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Managed Municipals
Portfolio Inc.
Quarterly Report
August 31, 2000
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Managed Municipals
Portfolio Inc.
Dear Shareholder:
We are pleased to provide the first quarter report for the Managed Municipals
Portfolio Inc. ("Fund") for the three months ended August 31, 2000. During the
period covered by this report, the Fund distributed income dividends totaling
$0.15 per share. The table below shows the annualized distribution rate and
three-month total return based on the Fund's August 31, 2000 net asset value
("NAV") per share and its New York Stock Exchange ("NYSE") closing price./1/
Price Annualized Three-Month
Per Share Distribution Rate/2/ Total Return/2/
------------- -------------------- ---------------
$11.59 (NAV) 5.18% 7.65%
$10.063 (NYSE) 5.96% 8.97%
In comparison, the Lipper Inc. ("Lipper")/3/ peer group of general closed-end
municipal bond funds returned 4.89% based on NAV for the same period.
---------
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 value 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 12 months. This rate is as of September 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.
3 Lipper is an independent mutual fund-tracking organization.
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Special Shareholder Notice
The Fund continued to repurchase and retire shares during the period. 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 2,599,500 shares
with an average buyback price of $9.428. As of August 31, 2000, this repurchase
program has increased the Fund's shares' NAV by $0.13 and increased the Fund's
shares' total return by approximately 1.20% when measured by NAV.
Municipal Bond Market Update
The municipal bond market had little reaction to the Federal Reserve Board's
("Fed's") decision to keep interest rates steady or to the Fed's view that risk
in the economy is weighted toward inflation. In our opinion, the bond market is
still pricing in another possible Fed tightening by the end of the year.
However, we expect monetary policy to remain steady throughout 2000 and we would
not be surprised if the Fed were to shift to a more neutral stance before the
end of the year.
We also believe the Fed is likely to remain apolitical as the 2000
Presidential election nears, especially since this election involves a change in
administration. A critical point, which is often overlooked by many investors,
is that Fed monetary policy adjustments often take time to be absorbed into the
general economy. The Fed has tightened 175 basis points/4/ since June 1999 and
the recent rallies we have seen in the bond market are a result of changes
enacted since the Fed began raising interest rates.
Since the last Fed tightening on May 16, 2000, most sectors of the bond market
have begun to improve relative to U.S. Treasuries, following the recent ascent
of their yields to high relative levels. While the decline in yields may mean
that bargains in the market may be more difficult to find, the good news is that
bond performance for the most part has
---------
4 A basis point is 0.01% or one one-hundredth of a percent.
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2
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improved - and with improved performance, we have seen better market psychology,
which in turn may reduce risks going forward. (Of course, no guarantees can be
given that our expectations will be met.)
After accelerating sharply through the early months of 2000, global economic
growth appears to be peaking. Interest rate increases by the Fed have moderated
the U.S. expansion, but the tightening cycle may not be complete. Fed Chairman
Alan Greenspan has stated openly that he doubts whether economic growth needs to
slow markedly below potential in order to keep inflation low, but the matter
remains a key subject of debate at the Fed. In any case, among bond market
pundits, news of an economic slowdown typically calms fears of rising inflation
and fosters positive feelings regarding the future direction of bond prices.
In addition, a vibrant national economy has produced large cash surpluses in
many states and municipalities, causing general improvement in the credit
quality of municipal securities and giving some additional comfort to investors
regarding the creditworthiness of the securities they own.
The issuance of new municipal bonds continues to lag 1999's pace and the effects
are both negative and positive. An infusion of new bonds, when held to a
reasonable amount, is generally beneficial, because it often is the catalyst for
a vibrant trading atmosphere where purchases and sales can be executed with
relative ease. The reverse is also true: less activity in the primary market
dampens enthusiasm and diminishes trading activity, so opportune trades that
might have occurred do not.
Under current market conditions, demand for bonds is fairly constant, so reduced
supply provides support to market prices. As a result, during these times of
rapid interest rate movements, much of the price volatility experienced in other
areas of the bond market and which many investors find so unsettling, is
smoothed in the municipal bond market.
Municipal bond prices in general have been very firm lately: since late May, a
triple `A' ten-year municipal index has experienced price improvement (and yield
decline) of 50 basis points or more. Demand in the municipal bond market has
been steadily increasing as recent volatility in the stock market has
undoubtedly led some investors to rethink their portfolio mix, and to establish
or augment their bond positions.
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Investment Strategy
The Fund seeks as high a level of current income exempt from Federal income tax
as is consistent with preservation of principal./5/ The Fund invests primarily
in long-term investment grade municipal debt securities issued by state and
local governments, political subdivisions, agencies and public authorities.
During the past year, the Fund focused on transportation bonds (21%), hospital
bonds (15%) and electric bonds (10%) because we believe they offered good
relative values. In addition, as of August 31, 2000, 93% of the Fund's holdings
were rated investment-grade,/6/ with approximately 53% of the Fund invested in
AAA/Aaa-rated bonds, the highest possible rating.
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 added discounted high-quality bonds at the long end of
the yield curve,/7/ enabling us to invest our excess cash at higher yields.
The Fund's investment strategy going forward will be three fold:
. To lengthen maturities in the Fund to take advantage of the
inexpensive valuations of municipal bonds relative to U.S. Treasuries;
. To focus on investing in high-grade issues; and
. To invest in discount paper, as this is where we believe we can obtain
the best values.
Another goal is to sell off some of our shorter-term maturities that were
defensive and stretch out longer on the yield curve. We see the best opportunity
for potential reward right now at the long end of the yield curve.
---------
5 Please note that a portion of the Fund's income may be subject to the
Alternative Minimum Tax ("AMT").
6 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 that have an equivalent rating by any nationally recognized
statistical rating organization or are determined by the manager to be of
equivalent quality.
7 The yield curve is the graphical depiction of the relationship between the
yield on bonds of the same credit quality but different maturities.
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Municipal Bond Market Outlook
We believe that demand for municipal bonds may remain strong based on economic
issues related to the political campaign. One of the main topics is how the
various candidates would spend the significant federal government surplus. The
Congressional Budget Office's baseline projections show surpluses rising from
$232 billion in 2000 to $685 billion in 2010. The total budget surplus over ten
years is projected to be about $4.6 trillion.
In our opinion, a number of factors bode well for the municipal bond market. The
new issue market is expected to shrink this year, boosting demand for bonds
currently outstanding and enhancing interest for the roughly $175 billion of new
municipal bonds expected to be issued in 2000. Given the thinly traded market
and lack of liquidity that currently exist, we believe that any positive
catalyst, such as an increase in issue volume, could give the market much needed
momentum.
Fiscal trends are another major plus. 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 boast budget
surpluses. We believe these surpluses indicate that some investors may feel more
comfortable owning municipal bonds, even in a downturn. And lastly, recent
narrowing of spreads in the taxable market has made other fixed income
alternatives less attractive. All of these trends help to explain why we remain
optimistic about the prospects for the municipal bond market in the months
ahead.
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
September 11, 2000
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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"), 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.
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6
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Schedule of Investments
August 31, 2000 (unaudited)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
===========================================================================================
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES-- 100.0%
Alabama -- 0.6%
$ 2,500,000 AAA Jefferson County, AL Sewer Revenue, Series A,
FGIC-Insured, 5.375% due 2/1/36 $ 2,390,625
------------------------------------------------------------------------------------------
Alaska -- 0.3%
1,000,000 AA+ Valdez, AK Marine Term Revenue
Refunding, BP Pipelines Inc. Project,
Series A, 5.850% due 8/1/25 1,000,000
------------------------------------------------------------------------------------------
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 1,607,813
4,000,000 AAA Mesa, AZ IDA, Discovery Health Systems,
Series A, MBIA-Insured, 5.625% due 1/1/29 4,030,000
------------------------------------------------------------------------------------------
5,637,813
------------------------------------------------------------------------------------------
California -- 5.7%
4,540,000 Ba1* California Educational Facilities Authority
Revenue, (Pooled College & University
Projects), Series A, 5.625% due 7/1/23 4,216,525
4,000,000 A2* California Health Facilities Authority Revenue,
(Cedars-Sinai Medical Center), Series A,
6.250% due 12/1/34 4,090,000
1,000,000 A+ California Health Facilities Financing
Authority Revenue, Sutter Health,
Series A, 6.250% due 8/15/35 1,033,750
1,000,000 AAA California State Public Works Board, Lease
Revenue, Department of Corrections,
California Prison, AMBAC-Insured,
5.250% due 1/1/21 991,250
3,300,000 A- Los Angeles, CA Regional Airport Improvement
Corp., Los Angeles International Airport
Lease Revenue, 6.500% due 1/1/32 (b) 3,320,625
2,000,000 AAA Los Angeles, CA University School District,
Series A, FGIC-Insured, 5.000% due 7/1/21 1,920,000
3,140,000 AAA Rancho Mirage, CA Redevelopment Agency,
Tax Allocation Refunding, (1984 Project),
Series A, MBIA-Insured, 5.000% due 4/1/24 2,986,925
</TABLE>
See Notes to
Financial Statements.
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7
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[GRAPHIC]
Schedule of Investments
August 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
===========================================================================================
<S> <C> <C> <C>
California -- 5.7% (continued)
$ 2,750,000 AAA Sacramento County, CA COP, (Public
Facilities Project), MBIA-Insured,
5.375% due 2/1/19 $ 2,780,937
------------------------------------------------------------------------------------------
21,340,012
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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 3,408,750
Colorado Health Facilities Authority Revenue:
1,000,000 AA- Catholic Health Initiatives, Series A,
5.000% due 12/1/28 866,250
3,000,000 A Series B, Remarketed 7/8/98,
5.350% due 8/1/15 2,831,250
1,500,000 AAA Sisters of Charity Leavenworth,
MBIA-Insured, 5.125% due 12/1/18 1,432,500
2,000,000 BBB+ Colorado Springs, CO Airport Revenue,
Series A, 7.000% due 1/1/22 (b) 2,067,500
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 14,400,000
Denver, CO City & County Airport Revenue,
Series C:
3,155,000 A 6.750% due 11/15/22 (b) 3,253,594
10,165,000 A 6.125% due 11/15/25 (b) 10,889,256
8,160,000 A Escrowed to maturity with U.S. government
securities, 6.125% due 11/15/25 (b)(c) 8,741,400
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
1,000,000 AAA Denver, CO City & County Certificate
Participation, Series B, AMBAC-Insured,
5.500% due 12/1/25 990,000
------------------------------------------------------------------------------------------
49,779,369
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 1,000,000
------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
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8
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[GRAPHIC]
Schedule of Investments
August 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
===========================================================================================
<S> <C> <C> <C>
Florida -- 4.4%
$ 3,000,000 AA+ Florida State Board of Education, GO,
Series A, 5.125% due 6/1/21 $ 2,876,250
5,000,000 BBB- Martin County, FL IDA, (Indiantown
Cogeneration Project), Series A,
7.875% due 12/15/25 (b) 5,100,000
2,000,000 Aaa* Orange County, FL School Board, Certificate
Participation, Series A, MBIA-Insured,
5.250% due 8/1/23 1,937,500
2,000,000 AAA Orange County, FL Tourist Development
Tax Revenue, Series A, AMBAC-Insured,
4.750% due 10/1/24 1,762,500
Tampa, FL Revenue,
(Florida Aquarium Inc. Project):
2,495,000 NR 7.550% due 5/1/12 (c) 2,663,413
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) 2,142,500
16,482,163
Georgia -- 0.8%
2,000,000 A3* Private Colleges & Universities Authority
Revenue, (Mercer University Project),
Series A, 5.250% due 10/1/25 1,840,000
1,000,000 BBB- Savannah GA, EDA Revenue, College of
Art & Design Inc., 6.900% due 10/1/29 1,045,000
------------------------------------------------------------------------------------------
2,885,000
------------------------------------------------------------------------------------------
Hawaii -- 0.5%
2,000,000 A Hawaii State Department of Budget & Finance,
Special Purpose Revenue, Kaiser Permanente,
Series A, 5.100% due 3/1/14 1,852,500
------------------------------------------------------------------------------------------
Illinois -- 5.5%
2,000,000 AAA Chicago, IL Water Revenue, FGIC-Insured,
5.250% due 11/1/27 1,892,500
Illinois Health Facilities Authority Revenue:
2,000,000 Aaa* Memorial Health Systems, MBIA-Insured,
5.250% due 10/1/18 1,920,000
8,000,000 A OSF Healthcare Systems,
6.250% due 11/15/29 7,940,000
4,000,000 AAA Illinois State GO, FGIC-Insured,
5.250% due 12/1/20 3,845,000
</TABLE>
See Notes to
Financial Statements.
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9
<PAGE>
[GRAPHIC]
Schedule of Investments
August 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
===========================================================================================
<S> <C> <C> <C>
Illinois -- 5.5% (continued)
$ 5,000,000 AAA Illinois State GO, MBIA-Insured,
5.625% due 6/1/25 $ 5,012,500
------------------------------------------------------------------------------------------
20,610,000
------------------------------------------------------------------------------------------
Indiana -- 1.4%
5,000,000 A1* Indiana Port Commission Revenue Refunding,
(Cargill Inc. Project), 6.875% due 5/1/12 5,256,250
------------------------------------------------------------------------------------------
Kentucky -- 0.8%
3,000,000 AAA Louisville & Jefferson County, KY Special
Facilities Revenue, 4.300% due 1/1/29 (b)(d) 3,000,000
------------------------------------------------------------------------------------------
Louisiana -- 1.6%
5,500,000 A1* Saint Martin Parish, LA Industrial Revenue,
(Cargill Inc. Project), 6.625% due 10/1/12 5,802,500
------------------------------------------------------------------------------------------
Maryland -- 0.8%
10,000,000 NR Maryland State Energy Financing
Administration, Solid Waste Disposal
Revenue, (Hagerstown Recycling Project),
9.000% due 10/15/16 (b)(e) 900,000
2,500,000 A Maryland State Health & Higher Educational
Facilities Authority Revenue, Loyola College
Issue, 5.000% due 10/1/39 2,234,375
------------------------------------------------------------------------------------------
3,134,375
------------------------------------------------------------------------------------------
Massachusetts -- 4.5%
2,000,000 AA+ Massachusetts Bay Transportation Authority,
Sales Tax Revenue, Series A,
5.500% due 7/1/30 1,967,500
2,000,000 Aaa* Massachusetts State College Building Authority
Revenue, Series 1, MBIA-Insured,
5.375% due 5/1/39 1,902,500
1,000,000 AAA Massachusetts State Health & Educational
Facilities Authority Revenue, (Northeastern
University Project), Series I, MBIA-Insured,
5.000% due 10/1/29 902,500
2,000,000 AAA Massachusetts State HFA, Housing
Development, Series B, MBIA-Insured,
5.300% due 12/1/17 1,972,500
5,000,000 AAA Massachusetts State Turnpike Authority,
Metropolitan Highway System Revenue,
Subseries A, AMBAC-Insured,
4.750% due 1/1/34 4,306,250
</TABLE>
See Notes to
Financial Statements.
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10
<PAGE>
[GRAPHIC]
Schedule of Investments
August 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==============================================================================================
<S> <C> <C> <C>
Massachusetts -- 4.5% (continued)
$ 1,000,000 AAA Massachusetts State Water Pollution
Abatement, New Bedford Project, Series A,
FGIC-Insured, 4.750% due 2/1/26 $ 875,000
Massachusetts State Water Resource Authority:
1,380,000 AAA Series A, FSA-Insured, 4.750% due 8/1/27 1,202,325
3,000,000 AAA Series B, MBIA-Insured, 5.000% due 12/1/25 2,730,000
1,025,000 AAA Series C, MBIA-Insured, 5.250% due 12/1/20 990,406
----------------------------------------------------------------------------------------------
16,848,981
----------------------------------------------------------------------------------------------
Michigan -- 4.5%
3,300,000 AAA Ferris State, University of Michigan Revenue,
AMBAC-Insured, 5.000% due 10/1/23 3,069,000
Michigan State COP, AMBAC-Insured:
2,345,000 AAA 5.500% due 6/1/19 2,345,000
4,000,000 AAA 5.500% due 6/1/27 3,955,000
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) 7,290,000
----------------------------------------------------------------------------------------------
16,659,000
----------------------------------------------------------------------------------------------
Minnesota -- 1.4%
2,500,000 A1* Duluth, MN IDA, Seaway Port Authority,
Dock & Wharf Revenue, (Cargill Inc.
Project), 6.800% due 5/1/12 2,621,875
1,000,000 AAA Minneapolis & St. Paul, MN Community
Airport Revenue, Series A, FGIC-Insured,
5.125% due 1/1/25 942,500
525,000 A2* Minnesota State Higher Education Facilities
Authority Revenue, University of St. Thomas
Education, Series 4-P, 5.375% due 4/1/18 511,875
1,225,000 AA+ Minnesota State Housing Financing Agency,
Single-Family Mortgage, Series I,
5.500% due 1/1/17 1,232,656
----------------------------------------------------------------------------------------------
5,308,906
----------------------------------------------------------------------------------------------
Missouri -- 1.5%
6,000,000 AAA Kansas City, MO Municipal Assistance,
Leasehold-H-Roe Bartle, Series A,
MBIA-Insured, 5.000% due 4/15/20 5,655,000
----------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
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11
<PAGE>
[GRAPHIC]
Schedule of Investments
August 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==============================================================================================
<S> <C> <C> <C>
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) $ 7,740,000
----------------------------------------------------------------------------------------------
New Jersey -- 3.8%
5,200,000 A+ Hudson County, NJ Improvement Authority,
6.625% due 8/1/25 5,395,000
1,500,000 AAA Middlesex County, NJ COP, Refunding,
MBIA-Insured, 5.000% due 2/15/19 1,413,750
5,000,000 A+ New Jersey Health Care Facilities
Financing Authority Revenue,
Robert Wood Johnson University Hospital,
5.700% due 7/1/20 4,950,000
2,395,000 AA- New Jersey State Highway Authority,
Garden State Parkway General Revenue,
5.625% due 1/1/30 2,412,962
----------------------------------------------------------------------------------------------
14,171,712
----------------------------------------------------------------------------------------------
New Mexico -- 0.5%
1,980,000 AAA New Mexico Mortgage Financing Authority,
Single Family Mortgages, Series D-3,
5.625% due 9/1/28 1,967,625
New York -- 6.6%
3,000,000 AAA Metropolitan Transit Authority, NY
Transportation Facilities Revenue, Series B,
FGIC-Insured, 4.750% due 7/1/26 2,621,250
3,000,000 AAA Nassau Health Care Corporation, NY Health
Systems Revenue, Nassau County
Guaranteed, FSA-Insured,
5.750% due 8/1/29 3,022,500
200,000 AAA New York City, NY GO, Subseries E5,
LOC Morgan Guaranty Trust,
4.300% due 8/1/10 (d) 200,000
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 2,838,750
New York City, NY Transitional Finance
Authority Revenue, Future Tax Secured:
2,000,000 AA Series B, 4.750% due 11/1/17 1,830,000
5,450,000 AA Series C, 5.500% due 11/1/29 5,361,438
2,000,000 AAA Series C, FGIC-Insured, 5.000% due 5/1/17 1,912,500
</TABLE>
See Notes to
Financial Statements.
[GRAPHIC]
12
<PAGE>
[GRAPHIC]
Schedule of Investments
August 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==============================================================================================
<S> <C> <C> <C>
New York -- 6.6% (continued)
$ 1,000,000 AAA New York State Medicare Mental
Health Services, FGIC-Insured,
5.250% due 2/15/19 $ 961,250
3,000,000 AAA New York State Thruway Authority
Highway & Bridge Revenue, Series B-1,
FGIC-Insured, 5.400% due 4/1/17 3,003,750
3,000,000 Aa3* Triborough Bridge & Tunnel Authority of
NY, Series A, General Purpose,
5.000% due 1/1/24 2,760,000
----------------------------------------------------------------------------------------------
24,511,438
----------------------------------------------------------------------------------------------
Ohio -- 5.9%
2,000,000 AAA Akron, OH Economic Development,
MBIA-Insured, 5.000% due 12/1/18 1,917,500
2,000,000 AAA Cuyahoga County, OH Hospital Revenue
Refunding, University Hospitals Health
System Inc., AMBAC-Insured,
5.000% due 1/15/30 1,957,500
1,750,000 AAA Hamilton County, OH Sales Tax Revenue,
(Hamilton County Football Project),
Series B, MBIA-Insured, 5.000% due 12/1/27 1,616,563
4,000,000 AAA Lucas County, OH Hospital Revenue,
Promedia Healthcare Obligation Group,
AMBAC-Insured, 5.375% due 11/15/29 3,845,000
3,025,000 Aaa* Muskingum County, OH GO, Refunding,
County Facilities Improvement,
MBIA-Insured, 5.125% due 12/1/19 2,926,687
1,375,000 AAA Ohio State Higher Educational Facility
Commission Revenue, (University of
Dayton Project), AMBAC-Insured,
5.500% due 12/1/25 1,373,281
1,645,000 AAA Ohio State Water Development Authority
Revenue, Fresh Water, Series A, FSA-Insured,
5.000% due 6/1/16 1,597,706
5,320,000 AAA Portage County, OH GO, MBIA-Insured,
5.250% due 12/1/17 5,280,100
1,500,000 AAA Warrensville Heights, OH City School District,
School Improvements, FGIC-Insured,
5.625% due 12/1/20 1,530,000
----------------------------------------------------------------------------------------------
22,044,337
----------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
[GRAPHIC]
13
<PAGE>
[GRAPHIC]
Schedule of Investments
August 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==============================================================================================
<S> <C> <C> <C>
Pennsylvania -- 2.7%
$ 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 $ 3,412,500
5,000,000 AAA Pennsylvania State Higher Educational
Facilities
Authority Revenue, Temple University,
Series 1, MBIA-Insured, 5.000% due 4/1/29 4,568,750
2,500,000 AA- Saint Mary Hospital Authority, Bucks County
Catholic Health Initiatives, Series A,
5.000% due 12/1/18 2,268,750
----------------------------------------------------------------------------------------------
10,250,000
----------------------------------------------------------------------------------------------
South Carolina -- 0.9%
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
1,140,000 AAA Piedmont, SC Municipal Power Agency,
Electric Revenue Refunding, Series A,
MBIA-Insured, 4.875% due 1/1/16 1,085,850
----------------------------------------------------------------------------------------------
3,210,850
----------------------------------------------------------------------------------------------
Tennessee -- 2.1%
1,150,000 NR Hardeman County, TN Correctional Facilities
Corp., 7.750% due 8/1/17 1,214,688
4,100,000 AA+ Shelby County, TN GO, Refunding,
Series A, 5.000% due 3/1/20 3,823,250
3,000,000 AA+ Tennessee State GO, Series A,
5.250% due 3/1/17 2,985,000
----------------------------------------------------------------------------------------------
8,022,938
----------------------------------------------------------------------------------------------
Texas -- 16.2%
6,000,000 AAA Aledo, TX GO, Refunding, PSFG,
5.000% due 2/15/29 5,415,000
1,500,000 AAA Austin, TX ISD, GO, PSFG, 5.125% due 8/1/16 1,464,375
3,990,000 Aaa* Azle, TX ISD, GO, PSFG, Series C,
5.000% due 2/15/22 3,695,738
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 1,880,000
</TABLE>
See Notes to
Financial Statements.
[GRAPHIC]
14
<PAGE>
[GRAPHIC]
Schedule of Investments
August 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==============================================================================================
<S> <C> <C> <C>
Texas -- 16.2% (continued)
Brazos River Authority:
$ 10,840,000 AAA Houston Industrial Income Project, Series A,
AMBAC-Insured, 5.125% due 5/1/19 $ 10,352,200
4,000,000 Aa3* PCR, Utility Electric Co., Series C,
5.550% due 6/1/30 (b) 3,735,000
2,000,000 AAA Brownsville, TX Utility Systems Revenue,
AMBAC-Insured, 5.250% due 9/1/20 1,927,500
1,160,000 AAA Burleson, TX ISD, GO, PSFG,
6.750% due 8/1/24 1,248,450
Fort Worth, TX International Airport
Facility Improvement Corp. Revenue,
American Airlines Inc. Project:
8,000,000 Baa1* 6.375% due 5/1/35 7,830,000
2,000,000 Baa1* Series A, 5.950% due 5/1/29 (b) 2,012,500
2,000,000 Baa1* Series B, 6.050% due 5/1/29 (b) 2,017,500
2,480,000 Aaa* Frisco, TX ISD, PSFG, 5.375% due 8/15/18 2,458,300
3,900,000 AAA Harris County, TX GO, Toll Road,
Sr. Lien, FGIC-Insured, 5.375% due 8/15/20 3,836,625
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 1,026,250
3,000,000 AA Texas Children's Hospital Project, Series A,
5.250% due 10/1/19 2,778,750
1,000,000 AAA Matagorda County, TX Navigation, District
No.1, Reliant Energy Inc., Series A,
AMBAC-Insured, 5.250% due 6/1/26 948,750
2,000,000 AAA Nueces River Authority, Texas Water Supply
Facilities, FSA-Insured, 5.500% due 3/1/27 1,965,000
6,000,000 AAA Texas Water Development Board Revenue,
State Revolving Fund, Sr. Lien, Series B,
5.000% due 7/15/19 5,662,500
----------------------------------------------------------------------------------------------
60,254,438
----------------------------------------------------------------------------------------------
Virgin Islands - 0.3%
1,000,000 BBB- Virgin Islands, PFA Revenue, Sr. Lien, Series A,
5.500% due 10/1/22 936,250
</TABLE>
See Notes to
Financial Statements.
[GRAPHIC]
15
<PAGE>
[GRAPHIC]
Schedule of Investments
August 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==============================================================================================
<S> <C> <C> <C>
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 $ 4,795,551
Virginia State HDA, Multi-Family Housing:
1,655,000 AA+ Series D, 6.250% due 1/1/15 1,725,337
1,235,000 AAA Series H, AMBAC-Insured,
6.300% due 11/1/15 1,298,294
600,000 AA+ Series K, 5.800% due 11/1/10 628,500
----------------------------------------------------------------------------------------------
8,447,682
----------------------------------------------------------------------------------------------
Washington -- 4.8%
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 6,334,781
22,685,000 AAA Zero coupon due 6/1/22 6,550,294
4,750,000 AA Series B, Remarketed 7/1/92, Mandatory
put 7/1/19, 6.750% due 7/1/62 (b) 4,916,250
----------------------------------------------------------------------------------------------
17,801,325
----------------------------------------------------------------------------------------------
Wisconsin -- 2.2%
4,070,000 AA Wisconsin State GO, Series B,
6.600% due 1/1/22 (b) 4,146,312
Wisconsin State Health & Educational
Facilities Authority Revenue, MBIA-Insured:
3,000,000 AAA Aurora Health Care Inc.,
5.250% due 8/15/17 2,921,250
1,100,000 A Kenosha Hospital & Medical Center
Project, 5.700% due 5/15/20 1,021,625
250,000 AAA The Medical College of Wisconsin Inc.
Project, MBIA-Insured,
5.400% due 12/1/16 250,938
----------------------------------------------------------------------------------------------
8,340,125
----------------------------------------------------------------------------------------------
</TABLE>
See Notes to
Financial Statements.
[GRAPHIC]
16
<PAGE>
[GRAPHIC]
Schedule of Investments
August 31, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==============================================================================================
<S> <C> <C> <C>
Wyoming -- 0.2%
$ 600,000 AA+ Uinta County, WY PCR,
(Amoco Project), 4.300% due 7/1/26 (d) $ 600,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost-- $373,526,941**) $ 372,941,214
==============================================================================================
</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) Variable rate obligation at par on demand at any time on no more than seven
days notice.
(e) Security is in default.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 19 and 20 for definitions of ratings and certain security
descriptions.
See Notes to
Financial Statements.
[GRAPHIC]
17
<PAGE>
[GRAPHIC]
Summary of Investments by Combined Ratings
August 31, 2000 (unaudited)
Percentage of
Moody's and/or Standard & Poor's Total Investments
--------------------------------------------------------------------------------
Aaa AAA 52.9%
Aa AA 12.9
A A 21.6
Baa BBB 5.6
Ba BB 1.1
NR NR 5.9
-----
100.0%
=====
[GRAPHIC]
18
<PAGE>
[GRAPHIC]
Bond Ratings
(unaudited)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard and Poor's") -- Ratings from "AA"
to "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 and B 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.
[GRAPHIC]
19
<PAGE>
[GRAPHIC]
Short-Term Security Ratings
(unaudited)
SP-1 -- Standard & Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issues determined to
possess overwhelming safety characteristics are denoted with a plus
(+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate demand
obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong; those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO.
P-1 -- Moody's highest rating for commercial paper and for VRDO prior to the
advent of the VMIG 1 rating.
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
[GRAPHIC]
20
<PAGE>
[GRAPHIC]
Statement of Assets and Liabilities
(unaudited)
August 31, 2000
================================================================================
ASSETS:
Investments, at value (Cost -- $373,526,941) $ 372,941,214
Receivable for securities sold 20,000
Interest receivable 4,728,255
--------------------------------------------------------------------------------
Total Assets 377,689,469
--------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 5,866,283
Dividends payable 389,503
Payable to bank 229,141
Investment advisory fees payable 163,326
Accrued expenses 146,735
--------------------------------------------------------------------------------
Total Liabilities 6,794,988
--------------------------------------------------------------------------------
Total Net Assets $ 370,894,481
================================================================================
NET ASSETS:
Par value of capital shares $ 32,007
Capital paid in excess of par value 389,019,305
Undistributed net investment income 75,327
Accumulated net realized loss from security transactions (17,646,431)
Net unrealized depreciation of investments (585,727)
TOTAL NET ASSETS
(Equivalent to $11.59 a share on 32,007,444 shares of $0.001
par value outstanding; 500,000,000 shares authorized) $ 370,894,481
================================================================================
See Notes to
Financial Statements.
[GRAPHIC]
21
<PAGE>
[GRAPHIC]
Statement of Operations
(unaudited)
Three Months
Ended
August 31, 2000
================================================================================
INVESTMENT INCOME:
Interest $ 5,492,369
EXPENSES:
Investment advisory fees (Note 3) 639,653
Administration fees (Note 3) 182,758
Shareholder communications 72,514
Audit and legal 24,061
Registration fees 10,245
Directors' fees 8,411
Shareholder and system servicing fees 5,855
Pricing service fees 3,979
Custody 3,868
Other 4,437
Total Expenses 955,781
Less: Investment advisory fee waiver (Note 3) (288,440)
--------------------------------------------------------------------------------
Net Expenses 667,341
--------------------------------------------------------------------------------
Net Investment Income 4,825,028
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 4):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 54,707,359
Cost of securities sold 54,786,321
--------------------------------------------------------------------------------
Net Realized Loss (78,962)
--------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period (21,452,306)
End of period (585,727)
--------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation 20,866,579
--------------------------------------------------------------------------------
Net Gain on Investments 20,787,617
--------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 25,612,645
================================================================================
See Notes to
Financial Statements.
[GRAPHIC]
22
<PAGE>
[GRAPHIC]
Statements of Changes in Net Assets
Three Months Ended
August 31, 2000 Year Ended
(unaudited) May 31, 2000
================================================================================
OPERATIONS:
Net investment income $ 4,825,028 $ 19,479,496
Net realized loss (78,962) (9,430,070)
(Increase) decrease in net
unrealized depreciation 20,866,579 (29,682,317)
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations 25,612,645 (19,632,891)
--------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income (4,802,787) (20,135,597)
--------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (4,802,787) (20,135,597)
--------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Treasury stock acquired (2,037,400) (22,522,813)
--------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (2,037,400) (22,522,813)
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 18,772,458 (62,291,301)
NET ASSETS:
Beginning of period 352,122,023 414,413,324
--------------------------------------------------------------------------------
End of period* $ 370,894,481 $ 352,122,023
================================================================================
* Includes undistributed net
investment income of: $ 75,327 $ 53,086
================================================================================
See Notes to
Financial Statements.
[GRAPHIC]
23
<PAGE>
[GRAPHIC]
Notes to Financial Statements
(unaudited)
1. Significant Accounting Policies
Managed Municipals Portfolio Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between bid and ask prices provided by an independent pricing
service that are based on transactions in municipal obligations, quotations from
municipal bond dealers, market transactions in comparable securities and various
relationships between securities; (c) securities maturing within 60 days or less
are valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (d) gains or losses on sale of securities are calculated by
using the specific identification method; (e) interest income, adjusted for
amortization of premium and accretion of 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.
[GRAPHIC]
24
<PAGE>
[GRAPHIC]
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. For the three months ended August 31, 2000,
SSBC waived $288,440 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 three months ended August 31, 2000, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $ 53,807,725
--------------------------------------------------------------------------------
Sales 54,707,359
================================================================================
At August 31, 2000, aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 12,057,564
Gross unrealized depreciation (12,643,291)
--------------------------------------------------------------------------------
Net unrealized depreciation $ (585,727)
================================================================================
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
[GRAPHIC]
25
<PAGE>
[GRAPHIC]
Notes to Financial Statements
(unaudited) (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 August 31, 2000, the Fund had no open futures contracts.
6. Securities Traded on a When-Issued Basis
In a when-issued transaction, the Fund commits to purchasing securities for
which specific information is not yet known at the time of the trade. Securities
purchased on a when-issued basis are not settled until they are delivered to the
Fund. Beginning on the date the Fund enters into the when-issued transaction,
the custodian maintains cash, U.S. government securities or other liquid high
grade debt obligations in a segregated account equal in value to the purchase
price of the when-issued security. These transactions are subject to market
fluctuations and their current value is determined in the same manner as for
other securities.
At August 31, 2000, the Fund did not hold any when-issued securities.
7. 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
================================================================================
8. Capital Shares
At August 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. Since the
inception of the repurchase plan, the Fund repurchased 2,599,500 shares with a
total cost of $24,560,219. For the three months ended August 31, 2000, the Fund
repurchased 211,900 shares with a total cost of $2,037,400.
[GRAPHIC]
26
<PAGE>
[GRAPHIC]
Financial Highlights
For a share of capital stock outstanding throughout each year ended May 31,
except where noted:
<TABLE>
<CAPTION>
2000(1) 2000 1999 1998 1997 1996
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.93 $ 11.97 $ 12.37 $ 11.90 $ 12.11 $ 12.55
Income (Loss)
From Operations:
Net investment income(2) 0.15 0.58 0.58 0.54 0.67 0.67
Net realized and
unrealized gain (loss) 0.65 (1.14) (0.32) 0.83 0.08 (0.35)
Total Income (Loss)
From Operations 0.80 (0.56) 0.26 1.37 0.75 0.32
Gain From Repurchase
of Treasury Stock 0.01 0.12 -- -- -- --
Less Distributions From:
Net investment income (0.15) (0.60) (0.54) (0.61) (0.66) (0.75)
Net realized gains -- -- (0.12) (0.29) (0.30) (0.01)
Total Distributions (0.15) (0.60) (0.66) (0.90) (0.96) (0.76)
Net Asset Value,
End of Period $ 11.59 $ 10.93 $ 11.97 $ 12.37 $ 11.90 $ 12.11
Total Return,
Based on Market Value(3) 8.97%++ (3.88)% 0.11% 2.08% 7.89% 8.26%
Total Return,
Based on Net Asset Value(3) 7.65%++ (2.82)% 2.66% 12.14% 6.59% 2.79%
Net Assets,
End of Period (millions) $ 371 352 $ 414 $ 428 $ 411 $ 418
Ratios to Average Net Assets:
Expenses(2) 0.73%+ 0.89% 0.94% 0.99% 1.00% 1.00%
Net investment income 5.26+ 5.19 4.72 4.35 5.56 5.35
Portfolio Turnover Rate 15% 35% 23% 87% 113% 45%
Market Value, End of Period $ 10.063 $ 9.375 $ 10.375 $ 11.000 $ 11.625 $ 11.690
========================================================================================================================
</TABLE>
(1) For the three months ended August 31, 2000 (unaudited).
(2) The investment adviser and administrator waived a portion of their fees for
the three months ended August 31, 2000 and the years ended May 31, 2000 and
1999. If such fees were not waived, the per share decreases in net
investment income and actual expense ratios would have been as follows:
Per share decreases in Expenses ratios
net investment income without fee waivers
--------------------- -------------------
2000(1) $ 0.01 1.04%+
2000 0.02 1.04
1999 0.01 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.
[GRAPHIC]
27
<PAGE>
[GRAPHIC]
Quarterly Results of Operations
(unaudited)
<TABLE>
<CAPTION>
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
==========================================================================================================================
<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
August 31,
2000 5,492,369 0.17 4,825,028 0.15 20,787,617 0.65 25,612,645 0.80
==========================================================================================================================
</TABLE>
[GRAPHIC]
28
<PAGE>
[GRAPHIC]
Financial Data
(unaudited)
For a share of capital stock outstanding throughout each period:
NYSE Net Dividend
Record Payable Closing Asset Dividend Reinvestment
Date Date Price+ Value+ Paid Price
================================================================================
6/23/98 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
6/27/00 6/30/00 9.750 11.20 0.050 9.91
7/25/00 7/28/00 9.688 11.37 0.050 9.89
8/22/00 8/25/00 10.000 11.54 0.050 10.04
================================================================================
+ As of record date.
* Capital gain distribution.
[GRAPHIC]
29
<PAGE>
[GRAPHIC]
Dividend Reinvestment Plan
(unaudited)
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose
shares of common stock are registered in his own name will have all
distributions from the Fund reinvested automatically by PFPC Global Fund
Services ("PFPC"), as purchasing agent under the Plan, unless the shareholder
elects to receive cash. Distributions with respect to shares registered in the
name of a broker-dealer or other nominee (that is, in street name) will be
reinvested by the broker or nominee in additional shares under the Plan, unless
the service is not provided by the broker or nominee or the shareholder elects
to receive distributions in cash. Investors who own common stock registered in
street name should consult their broker-dealers for details regarding
reinvestment. All distributions to shareholders who do not participate in the
Plan will be paid by check mailed directly to the record holder by or under the
direction of PFPC as dividend paying agent.
The number of shares of common stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. When the
market price of the common stock is equal to or exceeds 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 days after the payment date
for such dividend or distribution, or the record
[GRAPHIC]
30
<PAGE>
[GRAPHIC]
Dividend Reinvestment Plan
(unaudited) (continued)
date for a succeeding dividend or distribution, except when necessary to comply
with applicable provisions of the federal securities laws.
PFPC maintains all shareholder accounts in the Plan and furnishes written
confirmations of all transactions in each account, including information needed
by a shareholder for personal and tax records. The automatic reinvestment of
dividends and capital gains distributions will not relieve Plan participants of
any income tax that may be payable on the dividends or capital gains
distributions. Common stock in the account of each Plan participant will be held
by PFPC in uncertificated form in the name of the Plan participant.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions under the Plan. PFPC's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. No brokerage charges apply with respect to shares of common stock issued
directly by the Fund under the Plan. Each Plan participant will, however, bear a
proportionate share of any brokerage commissions actually incurred with respect
to any open market purchases made under the Plan.
Experience under the Plan may indicate that changes to it are desirable.
The Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by PFPC, with the Fund's prior written consent, on at least 30 days'
written notice to Plan participants. All correspondence concerning the plan
should be directed by mail to PFPC Global Fund Services, P.O. Box 8030, Boston,
Massachusetts 02266-8030 or by telephone at (800) 331-1710.
-----------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
[GRAPHIC]
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
[GRAPHIC]
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.
FD0776 10/00
