<PAGE>
[PHOTO]
Smith Barney
Managed
Governments
Fund Inc.
[GRAPHIC] ------------------
SEMI-ANNUAL REPORT
------------------
January 31, 1999
Smith Barney Mutual Funds
[LOGO] Investing for your future
Every day(R).
<PAGE>
Smith Barney Managed
Governments Fund Inc.
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The Smith Barney Managed Governments Fund ("Fund") seeks high current income
consistent with liquidity and safety of capital. The Fund invests primarily in
the debt obligations of varying maturities issued or guaranteed by the U.S.
government or its agencies or instrumentalities, with an emphasis on
mortgage-backed government securities.
Smith Barney Managed Governments Fund Inc.
Average Annual Total Returns
January 31, 1999
Without Sales Charges(1)
-------------------------------------------------
Class A Class B Class L
================================================================================
Six Month++ 3.05% 2.80% 2.85%
- --------------------------------------------------------------------------------
One-Year 4.81 4.37 4.39
- --------------------------------------------------------------------------------
Five-Year 5.90 5.34 5.38
- --------------------------------------------------------------------------------
Ten-Year 8.10 N/A N/A
- --------------------------------------------------------------------------------
Since Inception+ 8.69 6.16 5.37
================================================================================
With Sales Charges(2)
-------------------------------------------------
Class A Class B Class L
================================================================================
Six Month++ (1.58)% (1.70)% (0.82)%
- --------------------------------------------------------------------------------
One-Year 0.08 (0.07) 2.37
- --------------------------------------------------------------------------------
Five-Year 4.93 5.18 5.18
- --------------------------------------------------------------------------------
Ten-Year 7.60 N/A N/A
- --------------------------------------------------------------------------------
Since Inception+ 8.34 6.16 5.18
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 4.50% and 1.00%,
respectively; and Class B shares reflect the deduction of a 4.50% CDSC,
which applies if shares are redeemed within one year from purchase. This
CDSC declines by 0.50% the first year after purchase and thereafter by
1.00% per year until no CDSC is incurred. Class L shares also reflect the
deduction of a 1.00% CDSC which applies if shares are redeemed within the
first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Inception dates for Class A, B and L shares are September 4, 1984,
November 6, 1992 and June 29, 1993, respectively.
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FUND HIGHLIGHT
- --------------------------------------------------------------------------------
The Managed Government Fund's Class A shares without sales charges posted a
total return of 3.05% for the six months ended January 31, 1999. The Fund's
performance was roughly in line with the average total return of 3.17% for the
same period for U.S. mortgage funds according to Lipper Inc. (Lipper is an
independent fund-tracking organization.) In addition, the Fund distributed
income dividends totaling $0.38 per Class A share during the past six months.
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NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A SHMGX
Class B MGVBX
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WHAT'S INSIDE
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Shareholder Letter ..........................................................1
Historical Performance.......................................................3
Smith Barney Managed Governments
Fund Inc. at a Glance........................................................5
Schedule of Investments......................................................6
Statement of Assets and Liabilities..........................................7
Statement of Operations......................................................8
Statements of Changes in Net Assets..........................................9
Notes to Financial Statements...............................................10
Financial Highlights........................................................15
<PAGE>
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Shareholder Letter
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[PHOTO] [PHOTO]
HEATH B. JAMES E.
MCLENDON CONROY
Chairman Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for Smith Barney Managed
Governments Fund Inc. ("Fund") for the period ended January 31, 1999. In this
report, we summarize the period's prevailing economic and market conditions and
briefly outline our portfolio strategy. A detailed summary of performance and
current holdings can be found in the appropriate sections that follow. We hope
you find this report to be useful and informative.
A Style Pure Fund
The Smith Barney Managed Governments Fund is a Style Pure Series Fund. Style
Pure Series mutual funds are Smith Barney Mutual Funds that are the basic
building blocks of asset allocation. Other than maintaining minimal cash, or
under extraordinary market conditions, each Style Pure Series Fund is totally
invested 100% of the time within its designated asset classes and its designated
investment style.
Performance Update
The Managed Government Fund's Class A shares without sales charges posted a
total return of 3.05% for the six months ended January 31, 1999. The Fund's
performance was roughly in line with the average total return of 3.17% for the
same period for U.S. mortgage funds according to Lipper Inc. (Lipper is an
independent fund-tracking organization.) In addition, the Fund distributed
income dividends totaling $0.38 per Class A share during the past six months.
For performance information on the Fund's other share classes, please turn to
page three.
Market Update and Outlook
The key events during 1998 and so far in 1999 were predominantly mergers and
acquisitions, the ongoing overseas economic crisis, and the resiliency of the
U.S. economy and financial markets. The broad range in interest rates and the
associated higher market volatility reflected those conditions. Interest rates
reached historical lows in October 1998, precipitated by the first Federal
Reserve Board ("Fed") interest-rate cut since 1996. While further cuts ensued,
concerns surrounding hedge fund losses took center stage, prompting spreads
between corporate bonds and mortgage-backed securities to widen versus U.S.
Treasuries. Compounding the problem was considerable corporate financing as we
headed toward the end of the year. Corporate debt issuance for 1998 on a net
basis was more than the prior two years combined.
We believe that the dominant issues in 1999 will be the advent of the euro, the
prospects for economic recovery throughout Asia and other less developed
countries, the future sustainability of U.S. economic growth and the ongoing
resiliency of U.S. financial markets.
The euro introduces a new variable to macroeconomic analysis that has not been
faced since the demise of the Soviet empire and the advent of true global
competition. Opportunities should abound in the financial markets as corporate
financing expands in creative new ways. However, the implications for the U.S.
dollar as the world's premier currency has now been brought into question by the
euro's introduction.
The economic picture throughout Asia and Russia remains critically unclear.
Rising employment, the need to dump finished goods in the face of uncertain
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 1
<PAGE>
currencies and fiscal policies that are slow to change and less than dramatic,
do not bode well for the financial markets of less developed countries.
In our view, the U.S. economy and the financial markets will continue to soul
search as to prospects for continued good fortune. The positives include such
variables as low unemployment, strong productivity and the dramatic increase in
defined contribution plans (i.e., 401(k) plans) and estate planning as key
market influences. However, historically low savings (the traditional standard)
being redefined as the "wealth effect" as measured by investment growth remains
an ever-present shadow that can change with the ups and downs of the financial
markets.
Technical trends that have supported a decline in interest rates since 1981
remain fully intact. Minor disruptions may keep rates in a range of between
4.90% and 5.40% during the first quarter of 1999. However, we believe the more
dominant longer-term force should be for rates to head toward the 4.50% level.
We have positioned the Fund in the coming year to benefit from these expected
lower interest rates.
In closing, thank you for investing in the Smith Barney Managed Governments
Fund. We encourage you to visit our Web site at www.smithbarney.com. We look
forward to continuing to help you pursue your financial goals in the years to
come.
Sincerely,
/s/ Heath B. McLendon /s/ James E. Conroy
Heath B. McClendon James E. Conroy
Chairman Vice President and
Investment Officer
March 1, 1999
- --------------------------------------------------------------------------------
Some Key Global Events During the Fund's Reporting Period
1998
- ----
8/17 Hong Kong intervenes in its stock and futures market
8/27 Russian central bank says it will stop supporting ruble
9/01 The Dow Jones Industrial Average declines to 7539, wiping out 1998
gains
9/28 Helmut Kohl loses German national elections
9/30 The Federal Reserve Board cuts rates for first time since January
1996. (Two cuts ensue.)
10/01 Bond rates fall below 5%
10/27 Global financier George Soros says he will close his emerging market
hedge fund
11/04 Democrats fare better than expected in mid-term elections
11/13 Brazil receives major financial bailout package
12/17 Joint military strike between U.S. and Britain begins against
defiant Iraq
12/19 President William Jefferson Clinton becomes only the second U.S.
President to be impeached by the House of Representatives
1999
- ----
1/01 Introduction of the euro
(source: The Wall Street Journal)
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- --------------------------------------------------------------------------------
2 1999 Semi-Annual Report to Shareholders
<PAGE>
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Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1/31/99 $12.73 $12.74 $0.38 $0.00 $0.00 3.05%+
- -------------------------------------------------------------------------------------------------------------
7/31/98 12.84 12.73 0.80 0.00 0.00 5.51
- -------------------------------------------------------------------------------------------------------------
7/31/97 12.27 12.84 0.82 0.00 0.00 11.80
- -------------------------------------------------------------------------------------------------------------
7/31/96 12.63 12.27 0.82 0.00 0.01 3.76
- -------------------------------------------------------------------------------------------------------------
7/31/95 12.50 12.63 0.74 0.00 0.04 7.67
- -------------------------------------------------------------------------------------------------------------
7/31/94 13.29 12.50 0.61 0.00 0.19 0.08
- -------------------------------------------------------------------------------------------------------------
7/31/93 12.88 13.29 0.66 0.23 0.00 10.43
- -------------------------------------------------------------------------------------------------------------
7/31/92 12.09 12.88 0.91 0.00 0.08 15.25
- -------------------------------------------------------------------------------------------------------------
7/31/91 12.13 12.09 0.98 0.00 0.11 9.02
- -------------------------------------------------------------------------------------------------------------
7/31/90 12.19 12.13 1.07 0.00 0.03 9.01
- -------------------------------------------------------------------------------------------------------------
7/31/89 12.04 12.19 0.96 0.00 0.11 10.62
=============================================================================================================
Total $8.75 $0.23 $0.57
=============================================================================================================
</TABLE>
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Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1/31/99 $12.73 $12.74 $0.34 $0.00 $0.00 2.80%+
- -------------------------------------------------------------------------------------------------------------
7/31/98 12.84 12.73 0.73 0.00 0.00 4.99
- -------------------------------------------------------------------------------------------------------------
7/31/97 12.27 12.84 0.76 0.00 0.00 11.23
- -------------------------------------------------------------------------------------------------------------
7/31/96 12.63 12.27 0.76 0.00 0.01 3.24
- -------------------------------------------------------------------------------------------------------------
7/31/95 12.50 12.63 0.67 0.00 0.04 7.04
- -------------------------------------------------------------------------------------------------------------
7/31/94 13.29 12.50 0.56 0.00 0.17 (0.46)
- -------------------------------------------------------------------------------------------------------------
Inception*-- 7/31/93 12.64 13.29 0.41 0.16 0.00 9.92+
=============================================================================================================
Total $4.23 $0.16 $0.22
=============================================================================================================
</TABLE>
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Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1/31/99 $12.73 $12.74 $0.35 $0.00 $0.00 2.85%+
- -------------------------------------------------------------------------------------------------------------
7/31/98 12.84 12.73 0.74 0.00 0.00 5.07
- -------------------------------------------------------------------------------------------------------------
7/31/97 12.27 12.84 0.76 0.00 0.00 11.26
- -------------------------------------------------------------------------------------------------------------
7/31/96 12.63 12.27 0.76 0.00 0.01 3.25
- -------------------------------------------------------------------------------------------------------------
7/31/95 12.50 12.63 0.67 0.00 0.04 7.04
- -------------------------------------------------------------------------------------------------------------
7/31/94 13.29 12.50 0.56 0.00 0.17 (0.46)
- -------------------------------------------------------------------------------------------------------------
Inception*-- 7/31/93 13.18 13.29 0.03 0.02 0.00 1.25+
=============================================================================================================
Total $3.87 $0.02 $0.22
=============================================================================================================
</TABLE>
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Smith Barney Managed Governments Fund Inc. 3
<PAGE>
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Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1/31/99 $12.74 $12.75 $0.40 $0.00 $0.00 3.22%+
- -------------------------------------------------------------------------------------------------------------
7/31/98 12.84 12.74 0.84 0.00 0.00 5.94
- -------------------------------------------------------------------------------------------------------------
7/31/97 12.27 12.84 0.86 0.00 0.00 12.16
- -------------------------------------------------------------------------------------------------------------
Inception*-- 7/31/96 12.86 12.27 0.44 0.00 0.01 (1.10)+
=============================================================================================================
Total $2.54 $0.00 $0.01
=============================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
--------------------------------------------
Class A Class B Class L Class Y
================================================================================
Six Months Ended 1/31/99+ 3.05% 2.80% 2.85% 3.22%
- --------------------------------------------------------------------------------
Year Ended 1/31/99 4.81 4.37 4.39 5.23
- --------------------------------------------------------------------------------
Five Years Ended 1/31/99 5.90 5.34 5.38 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/99 8.10 N/A N/A N/A
- --------------------------------------------------------------------------------
Inception* through 1/31/99 8.69 6.16 5.37 6.69
================================================================================
With Sales Charge(2)
--------------------------------------------
Class A Class B Class L Class Y
================================================================================
Six Months Ended 1/31/99+ (1.58)% (1.70)% (0.82)% 3.22%
- --------------------------------------------------------------------------------
Year Ended 1/31/99 0.08 (0.07) 2.37 5.23
- --------------------------------------------------------------------------------
Five Years Ended 1/31/99 4.93 5.18 5.18 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/99 7.60 N/A N/A N/A
- --------------------------------------------------------------------------------
Inception* through 1/31/99 8.34 6.16 5.18 6.69
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (1/31/89 through 1/31/99) 117.84%
- --------------------------------------------------------------------------------
Class A (Inception* through 1/31/99) 232.39
- --------------------------------------------------------------------------------
Class B (Inception* through 1/31/99) 45.16
- --------------------------------------------------------------------------------
Class L (Inception* through 1/31/99) 33.97
- --------------------------------------------------------------------------------
Class Y (Inception* through 1/31/99) 21.30
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum sales charge of 4.50% and 1.00%, respectively;
and Class B shares reflect the deduction of a 4.50% CDSC, which applies if
shares are redeemed within one year from purchase. This CDSC declines by
0.50% the first year after purchase and thereafter by 1.00% per year until
no CDSC is incurred. Class L shares also reflect the deduction of a 1.00%
CDSC, which applies if shares are redeemed within the first year of
purchase.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B, L and Y shares are September 4, 1984,
November 6, 1992, June 29, 1993 and February 7, 1996, respectively.
- --------------------------------------------------------------------------------
4 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. at a Glance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of the Smith Barney Managed
Governments Fund Inc. vs. Lehman Brothers Government Bond Index and Lipper
Mortgage Securities Average+
- --------------------------------------------------------------------------------
January 1989 -- January 1999
[GRAPHIC]
Smith Barney Lehman Brothers
Managed Governments Lipper Mortgage Government
Fund Inc. Securities Average Bond Index
Jan 1989 9,548 10,000 10,000
July 1989 10,114 10,805 11,010
July 1990 11,026 11,634 11,677
July 1991 12,020 12,853 12,849
July 1992 13,854 14,551 14,809
July 1993 15,298 15,784 16,408
July 1994 15,310 15,469 16,386
July 1995 16,485 16,822 19,249
July 1996 17,103 17,653 20,242
July 1997 19,128 19,428 22,302
July 1998 20,183 20,645 24,165
Jan 1999 20,799 21,299 25,588
+ Hypothetical illustration of $10,000 invested in Class A shares on January
31, 1989, assuming deduction of the maximum 4.50% sales charge at the time
of investment and reinvestment of dividends and capital gains, if any, at
net asset value through January 31, 1999. The Lehman Brothers Government
Bond Index is a broad-based index of all public debt obligations of the
U.S. government and its agencies and has an average maturity of
approximately nine years. The index is unmanaged and is not subject to the
same management and trading expenses as a mutual fund. The Lipper
Analytical Services, Inc. U.S. Mortgage Securities Bond Fund Average
("Lipper Mortgage Securities Average") is composed of the Fund's peer
group of mutual funds (71 funds as of January 31, 1999) investing in U.S.
mortgage-backed securities. Lipper Analytical Services, Inc. is a
widely-recognized mutual fund information service. The performance of the
Fund's other classes may be greater or less than the Class A shares'
performance indicated on this chart, depending on whether greater or
lesser sales charges and fees were incurred by shareholders investing in
other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
Investment Breakdown*
- --------------------------------------------------------------------------------
[GRAPHIC]
FHLMC and FNMA 54.8%
U.S. Treasury Strips 2.9%
GNMA 39.9%
Repurchase Agreement 2.4%
* As a percentage of total investments.
U.S. Treasury Securities are debt obligations of the United States Government.
They are secured by the full faith and credit of the Federal Government, and
include such instruments as Treasury bonds, notes and bills.
Mortgage-Backed Securities are debt securities issued by U.S. Government
Agencies such as the Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA) and Government National Mortgage
Association (GNMA). They represent thousands of individual home mortgages that
are pooled to form securities. As homeowners pay interest and principal each
month, these payments are passed on to investors. Mortgage-backed securities are
backed by the full faith and credit of the issuing agency.
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 5
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) January 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
========================================================================================================
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 97.6%
<S> <C> <C>
$ 27,750,000 U.S. Treasury Strip, zero coupon due 11/15/09 $ 15,948,758
132 Federal Home Loan Mortgage Corp., 7.500% due 11/1/09 138
13,544 Federal Home Loan Mortgage Corp., 14.750% due 3/1/10 16,070
1,621,871 Federal Home Loan Mortgage Corp., 7.000% due 7/1/10 1,661,900
23,263,847 Federal Home Loan Mortgage Corp., 6.500% due 8/1/13+ 23,678,176
4,154 Federal Home Loan Mortgage Corp., 8.000% due 8/1/17 4,357
1,186,716 Federal Home Loan Mortgage Corp., 7.000% due 6/1/28+ 1,213,785
438,102 Federal Home Loan Mortgage Corp., 6.000% due 8/1/28 433,992
202 Federal National Mortgage Association, 9.500% due 7/7/02+ 213
881,053 Federal National Mortgage Association, 6.000% due 9/1/13+ 884,904
129,083,562 Federal National Mortgage Association, 6.500% due 1/1/14+++ 131,301,217
192,392 Federal National Mortgage Association, 8.000% due 4/1/27+ 199,907
705,084 Federal National Mortgage Association, 6.000% due 10/1/28+ 697,589
84,865,708 Federal National Mortgage Association, 6.500% due 11/1/28+++ 85,660,899
50,000,000 Federal National Mortgage Association, 7.000% due 12/15/28* 51,109,000
32,000,000 Federal National Mortgage Association Principal Strip,
zero coupon due 10/9/19 9,745,600
1,324,515 Government National Mortgage Association I, 10.000% due 7/15/20+ 1,446,610
8,287,755 Government National Mortgage Association I, 9.000% due 7/15/26+ 8,847,179
45,261,643 Government National Mortgage Association I, 8.000% due 9/15/26+ 47,185,263
33,966,834 Government National Mortgage Association I, 7.500% due 12/15/27+++ 35,134,274
741,671 Government National Mortgage Association I, 7.000% due 5/15/28 760,672
38,943,520 Government National Mortgage Association I, 6.500% due 10/15/28+++ 39,417,852
60,000,000 Government National Mortgage Association I, 7.000% due 2/22/29* 61,500,000
26,392,789 Government National Mortgage Association I Platinum,
9.000% due 11/15/17 28,190,666
580,683 Government National Mortgage Association II, 10.000% due 10/20/16 628,403
- --------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost-- $542,179,294) 545,667,424
========================================================================================================
REPURCHASE AGREEMENT -- 2.4%
13,312,000 Morgan Stanley Dean Witter & Co., 4.700% due 2/1/99;
Proceeds at maturity -- $13,317,214; (Fully collateralized
by U.S. Treasury Notes, 5.375% to 7.875% due 7/15/99 to
8/15/27; Market Value-- $13,644,821) (Cost-- $13,312,000) 13,312,000
========================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $ 555,491,294**) $558,979,424
========================================================================================================
</TABLE>
+ Date shown represents the last in range of maturity dates for the mortgage
certificates only.
++ Security partially segregated by custodian for TBA's and futures
contracts.
* Security has been issued on a to-be-announced basis ("TBA") (See Note 9).
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) January 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost-- $555,491,294) $558,979,424
Cash 207,259
Receivable for securities sold 102,696,333
Interest receivable 2,526,082
Receivable for Fund shares sold 661,103
Receivable from broker - variation margin 56,250
- -------------------------------------------------------------------------------------------------------
Total Assets 665,126,451
- -------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 112,707,674
Dividends payable 2,698,351
Investment advisory fees payable 186,683
Administration fees payable 82,970
Distribution fees payable 16,099
Accrued expenses 139,856
- -------------------------------------------------------------------------------------------------------
Total Liabilities 115,831,633
- -------------------------------------------------------------------------------------------------------
Total Net Assets $549,294,818
=======================================================================================================
NET ASSETS:
Par value of capital shares $ 43,105
Capital paid in excess of par value 564,112,254
Overdistributed net investment income (3,917,602)
Accumulated net realized loss from security transactions and futures contracts (14,420,685)
Net unrealized appreciation of investments and futures contracts 3,477,746
- -------------------------------------------------------------------------------------------------------
Total Net Assets $549,294,818
=======================================================================================================
Shares Outstanding:
Class A 28,071,793
--------------------------------------------------------------------------------------------------
Class B 5,779,504
--------------------------------------------------------------------------------------------------
Class L 361,621
--------------------------------------------------------------------------------------------------
Class Y 8,892,144
--------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $12.74
--------------------------------------------------------------------------------------------------
Class B * $12.74
--------------------------------------------------------------------------------------------------
Class L ** $12.74
--------------------------------------------------------------------------------------------------
Class Y (and redemption price) $12.75
--------------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $13.34
--------------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $12.87
=======================================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if
shares are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if
shares are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 7
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended January 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $16,273,526
- --------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 1,228,285
Distribution fees (Note 2) 755,261
Administration fees (Note 2) 545,905
Shareholder and system servicing fees 164,847
Shareholder communication fees 52,654
Registration fees 44,878
Directors' fees 29,917
Audit and legal fees 26,925
Custody fees 12,465
Other 6,982
- --------------------------------------------------------------------------------------------------
Total Expenses 2,868,119
- --------------------------------------------------------------------------------------------------
Net Investment Income 13,405,407
- --------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FUTURES CONTRACTS (NOTES 3 AND 8):
Realized Gain From:
Security transactions (excluding short-term securities) 2,046,579
Futures contracts 76,789
- --------------------------------------------------------------------------------------------------
Net Realized Gain 2,123,368
- --------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and Futures Contracts:
Beginning of period 2,325,583
End of period 3,477,746
- --------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 1,152,163
- --------------------------------------------------------------------------------------------------
Net Gain On Investments and Futures Contracts 3,275,531
- --------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $16,680,938
==================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended January 31, 1999 (unaudited) and the Year Ended July
31, 1998
<TABLE>
<CAPTION>
1999 1998
======================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 13,405,407 $ 32,015,371
Net realized gain 2,123,368 30,990,214
Increase (decrease) in net unrealized appreciation 1,152,163 (33,901,741)
- ------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 16,680,938 29,103,844
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (16,006,480) (34,404,614)
- ------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (16,006,480) (34,404,614)
- ------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 102,711,957 263,002,004
Net asset value of shares issued for reinvestment of dividends 7,050,659 19,073,434
Cost of shares reacquired (102,728,654) (333,565,951)
- ------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions 7,033,962 (51,490,513)
- ------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 7,708,420 (56,791,283)
NET ASSETS:
Beginning of period 541,586,398 598,377,681
- ------------------------------------------------------------------------------------------------------
End of period* $549,294,818 $541,586,398
======================================================================================================
* Includes overdistributed net investment income of: $(3,917,602) $(1,316,529)
======================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 9
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Smith Barney Managed Governments Fund Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-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 traded on
national securities markets are valued at the closing price on such markets;
securities for which no sales price was reported and U.S. government agencies
and obligations are valued at bid price, or in the absence of a recent bid
price, at the bid equivalent obtained from one or more of the major market
makers; (c) securities for which market quotations are not available will be
valued in good faith at fair value by or under the direction of the Board of
Directors; (d) securities that have a maturity of more than 60 days are valued
at prices based on market quotations for securities of similar type, yield and
maturity; (e) securities maturing within 60 days are valued at cost plus
accreted discount, or minus amortized premium, which approximates value; (f)
interest income is recorded on an accrual basis; (g) gains or losses on the sale
of securities are calculated by using the specific identification method; (h)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (i) direct expenses are charged to each class; management fees and general
fund expenses are allocated on the basis of the relative net assets of each
class; (j) 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; (k) 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
July 31, 1998, 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. Accordingly, a portion of
overdistributed net investment income amounting to $1,086,464 was reclassified
to paid-in capital. Net investment income, net realized gains and net assets
were not affected by these changes; and (l) estimates and assumptions are
required to be made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), acts as investment
adviser to the Fund. The Fund pays SSBC an investment advisory fee calculated at
an annual rate of 0.45% of the average daily net assets up to $1 billion and
0.415% of the average daily net assets in excess of $1 billion. This fee is
calculated daily and paid monthly.
SSBC also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets up to $1
billion and 0.185% of the average daily net assets in excess of $1 billion. This
fee is calculated daily and paid monthly.
On October 8, 1998, CFBDS, Inc. became the Fund's distributor. Prior to that
date, Salomon Smith Barney Inc. ("SSB"), another subsidiary of SSBH, was the
Fund's distributor. SSB, as well as certain other broker-dealers, continues to
sell Fund shares to the public as members of the selling group.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B shares,
which applies if redemption occurs within one year from purchase.
- --------------------------------------------------------------------------------
10 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
This CDSC declines by 0.50% the first year after purchase and thereafter by
1.00% per year until no CDSC is incurred. Class L shares also have a 1.00% CDSC,
which applies if redemption occurs within the first year of purchase. Class A
shares also have a 1.00% CDSC, which applies if redemption occurs within the
first year of purchase. This CDSC only applies to those purchases of Class A
shares, which, when combined with current holdings of Class A shares, equal or
exceed $500,000 in the aggregate. These purchases do not incur an initial sales
charge.
For the six months ended January 31, 1999, SSB received sales charges of
approximately $111,000 and $14,000 on sales of the Portfolio's Class A shares
and Class L shares, respectively. In addition, CDSCs paid to SSB were
approximately:
Class A Class B Class L
===============================================================================
CDSCs $4,000 $38,000 $2,000
===============================================================================
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
Class A, B and L shares calculated at an annual rate of 0.25% of the average
daily net assets of each respective class. In addition, the Fund pays a
distribution fee with respect to Class B and L shares calculated at an annual
rate of 0.50% and 0.45% of the average daily net assets for each class,
respectively. For the six months ended January 31, 1999, total Distribution Plan
fees incurred were:
Class A Class B Class L
===============================================================================
Distribution Plan Fees $459,032 $282,494 $13,735
===============================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the six months ended January 31, 1999, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
===============================================================================
Purchases $442,438,807
- -------------------------------------------------------------------------------
Sales 518,332,102
===============================================================================
At January 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
===============================================================================
Gross unrealized appreciation $4,905,245
Gross unrealized depreciation (1,417,115)
- -------------------------------------------------------------------------------
Net unrealized appreciation $3,488,130
===============================================================================
4. Capital Loss Carryforward
At July 31, 1998, the Fund had, for Federal income tax purposes, capital loss
carryforwards of approximately $16,544,000 available, subject to certain
limitations, to offset future capital gains. To the extent that these capital
carryforward losses are used to offset capital gains, it is probable that the
gains so offset will not be distributed.
The amount and expiration of the carryforwards are indicated below. Expiration
occurs on July 31 of the year indicated:
2003 2004
===============================================================================
Carryforward Amounts $12,946,000 $3,598,000
===============================================================================
5. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
6. Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreement transactions for leveraging
purposes. A reverse repurchase agreement involves a sale by the Fund of
securities that it holds with an agreement by the Fund to repurchase the same
securities at an agreed upon price and date. A reverse repurchase agreement
involves the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of the securities. The Fund will
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 11
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
establish a segregated account with its custodian, in which the Fund will
maintain cash, U.S. government securities or other liquid high grade debt
obligations equal in value to its obligations with respect to reverse repurchase
agreements.
At January 31, 1999, the Fund had no reverse repurchase agreements outstanding.
7. Option Contracts
Premiums paid when put or call options are purchased by the Fund represent
investments which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are greater
or less than the premium paid for the option. When the Fund exercises a put
option, it will realize a gain or loss from the sale of the underlying security
and the proceeds from such sale will be decreased by the premium originally
paid. When the Fund exercises a call option, the cost of the security which the
Fund purchases upon exercise will be increased by the premium originally paid.
At January 31, 1999, the Fund had no purchased call or put options outstanding.
When a Fund writes a call or put option, an amount equal to the premium received
by the Fund is recorded as a liability, the value of which is marked-to-market
daily. When a written option expires, the Fund realizes a gain. When the Fund
enters into a closing purchase transaction, the Fund realizes a gain or loss
depending upon whether the cost of the closing transaction is greater or less
than the premium originally received, without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
eliminated. When a written call option is exercised, the cost of the security
sold will be reduced by the premium originally received. When a written put
option is exercised, the amount of the premium received will reduce the cost of
the security which the Fund purchased upon exercise. When written index options
are exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Fund enters into options for hedging purposes. The risk in writing a
call option is that the Fund gives up the opportunity to participate in any
decrease in the price of the underlying security beyond the exercise price. The
risk in writing a put option is that the Fund is exposed to the risk of loss if
the market price of the underlying security declines.
During the six months ended January 31, 1999, the Fund did not write any call or
put options.
8. 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).
- --------------------------------------------------------------------------------
12 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
At January 31, 1999, the Fund had the following open futures contracts:
<TABLE>
<CAPTION>
# of Basis Market Unrealized
Purchased Contracts Contracts Expiration Value Value Loss
=====================================================================================================
<S> <C> <C> <C> <C> <C>
U.S. Government Long Bond Index 300 3/99 $38,410,384 $38,400,000 $(10,384)
=====================================================================================================
</TABLE>
9. Securities Traded on a To-Be-Announced Basis
The Fund may trade portfolio securities on a "to-be-announced" ("TBA") basis. In
a TBA transaction, the Fund commits to purchasing or selling securities for
which all specific information is not yet known at the time of the trade,
particularly the face amount and maturity date in GNMA transactions. Securities
purchased on a TBA basis are not settled until they are delivered to the Fund,
normally 15 to 45 days later. These transactions are subject to market
fluctuation and their current value is determined in the same manner as for
other portfolio securities.
At January 31, 1999, the Fund held two TBA securities with a total cost of
$112,326,134.
10. Dollar Roll Transactions
The Fund may enter into dollar roll transactions. A dollar roll transaction
involves a sale by the Fund of securities that it holds with an agreement by the
Fund to repurchase similar securities at an agreed upon price and date. The
securities repurchased will bear the same interest as those sold, but generally
will be collateralized by pools of mortgages with different prepayment histories
than those securities sold. Proceeds from the sale will be invested and the
income from these investments, together with any additional income received on
the sale, will generate income for the Fund exceeding the yield on the
securities sold.
At January 31, 1999, the Fund had no open dollar roll transactions.
11. Capital Shares
At January 31, 1999, the Fund had 500 million shares of capital stock authorized
with a par value of $0.001 per share. The Fund has the ability to issue multiple
classes of shares. Each share of a class represents an identical interest in the
Fund and has the same rights, except that each class bears certain expenses
specifically related to the distribution of its shares.
At January 31, 1999, total paid-in capital amounted to the following for each
class:
Amount
===============================================================================
Class A $403,372,304
- -------------------------------------------------------------------------------
Class B 45,847,838
- -------------------------------------------------------------------------------
Class L 4,448,388
- -------------------------------------------------------------------------------
Class Y 110,486,829
===============================================================================
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 1999 July 31, 1998
---------------------------- -----------------------------
Shares Amount Shares Amount
====================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 5,173,674 $ 66,437,036 16,954,331 $216,616,814
Shares issued on reinvestment 463,850 5,925,205 1,253,963 15,981,884
Shares reacquired (6,962,742) (89,305,949) (21,101,340) (269,419,526)
- ----------------------------------------------------------------------------------------------------
Net Decrease (1,325,218) $(16,943,708) (2,893,046) $(36,820,828)
====================================================================================================
Class B
Shares sold 855,409 $ 10,957,169 466,979 $ 5,966,361
Shares issued on reinvestment 82,584 1,054,825 234,702 2,990,699
Shares reacquired (967,837) (12,379,634) (2,428,219) (30,972,127)
- ----------------------------------------------------------------------------------------------------
Net Decrease (29,844) $ (367,640) (1,726,538) $(22,015,067)
====================================================================================================
Class L*
Shares sold 194,939 $ 2,497,140 118,157 $ 1,510,406
Shares issued on reinvestment 5,532 70,629 7,906 100,851
Shares reacquired (59,785) (763,966) (50,435) (643,303)
- ----------------------------------------------------------------------------------------------------
Net Increase 140,686 $ 1,803,803 75,628 $ 967,954
====================================================================================================
Class Y
Shares sold 1,785,434 $ 22,820,612 3,050,271 $ 38,908,423
Shares issued on reinvestment -- -- -- --
Shares reacquired (21,908) (279,105) (2,556,109) (32,530,995)
- ----------------------------------------------------------------------------------------------------
Net Increase 1,763,526 $ 22,541,507 494,162 $ 6,377,428
====================================================================================================
</TABLE>
* On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
14 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended July 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 1999(1)(2) 1998 1997(2) 1996(2) 1995 1994
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.73 $ 12.84 $ 12.27 $ 12.63 $ 12.50 $ 13.29
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.32 0.75 0.80 0.81 0.81 0.75
Net realized and unrealized gain (loss) 0.07 (0.06) 0.59 (0.34) 0.10 (0.74)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.39 0.69 1.39 0.47 0.91 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.38) (0.80) (0.82) (0.82) (0.74) (0.61)
Capital -- -- -- (0.01) (0.04) (0.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.38) (0.80) (0.82) (0.83) (0.78) (0.80)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.74 $ 12.73 $ 12.84 $ 12.27 $ 12.63 $ 12.50
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 3.05%++ 5.51% 11.80% 3.76% 7.67% 0.08%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $357,705 $374,109 $414,571 $454,679 $528,533 $371,086
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 4.87%+ 5.78% 6.43% 6.46% 6.57% 5.60%
Interest expense -- 0.13 0.22 0.47 0.14 0.19
Other expenses 1.03+ 1.03 1.01 1.04 1.07 1.03
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 82% 363% 121% 275% 292% 236%
====================================================================================================================================
<CAPTION>
Class B Shares 1999(1)(2) 1998(2) 1997(2) 1996(2) 1995 1994
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.73 $ 12.84 $ 12.27 $ 12.63 $ 12.50 $ 13.29
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.28 0.67 0.74 0.75 0.75 0.69
Net realized and unrealized gain (loss) 0.07 (0.05) 0.59 (0.34) 0.09 (0.75)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.35 0.62 1.33 0.41 0.84 (0.06)
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.34) (0.73) (0.76) (0.76) (0.67) (0.56)
Capital -- -- -- (0.01) (0.04) (0.17)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.34) (0.73) (0.76) (0.77) (0.71) (0.73)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.74 $ 12.73 $ 12.84 $ 12.27 $ 12.63 $ 12.50
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 2.80%++ 4.99% 11.23% 3.24% 7.04% (0.46)%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 73,610 $ 73,905 $ 96,747 $110,724 $132,882 $389,383
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 4.35%+ 5.27% 5.91% 5.94% 6.07% 5.08%
Interest expense -- 0.13 0.22 0.47 0.14 0.19
Other expenses 1.55+ 1.56 1.53 1.56 1.57 1.55
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 82% 363% 121% 275% 292% 236%
====================================================================================================================================
</TABLE>
(1) For the six months ended January 31, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 15
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended July 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 1999(1)(2) 1998(2)(3) 1997(2) 1996(2) 1995 1994
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.73 $ 12.84 $ 12.27 $ 12.63 $ 12.50 $ 13.29
- ----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.29 0.67 0.74 0.75 0.76 0.69
Net realized and unrealized gain (loss) 0.07 (0.04) 0.59 (0.34) 0.08 (0.75)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.36 0.63 1.33 0.41 0.84 (0.06)
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.35) (0.74) (0.76) (0.76) (0.67) (0.56)
Capital -- -- -- (0.01) (0.04) (0.17)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.35) (0.74) (0.76) (0.77) (0.71) (0.73)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.74 $ 12.73 $ 12.84 $ 12.27 $ 12.63 $ 12.50
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return 2.85%++ 5.07% 11.26% 3.25% 7.04% (0.46)%
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 4,607 $ 2,811 $ 1,866 $ 1,238 $ 299 $ 72
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 4.43%+ 5.28% 6.01% 5.99% 6.12% 5.05%
Interest expense -- 0.13 0.22 0.47 0.14 0.19
Other expenses 1.46+ 1.49 1.46 1.49 1.52 1.58
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 82% 363% 121% 275% 292% 236%
==================================================================================================================================
<CAPTION>
Class Y Shares 1999(1)(2) 1998 1997(2) 1996(2)(4)
==================================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.74 $ 12.84 $ 12.27 $ 12.86
- ----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.33 0.80 0.84 0.35
Net realized and unrealized gain (loss) 0.08 (0.06) 0.59 (0.49)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.41 0.74 1.43 (0.14)
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.40) (0.84) (0.86) (0.44)
Capital -- -- -- (0.01)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.40) (0.84) (0.86) (0.45)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.75 $ 12.74 $ 12.84 $ 12.27
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return 3.22%++ 5.94% 12.16% (1.10)%++
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $113,373 $ 90,761 $ 85,194 $ 27,215
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 5.20%+ 6.10% 6.82% 6.62%+
Interest expense -- 0.13 0.22 0.47+
Other expenses 0.69+ 0.69 0.62 0.78+
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 82% 363% 121% 275%
==================================================================================================================================
</TABLE>
(1) For the six months ended January 31, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(3) On June 12, 1998, Class C shares were renamed Class L shares.
(4) For the period from February 7, 1996 (inception date) to July 31, 1996.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
16 1999 Semi-Annual Report to Shareholders
<PAGE>
Smith Barney
Managed
Governments
Fund Inc.
Directors
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon, Chairman
Cornelius C. Rose, Jr.
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
James E. Conroy
Vice President and Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser
SSBC Fund Management Inc.
Distributor
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Shareholder Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the shareholders of
Smith Barney Managed Governments Fund Inc. It is not authorized for distribution
to prospective investors unless accompanied or preceded by a current Prospectus
for the Fund, which contains information concerning the Fund's investment
policies and expenses as well as other pertinent information.
SALOMON SMITH BARNEY
- ----------------------------
A member of citigroup [LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney Managed
Governments Fund Inc.
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com
FD01181 3/99
