<PAGE>
SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND
EDGAR DESCRIPTIONS
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a circular design with an eagle centered
with
its windgs raised. Pictured on bottom right-hand side of box are an artist's
brushstrokes curled at their ends.
<PAGE>
Government and Agencies Fund Inc.
DEAR SHAREHOLDER:
We are pleased to provide the Semi-Annual Report for the Smith Barney Shearson
Government and Agencies Fund Inc. for the six months ended March 31, 1994.
During the past six months the Fund paid dividend distributions totaling
$.0136
per share, resulting in an annualized yield of 2.72%.
The economy performed better in certain sectors -- particularly in housing,
autos, and retail sales -- during the past six months. Although severe weather
and the California earthquake caused distortions in the economic data, the
underlying momentum in the U.S. economy still appears to be very strong.
Inflation appears to remain under control however, inflation historically
follows rather than leads strong economic activity.
As a result of this strong growth, the Federal Reserve Board took a preemptive
measure and tightened monetary policy for the first time in five years. On
February 4, 1994, the target rate for Federal funds was increased to 3.25%
from
3.00%. The Fed has now increased the Federal funds rate a total of three
times,
with the Federal funds rate now at 3.75%. Although there is no evidence of a
current upturn in inflation, the Federal Open Market Committee sees heightened
risk down the road and the Fed is applying monetary restraint in order to help
guide the economy to a pace that will not quickly usurp the excess capacity
still present in the economy.
First quarter gross domestic product (GDP) rose at a 2.6% rate, which was
weaker
than expected. However, consumer spending rose strongly at 3.8% and capital
spending rose an unexpected 13.5%, indicating underlying strength in the
economy. Employment increases of 456,000 in March also underscored the
continued
momentum in the U.S. economy. The average monthly increase in non-farm
payrolls
for the first quarter reached 208,000. Strength should continue to come from
key
sectors like autos, capital goods and housing. The effects of higher borrowing
costs have not yet had an impact on housing. The housing sector could benefit
if
consumers continue to obtain mortgage financing before rates become
prohibitive.
As a result, another Fed tightening in May is possible, particularly if
upcoming
economic reports provide continued evidence of an economy that is stronger
than
previously assumed. The recent weakness in the U.S. dollar, the trade impasse
between the United States and Japan, and the general sense that the Fed has
failed to raise rates significantly enough to prevent a reoccurrence of
inflation, have added to the heightened risk of more near-term tightenings.
Federal funds could trade at 4.00% or higher, depending on the strength of the
economy over the balance of the year.
Short-term market rates have risen approximately 115-135 basis points since
the Federal Reserve initially tightened and the yield curve continues to
steepen.
1
<PAGE>
One-month Treasury bills are yielding 4.10% versus the one-year Treasury bill
which yields 5.20%.
With the continued uncertainty over the stock market and the prospects of
higher
interest rates, we are maintaining a defensive posture. We have allowed the
weighted average maturity to shorten to approximately 65 days from 85 days. We
are looking to increase our holdings of government floating rate securities
which will allow us to pick up an additional 20 basis points or more above the
bond equivalent of the average weekly three-month Treasury bill auction. Since
the rates on these securities reset weekly, this allows us to capture the
increases in short-term interest rates. In addition, the spreads between
Treasury bills and government agencies has widened by 20 basis points;
therefore, we will continue to increase our holdings in government agencies.
Since the yield curve has steepened substantially, we are slowly buying
six-month agencies where the incremental pick up over the overnight repurchase
rate is approximately 100 basis points.
As we have for well over a decade since the Fund began in 1980, we will
continue
to strive to maintain our high investment standards while providing
competitive
investment yields. We appreciate your continued confidence and support.
Sincerely,
<TABLE>
<S> <C>
Heath B. McLendon Phyllis M. Zahorodny
Chairman of the Board Vice President and
and Investment Officer Investment Officer
Evelyn R. Robertson
Investment Officer
May 16, 1994
</TABLE>
2
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - --------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) MARCH
31, 1994
<CAPTION>
ANNUALIZED
YIELD ON
DATE OF
MARKET VALUE
FACE VALUE PURCHASE
(NOTE 1)
- - ------------------------------------------------------------------------------
- - --------------
<C> <S> <C>
<C>
U.S. GOVERNMENT AND AGENCY DISCOUNT NOTES - 64.9%
FEDERAL FARM CREDIT BANK (FFCB)
$ 15,000,000 6/2/1994 3.640%
$ 14,904,875
10,000,000 6/2/1994 3.730
9,936,582
10,000,000 6/7/1994 3.680
9,933,930
19,450,000 6/8/1994 3.660
19,317,005
10,000,000 6/27/1994 3.270
9,922,183
25,000,000 7/5/1994 3.810
24,751,944
20,000,000 8/1/1994 3.870
19,741,086
20,000,000 8/2/1994 3.870
19,738,967
18,000,000 8/3/1994 3.340
17,798,500
14,200,000 8/8/1994 3.890
14,004,608
5,000,000 8/10/1994 3.400
4,939,958
21,295,000 8/11/1994 3.940
20,992,043
20,000,000 8/12/1994 3.420
19,755,428
11,000,000 1/12/1995 3.520
10,702,878
FEDERAL HOME LOAN BANK (FHLB)
20,000,000 5/2/1994 3.360
19,940,158
20,000,000 5/19/1994 3.420
19,909,599
15,000,000 5/23/1994 3.420
14,926,850
24,000,000 5/24/1994 3.360
23,884,460
25,000,000 6/21/1994 3.490
24,805,937
13,000,000 6/24/1994 3.580
12,892,620
5,000,000 7/5/1994 3.750
4,951,181
25,000,000 7/6/1994 3.650
24,755,407
20,000,000 7/6/1994 3.810
19,804,326
15,000,000 7/8/1994 3.780
14,847,548
8,500,000 7/8/1994 3.790
8,413,610
10,000,000 7/25/1994 3.690
9,883,722
36,700,000 8/1/1994 3.860
36,227,549
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - --------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MARCH
31, 1994
<CAPTION>
ANNUALIZED
YIELD ON
DATE OF
MARKET VALUE
FACE VALUE PURCHASE
(NOTE 1)
- - ------------------------------------------------------------------------------
- - --------------
<C> <S> <C>
<C>
U.S. GOVERNMENT AND AGENCY DISCOUNT NOTES (CONTINUED)
FEDERAL HOME LOAN BANK (FHLB) (CONTINUED)
$ 12,000,000 9/8/1994 3.440%
$ 11,820,761
23,450,000 1/20/1995 3.520
22,798,872
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
25,000,000 4/4/1994 3.370
24,993,000
29,098,000 4/11/1994 3.370
29,070,842
13,050,000 4/19/1994 3.380
13,028,076
15,000,000 5/2/1994 3.590
14,953,873
10,000,000 5/2/1994 3.410
9,969,248
76,319,000 5/3/1994 3.410
76,089,025
10,000,000 5/18/1994 3.420
9,955,742
20,000,000 5/25/1994 3.530
19,895,000
25,000,000 6/17/1994 3.490
24,812,520
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
42,090,000 4/8/1994 3.300
42,060,893
17,000,000 4/11/1994 3.300
16,984,605
40,000,000 4/12/1994 3.270
39,960,890
30,000,000 4/14/1994 3.270
29,965,334
19,000,000 4/15/1994 3.300
18,975,913
20,000,000 5/2/1994 3.270
19,944,889
16,000,000 5/4/1994 3.270
15,953,066
20,000,000 5/5/1994 3.360
19,937,666
16,000,000 5/6/1994 3.350
15,948,667
30,000,000 5/12/1994 3.350
29,887,250
10,000,000 5/23/1994 3.460
9,950,456
45,000,000 6/1/1994 3.360
44,745,278
10,000,000 6/1/1994 3.550
9,943,395
61,200,000 6/2/1994 3.300
60,861,593
26,845,000 6/2/1994 3.280
26,696,560
15,000,000 6/2/1994 3.360
14,917,057
15,000,000 6/3/1994 3.370
14,913,282
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - --------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MARCH
31, 1994
<CAPTION>
ANNUALIZED
YIELD ON
DATE OF
MARKET VALUE
FACE VALUE PURCHASE
(NOTE 1)
- - ------------------------------------------------------------------------------
- - --------------
<C> <S> <C>
<C>
U.S. GOVERNMENT AND AGENCY DISCOUNT NOTES (CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) (CONTINUED)
$ 25,000,000 6/3/1994 3.360%
$ 24,855,469
30,000,000 6/6/1994 3.360
29,818,325
15,000,000 6/6/1994 3.370
14,909,163
20,000,000 6/16/1994 3.360
19,860,666
20,000,000 6/23/1994 3.270
19,843,053
6,500,000 6/23/1994 3.330
6,448,992
15,000,000 6/23/1994 3.790
14,882,289
15,000,000 6/24/1994 3.790
14,868,750
8,510,000 6/27/1994 3.290
8,443,984
15,000,000 6/30/1994 3.280
14,879,999
60,000,000 7/11/1994 3.390
59,419,608
20,000,000 7/11/1994 3.790
19,806,536
10,000,000 7/12/1994 3.380
9,906,003
10,000,000 7/12/1994 3.390
9,906,003
15,000,000 7/15/1994 3.400
14,854,750
15,000,000 7/18/1994 3.480
14,838,000
20,000,000 7/18/1994 3.810
19,784,000
25,000,000 7/21/1994 3.850
24,707,083
25,000,000 7/25/1994 3.840
24,697,326
25,000,000 8/3/1994 3.860
24,671,917
15,000,000 8/4/1994 3.870
14,798,704
45,000,000 8/4/1994 3.940
44,396,113
25,000,000 8/18/1994 3.300
24,690,146
15,000,000 8/19/1994 3.430
14,801,387
60,000,000 8/19/1994 3.510
59,205,546
20,000,000 8/22/1994 3.510
19,728,300
15,000,000 8/25/1994 3.910
14,766,404
15,000,000 8/30/1994 3.300
14,798,038
15,000,000 8/31/1994 3.300
14,796,700
10,000,000 9/19/1994 3.430
9,838,679
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - --------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MARCH
31, 1994
<CAPTION>
ANNUALIZED
YIELD ON
DATE OF
MARKET VALUE
FACE VALUE PURCHASE
(NOTE 1)
- - ------------------------------------------------------------------------------
- - --------------
<C> <S> <C>
<C>
U.S. GOVERNMENT AND AGENCY DISCOUNT NOTES (CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) (CONTINUED)
$ 9,850,000 9/19/1994 3.480%
$ 9,691,099
30,000,000 9/19/1994 3.500
29,516,037
10,000,000 9/22/1994 3.490
9,835,666
15,000,000 9/27/1994 3.510
14,744,925
7,710,000 9/30/1994 3.450
7,579,033
15,000,000 10/5/1994 3.550
14,730,408
20,000,000 10/13/1994 3.550
19,626,250
15,000,000 10/14/1994 3.540
14,719,066
20,000,000 10/17/1994 3.540
19,619,689
20,000,000 10/18/1994 3.550
19,616,667
5,000,000 10/19/1994 3.550
4,903,688
15,000,000 10/21/1994 3.550
14,708,188
40,000,000 11/25/1994 3.410
39,124,689
30,000,000 1/3/1995 3.540
29,210,550
STUDENT LOAN MARKETING ASSOCIATION (SLMA)
10,000,000 6/2/1994 3.550
9,939,378
5,170,000 6/30/1994 3.600
5,123,987
- - ------------------------------------------------------------------------------
- - --------------
TOTAL U.S. GOVERNMENT AND AGENCY DISCOUNT NOTES
(Cost $2,026,627,960)
2,026,627,960
- - ------------------------------------------------------------------------------
- - --------------
FLOATING RATE NOTES - 9.3%
STUDENT LOAN MARKETING ASSOCIATION (SLMA)
50,050,000 4/5/1994 3.770
50,050,000
37,500,000 4/5/1994 3.880
37,519,026
40,000,000 4/5/1994 3.930
40,000,000
55,000,000 4/5/1994 3.930
55,188,660
26,105,000 4/5/1994 3.980
26,163,248
80,000,000 4/5/1994 4.005%
79,978,272
- - ------------------------------------------------------------------------------
- - --------------
TOTAL FLOATING RATE NOTES (Cost $288,899,206)
288,899,206
- - ------------------------------------------------------------------------------
- - --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - --------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MARCH
31, 1994
<CAPTION>
ANNUALIZED
YIELD ON
DATE OF
MARKET VALUE
FACE VALUE PURCHASE
(NOTE 1)
- - ------------------------------------------------------------------------------
- - --------------
<C> <S> <C>
<C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 3.7%
FFCB
$ 30,000,000 10/3/1994 3.430
$ 29,997,635
10,000,000 12/1/1994 3.600
10,000,000
FNMA
35,000,000 6/30/1994 3.510
34,997,965
SLMA
40,000,000 6/30/1994 3.690
39,991,094
- - ------------------------------------------------------------------------------
- - --------------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (Cost $114,986,694)
114,986,694
- - ------------------------------------------------------------------------------
- - --------------
% U.S. GOVERNMENT AND AGENCY MEDIUM-TERM NOTE - 1.0
TENNESSEE VALLEY AUTHORITY (TVA) (Cost $30,000,000)
30,000,000 8/17/1994 3.540
30,000,000
- - ------------------------------------------------------------------------------
- - --------------
INTEREST
RATE
- - ------------------------------------------------------------------------------
- - --------------
REPURCHASE AGREEMENTS - 21.9%
150,000,000 Agreement with Prudential Securities, dated
3/28/1994 due 4/4/1994, to be repurchased at
$150,107,917 collateralized by
FHLMC:
$25,850,000; 7.000% due 10/15/2022
$14,475,000; 7.500% due 4/15/2023
$19,950,000; 4.960% due 10/15/2023
FNMA:
$33,643,333; 4.080% due 12/25/2008
$39,530,000; 7.500% due 5/25/2022
$25,000,000; 6.750% due 3/25/2023 3.700
150,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - --------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MARCH
31, 1994
<CAPTION>
INTEREST
MARKET VALUE
FACE VALUE RATE
(NOTE 1)
- - ------------------------------------------------------------------------------
- - --------------
<C> <S> <C>
<C>
REPURCHASE AGREEMENTS (CONTINUED)
$ 50,000,000 Agreement with Bear Stearns & Company, dated
3/29/1994 due 4/5/1994, to be repurchased at
$50,036,458 collateralized by
FHMLC:
$75,788,609; 2.240% due 11/15/2023 3.750%
$ 50,000,000
130,000,000 Agreement with Credit Lyonnais, dated 3/31/1994
due 4/4/1994, to be repurchased at
$130,052,361 collateralized by
U.S. Treasury Note:
$50,000,000; 4.125% due 5/31/1995
$50,000,000; 3.875% due 8/31/1995
$24,930,000; 4.375% due 11/15/1996
U.S. Treasury Bond:
$7,515,000; 7.625% due 11/15/2022 3.625
130,000,000
152,200,000 Agreement with Kidder, Peabody & Company, dated
3/31/1994 due 4/4/1994, to be repurchased at
$152,264,262 collateralized by
FHLMC:
$2,180,000; 4.775% due 10/15/2023
$154,405,000; 4.200% due 1/15/2024 3.800
152,200,000
100,000,000 Agreement with Greenwich Capital Markets, dated
3/31/1994 due 4/4/1994, to be repurchased at
$100,041,111 collateralized by
FNMA:
$105,740,000; 5.000% due 1/25/2007 3.700
100,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - --------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MARCH
31, 1994
<CAPTION>
INTEREST
MARKET VALUE
FACE VALUE RATE
(NOTE 1)
- - ------------------------------------------------------------------------------
- - --------------
<C> <S> <C>
<C>
REPURCHASE AGREEMENTS (CONTINUED)
$100,000,000 Agreement with Bear Stearns & Company, dated
3/31/1994 due 4/07/1994, to be repurchased at
$100,072,917 collateralized by
FHLMC:
$37,500,000; 6.000% due 3/15/2001
$68,766,660; 7.500% due 1/15/2024 3.750%
$ 100,000,000
- - ------------------------------------------------------------------------------
- - --------------
TOTAL REPURCHASE AGREEMENTS (Cost $682,200,000)
682,200,000
- - ------------------------------------------------------------------------------
- - --------------
TOTAL INVESTMENTS (Cost $3,142,713,860*) 100.8%
3,142,713,860
OTHER ASSETS AND LIABILITIES (NET) (0.8)
(21,957,387)
- - ------------------------------------------------------------------------------
- - --------------
NET ASSETS 100.0%
$3,120,756,473
- - ------------------------------------------------------------------------------
- - --------------
<FN>
* Aggregate cost for Federal tax purposes.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - ------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) MARCH
31, 1994
<S> <C>
<C>
ASSETS:
Investments, at value (Cost $3,142,713,860) (Note 1)
See accompanying schedule:
U.S. government and agencies obligations $2,460,513,860
Repurchase agreements 682,200,000
$3,142,713,860
--------------
Cash
821
Receivable for Fund shares sold
38,939,255
Interest receivable
2,793,514
- - ------------------------------------------------------------------------------
- - ------------
TOTAL ASSETS
3,184,447,450
- - ------------------------------------------------------------------------------
- - ------------
LIABILITIES:
Payable for Fund shares redeemed $ 57,299,244
Dividends payable 4,538,343
Investment advisory fee payable (Note 2) 817,434
Administration fee payable (Note 2) 544,956
Transfer agent fees payable (Note 2) 315,000
Custodian fees payable (Note 2) 56,000
Accrued expenses and other payables 120,000
- - ------------------------------------------------------------------------------
- - ------------
TOTAL LIABILITIES
63,690,977
- - ------------------------------------------------------------------------------
- - ------------
NET ASSETS
$3,120,756,473
- - ------------------------------------------------------------------------------
- - ------------
NET ASSETS CONSIST OF:
Accumulated net realized loss on investments sold $
(9,589)
Par value
31,207,494
Paid-in capital in excess of par value
3,089,558,568
- - ------------------------------------------------------------------------------
- - ------------
TOTAL NET ASSETS
$3,120,756,473
- - ------------------------------------------------------------------------------
- - ------------
NET ASSET VALUE, offering price and redemption price per
share
($3,120,756,473 / 3,120,749,417 shares of common stock outstanding)
$1.00
- - ------------------------------------------------------------------------------
- - ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - ------------
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED MARCH 31,
1994
<S> <C>
<C>
INVESTMENT INCOME:
Interest
$54,763,548
- - ------------------------------------------------------------------------------
- - ------------
EXPENSES:
Investment advisory fee (Note 2) $4,842,814
Administration fee (Note 2) 3,228,543
Transfer agent fees (Note 2) 1,900,948
Custodian fees (Note 2) 180,355
Legal and audit fees 38,111
Directors' fees and expenses (Note 2) 22,908
Other 445,212
- - ------------------------------------------------------------------------------
- - ------------
TOTAL EXPENSES
10,658,891
- - ------------------------------------------------------------------------------
- - ------------
NET INVESTMENT INCOME
44,104,657
- - ------------------------------------------------------------------------------
- - ------------
NET REALIZED LOSS ON INVESTMENTS SOLD
(118,812)
- - ------------------------------------------------------------------------------
- - ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$43,985,845
- - ------------------------------------------------------------------------------
- - ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - ------------
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
YEAR
ENDED 3/31/94
ENDED
(UNAUDITED)
9/30/93
<S> <C>
<C>
Net investment income $ 44,104,657 $
101,170,470
Net realized gain/(loss) on investments sold (118,812)
74,372
- - ------------------------------------------------------------------------------
- - ------------
Net increase in net assets resulting from operations 43,985,845
101,244,842
Distributions to shareholders from net investment
income (44,104,657)
(101,170,470)
Net decrease in net assets from Fund share
transactions (Note 3) (341,424,108)
(352,818,097)
- - ------------------------------------------------------------------------------
- - ------------
Net decrease in net assets (341,542,920)
(352,743,725)
NET ASSETS:
Beginning of period 3,462,299,393
3,815,043,118
- - ------------------------------------------------------------------------------
- - ------------
End of period $3,120,756,473
$3,462,299,393
- - ------------------------------------------------------------------------------
- - ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - ---------------
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR
YEAR
3/31/94 ENDED ENDED ENDED
ENDED
(UNAUDITED) 9/30/93 9/30/92 9/30/91
9/30/90
<S> <C> <C> <C> <C>
<C>
Net asset value, beginning
of period $1.00 $1.00 $1.00
$1.00 $1.00
- - ------------------------------------------------------------------------------
- - ---------------
Income from investment
operations:
Net investment income 0.0136 0.0273 0.0397
0.0614 0.0752
- - ------------------------------------------------------------------------------
- - ---------------
Less Distributions:
Distributions from net
investment income (0.0136 ) (0.0273) (0.0397)
(0.0614) (0.0752)
- - ------------------------------------------------------------------------------
- - ---------------
Net asset value, end of
period $1.00 $1.00 $1.00
$1.00 $1.00
- - ------------------------------------------------------------------------------
- - ---------------
Total return++ 1.37% 2.74% 4.04%
6.32% 7.78%
- - ------------------------------------------------------------------------------
- - ---------------
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $3,120,756 $3,462,299 $3,815,043
$3,758,489 $3,043,025
Ratio of net investment
income to
average net assets 2.73% + 2.73% 3.96%
6.11% 7.53%
Ratio of operating expenses
to
average net assets 0.66% + 0.64% 0.65%
0.66% 0.70%
- - ------------------------------------------------------------------------------
- - ---------------
<FN>
+ Annualized.
++ Total return represents aggregate return for the periods indicated.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
<TABLE>
- - ------------------------------------------------------------------------------
- - ------------------
FINANCIAL HIGHLIGHTS (continued)
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
YEAR YEAR YEAR YEAR
YEAR YEAR
ENDED ENDED ENDED ENDED
ENDED ENDED
9/30/89 9/30/88 9/30/87 9/30/86
9/30/85 9/30/84
<S> <C> <C> <C> <C> <C>
<C>
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00
$1.00 $1.00
- - ------------------------------------------------------------------------------
- - ------------------
Income from investment
operations:
Net investment income 0.0809 0.0656 0.0567 0.0673
0.0816 0.0937
- - ------------------------------------------------------------------------------
- - ------------------
Less Distributions:
Distributions from net
investment income (0.0809) (0.0656) (0.0567) (0.0673)
(0.0816) (0.0937)
- - ------------------------------------------------------------------------------
- - ------------------
Net asset value, end
of period $1.00 $1.00 $1.00 $1.00
$1.00 $1.00
- - ------------------------------------------------------------------------------
- - ------------------
Total return++ 8.40% 6.76% 5.82% 6.94%
8.47% 9.78%
- - ------------------------------------------------------------------------------
- - ------------------
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $3,062,098 $2,004,172 $1,789,738 $1,803,106
$1,548,426 $904,222
Ratio of net
investment income to
average
net assets 8.16% 6.59% 5.66% 6.74%
8.17% 9.46%
Ratio of operating
expenses to
average net assets 0.78% 0.61% 0.63% 0.62%
0.61% 0.63%
- - ------------------------------------------------------------------------------
- - ------------------
<FN>
++ Total return represents aggregate return for the periods indicated.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
- - ------------------------------------------------------------------------------
- - --
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Government and Agencies Fund Inc. (the "Fund"), was
incorporated under the laws of the State of Maryland on March 18, 1980. The
Fund
is a no-load, diversified, open-end management investment company registered
with the Securities and Exchange Commission under the Investment Company Act
of
1940, as amended. The following is a summary of significant accounting
policies
consistently followed by the Fund in the preparation of its financial
statements.
Portfolio valuation: Securities are valued at amortized cost. Amortized cost
involves valuing an instrument at its cost initially and, thereafter, assuming
a
constant amortization to maturity of any discount or premium, regardless of
the
impact of fluctuating interest rates on the market value of the instrument.
Securities transactions and investment income: Securities transactions are
recorded as of the trade date. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Interest income is
recorded on the accrual basis.
Dividends and distributions to shareholders: It is the policy of the Fund to
declare dividends from net investment income on each day that the Fund is open
for business and to pay such dividends on the second Friday of the calendar
month. Distributions, if any, from net realized capital gains are declared and
paid annually, after the close of the fiscal year in which earned, or more
frequently to maintain the net asset value of $1.00 per share. In addition, in
order to avoid the application of a 4% nondeductible excise tax on certain
undistributed amounts of ordinary income and capital gains, the Fund may make
an
additional distribution shortly before December 31 of each year of any
undistributed ordinary income or capital gains and expects to make any other
distributions as are necessary to avoid this tax.
Repurchase agreements: The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund
takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase and the Fund to resell the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding
period.
This arrangement results in a fixed rate of return that is not subject to
market
fluctuations during the Fund's holding period. The value of the collateral is
at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the
right
to use the collateral to offset losses incurred. There is potential loss to
the
Fund in the event the Fund is delayed or
15
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
- - ------------------------------------------------------------------------------
- - --
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the Fund seeks to assert its rights. The
Fund's investment adviser or administrator, acting under the supervision of
the
Board of Directors, reviews the value of the collateral and the
creditworthiness
of those banks and dealers with which the Fund enters into repurchase
agreements
to evaluate potential risks.
Federal income taxes: It is the policy of the Fund to qualify as a regulated
investment company, if such qualification is in the best interests of its
shareholders, by complying with the requirements of the Internal Revenue Code
applicable to regulated investment companies and by distributing substantially
all of its earnings to its shareholders. Therefore, no Federal income tax
provision is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, a division of Mutual Management
Corp., which is controlled by Smith Barney Shearson Holdings Inc.
("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. Under the Advisory
Agreement, the Fund pays a monthly fee at the annual rate of .30% of the value
of its average daily net assets.
The Fund has also entered into an administration agreement (the
"Administration
Agreement") with The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Under
the Administration Agreement, the Fund pays a monthly fee at the annual rate
of
.20% of the value of its average daily net assets.
No officer, director or employee of Smith Barney Shearson Inc. ("Smith Barney
Shearson"), Boston Advisors or of any parent, subsidiary or affiliate of those
corporations receives any compensation from the Fund for serving as Director
or
officer of the Fund. The Fund pays each Director who is not an officer,
director, or employee of Smith Barney Shearson, Boston Advisors or any of
their
affiliates $4,000 per annum plus $500 per meeting attended and reimburses each
such Director for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Fund's custodian. The Shareholder Services Group, Inc.,
a
subsidiary of First Data Corporation, serves as the Fund's transfer agent.
16
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
- - ------------------------------------------------------------------------------
- - --
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
<TABLE>
3. COMMON STOCK
At March 31, 1994, ten billion shares of $.01 par value common stock were
authorized. Because the Fund has sold shares, issued reinvestments of
dividends
and redeemed shares only at a constant net asset value of $1.00 per share, the
number of shares represented by such sales, reinvestments and redemptions is
the
same as the amounts shown below for such transactions.
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
3/31/94
9/30/93
- - ------------------------------------------------------------------------------
- - ------------
<S> <C> <C>
Sold $ 5,559,188,887 $
13,105,477,823
Issued as reinvestment of dividends 42,872,946
99,602,620
Redeemed (5,943,485,941)
(13,557,898,540)
- - ------------------------------------------------------------------------------
- - ------------
Net decrease $ (341,424,108) $
(352,818,097)
- - ------------------------------------------------------------------------------
- - ------------
</TABLE>
4. SUBSEQUENT EVENT
On April 20, 1994, the Fund's Board of Directors approved a new administration
agreement with Smith, Barney Advisers, Inc. ("Smith Barney Advisers")
containing
substantially the same terms and conditions, including the level of fees, as
the
current agreement. The Board also approved a sub-administration agreement with
Boston Advisors. Under the proposed arrangements, Boston Advisors would be
paid
a portion of the amount paid by the Fund to Smith Barney Advisers at a rate
agreed upon from time to time between Smith Barney Advisers and Boston
Advisors.
17
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
- - ------------------------------------------------------------------------------
- - --
PARTICIPANTS
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10105
SUB-ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services
Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
18
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
- - ------------------------------------------------------------------------------
- - --
INVESTOR BENEFITS
MONTHLY DISTRIBUTIONS
It's your fund's policy to distribute dividend income monthly.
AUTOMATIC REINVESTMENT
You may reinvest your dividends and/or capital gains automatically in
additional
shares of your fund at the current net asset value.
UNLIMITED EXCHANGES
If your investment goals change, you may exchange into another Smith Barney
Shearson mutual fund with the same sales charge structure without incurring a
sales charge.*
MUTUAL FUND
EVALUATION SERVICE
Through your Financial Consultant, you may obtain a free personalized analysis
of how your fund has performed for you, taking into account the effect of
every
transaction. The analysis is based upon month-end data from CDA Investment
Technologies, Inc., a widely recognized mutual fund information service. An
evaluation also gives you other important facts and figures about your
investment.
For more information about these benefits, or if you have any other questions,
please call your Financial Consultant or write:
MUTUAL FUND POLICY GROUP
SMITH BARNEY SHEARSON
388 GREENWICH STREET 37TH FLOOR
NEW YORK, NY 10013
*After written notification, exchange privilege may be modified or terminated
at
any time.
19
<PAGE>
Smith Barney Shearson
Government and Agencies Fund Inc.
- - ------------------------------------------------------------------------------
- - --
OUR APPROACH TO MUTUAL FUND INVESTING
1. PERSONAL SERVICE
The Smith Barney Shearson Financial Consultant ("FC") is highly trained and
deeply committed to client service. Your FC works with you to establish a
relationship based on one-to-one communication and the highest standards of
quality.
2. ANALYZING YOUR NEEDS
Defining your needs and establishing specific goals is the first step toward
any
successful investment program. The Smith Barney Shearson Strategic Asset
Allocator -- a sophisticated financial planning tool -- can help you and your
FC
evaluate your resources and objectives. This groundwork then becomes the basis
for a strategy designed specifically for you. Your FC can use the Strategic
Asset Allocator on a periodic basis to ensure that your investment strategy is
keeping pace with your changing needs and goals.
3. A UNIQUE MUTUAL FUND INVESTMENT PROGRAM
Your Smith Barney Shearson FC offers a number of mutual fund assessment tools
that are unmatched in the financial services industry. Smith Barney Shearson
FCs
have access to a proprietary mutual fund research database that provides
information at their fingertips on more than 2,100 funds. In addition, working
with another proprietary system known as the Mutual Fund Evaluation Service,
your FC can help guide you through the complex mutual fund maze. Specifically,
the Evaluation Service can provide a clear picture of the past performance of
mutual funds you currently own. Presented in both graphic and numerical form,
this illustration provides a wealth of easily understood data on more than
2,100
funds. This complimentary service allows you to judge whether your mutual fund
has helped meet your investment needs.
4. LOOKING AHEAD
Selecting a mutual fund should not be a one-event process that ends with the
purchase of shares. You can count on the expertise of your FC as he or she
continues to monitor and evaluate your funds, to suggest new strategies and to
listen. That, in our opinion, is how to use mutual funds to help achieve your
financial goals.
20
<PAGE>
GOVERNMENT
AND AGENCIES
FUND INC.
DIRECTORS
Martin Brody
Dwight B. Crane
James J. Crisona
Robert A. Frankel
Dr. Paul Hardin
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon
OFFICERS
Heath B. McLendon
Chairman of the Board and
Investment Officer
Stephen J. Treadway
President
Richard P. Roelofs
Executive Vice President
Phyllis M. Zahorodny
Vice President and
Investment Officer
Evelyn R. Robertson
Investment Officer
Lewis E. Daidone
Treasurer
Christina T. Sydor
Secretary
This report is submitted for the general information of the shareholders of
Smith Barney Shearson Government and Agencies Fund Inc. It is not authorized
for distribution to prospective investors unless accopanied or preceded by an
effective Prospectus of the Fund, which contains information concerning the
Fund's investment policies and expenses as well as other pertinent
information.
SMITH BARNEY SHEARSON
- - ---------------------
SMITH BARNEY SHEARSON
MUTUAL FUNDS
Two World Trade Center
New York, New York 10048
Fund 2
FD0281 E4
SEMI-
ANNUAL
REPORT
