<PAGE>
MANAGED MUNICIPALS
PORTFOLIO INC.
QUARTERLY REPORT
August 31, 1996
[GRAPHIC]
SMITH BARNEY
- ----------------------------------
A Member of TravelersGroup [LOGO]
<PAGE>
[GRAPHIC]
Managed Municipals
Portfolio Inc.
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August 31, 1996
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Dear Shareholder:
We are pleased to provide you with the first quarter report for the
Managed Municipals Portfolio Inc. (the "Portfolio") for the three-month
period ended August 31, 1996. Over the three-month period covered by this
report, the Portfolio distributed dividends totaling $0.18 per share. The
table below details the annualized distribution rates based on the
Portfolio's August 31, 1996 net asset value (NAV) per share and New York
Stock Exchange (NYSE) closing price:
Price Annualized
Per Share Distribution Rate
--------------- -----------------------
$12.02 (NAV) 5.99%
$11.63 (NYSE) 6.19%
For the three months ended August 31, 1996, the Portfolio had a total
return on NAV of 0.79%. In comparison, closed end municipal bond funds
posted an average total return of 2.22% for the same time period, as
reported by Lipper Analytical Services, Inc. (Lipper is an independent fund
tracking organization.)
Municipal Bond Market Update
Although this has been a challenging period for the fixed income
markets, the municipal bond market has outperformed the U.S. government bond
market. In our view, this can be attributed to the modest supply of municipal
bonds that have been issued. In recent months, investors have been seeking to
reinvest proceeds of municipal bonds that have either matured or been called,
back into the municipal bond market. However, at the same time, the supply of
new issues has been far below recent averages, and is very close to the low for
the year. This increased demand combined with light supply has caused municipal
bond prices to stay higher, and yields to conversely remain lower, relative to
those of U.S. Treasury securities.
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Portfolio's Investment Strategy
The Portfolio had maintained a more defensive investment strategy from
the end of 1995 up until May of 1996. We purchased higher coupon issues
and shortened maturities so that at the beginning of 1996 we were in a
position to protect the Portfolio's NAV in a rather hostile market
environment. We maintained this conservative position through the middle
of May until the yield on the 30-year U.S. Treasury bond rose above 7.10%
and yields on high grade long-term municipal bonds rose above 6.20%. At
this point we changed the Portfolio's investment strategy because we
believed it was time to lock in those yields as we became more positive
on the market. Since May, every time municipal bond yields have risen even
close to those levels, we have added to our existing high grade discount
coupon positions because we feel the market at these rates is quite
attractive. In addition, we have added issues with longer maturities. As
of August 31, 1996, the Portfolio's average weighted maturity
was 22.7 years versus 20 years on May 31, 1996.
As of August 31, 1996, approximately 85% of the Portfolio's holdings
were rated investment grade (BBB/Baa and higher) by either Standard and Poor's
Corporation or Moody's Investors Service Inc., with about 38% of the Portfolio
invested in AAA/Aaa bonds, the highest possible rating. (Standard and Poor's and
Moody's are two major credit reporting and bond rating agencies.) The
Portfolio's largest holdings are concentrated in general obligation bonds
(15.1%), hospital bonds (12.4%), transportation bonds (12.7%) and utility bonds
(12.5%).
Municipal Bond Market Outlook
Going forward, we expect the municipal bond market should benefit from a
comfortably low inflation rate, a Federal Reserve that seems content with
short-term rates right where they are, an economy that is not overly
robust, and municipalities that are issuing new debt sparingly. For these
reasons, we maintain a positive outlook on the market for the balance of
1996.
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2
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As stated in our municipal bond market update, supply has been light,
which has allowed municipal bonds to outperform government bonds for
all of 1996, and will do so going forward. In our view, the rate of U.S.
economic growth should moderate somewhat in the next quarter or two,
and allow long-term rates to ease from their current levels. The market at
today's levels is attractively priced and, with limited supply, provides
investors with attractive after-tax yields. Furthermore, municipal bonds
may offer capital appreciation possibilities if the economic numbers ease
at all.
In closing, thank you for investing in the Managed Municipals Portfolio,
Inc. We look forward to continuing to help you achieve your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ J.P. Deane
Heath B. McLendon Joseph P. Deane
Chairman and Vice President and
Chief Executive Officer Investment Officer
September 24, 1996
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Schedule of Investments
August 31, 1996 (unaudited)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
================================================================================
MUNICIPAL BONDS AND NOTES - 99.8%
<S> <C> <C> <C>
Alaska - 2.8%
Valdez, AK Marine Terminal Revenue,
BP Pipelines Inc. Project:
$ 6,500,000 AA Series A, 5.850% due 8/1/25 $ 6,264,375
6,000,000 AA Series B, 5.500% due 10/1/28 5,520,000
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11,784,375
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California - 10.7%
2,000,000 A California Financing Authority PCR,
San Diego Gas & Electric,
Series A, 5.900% due 6/1/14 2,022,500
1,725,000 Aa* California HFA Revenue, Home
Mortgage, Series B,
5.700% due 2/1/25 1,625,812
1,500,000 AAA California Health Facilities
Financing Authority
Revenue, Insured Health Facility-
Mark Twain, MBIA-Insured,
6.000% due 7/1/19 1,515,000
6,225,000 AAA California Public Works Board,
Lease Revenue,
Department of Corrections
CA Prison,
MBIA-Insured, Series D,
5.375% due 6/1/18 5,765,906
2,500,000 AAA Cerritos, CA PFA Revenue,
(Los Coyotes Redevelopment
Project), Series A, AMBAC-
Insured, 5.750% due 11/1/22 2,456,250
1,500,000 AAA East Bay, CA Municipal Utility
District No. 001, Series E,
FGIC-Insured, 5.000% due 4/1/15 1,344,375
1,000,000 AAA El Dorado County, CA Public Agency
Financing Authority Revenue,
FGIC-Insured, 5.600% due 2/15/12 986,250
3,300,000 BBB Los Angeles, CA Regional Airport
Improvement Corp., Los Angeles
International Airport Lease
Revenue, 6.500% due 1/1/32(a) 3,188,625
12,575,000 AAA Los Angeles, CA Waste Water System
Revenue, Series A, MBIA-Insured,
5.700% due 6/1/20 12,056,281
5,500,000 AAA Los Angeles County, CA Metropolitan,
Transportation Authority, Sales
Tax Revenue, Series A, MBIA-Insured,
5.625% due 7/1/18 5,328,125
5,000,000 AAA Orange County, CA Recovery COP,
Series A, MBIA-Insured,
6.000% due 7/1/26 5,018,750
3,140,000 AAA Rancho Mirage, California
Redevelopment Agency Tax Allocation,
(Redevelopment Plan-1984 Project),
Series M, MBIA-Insured,
5.000% due 4/1/24 2,747,500
</TABLE>
See Notes to Financial Statements.
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Schedule of Investments
August 31, 1996 (unaudited) (continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
================================================================================
<S> <C> <C> <C>
California - 10.7% (continued)
$ 2,000,000 AAA University of California Revenue,
Multiple Purpose Projects, Series C,
AMBAC-Insured, 5.000% due 9/1/23 $ 1,733,955
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45,789,329
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Colorado - 11.5%
5,000,000 Baa* Arapahoe County, CO Capital Improvement,
Public Highway Authority, 7.000%
due 8/31/26 5,275,000
2,000,000 BBB+ Colorado Springs, CO Airport Revenue,
Series A, 7.000% due 1/1/22(a) 2,070,000
5,000,000 AA Colorado Springs, CO Utilities Revenue
Refunding & Improvement, Series A,
5.125% due 11/15/23 4,431,250
100,000,000 Aaa* Dawson Ridge Metropolitan District No. 1,
Series B, (Escrowed to Maturity with
U.S. Government Securities),
zero coupon due 10/1/22 16,000,000
Denver, CO City and County Airport Revenue,
Series C:
4,000,000 BBB 6.750% due 11/15/22(a) 4,045,000
18,325,000 BBB 6.125% due 11/15/25(a) 17,156,781
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48,978,031
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Connecticut - 1.9%
3,000,000 Aa* Connecticut State, GO, Series A,
5.800% due 3/15/13 3,015,000
4,000,000 AAA Connecticut State Health & Educational
Facilities Authority Revenue,
Yale-New Haven Hospital, Series H,
MBIA-Insured, 5.700% due 7/1/25 3,850,000
1,500,000 AA- Connecticut State Community Development
Authority, Special Obligation, Series A,
5.550% due 12/15/15 1,428,750
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8,293,750
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Florida - 9.1%
6,000,000 AAA Dade County, FL School Board COP, Series B,
AMBAC-Insured, 5.600% due 8/1/26 5,730,000
</TABLE>
See Notes to Financial Statements.
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<PAGE>
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Schedule of Investments
August 31, 1996 (unaudited) (continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
================================================================================
<S> <C> <C> <C>
Florida -- 9.1% (continued)
Florida Board of Education, Capital
Outlay Refunding, Series D:
$10,800,000 AA 5.125% due 6/1/18 $ 9,801,000
2,000,000 AA 5.200% due 6/1/23 1,792,500
5,000,000 AA Florida State Department of
Transportation GO, Right of Way,
5.500% due 7/1/21 4,750,000
4,000,000 AA Florida State Refunding, Dade County
Road, 5.125% due 7/1/17 3,685,000
2,000,000 AAA Escambia County, Fl, School Board COP,
Series 1, MBIA-Insured, 5.500%
due 2/1/16 1,930,000
5,000,000 BBB- Martin County, FL IDA, (Indiantown
Cogeneration Project), Series A,
7.875% due 12/15/25(a) 5,606,250
Tampa, FL Revenue Bonds,
(Florida Aquarium Inc. Project):
3,000,000 NR 7.550% due 5/1/12 3,236,250
2,000,000 NR 7.750% due 5/1/27(b) 2,167,500
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38,698,500
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Illinois -- 2.7%
5,645,000 AAA Chicago, IL Waste Water Transmission
Revenue, FGIC-Insured,
5.000% due 1/1/15 5,059,331
Illinois Health Facilities Authority
Revenue:
4,000,000 AAA Sinai Health System, AMBAC-Insured,
6.100% due 2/15/24 3,900,000
2,500,000 AAA Trinity Medical Center, FSA-Insured,
6.000% due 7/1/28 2,475,000
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11,434,331
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Indiana -- 1.8%
2,500,000 Aaa* Indiana State HFA Single Family
Mortgage Revenue, Series A-1,
GNMA/FNMA- Collateralized,
6.250% due 7/1/28 2,515,625
5,000,000 Aa3* Indiana Port Commission Revenue
Refunding Project, (Cargill Inc.
Project), 6.875% due 5/1/12
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7,884,375
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Louisiana -- 1.4%
5,500,000 Aa3* Saint Martin Parish, LA Industrial
Project, (Cargill Inc. Project),
6.625% due 10/1/12 5,809,375
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</TABLE>
See Notes to Financial Statements.
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Schedule of Investments
August 31, 1996 (unaudited) (continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
================================================================================
<S> <C> <C> <C>
Maryland - 2.2%
$10,000,000 NR Maryland State Energy Financing
Adminstration, Solid Waste Disposal
Revenue, Limited Obligation, (Hagerstown
Project), 9.000% due 10/15/16(b)(c) $ 8,287,500
1,000,000 AA Maryland State Industrial Development
Financing Authority Revenue Refunding,
Holy Cross Health System Corp.,
5.700% due 12/1/10(b) 1,006,250
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9,293,750
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Massachusetts - 1.7%
10,000,000 NR Massachusetts State IFA, Solid Waste
Disposal Revenue, Massachusetts Recyclin g
Association, Series A, 9.000% due 8/1/16(c) 5,000,000
2,750,000 A+ Massachusetts State Turnpike Authority
Revenue, Series A, 5.000% due 1/1/20 2,371,875
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7,371,875
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Michigan - 5.5%
2,000,000 NR Michigan State Strategic Funding, Limited
Obligation Revenue, (Blue Water Fiber
Project), 8.000% due 1/1/12(a)(c) 1,500,000
Michigan State HDA, Single Family Mortgage
Revenue, Series A:
1,750,000 AA+ 6.000% due 12/1/15 1,725,937
2,415,000 AA+ 6.050% due 12/1/17 2,381,794
16,375,000 NR Midland County, MI Economic Development
Corporation, PCR, Limited Obligation,
Series B, 9.500% due 7/23/09(a) 17,848,750
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23,456,481
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Minnesota - 4.9%
2,500,000 Aa3* Duluth, MN Seaway Port Authority, IDA,
Dock & Wharf Revenue, (Cargill Inc.
Project), 6.800% due 5/1/12 2,662,500
15,305,000 Baa* St. Paul, MN Housing and Redevelopment
Authority, Health East Project, Series D,
9.750% due 11/1/17(b) 16,280,694
2,000,000 AAA Western Minnesota Municipal Power Agency
Revenue, Series A, AMBAC-Insured,
5.500% due 1/1/10 1,975,000
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20,918,194
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</TABLE>
See Notes to Financial Statements.
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<PAGE>
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Schedule of Investments
August 31, 1996 (unaudited) (continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
================================================================================
<S> <C> <C> <C>
Montana -- 1.7%
$ 8,000,000 NR Montana State Board Investment Resources
Recovery, (Yellowstone Energy Project),
7.000% due 12/31/19(a) $ 7,410,000
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Nebraska -- 0.8%
4,000,000 AAA Nebraska Public Power District Revenue,
Series A, MBIA-Insured, 5.250%
due 1/1/28 3,590,000
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New Hampshire -- 0.7%
3,000,000 Aa* New Hampshire State Housing Finance
Authority, Single-Family Mortgage Revenue,
6.300% due 1/1/26(a) 2,958,750
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Nevada -- 1.9%
8,000,000 AAA Clark County, NV School District, Series A,
MBIA-Insured, 5.875% due 6/15/14 8,010,000
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New Jersey -- 1.9%
5,200,000 A+ Hudson County, NJ Improvement Authority,
6.625% due 8/1/25 5,447,000
2,910,000 A+ South Jersey Port Corporation,
Marine Terminal, Series G,
MBIA-Insured, 5.600% due 1/1/23 2,680,837
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8,127,837
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New York -- 8.1%
4,000,000 Baa1* City University, NY COP, John Jay College,
5.750% due 8/15/04(c) 3,990,000
1,555,000 BBB+ New York City, NY GO, Series G,
5.750% due 2/1/14 1,444,206
New York City Municipal Water Financing
Authority, Water & Sewer System Revenue:
Series A:
4,000,000 A* 5.500% due 6/15/20 3,690,000
2,090,000 A* 5.500% due 6/15/23 1,925,413
Series B, MBIA-Insured:
3,500,000 AAA 5.500% due 6/15/19 3,303,125
8,000,000 AAA 5.750% due 6/15/26 7,730,000
3,960,000 AAA New York State Dormitory Authority Revenue,
City University, AMBAC-Insured,
5.250% due 7/1/11 3,811,500
2,000,000 A New York State Local Government Assistance
Corp., Series D, 5.000% due 4/1/23 1,720,000
</TABLE>
See Notes to Financial Statements.
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<PAGE>
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Schedule of Investments
August 31, 1996 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
================================================================================
<S> <C> <C> <C>
New York - 8.1% (continued)
$ 2,000,000 AAA New York State MTA Commuter Facilities
Revenue, Series A, FGIC-Insured,
6.100% due 7/1/26 $ 2,017,500
1,000,000 AAA New York State Urban Development Corp.
Revenue, Series D, Correctional
Facilities, MBIA-Insured, 5.500%
due 1/1/25 937,500
4,500,000 Aa* Triborough Bridge & Tunnel Authority,
5.000% due 1/1/24 3,853,125
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34,422,369
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North Carolina - 0.9%
4,000,000 AAA New Hanover County, NC Hospital Revenue,
(New Hanover Medical Center Project),
AMBAC-Insured, 5.750% due 10/1/16 3,925,000
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Ohio - 0.5%
2,000,000 AAA Ohio State Water Development Authority
Revenue, Fresh Water Services,
AMBAC-Insured, 5.900% due 12/1/21 2,002,500
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South Carolina - 0.9%
1,700,000 Aa* South Carolina Housing Financial &
Development Authority Mortgage Revenue,
Heritage Apartments, Series A, FHA-Insured,
6.150% due 7/1/25 1,674,500
2,000,000 BBB+ Myrtle Beach, SC COP, Myrtle Beach
Convention Center Project, 6.875%
due 7/1/07 2,095,000
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3,769,500
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Texas - 8.7%
5,500,000 Aaa* Arlington, TX ISD, PSFG, 5.750% due
2/15/21 5,417,500
3,000,000 AAA Bexar County, TX Health Facilities
Development Corp., FSA-Insured, 6.100%
due 11/15/23 3,045,000
Burleson, TX ISD, PSFG:
1,160,000 Aaa* 6.750% due 8/1/24 1,247,000
2,840,000 NR Pre-Refunded-Escrowed with U.S.
Government Securities to 8/1/06
Call @ 100, 6.750% due 8/1/24 3,159,500
4,000,000 AAA Harris County, TX Toll Road, FGIC-Insured,
5.375% due 8/15/20 3,715,000
2,000,000 AAA Leander, TX ISD, PSFG, 5.625% due
8/15/18 1,940,000
2,000,000 AAA Red River Authority, TX PCR, MBIA-Insured,
6.000% due 6/1/20 2,000,000
</TABLE>
See Notes to Financial Statements.
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Schedule of Investments
August 31, 1996 (unaudited) (continued)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
================================================================================
<S> <C> <C> <C>
Texas - 8.7% (continued)
$12,250,000 BB Sam Rayburn, TX Municipal Power Agency,
Series A, 6.750% due 10/1/14(b) $11,193,438
5,800,000 AAA Texas State Turnpike Authority, Dallas
North Thruway Revenue, President George
Bush Turnpike, FGIC-Insured,
5.250% due 1/1/23 5,321,500
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37,038,938
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Utah - 4.4%
Intermountain Power Agency,
Utah Power Supply Revenue Refunding:
6,000,000 Aa* Series A, 5.500% due 7/1/20 5,572,500
9,000,000 Aa* Series D, 5.500% due 7/1/21 7,818,750
6,000,000 AAA Murray City, Utah Hospital Revenue
Refunding, IHC Health Services Inc.,
MBIA-Insured, 5.000% due 5/15/22 5,217,658
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18,608,908
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Virginia - 3.4%
4,700,000 A* Harrisonburg, VA Redevelopment (Jail &
Courthouse Project), and Housing Authority,
Public Facility Lease Revenue,
6.500% due 9/1/14 4,829,250
2,000,000 AAA Upper Occoquan Sewer Authority, Virginia
Regional Sewer Revenue, Series A,
MBIA-Insured, 5.000% due 7/1/25 1,752,500
Virginia State Housing Development Authority,
Multi-Family Housing:
Series D:
1,655,000 AA+ 6.250% due 1/1/15 1,657,069
1,715,000 AA+ 6.250% due 7/1/15 1,717,144
1,235,000 AA+ Series H, 6.300% due 11/1/15 1,255,069
600,000 AA+ Series K, 5.800% due 11/1/10 607,500
Single-Family Housing:
1,210,000 AA+ 5.700% due 1/1/09 1,203,950
1,390,000 AA+ 5.900% due 7/1/11 1,390,000
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14,412,482
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Washington - 6.5%
4,750,000 A+ Chelan County, WA GO Public Utilities
District No. 001, Series 1993A,
District 4, Remarketed, (mandatory
put 7/1/19), 6.750% due 7/1/62 4,850,937
</TABLE>
See Notes to Financial Statements.
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10
<PAGE>
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Schedule of Investments
August 31, 1996 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
================================================================================
<S> <C> <C> <C>
Washington -- 6.5% (continued)
$11,300,000 AA- Washington State Health Care
Facilities Authority Revenue,
Sisters of Providence Hospital,
7.875% due 10/1/10(b) $ 12,119,250
Washington State Public Power,
FSA-Insured:
6,250,000 AAA Series B, Nuclear Project No. 2,
5.625% due 7/1/12(b) 6,078,125
Series C:
3,555,000 AAA Nuclear Project No. 1,
5.375% due 7/1/15 3,292,819
1,500,000 AAA Nuclear Project No. 3,
5.375% due 7/1/15 1,389,375
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27,730,506
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West Virginia -- 1.5%
Marion County, WV Community Solid Waste
Disposal Facilities Revenue:
1,000,000 NR American Fiber Resource Project,
Series B, 9.250% due 12/1/11(a)(c) 600,000
10,000,000 NR American Power Paper Recycling Project,
7.750% due 12/1/11(a)(c) 6,000,000
- --------------------------------------------------------------------------------
6,600,000
- --------------------------------------------------------------------------------
Wisconsin -- 1.7%
4,070,000 AA Wisconsin State GO, Series B,
6.600% due 1/1/22(a) 4,268,413
3,000,000 AAA Wisconsin State Health and Educational
Facilities Authority, (Marquette
University Project), MBIA-Insured,
5.500% due 12/1/11 2,913,750
- --------------------------------------------------------------------------------
7,182,163
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TOTAL MUNICIPAL BONDS AND NOTES
(COST - $431,402,015) 425,501,319
================================================================================
SHORT-TERM TAX-EXEMPT INVESTMENTS(d) - 0.2%
California -- 0.1%
600,000 VMIG 1* California Health Facilities Finance
Authority Revenue, Series B,
AMBAC-Insured, 3.200% due 7/1/12 600,000
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
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<PAGE>
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Schedule of Investments
August 31, 1996 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
================================================================================
<S> <C> <C> <C>
SHORT-TERM TAX-EXEMPT INVESTMENTS(d) - 0.2% (continued)
New York - 0.1%
$ 300,000 VMIG 1* New York City Municipal Finance
Authority, Water & Sewer Systems
Revenue, Series G, FGIC-Insured,
3.350% due 6/15/24 $ 300,000
- --------------------------------------------------------------------------------
SHORT-TERM TAX-EXEMPT INVESTMENTS
(COST - $900,000) 900,000
================================================================================
TOTAL INVESTMENTS - 100%
(COST - $432,302,015**) $426,401,319
================================================================================
</TABLE>
(a) Income from this issue is considered a preference item for purposes
of calculating the alternative minimum tax.
(b) Security segregated by Custodian for open purchase commitments.
(c) Security is valued by the Fund's Board of Directors (See Note 7).
(d) Variable rate municipal bonds and notes are payable upon not more
than one business day's notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 13 and 14 for definition of ratings and certain security descriptions.
- --------------------------------------------------------------------------------
Summary of Investments by Combined Ratings
August 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
Moody's and/or Standard & Poor's Total Investments
=========================================================================
<C> <C> <S>
Aaa AAA 37.8%
Aa AA 25.2
A A 6.9
Baa BBB 14.4
Ba BB 2.6
VMIG 1 A-1 0.2
NR NR 12.9
-----
100.0%
=====
</TABLE>
See Notes to Financial Statements.
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<PAGE>
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Bond Ratings
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Corporation ("Standard & Poor's"),
except those identified by an asterisk (*) are rated by Moody's Investors
Services Inc. ("Moody's"). The definitions of the applicable rating symbols
are set forth below:
Standard & Poor's - Ratings from "AA" to "BB" 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 it is 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" have less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.
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 that are 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 that are 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 that are 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 that are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
NR - Indicates that the bond is not rated by Standard & Poor's or Moody's.
[GRAPHIC]
13
<PAGE>
- --------------------------------------------------------------------------------
Short-Term Securities Ratings
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
ABAG - Association of Bay Area Governors
AIG - American International Guaranty
AMBAC - American Municipal Bond Assurance Corporation
BAN - Bond Anticipation Notes
BIG - Bond Investors Guaranty
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 - Federal Savings Association
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
VA - Veterans Administration
VRDD - Variable Rate Daily Demand
VRWE - Variable Rate Wednesday Demand
[GRAPHIC]
14
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 31, 1996
================================================================================
<S> <C>
ASSETS:
Investments, at value (Cost - $432,302,015) $426,401,319
Cash 31,931
Interest receiveable 6,636,376
- --------------------------------------------------------------------------------
Total Assets 433,069,626
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 16,714,836
Dividends payable 992,472
Investment advisory fees payable 254,795
Administration fees payable 73,735
Accrued expenses 203,161
- --------------------------------------------------------------------------------
Total Liabilities 18,238,999
- --------------------------------------------------------------------------------
Total Net Assets $414,830,627
================================================================================
NET ASSETS:
Par value of capital shares $ 34,498
Capital paid in excess of par value 412,278,884
Undistributed net investment income 1,302,989
Accumulated net realized gain on security transactions
and futures contracts 7,114,952
Net unrealized depreciation of investments (5,900,696)
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $12.02 a share on 34,498,420 shares of
$0.001 par value outstanding: 500,000,000 shares authorized) $414,830,627
================================================================================
</TABLE>
See Notes to Financial Statements.
[GRAPHIC]
15
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
For the Three Months Ended August 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
================================================================================
<S> <C>
INVESTMENT INCOME:
Interest $ 7,112,514
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 737,681
Administration fees (Note 2) 210,766
Shareholder communications 52,285
Audit and legal 13,336
Directors' fees 12,317
Registration fees 8,271
Shareholder and system servicing fees 6,149
Custody 4,826
Pricing service fees 3,017
Other 2,494
- --------------------------------------------------------------------------------
Total Expenses 1,051,142
- --------------------------------------------------------------------------------
Net Investment Income 6,061,372
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES CONTRACTS (NOTES 4 AND 5):
Realized Gain From:
Security transactions (excluding short-term
securities) 1,958,622
Future contracts 56,063
- --------------------------------------------------------------------------------
Net Realized Gain 2,014,685
- --------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period (940,504)
End of period (5,900,696)
- --------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (4,960,192)
- --------------------------------------------------------------------------------
Net Loss on Investments and Futures Contracts (2,945,507)
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 3,115,865
================================================================================
</TABLE>
See Notes to Financial Statements.
[GRAPHIC]
16
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended
8/31/96 Year Ended
(unaudited) 5/31/96
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 6,061,372 $ 23,014,251
Net realized gain 2,014,685 7,326,011
Increase in net unrealized
depreciation (4,960,192) (19,254,835)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Operations 3,115,865 11,085,427
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 3):
Net investment income (6,209,716) (25,858,323)
Net realized gains - (222,483)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (6,209,716) (26,080,806)
- --------------------------------------------------------------------------------
Decrease in Net Assets (3,093,851) (14,995,379)
NET ASSETS:
Beginning of period 417,924,478 432,919,857
- --------------------------------------------------------------------------------
End of period* $414,830,627 $417,924,478
================================================================================
* Includes undistributed net
investment income of: $ 1,302,989 $ 1,451,333
================================================================================
</TABLE>
See Notes to Financial Statements.
[GRAPHIC]
17
<PAGE>
- --------------------------------------------------------------------------------
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, as
applicable; (d) gains or losses on the 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
the accrual basis; market discount is recognized upon the disposition of the
security; (f) dividends and distributions to shareholders are recorded on the
ex-dividend date; (g) the Fund intends to comply with the applicable provisions
of the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes; (h) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. At May 31, 1996, reclassifications were made to the Fund's capital
accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Net investment income,
net realized gains and net assets were not affected by this change; and (i)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ.
In addition, certain prior year numbers have been restated to reflect
current year's presentation. Net investment income, net realized gains, and net
assets were not affected in this change.
[GRAPHIC]
18
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(unaudited) (continued)
- --------------------------------------------------------------------------------
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), through its Greenwich Street Advisors division,
acts as investment adviser to the Fund. The Fund pays SBMFM 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.
SBMFM 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 Smith Barney
Inc.
3. 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.
4. Securities Transactions
For the three months ended August 31, 1996, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were $142,775,958 and $121,693,809 respectively.
At August 31, 1996, the aggregate gross unrealized appreciation and
depreciation of investments were as follows:
================================================================================
Gross unrealized appreciation $ 9,995,448*
Gross unrealized depreciation (15,896,144)*
- --------------------------------------------------------------------------------
Gross unrealized depreciation $ (5,900,696)*
================================================================================
* Substantially the same for Federal income tax purposes.
[GRAPHIC]
19
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(unaudited)(continued)
- --------------------------------------------------------------------------------
5. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and is
noted in the schedule of investments. 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
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Fund's basis in the contract. The Fund enters into such contracts to hedge a
portion of its portfolio. The Fund bears the market risk that arises from
changes in the value of the financial instruments and securities indices
(futures contracts) and the credit risk should a counterparty fail to perform
under such contracts.
At August 31, 1996, there were no open futures contracts.
6. Off Balance Sheet Risk
During the three months ended August 31, 1996, the Fund had entered into
transactions with off-balance-sheet risk in order to reduce its exposure to
market risk. These financial instruments include the short selling of futures.
These instruments contain off-balance-sheet risk whereby change in market values
of the instruments may be in excess of the amounts recognized in the schedule of
investments.
[GRAPHIC]
20
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
(unaudited)(continued)
- --------------------------------------------------------------------------------
7. Securities Valued by the Fund's Board of Directors
Some of the Fund's investments are valued at the direction of the Fund's
Board of Directors; these securities are valued in good faith, taking into
consideration the appropriate economic, financial and other pertinent available
information pertaining to the securities. The table below shows the securities
valued by the Fund's Board of Directors:
<TABLE>
<CAPTION>
Value as a
Acquisition Par 8/31/96 Percentage
Security Date Amount Value of Net Assets Cost
====================================================================================================
<S> <C> <C> <C> <C> <C>
Maryland State Energy
Financing Administration,
Solid Waste Disposal
Revenue, Limited Obligation,
(Hagerstown Project),
9.000% due 10/15/16 10/5/94 $10,000,000 $8,300,000 2.00% $10,000,000
Massachusetts State IFA, Solid
Waste Disposal Revenue,
Massachusetts Recycling
Association, Series A,
9.000% due 8/1/16 9/8/94 10,000,000 5,000,000 1.21 10,000,000
Michigan State Strategic
Funding, Limited Obligation
Revenue, (Blue Water Fiber
Project), 8.000% due 1/1/12 3/28/94 2,000,000 1,500,000 0.36 2,000,000
Marion County, WV Community
Solid Waste Disposal
Facilities Revenue:
American Fiber Resource
Project, Series B,
9.250% due 12/1/11 12/22/95 1,000,000 600,000 0.14 1,000,000
American Power Paper
Recycling Project,
7.750% due 12/1/11 12/16/93 9,000,000 5,400,000 1.30 9,000,000
3/8/95 1,000,000 600,000 0.14 892,860
---------- --------- ---------
10,000,000 6,000,000 9,892,860
---------- --------- ---------
</TABLE>
[GRAPHIC]
21
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
1996(1) 1996 1995 1994 1993(2)
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $12.11 $12.55 $12.26 $13.00 $12.00
- -------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.18 0.67 0.72 0.67 0.63
Net realized and unrealized
gain (loss) (0.09) (0.35) 0.49 (0.23) 0.97
- -------------------------------------------------------------------------------------------------------
Total Income From Operations 0.09 0.32 1.21 0.44 1.60
- -------------------------------------------------------------------------------------------------------
Offering Costs Charged
to Paid-In Capital - - - - (0.02)
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.18) (0.75) (0.67) (0.67) (0.55)
Net realized gains - (0.01) (0.25) (0.51) (0.03)
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.18) (0.76) (0.92) (1.18) (0.58)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.02 $12.11 $12.55 $12.26 $13.00
- -------------------------------------------------------------------------------------------------------
Total Return 0.79%+++ 2.79% 8.40% 2.27% 7.02%+++
- -------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $414,831 $417,924 $432,920 $422,792 $443,938
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.00%+ 1.00% 1.02% 1.00% 0.98%+
Net investment income 5.75+ 5.35 5.97 5.15 5.48+
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 29% 45% 93% 72% 169%
- -------------------------------------------------------------------------------------------------------
Market Value, End of Period $11.63 $11.69 $11.50 $11.50 $12.25
=======================================================================================================
</TABLE>
(1) For the three months ended August 31, 1996 (unaudited).
(2) For the period from June 26, 1992 (commencement of
operations) to May 31, 1993.
+++ Total return is not annualized, as it may not be representative
of the total return for the year.
+ Annualized.
[GRAPHIC]
22
<PAGE>
- --------------------------------------------------------------------------------
Quarterly Results of Operations
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Realized and Net Increase
Unrealized Gain (Decrease) in
Investment Net Investment (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,
1993 $6,954,864 $0.20 $5,796,493 $0.17 $14,702,966 $0.43 $20,499,459 $0.60
November 30,
1993 6,803,020 0.17 5,731,243 0.17 (1,381,672) (0.08) 4,349,571 0.09
February 28,
1994 6,678,467 0.19 5,549,454 0.16 (4,168,370) (0.12) 1,381,084 0.04
May 31,
1994 7,004,102 0.24 5,910,189 0.17 (17,312,645) (0.46) (11,402,456) (0.29)
August 31,
1994 7,178,807 0.21 6,027,342 0.18 (782,448) (0.02) 5,244,894 0.16
November 30,
1994 7,092,384 0.20 6,096,465 0.17 (32,730,626) (0.95) (26,634,161) (0.78)
February 28,
1995 7,280,844 0.21 6,181,630 0.18 35,883,360 1.04 42,064,990 1.22
May 31,
1995 7,348,720 0.21 6,387,780 0.19 14,909,134 0.42 21,296,914 0.61
August 31,
1995 6,836,154 0.20 5,726,578 0.17 (4,006,671) (0.12) 1,719,907 0.05
November 30,
1995 6,832,879 0.20 5,725,758 0.17 9,842,182 0.29 15,567,940 0.45
February 29,
1996 6,815,655 0.19 5,690,615 0.16 (268,190) (0.01) 5,422,425 0.16
May 31,
1996 6,848,128 0.20 5,871,300 0.17 (17,496,145) (0.51) (11,624,845) (0.34)
August 31,
1996 7,112,514 0.21 6,061,372 0.18 (2,945,507) (0.09) 3,115,865 0.09
===========================================================================================================================
</TABLE>
[GRAPHIC]
23
<PAGE>
- --------------------------------------------------------------------------------
Financial Data
(unaudited)
- --------------------------------------------------------------------------------
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Capital
NYSE Net Gains Dividend
Closing Asset Dividend Dividend Reinvestment
Payable Date Price+ Value+ Paid Paid Price
========================================================================================
<S> <C> <C> <C> <C> <C>
June 30, 1994 $11.500 $12.11 $0.061 - $11.86
July 31, 1994 11.625 12.32 0.061 - 11.90
August 31, 1994 11.500 12.29 0.061 - 11.64
September 30, 1994 11.000 11.98 0.061 - 11.43
October 31, 1994 11.125 11.79 0.061 - 10.81
November 30, 1994 10.375 10.99 0.061 - 10.58
December 30, 1994 10.250 11.33 - $0.140 10.87
January 31, 1995 11.000 11.56 0.061 - 11.33
February 28, 1995 11.375 12.07 0.061 - 11.46
March 31, 1995 11.375 12.26 0.061 - 11.56
April 28, 1995 11.375 12.41 0.061 - 11.54
May 31, 1995 11.250 12.41 0.061 0.112 11.89
June 30, 1995 11.875 12.49 0.064 - 11.86
July 31, 1995 11.750 12.33 0.064 - 11.84
August 25, 1995 12.000 12.20 0.064 - 11.90
September 29, 1995 11.750 12.38 0.064 - 11.87
October 27, 1995 11.750 12.46 0.064 - 11.92
November 24, 1995 12.062 12.59 0.064 - 11.99
December 29, 1995 12.125 12.69 0.064 - 12.30
January 26, 1996 12.500 12.66 0.064 - 12.51
February 23, 1996 12.250 12.68 0.064 - 12.14
March 29, 1996 11.750 12.43 0.060 - 11.61
April 26, 1996 11.375 12.24 0.060 - 11.53
May 31, 1996 11.688 12.25 0.060 - 11.65
June 28, 1996 11.500 12.05 0.060 - 11.49
July 26, 1996 11.875 12.05 0.060 - 11.87
August 30, 1996 11.625 12.12 0.060 - 11.72
========================================================================================
</TABLE>
+ As of record date
[GRAPHIC]
24
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
(unaudited)
- --------------------------------------------------------------------------------
Under the Portfolio's Dividend Reinvestment Plan (the "Plan"), a
shareholder whose Common Stock is registered in his own name will have all
distributions reinvested automatically by First Data Investor Services Group,
Inc. ("First Data") as 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 Common Stock under the Plan, but only if the
service is provided by the broker or nominee, and the broker or nominee makes an
election on behalf of the shareholder to participate in the Plan. Distributions
with respect to Common Stock registered in the name of Smith Barney will
automatically be reinvested by Smith Barney in additional shares under the Plan
unless the shareholder elects to receive distributions in cash. A shareholder
who holds Common Stock registered in the name of a broker or other nominee may
not be able to transfer the Common Stock to another broker or nominee and
continue to participate in the Plan. Investors who own Common Stock registered
in street name should consult their broker or nominee for details regarding
reinvestment.
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. Whenever
the market price of the Fund's Common Stock is equal to or exceeds the net asset
value per share, participants will be issued shares of Common Stock valued at
the greater (i) the net asset value per share or (ii) 95% of the then current
market price. If the net asset value per share of Common Stock at the time of
valuation exceeds the market price of the Common Stock, First Data will buy
shares of the Fund's Common Stock on the open market, on the New York Stock
Exchange, Inc. or elsewhere, beginning on the payment date of the dividend or
distribution, until it has expended for such purchases all of the cash that
would otherwise be payable to the participants.
First Data may commence purchasing shares beginning on the record date for
the dividend or distribution. The number of purchased shares that will then be
credited to the participants' accounts will be based on the average per share
purchase price of the shares so purchased, including brokerage commissions. If
First Data commences purchases in the open market and the market price of the
shares subsequently exceeds net asset value before the completion of the
purchases, First Data will attempt to terminate purchases in the open market and
cause the Fund to issue the remaining dividend or distribution in shares at net
asset value per share. In this case, the number of shares of Common Stock
received by the 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.
[GRAPHIC]
25
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
(unaudited) (continued)
- --------------------------------------------------------------------------------
Plan participants are not subject to any charge for reinvesting dividends
or capital gains distributions. Each Plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to First
Data's open market purchases of shares of Common Stock in connection with
reinvestment of dividends or capital gains distributions.
A participant in the Plan will be treated for Federal income tax purposes
as having received, on the dividend payment date, a dividend or distribution in
an amount equal to the cash that the participant could have received instead of
shares of Common Stock.
A shareholder may terminate participation in the Plan at any time by
notifying First Data in writing. A termination will be effective immediately if
notice is received by First Data not less than 10 days before any dividend or
distribution record date. Otherwise, the termination will be effective, and only
with respect to any subsequent dividends or distributions, on the first trading
day after the dividend or distribution has been credited to the participant's
account in additional shares of Common Stock of the Fund. Upon termination
according to a participant's instructions, First Data will either (a) issue
certificates for the whole shares credited to a Plan account and a check
representing any fractional shares or (b) sell the shares in the market. There
will be $5.00 fee assessed for liquidation service, plus brokerage commissions,
and First Data is authorized to sell a sufficient number of a participant's
shares to cover such amounts.
The Plan is described in more detail on pages 17-19 of the Fund's
Prospectus dated September 28, 1994. Information concerning the Plan may be
obtained from First Data 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 at
market prices shares of its common stock in the open market.
[GRAPHIC]
26
<PAGE>
MANAGED MUNICIPALS
PORTFOLIO INC.
DIRECTORS
Charles F. Barber
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
William R. Hutchinson
Heath B. McLendon, Chairman
OFFICERS
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Joseph P. Deane
Vice President and
Investment Officer
David Fare
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
INVESTMENT ADVISER AND ADMINISTRATOR
Smith Barney Mutual Funds
Management Inc.
388 Greenwich Street
New York, New York 10013
TRANSFER AGENT
First Data Investor Services
Group, Inc.
P.O. Box 1376
Boston, Massachusetts 02104
CUSTODIAN
PNC Bank, N.A.
17th & Chestnut Streets
Philadelphia, Pennsylvania 19103
[GRAPHIC]
27
<PAGE>
This report is sent to the shareholders of the Managed Municipals Portfolio Inc.
for their information. 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 10/96
