<PAGE>
[PHOTO]
Smith Barney
Managed
Governments
Fund Inc.
[GRAPHIC] -------------
ANNUAL REPORT
-------------
July 31, 1999
[LOGO] Smith Barney
Mutual Funds
<PAGE>
Smith Barney Managed Governments
Fund Inc.
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- --------------------------------------------------------------------------------
The Smith Barney Managed Governments Fund Inc. ("Fund") seeks high current
income consistent with liquidity and safety of capital. The Fund seeks to
achieve its objective primarily through investments in varied maturity
mortgage-backed debt obligations issued by the U.S. government or its agencies
such as GNMA, FNMA and FHLMC.
Smith Barney Managed Governments Fund Inc.
Average Annual Total Returns
July 31, 1999
Without Sales Charges(1)
-------------------------------------------------
Class A Class B Class L
================================================================================
One-Year 0.58% 0.06% 0.15%
- --------------------------------------------------------------------------------
Five-Year 5.80 5.25 5.30
- --------------------------------------------------------------------------------
Ten-Year 7.21 N/A N/A
- --------------------------------------------------------------------------------
Since Inception+ 8.21 5.27 4.46
================================================================================
With Sales Charges(2)
-------------------------------------------------
Class A Class B Class L
================================================================================
One-Year (3.95)% (4.22)% (1.80)%
- --------------------------------------------------------------------------------
Five-Year 4.83 5.09 5.08
- --------------------------------------------------------------------------------
Ten-Year 6.73 N/A N/A
- --------------------------------------------------------------------------------
Since Inception+ 7.88 5.27 4.29
================================================================================
(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.
+ 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
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During the reporting period, trading activity in the Fund was rather limited. We
focused primarily on buying inexpensive mortgage-backed securities with coupons
of 7% through 7 2/3% at or around par because of our near-term bullishness.
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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 .................................................... 6
Schedule of Investments .................................................. 7
Statement of Assets and Liabilities ...................................... 8
Statement of Operations .................................................. 9
Statements of Changes in Net Assets ...................................... 10
Notes to Financial Statements ............................................ 11
Financial Highlights ..................................................... 16
Independent Auditors' Report ............................................. 18
Tax Information .......................................................... 19
<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 annual report for Smith Barney Managed Governments
Fund Inc. ("Fund") for the year ended July 31, 1999. We hope you find this
report to be useful and informative. 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.
Performance Update
The Fund's Class A shares returned 0.58%, without sales charges, for the year
ended July 31, 1999. The Fund's performance is below the average total return of
1.75% over 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 $0.72 per Class A share during the past
twelve months.
Market Update
During the first seven months of 1999, U.S. economic growth continued at a
robust pace. To counter these inflationary pressures, the Federal Reserve Board
("Fed") raised short-term interest rates by 0.25% in late June, and subsequently
adopted a neutral stance on monetary policy.
In our view, the lethargic and confused mood of bond investors has been a direct
result of Fed monetary policy. While presumably aimed at stock market
exuberance, it is the bond market that has taken the brunt of any correction on
fears of further Fed tightening. We think that the lack of inflationary evidence
defies a historically tight labor market and reinforces the influence of
technology and the power of global pricing restraints. Unless the Fed adopts an
aggressive posture for monetary policy, the financial markets will remain
unfazed.
Investor trading has suffered as diminishing new issue supply of mortgage-backed
securities and a corporate bond market that is new issue driven has resulted in
a highly illiquid environment. Cost of funding, when measured against future
interest rates and shifting yield curves, has left many dealers unwilling to
"take on" secondary security positions. Therefore, the "true" value of
securities has become highly unpredictable beyond the most generic investments.
Consequently, reaching for incremental yield advantages with derivatives may
have short-term benefits yet with potentially disastrous long-term consequences.
As we often said, liquidity is defined as not what it costs to buy a security
but what it costs to sell.
Investment Strategy
During the reporting period, trading activity in the Fund was rather limited. We
focused primarily on buying inexpensive mortgage-backed securities with coupons
of 7% through 7 2/3% at or around par because of our near-term bullishness.
Market Outlook
We anticipate that interest rates will decline as the end of 1999 approaches. In
our view, the potential for more moderate economic growth will assuage current
inflation concerns. We should remain in a period in which economic growth can
co-exist with relatively low levels of inflation.
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 1
<PAGE>
Another issue facing the bond market is Y2K, a phrase referring to the fact that
some dates were coded into computers using only the last two digits of the year,
assuming the first two digits were "19". On or after January 1, 2000, some
computers may misread or not recognize dates and cause potential dislocations.
The actual extent of the Y2K problem is impossible to predict.
We also continue to believe that growing concerns or perceptions about Y2K and a
desire for year-end liquidity should drive interest rates lower. In our opinion,
the demand for U.S. Treasuries at the expense of other investment products
should be viewed as an opportunity for many investors to buy other types of
bonds now and remain patient. (Of course, no guarantees can be given that this
proposed strategy will be successful.)
In closing, thank you for investing in the Smith Barney Managed Governments
Fund. 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
August 23, 1999
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2 1999 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
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
7/31/99 $12.73 $12.09 $0.72 $0.00 $0.00 0.58%
- -------------------------------------------------------------------------------------------------------------
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
=============================================================================================================
Total $8.13 $0.23 $0.46
=============================================================================================================
</TABLE>
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Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-----------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
7/31/99 $12.73 $12.09 $0.66 $0.00 $0.00 0.06%
- -------------------------------------------------------------------------------------------------------------
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 $4.55 $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
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
7/31/99 $12.73 $12.09 $0.67 $0.00 $0.00 0.15%
- -------------------------------------------------------------------------------------------------------------
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 $4.19 $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
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
7/31/99 $12.74 $12.10 $0.77 $0.00 $0.00 0.92%
- -------------------------------------------------------------------------------------------------------------
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 $2.91 $0.00 $0.01
=============================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
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Average Annual Total Return
- --------------------------------------------------------------------------------
Without Sales Charges(1)
--------------------------------------------
Class A Class B Class L Class Y
================================================================================
Year Ended 7/31/99 0.58% 0.06% 0.15% 0.92%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/99 5.80 5.25 5.30 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/99 7.21 N/A N/A N/A
- --------------------------------------------------------------------------------
Inception* through 7/31/99 8.21 5.27 4.46 5.03
================================================================================
Without Sales Charges(2)
--------------------------------------------
Class A Class B Class L Class Y
================================================================================
Year Ended 7/31/99 (3.95)% (4.22)% (1.80)% 0.92%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/99 4.83 5.09 5.08 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/99 6.73 N/A N/A N/A
- --------------------------------------------------------------------------------
Inception* through 7/31/99 7.88 5.27 4.29 5.03
================================================================================
- --------------------------------------------------------------------------------
4 1999 Annual Report to Shareholders
<PAGE>
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Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (7/31/89 through 7/31/99) 100.70%
- --------------------------------------------------------------------------------
Class A (Inception* through 7/31/99) 224.40
- --------------------------------------------------------------------------------
Class B (Inception* through 7/31/99) 41.29
- --------------------------------------------------------------------------------
Class L (Inception* through 7/31/99) 30.45
- --------------------------------------------------------------------------------
Class Y (Inception* through 7/31/99) 18.60
================================================================================
(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.
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 5
<PAGE>
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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+
- --------------------------------------------------------------------------------
July 1989 -- July 1999
[GRAPHIC OMITTED]
+ Hypothetical illustration of $10,000 invested in Class A shares on July
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 July 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 (69 funds as of July 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 22.5%
U.S. Treasury Strips 4.0%
GNMA 50.4%
Repurchase Agreements 23.1%
* 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.
- --------------------------------------------------------------------------------
6 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
========================================================================================================
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 76.9%
<S> <C> <C>
$ 48,375,000 U.S. Treasury Strip, zero coupon due 11/15/09 $ 25,456,376
Federal Home Loan Mortgage Corp. (FHLMC):
103 7.500% due 11/1/09 105
11,197 14.750% due 3/1/10 13,210
1,917,380 7.000% due 7/1/10 1,913,774
3,460 5.500% due 5/1/13 3,244
2,897 8.000% due 8/1/17 2,990
1,090,171 7.000% due 6/1/28+ 1,066,655
Federal National Mortgage Association (FNMA):
172 9.500% due 7/7/02+ 181
72,464 6.000% due 3/1/13 69,361
11,531 6.500% due 8/1/13+ 11,269
175,030 8.000% due 4/1/27+ 178,804
140,000,000 7.000% due 12/15/28* 136,805,200
643 7.000% due 3/1/29 628
3,750,000 7.500% due 12/1/29* 3,748,800
Government National Mortgage Association I (GNMA):
1,220,183 10.000% due 7/15/20+ 1,328,853
18,260,960 8.000% due 7/15/26+ 18,665,988
626,310 9.000% due 7/15/26+ 662,906
65,628,492 6.500% due 10/15/28+ 62,326,066
26,425,000 7.500% due 12/15/28* 26,391,969
133,036,960 7.000% due 7/15/29+@ 129,711,037
80,715,622 7.500% due 7/15/29+@ 80,664,770
1,769,816 Platinum, 9.000% due 11/15/17 1,874,341
471,779 Government National Mortgage Association II (GNMA), 10.000% due 10/20/16 507,308
- --------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- $503,662,539) 491,403,835
========================================================================================================
REPURCHASE AGREEMENT -- 23.1%
100,000,000 J.P. Morgan Securities Inc., 5.050% due 8/2/99;
Proceeds at maturity -- $100,042,083; (Fully collateralized by
U.S. Treasury Note, 3.625% due 1/15/08;
Market value -- $102,000,203) 100,000,000
47,742,000 Morgan Stanley Dean Witter & Co., 5.030% due 8/2/99;
Proceeds at maturity -- $47,762,012; (Fully collateralized by
U.S. Treasury Notes and Bills, 0.000% to 7.000% due
11/18/99 to 7/15/06; (Market value -- $49,006,237) 47,742,000
- --------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost-- $147,742,000) 147,742,000
========================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $651,404,539**) $639,145,835
========================================================================================================
</TABLE>
+ Date shown represents the last in range of maturity dates of mortgage
certificates owned.
* Security has been issued on a "to-be-announced" basis (See Note 9).
@ Security partially segregated by Custodian for "to-be-announced" trades.
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 7
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost -- $503,662,539) $491,403,835
Repurchase agreements, at value (Cost -- $147,742,000) 147,742,000
Cash 768
Receivable for securities sold 39,117,872
Receivable for Fund shares sold 249,569
Interest receivable 2,777,119
- -------------------------------------------------------------------------------------------------------
Total Assets 681,291,163
- -------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 172,656,908
Dividends payable 1,224,638
Investment advisory fees payable 190,005
Payable for Fund shares purchased 98,659
Administration fees payable 84,447
Distribution fees payable 31,291
Other liabilities 1,179,317
Accrued expenses 62,433
- -------------------------------------------------------------------------------------------------------
Total Liabilities 175,527,698
- -------------------------------------------------------------------------------------------------------
Total Net Assets $505,763,465
=======================================================================================================
NET ASSETS:
Par value of capital shares $ 41,822
Capital paid in excess of par value 546,735,757
Overdistributed net investment income (1,238,955)
Accumulated net realized loss from security transactions and futures contracts (27,516,455)
Net unrealized depreciation of investments (12,258,704)
- -------------------------------------------------------------------------------------------------------
Total Net Assets $505,763,465
=======================================================================================================
Shares Outstanding:
Class A 26,616,649
--------------------------------------------------------------------------------------------------
Class B 5,079,077
--------------------------------------------------------------------------------------------------
Class L 372,629
--------------------------------------------------------------------------------------------------
Class Y 9,753,826
--------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $12.09
--------------------------------------------------------------------------------------------------
Class B * $12.09
--------------------------------------------------------------------------------------------------
Class L ** $12.09
--------------------------------------------------------------------------------------------------
Class Y (and redemption price) $12.10
--------------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $12.66
--------------------------------------------------------------------------------------------------
Class B (net asset value plus 1.01% of net asset value per share) $12.21
=======================================================================================================
</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.
- --------------------------------------------------------------------------------
8 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 33,551,022
- -------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 2,421,062
Distribution fees (Note 2) 1,451,065
Administration fees (Note 2) 1,076,027
Shareholder and system servicing fees 317,846
Shareholder communication fees 105,309
Registration fees 89,755
Audit and legal 66,850
Directors' fees 59,834
Custody 33,630
Other 13,964
- -------------------------------------------------------------------------------------------------------
Total Expenses 5,635,342
- -------------------------------------------------------------------------------------------------------
Net Investment Income 27,915,680
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 3 AND 8):
Realized Loss From:
Security transactions (excluding short-term securities) (8,105,376)
Futures contracts (1,296,421)
- -------------------------------------------------------------------------------------------------------
Net Realized Loss (9,401,797)
- -------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of investments:
Beginning of year 2,325,583
End of year (12,258,704)
- -------------------------------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (14,584,287)
- -------------------------------------------------------------------------------------------------------
Net Loss on Investments and Futures Contracts (23,986,084)
- -------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 3,929,596
=======================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 9
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended July 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
======================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 27,915,680 $ 32,015,371
Net realized gain (loss) (9,401,797) 30,990,214
Increase in net unrealized depreciation (14,584,287) (33,901,741)
- ------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 3,929,596 29,103,844
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (30,793,285) (34,404,614)
- ------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (30,793,285) (34,404,614)
- ------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 127,955,837 263,002,004
Net asset value of shares issued for
reinvestment of dividends 15,923,744 19,073,434
Cost of shares reacquired (152,838,825) (333,565,951)
- ------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (8,959,244) (51,490,513)
- ------------------------------------------------------------------------------------------------------
Decrease in Net Assets (35,822,933) (56,791,283)
NET ASSETS:
Beginning of year 541,586,398 598,377,681
- ------------------------------------------------------------------------------------------------------
End of year* $ 505,763,465 $ 541,586,398
======================================================================================================
* Includes overdistributed net investment income of: $(1,238,955) $(1,316,529)
======================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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, 1999, 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 $1,384,574 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, A dministration Agreement and Other
Transactions
SSBC Fund Management Inc. ("SSBC"), 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. ("CFBDS") 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
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 11
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
shares to the public as a member 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. 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 year ended July 31, 1999, CFBDS and SSB received sales charges of
approximately $180,000 and $25,000 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 $11,000 $73,000 $1,000
================================================================================
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 year ended July 31, 1999, total Distribution Plan fees
incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $886,006 $535,706 $29,353
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the year ended July 31, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $1,156,131,288
- --------------------------------------------------------------------------------
Sales 1,089,297,020
================================================================================
At July 31, 1999, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 145,878
Gross unrealized depreciation (12,404,582)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(12,258,704)
================================================================================
4. Capital Loss Carryforward
At July 31, 1999, the Fund had, for Federal income tax purposes, capital loss
carryforwards of approximately $13,805,000 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 $10,207,000 $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.
- --------------------------------------------------------------------------------
12 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
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 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 July 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 a 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 July 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 year ended July 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
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
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).
At July 31, 1999, the Fund had no open futures contracts.
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 July 31, 1999, the Fund held three TBA securities with a total cost of
$169,126,502.
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 July 31, 1999, the Fund had no open dollar roll transactions.
11. Capital Shares
At July 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 July 31, 1999, total paid-in capital amounted to the following for each
class:
Amount
================================================================================
Class A $384,301,264
- --------------------------------------------------------------------------------
Class B 36,921,217
- --------------------------------------------------------------------------------
Class L 4,568,207
- --------------------------------------------------------------------------------
Class Y 120,986,891
================================================================================
- --------------------------------------------------------------------------------
14 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
January 31, 1999 July 31, 1998
---------------------------- -----------------------------
Shares Amount Shares Amount
====================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 5,941,483 $ 76,042,708 16,954,331 $ 216,616,814
Shares issued on reinvestment 1,067,610 13,435,336 1,253,963 15,981,884
Shares reacquired (9,789,455) (124,581,005) (21,101,340) (269,419,526)
- ----------------------------------------------------------------------------------------------------
Net Decrease (2,780,362) $ (35,102,961) (2,893,046) $ (36,820,828)
====================================================================================================
Class B
Shares sold 1,099,653 $ 14,006,795 466,979 $ 5,966,361
Shares issued on reinvestment 183,648 2,312,409 234,702 2,990,699
Shares reacquired (2,013,572) (25,429,750) (2,428,219) (30,972,127)
- ----------------------------------------------------------------------------------------------------
Net Decrease (730,271) $ (9,110,546) (1,726,538) $ (22,015,067)
====================================================================================================
Class L*
Shares sold 316,056 $ 4,011,658 118,157 $ 1,510,406
Shares issued on reinvestment 14,009 175,999 7,906 100,851
Shares reacquired (178,371) (2,253,226) (50,435) (643,303)
- ----------------------------------------------------------------------------------------------------
Net Increase 151,694 $ 1,934,431 75,628 $ 967,954
====================================================================================================
Class Y
Shares sold 2,671,406 $ 33,894,676 3,050,271 $ 38,908,423
Shares issued on reinvestment -- -- -- --
Shares reacquired (46,198) (574,844) (2,556,109) (32,530,995)
- ----------------------------------------------------------------------------------------------------
Net Increase 2,625,208 $ 33,319,832 494,162 $ 6,377,428
====================================================================================================
</TABLE>
* On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 15
<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) 1998 1997(1) 1996(1) 1995
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.73 $12.84 $12.27 $12.63 $12.50
- -------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.65 0.75 0.80 0.81 0.81
Net realized and unrealized gain (loss) (0.57) (0.06) 0.59 (0.34) 0.10
- -------------------------------------------------------------------------------------------------------
Total Income From Operations 0.08 0.69 1.39 0.47 0.91
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.72) (0.80) (0.82) (0.82) (0.74)
Capital -- -- -- (0.01) (0.04)
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.72) (0.80) (0.82) (0.83) (0.78)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.09 $12.73 $12.84 $12.27 $12.63
- -------------------------------------------------------------------------------------------------------
Total Return 0.58% 5.51% 11.80% 3.76% 7.67%
- -------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $321,860 $374,109 $414,571 $454,679 $528,533
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 5.18% 5.78% 6.43% 6.46% 6.57%
Interest expense -- 0.13 0.22 0.47 0.14
Other expenses 1.04 1.03 1.01 1.04 1.07
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 205% 363% 121% 275% 292%
=======================================================================================================
<CAPTION>
Class B Shares 1999(1) 1998(1) 1997(1) 1996(1) 1995
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.73 $12.84 $12.27 $12.63 $12.50
- -------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.59 0.67 0.74 0.75 0.75
Net realized and unrealized gain (loss) (0.57) (0.05) 0.59 (0.34) 0.09
- -------------------------------------------------------------------------------------------------------
Total Income From Operations 0.02 0.62 1.33 0.41 0.84
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.66) (0.73) (0.76) (0.76) (0.67)
Capital -- -- -- (0.01) (0.04)
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.66) (0.73) (0.76) (0.77) (0.71)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.09 $12.73 $12.84 $12.27 $12.63
- -------------------------------------------------------------------------------------------------------
Total Return 0.06% 4.99% 11.23% 3.24% 7.04%
- -------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $61,391 $73,905 $96,747 $110,724 $132,882
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 4.64% 5.27% 5.91% 5.94% 6.07%
Interest expense -- 0.13 0.22 0.47 0.14
Other expenses 1.57 1.56 1.53 1.56 1.57
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 205% 363% 121% 275% 292%
=======================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
- --------------------------------------------------------------------------------
16 99 Annual Report to Shareholders
<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) 1998(1)(2) 1997(1) 1996(1) 1995
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.73 $12.84 $12.27 $12.63 $12.50
- -------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.61 0.67 0.74 0.75 0.76
Net realized and unrealized gain (loss) (0.58) (0.04) 0.59 (0.34) 0.08
- -------------------------------------------------------------------------------------------------------
Total Income From Operations 0.03 0.63 1.33 0.41 0.84
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.67) (0.74) (0.76) (0.76) (0.67)
Capital -- -- -- (0.01) (0.04)
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.67) (0.74) (0.76) (0.77) (0.71)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.09 $12.73 $12.84 $12.27 $12.63
- -------------------------------------------------------------------------------------------------------
Total Return 0.15% 5.07% 11.26% 3.25% 7.04%
- -------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $4,505 $2,811 $1,866 $1,238 $299
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 4.76% 5.28% 6.01% 5.99% 6.12%
Interest expense -- 0.13 0.22 0.47 0.14
Other expenses 1.48 1.49 1.46 1.49 1.52
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 205% 363% 121% 275% 292%
=======================================================================================================
<CAPTION>
Class L Shares 1999(1) 1998 1997(1) 1996(1)(3)
=======================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.74 $12.84 $12.27 $12.86
- -------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.70 0.80 0.84 0.35
Net realized and unrealized gain (loss) (0.57) (0.06) 0.59 (0.49)
- -------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.13 0.74 1.43 (0.14)
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.77) (0.84) (0.86) (0.44)
Capital -- -- -- (0.01)
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.77) (0.84) (0.86) (0.45)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.10 $12.74 $12.84 $12.27
- -------------------------------------------------------------------------------------------------------
Total Return 0.92% 5.94% 12.16% (1.10)%++
- -------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $118,007 $90,761 $85,194 $27,215
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 5.54% 6.10% 6.82% 6.62%+
Interest expense -- 0.13 0.22 0.47+
Other expenses 0.70 0.69 0.62 0.78+
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 205% 363% 121% 275%
=======================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
(3) 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.
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 17
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Smith Barney Managed Governments Fund Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Smith Barney Managed Governments Fund Inc. as of
July 31, 1999, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
five-year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1999, by correspondence with the custodian. As to securities purchased or
sold but not yet received or delivered, we performed other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Managed Governments Fund Inc. as of July 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
September 14, 1999
- --------------------------------------------------------------------------------
18 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
For Federal tax purposes, the Fund hereby designates for the fiscal year ended
July 31, 1999:
A total of 4.97% of the ordinary dividends paid by the Fund from net investment
income are derived from Federal obligations and may be exempt from taxation at
the state level.
- --------------------------------------------------------------------------------
Smith Barney Managed Governments Fund Inc. 19
<PAGE>
[This page intentionally left blank]
<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 9699
Providence, RI 02940-9699
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.
SalomonSmithBarney
- ----------------------------
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 9/99
