<PAGE>
SMITH BARNEY
MANAGED GOVERNMENTS
FUND INC.
CLASSIC SERIES | ANNUAL REPORT | JULY 31, 2000
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
Not Fdic Insured . Not Bank Guaranteed . May Lose Value
<PAGE>
[GRAPHIC] Classic Series
[PHOTO OF JAMES E. CONROY]
Annual Report . July 31, 2000
James E. Conroy SMITH BARNEY MANAGED
PORTFOLIO MANAGER GOVERNMENTS FUND INC.
----------------------
JAMES E. CONROY
----------------------
James E. Conroy has more than 24 years of securities business experience and has
been responsible for managing the Fund since 1991.
Education: BA in Economics from Muhlenberg College
----------------------
FUND OBJECTIVE
----------------------
The Fund seeks high current income consistent with liquidity and safety of
capital by investing primarily in debt obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities.
----------------------
FUND FACTS
----------------------
FUND INCEPTION
-------------------
September 4, 1984
MANAGER TENURE
-------------------
9 Years
MANAGER INVESTMENT
INDUSTRY EXPERIENCE
-------------------
24 Years
CLASS A CLASS B CLASS L
--------------------------------------------------------------------------------
NASDAQ SHMGX MGVBX SMGLX
--------------------------------------------------------------------------------
Inception 9/4/84 11/6/92 6/29/93
--------------------------------------------------------------------------------
Average Annual Total Returns as of July 31, 2000
Without Sales Charges/(1)/
Class A Class B Class L
--------------------------------------------------------------------------------
One-Year 5.49% 4.91% 5.00%
--------------------------------------------------------------------------------
Five-Year 5.37 4.82 4.89
--------------------------------------------------------------------------------
Ten-Year 6.86 N/A N/A
--------------------------------------------------------------------------------
Since Inception+ 8.04 5.22 4.54
--------------------------------------------------------------------------------
With Sales Charges/(2)/
Class A Class B Class L
--------------------------------------------------------------------------------
One-Year 0.74% 0.43% 2.98%
--------------------------------------------------------------------------------
Five-Year 4.40 4.67 4.68
--------------------------------------------------------------------------------
Ten-year 6.37 N/A N/A
--------------------------------------------------------------------------------
Since Inception+ 7.73 5.22 4.39
--------------------------------------------------------------------------------
/(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 charges 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.
--------------------------------------------------------------------------------
What's Inside
A Message from the Chairman .....................................1
Shareholder Letter ..............................................2
Historical Performance ..........................................5
Smith Barney Managed Governments Fund Inc.
at a Glance .....................................................8
Schedule of Investments .........................................9
Statement of Assets and Liabilities ............................10
Statement of Operations ........................................11
Statements of Changes in Net Assets ............................12
Notes to Financial Statements ..................................13
Financial Highlights ...........................................17
Independent Auditors' Report ...................................19
Tax Information ................................................20
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
Investment Products: Not FDIC Insured . Not Bank Guaranteed . May Lose Value
<PAGE>
A MESSAGE FROM THE CHAIRMAN
[PHOTO OF HEATH B. MCLENDON]
HEATH B. MCLENDON
CHAIRMAN
For years, individuals and their families and businesses have looked to the
investment professionals of SSB Citi Fund Management LLC ("SSB Citi") for
thoughtful insight and advice. For some, the solution has been a long-term
investment strategy, incorporating multiple stock and bond mutual funds. Others
have invested with specific portfolio managers who are recognized and respected
for their insight and record.
The Smith Barney Managed Governments Fund Inc. ("Fund"), which seeks high
current income consistent with liquidity and safety of capital, represents an
opportunity for you, the serious investor, to take part in the benefits of
investing primarily, but not limited to, debt obligations issued or guaranteed
by the U.S. government or its agencies. When allocating the Fund's investments,
portfolio manager James E. Conroy focuses on identifying what deems to be
compelling sectors and securities within the bond market.
In our opinion, the lessons of the past may be used to better understand the
challenges and opportunities of the future. We also believe that expertise is
achieved through the intelligent application of knowledge and experience. Our
portfolio managers provide asset management expertise and have managed
portfolios across markets and cycles.
With economic growth robust, interest rates stable and inflationary pressures
apparently in check, many investors may not feel compelled to alter their
portfolio mixes. Yet, when times are good, it may be prudent for investors to
consider adding a bond fund to their investment plan to cushion the effects of
stock market volatility and gain additional income potential.
When you invest with SSB Citi, you can do so with the confidence that your
interests come first, your investment success is paramount, and that the
ultimate in resources is being committed to your financial future. Thank you for
investing with us.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
August 29, 2000
1 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
Dear Shareholder,
We are pleased to provide the annual report for Smith Barney Managed Governments
Fund Inc. ("Fund") for the year ended July 31, 2000. In this report we summarize
the period's prevailing economic and market conditions and outline our
investment strategy. The information provided in this letter represents the
opinion of the manager and is not intended to be a forecast of future events, a
guarantee of future results nor investment advice.
Further, there is no assurance that certain securities will remain in or out of
the Fund. Please refer to page nine for a complete list and percentage breakdown
of the Fund's holdings. A detailed summary of the Fund's performance and current
holdings can be found in the appropriate sections that follow. Also, please note
that any discussion of the Fund's holdings is as of July 31, 2000. We hope that
you find this report to be useful and informative.
Performance Update
For the year ended July 31, 2000, the Fund's Class A shares, without and with
sales charges, returned 5.49% and 0.74%, respectively. In comparison, the Lehman
Brothers Government Bond Index ("Lehman Index")1 returned 6.18% for the same
period.
During the period, the Fund distributed income dividends totaling $0.70 per
Class A share. For additional performance information please refer to pages five
through seven.
Market Update and Outlook
In our opinion, the issues that significantly impacted the performance of the
bond market during the period were:
. Interest rate increases by the Federal Reserve Board ("Fed");
. The stock market's resiliency in the face of the Fed's actions;
. The U.S. Treasury's buyback program; and
. Investors' concerns regarding credit quality, extreme levels of
volatility and illiquidity.
On May 16, 2000, the Fed enacted the sixth in a series on monetary policy
actions that began on June 30, 1999, when the federal funds rate ("fed funds
rate")2 was 4.75%. Since June 30, 1999, the Fed has raised interest rates by 175
basis points.3 With the fed funds rate presently at 6.50%, the cumulative effect
of the interest rate increases so far, we believe, may begin to have a more
pronounced effect in dampening inflationary pressures in the economy.
A critical point, which many investors overlook, is that Fed monetary policy
adjustments take time to be absorbed into the general economy. In our opinion,
the rallies we have recently seen are a direct result of changes that were
enacted six to nine months ago.
Moreover, the plan by the U.S. Treasury to buy back more than $30 billion and
$50 billion of its long-term debt obligations in 2000 and 2001, respectively,
has led to a reduced supply in the marketplace. The U.S. Treasury's intent to
retire debt, particularly at the long end of the yield curve,4 has been the most
recent test for the bond market. The notion that a decreased supply of U.S.
Treasury securities with constant if not increasing demand would cause interest
rates to decrease seemed to many investment professionals as "too easy." Many
investment professionals believed that this was too good to be true and for
awhile they were right. However, the constant yet small quantities of
Treasuries, relative to outstanding supply, that were retired cumulatively have
begun to have an impact on the market.
--------------
1 The Lehman Index is a broad-based index of all public debt obligations of
the U.S. government and its agencies that has an average maturity of
roughly nine years. An investor cannot invest directly in an index.
2 The fed funds rate is the interest rate that banks with excess reserves at
a Federal Reserve district bank charge other banks that need overnight
loans. The fed funds rate often points to the direction of U.S. interest
rates.
3 A basis point is 0.01% or one one-hundredth of a percent.
4 The yield curve is the graphical depiction of the relationship between the
yield on bonds of the same credit quality but different maturities.
2 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
As such, the price of long-term bonds increased in relation to their short-term
counter counterparts, as reflected by an inverted yield curve.5 Instead of a
"normal" yield curve, with yields rising slowly along with the maturity of
Treasury bonds, the highest yields were for shorter-term bonds.
In our opinion, bonds have assumed their traditional role once again: namely
income. Beneficiaries of the infrequent rallies we believe may come by owning
longer-dated U.S. Treasuries.
The chart below shows the yields for various U.S. Treasuries during the
reporting period:
Yields from U.S. Treasuries6
7/31/00 7/31/99
------- -------
3-month U.S. Treasury Bills 5.96% 4.55%
2-year U.S. Treasury Bills 6.34 5.55
5-year U.S. Treasury Notes 6.18 5.68
10-year U.S. Treasury Bonds 6.05 5.79
30-year U.S. Treasury Bonds 5.85 5.98
Investment Strategy
As previously noted, the Fund seeks high current income consistent with
liquidity and safety of capital. The Fund's portfolio will consist principally
of "mortgage-backed" securities issued or guaranteed by the Government National
Mortgage Association ("GNMA"),7 Federal National Mortgage Association ("FNMA")8
and Federal Home Loan Mortgage Corporation ("FHLMC").9
We focus on investing in individual securities and sectors that we deem to be
undervalued relative to the marketplace. More specifically, we determine sector
and maturity weightings based on intermediate and long-term assessments of the
market and relative value factors based on the outlook for interest rates.
Additionally, through our research we seek to uncover inefficient sectors of the
government securities and mortgage markets and adjust the Fund's portfolio to
take advantage of the new information.
As of July 31, 2000, the Fund's duration10 was 4.41 years versus 4.69 years for
the Lehman Index. The Fund maintains a higher percentage of securities in the
8-8 1/2% coupon11 range versus the Lehman Index. Throughout the year, we have
increased the Fund's investments in U.S. government and agency obligations from
approximately 77% as of July 31, 1999 to roughly 94% of the Fund's portfolio as
of July 31, 2000.
--------------
5 An inverted yield curve is an unusual situation where short-term interest
rates are higher than long-term rates.
6 Source: Federal Reserve Bank of New York.
7 GNMA obligations are pass-through mortgage-backed securities consisting of
a pool of residential mortgage loans. All payments of principal and
interest are passed through to investors each month.
8 FNMA obligations are securities consisting mostly of mortgages backed by
the Federal Housing Administration. These obligations also include some
nongovernment-backed mortgages.
9 FHLMC are mortgage-backed securities, issued in minimum denominations of
$25,000, that are packaged, guaranteed and sold by the Federal Home Loan
Mortgage Corporation.
10 Duration is a common gauge of the price sensitivity of a fixed income asset
or portfolio to a change in interest rates.
11 Coupon is the interest on a debt security the issuer promises to pay to a
holder until maturity, expressed as an annual percentage of face value.
3 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
In closing, thank you for investing in the Smith Barney Managed Governments Fund
Inc. We look forward to helping you pursue your financial goals in the future.
Sincerely,
/s/ James E. Conroy
James E. Conroy
Vice President and Investment Officer
August 29, 2000
4 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
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>
7/31/00 $12.09 $12.03 $0.70 $0.00 $0.00 5.49%
------------------------------------------------------------------------------------------------------------
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
============================================================================================================
Total $7.76 $0.23 $0.43
============================================================================================================
<CAPTION>
Historical Performance -- Class B Shares
Net Asset Value
--------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns/(1)/
============================================================================================================
7/31/00 $12.09 $12.03 $0.64 $0.00 $0.00 4.91%
------------------------------------------------------------------------------------------------------------
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 $5.19 $0.16 $0.22
============================================================================================================
</TABLE>
5 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
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>
7/31/00 $12.09 $12.03 $0.65 $0.00 $0.00 5.00%
------------------------------------------------------------------------------------------------------------
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 $4.84 $0.02 $0.22
============================================================================================================
</TABLE>
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>
7/31/00 $12.10 $12.03 $0.75 $0.00 $0.00 5.79%
------------------------------------------------------------------------------------------------------------
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 $3.66 $0.00 $0.01
============================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
6 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
Average Annual Total Returns
Without Sales Charges/(1)/
-----------------------------------------
Class A Class B Class L Class Y
================================================================================
Year Ended 7/31/00 5.49% 4.91% 5.00% 5.79%
--------------------------------------------------------------------------------
Five Years Ended 7/31/00 5.37 4.82 4.89 N/A
--------------------------------------------------------------------------------
Ten Years Ended 7/31/00 6.86 N/A N/A N/A
--------------------------------------------------------------------------------
Inception* through 7/31/00 8.04 5.22 4.54 5.19
================================================================================
With Sales Charges/(2)/
-----------------------------------------
Class A Class B Class L Class Y
================================================================================
Year Ended 7/31/00 0.74% 0.43% 2.98% 5.79%
--------------------------------------------------------------------------------
Five Years Ended 7/31/00 4.40 4.67 4.68 N/A
--------------------------------------------------------------------------------
Ten Years Ended 7/31/00 6.37 N/A N/A N/A
--------------------------------------------------------------------------------
Inception* through 7/31/00 7.73 5.22 4.39 5.19
================================================================================
Cumulative Total Returns
Without Sales Charges/(1)/
================================================================================
Class A (7/31/90 through 7/31/00) 94.22%
--------------------------------------------------------------------------------
Class B (Inception* through 7/31/00) 48.22
--------------------------------------------------------------------------------
Class L (Inception* through 7/31/00) 36.98
--------------------------------------------------------------------------------
Class Y (Inception* through 7/31/00) 25.47
================================================================================
(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 charges 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.
7 Smith Barney Managed Governments Fund Inc. | 2000 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+
--------------------------------------------------------------------------------
[GRAPH]
July 1990 -- July 2000
Smith Barney Managed Lipper Mortgage Lehman Brothers
Governments Fund Inc. Securities Average Government Bond Index
July 1990 9,551 10,000 10,000
July 1991 10,413 11,048 11,004
July 1992 12,001 12,507 12,682
July 1993 13,252 13,567 14,052
July 1994 13,263 13,297 14,033
July 1995 14,280 14,459 16,485
July 1996 14,816 15,174 17,335
July 1997 16,570 16,699 19,099
July 1998 17,483 17,745 20,694
July 1999 17,584 18,031 21,262
July 2000 18,550 19,033 22,576
+ Hypothetical illustration of $10,000 invested in Class A shares on July 31,
1990, 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, 2000. 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, Inc. U.S.
Mortgage Securities Bond Fund Average ("Lipper Mortgage Securities
Average") is composed of the Fund's peer group of mutual funds (60 funds as
of July 31, 2000) investing in U.S. mortgage-backed securities. Lipper 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*
[GRAPH]
GNMA 64.3%
FNMA 17.8%
U.S. Treasuries 11.5%
Repurchase Agreement 6.4%
* As a percentage of total investments. These holdings are as of July 31, 2000
and are subject to change.
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.
8 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
Schedule of Investments July 31, 2000
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 93.6%
$ 16,000,000 U.S. Treasury Note, 6.500% due 2/15/10 $ 16,529,920
25,000,000 U.S. Treasury Note, 6.250% due 5/15/30 26,640,500
30,000,000 U.S. Treasury Strip, zero coupon to yield 6.209% due 2/15/19 9,847,800
80,500,000 Federal National Mortgage Association (FNMA), 8.500% due 7/31/30* 81,882,990
Government National Mortgage Association I (GNMA):
43,808,101 6.500% due 10/15/28+ 41,590,097
37,382,322 7.000% due 5/15/29+ 36,365,897
56,151,709 7.500% due 5/15/30+ 55,712,603
161,456,901 8.000% due 5/15/30+@ 162,969,752
--------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- $434,780,011) 431,539,559
--------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 6.4%
29,432,000 Morgan Stanley Dean Witter & Co.,6.530% due 8/1/00; Proceeds at maturity -- $29,437,335;
(Fully collateralized by U.S. Treasury Notes, 4.500% to 6.375% due 8/15/00 to 2/15/07;
Market value -- $30,175,148) (Cost -- $29,432,000) 29,432,000
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost -- $464,212,011**) $460,971,559
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Security issued on a to-be-announced ("TBA") basis (See Note 9).
+ Date shown represents the last in range of maturity dates of mortgage
certificates owned.
@ Security partially segregated by custodian for TBAs.
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
9 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
Statement of Assets and Liabilities July 31, 2000
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost -- $464,212,011) $460,971,559
Cash 571
Receivable for securities sold 54,587,500
Interest receivable 3,472,710
Receivable for Fund shares sold 132,787
Other assets 2,975
------------------------------------------------------------------------------------------------
Total Assets 519,168,102
------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 82,226,278
Payable for Fund shares purchased 1,362,287
Investment advisory fees payable 166,977
Administration fees payable 74,212
Distribution fees payable 23,738
Other liabilities 941,265
Accrued expenses 126,188
------------------------------------------------------------------------------------------------
Total Liabilities 84,920,945
------------------------------------------------------------------------------------------------
Total Net Assets $434,247,157
------------------------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 36,100
Capital paid in excess of par value 478,014,872
Undistributed net investment income 272,711
Accumulated net realized loss from security transactions (40,836,074)
Net unrealized depreciation of investments (3,240,452)
------------------------------------------------------------------------------------------------
Total Net Assets $434,247,157
------------------------------------------------------------------------------------------------
Shares Outstanding:
Class A 22,496,571
-------------------------------------------------------------------------------------------
Class B 3,284,216
-------------------------------------------------------------------------------------------
Class L 322,459
-------------------------------------------------------------------------------------------
Class Y 9,996,290
-------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $12.03
-------------------------------------------------------------------------------------------
Class B * $12.03
-------------------------------------------------------------------------------------------
Class L ** $12.03
-------------------------------------------------------------------------------------------
Class Y (and redemption price) $12.03
-------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $12.60
-------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $12.15
------------------------------------------------------------------------------------------------
</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.
10 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
Statement of Operations For the Year Ended July 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 33,361,030
----------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 2,118,708
Distribution fees (Note 2) 1,141,931
Administration fees (Note 2) 941,648
Shareholder and system servicing fees 262,633
Registration fees 90,547
Audit and legal 76,855
Shareholder communications 73,503
Directors' fees 60,327
Custody 29,958
Other 15,589
----------------------------------------------------------------------------------------------------
Total Expenses 4,811,699
----------------------------------------------------------------------------------------------------
Net Investment Income 28,549,331
----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions (excluding short-term securities):
Proceeds from sales 822,409,949
Cost of securities sold 835,315,298
----------------------------------------------------------------------------------------------------
Net Realized Loss (12,905,349)
----------------------------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of year (12,258,704)
End of year (3,240,452)
----------------------------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation 9,018,252
----------------------------------------------------------------------------------------------------
Net Loss on Investments (3,887,097)
----------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 24,662,234
----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
Statements of Changes in Net Assets For the Years Ended July 31,
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 28,549,331 $ 27,915,680
Net realized loss (12,905,349) (9,401,797)
Increase (decrease) in net unrealized depreciation 9,018,252 (14,584,287)
-------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 24,662,234 3,929,596
-------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (27,451,935) (30,793,285)
-------------------------------------------------------------------------------------------------------------
Decrease In Net Assets From Distributions to Shareholders (27,451,935) (30,793,285)
-------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 71,123,701 127,955,837
Net asset value of shares issued for reinvestment of dividends 13,149,987 15,923,744
Cost of shares reacquired (153,000,295) (152,838,825)
-------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share Transactions (68,726,607) (8,959,244)
-------------------------------------------------------------------------------------------------------------
Decrease in Net Assets (71,516,308) (35,822,933)
NET ASSETS:
Beginning of year 505,763,465 541,586,398
-------------------------------------------------------------------------------------------------------------
End of year* $ 434,247,157 $ 505,763,465
-------------------------------------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net investment income of: $ 272,711 $ (1,238,955)
-------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12 Smith Barney Managed Governments Fund Inc. | 2000 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 listed on
a national securities exchange will be valued on the basis of the last sale on
the date on which the valuation is made or, in the absence of sales, at the mean
between the closing bid and asked prices. Over-the-counter securities will be
valued at the mean between the closing bid and asked prices on each day;
(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 maturing within 60 days are valued at cost plus accreted discount,
or minus amortized premium, which approximates value; (e)other 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; (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, 2000, reclassifications were made to the Fund's capital accounts to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets were not affected by 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
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), which, in turn is a subsidiary of Citigroup Inc.
("Citigroup"), 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.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney Private
Trust Company, another subsidiary of Citigroup, acts as the Fund's transfer
agent and PFPC Global Fund Services ("PFPC") acts as the Fund's sub-transfer
agent. CFTC receives account fees and asset-based fees that vary according to
the account size and type of account. PFPC is responsible for shareholder
recordkeeping and financial processing for all shareholder accounts and is paid
by CFTC. During the year ended July 31, 2000, the Fund paid transfer agent fees
of $222,989 to CFTC.
Effective June 5, 2000, Salomon Smith Barney Inc. ("SSB"), another subsidiary of
SSBH, became the Fund's distributor replacing CFBDS, Inc. ("CFBDS"). In
addition, SSB acts as the primary broker for the Fund's portfolio agency
transactions. Certain other broker-dealers continue to sell Fund shares to the
public as members of the selling group. For the year ended July 31, 2000, SSB
and its affiliates did not receive any brokerage commissions.
13 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
Notes to Financial Statements (continued)
There are maximum initial sales charges of 5.00% and 1.00% for Class A and L
shares, respectively. 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, 2000, SSB and CFBDS received sales charges of
approximately $227,000 and $10,000 on sales of the Fund's Class A and L shares,
respectively. In addition, CDSCs paid to SSB were approximately:
Class A Class B Class L
--------------------------------------------------------------------------------
CDSCs $3,000 $78,000 $3,000
--------------------------------------------------------------------------------
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, 2000, total Distribution Plan fees
incurred were:
Class A Class B Class L
--------------------------------------------------------------------------------
Distribution Plan Fees $739,692 $374,676 $27,563
--------------------------------------------------------------------------------
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the year ended July 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
--------------------------------------------------------------------------------
Purchases $798,530,273
--------------------------------------------------------------------------------
Sales 822,409,949
--------------------------------------------------------------------------------
At July 31, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
--------------------------------------------------------------------------------
Gross unrealized appreciation $ 1,669,569
Gross unrealized depreciation (4,910,021)
--------------------------------------------------------------------------------
Net unrealized depreciation $(3,240,452)
--------------------------------------------------------------------------------
4. Capital Loss Carryforward
At July 31, 2000, the Fund had, for Federal income tax purposes, capital loss
carryforwards of approximately $27,919,000 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 2008
--------------------------------------------------------------------------------
Carryforward Amounts $10,207,000 $3,598,000 $14,114,000
--------------------------------------------------------------------------------
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 (plus accrued interest) 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 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.
14 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
Notes to Financial Statements (continued)
During the year ended July 31, 2000, the Fund did not enter into any reverse
repurchase agreements.
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, 2000, the Fund had no open purchased call or put option contracts.
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, 2000, the Fund did not write any call or put
option contracts.
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).
At July 31, 2000, 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, 2000, the Fund held one TBA security with a total cost of
$81,807,994.
15 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
Notes to Financial Statements (continued)
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, 2000, the Fund had no open dollar roll transactions.
11. Capital Shares
At July 31, 2000, 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, 2000, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Paid-in Capital $334,774,256 $15,389,932 $3,955,504 $123,931,280
--------------------------------------------------------------------------------------
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, 2000 July 31, 1999
---------------------------- --------------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold 4,169,302 $ 50,066,100 5,941,483 $ 76,042,708
Shares issued on reinvestment 949,738 11,415,627 1,067,610 13,435,336
Shares reacquired (9,239,118) (111,008,735) (9,789,455) (124,581,005)
------------------------------------------------------------------------------------------------------------
Net Decrease (4,120,078) $ (49,527,008) (2,780,362) $ (35,102,961)
------------------------------------------------------------------------------------------------------------
Class B
Shares sold 424,669 $ 5,119,735 1,099,653 $ 14,006,795
Shares issued on reinvestment 131,489 1,581,073 183,648 2,312,409
Shares reacquired (2,351,019) (28,232,093) (2,013,572) (25,429,750)
------------------------------------------------------------------------------------------------------------
Net Decrease (1,794,861) $ (21,531,285) (730,271) $ (9,110,546)
------------------------------------------------------------------------------------------------------------
Class L
Shares sold 117,782 $ 1,408,937 316,056 $ 4,011,658
Shares issued on reinvestment 12,753 153,287 14,009 175,999
Shares reacquired (180,705) (2,174,927) (178,371) (2,253,226)
------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (50,170) $ (612,703) 151,694 $ 1,934,431
------------------------------------------------------------------------------------------------------------
Class Y
Shares sold 1,209,411 $ 14,528,929 2,671,406 $ 33,894,676
Shares reacquired (966,947) (11,584,540) (46,198) (574,844)
------------------------------------------------------------------------------------------------------------
Net Increase 242,464 $ 2,944,389 2,625,208 $ 33,319,832
------------------------------------------------------------------------------------------------------------
</TABLE>
16 Smith Barney Managed Governments Fund Inc. | 2000 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 2000(1) 1999(1) 1998 1997(1) 1996(1)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.09 $12.73 $12.84 $12.27 $12.63
--------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.73 0.65 0.75 0.80 0.81
Net realized and unrealized gain (loss) (0.09) (0.57) (0.06) 0.59 (0.34)
--------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.64 0.08 0.69 1.39 0.47
--------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.70) (0.72) (0.80) (0.82) (0.82)
Capital -- -- -- -- (0.01)
--------------------------------------------------------------------------------------------------------------------
Total Distributions (0.70) (0.72) (0.80) (0.82) (0.83)
--------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.03 $12.09 $12.73 $12.84 $12.27
Total Return 5.49% 0.58% 5.51% 11.80% 3.76%
--------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $270,599 $321,860 $374,109 $414,571 $454,679
--------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 6.05% 5.18% 5.78% 6.43% 6.46%
Interest expense -- -- 0.13 0.22 0.47
Other expenses 1.05 1.04 1.03 1.01 1.04
Total expenses 1.05 1.04 1.16 1.23 1.51
--------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 173% 205% 363% 121% 275%
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class B Shares 2000(1) 1999(1) 1998 1997(1) 1996(1)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.09 $12.73 $12.84 $12.27 $12.63
--------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.66 0.59 0.67 0.74 0.75
Net realized and unrealized gain (loss) (0.08) (0.57) (0.05) 0.59 (0.34)
--------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.58 0.02 0.62 1.33 0.41
--------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.64) (0.66) (0.73) (0.76) (0.76)
Capital -- -- -- -- (0.01)
--------------------------------------------------------------------------------------------------------------------
Total Distributions (0.64) (0.66) (0.73) (0.76) (0.77)
--------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.03 $12.09 $12.73 $12.84 $12.27
--------------------------------------------------------------------------------------------------------------------
Total Return 4.91% 0.06% 4.99% 11.23% 3.24%
--------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $39,499 $61,391 $73,905 $96,747 $110,724
--------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 5.52% 4.64% 5.27% 5.91% 5.94%
Interest expense -- -- 0.13 0.22 0.47
Other expenses 1.58 1.57 1.56 1.53 1.56
Total expenses 1.58 1.57 1.69 1.75 2.03
--------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 173% 205% 363% 121% 275%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
17 Smith Barney Managed Governments Fund Inc. | 2000 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 2000(1) 1999(1) 1998(1)(2) 1997(1) 1996(1)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.09 $12.73 $12.84 $12.27 $12.63
-----------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.67 0.61 0.67 0.74 0.75
Net realized and unrealized gain (loss) (0.08) (0.58) (0.04) 0.59 (0.34)
-----------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.59 0.03 0.63 1.33 0.41
-----------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.65) (0.67) (0.74) (0.76) (0.76)
Capital -- -- -- -- (0.01)
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.65) (0.67) (0.74) (0.76) (0.77)
-----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.03 $12.09 $12.73 $12.84 $12.27
-----------------------------------------------------------------------------------------------------------------------------
Total Return 5.00% 0.15% 5.07% 11.26% 3.25%
-----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $3,879 $4,505 $2,811 $1,866 $1,238
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 5.60% 4.76% 5.28% 6.01% 5.99%
Interest expense -- -- 0.13 0.22 0.47
Other expenses 1.51 1.48 1.49 1.46 1.49
Total expenses 1.51 1.48 1.62 1.68 1.96
-----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 173% 205% 363% 121% 275%
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class Y Shares 2000(1) 1999(1) 1998 1997(1) 1996(1)(3)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.10 $12.74 $12.84 $12.27 $12.86
-----------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.77 0.70 0.80 0.84 0.35
Net realized and unrealized gain (loss) (0.09) (0.57) (0.06) 0.59 (0.49)
-----------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.68 0.13 0.74 1.43 (0.14)
Less Distributions From:
Net investment income (0.75) (0.77) (0.84) (0.86) (0.44)
Capital -- -- -- -- (0.01)
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.75) (0.77) (0.84) (0.86) (0.45)
-----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.03 $12.10 $12.74 $12.84 $12.27
-----------------------------------------------------------------------------------------------------------------------------
Total Return 5.79% 0.92% 5.94% 12.16% (1.10)%++
-----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $120,270 $118,007 $90,761 $85,194 $27,215
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 6.40% 5.54% 6.10% 6.82% 6.62%+
Interest expense -- -- 0.13 0.22 0.47+
Other expenses 0.71 0.70 0.69 0.62 0.78+
Total expenses 0.71 0.70 0.82 0.84 1.25
-----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 173% 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.
18 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<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, 2000, 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 auditing standards generally accepted
in the United States of America. 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, 2000, 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, 2000, 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
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
New York, New York
September 11, 2000
19 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
Tax Information (unaudited)
For Federal tax purposes, the Fund hereby designates for the fiscal year ended
July 31, 2000:
A total of 5.79% 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.
20 Smith Barney Managed Governments Fund Inc. | 2000 Annual Report to
Shareholders
<PAGE>
SMITH BARNEY
MANAGED GOVERNMENTS FUND
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
SSB Citi Fund Management LLC
Distributor
Salomon Smith Barney Inc.
Custodian
PFPC Trust Company
Transfer Agent
Citi Fiduciary Trust Company
125 Broad Street, 11th Floor
New York, New York 10004
Sub-Transfer Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island
02940-9699
<PAGE>
Smith Barney Managed Governments Fund Inc.
This report is submitted for the general information of shareholders of
Smith Barney Managed Governments Fund Inc., but it may also be used as sales
literature when proceeded or accompanied by the current Prospectus, which
gives details about charges, expenses, investment objectives and operating
policies of the Fund. If used as sales material after October 31, 2000, this
report must be accompanied by performance information for the most recently
completed calendar quarter.
SMITH BARNEY MANAGED GOVERNMENTS
FUND INC.
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any of the above Smith Barney Mutual Funds,
including management fees and expenses, call or write for a free prospectus.
Read it carefully before you invest or send money.
www.smithbarney.com/mutualfunds
[LOGO OF SALOMON SMITH BARNEY]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
FD01181 9/00
