ohio State Water Development Authority Revenue, Fresh Water Series A, FSA-Insured, 5.000% due 6/1/16 1,490,781 5,320,000 AAA Portage County, OH GO, MBIA-Insured, 5.250% due 12/1/17 4,947,600 - ------------------------------------------------------------------------------------------ 21,925,568 - ------------------------------------------------------------------------------------------ Pennsylvania -- 1.5% 3,500,000 AAA Montgomery County, PA Higher Education & Health Authority Revenue, Holy Redeemer Health, Series A, AMBAC-Insured, 5.250% due 10/1/17 3,163,125 2,500,000 AA Saint Mary Hospital Authority, Bucks County Catholic Health Initiatives, Series A, 5.000% due 12/1/18 2,096,875 - ------------------------------------------------------------------------------------------ 5,260,000 - ------------------------------------------------------------------------------------------ South Carolina -- 3.2% 4,000,000 AAA Lexington County, SC Health Services District Inc., Hospital Revenue Refunding & Improvement, FSA-Insured, 5.250% due 11/1/17 3,690,000 2,000,000 A3* Myrtle Beach, SC COP, Myrtle Beach Convention Center, (Pre-Refunded -- Escrowed with U.S. government securities to 7/1/02 Call @ 102), 6.875% due 7/1/07 (c) 2,125,000
See Notes to Financial Statements. 14 Schedule of Investments February 29, 2000 (unaudited) (continued)
Face Amount Rating(a) Security Value - ----------------------------------------------------------------------------------------- South Carolina -- 3.2% (continued) $ 1,140,000 AAA Piedmont, SC Municipal Power Agency, Electric Revenue Refunding, Series A, MBIA-Insured, 4.875% due 1/1/16 $ 1,004,625 5,000,000 Aaa* South Carolina Transportation Infrastructure Bank Revenue, Series A, AMBAC-Insured, 5.250% due 10/1/21 4,493,750 - ----------------------------------------------------------------------------------------- 11,313,375 - ----------------------------------------------------------------------------------------- Tennessee -- 1.3% 1,150,000 NR Hardeman County, TN Correctional Facilities Corp., 7.750% due 8/1/17 1,191,687 4,100,000 AA+ Shelby County, TN GO, Refunding, Series A, 5.000% due 3/1/20 3,587,500 - ----------------------------------------------------------------------------------------- 4,779,187 - ----------------------------------------------------------------------------------------- Texas -- 11.3% 2,000,000 AAA Austin, TX ISD, GO, PSFG, 5.125% due 8/1/16 1,827,500 3,990,000 Aaa* Azle, TX ISD, GO, PSFG, Series C, 5.000% due 2/15/22 3,426,412 2,000,000 AAA Bexar County, TX Health Facilities Development Corp. Revenue, Baptist Health Systems, Series A, MBIA-Insured, 5.250% due 11/15/27 1,732,500 Brazos River Authority: 7,500,000 AAA Houston Industrial Income Project, Series A, 5.125% due 5/1/19 6,656,250 4,000,000 Baa1* PCR, Utility Electric Co., Series C, 5.550% due 6/1/30 (b) 3,335,000 2,000,000 AAA Brownsville, TX Utility Systems Revenue, AMBAC-Insured, 5.250% due 9/1/20 1,795,000 1,160,000 Aaa* Burleson, TX ISD, GO, PSFG, 6.750% due 8/1/24 1,226,700 4,000,000 Baa1* Fort Worth, TX International Airport Facility Improvement Corp. Revenue, American Airlines Inc. Project, 6.375% due 5/1/35 3,735,000 2,480,000 Aaa* Frisco, TX ISD, 5.375% due 8/15/18 2,325,000 3,900,000 AAA Harris County, TX GO, Toll Road, Sr. Lien, FGIC-Insured, 5.375% due 8/15/20 3,602,625
See Notes to Financial Statements. 15 Schedule of Investments February 29, 2000 (unaudited) (continued)
Face Amount Rating(a) Security Value - ---------------------------------------------------------------------------------------- Texas -- 11.3% (continued) Harris County, TX Health Facilities, Development Corp., Hospital Revenue: $ 1,000,000 AA School Health Care Systems, Series B, 5.750% due 7/1/27 $ 966,250 3,000,000 AA Texas Children's Hospital Project, Series A, 5.250% due 10/1/19 2,610,000 2,000,000 AAA Nueces River Authority, Texas Water Supply Facilities, FSA-Insured, 5.500% due 3/1/27 1,837,500 6,000,000 AAA Texas Water Development Board Revenue, State Revolving Fund, Sr. Lien, Series B, 5.000% due 7/15/19 5,257,500 - ----------------------------------------------------------------------------------------- 40,333,237 - ----------------------------------------------------------------------------------------- Utah -- 1.0% 4,000,000 A+ Intermountain Power Agency, Utah Power Supply Revenue Refunding, Series D, 5.000% due 7/1/21 3,425,000 - ----------------------------------------------------------------------------------------- Virgin Islands -- 0.2% 1,000,000 BBB- Virgin Islands, PFA Revenue, Sr. Lien, Series A, 5.500% due 10/1/22 862,500 - ----------------------------------------------------------------------------------------- Virginia -- 2.3% 4,700,000 A2* Harrisonburg, VA Redevelopment & Housing Authority, (Jail & Courthouse Project), Public Facilities Lease Revenue, 6.500% due 9/1/14 4,811,625 Virginia State HDA, Multi-Family Housing: 1,655,000 AA+ Series D, 6.250% due 1/1/15 1,673,619 1,235,000 AAA Series H, AMBAC-Insured, 6.300% due 11/1/15 1,262,788 600,000 AA+ Series K, 5.800% due 11/1/10 610,500 - ----------------------------------------------------------------------------------------- 8,358,532 - ----------------------------------------------------------------------------------------- Washington -- 4.5% Chelan County, WA GO, Public Utilities, District No. 1, Columbus River Rock, MBIA-Insured: Series A: 20,685,000 AAA Zero coupon due 6/1/21 5,507,381 22,685,000 AAA Zero coupon due 6/1/22 5,671,250 4,750,000 AA Series B, Remarketed 7/1/92, Mandatory put 7/1/19, 6.750% due 7/1/62 (b) 4,827,187 - ----------------------------------------------------------------------------------------- 16,005,818 - -----------------------------------------------------------------------------------------
See Notes to Financial Statements. 16 Schedule of Investments February 29, 2000 (unaudited) (continued)
Face Amount Rating(a) Security Value - ---------------------------------------------------------------------------------------- Wisconsin -- 2.3% $ 4,070,000 AA Wisconsin State GO, Series B, 6.600% due 1/1/22 (b) $ 4,110,700 Wisconsin State Health & Educational Facilities Authority Revenue, MBIA-Insured: 3,000,000 AAA Aurora Health Care Inc., 5.250% due 8/15/17 2,730,000 1,100,000 A Kenosha Hospital & Medical Center Project, 5.700% due 5/15/20 950,125 250,000 AAA The Medical College of Wisconsin Inc. Project, MBIA-Insured, 5.400% due 12/1/16 237,500 - ---------------------------------------------------------------------------------------- 8,028,325 - ---------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100% (COST -- $379,380,665**) $356,838,045 ========================================================================================
(a) All ratings are by Standard & Poor's Ratings Service, with the exception of those identified by an asterisk (*), which are rated by Moody's Investor's Service Inc. (b) Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax. (c) 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. (d) Security is in default. ** Aggregate cost for Federal income tax purposes is substantially the same. See pages 18 and 19 for definitions of ratings and certain security descriptions. Summary of Investments by Combined Ratings February 29, 2000 (unaudited) Percentage of Moody's and/or Standard & Poor's Total Investments Aaa AAA 52.4% Aa AA 10.9 A A 14.4 Baa BBB 11.5 NR NR 10.8 ----- 100.0% ===== See Notes to Financial Statements. 17 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 "BBB" 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 differs 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. Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3 may be applied to each generic rating from "Aa" to "Baa," 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. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's. 18 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 HDC -- Housing Development Corporation HDA -- Housing Development Authority 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 MVRICS -- Municipal Variable Rate Inverse Coupon Security PCR -- Pollution Control Revenue PFA -- Public Finance Authority PSFG -- Permanent School Fund Guaranty RAN -- Revenue Anticipation Notes RIBS -- Residual Interest Bonds RITES -- Residual Interest Tax-Exempt Securities TAN -- Tax Anticipation Notes TECP -- Tax Exempt Commercial Paper TOB -- Tender Option Bonds TRAN -- Tax and Revenue Anticipation Notes SYCC -- Structured Yield Curve Certificate VAN -- Veterans Administration VRDD -- Variable Rate Daily Demand VRWE -- Variable Rate Wednesday Demand 19 Statement of Assets and Liabilities (unaudited) February 29, 2000 ================================================================================ ASSETS: Investments, at value (Cost-- $379,380,665) $ 356,838,045 Interest receivable 5,471,374 - -------------------------------------------------------------------------------- Total Assets 362,309,419 - -------------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased 4,634,078 Dividends payable 440,823 Investment advisory fees payable 147,474 Payable to bank 71,322 Accrued expenses 106,110 - -------------------------------------------------------------------------------- Total Liabilities 5,399,807 - -------------------------------------------------------------------------------- Total Net Assets $ 356,909,612 ================================================================================ NET ASSETS: Par value of capital shares $ 32,715 Capital paid in excess of par value 413,578,810 Treasury stock, at cost (Note 6) (17,898,338) Undistributed net investment income 1,999,673 Accumulated net realized loss on security transactions (18,260,628) Net unrealized depreciation of investments (22,542,620) - -------------------------------------------------------------------------------- TOTAL NET ASSETS (Equivalent to $10.91 a share on 32,714,544 shares of $0.001 par value outstanding; 500,000,000 shares authorized) $ 356,909,612 ================================================================================ See Notes to Financial Statements. 20 Statement of Operations (unaudited) Nine Months Ended 2/29/00 ================================================================================ INVESTMENT INCOME: Interest $ 19,346,422 - -------------------------------------------------------------------------------- EXPENSES: Investment advisory fees (Note 3) 1,825,620 Administration fees (Note 3) 578,720 Shareholder communications 193,310 Audit and legal 53,353 Registration fees 42,578 Shareholder and system servicing fees 17,615 Directors' fees 17,595 Pricing service fees 16,027 Custody 14,531 Other 21,152 - -------------------------------------------------------------------------------- Total Expenses 2,780,501 - -------------------------------------------------------------------------------- Net Investment Income 16,565,921 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 4): Realized Loss From Security Transactions (excluding short-term securities): Proceeds from sales 136,948,441 Cost of securities sold 147,071,670 - -------------------------------------------------------------------------------- Net Realized Loss (10,123,229) - -------------------------------------------------------------------------------- Change in Net Unrealized Appreciation (Depreciation) of Investments: Beginning of period 8,230,011 End of period (22,542,620) - -------------------------------------------------------------------------------- Increase in Net Unrealized Depreciation (30,772,631) - -------------------------------------------------------------------------------- Net Loss on Investments (40,895,860) - -------------------------------------------------------------------------------- Decrease in Net Assets From Operations $ (24,329,939) ================================================================================ See Notes to Financial Statements. 21 Statements of Changes in Net Assets Nine Months Year Ended 2/29/00 Ended (unaudited) 5/31/99 - -------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 16,565,921 $ 20,136,169 Net realized loss (10,123,229) (4,886,706) Increase in net unrealized depreciation (30,772,631) (6,285,612) - -------------------------------------------------------------------------------- Increase (Decrease) in Net Assets From Operations (24,329,939) 8,963,851 - -------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (NOTE 2): Net investment income (15,275,435) (18,626,947) Net realized gains -- (4,075,207) - -------------------------------------------------------------------------------- Decrease in Net Assets From Distributions to Shareholders (15,275,435) (22,702,154) - -------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 6): Treasury stock acquired (17,898,338) -- - -------------------------------------------------------------------------------- Decrease in Net Assets From Fund Share Transactions (17,898,338) -- - -------------------------------------------------------------------------------- Decrease in Net Assets (57,503,712) (13,738,303) NET ASSETS: Beginning of period 414,413,324 428,151,627 - -------------------------------------------------------------------------------- End of period* $ 356,909,612 $ 414,413,324 ================================================================================ * Includes undistributed net investment income of: $ 1,999,673 $ 709,187 ================================================================================ See Notes to 22 Financial Statements. 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 original issue discount, is recorded on an accrual basis; market discount is recognized upon the disposition of the security; (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 generally accepted accounting principles. At May 31, 1999, 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. Net investment income, net realized gains and net assets were not affected by this change; 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. 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. 23 Notes to Financial Statements (unaudited) (continued) 3. Investment Advisory Agreement, Administration Agreement and Other Transactions SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup Inc., acts as investment adviser to the Fund. The Fund pays SSBC a fee calculated at an annual rate of 0.70% of the average daily net assets of the Fund. This fee is calculated daily and paid monthly. SSBC 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 net assets; this fee is calculated daily and paid monthly. All officers and one Director of the Fund are employees of Salomon Smith Barney Inc., another subsidiary of SSBH. 4. Investments For the nine months ended February 29, 2000, the aggregate cost of purchases and proceeds from sales of investments (including maturities, but excluding short-term securities) were as follows: ======================================================================== Purchases $ 111,988,580 - ------------------------------------------------------------------------ Sales 136,948,441 ======================================================================== At February 29, 2000, aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows: ======================================================================== Gross unrealized appreciation $ 4,103,495 Gross unrealized depreciation (26,646,115) - ------------------------------------------------------------------------ Net unrealized depreciation $(22,542,620) ======================================================================== 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" 24 Notes to Financial Statements (unaudited) (continued) 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 29, 2000, the Fund had no open futures contracts. 6. Capital Shares At February 29, 2000, the Fund had 500,000,000 shares of common stock authorized with a par value of $0.001 per share. On June 21, 1999, the Fund commenced a share repurchase plan. As of February 29, 2000, repurchased shares totaled 1,892,400. 7. 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 February 29, 2000, the Fund did not hold any when-issued securities. 8. Capital Loss Carryforward At May 31, 1999, the Fund had, for Federal income tax purposes, approximately $2,565,000 of unused capital loss carryforwards available to offset future capital gains expiring May 31, 2007. 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. 25 Financial Highlights For a share of capital stock outstanding throughout each year ended May 31, except where noted:
1999(1) 1999 1998 1997 1996 1995 ========================================================================================================== Net Asset Value, Beginning of Period $ 11.97 $ 12.37 $ 11.90 $ 12.11 $ 12.55 $ 12.26 - ----------------------------------------------------------------------------------------------------------- Income (Loss) From Operations: Net investment income(2) 0.49 0.58 0.54 0.67 0.67 0.72 Net realized and unrealized gain (loss) (1.21) (0.32) 0.83 0.08 (0.35) 0.49 - ----------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations (0.72) 0.26 1.37 0.75 0.32 1.21 - ----------------------------------------------------------------------------------------------------------- Gain From Repurchase of Treasury Stock 0.11 -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.45) (0.54) (0.61) (0.66) (0.75) (0.67) Net realized gains -- (0.12) (0.29) (0.30) (0.01) (0.25) - ----------------------------------------------------------------------------------------------------------- Total Distributions (0.45) (0.66) (0.90) (0.96) (0.76) (0.92) - ----------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $ 10.91 $ 11.97 $ 12.37 $ 11.90 $ 12.11 $ 12.55 - ----------------------------------------------------------------------------------------------------------- Total Return, Based on Market Value(3) (4.14)%++ 0.11% 2.08% 7.89% 8.26% 8.40% - ----------------------------------------------------------------------------------------------------------- Total Return, Based on Net Asset Value(3) (4.53)%++ 2.66% 12.14% 6.59% 2.79% 10.96% - ----------------------------------------------------------------------------------------------------------- Net Assets, End of Period (millions) $ 357 $ 414 $ 428 $ 411 $ 418 $ 433 - ----------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets: Expenses(2) 0.97%+ 0.94% 0.99% 1.00% 1.00% 1.02% Net investment income 5.80+ 4.72 4.35 5.56 5.35 5.97 - ----------------------------------------------------------------------------------------------------------- Portfolio Turnover Rate 29% 23% 87% 113% 45% 93% - ----------------------------------------------------------------------------------------------------------- Market Value, End of Period $ 9.500 $ 10.375 $ 11.000 $ 11.625 $ 11.690 $ 11.500 ===========================================================================================================
(1) For the nine months ended February 29, 2000 (unaudited). (2) 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 decrease in net investment income would have been $0.01. In addition, the ratio of expenses to average net assets would have been 1.02%. (3) The total return calculation assumes that dividends are reinvested in accordance with the Fund's dividend reinvestment plan. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 26 Quarterly Results of Operations (unaudited)
Net Realized and Net Increase Unrealized (Decrease) in Investment Net Investment Gain (Loss) on Net Assets From Income Income Investments Operations --------------------------------------------------------------------------------------------------- Per Per Per Per Quarter Ended Total Share Total Share Total Share Total Share ================================================================================================================ August 31, 1997 $5,809,421 $0.17 $4,751,757 $0.14 $11,642,588 $0.34 $16,394,345 $0.48 November 30, 1997 5,571,655 0.16 4,540,883 0.13 9,907,664 0.29 14,448,547 0.42 February 28, 1998 5,677,656 0.16 4,609,822 0.13 7,399,266 0.21 12,009,088 0.34 May 31, 1998 5,679,780 0.16 4,606,509 0.13 (7,936) (0.00)* 4,598,573 0.13 August 31, 1998 6,731,153 0.19 5,618,898 0.16 2,807,927 0.09 8,426,825 0.25 November 30, 1998 5,825,421 0.17 4,996,967 0.15 (967,184) (0.04) 4,029,783 0.11 February 28, 1999 5,747,605 0.17 4,793,284 0.14 (3,630,173) (0.10) 1,163,111 0.04 May 31, 1999 5,833,696 0.17 4,727,020 0.13 (9,382,888) (0.27) (4,655,868) (0.14) August 31, 1999 5,956,315 0.17 4,886,948 0.14 21,881,042) (0.63) (16,994,094) (0.48) November 30, 1999 5,682,571 0.17 4,704,078 0.14 (9,921,954) (0.30) (5,217,876) (0.13) February 29, 2000 7,707,536 0.24 6,974,895 0.21 (9,092,864) (0.28) (2,117,969) (0.00)* ================================================================================================================
* Amount represents less than $0.01. 27 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 ================================================================================ 6/24/97 6/27/97 $11.750 $12.06 $0.060 $11.98 7/22/97 7/25/97 12.000 12.43 0.060 12.08 8/26/97 8/29/97 11.750 12.17 0.060 11.83 9/23/97 9/26/97 11.750 12.30 0.056 11.91 10/28/97 10/31/97 11.375 12.33 0.056 11.60 11/24/97 11/28/97 11.563 12.41 0.056 11.64 12/22/97* 12/26/97 11.625 12.39 0.294 12.24 1/27/98 1/30/98 11.938 12.41 0.056 12.04 2/24/98 2/27/98 11.938 12.39 0.056 11.60 3/24/98 3/27/98 11.125 12.36 0.050 11.34 4/21/98 4/24/98 11.1875 12.23 0.050 11.10 5/26/98 5/29/98 10.875 12.34 0.050 11.15 6/23/98 6/26/98 11.000 12.32 0.050 11.10 7/28/98 7/31/98 10.875 12.30 0.048 10.84 8/25/98 8/28/98 10.875 12.41 0.048 11.05 9/22/98 9/25/98 11.375 12.48 0.049 11.57 10/27/98 10/30/98 11.4375 12.44 0.049 11.58 11/23/98 11/27/98 11.750 12.42 0.049 11.59 12/21/98* 12/24/98 11.313 12.32 0.118 11.27 1/26/99 1/29/99 10.938 12.37 0.049 11.04 2/23/99 2/26/99 10.875 12.31 0.049 10.89 3/23/99 3/26/99 10.750 12.22 0.049 10.72 4/27/99 4/30/99 10.500 12.18 0.049 10.46 5/25/99 5/28/99 10.375 12.01 0.049 10.52 6/22/99 6/25/99 10.563 11.67 0.050 10.61 7/27/99 7/30/99 10.063 11.67 0.050 10.03 8/24/99 8/27/99 9.813 11.29 0.050 9.95 9/21/99 9/24/99 9.688 11.24 0.050 9.70 10/26/99 10/29/99 9.625 10.85 0.050 10.85 11/22/99 11/26/99 9.563 11.08 0.050 9.25 12/27/99 12/30/99 9.000 10.90 0.050 9.10 1/26/00 1/28/00 9.563 10.76 0.050 9.48 2/22/00 2/25/00 9.500 10.85 0.050 9.52 ================================================================================ + As of record date. * Capital gain distribution. 28 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"), formerly known as First Data Investor Services Group, Inc., 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 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 the net asset value of the common stock at the time of valuation (which is the close of business on the determination date), or if the Fund declares a dividend or capital gains distribution payable only in cash, PFPC will buy common stock in the open market, on the NYSE or elsewhere, for the participants' accounts. If following the commencement of the purchases and before PFPC has completed its purchases, the market price exceeds the net asset value of the common stock as of the valuation time, PFPC will attempt to terminate purchases in the open market and cause the Fund to issue the remaining portion of the dividend or distribution in shares at a price equal to the greater of (a) net asset value as of the valuation time or (b) 95% of the then current market price. In this case, the number of shares received by a Plan participant will be based on the weighted average of prices paid for shares purchased in the open market and the price at which the Fund issues the remaining shares. To the extent PFPC is unable to stop open market purchases and cause the Fund to issue the remaining shares, the average per share purchase price paid by PFPC may exceed the net asset value of the common stock as of the valuation time, resulting in the acquisition of fewer shares than if the dividend or capital gains distribution had been paid in common stock issued by the Fund at such net asset value. PFPC will begin to purchase common stock on the open market as soon as practicable after the determination date for the dividend or capital gains distribution, but in no event shall such purchases continue later than 29 Dividend Reinvestment Plan (unaudited) (continued) 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 1-800-331-1710. ---------------------------- 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. 30 Managed Municipals Portfolio Inc. Directors Allan J. Bloostein Martin Brody Dwight B. Crane Robert A. Frankel William R. Hutchinson Heath B. McLendon, Chairman Charles F. Barber, Emeritus Officers Heath B. McLendon President and Chief Executive Officer Lewis E. Daidone Senior Vice President and Treasurer Joseph P. Deane Vice President and Investment Officer David Fare Investment Officer Anthony Pace Controller Christina T. Sydor Secretary Investment Adviser and Administrator SSB Citi Fund Management LLC 388 Greenwich Street New York, New York 10013 Transfer Agent PFPC Global Fund Services P.O. Box 8030 Boston, Massachusetts 02266-8030 Custodian PNC Bank 8800 Tinicom Blvd. Suite 220 Philadelphia, Pennsylvania 19153 31 (This page intentionally left blank.) 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 4/00 -----END PRIVACY-ENHANCED MESSAGE-----