UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4061
Smith Barney Managed Governments Fund Inc.
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Christina T. Sydor, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: July 31
Date of reporting period: July 31, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
- --------------------------------------------------------------------------------
SMITH BARNEY
MANAGED GOVERNMENTS
FUND INC.
- --------------------------------------------------------------------------------
CLASSIC SERIES | ANNUAL REPORT | JULY 31, 2003
[LOGO] Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed./R/
Your Serious Money. Professionally Managed./R/
is a registered service mark of Citigroup Global Markets Inc.
-----------------------------------------------------------------
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
-----------------------------------------------------------------
[PHOTO] [PHOTO] [LOGO] Classic Series
ROGER M. LAVAN, CFA DAVID TORCHIA
PORTFOLIO MANAGER PORTFOLIO MANAGER Annual Report . July 31, 2003
SMITH BARNEY MANAGED
GOVERNMENTS FUND INC.
[GRAPHIC]
ROGER M. LAVAN
Roger M. Lavan, CFA, has more than 18 years of securities business
experience. Mr. Lavan holds a BS in Management from the State University
of New York and an MBA from Fordham University.
DAVID TORCHIA
David Torchia has more than 18 years of securities business experience.
Mr. Torchia holds a BS from the University of Pittsburgh and an MBA in
Finance from Lehigh University.
FUND OBJECTIVE
Seeks high current income consistent with liquidity and preservation of
capital by investing at least 80% of its assets in debt obligations
issued by the U.S. government, its agencies or instrumentalities.
FUND FACTS
FUND INCEPTION
- -----------------
September 4, 1984
MANAGER INVESTMENT
INDUSTRY EXPERIENCE
- -----------------
18 years (Roger M. Lavan, CFA)
18 years (David Torchia)
What's Inside
Letter from the Chairman.............................................. 1
Manager Overview...................................................... 2
Fund Performance...................................................... 4
Historical Performance................................................ 5
Schedule of Investments............................................... 6
Statement of Assets and Liabilities................................... 7
Statement of Operations............................................... 8
Statements of Changes in Net Assets................................... 9
Notes to Financial Statements......................................... 10
Financial Highlights.................................................. 16
Independent Auditors' Report.......................................... 18
Additional Information................................................ 19
Tax Information....................................................... 20
LETTER FROM THE CHAIRMAN
[PHOTO]
R. JAY GERKEN, CFA
Chairman, President and
Chief Executive Officer
Dear Shareholder,
The philosopher Bertrand Russell famously remarked that, "Change is one thing,
progress is another." You will notice in the following pages that we have begun
to implement some changes to your shareholder report and we will be reflecting
other changes in future reports. Our aim is to make meaningful improvements in
reporting on the management of your Fund and its performance, not just to enact
change for change's sake. Please bear with us during this transition period.
We know that you have questions about fund managers' decisions and plans, and
we want to be sure that you have easy access to the information you need.
Keeping investors informed is, and always will be, one of my top priorities as
Chairman of your Fund. To that end, we encourage you to go to our website:
www.smithbarneymutualfunds.com where you can find additional insight on your
Fund.
In terms of your Fund's stewardship, it is with great sadness that we bring to
your attention the passing of Alfred J. Bianchetti, Director Emeritus and James
J. Crisona, Director Emeritus, of the Fund. Messrs. Bianchetti and Crisona, who
both passed away on September 4/th/, lived accomplished lives to the ages of 80
and 97, respectively. We will sorely miss their presence and will remember the
dedicated service they provided to the Fund's shareholders through their
outstanding contributions as long-term members of the Board.
We invite you to read this report in full. Please take the opportunity to talk
to your financial adviser about this report or any other questions or concerns
you have about your Fund and your financial future. As always, thank you for
entrusting your assets to us. We look forward to helping you continue to meet
your financial goals. Please read on to learn more about your Fund's
performance and the Manager's strategy.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
August 13, 2003
1 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
MANAGER OVERVIEW
Performance Review
For the 12 months ended July 31, 2003, Class A shares of the Smith Barney
Managed Governments Fund Inc. ("Fund"), without sales charges, returned 1.15%.
The Fund underperformed its unmanaged benchmark, the Lehman Brothers Government
Bond Index ("Lehman Index"),/i/ which returned 4.44% for the same period. The
Fund's Lipper peer group of U.S. mortgage funds returned 2.32% for the same
period./1/
What Affected Fund Performance?
Although the Fund's holdings included a position in U.S. Treasury securities
and cash, and a small allocation to U.S. government agency issues, it was
essentially concentrated in mortgage-backed securities. Over the year,
mortgage-backed securities underperformed comparable-maturity U.S. Treasuries,
which advanced as expectations mounted that interest rates would drop. The
Lehman Index includes all public debt issued by the U.S. government and its
agencies, whereas the Fund's portfolio consisted chiefly of mortgage-backed
securities. This heavy weighting in mortgage-backed securities relative to the
Lehman Index contributed to the Fund's underperformance relative to the
benchmark. Note, however, that while prices and yields will fluctuate, the
Fund's concentration in mortgage-backed securities continued to provide
favorable yields over comparable-maturity U.S. Treasuries.
Considering that interest rates are at historic lows, we reduced the Fund's
susceptibility to rising interest rates, commonly known as duration, to help
prepare for a rising rate environment. This more conservative approach
contributed to the Fund's lower total return versus the Lehman Index. However,
if rates were to eventually rise, we expect the portfolio will be more
prudently positioned for the long term.
Market Overview -- Swings in Sentiment
While the markets for U.S. government securities collectively generated
positive total returns over the 12 months ended July 31, 2003, they vacillated
during the period due to changing tides of sentiment. Last summer, corporate
integrity concerns and doubts about the strength of an economic recovery
prompted many investors to seek relative safety in higher-rated fixed-income
investments --specifically U.S. Treasury securities. In November, however, when
the Fed cut the federal funds rate/ii/ by half a percentage point and
expectations rose that the economy may improve in 2003, many investors shifted
their money into riskier assets to seek potentially higher returns. Concerns
about the prospects of war with Iraq subsequently intensified, North Korea
joined Iraq as a headline risk and unemployment levels remained high, during
which time the Treasury markets continued to fluctuate into early 2003.
After the major battles in Iraq subsided, bond prices proceeded to rise as a
post-war rebound in business activity failed to materialize. Yields on shorter-
and longer-term issues converged as the Fed reiterated its intention to provide
the monetary stimulus needed to get economic growth back on track. Although
comments from the Fed suggested that it believed growth was likely to resume in
due course, it also signaled its determination to use all the tools at its
disposal to avoid deflation.
/1/ Lipper is a major independent mutual-fund tracking organization. Average
annual returns are based on the 12-month period ended July 31, 2003,
calculated among 79 funds in the U.S. mortgage funds category with
reinvestment of dividends and capital gains excluding sales charges.
2 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
Economic data were mixed, which disappointed optimists who had been expecting
more of a rebound in demand and economic activity following the end of the war.
To the delight of many bond bulls, the end of military action in Iraq initially
did little to boost employment, as anemic manufacturing and corporate capital
spending persisted and inflation remained benign.
Rally Triggered By Rate Cut Expectations
As the year advanced, yields on shorter-term U.S. Treasuries dropped to levels
near the lows they had reached prior to the Fed's meeting in late June. Before
the meeting, many market participants anticipated that the federal funds rate
would drop again, although the expectation of the size of a cut was split
between 0.50% or 0.25%. During its meeting, the Fed reduced its target by 0.25%
to 1.00% -- a level not seen in 45-years. Paradoxically, Treasury yields rose
in the aftermath of the cut as the bond market, based on the Fed's post-meeting
statement, anticipated an improving economy and lower chance of further
interest rate reductions.
By the end of July, U.S. Treasuries with longer maturities outperformed those
with shorter maturities over the 12 months because the prices of longer-term
issues are generally more sensitive to interest rate movements than
shorter-term issues (bond prices move inversely to interest rates). The
expectation of falling rates in June therefore gave more of a boost to
longer-term bonds. Mortgage-backed securities underperformed
comparable-maturity U.S. Treasuries over the past year. However, due to a
sell-off in the Treasury market in July when both fixed-income classes
retreated in price, mortgage-backed securities held up better for the final
month.
Thank you for your investment in the Smith Barney Managed Governments Fund Inc.
We appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
/s/ Roger M. Lavan /s/ David Torchia
Roger M. Lavan, CFA David Torchia
Vice President and Vice President and
Investment Officer Investment Officer
August 13, 2003
The information provided in this letter by the Manager is not intended to be a
forecast of future events, a guarantee of future results or investment advice.
Views expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of July 31, 2003 and are subject to
change. Please refer to page 6 for a list and percentage breakdown of the
Fund's holdings.
/i/ The Lehman Index is a broad-based index of all public debt obligations of
the U.S. government and its agencies that have an average maturity of
roughly nine years. Please note that an investor cannot invest directly in
an index.
/ii/ The federal 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 federal funds rate often points to the direction of
U.S. interest rates.
3 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
AVERAGE ANNUAL TOTAL RETURNS+ (UNAUDITED)
Without Sales Charges/(1)/
-------------------------------
Class A Class B Class L Class Y
-----------------------------------------------------------
Twelve Months Ended 7/31/03 1.15% 0.62% 0.71% 1.49%
-----------------------------------------------------------
Five Years Ended 7/31/03 4.95 4.40 4.49 5.30
-----------------------------------------------------------
Ten Years Ended 7/31/03 5.32 4.77 4.83 N/A
-----------------------------------------------------------
Inception* through 7/31/03 7.76 5.36 4.92 5.77
-----------------------------------------------------------
With Sales Charges/(2)/
----------------------------------
Class A Class B Class L Class Y
--------------------------------------------------------------
Twelve Months Ended 7/31/03 (3.43)% (3.75)% (1.26)% 1.49%
--------------------------------------------------------------
Five Years Ended 7/31/03 3.98 4.24 4.28 5.30
--------------------------------------------------------------
Ten Years Ended 7/31/03 4.83 4.77 4.73 N/A
--------------------------------------------------------------
Inception* through 7/31/03 7.50 5.36 4.81 5.77
--------------------------------------------------------------
CUMULATIVE TOTAL RETURNS+ (UNAUDITED)
Without Sales Charges/(1)/
---------------------------------------------------------------
Class A (7/31/93 through 7/31/03) 67.94%
---------------------------------------------------------------
Class B (Inception* through 7/31/03) 59.35
---------------------------------------------------------------
Class L (Inception* through 7/31/03) 60.27
---------------------------------------------------------------
Class Y (Inception* through 7/31/03) 52.13
---------------------------------------------------------------
(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; Class B shares reflect the deduction of a 4.50% CDSC, which
applies if shares are redeemed within one year from purchase payment. This
CDSC declines by 0.50% the first year after purchase payment 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 one year from purchase payment.
+ The returns shown do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
* Inception dates for Class A, B, L and Y shares are September 4, 1984,
November 6, 1992, June 29, 1993 and February 7, 1996, respectively.
4 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
HISTORICAL PERFORMANCE (UNAUDITED)
Value of $10,000 Invested in Class A Shares of the Smith Barney Managed
Governments Fund Inc. vs. Lehman Brothers Government Bond Index and Lipper U.S.
Mortgage Funds Average+
- --------------------------------------------------------------------------------
July 1993 -- July 2003
[CHART]
Smith Barney
Managed Lehman Brothers Lipper
Governments Fund Inc.-- Government U.S. Mortgage
Class A Shares Bond Index Funds Average
---------------------- --------------- ---------------
7/1993 9,547 10,000 10,000
7/1994 9,555 9,987 9,801
7/1995 10,288 11,731 10,658
7/1996 10,674 12,337 11,185
7/1997 11,938 13,592 12,309
7/1998 12,596 14,727 13,080
7/1999 12,669 15,131 13,291
7/2000 13,364 16,066 14,011
7/2001 14,792 17,978 15,643
7/2002 15,852 19,523 16,867
7/2003 16,034 20,390 17,258
+Hypothetical illustration of $10,000 invested in Class A shares on July 31,
1993, assuming deduction of the maximum 4.50% initial sales charge at the time
of investment and reinvestment of dividends and capital gains, if any, at net
asset value through July 31, 2003. 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 U.S. Mortgage Funds Average is composed
of the Fund's peer group of mutual funds (79 funds as of July 31, 2003)
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. The returns shown do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
All figures represent past performance and are not a guarantee of future
results. The performance data represents past performance including the
investment return and principal value of an investment, which will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost.
5 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
SCHEDULE OF INVESTMENTS JULY 31, 2003
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 59.8%
U.S. Treasury Notes:
$ 13,500,000 3.000% due 2/29/04 (a) $ 13,652,941
11,000,000 5.875% due 11/15/04 (a) 11,625,196
7,000,000 4.375% due 5/15/07 (a)+ 7,390,201
10,000,000 3.625% due 5/15/13 (a) 9,332,820
7,200,000 Federal Home Loan Bank, 3.375% due 5/14/04 (a) 7,319,858
Federal Home Loan Mortgage Corp. (FHLMC):
1,284 5.500% due 5/1/13 (a) 1,313
3,185,423 7.000% due 2/1/16 (a)(b) 3,384,368
10,896,437 6.000% due 3/1/17 (a) 11,258,327
7,051,086 6.500% due 6/1/19 (a)(b) 7,361,524
2,831,013 6.500% due 1/1/32 (a)(b) 2,907,298
25,000,000 5.000% due 7/1/33 (c)(d) 23,898,500
40,000,000 5.500% due 7/7/33 (c)(d) 39,524,800
20,000,000 6.000% due 7/8/33 (c)(d) 20,225,000
49,000,000 6.500% due 7/8/33 (c)(d) 50,439,620
Federal National Mortgage Association (FNMA):
86,527 7.500% due 4/1/09 (a) 89,894
72,942 6.500% due 6/1/15 (a)(b) 76,554
56,317 7.000% due 1/1/16 (a) 59,835
4,144,823 5.500% due 12/1/16 (a)(b) 4,227,938
3,565,668 6.000% due 5/1/17 (a) 3,689,229
826,350 6.500% due 3/1/32 (a) 848,635
11,241,355 7.500% due 3/1/32 (a)(b) 11,914,874
7,565,442 7.000% due 5/1/32 (a)(b) 7,919,318
29,578,527 6.000% due 6/1/32 (a)(b) 29,924,876
30,000,000 5.000% due 5/15/33 (c)(d) 28,687,500
13,000,000 6.000% due 7/7/33 (c)(d) 13,150,280
31,000,000 7.000% due 7/7/33 (c)(d) 32,501,578
25,000,000 6.500% due 7/8/33 (c)(d) 25,734,500
Government National Mortgage Association (GNMA):
98,357 8.500% due 11/15/27 (a) 106,242
24,409,322 6.500% due 3/15/32 (a)(b) 25,259,927
15,472,481 7.000% due 3/15/32 (a)(b) 16,246,303
5,322,705 7.500% due 5/15/32 (a)(b) 5,642,319
- ------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- $413,551,538) 414,401,568
- ------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (a) -- 40.2%
104,991,000 CIBC Oppenheimer, 1.000% due 8/1/03; Proceeds at maturity -- $104,993,916;
(Fully collateralized by U.S. Treasury Notes, 3.625% to 4.625%
due 3/31/04 to 5/15/06; Market value -- $107,091,168) 104,991,000
173,422,000 Goldman Sachs & Co., 1.050% due 8/1/03; Proceeds at maturity -- $173,427,058;
(Fully collateralized by various U.S. government agency obligations, 0.000% to 13.750%
due 9/18/03 to 11/15/27; Market value -- $176,890,696) 173,422,000
- ------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $278,413,000) 278,413,000
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $691,964,538*) $692,814,568
- ------------------------------------------------------------------------------------------------------------------
(a) All or a portion of this security is segregated for open futures contracts
commitments and/or "to-be-announced" securities.
(b) Date shown represents the last in range of maturity dates of mortgage
certificates owned.
(c) Security acquired under mortgage dollar roll agreement (See Note 7).
(d) Security is traded on a "to-be-announced" basis (See Note 6).
+ All or a portion of this security is held as collateral for open futures
contracts commitments.
* Aggregate cost for Federal income tax purposes is $691,964,703.
See Notes to Financial Statements.
6 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 2003
ASSETS:
Investments, at value (Cost -- $413,551,538) $414,401,568
Repurchase agreements, at value (Cost -- $278,413,000) 278,413,000
Cash 506
Interest receivable 1,659,236
Receivable for Fund shares sold 458,430
- -----------------------------------------------------------------------------------------------
Total Assets 694,932,740
- -----------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 240,858,667
Payable for Fund shares reacquired 398,730
Payable to broker -- variation margin 207,656
Investment advisory fee payable 178,102
Administration fee payable 79,084
Distribution plan fees payable 41,142
Accrued expenses 89,799
- -----------------------------------------------------------------------------------------------
Total Liabilities 241,853,180
- -----------------------------------------------------------------------------------------------
Total Net Assets $453,079,560
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 36,235
Capital paid in excess of par value 472,682,255
Overdistributed net investment income (10,458)
Accumulated net realized loss from investment transactions and futures contracts (19,959,295)
Net unrealized appreciation of investments and futures contracts 330,823
- -----------------------------------------------------------------------------------------------
Total Net Assets $453,079,560
- -----------------------------------------------------------------------------------------------
Shares Outstanding:
Class A 20,178,855
-------------------------------------------------------------------------------------------
Class B 2,898,917
-------------------------------------------------------------------------------------------
Class L 1,662,762
-------------------------------------------------------------------------------------------
Class Y 11,494,728
-------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $12.50
-------------------------------------------------------------------------------------------
Class B * $12.51
-------------------------------------------------------------------------------------------
Class L * $12.51
-------------------------------------------------------------------------------------------
Class Y (and redemption price) $12.50
-------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $13.09
-------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $12.64
- -----------------------------------------------------------------------------------------------
* Redemption price is NAV of Class B and L shares reduced by a 4.50% and 1.00%
CDSC, respectively, if shares are redeemed within one year from purchase
payment (See Note 2).
See Notes to Financial Statements.
7 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 31, 2003
INVESTMENT INCOME:
Interest $18,129,755
- ------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) 2,105,927
Distribution plan fees (Note 8) 1,135,596
Administration fee (Note 2) 935,967
Shareholder servicing fees (Note 8) 262,514
Directors' fees 46,179
Registration fees 43,887
Audit and legal 40,325
Custody 38,327
Shareholder communications (Note 8) 30,151
Other 10,865
- ------------------------------------------------------------------------
Total Expenses 4,649,738
- ------------------------------------------------------------------------
Net Investment Income 13,480,017
- ------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 3 AND 5):
Realized Gain (Loss) From:
Investment transactions 795,450
Futures contracts (428,181)
- ------------------------------------------------------------------------
Net Realized Gain 367,269
- ------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and
Futures Contracts:
Beginning of year 8,487,184
End of year 330,823
- ------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (8,156,361)
- ------------------------------------------------------------------------
Net Loss on Investments and Futures Contracts (7,789,092)
- ------------------------------------------------------------------------
Increase in Net Assets From Operations $ 5,690,925
- ------------------------------------------------------------------------
See Notes to Financial Statements.
8 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED JULY 31,
2003 2002
- ------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 13,480,017 $ 20,718,621
Net realized gain 367,269 6,058,484
Increase (decrease) in net unrealized
appreciation (8,156,361) 3,928,338
- -----------------------------------------------------------------------------
Increase in Net Assets From Operations 5,690,925 30,705,443
- -----------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM (NOTE 9):
Net investment income (16,679,006) (19,907,185)
Capital (2,432,286) --
- -----------------------------------------------------------------------------
Decrease in Net Assets From Distributions to
Shareholders (19,111,292) (19,907,185)
- -----------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 89,057,904 98,525,959
Net asset value of shares issued for
reinvestment of dividends 9,029,310 9,509,066
Cost of shares reacquired (94,368,143) (77,263,994)
- -----------------------------------------------------------------------------
Increase in Net Assets From Fund Share
Transactions 3,719,071 30,771,031
- -----------------------------------------------------------------------------
Increase (Decrease) in Net Assets (9,701,296) 41,569,289
NET ASSETS:
Beginning of year 462,780,856 421,211,567
- -----------------------------------------------------------------------------
End of year* $453,079,560 $462,780,856
- -----------------------------------------------------------------------------
* Includes undistributed (overdistributed) net
investment income of: $(10,458) $1,521,707
- -----------------------------------------------------------------------------
See Notes to Financial Statements.
9 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
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, adjusted for amortization of premium and accretion of discount
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; the Fund
distributes dividends monthly and capital gains, if any, at least annually; (i)
class specific 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 or on another reasonable basis; (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 is
determined in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States of America. At
July 31, 2003, reclassifications were made to the capital accounts of the Fund
to reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Accordingly a portion of
accumulated net realized loss of $4,867,104 was reclassed to paid-in capital.
Net investment income, net realized gains and net assets were not affected by
this change; 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
Smith Barney Fund Management LLC ("SBFM"), an indirect wholly-owned subsidiary
of Citigroup Inc. ("Citigroup"), acts as investment adviser to the Fund. The
Fund pays SBFM an investment advisory fee calculated at an annual rate of 0.45%
of the Fund's average daily net assets up to $1 billion and 0.415% of the
Fund's average daily net assets in excess of $1 billion. This fee is calculated
daily and paid monthly.
SBFM also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the Fund's average daily net assets up
to $1 billion and 0.185% of the Fund's average daily net assets in excess of $1
billion. This fee is calculated daily and paid monthly.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the
Fund's transfer agent. PFPC Global Fund Services ("PFPC") acts as the Fund's
sub-transfer agent. CTB receives account fees and asset-based fees that vary
according to the size and type of account. PFPC is responsible for shareholder
recordkeeping and financial processing for all shareholder accounts and is paid
by CTB. During the year ended July 31, 2003, the Fund paid transfer agent fees
of $222,523 to CTB.
10 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Citigroup Global Markets Inc. ("CGM"), formerly known as Salomon Smith Barney
Inc., another subsidiary of Citigroup, acts as the Fund's distributor.
There are maximum initial sales charges of 4.50% 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 payment. This CDSC declines by 0.50% the first year after
purchase payment 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 one year from purchase payment. In addition, Class A shares have a
1.00% CDSC, which applies if redemption occurs within the one year from
purchase payment. 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, 2003, CGM and its affiliates received sales charges
of approximately $168,000 and $61,000 on sales of the Fund's Class A and L
shares, respectively. In addition, for the year ended July 31, 2003, CDSCs paid
to CGM and its affiliates were approximately $109,000 and $9,000 for Class B
and L shares, respectively.
All officers and one Director of the Fund are employees of Citigroup or its
affiliates.
3. Investments
During the year ended July 31, 2003, the aggregate cost of purchases and
proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments) were as follows:
- -----------------------------------------------------------------------------
Purchases $2,032,187,244
- -----------------------------------------------------------------------------
Sales 1,938,122,538
- -----------------------------------------------------------------------------
At July 31, 2003, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were as follows:
- ---------------------------------------------------------------------------
Gross unrealized appreciation $ 5,622,531
Gross unrealized depreciation (4,772,666)
- ---------------------------------------------------------------------------
Net unrealized appreciation $ 849,865
- ---------------------------------------------------------------------------
4. Repurchase Agreements
The Fund purchases (and the custodian takes possession of ) U.S. government
securities from 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.
11 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Futures Contracts
Securities or cash equal to the initial margin amount are either deposited with
the broker or segregated by the custodian upon entering into the futures
contract. 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 typically 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.
At July 31, 2003, the Fund had the following open futures contracts:
# of Market Unrealized
To Buy: Contracts Expiration Basis Value Value Loss
- ----------------------------------------------------------------------------
U.S. Treasury 2
Year Notes 160 9/03 $34,713,450 $34,342,500 $(370,950)
U.S. Treasury 5
Year Notes 50 9/03 5,629,207 5,566,406 (62,801)
U.S. Treasury 10
Year Notes 50 9/03 5,616,706 5,531,250 (85,456)
- ---------------------------------------------------------------------------
Net Unrealized Loss
on Open Futures
Contracts $(519,207)
- ---------------------------------------------------------------------------
6. 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 of the underlying security
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, 2003, the Fund held TBA securities with a total cost of
$236,777,578.
7. Mortgage Dollar Roll Transactions
The Fund may enter into mortgage dollar roll transactions. A mortgage dollar
roll transaction involves a sale by the Fund of mortgage related 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 rate 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.
At July 31, 2003, the Fund had outstanding mortgage dollar rolls with a total
cost of $236,777,578.
12 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Class Specific Expenses
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, 2003, total Distribution Plan fees,
which are accrued daily and paid monthly, were as follows:
Class A Class B Class L
- -----------------------------------------------------------------------------------------
Distribution Plan Fees $682,059 $302,509 $151,028
- ----------------------------------------------------------------------------------------
For the year ended July 31, 2003, total Shareholder Servicing fees were as
follows:
Class A Class B Class L Class Y
- -----------------------------------------------------------------------------------------
Shareholder Servicing Fees $207,807 $35,185 $19,421 $101
- ----------------------------------------------------------------------------------------
For the year ended July 31, 2003, total Shareholder Communication expenses were
as follows:
Class A Class B Class L Class Y
- ----------------------------------------------------------------------------------------
Shareholder Communication Expenses $21,595 $3,620 $4,438 $498
- ---------------------------------------------------------------------------------------
9. Distributions Paid to Shareholders by Class
Year Ended Year Ended
July 31, 2003 July 31, 2002
- ----------------------------------------------------------------------------------------
Class A
Net investment income $ 9,628,285 $12,301,354
Capital 1,413,886 --
- ---------------------------------------------------------------------------------------
Total $11,042,171 $12,301,354
- ---------------------------------------------------------------------------------------
Class B
Net investment income $ 1,220,179 $ 1,315,971
Capital 209,786 --
- ---------------------------------------------------------------------------------------
Total $ 1,429,965 $ 1,315,971
- ---------------------------------------------------------------------------------------
Class L
Net investment income $ 660,422 $ 536,000
Capital 112,833 --
- ---------------------------------------------------------------------------------------
Total $ 773,255 $ 536,000
- ---------------------------------------------------------------------------------------
Class Y
Net investment income $ 5,170,120 $ 5,753,860
Capital 695,781 --
- ---------------------------------------------------------------------------------------
Total $ 5,865,901 $ 5,753,860
- ---------------------------------------------------------------------------------------
13 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Capital Shares
At July 31, 2003, 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.
Transactions in shares of each class were as follows:
Year Ended Year Ended
July 31, 2003 July 31, 2002
------------------------ ------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
Class A
Shares sold 1,753,101 $ 22,641,545 2,724,945 $ 34,574,491
Shares issued on reinvestment 583,002 7,518,566 653,525 8,268,742
Shares reacquired (3,691,238) (47,593,956) (3,409,301) (43,181,126)
- ---------------------------------------------------------------------------------
Net Decrease (1,355,135) $(17,433,845) (30,831) $ (337,893)
- ---------------------------------------------------------------------------------
Class B
Shares sold 997,599 $ 12,911,999 1,686,887 $ 21,450,529
Shares issued on reinvestment 73,867 953,292 65,542 829,922
Shares reacquired (1,157,463) (14,939,361) (1,179,625) (14,906,978)
- ---------------------------------------------------------------------------------
Net Increase (Decrease) (85,997) $ (1,074,070) 572,804 $ 7,373,473
- ---------------------------------------------------------------------------------
Class L
Shares sold 1,306,633 $ 16,886,750 1,467,223 $ 18,605,132
Shares issued on reinvestment 43,217 557,452 32,393 410,402
Shares reacquired (1,375,397) (17,723,938) (325,590) (4,117,675)
- ---------------------------------------------------------------------------------
Net Increase (Decrease) (25,547) $ (279,736) 1,174,026 $ 14,897,859
- ---------------------------------------------------------------------------------
Class Y
Shares sold 2,834,601 $ 36,617,610 1,892,887 $ 23,895,807
Shares reacquired (1,089,837) (14,110,888) (1,182,924) (15,058,215)
- ---------------------------------------------------------------------------------
Net Increase 1,744,764 $ 22,506,722 709,963 $ 8,837,592
- ---------------------------------------------------------------------------------
11.Capital Loss Carryforward
At July 31, 2003, the Fund had, for Federal income tax purposes, capital loss
carryforwards of approximately $19,370,000 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:
2004 2008 2009 2011
- ---------------------------------------------------------------------------------
Carryforward amounts $3,598,000 $14,114,000 $941,000 $717,000
- --------------------------------------------------------------------------------
In addition the Fund had $1,107,924 of capital losses realized after October
31, 2002, which were deferred for tax purposes to the first day of the
following fiscal year.
14 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12.Income Tax Information and Distributions to Shareholders
At July 31, 2003, the tax basis components of distributable earnings were:
- ------------------------------------------------
Accumulated capital losses $(19,370,412)
- ------------------------------------------------
Unrealized appreciation 849,865
- ------------------------------------------------
The difference between book basis and tax basis unrealized appreciation is
attributable primarily to mark to market of derivative securities.
The tax character of distributions paid during the year ended July 31, 2003 was:
- ----------------------------------------------
Ordinary income $16,679,006
Capital 2,432,286
- ----------------------------------------------
Total $19,111,292
- ----------------------------------------------
15 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
FINANCIAL HIGHLIGHTS
For a share of each class of capital stock outstanding throughout each year
ended July 31, unless otherwise noted:
Class A Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/ 1999/(1)/
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $12.87 $12.56 $12.03 $12.09 $12.73
- -------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.37 0.59 0.69 0.73 0.65
Net realized and unrealized gain (0.22) 0.29
(loss) 0.56 (0.09) (0.57)
- -------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.15 0.88 1.25 0.64 0.08
- -------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.45) (0.57) (0.70) (0.70) (0.72)
Capital (0.07) -- (0.02) -- --
- -------------------------------------------------------------------------------------------------------------
Total Distributions (0.52) (0.57) (0.72) (0.70) (0.72)
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.50 $12.87 $12.56 $12.03 $12.09
- -------------------------------------------------------------------------------------------------------------
Total Return 1.15% 7.17% 10.68% 5.49% 0.58%
- -------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $252,312 $277,136 $ 270,884 $270,599 $321,860
- -------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.02% 1.05% 1.04% 1.05% 1.04%
Net investment income 2.87 4.67 5.58 6.05 5.18
- -------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 457% 335% 275% 173% 205%
- -------------------------------------------------------------------------------------------------------------
Class B Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/ 1999/(1)/
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $12.88 $12.57 $12.03 $12.09 $12.73
- -------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.30 0.52 0.62 0.66 0.59
Net realized and unrealized gain (0.21) 0.29
(loss) 0.57 (0.08) (0.57)
- -------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.09 0.81 1.19 0.58 0.02
- -------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.39) (0.50) (0.63) (0.64) (0.66)
Capital (0.07) -- (0.02) -- --
- -------------------------------------------------------------------------------------------------------------
Total Distributions (0.46) (0.50) (0.65) (0.64) (0.66)
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.51 $12.88 $12.57 $12.03 $12.09
- -------------------------------------------------------------------------------------------------------------
Total Return 0.62% 6.60% 10.17% 4.91% 0.06%
- -------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 36,266 $ 38,431 $30,310 $39,499 $61,391
- -------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.53% 1.56% 1.54% 1.58% 1.57%
Net investment income 2.35 4.13 5.11 5.52 4.64
- -------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 457% 335% 275% 173% 205%
- -------------------------------------------------------------------------------------------------------------
(1)Per share amounts have been calculated using the monthly average shares
method.
16 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of capital stock outstanding throughout each year
ended July 31, unless otherwise noted:
Class L Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/ 1999/(1)/
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $12.88 $12.57 $12.03 $12.09 $12.73
- --------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.30 0.53 0.62 0.67 0.61
Net realized and unrealized gain (loss) (0.20) 0.29 0.58 (0.08) (0.58)
- --------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.10 0.82 1.20 0.59 0.03
- --------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.40) (0.51) (0.64) (0.65) (0.67)
Capital (0.07) -- (0.02) -- --
- --------------------------------------------------------------------------------------------------------------
Total Distributions (0.47) (0.51) (0.66) (0.65) (0.67)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.51 $12.88 $12.57 $12.03 $12.09
- --------------------------------------------------------------------------------------------------------------
Total Return 0.71% 6.69% 10.26% 5.00% 0.15%
- --------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $20,796 $21,740 $6,463 $3,879 $4,505
- --------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.50% 1.46% 1.46% 1.51% 1.48%
Net investment income 2.35 4.17 5.08 5.60 4.76
- --------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 457% 335% 275% 173% 205%
- --------------------------------------------------------------------------------------------------------------
Class Y Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/ 1999/(1)/
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $12.87 $12.56 $12.03 $12.10 $12.74
- --------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.41 0.63 0.73 0.77 0.70
Net realized and unrealized gain (loss) (0.21) 0.29 0.57 (0.09) (0.57)
- --------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.20 0.92 1.30 0.68 0.13
- --------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.50) (0.61) (0.75) (0.75) (0.77)
Capital (0.07) -- (0.02) -- --
- --------------------------------------------------------------------------------------------------------------
Total Distributions (0.57) (0.61) (0.77) (0.75) (0.77)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.50 $12.87 $12.56 $12.03 $12.10
- --------------------------------------------------------------------------------------------------------------
Total Return 1.49% 7.55% 11.08% 5.79% 0.92%
- --------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $143,706 $125,474 $113,555 $120,270 $118,007
- --------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.69% 0.70% 0.70% 0.71% 0.70%
Net investment income 3.15 5.01 5.91 6.40 5.54
- --------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 457% 335% 275% 173% 205%
- --------------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
17 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
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.
("Fund") as of July 31, 2003, 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, 2003, by
correspondence with the custodian. As to securities purchased but not yet
received, 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 the
Fund as of July 31, 2003, and 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 12, 2003
18 Smith Barney Managed Governments Fund Inc. | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED)
Information about Directors and Officers
The business and affairs of the Smith Barney Managed Governments Fund Inc.
("Fund") are managed under the direction of the Board of Directors. Information
pertaining to the Directors and Officers of the Fund is set forth below. The
Statement of Additional Information includes additional information about Fund
directors and is available, without charge, upon request by calling the Fund's
transfer agent (Citicorp Trust Bank, fsb. at 1-800-451-2010).
Number of
Portfolios in
Term of Office* Fund Complex Other
Position(s) Held and Length of Principal Occupation(s) Overseen by Directorships
Name, Address and Age with Fund Time Served During Past Five Years Director Held by Director
- -----------------------------------------------------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS:
Herbert Barg Director Since Retired 44 None
1460 Drayton Lane 1995
Wynnewood, PA 19096
Age 79
Dwight B. Crane Director Since Professor -- Harvard 51 None
Harvard Business School 1995 Business School
Soldiers Field
Morgan Hall #375
Boston, MA 02163
Age 65
Burt N. Dorsett Director Since President -- Dorsett McCabe 28 None
201 East 62nd Street 1984 Capital Management, Inc.;
Apt. 3C Chief Investment Officer --
New York, NY 10021 Leeb Capital Management, Inc.
Age 72 1999-Present
Elliot S. Jaffe Director Since Chairman of The Dress Barn Inc. 28 Zweig Total
The Dress Barn Inc. 1985 Return Fund;
Executive Office Zweig Fund, Inc.
30 Dunnigan Drive
Suffern, NY 10901
Age 76
Stephen E. Kaufman Director Since Attorney 62 None
Stephen E. Kaufman PC 1995
277 Park Avenue
47th Floor
New York, NY 10172
Age 71
Joseph J. McCann Director Since Retired 28 None
200 Oak Park Place 1995
Suite One
Pittsburgh, PA 15243
Age 72
Cornelius C. Rose, Jr. Director Since Chief Executive 28 None
P.O. Box 5388 1984 Officer -- Performance
West Lebanon, NH 03784 Learning Systems
Age 70
INTERESTED DIRECTOR:
R. Jay Gerken, CFA** Chairman, President Since Managing Director of Citigroup 219 N/A
CGM and Chief Executive 2002 Global Markets Inc. ("CGM");
399 Park Avenue, 4th Floor Officer Chairman, President and Chief
New York, NY 10022 Executive Officer of Smith
Age 52 Barney Fund Management LLC
("SBFM"), Travelers Investment
Adviser, Inc. ("TIA") and Citi
Fund Management Inc. ("CFM")
19 Smith Barney Managed Government Fund Inc. | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of
Portfolios in
Term of Office* Fund Complex Other
Position(s) Held and Length of Principal Occupation(s) Overseen by Directorships
Name, Address and Age with Fund Time Served During Past Five Years Director Held by Director
- ---------------------------------------------------------------------------------------------------------------------------------
OFFICERS:
Lewis E. Daidone Senior Vice Since Managing Director of CGM; N/A N/A
CGM President and Chief 1995 Director and Senior Vice
125 Broad Street, 11th Floor Administrative President of SBFM and TIA;
New York, NY 10004 Officer Director of CFM; Former Chief
Age 45 Financial Officer and Treasurer
of mutual funds affiliated with
Citigroup Inc.
Richard L. Peteka Chief Financial Since Director and Head of Internal N/A N/A
CGM Officer and Treasurer 2002 Control for Citigroup Asset
125 Broad Street, 11th Floor Management U.S. Mutual Fund
New York, NY 10004 Administration from 1999-
Age 42 2002; Vice President, Head of
Mutual Fund Administration
and Treasurer of Oppenheimer
Capital from 1996-1999
Roger M. Lavan, CFA Vice President Since Managing Director N/A N/A
CGM and Investment 2002 of CGM; Investment Officer
399 Park Avenue, 4th Floor Officer of SBFM
New York, NY 10022
Age 38
David Torchia Vice President Since Managing Director N/A N/A
CGM and Investment 2002 of CGM; Investment Officer
399 Park Avenue, 4th Floor Officer of SBFM
New York, NY 10022
Age 42
Kaprel Ozsolak Controller Since Vice President of CGM N/A N/A
CGM 2002
125 Broad Street, 11th Floor
New York, NY 10004
Age 37
Christina T. Sydor Secretary Since Managing Director of CGM; N/A N/A
CGM 1995 General Counsel and Secretary
300 First Stamford Place of SBFM and TIA
4th Floor
Stamford, CT 06902
Age 52
- --------
* Each Director and Officer serves until his or her successor has been duly
elected and qualified.
** Mr. Gerken is an "interested person" of the Fund as defined in the
Investment Company Act of 1940, as amended, because Mr. Gerken is an officer
of SBFM and certain of its affiliates.
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Fund hereby designates for the fiscal year ended
July 31, 2003:
. A total of 5.61% 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. | 2003 Annual Report
SMITH BARNEY
MANAGED GOVERNMENTS FUND INC.
DIRECTORS INVESTMENT ADVISER
Herbert Barg AND ADMINISTRATOR
Dwight B. Crane Smith Barney Fund
Burt N. Dorsett Management LLC
R. Jay Gerken, CFA
Chairman DISTRIBUTOR
Elliot S. Jaffe Citigroup Global Markets Inc.
Stephen E. Kaufman
Joseph J. McCann CUSTODIAN
Cornelius C. Rose, Jr. State Street Bank and
Trust Company
OFFICERS
R. Jay Gerken, CFA TRANSFER AGENT
President and Citicorp Trust Bank, fsb.
Chief Executive Officer 125 Broad Street, 11th Floor
New York, New York 10004
Lewis E. Daidone
Senior Vice President and SUB-TRANSFER AGENT
Chief Administrative Officer PFPC Global Fund Services
P.O. Box 9699
Richard L. Peteka Providence, Rhode Island
Chief Financial Officer 02940-9699
and Treasurer
Roger M. Lavan, CFA
Vice President and
Investment Officer
David Torchia
Vice President and
Investment Officer
Kaprel Ozsolak
Controller
Christina T. Sydor
Secretary
Smith Barney Managed Governments Fund Inc.
This report is submitted for the general information of the shareholders of
Smith Barney Managed Governments Fund Inc., but it may also be used as sales
literature when preceded 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, 2003, 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
125 Broad Street
10th Floor, MF-2
New York, New York 10004
For complete information on any Smith Barney Mutual Funds, including
management fees and expenses, call or write your financial professional for a
free prospectus. Read it carefully before you invest or send money.
www.smithbarneymutualfunds.com
(C)2003 Citigroup Global Markets Inc.
Member NASD, SIPC
FD01181 9/03 03-5406
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Directors of the registrant has determined that Dwight
Crane, a member of the Board's Audit Committee, possesses the technical
attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to
qualify as an "audit committee financial expert," and has designated
Mr. Crane as the Audit Committee's financial expert. Mr. Crane is an
"independent" Director pursuant to paragraph (a)(2) of Item 3 to Form
N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal
financial officer have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-
3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act")) are effective as of a date within 90 days of the
filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the
disclosure controls and procedures required by Rule 30a-3(b)
under the 1940 Act and 15d-15(b) under the Securities Exchange
Act of 1934
(b) There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under
the 1940 Act) that occurred during the registrant's last
fiscal half-year (the registrant's second fiscal half-year in
the case of an annual report) that have materially affected,
or are likely to materially affect the registrant's internal
control over financial reporting.
ITEM 10. EXHIBITS.
(a) Code of Ethics attached hereto.
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, there unto duly authorized.
Smith Barney Managed Governments Fund Inc.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Smith Barney Managed Governments Fund Inc.
Date: October 3, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
(R. Jay Gerken)
Chief Executive Officer of
Smith Barney Managed Governments Fund Inc.
Date: October 3, 2003
By: /s/ Richard L. Peteka
Chief Financial Officer of
Smith Barney Managed Governments Fund Inc.
Date: October 3, 2003