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)
Robert I. Frenkel, 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: January 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Semi-Annual Report to Stockholders is filed herewith.
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SMITH BARNEY
MANAGED GOVERNMENTS
FUND INC.
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CLASSIC SERIES | SEMI-ANNUAL REPORT | JANUARY 31, 2004
[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.
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NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
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[PHOTO]
Roger Lavan
[PHOTO]
Dave Torchia
ROGER M. LAVAN, CFA DAVID TORCHIA
PORTFOLIO MANAGER PORTFOLIO
MANAGER
Classic Series
[GRAPHIC]
Classic Series
Semi-Annual Report . January 31, 2004
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
ROGER M. LAVAN, CFA
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 19 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)
19 years (David Torchia)
What's Inside
Letter from the Chairman.............................................. 1
Schedule of Investments............................................... 3
Statement of Assets and Liabilities................................... 4
Statement of Operations............................................... 5
Statements of Changes in Net Assets................................... 6
Notes to Financial Statements......................................... 7
Financial Highlights.................................................. 13
LETTER FROM THE CHAIRMAN
[PHOTO]
R. Jay Gerken
R. JAY GERKEN, CFA
Chairman, President and Chief Executive Officer
Dear Shareholder,
The U.S. economy continued to grow at a more robust rate over the six months
ending January 31, 2004 than it did during the first half of 2003./i/ Earlier
in the period, stronger-than-expected third-quarter economic data exacerbated
concerns among bond investors that inflation might pick up and interest rates
might rise sooner than previously anticipated. These factors influenced the
market's performance because bond prices fall when interest rates rise.
However, many of these concerns were tempered somewhat by tepid employment
results and comments from the Fed, which most recently announced that it
"believes that it can be patient in removing its policy accommodation."/ii/
In contrast to early last summer when the bond market sold off, U.S. Treasury
bonds, agencies and mortgage-backed securities collectively finished on more
solid footing during the six months ended January 31, 2004./iii/ As of the
period's close, many investors maintained divergent views about the potential
direction of interest rates.
Performance Review
Within this environment, the fund performed as follows. For the six months
ended January 31, 2004, Class A shares of the Smith Barney Managed Governments
Fund Inc., excluding sales charges, returned 3.34%. These shares underperformed
the fund's unmanaged benchmark, the Lehman Brothers Government Bond Index,/iv/
which returned 3.88% for the same period (the index has no fees). They also
fell short of the fund's Lipper U.S. mortgage funds category average, which
returned 3.54% for the same period./1/
PERFORMANCE SNAPSHOT
AS OF JANUARY 31, 2004
(excluding sales charges)
6 Months
Class A Shares 3.34%
Lehman Brothers Government Bond Index 3.88%
Lipper U.S. Mortgage Funds Category Average/1/ 3.54%
The performance shown represents past performance. Past performance is no
guarantee of future results and current performance may be higher or lower
than the performance shown above. Principal value and investment returns will
fluctuate and investors' shares, when redeemed may be worth more or less than
their original cost. To obtain performance data current to the most recent
month-end, please visit our website at www.smithbarneymutualfunds.com.
Class A share returns assume the reinvestment of income dividends and capital
gains distributions at net asset value and the deduction of all fund
expenses. Returns have not been adjusted to include sales charges that may
apply when shares are purchased or the deduction of taxes that a shareholder
would pay on fund distributions. Excluding sales charges, Class B shares
returned 3.07%, Class L shares returned 3.09% and Class Y shares returned
3.51% over the six months ended January 31, 2004.
All index performance reflects no deduction for fees, expenses or taxes. The
Lehman Brothers Government Bond 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.
/1/Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the six-month period ended January 31, 2004, calculated
among the 79 funds in the fund's Lipper category including the reinvestment
of dividends and capital gains, if any, and excluding sales charges.
1 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
Information About Your Fund
In recent months several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. The fund's Adviser and some of its
affiliates have received requests for information from various government
regulators regarding market timing, late trading, fees and other mutual fund
issues in connection with various investigations. The regulators appear to be
examining, among other things, the fund's response to market timing and
shareholder exchange activity, including compliance with prospectus disclosure
related to these subjects. The fund has been informed that the Adviser and its
affiliates are responding to those information requests, but are not in a
position to predict the outcome of these requests and investigations.
As always, thank you for your confidence in our stewardship of your assets. We
look forward to helping you continue to meet your financial goals.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
February 10, 2004
The information provided 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 January 31, 2004, and are subject
to change. Please refer to page 3 for a list and percentage breakdown of the
fund's holdings.
All index performance reflects no deduction for fees, expenses or taxes.
RISK: The fund may use derivatives, such as options and futures, which can be
illiquid, may disproportionately increase losses, and have a potentially large
impact on fund performance.
/i/Source: Based upon gross domestic product ("GDP") data from the Bureau of
Economic Analysis (January 30, 2004). Gross domestic product is a market
value of goods and services produced by labor and property in a given
country.
/ii/Source: Federal Reserve (January 28, 2004).
/iii/Source: Lipper, Inc.
/iv/The Lehman Brothers Government Bond 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.
2 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
SCHEDULE OF INVESTMENTS (UNAUDITED) JANUARY 31, 2004
FACE
AMOUNT SECURITY VALUE
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U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 57.1%
$ 20,000,000 U.S. Treasury Notes, 1.125% due 6/30/05 $ 19,913,300
Federal Home Loan Mortgage Corp. (FHLMC):
588 5.500% due 5/1/13 614
2,225,270 7.000% due 2/1/16 (a) 2,382,826
7,101,142 6.000% due 3/1/17 7,474,512
4,517,924 6.500% due 6/1/19 (a) 4,793,156
1,096,198 6.500% due 1/1/32 (a) 1,151,812
25,000,000 5.000% due 2/12/34 (b)(c) 24,820,300
40,000,000 5.500% due 2/12/34 (b)(c) 40,700,000
20,000,000 6.000% due 2/12/34 (b)(c)(d) 20,750,000
49,000,000 6.500% due 2/12/34 (b)(c) 51,465,288
Federal National Mortgage Association (FNMA):
49,497 7.500% due 4/1/09 51,563
42,088 6.500% due 6/1/15 (a) 44,712
2,881,026 5.500% due 12/1/16 (a) 2,993,739
2,190,817 6.000% due 5/1/17 2,307,323
7,215,562 7.500% due 3/1/32 (a) 7,719,544
19,939,264 6.000% due 6/1/32 20,714,882
14,493,677 6.500% due 3/1/33 (a) 15,214,290
14,264,402 7.000% due 1/1/34 (a)(b)(d) 15,184,763
30,000,000 5.000% due 2/19/34 (b)(c) 29,812,500
51,500,000 5.500% due 2/19/34 (b)(c) 52,417,318
25,000,000 6.000% due 2/19/34 (b)(c) 25,953,125
3,000,000 6.500% due 2/19/34 (b)(c) 3,148,125
21,000,000 7.000% due 2/19/34 (b)(c) 22,279,698
Government National Mortgage Association (GNMA):
44,797 8.500% due 11/15/27 48,927
15,093,052 6.500% due 3/15/32 (a) 15,942,810
10,253,073 7.000% due 3/15/32 (a) 10,939,690
3,187,146 7.500% due 5/15/32 (a) 3,424,387
20,000,000 5.000% due 2/19/34 (b)(c) 19,893,760
12,000,000 5.500% due 2/19/34 (b)(c) 12,255,000
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TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- $425,542,553) 433,797,964
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PAC IOs -- 0.1%
6,921,000 Federal Home Loan Mortgage Corp., yield to maturity 5.500% due 9/15/22
(Cost -- $821,742) 722,738
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SUB-TOTAL INVESTMENTS (Cost -- $426,364,295) 434,520,702
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REPURCHASE AGREEMENTS (e) -- 42.8%
102,258,000 J.P. Morgan Chase & Co. dated 1/30/04, 0.960% due 2/2/04; Proceeds at maturity -- $102,266,181;
(Fully collateralized by various U.S. government agency obligations,
0.000% to 5.210% due 4/15/04 to 1/27/23; Market value -- $104,306,452) 102,258,000
222,707,000 UBS Warburg dated 1/30/04, 0.970% due 2/2/04; Proceeds at maturity -- $222,725,002;
(Fully collateralized by U.S. Treasury Notes, 3.250% due 1/15/09;
Market value -- $227,161,584) 222,707,000
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TOTAL REPURCHASE AGREEMENTS
(Cost -- $324,965,000) 324,965,000
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TOTAL INVESTMENTS -- 100.0%
(Cost -- $751,329,295*) $759,485,702
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(a)Date shown represents the last in range of maturity dates of mortgage
certificates owned.
(b)Security acquired under mortgage dollar roll agreement (See Note 7).
(c)Security is traded on a "to-be-announced" basis (See Note 6).
(d)All or a portion of this security is held as collateral for open futures
contracts (See Note 5).
(e)All or a portion of this security is segregated for open futures contracts
and/or "to-be-announced" securities.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
3 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JANUARY 31, 2004
ASSETS:
Investments, at value (Cost -- $426,364,295) $434,520,702
Repurchase agreements, at value (Cost -- $324,965,000) 324,965,000
Receivable for securities sold 10,616,701
Interest receivable 1,156,056
Receivable for Fund shares sold 219,850
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Total Assets 771,478,309
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LIABILITIES:
Payable for securities purchased 324,266,546
Dividends payable 711,453
Payable for Fund shares reacquired 194,978
Investment advisory fee payable 170,203
Payable to broker -- variation margin 120,312
Administration fee payable 75,573
Distribution plan fees payable 39,767
Bank overdraft 26,059
Accrued expenses 102,643
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Total Liabilities 325,707,534
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Total Net Assets $445,770,775
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NET ASSETS:
Par value of capital shares $ 34,987
Capital paid in excess of par value 456,909,783
Undistributed net investment income 1,068,089
Accumulated net realized loss from investment
transactions and futures contracts (19,834,367)
Net unrealized appreciation of investments and futures
contracts 7,592,283
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Total Net Assets $445,770,775
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Shares Outstanding:
Class A 18,592,789
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Class B 2,310,702
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Class L 1,018,669
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Class Y 13,064,366
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Net Asset Value:
Class A (and redemption price) $12.74
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Class B * $12.75
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Class L * $12.75
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Class Y (and redemption price) $12.74
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Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value
per share) $13.34
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Class L (net asset value plus 1.01% of net asset value
per share) $12.88
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*Redemption price is NAV of Class B and L shares reduced by a 4.50% and 1.00%
contingent deferred sales charge, respectively, if shares are redeemed within
one year from purchase payment (See Note 2).
See Notes to Financial Statements.
4 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JANUARY 31, 2004
INVESTMENT INCOME:
Interest $ 9,594,746
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EXPENSES:
Investment advisory fee (Note 2) 1,011,787
Distribution plan fees (Note 8) 486,232
Administration fee (Note 2) 449,683
Transfer agency services (Note 8) 102,127
Audit and legal 34,437
Custody 26,843
Shareholder communications (Note 8) 23,638
Registration fees 23,242
Directors' fees 22,690
Other 9,804
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Total Expenses 2,190,483
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Net Investment Income 7,404,263
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS
(NOTES 3 AND 5):
Realized Gain (Loss) From:
Investment transactions 788,966
Futures contracts (664,038)
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Net Realized Gain 124,928
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Change in Net Unrealized Appreciation of Investments and
Futures Contracts:
Beginning of period 330,823
End of period 7,592,283
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Increase in Net Unrealized Appreciation 7,261,460
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Net Gain on Investments and Futures Contracts 7,386,388
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Increase in Net Assets From Operations $14,790,651
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See Notes to Financial Statements.
5 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended January 31, 2004 (unaudited)
and the Year Ended July 31, 2003
2004 2003
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OPERATIONS:
Net investment income $ 7,404,263 $ 13,480,017
Net realized gain 124,928 367,269
Increase (decrease) in net unrealized
appreciation 7,261,460 (8,156,361)
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Increase in Net Assets From Operations 14,790,651 5,690,925
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DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 9):
Net investment income (6,325,716) (16,679,006)
Capital -- (2,432,286)
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Decrease in Net Assets From Distributions to
Shareholders (6,325,716) (19,111,292)
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FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 28,267,013 89,057,904
Net asset value of shares issued for
reinvestment of dividends 2,678,557 9,029,310
Cost of shares reacquired (46,719,290) (94,368,143)
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Increase (Decrease) in Net Assets From Fund
Share Transactions (15,773,720) 3,719,071
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Decrease in Net Assets (7,308,785) (9,701,296)
NET ASSETS:
Beginning of period 453,079,560 462,780,856
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End of period* $445,770,775 $453,079,560
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* Includes undistributed (overdistributed) net
investment income of: $1,068,089 $(10,458)
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See Notes to Financial Statements.
6 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Significant Accounting Policies
Smith Barney Managed Governments Fund Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
The significant accounting policies consistently followed by the Fund are in
conformity with generally accepted accounting principles ("GAAP") and are as
follows: (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 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; (k) 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; 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 Inc. ("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 six months ended January 31, 2004, the Fund paid transfer agent fees
of $99,308 to CTB.
Citigroup Global Markets Inc. ("CGM"), another indirect wholly-owned subsidiary
of Citigroup, acts as the Fund's distributor.
7 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 one year from purchase payment. In addition, Class A shares have a 1.00%
CDSC, which applies if redemption occurs within 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 six months ended January 31, 2004, CGM and its affiliates received
sales charges of approximately $111,000 and $29,000 on sales of the Fund's
Class A and L shares, respectively. In addition, for the six months ended
January 31, 2004, CDSCs paid to CGM and its affiliates were approximately:
Class B Class L
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CDSCs $120,000 $12,000
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All officers and one Director of the Fund are employees of Citigroup or its
affiliates.
3. Investments
During the six months ended January 31, 2004, 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:
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Purchases $150,085,385
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Sales 91,793,610
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At January 31, 2004, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
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Gross unrealized appreciation $ 9,248,509
Gross unrealized depreciation (1,092,102)
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Net unrealized appreciation $ 8,156,407
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4. Repurchase Agreements
When entering into repurchase agreements, it is the Fund's policy that a
custodian takes possession of the underlying collateral securities, the value
of which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market to
ensure the adequacy of the collateral. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
8 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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. Additional securities are also segregated up to the current market
value of the futures contracts. 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 January 31, 2004, the Fund had the following open futures contracts:
Number of Basis Market Unrealized
Contracts Expiration Value Value Loss
- ----------------------------------------------------------------------------
Contracts to Sell:
U.S. Treasury 10
Year Notes 275 3/04 $30,631,189 $31,195,313 $(564,124)
- ---------------------------------------------------------------------------
6. Securities Traded on a To-Be-Announced Basis
The Fund may trade 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. Beginning on the date the Fund enters
into a TBA transaction, cash, U.S. government securities or other liquid high
grade debt obligations are segregated in an amount equal in value to the
purchase price of the TBA security. These transactions are subject to market
fluctuation and their current value is determined in the same manner as for
other securities.
At January 31, 2004, the Fund held TBA securities with a total cost of
$299,255,661.
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 or 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 purchased 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 reinvested and the income from these
investments, together with any additional income received on the sale, is
included in investment income. Losses may arise due to changes in the value of
the securities or if the counterparty does not perform under the terms of the
agreement. If the counterparty files for bankruptcy or becomes insolvent, the
Fund's right to repurchase the securities may be limited.
During the six months ended January 31, 2004, the Fund entered into mortgage
dollar roll transactions in the aggregate amount of $1,719,128,281.
At January 31, 2004, the Fund had outstanding mortgage dollar rolls with a
total cost of $299,255,661.
9 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. Class Specific Expenses
Pursuant to a Rule 12b-1 Distribution Plan, the Fund pays a service fee with
respect to Class A, B and L shares calculated at an annual rate of 0.25% of the
average daily net assets of each respective class. In addition, the Fund pays a
distribution fee with respect to Class B and L shares calculated at an annual
rate of 0.50% and 0.45% of the average daily net assets for each class,
respectively. For the six months ended January 31, 2004, total Rule 12b-1
Distribution Plan fees, which are accrued daily and paid monthly, were as
follows:
Class A Class B Class L
- --------------------------------------------------------------------
Rule 12b-1 Distribution Plan Fees $308,754 $122,093 $55,385
- -------------------------------------------------------------------
For the six months ended January 31, 2004, total Transfer Agency Service
expenses were as follows:
Class A Class B Class L Class Y
- ------------------------------------------------------------------------
Transfer Agency Service Expenses $81,071 $13,663 $7,187 $206
- -----------------------------------------------------------------------
For the six months ended January 31, 2004, total Shareholder Communication
expenses were as follows:
Class A Class B Class L Class Y
- ------------------------------------------------------------------------
Shareholder Communication Expenses $18,046 $3,827 $1,747 $18
- -----------------------------------------------------------------------
9. Distributions Paid to Shareholders by Class
Six Months Ended Year Ended
January 31, 2004 July 31, 2003
- -----------------------------------------------------------------------
Class A
Net investment income $3,388,048 $ 9,628,285
Capital -- 1,413,886
- ----------------------------------------------------------------------
Total $3,388,048 $11,042,171
- ----------------------------------------------------------------------
Class B
Net investment income $ 359,328 $ 1,220,179
Capital -- 209,786
- ----------------------------------------------------------------------
Total $ 359,328 $ 1,429,965
- ----------------------------------------------------------------------
Class L
Net investment income $ 172,083 $ 660,422
Capital -- 112,833
- ----------------------------------------------------------------------
Total $ 172,083 $ 773,255
- ----------------------------------------------------------------------
Class Y
Net investment income $2,406,257 $ 5,170,120
Capital -- 695,781
- ----------------------------------------------------------------------
Total $2,406,257 $ 5,865,901
- ----------------------------------------------------------------------
10 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
10. Capital Shares
At January 31, 2004, 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:
Six Months Ended Year Ended
January 31, 2004 July 31, 2003
------------------------ ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------
Class A
Shares sold 388,892 $ 4,916,178 1,753,101 $ 22,641,545
Shares issued on
reinvestment 183,710 2,329,216 583,002 7,518,566
Shares reacquired (2,158,668) (27,337,939) (3,691,238) (47,593,956)
- -----------------------------------------------------------------------
Net Decrease (1,586,066) $(20,092,545) (1,355,135) $(17,433,845)
- -----------------------------------------------------------------------
Class B
Shares sold 86,104 $ 1,090,111 997,599 $ 12,911,999
Shares issued on
reinvestment 18,471 234,290 73,867 953,292
Shares reacquired (692,790) (8,760,884) (1,157,463) (14,939,361)
- -----------------------------------------------------------------------
Net Decrease (588,215) $ (7,436,483) (85,997) $ (1,074,070)
- -----------------------------------------------------------------------
Class L
Shares sold 88,830 $ 1,125,540 1,306,633 $ 16,886,750
Shares issued on
reinvestment 9,075 115,051 43,217 557,452
Shares reacquired (741,998) (9,387,498) (1,375,397) (17,723,938)
- -----------------------------------------------------------------------
Net Decrease (644,093) $ (8,146,907) (25,547) $ (279,736)
- -----------------------------------------------------------------------
Class Y
Shares sold 1,667,501 $ 21,135,184 2,834,601 $ 36,617,610
Shares reacquired (97,863) (1,232,969) (1,089,837) (14,110,888)
- -----------------------------------------------------------------------
Net Increase 1,569,638 $ 19,902,215 1,744,764 $ 22,506,722
- -----------------------------------------------------------------------
11.Additional Information
The Fund has received the following information from Citigroup Asset Management
("CAM"), the Citigroup business unit which includes the Fund's Investment
Manager and other investment advisory companies, all of which are indirect,
wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an
affiliate, into the transfer agent business in the period 1997-1999. As CAM
currently understands the facts, at the time CAM decided to enter the transfer
agent business, CAM sub-contracted for a period of five years certain of the
transfer agency services to a third party and also concluded a revenue
guarantee agreement with this sub-contractor providing that the sub-contractor
would guarantee certain benefits to CAM or its affiliates (the "Revenue
Guarantee Agreement"). In connection with the subsequent purchase of the
sub-contractor's business by an affiliate of the current sub-transfer agent
(PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee
Agreement was amended eliminating those benefits in exchange for arrangements
that included a one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue
Guarantee Agreement with the sub-contractor at the time the Boards considered
and approved the transfer agent arrangements. Nor were the Boards informed of
the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
11 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
CAM has begun to take corrective actions. CAM will pay to the applicable funds
approximately $17 million (plus interest) that CAM and its affiliates received
from the Revenue Guarantee Agreement and its amendment. CAM also plans an
independent review to verify that the transfer agency fees charged by CAM were
fairly priced as compared to competitive alternatives. CAM is instituting new
procedures and making changes designed to ensure no similar arrangements are
entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
12.Subsequent Event
Effective February 2, 2004, the 1.00% initial sales charge on Class L shares
will no longer be imposed.
12 Smith Barney Managed Governments Fund Inc. | 2004 Semi-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 2004/(1)(2)/ 2003/(2)/ 2002/(2)/ 2001/(2)/ 2000/(2)/ 1999/(2)/
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $12.50 $12.87 $12.56 $12.03 $12.09 $12.73
- -------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.21 0.37 0.59 0.69 0.73 0.65
Net realized and unrealized gain (loss) 0.21 (0.22) 0.29 0.56 (0.09) (0.57)
- -------------------------------------------------------------------------------------------------------
Total Income From Operations 0.42 0.15 0.88 1.25 0.64 0.08
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.18) (0.45) (0.57) (0.70) (0.70) (0.72)
Capital -- (0.07) -- (0.02) -- --
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.18) (0.52) (0.57) (0.72) (0.70) (0.72)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.74 $12.50 $12.87 $12.56 $12.03 $12.09
- -------------------------------------------------------------------------------------------------------
Total Return 3.34%++ 1.15% 7.17% 10.68% 5.49% 0.58%
- -------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $236,899 $252,312 $277,136 $270,884 $270,599 $321,860
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.03%+ 1.02% 1.05% 1.04% 1.05% 1.04%
Net investment income 3.22+ 2.87 4.67 5.58 6.05 5.18
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 21% 457% 335% 275% 173% 205%
- -------------------------------------------------------------------------------------------------------
Class B Shares 2004/(1)(2)/ 2003/(2)/ 2002/(2)/ 2001/(2)/ 2000/(2)/ 1999/(2)/
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $12.51 $12.88 $12.57 $12.03 $12.09 $12.73
- -------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.17 0.30 0.52 0.62 0.66 0.59
Net realized and unrealized gain (loss) 0.21 (0.21) 0.29 0.57 (0.08) (0.57)
- -------------------------------------------------------------------------------------------------------
Total Income From Operations 0.38 0.09 0.81 1.19 0.58 0.02
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.14) (0.39) (0.50) (0.63) (0.64) (0.66)
Capital -- (0.07) -- (0.02) -- --
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.14) (0.46) (0.50) (0.65) (0.64) (0.66)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.75 $12.51 $12.88 $12.57 $12.03 $12.09
- -------------------------------------------------------------------------------------------------------
Total Return 3.07%++ 0.62% 6.60% 10.17% 4.91% 0.06%
- -------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $29,456 $36,266 $38,431 $30,310 $39,499 $61,391
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.55%+ 1.53% 1.56% 1.54% 1.58% 1.57%
Net investment income 2.67+ 2.35 4.13 5.11 5.52 4.64
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 21%* 457% 335% 275% 173% 205%
- -------------------------------------------------------------------------------------------------------
(1)For the six months ended January 31, 2004 (unaudited).
(2)Per share amounts have been calculated using the monthly average shares
method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
* Excluding mortgage dollar roll transactions. If mortgage dollar roll
transactions had been included, the portfolio turnover rate would have been
417%.
13 Smith Barney Managed Governments Fund Inc. | 2004 Semi-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 2004/(1)(2)/ 2003/(2)/ 2002/(2)/ 2001/(2)/ 2000/(2)/ 1999/(2)/
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $12.51 $12.88 $12.57 $12.03 $12.09 $12.73
- --------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.17 0.30 0.53 0.62 0.67 0.61
Net realized and unrealized gain (loss) 0.21 (0.20) 0.29 0.58 (0.08) (0.58)
- --------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.38 0.10 0.82 1.20 0.59 0.03
- --------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.14) (0.40) (0.51) (0.64) (0.65) (0.67)
Capital -- (0.07) -- (0.02) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.14) (0.47) (0.51) (0.66) (0.65) (0.67)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.75 $12.51 $12.88 $12.57 $12.03 $12.09
- --------------------------------------------------------------------------------------------------------------------------------
Total Return 3.09%++ 0.71% 6.69% 10.26% 5.00% 0.15%
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $12,983 $20,796 $21,740 $6,463 $3,879 $4,505
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.51%+ 1.50% 1.46% 1.46% 1.51% 1.48%
Net investment income 2.66+ 2.35 4.17 5.08 5.60 4.76
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 21% 457% 335% 275% 173% 205%
- --------------------------------------------------------------------------------------------------------------------------------
Class Y Shares 2004/(1)(2)/ 2003/(2)/ 2002/(2)/ 2001/(2)/ 2000/(2)/ 1999/(2)/
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $12.50 $12.87 $12.56 $12.03 $12.10 $12.74
- --------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.23 0.41 0.63 0.73 0.77 0.70
Net realized and unrealized gain (loss) 0.21 (0.21) 0.29 0.57 (0.09) (0.57)
- --------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.44 0.20 0.92 1.30 0.68 0.13
- --------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.20) (0.50) (0.61) (0.75) (0.75) (0.77)
Capital -- (0.07) -- (0.02) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.20) (0.57) (0.61) (0.77) (0.75) (0.77)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.74 $12.50 $12.87 $12.56 $12.03 $12.10
- --------------------------------------------------------------------------------------------------------------------------------
Total Return 3.51%++ 1.49% 7.55% 11.08% 5.79% 0.92%
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $166,433 $143,706 $125,474 $113,555 $120,270 $118,007
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.70%+ 0.69% 0.70% 0.70% 0.71% 0.70%
Net investment income 3.58+ 3.15 5.01 5.91 6.40 5.54
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 21%* 457% 335% 275% 173% 205%
- --------------------------------------------------------------------------------------------------------------------------------
(1)For the six months ended January 31, 2004 (unaudited).
(2)Per share amounts have been calculated using the monthly average shares
method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
* Excluding mortgage dollar roll transactions. If mortgage dollar roll
transactions had been included, the portfolio turnover rate would have been
417%.
14 Smith Barney Managed Governments Fund Inc. | 2004 Semi-Annual Report
SMITH BARNEY
MANAGED GOVERNMENTS FUND INC.
DIRECTORS INVESTMENT ADVISER
Dwight B. Crane AND ADMINISTRATOR
Burt N. Dorsett Smith Barney Fund
R. Jay Gerken, CFA Management LLC
Chairman
Elliot S. Jaffe DISTRIBUTOR
Stephen E. Kaufman Citigroup Global Markets Inc.
Joseph J. McCann
Cornelius C. Rose, Jr. CUSTODIAN
State Street Bank and
OFFICERS Trust Company
R. Jay Gerken, CFA
President and TRANSFER AGENT
Chief Executive Officer Citicorp Trust Bank, fsb.
125 Broad Street, 11th Floor
Andrew B. Shoup New York, New York 10004
Senior Vice President and
Chief Administrative Officer SUB-TRANSFER AGENT
PFPC Inc.
Richard L. Peteka P.O. Box 9699
Chief Financial Officer Providence, Rhode Island
and Treasurer 02940-9699
Roger M. Lavan, CFA
Vice President and
Investment Officer
David Torchia
Vice President and
Investment Officer
Andrew Beagley
Chief Anti-Money Laundering
Compliance Officer
Kaprel Ozsolak
Controller
Robert I. Frenkel
Secretary and Chief Legal Officer
Smith Barney Managed Governments Fund Inc.
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities is available without
charge, upon request, by telephoning the Fund (toll-free) at 1-800-451-2010
and by visiting the SEC's web site at www.sec.gov.
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.
SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
Smith Barney Mutual Funds
125 Broad Street
10th Floor, MF-2
New York, New York 10004
This document must be preceded or accompanied by a free prospectus. Investors
should consider the fund's investment objectives, risks, charges and expenses
carefully before investing. The prospectus contains this and other important
information about the fund. Please read the prospectus carefully before you
invest or send money.
www.smithbarneymutualfunds.com
(C)2004 Citigroup Global Markets Inc.
Member NASD, SIPC
FD01088 3/04 04-6251
ITEM 2. CODE OF ETHICS.
Not Applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable.
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) Not applicable.
(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: March 31, 2004
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: March 31, 2004
By: /s/ Richard L. Peteka
Richard L. Peteka
Chief Financial Officer of
Smith Barney Managed Governments Fund Inc.
Date: March 31, 2004