<PAGE>
Managed Municipals
Portfolio Inc.
Annual Report
May 31, 2000
[LOGO OF SMITH BARNEY]
<PAGE>
[LOGO OF SMITH BARNEY]
Managed Municipals
Portfolio Inc.
Dear Shareholder:
We are pleased to provide the annual report for the Managed Municipals Portfolio
Inc. ("Fund") for the year ended May 31, 2000. During the twelve months covered
by this report, the Fund distributed income dividends totaling $0.60 per share.
The table below shows the annualized distribution rate and twelve-month total
return based on the Fund's May 31, 2000 net asset value ("NAV") per share and
its New York Stock Exchange ("NYSE") closing price.(1)
Price Annualized Twelve-Month
Per Share Distribution Rate(2) Total Return(2)
------------- -------------------- ---------------
$10.93 (NAV) 5.49% (2.82)%
$9.375 (NYSE) 6.40% (3.88)%
In comparison, general closed-end municipal bond funds posted an average total
return on NAV of negative 1.34% for the same period, as reported
-----------
1 The NAV is calculated by subtracting total liabilities from the closing value
of all securities held by the Fund (plus all other assets) and dividing the
result (total net assets) by the total number of shares outstanding. The NAV
fluctuates with the changes in the market price of the securities in which the
Fund has invested. However, the price at which an investor may buy or sell
shares of the Fund is at their market (NYSE) price as determined by supply and
demand.
2 Total returns are based on changes in NAV or 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
Fund's current monthly income dividend rate, annualized, and then divided by
the NAV or the market value noted in this report. The annualized distribution
rate assumes a current monthly income dividend rate of $0.05 for twelve
months. This rate is as of June 30, 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 Fund. Accordingly, since an annualized distribution
rate only reflects the current monthly income dividend rate annualized, it
should not be used as the sole indicator to judge the return you receive from
your Fund investment. Past performance is not indicative of future results.
1
<PAGE>
by Lipper, Inc. ("Lipper"). (Lipper is a nationally recognized organization that
reports on mutual fund total return performance and calculates fund rankings.
Lipper peer group averages are based on universes of funds with similar
investment objectives.)
Special Shareholder Notice
We are pleased to report that our effort to reduce the Fund's shares' discount
to NAV has continued. We believe that the share repurchase program, that started
on June 21, 1999, is an opportunity to take advantage of market price
fluctuations with the objective of offering increased value to the Fund's
shareholders. The Fund intends to continue to purchase and then retire shares of
its stock in the open market at such times, prices and amounts deemed advisable.
The Fund's share repurchase program has also 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 Fund's shares' NAV. Since the
inception of the program, the Fund has repurchased and retired 2,387,600 shares
with an average buyback price of $9.41. As of May 31, 2000, this repurchase
program has increased the Fund's shares' NAV by almost $0.12 and increased the
Fund's shares' total return by approximately 1% when measured by NAV.
Municipal Bond Market Update
On May 16, 2000, the Federal Reserve Board ("Fed") enacted the sixth in a series
of interest rate hikes that began last June 30, 1999 when the federal funds rate
was at 4.75%. (The federal funds rate is the interest rate charged by banks with
excess reserves at a Federal Reserve district bank to banks needing overnight
loans to meet reserve requirements.) With the federal funds rate presently at
6.50%, the cumulative effect of the interest rate increases so far, in our view,
may begin to have a more pronounced effect in reducing inflationary pressures.
In our opinion, changes in the Fed's monetary policy generally take time to be
absorbed into the economy. We believe that the recent market rallies are a
result of monetary changes enacted six to nine months ago. In addition, barring
a major change in the economy or the rate of inflation, we think it's likely
that the Fed's monetary policy may be relatively benign for the remainder of
2000.
Over the past several weeks, the performance of the bond market has shown
signs of improvement amid a series of economic reports that suggest the economy
is slowing and that the Fed may be close to completing its series of interest
rate hikes. However, we also think that any further Fed policy actions may have
already been comfortably priced into the bond market.
2
<PAGE>
The inversion of the yield curve, while making us somewhat cautious, in our view
also shows that the market believes inflation is under control. (The yield curve
is the graphical depiction of the relationship between the yield on bonds of the
same credit quality but different maturities. An inverted yield curve represents
a unique situation whereby short-term interest rates are higher than long-term
rates.) While the fundamentals in the higher-quality tier securities are still
sound and valuations have improved, poor technical conditions, most notably
large pent-up issuance needs, have created concern among many investors about
the future prospects for municipal bonds. Yet, as we discuss later in the
report, we are optimistic about current municipal bond opportunities.
The prospect of further Fed tightening may result in modest further increases in
interest rates on securities with shorter maturities. In contrast, we believe
that long-term rates are not likely to rise much. Our favorable outlook for
inflation, plus the ongoing reduction in the supply of U.S. Treasuries, may help
to contain the rise in long-term rates and further invert the Treasury yield
curve (that is, long-term yields should fall even further below short-term
yields).
In our view, modestly higher U.S. Treasury yields and a further increase in the
inversion of the yield curve are likely as the Fed continues to push up
short-term rates. A decrease in the amount of new issuance and more buybacks of
currently outstanding debt, while already largely discounted by the market, may
reinforce the inversion of the yield curve. In addition, we are presently seeing
positive general market sentiment toward bonds of higher credit quality. We
think that the short-end of the curve is racing to stay ahead of short-term
rates. The inversion is not just a factor of the U.S. Treasury buyback program,
but rather, it indicates that inflation may be under control and rates on
longer-term paper still represent fair value.
Investment Strategy
The Fund seeks as high a level of current income exempt from federal income tax
as is consistent with preservation of principal. 3
During the past year, the Fund focused on hospital bonds (17.4%), general
obligation bonds (13.0%) and transportation bonds (12.8%) because we believe
they offered good relative values. At the end of May, the Fund's weighted
average maturity was approximately 21.4 years. In addition, as
-------------
3 Please note that a portion of the Fund's income may be subject to the
Alternative Minimum Tax ("AMT").
3
<PAGE>
of May 31, 2000, 87.9% of the Fund's holdings were rated investment grade(4) by
either Standard & Poor's Ratings Service or Moody's Investors Service, Inc.,
with 51.3% of the Fund invested in AAA/Aaa bonds, the highest possible rating.
The Fund's investment strategy going forward will be three-fold:
. We are lengthening maturities in the Fund to take advantage of the
inexpensive valuations of municipal bonds relative to U.S. Treasuries;
. We are focusing on investing in high-grade issues; and
. We are investing in discount paper, as this is where we believe we can
obtain the best value.
Our goal is to sell off some of our shorter-term maturities that were defensive
and stretch out longer on the yield curve to lock in today's higher rates. We
see the best opportunity for potential reward right now at the long end of the
yield curve.
Under "normal" market conditions, municipal investors pay for the tax-free
income benefits by receiving a lower return on their investment. 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 very good value for municipal securities.
In our view, the municipal bond market has provided us with excellent
opportunities during the reporting period. Since interest rates have increased,
we have been able to invest our cash at higher yields.
Municipal Bond Market Outlook
In our judgment, a number of influences remain favorable for the municipal bond
market. We believe new-issue municipals might decline this year, boosting demand
for bonds currently outstanding and enhancing interest for the new municipals
expected in 2000.
National fiscal trends are another major positive. During past economic
downturns, some municipal issuers facing declining tax receipts and were
hard-pressed to repay their bond obligations. Today, many state and local
---------
4 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
Service, or have an equivalent rating by any nationally recognized
statistical rating organization, or are determined by manager to be of
equivalent quality.
4
<PAGE>
governments have budget surpluses. We believe these surpluses may make investors
more comfortable holding municipal securities, even in a downturn. Lastly,
recent narrowing of spreads in the taxable market has made other fixed income
alternatives less attractive on a relative basis. 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 in the
future.
Sincerely,
/s/ Heath B. McLendon /s/ Joseph P. Deane
Heath B. McLendon Joseph P. Deane
Chairman Vice President and
Investment Officer
June 30, 2000
5
<PAGE>
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.
A more complete description of the current Plan appears in this report beginning
on page 30.
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
<PAGE>
Schedule of Investments
May 31, 2000
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
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 -- 0.3%
1,000,000 AA+ Valdez, Alaska Marine Term Revenue Refunding,
BP Pipelines Inc. Project, Series A,
5.850% due 8/1/25 947,500
------------------------------------------------------------------------------------------
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 1,498,437
4,000,000 AAA Mesa, AZ IDA, Discovery Health Systems,
Series A, MBIA-Insured, 5.625% due 1/1/29 3,735,000
------------------------------------------------------------------------------------------
5,233,437
------------------------------------------------------------------------------------------
California -- 7.4%
4,540,000 Ba1* California Educational Facilities Authority
Revenue, (Pooled College & University
Projects), Series A, 5.625% due 7/1/23 3,910,075
4,000,000 A2* California Health Facilities Authority Revenue,
(Cedars-Sinai Medical Center), Series A,
6.250% due 12/1/34 3,940,000
1,000,000 A+ California Health Facilities Financing Authority
Revenue, Sutter Health, Series A,
6.250% due 8/15/35 987,500
1,000,000 AAA California State Public Works Board, Lease
Revenue, Department of Corrections,
California Prison, AMBAC-Insured,
5.250% due 1/1/21 921,250
3,300,000 A- Los Angeles, CA Regional Airport Improvement
Corp., Los Angeles International Airport
Lease Revenue, 6.500% due 1/1/32 (b) 3,304,125
2,000,000 AAA Los Angeles, CA University School District,
Series A, FGIC-Insured, 5.000% due 7/1/21 1,762,500
2,000,000 AA Metropolitan Water District, Southern
California Waterworks, Series A,
5.000% due 7/1/17 1,830,000
3,140,000 AAA Rancho Mirage, CA Redevelopment Agency,
Tax Allocation Refunding, (1984 Project),
Series A, MBIA-Insured, 5.000% due 4/1/24 2,712,175
</TABLE>
See Notes to
Financial Statements.
7
<PAGE>
Schedule of Investments
May 31, 2000 (continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
California -- 7.4% (continued)
$ 4,250,000 AAA Riverside County, CA COP, (1997 Lease
Refunding Project), MBIA-Insured,
5.125% due 11/1/17 $ 3,984,375
2,750,000 AAA Sacramento County, CA COP, (Public
Facilities Project), MBIA-Insured,
5.375% due 2/1/19 2,609,063
------------------------------------------------------------------------------------------
25,961,063
------------------------------------------------------------------------------------------
Colorado -- 13.3%
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 3,326,250
Colorado Health Facilities Authority Revenue:
1,000,000 AA- Catholic Health Initiatives, Series A,
5.000% due 12/1/28 806,250
3,000,000 A Series B, Remarketed 7/8/98,
5.350% due 8/1/15 2,692,500
2,500,000 AAA Sisters of Charity Leavenworth,
MBIA-Insured, 5.125% due 12/1/18 2,209,375
2,000,000 BBB+ Colorado Springs, CO Airport Revenue,
Series A, 7.000% due 1/1/22 (b) 2,032,500
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 12,825,000
Denver, CO City & County Airport Revenue,
Series C:
3,155,000 A 6.750% due 11/15/22 (b) 3,166,831
10,165,000 A 6.125% due 11/15/25 (b) 10,215,825
8,160,000 A Escrowed to maturity with U.S.
government securities,
6.125% due 11/15/25 (b)(c) 8,200,800
845,000 Aaa* Pre-Refunded-- Escrowed with U.S.
government securities to 11/15/02
Call @ 102, 6.750% due 11/15/22 (b) 891,475
------------------------------------------------------------------------------------------
46,366,806
------------------------------------------------------------------------------------------
Connecticut -- 0.3%
1,000,000 AAA Connecticut State Health & Education,
(Child Care Facilities Project), Series C,
AMBAC-Insured, 5.625% due 7/1/29 937,500
------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
8
<PAGE>
Schedule of Investments
May 31, 2000 (continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Florida -- 3.8%
$ 5,000,000 BBB- Martin County, FL IDA, (Indiantown
Cogeneration Project), Series A,
7.875% due 12/15/25 (b) $ 5,006,250
2,000,000 Aaa* Orange County, FL School Board, Certificate
Participation, Series A, 5.250% due 8/1/23 1,787,500
2,000,000 AAA Orange County, FL Tourist Development
Tax Revenue, Series A, AMBAC-Insured,
4.750% due 10/1/24 1,642,500
Tampa, FL Revenue,
(Florida Aquarium Inc. Project):
2,495,000 NR 7.550% due 5/1/12 (c) 2,657,175
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) 2,137,500
------------------------------------------------------------------------------------------
13,230,925
------------------------------------------------------------------------------------------
Georgia -- 2.0%
5,000,000 AAA Atlanta, GA Water & Wastewater Revenue,
Series A, FGIC-Insured, 5.000% due 11/1/38 4,150,000
2,000,000 A3* Private Colleges & Universities Authority
Revenue, (Mercer University Project),
Series A, 5.250% due 10/1/25 1,720,000
1,000,000 BBB- Savannah GA, EDA Revenue, College of
Art & Design Inc., 6.900% due 10/1/29 998,750
------------------------------------------------------------------------------------------
6,868,750
------------------------------------------------------------------------------------------
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 1,762,500
3,110,000 AAA Hawaii State GO, Series CP, FGIC-Insured,
5.000% due 10/1/15 2,822,325
------------------------------------------------------------------------------------------
4,584,825
------------------------------------------------------------------------------------------
Illinois -- 4.2%
2,000,000 AAA Chicago, IL Water Revenue, FGIC-Insured,
5.250% due 11/1/27 1,742,500
Illinois Health Facilities Authority Revenue:
2,000,000 Aaa* Memorial Health Systems, MBIA-Insured,
5.250% due 10/1/18 1,792,500
8,000,000 A OSF Healthcare Systems, 6.250% due 11/15/29 7,530,000
</TABLE>
See Notes to
Financial Statements.
9
<PAGE>
Schedule of Investments
May 31, 2000 (continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Illinois -- 4.2% (continued)
$ 4,000,000 AAA Illinois State GO, FGIC-Insured,
5.250% due 12/1/20 $ 3,595,000
------------------------------------------------------------------------------------------
14,660,000
------------------------------------------------------------------------------------------
Indiana -- 1.5%
5,000,000 A1* Indiana Port Commission Revenue Refunding,
(Cargill Inc. Project), 6.875% due 5/1/12 5,237,500
------------------------------------------------------------------------------------------
Kansas -- 0.1%
500,000 A+ Kansas Development Financing Authority,
Health Facilities Revenue, Children's Mercy
Hospital, Series N, 5.250% due 5/15/18 436,250
------------------------------------------------------------------------------------------
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 3,270,000
5,500,000 A1* Saint Martin Parish, LA Industrial Revenue,
(Cargill Inc. Project), 6.625% due 10/1/12 5,775,000
------------------------------------------------------------------------------------------
9,045,000
------------------------------------------------------------------------------------------
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 2,874,375
------------------------------------------------------------------------------------------
3,774,375
------------------------------------------------------------------------------------------
Massachussetts -- 4.0%
2,000,000 Aaa* Massachusetts State College Building
Authority Revenue, Series 1, MBIA-Insured,
5.375% due 5/1/39 1,750,000
1,000,000 AAA Massachusetts State Health & Educational
Facilities Authority Revenue, (Northeastern
University Project), Series I, MBIA-Insured,
5.000% due 10/1/29 835,000
2,000,000 AAA Massachusetts State HFA, Housing Development,
Series B, MBIA-Insured, 5.300% due 12/1/17 1,850,000
</TABLE>
See Notes to
Financial Statements.
10
<PAGE>
Schedule of Investments
May 31, 2000 (continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Massachussetts -- 4.0% (continued)
$ 5,000,000 AAA Massachusetts State Turnpike Authority,
Metropolitan Highway System Revenue,
Subseries A, AMBAC-Insured,
4.750% due 1/1/34 $ 3,968,750
1,000,000 Aaa* Massachusetts State Water Pollution Abatement,
New Bedford Project, Series A, FGIC-Insured,
4.750% due 2/1/26 813,750
Massachusetts State Water Resource Authority:
1,380,000 AAA Series A, FSA-Insured, 4.750% due 8/1/27 1,117,800
3,000,000 AAA Series B, MBIA-Insured, 5.000% due 12/1/25 2,542,500
1,025,000 AAA Series C, MBIA-Insured, 5.250% due 12/1/20 925,063
------------------------------------------------------------------------------------------
13,802,863
------------------------------------------------------------------------------------------
Michigan -- 7.7%
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) 7,180,000
16,375,000 NR Midland County, MI Economic Development
Corp., PCR, Limited Obligation, Series B,
9.500% due 7/23/09 (b) 16,728,700
------------------------------------------------------------------------------------------
26,730,200
------------------------------------------------------------------------------------------
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 2,612,500
1,000,000 AAA Minneapolis & St. Paul, MN Community
Airport Revenue, Series A, FGIC-Insured,
5.125% due 1/1/25 872,500
525,000 A2* Minnesota State Higher Education Facilities
Authority Revenue, University of St. Thomas
Education, Series 4-P, 5.375% due 4/1/18 480,375
1,225,000 AA+ Minnesota State Housing Financing Agency,
Single-Family Mortgage, Series I,
5.500% due 1/1/17 1,165,281
------------------------------------------------------------------------------------------
5,130,656
------------------------------------------------------------------------------------------
Missouri -- 1.8%
1,000,000 AAA Fenton, MO COP, (Capital Improvement
Projects), MBIA-Insured, 5.125% due 9/1/17 908,750
</TABLE>
See Notes to
Financial Statements.
11
<PAGE>
Schedule of Investments
May 31, 2000 (continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Missouri -- 1.8% (continued)
$ 6,000,000 AAA Kansas City, MO Municipal Assistance,
Leasehold-H-Roe Bartle, Series A,
MBIA-Insured, 5.000% due 4/15/20 $5,242,500
------------------------------------------------------------------------------------------
6,151,250
------------------------------------------------------------------------------------------
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 5,310,500
2,395,000 AA- New Jersey State Highway Authority, Garden
State Parkway General Revenue,
5.625% due 1/1/30 2,269,263
------------------------------------------------------------------------------------------
7,579,763
------------------------------------------------------------------------------------------
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 1,865,000
------------------------------------------------------------------------------------------
New York -- 7.2%
3,000,000 AAA Metropolitan Transit Authority,
NY Transportation Facilities Revenue,
Series B, FGIC-Insured, 4.750% due 7/1/26 2,430,000
3,000,000 AAA Nassau Health Care Corporation, NY Health
Systems Revenue, Nassau County Guaranteed,
FSA-Insured, 5.750% due 8/1/29 2,835,000
3,000,000 AAA New York City, NY Transit Authority, Metropolitan
Transportation Authority, Triborough Bridge,
Series A, AMBAC-Insured, 5.250% due 1/1/29 2,632,500
New York City, NY Transitional Finance Authority
Revenue, Future Tax Secured:
2,000,000 AA Series B, 4.750% due 11/1/17 1,715,000
5,450,000 AA Series C, 5.500% due 11/1/29 5,014,000
2,000,000 AAA Series C, FGIC-Insured, 5.000% due 5/1/17 1,785,000
1,500,000 AAA New York State Dormitory Authority Revenue,
Montefiore Medical Center, AMBAC-Insured,
5.250% due 2/1/15 1,406,250
1,000,000 AAA New York State Medicare Mental Health
Services, FGIC-Insured, 5.250% due 2/15/19 907,500
</TABLE>
See Notes to
Financial Statements.
12
<PAGE>
Schedule of Investments
May 31, 2000 (continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
New York -- 7.2% (continued)
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 2,040,625
------------------------------------------------------------------------------------------
25,047,125
------------------------------------------------------------------------------------------
Ohio -- 7.3%
2,000,000 AAA Akron, OH Economic Development,
MBIA-Insured, 5.000% due 12/1/18 1,777,500
1,000,000 AAA Cleveland-Cuyahoga County, OH Port
Authority Revenue, Rock & Roll Hall of
Fame, AMBAC-Insured, 5.400% due 12/1/15 968,750
Cuyahoga County, OH Hospital
Revenue Refunding:
5,750,000 AAA Metrohealth System, Series A,
MBIA-Insured, 5.125% due 2/15/14 5,361,875
2,000,000 AAA University Hospitals Health System Inc.,
AMBAC-Insured, 5.500% due 1/15/30 1,810,000
4,000,000 AAA Lucas County, OH Hospital Revenue,
Promedia Healthcare Obligation Group,
AMBAC-Insured, 5.375% due 11/15/29 3,545,000
3,025,000 Aaa* Muskingum County, OH GO, Refunding,
County Facilities Improvement, MBIA-Insured,
5.125% due 12/1/19 2,722,500
1,500,000 AAA Ohio State Higher Educational Facility
Commission Revenue, University of Dayton,
AMBAC-Insured, 5.350% due 12/1/17 1,421,250
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 4,960,900
1,500,000 AAA Warrensville Heights, OH City School District,
School Improvements, FGIC-Insured,
5.625% due 12/1/20 1,455,000
------------------------------------------------------------------------------------------
25,513,556
------------------------------------------------------------------------------------------
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 3,193,750
</TABLE>
See Notes to
Financial Statements.
13
<PAGE>
Schedule of Investments
May 31, 2000 (continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Pennsylvania -- 1.5% (continued)
$ 2,500,000 AA- Saint Mary Hospital Authority, Bucks County
Catholic Health Initiatives, Series A,
5.000% due 12/1/18 $2,090,625
------------------------------------------------------------------------------------------
5,284,375
------------------------------------------------------------------------------------------
South Carolina -- 1.9%
4,000,000 AAA Lexington County, SC Health Services
District Inc., Hospital Revenue Refunding &
Improvement, FSA-Insured,
5.250% due 11/1/17 3,660,000
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) 2,110,000
1,140,000 AAA Piedmont, SC Municipal Power Agency,
Electric Revenue Refunding, Series A,
MBIA-Insured, 4.875% due 1/1/16 1,010,325
------------------------------------------------------------------------------------------
6,780,325
------------------------------------------------------------------------------------------
Tennessee -- 1.4%
1,150,000 NR Hardeman County, TN Correctional Facilities
Corp., 7.750% due 8/1/17 1,190,250
4,100,000 AA+ Shelby County, TN GO, Refunding, Series A,
5.000% due 3/1/20 3,572,125
------------------------------------------------------------------------------------------
4,762,375
------------------------------------------------------------------------------------------
Texas -- 11.4%
1,500,000 AAA Austin, TX ISD, GO, PSFG, 5.125% due 8/1/16 1,365,000
3,990,000 Aaa* Azle, TX ISD, GO, PSFG, Series C,
5.000% due 2/15/22 3,436,387
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 1,730,000
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 A3* PCR, Utility Electric Co., Series C,
5.550% due 6/1/30 (b) 3,320,000
</TABLE>
See Notes to
Financial Statements.
14
<PAGE>
Schedule of Investments
May 31, 2000 (continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Texas -- 11.4% (continued)
$ 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 1,218,000
4,000,000 Baa1* Fort Worth, TX International Airport Facility
Improvement Corp. Revenue, American
Airlines Inc. Project, 6.375% due 5/1/35 (b) 3,690,000
2,480,000 Aaa* Frisco, TX ISD, 5.375% due 8/15/18 2,297,100
3,900,000 AAA Harris County, TX GO, Toll Road, Sr. Lien,
FGIC-Insured, 5.375% due 8/15/20 3,573,375
Harris County, TX Health Facilities,
Development Corp., Hospital Revenue:
1,000,000 AAA School Health Care Systems, Series B,
5.750% due 7/1/27 961,250
3,000,000 AA Texas Children's Hospital Project, Series A,
5.250% due 10/1/19 2,606,250
2,000,000 AAA Nueces River Authority, Texas Water Supply
Facilities, FSA-Insured, 5.500% due 3/1/27 1,820,000
6,000,000 AAA Texas Water Development Board Revenue,
State Revolving Fund, Sr. Lien, Series B,
5.000% due 7/15/19 5,220,000
------------------------------------------------------------------------------------------
39,688,612
------------------------------------------------------------------------------------------
Utah -- 0.0%
127,000 A+ Intermountain Power Agency, Utah Power
Supply Revenue Refunding, Series D,
5.000% due 7/1/21 107,791
------------------------------------------------------------------------------------------
Virgin Islands -- 0.2%
1,000,000 BBB- Virgin Islands, PFA Revenue, Sr. Lien, Series A,
5.500% due 10/1/22 858,750
------------------------------------------------------------------------------------------
Virginia -- 2.4%
4,700,000 A2* Harrisonburg, VA Redevelopment & Housing
Authority, (Jail & Courthouse Project), Public
Facilities Lease Revenue, 6.500% due 9/1/14 4,782,250
Virginia State HDA, Multi-Family Housing:
1,655,000 AA+ Series D, 6.250% due 1/1/15 1,677,756
1,235,000 AAA Series H, AMBAC-Insured,
6.300% due 11/1/15 1,256,613
600,000 AA+ Series K, 5.800% due 11/1/10 606,000
------------------------------------------------------------------------------------------
8,322,619
------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
15
<PAGE>
Schedule of Investments
May 31, 2000 (continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================
<S> <C> <C> <C>
Washington -- 4.6%
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 $ 5,584,950
22,685,000 AAA Zero coupon due 6/1/22 5,727,962
4,750,000 AA Series B, Remarketed 7/1/92, Mandatory
put 7/1/19, 6.750% due 7/1/62 (b) 4,833,125
------------------------------------------------------------------------------------------
16,146,037
------------------------------------------------------------------------------------------
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 2,733,750
1,100,000 A Kenosha Hospital & Medical Center
Project, 5.700% due 5/15/20 966,625
250,000 AAA The Medical College of Wisconsin Inc.
Project, 5.400% due 12/1/16 237,813
------------------------------------------------------------------------------------------
8,048,888
------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-- 100%
(COST-- $370,256,422**) $348,804,116
==========================================================================================
</TABLE>
(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, 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 the
investment adviser 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.
See Notes to
Financial Statements.
16
<PAGE>
Summary of Investments by Combined Ratings
May 31, 2000 (unaudited)
Percentage of
Moody's and/or Standard & Poor's Total Investments
----------------------------------------------------------------------------
Aaa AAA 51.3%
Aa AA 10.8
A A 22.2
Baa BBB 3.6
Ba BB 1.1
NR NR 11.0
-----
100.0%
=====
17
<PAGE>
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.
BB -- Bonds rated "BB" and "B" are regarded, on balance, as predominantly
and B speculative 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, 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.
Ba -- Bonds that are 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.
18
<PAGE>
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)
<TABLE>
<S> <C>
ABAG -- Association of Bay Area HDA -- Housing Development Authority
Governments HFA -- Housing Finance Authority
AIG -- American International Guaranty IDA -- Industrial Development
AMBAC -- AMBAC Indemnity Corporation Authority
BAN -- Bond Anticipation Notes IDB -- Industrial Development Board
BIG -- Bond Investors Guaranty IDR -- Industrial Development Revenue
CDA -- Community Development INFLOS -- Inverse Floaters
Administration ISD -- Independent School District
CGIC -- Capital Guaranty Insurance LOC -- Letter of Credit
Company MBIA -- Municipal Bond Investors
CHFCLI -- California Health Facility Assurance Corporation
Construction Loan Insurance MVRICS -- Municipal Variable Rate Inverse
COP -- Certificate of Participation Coupon Security
EDA -- Economic Development PCR -- Pollution Control Revenue
Authority PFA -- Public Finance Authority
ETM -- Escrowed To Maturity PSFG -- Permanent School Fund
FAIRS -- Floating Adjustable Interest Rate Guaranty
Securities RAN -- Revenue Anticipation Notes
FGIC -- Financial Guaranty Insurance RIBS -- Residual Interest Bonds
Company
FHA -- Federal Housing Administration RITES -- Residual Interest Tax-Exempt
FHLMC -- Federal Home Loan Mortgage Securities
Corporation TAN -- Tax Anticipation Notes
FNMA -- Federal National Mortgage TECP -- Tax Exempt Commercial Paper
Association TOB -- Tender Option Bonds
FRTC -- Floating Rate Trust Certificates TRAN -- Tax and Revenue Anticipation
FSA -- Financial Security Assurance Notes
GIC -- Guaranteed Investment Contract SYCC -- Structured Yield Curve
GNMA -- Government National Mortgage Certificate
Association VAN -- Veterans Administration
GO -- General Obligation VRDD -- Variable Rate Daily Demand
HDC -- Housing Development VRWE -- Variable Rate Wednesday
Corporation Demand
</TABLE>
19
<PAGE>
Statement of Assets and Liabilities
May 31, 2000
================================================================================
ASSETS:
Investments, at value (Cost-- $370,256,422) $348,804,116
Interest receivable 5,611,413
--------------------------------------------------------------------------------
Total Assets 354,415,529
--------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 983,735
Payable to bank 545,652
Dividends payable 459,864
Investment advisory fees payable 175,929
Accrued expenses 128,326
--------------------------------------------------------------------------------
Total Liabilities 2,293,506
--------------------------------------------------------------------------------
Total Net Assets $352,122,023
================================================================================
NET ASSETS:
Par value of capital shares $ 32,219
Capital paid in excess of par value 391,056,493
Undistributed net investment income 53,086
Accumulated net realized loss from security transactions (17,567,469)
Net unrealized depreciation of investments (21,452,306)
--------------------------------------------------------------------------------
TOTAL NET ASSETS
(Equivalent to $10.93 a share on 32,219,344 shares of $0.001
par value outstanding; 500,000,000 shares authorized) $352,122,023
================================================================================
See Notes to
Financial Statements.
20
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
5/31/00
=============================================================================================
<S> <C>
INVESTMENT INCOME:
Interest $ 22,829,399
---------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3) 2,629,742
Administration fees (Note 3) 759,060
Shareholder communications 257,514
Audit and legal 71,073
Registration fees 56,918
Shareholder and system servicing fees 23,465
Directors' fees 23,439
Pricing service fees 21,350
Custody 19,358
Other 28,177
---------------------------------------------------------------------------------------------
Total Expenses 3,890,096
Less: Investment advisory fee waiver (Note 3) (540,193)
---------------------------------------------------------------------------------------------
Net Expenses 3,349,903
---------------------------------------------------------------------------------------------
Net Investment Income 19,479,496
---------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 4):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 163,083,980
Cost of securities sold 172,514,050
---------------------------------------------------------------------------------------------
Net Realized Loss (9,430,070)
---------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of year 8,230,011
End of year (21,452,306)
---------------------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (29,682,317)
---------------------------------------------------------------------------------------------
Net Loss on Investments (39,112,387)
---------------------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (19,632,891)
=============================================================================================
</TABLE>
See Notes to
Financial Statements.
21
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Year
Ended Ended
5/31/00 5/31/99
======================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 19,479,496 $ 20,136,169
Net realized loss (9,430,070) (4,886,706)
Increase in net unrealized depreciation (29,682,317) (6,285,612)
--------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations (19,632,891) 8,963,851
--------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income (20,135,597) (18,626,947)
Net realized gains -- (4,075,207)
--------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (20,135,597) (22,702,154)
--------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Treasury stock acquired (22,522,813) --
--------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (22,522,813) --
--------------------------------------------------------------------------------------
Decrease in Net Assets (62,291,301) (13,738,303)
NET ASSETS:
Beginning of year 414,413,324 428,151,627
--------------------------------------------------------------------------------------
End of year* $ 352,122,023 $ 414,413,324
======================================================================================
* Includes undistributed net
investment income of: $ 53,086 $ 709,187
======================================================================================
</TABLE>
See Notes to
Financial Statements.
22
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Managed Municipals Portfolio Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between bid and 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; 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
<PAGE>
Notes to Financial Statements
(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. For the year ended May 31, 2000, SSBC waived
$540,193 of its investment advisory fee.
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 year ended May 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $ 129,685,849
--------------------------------------------------------------------------------
Sales 163,083,980
================================================================================
At May 31, 2000, aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 4,448,027
Gross unrealized depreciation (25,900,333)
--------------------------------------------------------------------------------
Net unrealized depreciation $(21,452,306)
================================================================================
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
24
<PAGE>
Notes to Financial Statements
(continued)
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 May 31, 2000, the Fund had no open futures contracts.
6. Capital Shares
At May 31, 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 May 31,
2000, repurchased shares totaled 2,387,600 for a total cost of $22,522,813.
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 May 31, 2000, the Fund did not hold any when-issued securities.
8. Capital Loss Carryforward
At May 31, 2000, the Fund had, for Federal income tax purposes,
approximately $16,204,000 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:
Total 2007 2008
--------------------------------------------------------------------------------
Carryforward Amounts $16,204,000 $2,565,000 $13,639,000
--------------------------------------------------------------------------------
25
<PAGE>
Financial Highlights
For a share of capital stock outstanding throughout each year ended May 31:
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $11.97 $12.37 $11.90 $12.11 $12.55
-----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(1) 0.58 0.58 0.54 0.67 0.67
Net realized and unrealized gain (loss) (1.14) (0.32) 0.83 0.08 (0.35)
-----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.56) 0.26 1.37 0.75 0.32
-----------------------------------------------------------------------------------------------------------------
Gain From Repurchase
of Treasury Stock 0.12 -- -- -- --
-----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.60) (0.54) (0.61) (0.66) (0.75)
Net realized gains -- (0.12) (0.29) (0.30) (0.01)
-----------------------------------------------------------------------------------------------------------------
Total Distributions (0.60) (0.66) (0.90) (0.96) (0.76)
-----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $10.93 $11.97 $12.37 $11.90 $12.11
-----------------------------------------------------------------------------------------------------------------
Total Return, Based on Market Value(2) (3.88)% 0.11% 2.08% 7.89% 8.26%
-----------------------------------------------------------------------------------------------------------------
Total Return, Based on Net Asset Value(2) (2.82)% 2.66% 12.14% 6.59% 2.79%
-----------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $352 $414 $428 $411 $418
-----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(1) 0.89% 0.94% 0.99% 1.00% 1.00%
Net investment income 5.19 4.72 4.35 5.56 5.35
-----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 35% 23% 87% 113% 45%
-----------------------------------------------------------------------------------------------------------------
Market Value, End of Year $9.375 $10.375 $11.000 $11.625 $11.690
=================================================================================================================
</TABLE>
(1) The investment adviser and administrator waived a portion of their fees for
the years ended May 31, 2000 and 1999. If such fees were not waived, the per
share decrease in net investment income would have been $0.02 and $0.01,
respectively. In addition, the ratio of expenses to average net assets would
have been 1.04% and 1.02%, respectively.
(2) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
26
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors of
Managed Municipals Portfolio Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Managed Municipals Portfolio Inc.
as of May 31, 2000, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and financial highlights for each of the years in the
five-year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of May 31, 2000, by correspondence with the custodian. As to
securities purchased but not yet received, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Managed Municipals Portfolio Inc. as of May 31, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and financial highlights for each of
the years in the five-year period then ended, in conformity with accounting
principles generally accepted in the United States of America.
New York, New York KPMG LLP
July 13, 2000
27
<PAGE>
Quarterly Results of Operations
(unaudited)
<TABLE>
<CAPTION>
Net Realized and Net Increase
Unrealized (Decrease) in
Investment Net Gain (Loss) on Net Assets From
Income Income Investments Operations
-------------------------------------------------------------------------------------------------------------
Per Per Per Per
Quarter Ended Total Share Total Share Total Share Total Share
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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) (0.49)
November 30,
1999 5,682,571 0.17 4,704,078 0.14 (9,921,954) (0.29) (5,217,876) (0.15)
February 29,
2000 7,707,536 0.24 6,974,895 0.21 (9,092,864) (0.28) (2,117,969) (0.07)
May 31,
2000 3,482,977 0.11 2,913,575 0.09 1,783,473 0.06 4,697,048 0.15
=============================================================================================================
</TABLE>
28
<PAGE>
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
================================================================================
6/23/98 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
3/28/00 3/31/00 9.313 11.18 0.050 9.46
4/25/00 4/28/00 9.313 11.14 0.050 9.36
5/23/00 5/26/00 9.188 10.79 0.050 9.33
================================================================================
+ As of record date.
* Capital gain distribution.
Tax Information
(unaudited)
For Federal tax purposes the Fund hereby designates for the fiscal year ended
May 31, 2000:
. 100% of the dividends paid by the Fund from net investment income as tax
exempt for regular Federal income tax purposes.
29
<PAGE>
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
30
<PAGE>
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.
31
<PAGE>
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
Paul A. Brook
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
PFPC Trust Company
8800 Tinicom Blvd.
Suite 220
Philadelphia, Pennsylvania 19153
32
<PAGE>
This report is only intended for shareholders of the
Managed Municipals Portfolio Inc.
It is not a Prospectus,
circular or representation intended for use in the
purchase or sale of shares of the Fund or of any
securities mentioned in the report.
FD2246 7/00
