AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 2003.
SECURITIES ACT FILE NO. 333-107492
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [1]
POST-EFFECTIVE AMENDMENT NO. [_]
SMITH BARNEY MONEY FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
125 BROAD STREET, NEW YORK, NY 10004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
1-800-451-2010
(REGISTRANT'S AREA CODE AND TELEPHONE NUMBER)
R. JAY GERKEN
SMITH BARNEY FUND MANAGEMENT LLC
399 PARK AVENUE
NEW YORK, NY 10022
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH COPIES TO:
BURTON M. LEIBERT, ESQ. CHRISTINA T. SYDOR, ESQ.
MARY C. CARTY, ESQ. SMITH BARNEY FUND MANAGEMENT LLC
WILLKIE FARR & GALLAGHER 300 FIRST STAMFORD PLACE, 4/TH/ FLOOR
787 SEVENTH AVENUE STAMFORD, CT 06902
NEW YORK, NY 10019-6099
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: Registrant proposes that
the Registration Statement become effective on August 29, 2003 pursuant to Rule
488 under the Securities Act of 1933, as amended.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Common Stock ($0.01 par value) of the Registrant
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The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933, as amended, pursuant to Section 24(f) under the
Investment Company Act of 1940, as amended; accordingly, no fee is payable
herewith because of reliance upon Section 24(f).
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PART A
INFORMATION REQUIRED IN THE PROSPECTUS/PROXY STATEMENT
SMITH BARNEY MONEY FUNDS, INC.
Retirement Portfolio
125 Broad Street
New York, New York 10004
August __, 2003
Dear Shareholders:
You are being asked to vote on a Plan of Reorganization whereby all of
the assets of Retirement Portfolio (the "Acquired Fund"), a series of Smith
Barney Money Funds, Inc. ("Money Funds"), would be transferred in a tax-free
reorganization to Cash Portfolio (the "Acquiring Fund"), also a series of Money
Funds, in exchange for Class A shares of common stock of the Acquiring Fund. If
the Plan of Reorganization is approved and consummated, you would no longer be a
shareholder of the Acquired Fund, but would become a holder of Class A shares of
common stock of the Acquiring Fund, which has the identical investment objective
as, and substantially identical investment policies to, your Fund.
AFTER CAREFUL REVIEW, THE MEMBERS OF YOUR FUND'S BOARD OF DIRECTORS HAVE
APPROVED THE PROPOSED REORGANIZATION. THE BOARD OF DIRECTORS BELIEVES THAT THE
PROPOSAL SET FORTH IN THE NOTICE OF SPECIAL MEETING IS IMPORTANT AND RECOMMENDS
THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR THE PROPOSAL.
Your vote is important. PLEASE TAKE A MOMENT TO SIGN AND RETURN YOUR
PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. If you prefer, you can
fax the signed proxy card (both front and back sides) to ____-___-____; vote by
telephone by calling ____-___-____ using the [14]-digit control number located
on your proxy card; or vote through the internet by going to www.[website].com
using the [14]-digit control number located on your proxy card. The Fund may
also solicit proxies from shareholders by letter, telephone, [and/or fax].
Voting by fax, telephone or through the internet will reduce the time and costs
associated with the proxy solicitation. When the Fund records proxies by
telephone or through the internet, it will use procedures designed to (i)
authenticate shareholders' identities, (ii) allow shareholders to authorize the
voting of their shares in accordance with their instructions and (iii) confirm
that their instructions have been properly recorded. For more information,
please call 1-800-451-2010.
Whichever voting method you choose, please read the full text of the
accompanying Prospectus/Proxy Statement before you vote.
Respectfully,
/s/ R. Jay Gerken
- -----------------
R. Jay Gerken
Chairman of the Board, President and Chief Executive Officer
Smith Barney Money Funds, Inc.
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT REGARDLESS OF
THE NUMBER OF SHARES YOU OWN.
SMITH BARNEY MONEY FUNDS, INC.
Retirement Portfolio
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders (the "Special
Meeting") of Smith Barney Money Funds, Inc. ("Money Funds"), on behalf of its
series, Retirement Portfolio (the "Acquired Fund"), will be held at The
Citigroup Center, 153 East 53rd Street, 14th Floor, New York, NY 10048 on
October 31, 2003, at 10:00 a.m., Eastern time, for the following purpose:
PROPOSAL: To approve a Plan of Reorganization providing for (i) the
acquisition of all of the assets and liabilities of the
Acquired Fund by Cash Portfolio (the "Acquiring Fund"), also
a series of Money Funds, (ii) the amendment of the Money
Funds' Charter reclassifying all shares of the Acquired Fund
as shares of the Acquiring Fund and (iii) the accomplishment
of the reclassification by the issuance of Class A shares of
the Acquiring Fund to shareholders of the Acquired Fund.
The appointed proxies will vote in their discretion on any other
business as may properly come before the Special Meeting or any adjournments
thereof.
Holders of record of shares of the Fund at the close of business on
August 21, 2003 are entitled to vote at the Special Meeting and at any
adjournments thereof.
If the necessary quorum to transact business or the vote required to
approve the Proposal or any other business as may properly come before the
Special Meeting is not obtained at the Special Meeting, the persons named as
proxies may propose one or more adjournments of the Special Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's outstanding shares present in person or by proxy at
the Special Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
Proposal and will vote against any such adjournment those proxies to be voted
against the Proposal. For more information, please call 1-800-451-2010.
By Order of the Board of Directors
/s/ Christina T. Sydor
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Christina T. Sydor
Secretary
August _, 2003
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN THE
CARD IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS
INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD MAY
SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM AT
THE
SPECIAL MEETING. IF YOU CAN ATTEND THE SPECIAL MEETING AND WISH TO VOTE YOUR
SHARES IN PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
TABLE OF CONTENTS
GENERAL..................................................................... 1
PROPOSAL: APPROVAL OF PLAN OF REORGANIZATION .............................. 3
SYNOPSIS ................................................................... 4
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND AND THE ACQUIRED
FUND ....................................................................... 6
INVESTMENT MANAGEMENT FEES AND EXPENSES .................................... 7
DISTRIBUTION OF SHARES AND OTHER SERVICES .................................. 10
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION .............................. 11
DIVIDENDS AND OTHER DISTRIBUTIONS .......................................... 11
PRINCIPAL INVESTMENTS AND RISK FACTORS ..................................... 12
THE PROPOSED REORGANIZATION ................................................ 15
REASONS FOR THE PROPOSED REORGANIZATION .................................... 16
DESCRIPTION OF THE SECURITIES TO BE ISSUED ................................. 17
FEDERAL INCOME TAX CONSEQUENCES ............................................ 19
LIQUIDATION AND TERMINATION OF THE ACQUIRED FUND ........................... 20
PORTFOLIO SECURITIES ....................................................... 20
CAPITALIZATION AND PERFORMANCE ............................................. 20
ADDITIONAL INFORMATION ABOUT THE FUNDS ..................................... 22
ADDITIONAL INFORMATION ..................................................... 22
ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated August ___, 2003
relating to this Prospectus/Proxy Statement and the Reorganization, will be sent
to all shareholders of the Fund requesting a copy of such Statement of
Additional Information.
1. Statement of Additional Information for the Acquiring Fund dated April
30, 2003.
2. Statement of Additional Information for the Acquired Fund dated April
30, 2003.
3. Annual Report of the Acquiring Fund for the year ended December 31,
2002.
4. Annual Report of the Acquired Fund for the year ended December 31,
2002.
Questions and Answers Concerning the Combination of
Retirement Portfolio with and into Cash Portfolio (together, the "Funds")
The enclosed materials include a combined Prospectus/Proxy Statement containing
information you need to make a more informed decision. However, we thought it
would also be helpful for you to have, at the start, answers to some of the
important questions you might have about the proposed reorganization.
We hope you find these explanations useful as you review your materials before
voting. For more detailed information about the proposed reorganization, please
refer to the combined enclosed Prospectus/Proxy Statement.
What will happen to my shares if the proposed reorganization is approved?
You will become a shareholder of Cash Portfolio on or about [November 21], 2003
(the "Closing Date") and will no longer be a shareholder of Retirement
Portfolio, which will be terminated pursuant to the proposed reorganization. You
will receive Class A shares of common stock of Cash Portfolio with a total net
asset value equal to the total net asset value of your investment in Retirement
Portfolio at the time of the closing of the reorganization.
If the reorganization is approved and you do not wish to become a shareholder of
Cash Portfolio, you may redeem your shares prior to the Closing Date. Please
note that any redemption will be subject to any applicable deferred sales
charges and will result in a taxable event for federal income tax purposes.
For those shareholders who have elected to have their dividends reinvested,
dividends will continue to be reinvested automatically, unless otherwise
directed by such shareholder, until the Closing Date.
What are the key reasons for this Fund reorganization?
Retirement Portfolio has been unable since its inception to attract a
substantial asset base to assure efficient and economical operation as a money
market fund, and the Fund's relatively small size (in comparison to Cash
Portfolio) has hindered portfolio management flexibility and resulted in higher
total annual operating expenses for its shareholders (before taking into account
management fee waivers and/or voluntary expense limitations). Since the
inception of Retirement Portfolio, Smith Barney Fund Management LLC ("SBFM"),
the Fund's investment manager, has waived all or a portion of its fees, but
there is no requirement that it continue to do so and such waivers and/or fee
reimbursements may be discontinued at any time.
The reorganization will allow shareholders of Retirement Portfolio to be
invested in a substantially larger fund which has the identical investment
objective and substantially identical investment policies and techniques as
Retirement Portfolio, but has better historical performance and a lower total
expense ratio than Retirement Portfolio. Each of Retirement Portfolio and Cash
Portfolio is a series of Smith Barney Money Funds, Inc. The Funds have the same
investment manager, SBFM, which employs substantially identical investment
strategies in selecting each Fund's portfolio of securities. SBFM believes that
a larger asset base as a result of the reorganization could provide portfolio
management benefits such as opportunities for realizing greater economies of
scale as well as increased distribution capabilities.
In addition, the reorganization will eliminate one of two Smith Barney money
market funds with identical investment objectives and substantially identical
investment policies, thus removing potential confusion in the marketplace.
As a shareholder of Cash Portfolio, you will be able to exchange into the same
class of other Smith Barney mutual funds, provided that the other Smith Barney
Fund offers the relevant class of shares and subject to other applicable
requirements.
Do the Funds have similar investment objectives and policies?
Yes. The investment objective of each Fund is identical and the investment
policies, practices and limitations of each Fund (and related risk
characteristics) are substantially identical. Each Fund seeks maximum current
income and preservation of capital. Each Fund seeks to achieve its investment
objective by investing in high quality, U.S. dollar denominated short-term debt
securities. These may include obligations issued by U.S. and foreign banks, the
U.S. government, its agencies or instrumentalities, U.S. states and
municipalities and U.S. and foreign corporate issuers. Each Fund invests at
least 25% of its assets in obligations of domestic and foreign banks. Each Fund
may invest in all types of money market securities, including commercial paper,
certificates of deposit, bankers' acceptances, mortgage-backed and asset-backed
securities, repurchase agreements and other short-term debt securities.
For additional information regarding similarities and differences between the
two Funds, please refer to the enclosed prospectus/proxy statement.
What are the tax consequences of this proposed reorganization?
The proposed Fund reorganization will not be a taxable event. Shareholders will
not realize capital gain or loss as a direct result of the proposed
reorganization.
Will I enjoy the same privileges as a shareholder of Cash Portfolio that I
currently have as a shareholder of Retirement Portfolio?
You will continue to enjoy substantially the same shareholder privileges, such
as dividend reinvestment and access to professional service representatives.
If the reorganization is approved, shareholders of Retirement Portfolio will
receive Class A shares of Cash Portfolio. The initial and subsequent investment
minimums of the Class A shares of the two Funds differ. Retirement Portfolio's
Class A shares, which are available only through qualified retirement plans,
have a minimum initial investment of $200; each additional investment must be $1
or more. Cash Portfolio's Class A shares require a minimum initial investment of
$1,000 and a minimum additional investment of $50, except for IRAs, Self
Employed Retirement Plans and Uniform Gifts or Transfers to Minors Accounts,
which require a minimum initial investment of $250 and a minimum additional
investment of $50; qualified retirement plans, which require a minimum initial
investment of $25 and a minimum additional investment of $25; and Simple IRAs,
which require a minimum initial investment of $1 and a minimum additional
investment of $1. If shareholders of the Acquired Fund approve the proposed
reorganization, the Acquiring Fund's current minimum initial and additional
investment amount
requirements applicable to purchases through qualified retirement plans will
also apply to purchases of Class A shares of the combined Fund made through
qualified retirement plans. Thus, the combined Fund's investment minimums
applicable to Class A shareholders purchasing through qualified retirement plans
will be lower than the current minimum initial investment amount requirement,
and higher than the current minimum additional investment amount requirement, of
the Class A shares of the Acquired Fund.
How does the Board of Directors recommend I vote?
The Directors recommend that you vote FOR the reorganization. The Directors
believe the reorganization is in the best interest of Retirement Portfolio and
its shareholders.
Why is my vote important?
Shareholders have a responsibility to vote on important matters affecting their
Fund investments. No matter how many shares you own, your vote --- and its
timeliness--are also important. Please complete, sign and return the enclosed
proxy card today!
Please note if you sign and date your proxy card, but do not provide voting
instructions, your shares will be voted FOR the Proposal. Thank you in advance
for your vote.
The information in this Prospectus/Proxy Statement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This Prospectus/Proxy
Statement is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED AUGUST 12, 2003
PROSPECTUS/PROXY STATEMENT
125 Broad Street
New York, New York 10004
1-800-451-2010
August __, 2003
RELATING TO THE ACQUISITION BY CASH PORTFOLIO (THE "ACQUIRING FUND"), A SERIES
OF SMITH BARNEY MONEY FUNDS, INC. ("MONEY FUNDS") OF THE ASSETS OF RETIREMENT
PORTFOLIO (THE "ACQUIRED FUND"), ALSO A SERIES OF MONEY FUNDS.
GENERAL
This Prospectus/Proxy Statement is furnished to shareholders of the
Acquired Fund in connection with a proposed reorganization in which all of the
assets of the Acquired Fund would be acquired by Money Funds, on behalf of the
Acquiring Fund, in exchange solely for Class A shares of common stock of the
Acquiring Fund and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund (collectively, the "Reorganization"). The
Reorganization will be accomplished pursuant to an amendment to the Money Funds'
Charter that will reclassify the shares of the Acquired Fund into Class A shares
of the Acquiring Fund. As a result of the Reorganization, each shareholder of
the Acquired Fund would receive that number of full and fractional Class A
shares of common stock of the Acquiring Fund having an aggregate net asset value
equal to the aggregate net asset value of such shareholder's Class A shares of
the Acquired Fund held as of the close of business on the Closing Date (as
defined herein) of the Reorganization. Shareholders of the Acquired Fund are
being asked to vote on a Plan of Reorganization pursuant to which such
transactions, as described more fully below, would be consummated.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that a
prospective investor should know before investing. For a more detailed
discussion of the investment objective, policies, restrictions and risks of the
Acquiring Fund, see the prospectus for the Acquiring Fund, dated April 30, 2003,
as supplemented from time to time, which is included herewith and incorporated
herein by reference. This Prospectus/Proxy Statement is also accompanied by the
Acquiring Fund's annual report to shareholders for the fiscal year ended
December 31, 2002, which is included herewith and incorporated herein by
reference. For a more detailed discussion of the investment objective, policies,
restrictions and risks of the Acquired Fund, see the prospectus for the Acquired
Fund, dated April 30, 2003 and the annual report to shareholders for the year
ended December 31, 2002, each of which is incorporated herein by
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
reference and a copy of which may be obtained without charge by writing to 125
Broad Street, New York, New York 10004, or by calling 1-800-451-2010. No person
has been authorized to give any information or to make any representations other
than those contained in this combined Prospectus/Proxy Statement and in the
materials expressly incoporated herein by reference and, if given or made, such
other information or representations must not be relied upon as having been
authorized by the Funds.
A Statement of Additional Information of the Acquired Fund and the
Acquiring Fund dated August __, 2003 containing additional information about the
Reorganization and the parties thereto has been filed with the Securities and
Exchange Commission (the "SEC" or the "Commission") and is incorporated by
reference into this Prospectus/Proxy Statement. A copy of the Statement of
Additional Information is available upon request and without charge by writing
to or calling Smith Barney Mutual Funds at the address or phone number listed
above. Shareholder inquiries regarding the Acquired Fund or the Acquiring Fund
may also be made by calling the phone number listed above.
Each of the Acquired Fund and the Acquiring Fund is a diversified series
of Money Funds, an open-end management investment company organized as a
Maryland corporation. The investment objective of each Fund is maximum current
income and preservation of capital. Each of Retirement Portfolio and Cash
Portfolio seeks to achieve its investment objective by investing in high
quality, U.S. dollar denominated short-term debt securities. These may include
obligations issued by U.S. and foreign banks, the U.S. government, its agencies
or instrumentalities, U.S. states and municipalities and U.S. and foreign
corporate issuers. Each Fund invests at least 25% of its assets in obligations
of domestic and foreign banks. Each Fund may invest in all types of money market
securities, including commercial paper, certificates of deposit, bankers'
acceptances, mortgage-backed and asset-backed securities, repurchase agreements
and other short-term debt securities.
-----------------------
In the description of the Proposal below, the word "fund" is sometimes
used to mean investment companies or series thereof in general, and not the Fund
whose proxy statement this is. The Acquired Fund and the Acquiring Fund may each
be referred to as a "Fund" and may also be referred to collectively as the
"Funds." In addition, in this Prospectus/Proxy Statement, for simplicity,
actions are described as being taken by a Fund, although all actions are
actually taken by Money Funds, on behalf of either or both of the Acquiring Fund
and the Acquired Fund, as the case may be.
This Prospectus/Proxy Statement, the Notice of Special Meeting and the
proxy card are first being mailed to shareholders on or about [September 5],
2003 or as soon as practicable thereafter. Any shareholder of the Acquired Fund
giving a proxy has the power to revoke it by mail (addressed to the Secretary at
the principal executive office of Money Funds at the address shown at the
beginning of this Prospectus/Proxy Statement) received by Money Funds prior to
the Special Meeting or in person at the Special Meeting by executing a
superseding proxy or by submitting a notice of revocation to the Acquired Fund.
All properly executed proxies received in time for the Special Meeting will be
voted as specified in the proxy or, if no specification is made, in favor of the
Proposal referred to in this Prospectus/Proxy Statement.
The presence at any shareholders meeting, in person or by proxy, of the
holders of shares of the Acquired Fund holding a majority of the outstanding
shares of the Acquired Fund entitled to vote shall be necessary and sufficient
to constitute a quorum for the transaction of business. If
2
the necessary quorum to transact business or the vote required to approve the
Proposal or any other matters properly brought before the Special Meeting is not
obtained at the Special Meeting, the persons named as proxies may propose one or
more adjournments of the Special Meeting in accordance with applicable law to
permit further solicitation of proxies with respect to the proposal that did not
receive the vote necessary for its passage or to obtain a quorum. Any such
adjournment as to a matter will require the affirmative vote of the holders of a
majority of the Acquired Fund's outstanding shares present in person or by proxy
at the Special Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of that
Proposal and will vote against any such adjournment those proxies to be voted
against that Proposal. For purposes of determining the presence of a quorum for
transacting business at the Special Meeting, abstentions and broker "non-votes"
will be treated as shares that are present but which have not been voted. Broker
non-votes are proxies received by the Acquired Fund from brokers or nominees
when the broker or nominee has neither received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
The Proposal requires the affirmative vote of the holders of a majority
of the aggregate number of the Fund's outstanding shares of common stock
entitled to vote thereon. Abstentions and broker non-votes will have the effect
of a "no" vote on the Proposal.
Holders of record of the shares of the Acquired Fund at the close of
business on August 21, 2003 (the "Record Date"), as to any matter on which they
are entitled to vote, will be entitled to one vote per share on all business of
the Special Meeting. As of the Record Date, there were ___________ shares of the
Acquired Fund outstanding.
To the best knowledge of Money Funds, as of the Record Date, except as
set forth on Annex A, no person owned of record more than 5% of any class of the
Acquiring Fund's or the Acquired Fund's outstanding shares.
[As of the Record Date, less than 1% of the outstanding shares of either
of the Acquired Fund or the Acquiring Fund were owned directly or beneficially
by the officers and Directors of Money Funds as a group.]
PROPOSAL: APPROVAL OF PLAN OF REORGANIZATION
The Board of Directors of Money Funds, on behalf of each of the Acquired
Fund and the Acquiring Fund, including all of the Directors who are not
"interested persons" of such Funds (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) (the "Non-Interested Directors") approved, on
July 30, 2003, a Plan of Reorganization (the "Plan"). Subject to its approval by
the shareholders of the Acquired Fund, the Plan provides for the acquisition of
all of the assets and the assumption of all of the liabilities of the Acquired
Fund by the Acquiring Fund and the issuance of Class A shares of the Acquiring
Fund to shareholders of the Acquired Fund. (The foregoing proposed transaction
is referred to in this Prospectus/Proxy Statement as the "Reorganization"). The
Reorganization will be accomplished pursuant to an amendment to the Charter of
the Money Funds that will reclassify shares of the Acquired Fund as Class A
shares of the Acquiring Fund, substantially in the form set forth as Annex I to
3
the Plan of Reorganization (Exhibit A). As a result of the Reorganization, each
Class A shareholder of the Acquired Fund will become a Class A shareholder of
the Acquiring Fund and will hold, immediately after the closing of the
Reorganization (the "Closing"), that number of full and fractional Class A
shares of the Acquiring Fund having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's Class A shares held in the
Acquired Fund as of the close of business on the Closing Date (as defined
below). The Closing is expected to occur on [November 21,] 2003, or on such
later date as the parties may agree in writing (the "Closing Date").
SYNOPSIS
The following is a summary of certain information contained in this
Prospectus/Proxy Statement. This summary is qualified by reference to the more
complete information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus of the Acquiring Fund, the Prospectus of the Acquired Fund and the
Plan, the form of which is attached to this Prospectus/Proxy Statement as
Exhibit A. Shareholders of the Acquired Fund should read this entire
Prospectus/Proxy Statement carefully.
Introduction. Like the Acquired Fund, the Acquiring Fund is managed by
Smith Barney Fund Management LLC ("SBFM" or the "Manager"), an affiliate of
Citigroup Global Markets Inc. (formerly Salomon Smith Barney Inc.) ("Citigroup
Global"). Both Funds are managed by the same portfolio managers. The officers,
auditors, custodian, co-distributors, transfer agent and sub-transfer agents of
the Funds are identical. The Funds, as series of Money Funds, are governed by
the same Board of Directors. The Funds have identical investment objectives and
substantially identical investment policies, techniques and strategies, and risk
factors.
If the Plan is consummated, Class A shareholders of the Acquired Fund
will become Class A shareholders of the Acquiring Fund. The Reorganization has
been proposed as the Funds have identical investment objectives and
substantially identical investment policies and the Acquiring Fund is subject to
a lower total annual expense ratio (without taking into account management fee
waivers and/or voluntary expense limitations). The Acquiring Fund also has a
better performance record than the Acquired Fund since inception, although past
performance cannot guarantee future results. The Acquired Fund's significantly
smaller size has resulted in higher total annual operating expenses for its
shareholders. Prospective savings to Acquired Fund shareholders may be increased
and there may be enhanced opportunities for realizing greater economies of scale
as well as increased distribution capabilities as a result of the
Reorganization. Since the Funds are both SBFM-managed money market funds
with identical investment objectives and substantially identical investment
policies, the Reorganization may also eliminate potential confusion between the
Funds.
Shareholders of the Acquired Fund will continue to enjoy substantially
the same shareholder privileges, such as automatic dividend reinvestment and
access to professional service representatives, upon becoming shareholders of
the Acquiring Fund. Further, like the Acquired Fund, shareholders of the
Acquiring Fund may exchange into the same class of any Smith Barney Fund
(provided that the Smith Barney Fund offers the relevant class of shares and
other applicable requirements are met). As money market funds, each Fund
declares a dividend of
4
substantially all of its net investment income on each day the New York Stock
Exchange is open. See "Dividends and Other Distributions." It is a condition of
the Reorganization that each Fund receive an opinion of legal counsel that the
Reorganization will be qualified as a tax-free reorganization. This means that
shareholders should not realize any capital gain or loss as a direct result of
the Reorganization.
Proposed Reorganization. The aggregate net asset value of the Class A
shares of common stock of the Acquiring Fund (the "Acquiring Fund Shares")
issued in exchange for the assets and liabilities of the Class A shares of the
Acquired Fund will be equal to the aggregate net asset value of the Class A
shares of the Acquired Fund as of the close of regular trading on the Closing
Date. Immediately following the transfer of Acquiring Fund Shares to the
Acquired Fund, the Acquiring Fund Shares received by the Acquired Fund will be
distributed pro rata to the shareholders of record of the Acquired Fund on the
Closing Date and the shares of the Acquired Fund will be cancelled.
For the reasons described below under "The Proposed Transaction-Reasons
for the Proposed Transaction," the Board of Directors of Money Funds, on behalf
of the Acquired Fund, including the Non-Interested Directors, has concluded the
following:
- the Reorganization is in the best interests of the Acquired Fund and
its shareholders; and
- the interests of the existing shareholders of the Acquired Fund will
not be diluted as a result of the Reorganization.
Accordingly, the Board of Directors recommends approval of the Plan. If
the Plan is not approved, the Acquired Fund will continue in existence unless
other action is taken by the Board of Directors; such other action may include
resubmitting the Plan for shareholder approval or termination and liquidation of
the Acquired Fund.
Comparison of Investment Objectives and Policies. The Funds have
identical investment objectives and substantially identical investment policies
and restrictions. The investment objective of each Fund is maximum current
income and preservation of capital. Each Fund seeks to achieve its objective by
investing in high quality, U.S. dollar denominated short-term debt securities.
These may include obligations issued by U.S. and foreign banks, the U.S.
government, its agencies or instrumentalities, U.S. states and municipalities
and U.S. and foreign corporate issuers. Each Fund will invest at least 25% of
its assets in obligations of domestic and foreign banks. Either the principal
amount of each obligation must be fully insured by the FDIC or the issuing bank
must have more than $100 million of working capital or more than $1 billion of
total assets.
Each Fund operates as a money market fund and utilizes certain investment
policies so that, to the extent reasonably possible, each Fund's price per share
will not change from $1.00, although no assurance can be given that this goal
will be achieved on a continuous basis.
Each Fund may invest in all types of money market securities, including
commercial paper, certificates of deposit, bankers' acceptances, mortgage-backed
and asset-backed securities, repurchase agreements and other short-term debt
securities. These securities may pay
5
interest at fixed, floating or adjustable rates. The Funds limit foreign
investments to issuers located in major industrialized countries.
Each Fund invests in commercial paper and other short-term obligations
rated by a nationally recognized rating organization in the highest short-term
rating category, or if unrated, of equivalent quality, and in other corporate
obligations and municipal obligations rated in the two highest rating
categories, or if unrated, of equivalent quality.
Each Fund invests exclusively in securities having remaining maturities
of 397 days or less. Each Fund maintains a dollar-weighted average portfolio
maturity of 90 days or less.
Each Fund has adopted identical fundamental investment restrictions with
respect to its "diversified" status; issuing senior securities; loans;
borrowing; industry concentration; and purchasing or selling real estate, real
estate mortgages, real estate investment trust securities, commodities or
commodity contracts. Each Fund's fundamental investment restrictions may not be
changed without the approval of the applicable Fund's shareholders.
Each Fund has also adopted identical non-fundamental investment policies
with respect to purchasing securities on margin, selling securities short,
investing in securities of other investment companies, percentage restrictions
on investing in illiquid securities (no more than 10% of net assets), investing
in oil and gas interests, writing or purchasing put or call options and
investing in any company for the purpose of exercising control of management.
The only substantive difference between the Funds' investment policies is
that the corporate obligations and municipal obligations in which the Acquiring
Fund invests must be rated in the highest rating category of their respective
categories, while the corporate obligations and municipal obligations in which
the Acquired Fund invests may be in the two highest rating categories. Thus, the
Acquiring Fund's portfolio of investments may be considered to have a slightly
lower amount of risk with respect to these two types of investments than the
Acquired Fund's.
Investors should refer to the Prospectus and statement of additional
information of the Acquired Fund and the Acquiring Fund for a fuller description
of each Fund's investment policies and restrictions.
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND AND THE ACQUIRED FUND
Investment objective. The Acquiring Fund and the Acquired Fund each seeks
maximum current income and preservation of capital.
Key investments. The Acquiring Fund and the Acquired Fund each invests in
high quality, U.S. dollar denominated debt securities. These may include
obligations issued by U.S. and foreign banks, the U.S. government, its agencies
or instrumentalities, U.S. states and municipalities and U.S. and foreign
corporate issuers. Each Fund invests at least 25% of its assets in obligations
of domestic and foreign banks. Each Fund may invest in all types of money market
securities, including commercial paper, certificates of deposit, bankers'
acceptances, mortgage-backed and asset-backed securities, repurchased agreements
and other short-term debt securities.
6
Selection process. In selecting investments, the Manager looks for:
. The best relative values based on an analysis of yield, price,
interest rate sensitivity and credit quality
. Issuers offering minimal credit risk
. Maturities consistent with the Manager's outlook for interest
rates
Principal risks of investing in the Funds. All investments involve some
degree of risk. However, each Fund is a "money market fund" and, as such, seeks
income by investing in short-term debt securities that meet strict standards
established by the Board of Directors based on special rules for money market
funds adopted under federal law. Although each Fund seeks to preserve the value
of a shareholder's investment at $1 per share, it is possible to lose money by
investing in a Fund, or a Fund could under-perform other short-term debt
instruments or money market funds, if any of the following occurs:
. Interest rates rise sharply
. An issuer or guarantor of securities held by the Acquiring Fund
defaults, or has its credit rating downgraded
. The Manager's judgment about the value or credit quality of a
particular security proves to be incorrect
Who may want to invest. The Acquiring Fund or the Acquired Fund may be an
appropriate investment if you:
. Are seeking current income
. Are looking for an investment with lower risk than most other types
of funds
. Are looking to allocate a portion of your assets to money market
securities
INVESTMENT MANAGEMENT FEES AND EXPENSES
Money Funds, on behalf of the Acquired Fund and Acquiring Fund, retains
SBFM, pursuant to an investment management agreement, to manage the daily
investment and business affairs of the Acquired Fund and the Acquiring Fund,
respectively, subject to the policies established by the Board of Directors of
Money Funds. Each Fund bears its own expenses, including its investment advisory
fees. Shareholders pay no direct charges or fees for investment services.
The Funds' investment manager is SBFM. SBFM's address is 399 Park Avenue,
New York, New York 10004. SBFM and Citigroup Global are subsidiaries of
Citigroup Inc. Citigroup businesses provide a broad range of financial
services-asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading-and use diverse
channels to make them available to consumer and corporate customers around the
world.
SBFM selects each Fund's investments and oversees its operations. Under
the investment management agreement, the Acquiring Fund pays SBFM a fee computed
daily and paid monthly at the annual rate of 0.45% of the Acquiring Fund's
average daily net assets up to $1.0 billion,
7
0.425% of the next $1.0 billion of average daily net assets, 0.40% of the next
$3.0 billion of average daily net assets, 0.375% of the next $5.0 billion of
average daily net assets, and 0.35% on the average of daily net assets in excess
of $10.0 billion./1/ The total investment management fees paid by the Acquiring
Fund for the fiscal year ended December 31, 2002 were $108,717,599. Under the
investment management agreement, the Acquired Fund pays SBFM a fee computed
daily and paid monthly at the annual rate of 0.45% of the Acquired Fund's
average daily net assets up to $1.0 billion, 0.40% of the next $1.0 billion of
average daily net assets and 0.35% on the average daily net assets in excess of
$2.0 billion. The total investment management fees paid by the Acquired Fund for
the fiscal year ended December 31, 2002 were $3,987,026.
Each Fund's total expense ratio (total annual operating expenses as a
percentage of average net assets) for each class of their shares for each Fund's
fiscal year ended December 31, 2002 (in the case of the Acquiring Fund, restated
to show the effects of the revised management fee breakpoints) are set forth
below under "Annual Fund Operating Expenses." SBFM projects that if the proposed
Reorganization is effected, the expense ratio for Class A shares of the
Acquiring Fund will be lower for the year ending December 31, 2003 (without
taking into account any management fee waivers and/or voluntary expense
limitations). The actual expense ratio for the Acquiring Fund for the year
ending December 31, 2003 may be higher or lower than as set forth below,
depending upon the Acquiring Fund's total net assets, the composition of its
portfolio, the size of its average shareholder account, economic conditions,
sales and redemptions of the Acquiring Fund's shares (including redemptions by
former shareholders of the Fund), and other factors.
The actual expenses of the Acquiring Fund for the fiscal year ended
December 31, 2002, restated to show the effect of the revised management fee
breakpoints, of the Acquired Fund for the fiscal year ended December 31, 2002,
and pro forma expenses following the proposed restructuring are set forth below.
As a result of the Reorganization, Class A shareholders of the Acquired Fund
will be investing in the Class A shares of the Acquiring Fund with expenses that
are currently 0.12% lower than those of the Class A shares of the Acquired Fund
even after taking into account the fee waivers and expense reimbursements by
SBFM, which may be terminated or modified by SBFM at any time.
- ----------------
/1/ As of July 1, 2003. Prior to that date, the Acquiring Fund's investment
management fees were calculated at an annual rate as follows: 0.45% of
the Acquiring Fund's average daily net assets up to $6.0 billion,
0.425% of the next $6.0 billion of average daily net assets, 0.40% of
the next $6.0 billion of average daily net assets and 0.35% on the
average of daily net assets in excess of $18.0 billion.
8
ANNUAL FUND OPERATING EXPENSES
Acquiring Fund Class A Class L Class Y
- ---------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None None None
Maximum deferred sales charge (load)
(as a percentage of the lower of net asset value at
purchase or redemption) None/(1)/ None None
Annual Fund Operating Expenses
(expenses deducted from fund assets)
Management fees/(2)/ 0.37% 0.37% 0.37%
Distribution and/or service (12b-1) fee 0.10% 0.10% None
Other expenses 0.11% 0.10% 0.04%
- ---------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES/(3)/ 0.58% 0.57% 0.41%
===================================================================================================
Acquired Fund Class A
- --------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of the lower of net asset value at
purchase or redemption) None/(1)/
Annual Fund Operating Expenses
(expenses deducted from fund assets)
Management fees/(2)/ 0.45%
Distribution and/or service (12b-1) fee 0.10%
Other expenses 0.15%
- --------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES/(3)/ 0.70%
==========================================================================
Pro Forma Pro Forma Pro Forma
Acquiring Fund (Pro Forma) (Unaudited) Class A/(4)/ Class L Class Y
- -----------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None None None
Maximum deferred sales charge (load)
(as a percentage of the lower of net asset value at
purchase or redemption) None/(1)/ None None
Annual Fund Operating Expenses
(expenses deducted from fund assets)
Management fees/(2)/ 0.37% 0.37% 0.37%
Distribution and/or service (12b-1) fee 0.10% 0.10% None
Other expenses 0.11% 0.10% 0.04%
- -----------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES/(3)/ 0.58% 0.57% 0.41%
=====================================================================================================
/(1)/ Class A shares exchanged from another Smith Barney fund subject to a
deferred sales charge remain subject to the original fund's deferred
sales charge while held in a Fund.
/(2)/ The Manager may from time to time agree to waive part or all of its
management fees and reimburse a Fund for other expenses above a
specified limit.
9
/(3)/ The Manager has voluntarily agreed to limit total annual Fund operating
expenses to 0.70% of the Fund's average daily net assets. The Manager
may change or eliminate these expense limits at any time on fourteen
days' prior notice to shareholders.
/(4)/ While not apparent from these calculations, the Board of Directors,
based on information provided by the Manager, believes that there will
be some monetary benefit in terms of reduced expenses inuring to the
Acquiring Fund after the Reorganization.
Example. This Example is intended to help you compare the cost of
investing in each of the Funds and for the Acquiring Fund pro forma, assuming
the Reorganization takes place, and is for illustration only. The Example
assumes you invest $10,000 in each Fund for the time periods indicated and that
you reinvest all dividends and distributions without a sales charge. The Example
also assumes your investment has a 5% return each year and that each Fund's
annual operating expenses (before fee waivers and/or expense reimbursements, if
any) remain the same. Although actual fund expenses can vary from year to year
and your actual costs may be higher or lower, based on these assumptions your
costs would be:
Acquiring Fund 1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------
Class A .................................... $ 59 $ 186 $ 324 $ 726
Class L .................................... $ 58 $ 183 $ 318 $ 714
Class Y .................................... $ 42 $ 132 $ 230 $ 518
Acquired Fund .................................. 1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------
Class A .................................... $ 72 $ 224 $ 390 $ 871
Pro Forma Pro Forma Pro Forma Pro Forma
Acquiring Fund (Pro Forma) 1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------
Class A .................................... $ 59 $ 186 $ 324 $ 726
Class L .................................... $ 58 $ 183 $ 318 $ 714
Class Y .................................... $ 42 $ 132 $ 230 $ 518
Examples should not be considered representations of past or future expenses.
Please refer to each Fund's prospectus and statement of additional information
for a more detailed discussion of the fees and expenses applicable to each class
of shares of a Fund.
DISTRIBUTION OF SHARES AND OTHER SERVICES
Citigroup Global distributes shares of each of the Funds and PFS
Distributors Inc. ("PFS Distributors") distributes shares of the Acquiring Fund.
Citigroup Global has also entered into selling agreements with one or more
other service agents giving the service agents the rights to sell shares of the
Funds. Each Fund has adopted a services and distribution plan under Rule 12b-1
under the 1940 Act (the "12b-1 Plan").
With respect to each Fund, Citigroup Global or PFS Distributors, as
applicable, is paid a service fee for Class A and (with respect to the Acquiring
Fund) Class L shares at the annual rate of 0.10% of the average daily net assets
of the respective Class under the 12b-1 Plan. The fees are used by Citigroup
Global or PFS Distributors, as applicable, to pay its respective financial
consultants for servicing shareholder accounts and, in the case of Class L
shares, to cover expenses primarily intended to result in the sale of those
shares, or are paid by Citigroup Global to other service agents pursuant to
selling agreements. Class Y shares of the Acquiring Fund are not subject to any
distribution or service fees.
10
Payments under the above 12b-1 Plans are not tied exclusively to the
distribution and shareholder service expenses actually incurred by Citigroup
Global or PFS Distributors, as applicable, and the payments may exceed those
expenses actually incurred by the distributors.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and privileges with
respect to the Class A shares of the Acquired Fund are substantially similar to
those of the Class A shares of the Acquiring Fund, except as described below.
Please refer to the Funds' prospectus and statement of additional information
for a more detailed discussion of the purchase, redemption and exchange
procedures and privileges applicable to each class of a Fund.
The initial and subsequent investment minimums of the Class A shares of the
two Funds differ. The Acquired Fund's Class A shares, which are available only
through qualified retirement plans, have a minimum initial investment of $200;
each additional investment must be $1 or more. The Acquiring Fund's Class A
shares require a minimum initial investment of $1,000 and a minimum additional
investment of $50, except for IRAs, Self Employed Retirement Plans and Uniform
Gifts or Transfers to Minors Accounts, which require a minimum initial
investment of $250 and a minimum additional investment of $50, qualified
retirement plans, which require a minimum initial investment of $25 and a
minimum additional investment of $25 and Simple IRAs, which require a minimum
initial investment of $1 and a minimum additional investment of $1. If
shareholders of the Acquired Fund approve the proposed reorganization, the
Acquiring Fund's current minimum initial and additional investment amount
requirements applicable to purchases through qualified retirement plans will
also apply to purchases of Class A shares of the combined Fund made through
qualified retirement plans. Thus, the combined Fund's investment minimums
applicable to Class A shareholders purchasing through qualified retirement plans
will be lower than the current minimum initial investment amount requirement,
and higher than the current minimum additional investment amount requirement, of
the Class A shares of the Acquired Fund.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares a dividend of substantially all of its net investment
income on each day the New York Stock Exchange is open. Income dividends are
paid monthly. Each Fund generally makes capital gain distributions, if any, once
a year, typically in December. Each Fund may pay additional distributions and
dividends at other times if necessary for the Fund to avoid a federal tax.
Unless otherwise directed, capital gain distributions and dividends of each Fund
will be invested in additional shares of the same class of the applicable Fund
at net asset value and credited to the shareholder's account on the payment date
or, at the shareholder's election, paid in cash.
If the Plan is approved by the Acquired Fund's shareholders, then as
soon as practicable before the Closing Date, the Acquired Fund will pay or have
paid its shareholders a cash distribution of substantially all undistributed net
investment income and undistributed realized net capital gains, if any, for the
current taxable year through the Closing Date.
11
PRINCIPAL INVESTMENTS AND RISK FACTORS
General. As described above, the Acquired Fund and the Acquiring Fund
have substantially similar investment objectives and policies and pursue their
respective objectives in a similar manner. Accordingly, the Funds engage in
investment practices and techniques that are substantially similar. A more
complete description of the investment practices and limitations of the
Acquiring Fund is contained in the prospectus and statement of additional
information of the Acquiring Fund, dated April 30, 2003, as supplemented from
time to time, a copy of which is included herewith, and in the Statement of
Additional Information of the Acquired Fund and the Acquiring Fund dated August
__, 2003 (relating to the proposed Reorganization) which is incorporated herein
by reference. Please refer to the Funds' prospectus and statement of additional
information for a more detailed discussion of the specific investment practices
and risks of each Fund.
Because of their substantially identical investment policies, the Funds
are exposed to substantially identical risks. The following summarizes those
principal investment policies and related risk factors:
U.S. Government Obligations. Each Fund may invest in obligations issued
or guaranteed as to payment of principal and interest by the U.S. Government
(including Treasury bills, notes and bonds) or by its agencies and
instrumentalities (such as the Government National Mortgage Association, and the
Student Loan Marketing Association, the Tennessee Valley Authority, the Bank for
Cooperatives, the Farmers Home Administration, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal, Home Loan Banks, Federal Intermediate Credit
Banks, Federal Land Banks, the Export-Import Bank of the U.S., the Federal
Housing Administration, the Federal Home Loan Mortgage Corporation, the U.S.
Postal Service, the Federal Financing Bank and the Federal National Mortgage
Association). Some of these securities (such as Treasury bills) are supported by
the full faith and credit of the U.S. Treasury; others (such as obligations of
the Federal Home Loan Bank) are supported by the right of the issuer to borrow
from the Treasury; while still others (such as obligations of the Student Loan
Marketing Association) are supported only by the credit of the particular agency
or instrumentality.
Repurchase Agreements. Each Fund may enter into repurchase agreements
with respect to U.S. government securities and may engage in repurchase
agreement transactions on portfolio securities. Each Fund may agree to purchase
securities from a bank or recognized securities dealer and simultaneously commit
to resell the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or maturity of
the purchased securities ("repurchase agreements"). A Fund would maintain
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to would be, in effect, secured by such securities. In the
12
event a tri-party repurchase agreement is utilized, the collateral can be held
by a third party. If the value of such securities were less than the repurchase
price, plus interest, the other party to the agreement would be required to
provide additional collateral so that at all times the collateral is at least
102% of the repurchase price plus accrued interest. Default by or bankruptcy of
a seller would expose Fund to possible loss because of adverse market action,
expenses and/or delays in connection with the disposition of the underlying
obligations. The financial institutions with which the Funds may enter into
repurchase agreements will be banks and non-bank dealers of U.S. Government
securities listed on the Federal Reserve Bank of New York's list of reporting
dealers, if such banks and non-bank dealers are deemed creditworthy by the
Funds' Manager. The Manager will continue to monitor creditworthiness of the
seller under a repurchase agreement. The Manager will mark-to-market daily the
value of the securities. Repurchase agreements are considered to be loans by a
Fund under the 1940 Act.
Commercial Paper and Other Short-term Obligations. Each Fund may invest
in commercial paper (including variable amount master demand notes and funding
agreement) which consists of short-term, unsecured promissory notes issued by
corporations, partnerships, trusts and other entities to finance short-term
credit needs. Short-term obligations also include mortgage-related or
asset-backed debt or debt-like instruments, including pass-through certificates
representing participations in, or bonds and notes backed by, pools of mortgage,
credit card, automobile or other types of receivables. These structured
financings will be supported by sufficient collateral and other credit
enhancements, including letters of credit, insurance, reserve funds and
guarantees by third parties, to enable such instruments to obtain the requisite
quality ratings from NRSROs. Commercial paper and such other short-term
obligations will be rated in the highest category for short-term debt
obligations by the requisite NRSROs at the time of acquisition by a Fund, or
will be unrated securities determined to be comparable thereto.
High Quality Corporate Obligations. Each Fund may invest in obligations
of corporations that are originally issued with a maturity of greater than 397
days and are: (1) rated as long-term debt obligations in the two highest rating
categories (the highest for Cash Portfolio) by the requisite NRSROs or (2)
issued by an issuer that has a class of short-term debt obligations that are
comparable in priority and security with the obligation with that have been
rated categories for short-term debt obligations, or are otherwise comparable to
short-term debt obligations having such a rating. Each Fund will invest only in
corporate obligations with remaining maturities of 13 months or less.
Bank Obligations. Each Fund may invest in obligations (including
certificates of deposit, bankers' acceptances and fixed time deposits) and
securities backed by letters of credit of U.S. banks or other U.S. financial
institutions that are members of the Federal Reserve System or the Federal
Deposit Insurance Corporation ("FDIC") (including obligations of foreign
branches of such members) if either: (a) the principal amount of the obligation
is insured in full by the FDIC, or (b) the issuer of such obligation has
capital, surplus and undivided profits in excess of $100 million or total assets
of $1 billion (as reported in its most recently published financial statements
prior to the date of investment). Under current FDIC regulations, the maximum
insurance payable as to any one certificate of deposit is $100,000; therefore,
certificates of deposit in denominations greater than $100,000 that are
purchased by a fund will not be fully insured. Neither Fund will purchase a
fixed time deposit with an ultimate maturity
13
of more than six months, and will limit its investment in fixed time deposits
maturing from two business to seven calendar days and/or any other investments
deemed to be illiquid to 10% of its net assets.
Each Fund will maintain at least 25% of its total assets invested in
obligations of domestic and foreign banks, subject to the above-mentioned size
criteria. Each Fund may invest in instruments issued by domestic banks,
including those issued by their branches outside the United States and
subsidiaries located in Canada, and in instruments issued by foreign banks
through their branches located in the United States and the United Kingdom. Each
Fund may invest in fixed time deposits of foreign banks issued through their
branches located in Grand Cayman Islands, London, Nassau, Tokyo and Toronto.
Municipal Obligations. Each Fund may invest in debt obligations of
states, cities, counties, municipalities, municipal agencies and regional
districts rated SP-1+ or A-1 or AA or better by S&P or MIG 2, VMIG 2 or Prime-1
or Aa or better by Moody's or, if not rated determined by SBFM to be of
comparable quality. Cash Portfolio only invests in municipal obligations rated
in the highest short-term rating category. At certain times, supply/demand
imbalances in the tax-exempt market cause municipal obligations to yield more
than taxable obligations of equivalent credit quality and maturity length. The
purchase of these securities could enhance a Fund's yield. Neither Fund will
invest more than 10% of its total assets in municipal obligations.
Time Deposits. Each Fund may invest in fixed time deposits with an
ultimate maturity of not more than six months. In addition, each Fund currently
intends to limit investment in fixed time deposits with a maturity of two
business days or more, when combined with other illiquid assets of the Fund, so
that not more than 10% of its assets would be invested in all such illiquid
instruments. Fixed time deposits, unlike negotiable certificates of deposit,
generally do not have a market and may be subject to penalties for early
withdrawal of funds.
Asset-Backed Securities. Each Fund may invest in asset-backed securities
arising through the grouping by governmental, government-related and private
organizations of loans, receivables and other assets originated by various
lenders. Interests in pools of these assets differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Instead,
asset-backed securities provide periodic payments which generally consist of
both interest and principal payments.
The estimated life of an asset-backed security varies with the prepayment
experience with respect to the underlying debt instruments. The rate of such
prepayments, and hence the life of an asset-backed security, will be primarily a
function of current market interest rates, although other economic and
demographic factors may be involved. For example, falling interests rates
generally result in an increase in the rate of prepayments of mortgage loans
while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. In period of
sharply rising rates, prepayments generally slow, increasing the security's
average life and its potential for price depreciation.
14
Illiquid and Restricted Securities. Each Fund may purchase securities
that are not registered ("restricted securities") under the Securities Act of
1933, as amended (the "1933 Act"), but can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A"). Each
Fund may also invest a portion of its assets in illiquid investments, which
include repurchase agreements maturing in more than seven days. The Board of
Directors may determine, based upon a continuing review of the trading markets
for the specific restricted security, that such restricted securities are
liquid. The Board of Directors has adopted guidelines and delegated to
management the daily function of determining and monitoring liquidity of
restricted securities available pursuant to Rule 144A. The Board, however,
retains sufficient oversight and is ultimately responsible for the
determinations. Since it is not possible to predict with assurance exactly how
the market for Rule 144A restricted securities will develop, the Board will
monitor each Fund's investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
Investments in restricted securities could have the effect of increasing the
level of illiquidity in a Fund to the extent that qualified institutional buyers
become for a time uninterested in purchasing these restricted securities. The
Funds may also purchase restricted securities that are not registered under Rule
144A. Each Fund may invest no more than 10% of its net assets in illiquid
securities.
Portfolio Turnover. Each Fund may, to a limited degree, engage in
short-term trading to attempt to take advantage of short-term market variations,
or may dispose of a portfolio security prior to its maturity if it believes such
disposition advisable or its needs to generate cash to satisfy redemptions. In
such cases, a Fund may realize a gain or loss.
Borrowing. Each Fund may borrow money from banks for temporary or
emergency purposes, including for the purpose of accommodating requests for the
redemption of shares while effecting an orderly liquidation of portfolio
securities, and not for leveraging purposes.
THE PROPOSED REORGANIZATION
Description of the Plan. As stated above, the Plan provides for the
transfer of all of the assets of the Acquired Fund to the Acquiring Fund in
exchange for that number of full and fractional Class A shares of common stock
of the Acquiring Fund having an aggregate net asset value equal to the aggregate
net asset value of the shareholder's shares held in the Acquired Fund as of the
close of regular trading on the New York Stock Exchange, Inc. on the Closing
Date. The Acquiring Fund will assume all of the liabilities of the Acquired
Fund. In connection with the Closing, the Acquired Fund will distribute the
Class A shares of common stock of the Acquiring Fund received in the exchange to
the shareholders of the Acquired Fund in complete liquidation of the Acquired
Fund. The Acquired Fund will be terminated as a series of Money Funds and its
issued and outstanding shares cancelled.
Upon completion of the Reorganization, each shareholder of the Acquired
Fund will own that number of full and fractional Class A shares of common stock
of the Acquiring Fund having an aggregate net asset value equal to the aggregate
net asset value of such shareholder's shares held in the Acquired Fund as of the
close of regular trading on the Closing Date. Each Acquired Fund shareholder's
account with the Acquiring Fund will be substantially similar in all material
respects to the accounts currently maintained by the Acquired Fund's
sub-transfer agent for such shareholder.
15
Until the Closing, shareholders of the Acquired Fund will, of course,
continue to be able to redeem their shares at the net asset value next
determined after receipt by the Acquired Fund's sub-transfer agent of a
redemption request in proper form. Redemption requests received by the
sub-transfer agent thereafter will be treated as requests received for the
redemption of shares of the Acquiring Fund received by the shareholder in
connection with the Reorganization.
For those shareholders of the Acquired Fund who have elected to have
their dividends reinvested, dividends will continue to be reinvested
automatically, unless otherwise directed by such shareholder, until the Closing
Date.
The obligations of Money Funds, on behalf of each of the Acquired Fund
and the Acquiring Fund, under the Plan are subject to various conditions, as
stated therein. Among other things, the Plan requires that all filings be made
with, and all authority be received from, the SEC and the State of Maryland, as
applicable, as may be necessary in the opinion of counsel to permit the parties
to carry out the transactions contemplated by the Plan. The Acquired Fund and
the Acquiring Fund are in the process of making the necessary filings. To
provide against unforeseen events, the Plan may be terminated or amended at any
time prior to the Closing (in accordance with the Plan), notwithstanding the
approval of the Plan by the shareholders of the Acquired Fund. However, no
amendment may be made after the Special Meeting that materially adversely
affects the interests of the shareholders of the Acquired Fund without obtaining
the approval of the Acquired Fund's shareholders. The Acquired Fund and the
Acquiring Fund may at any time waive compliance with certain of the covenants
and conditions contained in the Plan. For a complete description of the terms
and conditions of the Reorganization, see the Plan at Exhibit A.
The Acquired Fund and the Acquiring Fund will pay all of the expenses
that are solely and directly related to the Reorganization, with such costs
apportioned between the two Funds as determined by the Board of Directors after
considering the expected benefits of the Reorganization to each Fund. Currently,
the Manager has voluntarily agreed to limit the total annual operating expenses
of each Fund to 0.70% of the Fund's average daily net assets. However, the
expenses of the Reorganization are not considered ordinary Fund expenses and, as
such, will not be subject to this voluntary cap. Shareholders have no rights of
appraisal.
REASONS FOR THE PROPOSED REORGANIZATION
At a meeting of Money Funds' Board of Directors held on June 25, 2003,
the Board and the Manager discussed the possibility of the Reorganization.
Subsequently, Money Funds' Board of Directors, including all of the
Non-Interested Directors, was presented by the Manager with materials discussing
the benefits which would inure to the shareholders of the Acquired Fund if the
Acquired Fund were to reorganize with and into the Acquiring Fund. These
materials were discussed at a telephonic Board meeting on July 30, 2003 to the
satisfaction of the Directors, who were advised by independent counsel. For the
reasons discussed below, the Board of Directors of Money Funds, including all of
the Non-Interested Directors, has determined that the proposed Reorganization is
in the best interests of the Acquired Fund and its shareholders and that the
interests of the shareholders of the Acquired Fund will not be diluted as a
result of the proposed Reorganization.
If the proposed transaction is approved, shareholders of the Acquired
Fund may benefit from lower total fund expenses. See "Investment Management Fees
and Expenses" and "Annual Fund Operating Expenses". As set forth above, as of
their most recent fiscal year end, the outstanding class of shares of the
Acquired Fund had higher total annual operating expenses than the corresponding
class of the Acquiring Fund. As a result of the Reorganization, shareholders of
the Acquired Fund will be investing in the Class A shares of the Acquiring Fund
with expenses that are currently 0.12% lower than those of the Class A shares of
the Acquired Fund even after taking into account the fee waivers and expense
reimbursements by SBFM, which may be terminated or modified by SBFM at any time.
Going forward, shareholders should benefit from economies of scale through lower
expense ratios and higher net income
16
distributions over time since some of the fixed expenses currently paid by the
Acquiring Fund, such as accounting, legal and printing costs, would be spread
over a larger asset base.
Due to a combination of factors, including the smaller size of the
Acquired Fund, past and prospective sales of the Acquired Fund and current
market conditions, the Directors and management of Money Funds believe the
Acquired Fund and its shareholders would benefit from a tax-free reorganization
with a larger fund with substantially similar investment objectives and policies
and with a lower total annual expense ratio. Accordingly, it is recommended that
the shareholders of the Acquired Fund approve the Reorganization with the
Acquiring Fund.
The Board of Directors of Money Funds, in recommending the proposed
transaction, considered a number of factors, including the following:
(1) the lower total annual expense ratio of the Acquiring Fund
(before management fee waivers and voluntary expense
limitations);
(2) the Reorganization will result in a single larger fund, which
may increase economic and other efficiencies (e.g., eliminating
one of the two sets of prospectuses, annual reports and other
documents required for two Funds), and may, in the future, result
in a lower expense ratio;
(3) a larger asset base could provide portfolio management benefits
for the combined Fund, such as greater diversification and the
ability to command more attention from brokers and underwriters;
(4) the identical investment objectives and the substantially
identical investment policies, restrictions and risk
factors of the two Funds;
(5) the Funds have the same portfolio manager who employs
substantially identical investment strategies in selecting each
Fund's portfolio of securities;
(6) the tax-free nature of the Reorganization;
(7) the better performance of the Acquiring Fund since inception;
(8) the potential opportunity for higher income levels and higher
annual return; and
(9) the terms and conditions of the Reorganization and that it should
not result in a dilution of Acquiring Fund or Acquired Fund
shareholder interests.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
General. Each of the Acquired Fund and the Acquiring Fund is a series
of Money Funds, a corporation incorporated under the laws of the State of
Maryland on May 28, 1974, and is registered with the SEC as an open-end
management investment company. The Acquiring Fund currently offers shares of
common stock classified into three Classes: A, L and Y. The Acquired Fund
currently offers one Class of common stock, Class A. The Classes of each Fund
have the same rights, privileges and preferences, except with respect to: (a)
the designation of
17
each Class; (b) the level of services rendered to shareholders of a particular
Class; (c) the distribution and/or service fees borne by each Class; (d) the
expenses allocable exclusively to each Class; (e) voting rights on matters
exclusively affecting a single Class; and (f) the exchange privilege of each
Class.
Each share of each Class of a Fund represents an interest in that Class
of the Fund that is equal to and proportionate with each other share of that
Class of the Fund. Shareholders are entitled to one vote per share (and a
proportionate fractional vote per each fractional share) on matters on which
they are entitled to vote.
Voting Rights. Neither Fund is required to hold shareholder meetings
annually, although shareholder meetings may be called for purposes such as
electing or removing Directors, changing fundamental policies or approving an
investment management contract. In the event that shareholders of a Fund wish to
communicate with other shareholders concerning the removal of any Director, such
shareholders shall be assisted in communicating with other shareholders for the
purpose of obtaining signatures to request a meeting of shareholders, all in the
manner provided in the 1940 Act.
Board. The By-Laws of Money Funds provide that the term of office of
each Director shall be from the time of his or her election and qualification
until his or her successor shall have been elected and shall have qualified, or
until his death, resignation or removal, or as otherwise provided by statute or
the Money Funds' Articles of Incorporation. Any Director may be removed by the
shareholders with or without cause at any time by the vote of a majority of the
votes entitled to be cast for the election of Directors. Subject to the
provisions of the 1940 Act, as amended, any vacancies in the Board of Directors,
whether arising from death, resignation, removal or any other cause except an
increase in the number of Directors will be filled by a vote of the majority of
the Board of Directors then in office even though that majority is less than a
quorum, provided that no vacancy or vacancies will be filled by action of the
remaining Directors if, after the filling of the vacancy or vacancies, fewer
than two-thirds of the Directors then holding office will have been elected by
the shareholders. A majority of the entire Board in office at the time of
increase may fill a vacancy which results from an increase in the number of
Directors. In the event that at any time a vacancy exists in any office of a
Director that may not be filled by the remaining Directors, a special meeting of
the shareholders of the Money Funds will be held as promptly as possible and in
any event within 60 (sixty) days, for the purpose of filling the vacancy or
vacancies. Any Director elected or appointed to fill a vacancy will hold office
until a successor has been chosen and qualifies or until his earlier resignation
or removal.
Liquidation or Termination. In the event of the liquidation or
termination of the Acquired Fund or the Acquiring Fund, the shareholders of each
Fund are entitled to receive, when and as declared by the Directors, the excess
of the assets over the liabilities belonging to the relevant Fund. In either
case, the assets so distributed to shareholders will be distributed among the
shareholders in proportion to the number of shares of the class held by them and
recorded on the books of the relevant Fund.
Rights of Inspection. Maryland law permits any shareholder of the
Acquired Fund or the Acquiring Fund or any agent of such shareholders to inspect
and copy, during usual business hours, the By-Laws, minutes of shareholder
proceedings, annual statements of the affairs and
18
voting trust agreements (if any) of the Acquired Fund or the Acquiring Fund,
respectively, on file at its principal office.
Shareholder Liability. Under Maryland law, shareholders of the Acquired
Fund and the Acquiring Fund do not have personal liability for corporate acts
and obligations.
Shares of common stock of the Acquiring Fund issued to the holders of
shares of common stock in the Acquired Fund pursuant to the Reorganization will
be fully paid and nonassessable when issued, transferable without restrictions
and will have no preemptive rights.
The foregoing is only a summary of certain characteristics of the
operations of Money Funds. The foregoing is not a complete description of the
documents cited. Shareholders should refer to the provisions of organizational
documents and state laws governing each Fund for a more thorough description.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by Money Funds, on
behalf of each of the Acquired Fund and the Acquiring Fund, of an opinion from
Willkie Farr & Gallagher, to the effect that, based upon certain facts,
assumptions and representations, the Reorganization will constitute a tax-free
reorganization within the meaning of section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). If the Reorganization constitutes a
tax-free reorganization, no gain or loss will be recognized by the shareholders
as a result of their exchange of shares pursuant to the Reorganization and no
gain or loss will generally be recognized by the Acquired Fund and the Acquiring
Fund as a result of the Reorganization. This opinion, in substance, will state
that for U.S. federal income tax purposes: (i) the transfer to the Acquiring
Fund of all of the assets of the Acquired Fund in exchange solely for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund, followed by the distribution of such Acquiring
Fund Shares to Acquired Fund shareholders in exchange for their shares of the
Acquired Fund in complete liquidation of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and the
Acquiring Fund and the Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) except for gain or loss
regularly attributable to the termination of the Acquired Fund's taxable year,
no gain or loss will be recognized by the Acquired Fund upon the transfer of the
Acquired Fund's assets to the Acquiring Fund in exchange for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of liabilities of the Acquired
Fund or upon the distribution of the Acquiring Fund Shares to the Acquired
Fund's shareholders in exchange for their shares of the Acquired Fund; (iii)
except for assets that may be revalued as a consequence of a termination of the
Acquired Fund's taxable year, the basis of the assets of the Acquired Fund in
the hands of the Acquiring Fund will be the same as the basis of such assets of
the Acquired Fund immediately prior to the Reorganization; (iv) except for
assets that may be revalued as a consequence of a termination of the Acquired
Fund's taxable year, the holding period of the assets of the Acquired Fund in
the hands of the Acquiring Fund will include the period during which such assets
were held by the Acquired Fund; (v) no gain or loss will be recognized by the
Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in
exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund
of all of the liabilities of the Acquired Fund; (vi) no gain or loss will be
recognized by the shareholders of the Acquired Fund upon the receipt of the
Acquiring Fund Shares solely in exchange for their shares of the Acquired Fund
as part of the Reorganization; (vii) the aggregate basis of the Acquiring Fund
Shares received by the shareholders of the Acquired Fund will be the same as the
aggregate basis of the shares of the Acquired Fund exchanged therefor; and
(viii) the holding period of the Acquiring Fund Shares received by the
shareholders of the Acquired Fund will include the holding period during
19
which the shares of the Acquired Fund exchanged therefor were held, provided
that at the time of the exchange the shares of the Acquired Fund were held as
capital assets in the hands of the shareholders of the Acquired Fund.
While Money Funds is not aware of any adverse state or local tax
consequences of the proposed Reorganization, it has not requested any ruling or
opinion with respect to such consequences and shareholders should consult their
own tax adviser with respect to such matters.
LIQUIDATION AND TERMINATION OF THE ACQUIRED FUND
If the Reorganization is effected, the Acquired Fund will be liquidated
and terminated as a series of Money Funds, and the Acquired Fund's outstanding
shares will be cancelled.
PORTFOLIO SECURITIES
If the Reorganization is effected, SBFM will analyze and evaluate the
portfolio securities of the Acquired Fund being transferred to the Acquiring
Fund. Consistent with the Acquiring Fund's investment objective and policies,
any restrictions imposed by the Code and the best interests of the Acquiring
Fund's shareholders (including former shareholders of the Acquired Fund), SBFM
will determine the extent and duration to which the Acquired Fund's portfolio
securities will be maintained by the Acquiring Fund. It is possible that there
may be some rebalancing of the Acquired Fund's portfolio securities in
connection with the Reorganization, although this is not expected to occur to a
significant extent. Subject to market conditions at the time of any such
rebalancing, the disposition of the Acquired Fund's portfolio securities may
result in a short-term capital gain or loss. The actual tax consequences of any
disposition of portfolio securities will vary depending upon the specific
security(ies) being sold.
CAPITALIZATION AND PERFORMANCE
Pro Forma Capitalization (Unaudited). The following table sets forth
the unaudited capitalization of each class of each of the Acquiring Fund and the
Acquired Fund as of August 1, 2003, and as adjusted giving effect to the
Reorganization discussed herein(*):
ACQUIRING ACQUIRED PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
--------------- ---------------- --------------- -------------
(Actual) (Actual)
Class A
-------
Net Assets $20,221,818,888 $ 762,685,111 $20,984,503,999
Net Asset Value
Per Share $ 1.00 $ 1.00 $ 1.00
Shares
Outstanding 20,221,706,436 762,685,111 20,984,391,547
Class L
20
ACQUIRING ACQUIRED PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
-------------- ------------ ------------- ------------
Actual Actual
Net Assets $ 378,807 N/A $ 378,807
Net Asset Value Per Share $ 1.00 N/A $ 1.00
Shares Outstanding 378,804 N/A 378,804
Class Y
-------
Net Assets $ 86,594,703 N/A $ 86,594,703
Net Asset Value Per Share $ 1.00 N/A $ 1.00
Shares Outstanding 86,594,327 N/A 86,594,327
- ------------------
*Assumes the Reorganization had been consummated as of August 1, 2003, and is
for information purposes only.
The following table reflects the average annual total returns of each
Fund for the 1, 5 and 10 year and since inception periods, as applicable, ended
December 31, 2002. Past performance does not necessarily indicate how the Funds
will perform in the future. The table assumes redemption of shares at the end of
each period and reinvestments of distributions and dividends.
-----------------------------------------------------------------------------------------------------
1 year 5 years 10 Years Since Inception Inception Date
-----------------------------------------------------------------------------------------------------
Acquiring Fund
-----------------------------------------------------------------------------------------------------
21
-----------------------------------------------------------------------------------------------------------
Class A 1.28% 4.15% 4.27% N/A 5/28/74
-----------------------------------------------------------------------------------------------------------
Class L(*) 1.29% 4.19% N/A 4.59% 11/10/94
-----------------------------------------------------------------------------------------------------------
Class Y 1.45% 4.34% N/A 4.71% 12/29/94
-----------------------------------------------------------------------------------------------------------
Acquired Fund
-----------------------------------------------------------------------------------------------------------
Class A 1.11% 4.05% 4.18% N/A 5/28/74
-----------------------------------------------------------------------------------------------------------
- --------------------
*Represents previously issued Class C shares which were renamed Class L shares
on June 12, 1998.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about Money Funds, with respect to
the Acquired Fund and the Acquiring Fund, and the Reorganization has been filed
with the SEC and may be obtained without charge by writing to Smith Barney
Mutual Funds, 125 Broad Street, New York, New York 10004, or by calling
1-800-451-2010.
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith, files
reports, proxy material and other information about the applicable Fund with the
Commission.
Such reports, proxy material and other information can be inspected and
copied at the Public Reference Room (202-942-8090) maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can
also be obtained, after paying a duplicating fee, by electronic request at
publicinfo@sec.gov or by writing to the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or without charge, from the
Commission at http://www.sec.gov. Copies of such material can also be obtained
from Smith Barney Mutual Funds, 125 Broad Street, New York, New York 10004, or
by calling 1-800-451-2010.
Interests of Certain Persons. SBFM and certain of the Acquiring Fund's
service providers have a financial interest in the Reorganization, arising from
the fact that their respective fees under their respective agreements with the
Acquiring Fund will increase as the amount of the Acquiring Fund's assets
increases; the amount of those assets will increase by virtue of the
Reorganization. The increases will be offset by the elimination of fees
resulting from the termination and liquidation of the Acquired Fund, which
retained the same service providers.
THE BOARD OF DIRECTORS OF MONEY FUNDS RECOMMENDS THAT THE SHAREHOLDERS OF THE
ACQUIRED FUND VOTE IN FAVOR OF THIS PROPOSAL.
ADDITIONAL INFORMATION
General. The cost of preparing, printing and mailing the enclosed proxy
card and Prospectus/Proxy Statement and all other costs incurred in connection
with the solicitation of proxies, including any additional solicitation made by
letter, telephone, [and/or fax], will
22
be paid by the Acquired Fund and the Acquiring Fund, with such costs apportioned
between the two Funds as determined by the Board of Directors after considering
the expected benefits of the Reorganization to each Fund. In addition to
solicitation by mail, certain officers and representatives of Money Funds,
officers and employees of SBFM and certain financial services firms and their
representatives, who will receive no extra compensation for their services, may
solicit proxies by telephone, [and/or fax] or personally.
When the Acquired Fund records proxies by telephone, fax or through the
internet, it will use procedures designed to (i) authenticate shareholders'
identities, (ii) allow shareholders to authorize the voting of their shares in
accordance with their instructions and (iii) confirm that their instructions
have been properly recorded.
To participate in the Special Meeting, a shareholder may submit the proxy
card originally sent with the Prospectus/Proxy Statement or attend and vote in
person. Attending the Special Meeting without voting in person, however, will
not revoke a previously submitted proxy. Any proxy given by a shareholder is
revocable until voted at the Special Meeting.
Proposals of Shareholders. Shareholders wishing to submit proposals for
inclusion in a proxy statement for a shareholder meeting subsequent to the
Special Meeting, if any, should send their written proposals to the Secretary of
Smith Barney Money Funds, Inc., c/o Smith Barney Mutual Funds, 125 Broad Street,
New York, New York 10004, within a reasonable time before the solicitation of
proxies for such meeting. The timely submission of a proposal does not guarantee
its inclusion.
Other Matters to Come Before the Special Meeting. No Board member is
aware of any matters that will be presented for action at the Special Meeting
other than the matters set forth herein. Should any other matters requiring a
vote of shareholders arise, the proxy in the accompanying form will confer upon
the person or persons entitled to vote the shares represented by such proxy the
discretionary authority to vote the shares as to any such other matters in
accordance with their best judgment in the interest of Money Funds and/or the
Acquired Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board of Directors,
/s/ Christina T. Sydor
------------------
Christina T. Sydor
Secretary
23
INDEX OF EXHIBITS
Annex A: 5% Shareholders
Exhibit A: Form of Plan of Reorganization
ANNEX A
- ----------------------------- ---------- -------------------- ------------ -------------------- ----------------------
Fund Class Shares Held Percent Name Address
---- ----- ----------- ------- ---- -------
- ----------------------------- ---------- -------------------- ------------ -------------------- ----------------------
Retirement Portfolio A
- ----------------------------- ---------- -------------------- ------------ -------------------- ----------------------
- ----------------------------- ---------- -------------------- ------------ -------------------- ----------------------
Cash Portfolio A
- ----------------------------- ---------- -------------------- ------------ -------------------- ----------------------
L
- ----------------------------- ---------- -------------------- ------------ -------------------- ----------------------
Y
- ----------------------------- ---------- -------------------- ------------ -------------------- ----------------------
EXHIBIT A
PLAN OF REORGANIZATION
THIS PLAN OF REORGANIZATION (the "Plan") is dated as of this 30th day of
July, 2003, and has been adopted by the Board of Directors of Smith Barney
Money Funds, Inc. (the "Corporation") to provide for the reorganization of its
Retirement Portfolio series (the "Acquired Fund") into its Cash Portfolio series
(the "Acquiring Fund").
A. BACKGROUND
The Acquired Fund and the Acquiring Fund (individually, a "Fund" and
collectively, the "Funds") are separate series of the Corporation. The
Corporation is organized as a Maryland corporation and is an open-end management
investment Company registered with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended (the "1940 Act").
The Board of Directors of the Corporation has determined that it is in the best
interests of the Acquired Fund and its shareholders to be reorganized through
the transfer of all of the Acquired Fund's assets and liabilities to the
Acquiring Fund upon the terms set forth in this Plan (the "Reorganization").
B. THE REORGANIZATION
1. Prior to the Closing Date (as defined below in Section 6 of this Article
B), the Corporation will execute and file Articles of Amendment to the
Corporation's Charter with the Maryland State Department of Assessments and
Taxation in substantially the form attached hereto as Annex I, which Articles of
Amendment will, effective as of the Closing Date: (a) reclassify all of the
Corporation's issued and outstanding Class A shares of Common Stock of the
Acquired Fund as outstanding Class A shares of Common Stock equal of aggregate
value of the Acquiring Fund; and (b) reclassify all of the authorized and
unissued Class A and Class Y Common Stock of the Acquired Fund as authorized
Common Stock of the Acquiring Fund.
2. At the Closing Date, all property of every description, and all
interests, rights, privileges and powers of the Acquired Fund, subject to all
liabilities of the Acquired Fund, whether accrued, absolute, contingent or
otherwise (such assets subject to such liabilities are herein referred to as the
"Assets") will be transferred and conveyed by the Acquired Fund to the Acquiring
Fund and will be assumed by the Acquiring Fund, such that at and after the
Closing Date, the Assets of the Acquired Fund will become and be the Assets of
the Acquiring Fund. In exchange for the transfer of the Assets of the Acquired
Fund and in order to accomplish the reclassification of shares as described
above in Section 1 of this Article B, the Acquiring Fund will contemporaneously
issue to shareholders of the Acquired Fund full and fractional Class A shares of
the Acquiring Fund (as contemplated by Section 4 of this Article B) having an
aggregate net asset value equal to the value of the Assets of the Acquired Fund.
For purposes of effecting such exchange, the value of the Assets of the Acquired
Fund and the net asset value of the shares of the Acquiring Fund shall be
determined as of the close of regular trading on the New York Stock Exchange on
November 21, 2003 or at such other time as may be determined by the Board of
Directors or an authorized officer of the Corporation. Such values shall be
computed in the manner set forth in the applicable Fund's then current
prospectus under the Securities Act of 1933, as amended. At and after the
Closing Date, all debts, liabilities, obligations and duties of
the Acquired Fund will attach to the Acquiring Fund as aforesaid and may
thenceforth be enforced against the Acquiring Fund to the same extent as if the
same had been incurred by the Acquiring Fund.
3. On or as soon as practicable prior to the Closing Date as defined in
section 6, the Acquired Fund will declare and pay to its shareholders of record
one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
4. At the Closing Date, the Corporation will liquidate the Acquired Fund
and issue full and fractional Class A shares of the Acquiring Fund to the
Acquired Fund's shareholders, such that the shares of the Acquiring Fund that
are distributed to a shareholder of the Acquired Fund will have an aggregate net
asset value equal to the aggregate net asset value of the Class A shares
of the Acquired Fund held by such shareholder immediately prior to the Closing
Date. In addition, each shareholder of the Acquired Fund will have the right to
receive any unpaid dividends or other distributions that were declared before
the Closing Date with respect to the shares of the Acquired Fund held by such
shareholder immediately prior to the Closing Date.
5. The stock transfer books of the Corporation with respect to the Acquired
Fund will be permanently closed as of the close of business on the day
immediately preceding the Closing Date. Redemption requests received thereafter
by the Corporation with respect to the Acquired Fund will be deemed to be
redemption requests for Class A shares of the Acquiring Fund issued pursuant to
this Plan.
6. The Closing Date for purposes of this Plan shall be the close of
business on November 21, 2003, or at such other time as may be determined by the
Board of Directors or an authorized officer of the Corporation.
C. ACTIONS BY SHAREHOLDERS OF THE ACQUIRED FUND
Prior to the Closing Date and as a condition thereto, the Board of
Directors of the Corporation will call, and the Corporation will hold, a meeting
of the shareholders of the Acquired Fund to consider and vote upon:
1. Approval of this Plan and the implementing charter amendment
reclassifying shares of the Acquired Fund into shares of the Acquiring Fund and
the transactions contemplated hereby.
2. Such other matters as may be determined by the Board of Directors of the
Corporation.
D. CONDITIONS OF THE REORGANIZATION
Consummation of this Plan will be subject to:
1. The approval of the matters referred to in Article C of this Plan by the
shareholders of the Acquired Fund in the manner required by law and otherwise
deemed necessary or advisable by the Board of Directors of the Corporation; and
A-2
2. The following additional conditions:
(a) The Corporation will have received opinions of Willkie Farr &
Gallagher based upon customary representations and assumptions and to the effect
that:
(i) the shares of the Acquiring Fund issued pursuant to this Plan
will, when issued in accordance with the provisions hereof, be validly issued,
fully paid and non-assessable; and
(ii) the transfer to the Acquiring Fund of all of the assets of
the Acquired Fund in exchange solely for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund,
followed by the distribution of such Acquiring Fund Shares to Acquired Fund
shareholders in exchange for their shares of the Acquired Fund in complete
liquidation of the Acquired Fund, will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and the
Acquired Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (A) except for gain or loss regularly attributable
to the termination of the Acquired Fund's taxable year, no gain or loss will be
recognized by the Acquired Fund upon the transfer of the Acquired Fund's assets
to the Acquiring Fund in exchange for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of liabilities of the Acquired Fund or upon the
distribution of the Acquiring Fund Shares to the Acquired Fund's shareholders in
exchange for their shares of the Acquired Fund; (B) except for assets that may
be revalued as a consequence of a termination of the Acquired Fund's taxable
year, the basis of the assets of the Acquired Fund in the hands of the Acquiring
Fund will be the same as the basis of such assets of the Acquired Fund
immediately prior to the Reorganization; (C) except for assets that may be
revalued as a consequence of a termination of the Acquired Fund's taxable year,
the holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which such assets were held by the
Acquired Fund; (D) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund; (E) no gain or loss will be recognized by the
shareholders of the Acquired Fund upon the receipt of the Acquiring Fund Shares
solely in exchange for their shares of the Acquired Fund as part of the
Reorganization; (F) the aggregate basis of the Acquiring Fund Shares received by
the shareholders of the Acquired Fund will be the same as the aggregate basis of
the shares of the Acquired Fund exchanged therefor; and (G) the holding period
of the Acquiring Fund Shares received by the shareholders of the Acquired Fund
will include the holding period during which the shares of the Acquired Fund
exchanged therefor were held, provided that at the time of the exchange the
shares of the Acquired Fund were held as capital assets in the hands of the
shareholders of the Acquired Fund.
(b) All necessary approvals, registrations and exemptions required
under federal and state laws will have been obtained.
E. MISCELLANEOUS
1. This Plan and the transactions contemplated hereby will be governed and
construed in accordance with the laws of the State of Maryland.
2. This Plan and the transactions contemplated hereby may be abandoned at
any time for any reason prior to the Closing Date upon the vote of a majority of
the Board of Directors of the Corporation.
3. At any time prior to or (to the fullest extent permitted by law) after
approval of this Plan by the shareholders of the Acquired Fund, the Corporation
may, upon authorization by the Board
A-3
of Directors and with or without the approval of shareholders of the Acquired
Fund, amend any of the provisions of this Plan.
4. The expenses incurred in connection with the Reorganization will be
borne by the Acquired Fund.
5. The Corporation, by consent of its Board of Directors, or an officer
authorized by such Board of Directors, may waive any condition to the
obligations of the Acquired Fund or the Acquiring Fund hereunder if, in its or
such officer's judgment, such waiver will not have a material adverse effect on
the interests of the shareholders of the Acquired Fund or the shareholders of
the Acquiring Fund.
A-4
Annex I
SMITH BARNEY MONEY FUNDS, INC.
ARTICLES OF AMENDMENT
SMITH BARNEY MONEY FUNDS, INC., a Maryland corporation, having its
principal office in the City of Baltimore, Maryland (the "Corporation"),
certifies to the State Department of Assessments and Taxation that:
FIRST: The Charter of the Corporation is amended by (i) reclassifying all
of the shares of the Corporation's Retirement Portfolio series ("Retirement
Portfolio") as shares of the Corporation's Cash Portfolio series ("Cash
Portfolio"), and (ii) increasing the aggregate number of authorized shares of
the Cash Portfolio by 5,000,000,000 shares.
SECOND: Upon effectiveness of these Articles of Amendment:
(a) All of the assets and liabilities belonging to the Corporation's
Retirement Portfolio and attributable to its Class A shares shall be conveyed,
transferred and delivered to the Corporation's Cash Portfolio, and shall
thereupon become and be assets and liabilities belonging to the Cash Portfolio
and attributable to its Class A shares.
(b) Each of the issued and outstanding Class A shares (and fractions
thereof) of the Corporation's Retirement Portfolio will automatically, and
without the need of any further act or deed, be reclassified and changed to that
number of full and fractional issued and outstanding Class A shares of the
Corporation's Cash Portfolio having an aggregate net asset value equal to the
aggregate net asset value of a Retirement Portfolio Class A share (and fractions
thereof) being reclassified and changed, such net asset values to be determined
as of the close of regular trading on the New York Stock Exchange on the
effective date of these Articles of Amendment.
(c) Each unissued Class A and Class Y share (or fraction thereof) of the
Corporation's Retirement Portfolio will automatically, and without the need for
any further act or deed, be reclassified and changed to such number of unissued
Class A and Class Y shares (or fractions thereof), respectively, of the
Corporation's Cash Portfolio as shall result, as of the effective time of these
Articles of Amendment and as a result hereof, in the total number of unissued
shares of the Corporation's Cash Portfolio being increased by 5,000,000,000
shares less the number of issued and outstanding Class A shares of the
Corporation's Cash Portfolio resulting from paragraph (b) of this Article
SECOND.
(d) Open accounts on the share records of the Corporation's Cash Portfolio
shall be established representing the appropriate number of the Cash Portfolio
Class A shares deemed to be owned by each such stockholder as a result of the
reclassification.
THIRD: This amendment does not increase the authorized capital stock of the
Corporation or the aggregate par value thereof. This amendment reclassifies and
changes the 5,000,000,000 authorized shares of the Retirement Portfolio to
5,000,000,000
A-5
Annex I
additional authorized shares of the Cash Portfolio but does not amend the
description of any class of stock as set forth in the Charter. As a result of
this amendment, the Cash Portfolio series consists of four classes of shares,
designated as Class A, Class L, Class Y and Class Z, each such class consisting
until further changed of the lesser of (x) 55,000,000,000 shares or (y) the
number of shares that could be issued by issuing all of the shares of Common
Stock of the Cash Portfolio series less the total number of shares of all other
classes of Common Stock of the Cash Portfolio series then issued and
outstanding. The shares of the Cash Portfolio and of each class within the Cash
Portfolio shall have all of the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such Fund and such class as set forth in the Charter
of the Corporation.
FOURTH: This amendment has been duly authorized and advised by the Board of
Directors of the Corporation and approved by the stockholders of the Corporation
entitled to vote thereon.
FIFTH: These Articles of Amendment shall be effective as of November __,
2003 at ____p.m.
IN WITNESS WHEREOF, SMITH BARNEY MONEY FUNDS, INC. has caused these Articles of
Amendment to be signed in its name and on its behalf by its _______, and
witnessed by its Assistant Secretary, as of the day of November, 2003.
WITNESS:
SMITH BARNEY MONEY FUNDS, INC.
By: _____________________________ By: _____________________________
Name: Name:
Assistant Secretary Office:
THE UNDERSIGNED, , of Smith Barney Money Funds Inc., who executed on
behalf of the Corporation the foregoing Articles of Amendment of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles of Amendment to be the corporate act of
said Corporation and hereby certifies that to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
___________________________
Name:
Office:
A-6
PART B
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
SUBJECT TO COMPLETION, DATED AUGUST 12, 2003
STATEMENT OF ADDITIONAL INFORMATION
125 Broad Street
New York, New York 10004
1-800-451-2010
RELATING TO THE ACQUISITION BY THE CASH PORTFOLIO (THE "ACQUIRING FUND"), A
SERIES OF SMITH BARNEY MONEY FUNDS, INC. ("MONEY FUNDS") OF THE ASSETS OF THE
RETIREMENT PORTFOLIO (THE "ACQUIRED FUND"), A SERIES OF MONEY FUNDS.
Dated: August ___, 2003
This Statement of Additional Information, relating specifically to the
proposed transfer of all of the assets of the Acquired Fund, a series of Money
Funds, to Money Funds, on behalf of the Acquiring Fund, in exchange for Class A
shares of common stock of the Acquiring Fund and the assumption by the Acquiring
Fund of the liabilities of the Acquired Fund, consists of this cover page and
the following described documents, each of which accompanies this Statement of
Additional Information and is incorporated herein by reference.
1. Statement of Additional Information for the Acquired Fund, dated
April 30, 2003.
2. Statement of Additional Information for the Acquiring Fund, dated
April 30, 2003.
3. Annual Report of the Acquiring Fund for the year ended December 31,
2002.
3. Annual Report of the Acquired Fund for the year ended December 31,
2002.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement, dated August __, 2003, relating to the
above-referenced matter may be obtained without charge by calling or writing the
Acquiring Fund at the telephone number or address set forth above. This
Statement of Additional Information should be read in conjunction with the
Prospectus/Proxy Statement.
FINANCIAL STATEMENTS
The Annual Report of each of the Acquired Fund and the Acquiring Fund, in
each case for the years ended December 31, 2002, including audited financial
statements, notes to the financial statements and report of the independent
auditors, are incorporated by reference herein. To obtain a copy of the Annual
Reports (and any more recent semi-annual report) without charge, please call
1-800-451-2010.
PRO FORMA FINANCIAL STATEMENTS
Because the net asset value of the Acquired Fund is less than 10% of the
Acquiring Fund's net asset value, pro forma financial statements are not
required to be and have not been prepared for inclusion in the Statement of
Additional Information filed in connection with the Reorganization.
THE ANNUAL REPORT AND THE PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION OF THE ACQUIRING FUND DATED DECEMBER 31, 2002 AND APRIL
30, 2003, RESPECTIVELY, ARE INCORPORATED BY REFERENCE TO
THE MOST RECENT FILINGS THEREOF BY SMITH BARNEY
MONEY FUNDS, INC.
THE ANNUAL REPORT AND THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
OF THE ACQUIRED FUND DATED DECEMBER 31, 2002 AND APRIL 30, 2003,
RESPECTIVELY, ARE INCORPORATED BY REFERENCE TO THE MOST RECENT
FILINGS THEREOF BY SMITH BARNEY MONEY FUNDS, INC.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION -- Reference is made to Article SEVENTH of Registrant's
Articles of Incorporation for a complete statement of its terms.
Subparagraph (9) of Article SEVENTH provides: "Anything herein contained to the
contrary notwithstanding, no officer or director of the corporation shall be
indemnified for any liability to the registrant or its security holders to which
he would otherwise be subject by reason o(Pound) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office."
Registrant is a named assured on a joint insured bond pursuant to Rule
17g-1 of the Investment Company Act of 1940. Other assureds include Smith Barney
Fund Management LLC (Registrant's investment adviser) and affiliated investment
companies.
ITEM 16. EXHIBITS
1(a) Articles Supplementary to the Articles of Incorporation dated
November 7, 1985, January 30, 1984, August 12, 1980 and May 8,
1980 are incorporated by reference to Exhibits (a) through (d) to
Post-Effective Amendment No. 32.
1(b) Articles Supplementary to the Articles of Incorporation dated
December 5, 1990 and Articles of Amendment dated April 19, 1991
are incorporated by reference to Exhibit 1(b) and (c) to
Post-Effective Amendment No. 35.
1(c) Articles of Amendment to the Articles of Incorporation dated
October 28, 1992 and Articles Supplementary to the Articles of
Incorporation dated December 8, 1992 are incorporated by
reference to Exhibit 1(c) and (d) to Post-Effective Amendment No.
41.
1(d) Certificate of Correction dated July 15, 1994 is incorporated by
reference to Post-Effective Amendment No. 51 filed on March 1,
1999.
1(e) Articles Supplementary to the Articles of Incorporation dated
July 19, 1994 is incorporated by reference to Post-Effective
Amendment No. 51 filed on March 1, 1999.
1(f) Articles of Amendment to Articles of Incorporation dated November
3, 1994 is incorporated by reference to Post-Effective Amendment
No. 51 filed on March 1, 1999.
1(g) Articles Supplementary to Articles of Incorporation dated
November 3, 1994 is incorporated by reference to Post-Effective
Amendment No. 51 filed on March 1, 1999.
C-1
1(h) Articles Supplementary to Articles of Incorporation dated
November 3, 1994 is incorporated by reference to Post-Effective
Amendment No. 51 filed on March 1, 1999.
1(i) Articles Supplementary to Articles of Incorporation dated January
16, 1996 is incorporated by reference to Post-Effective Amendment
No. 51 filed on March 1, 1999.
1(j) Articles Supplementary to Articles of Incorporation dated January
30, 1998 is incorporated by reference to Post-Effective Amendment
No. 51 filed on March 1, 1999.
1(k) Articles of Amendment to Articles of Incorporation dated June
1998 is incorporated by reference to Post-Effective Amendment No.
51 filed on March 1, 1999.
2(a) Bylaws are incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 32.
2(b) Restated By-Laws are incorporated by reference to Post-Effective
Amendment No. 51 filed on March 1, 1999.
2(c) Amended and Restated By-laws are incorporated by reference to
Post-Effective Amendment No. 57 filed on April 24, 2003.
2(d) Amended and Restated By-laws are incorporated by reference to
the Registrant's Registration Statement on Form N-14 filed on
July 30, 2003.
3 Not applicable.
4 Form of Plan of Reorganization is included in Part A to the
Registration Statement on Form N-14.
5 Specimen Stock Certificates for the Cash Portfolio, Government
Portfolio and Retirement Portfolio are incorporated by reference
to Exhibits 4(a) through (c) to Post-Effective Amendment No. 32.
6(a) Management Agreement - U.S. Treasury Portfolio is incorporated by
reference to Exhibit 5(a) to Post-Effective Amendment No. 34.
6(b) Management Agreement for the Cash Portfolio is incorporated by
reference to Exhibit 5(b) to Post-Effective Amendment No. 44.
6(c) Management Agreement for the Government Portfolio is incorporated
by reference to Exhibit 5(c) to Post-Effective Amendment No. 44.
6(d) Management Agreement for the Retirement Portfolio is incorporated
by reference to Exhibit 5(d) to Post-Effective Amendment No. 44.
C-2
7(a) Underwriting Agreement is incorporated by reference to Exhibit 6
to Post-Effective Amendment No. 32.
7(b) Distribution Agreement between the Registrant and CFBDS Inc.
dated October 8, 1998 is incorporated by reference to
Post-Effective Amendment No. 51 filed on March 1, 1999.
7(c) Selling Group Agreement between Registrant and CFBDS, Inc. is
incorporated by reference to Post-Effective Amendment No. 52
filed on April 30, 1999.
7(d) Form of Distribution Agreement between Registrant and Salomon
Smith Barney is incorporated by reference to Post-Effective
Amendment No. 54 filed on April 26, 2001.
7(e) Form of Distribution Agreement between Registrant and PFS
Distributors, Inc. is incorporated by reference to Post-Effective
Amendment No. 54 filed on April 26, 2001.
8 Not applicable.
9(a) Custodian Agreement is incorporated by reference to Exhibit 8 to
Post-Effective Amendment No. 32.
9(b) Custodian Agreement between Registrant and State Street Bank and
Trust Company is incorporated by reference to Exhibit(g)(2) to
Post-Effective Amendment No. 55 filed on April 26, 2002.
10(a) Plan of Distribution Pursuant to Rule 12b-1 for the Cash
Portfolio is incorporated by reference to Exhibit 15(a) to
Post-Effective Amendment No. 44.
10(b) Plan of Distribution Pursuant to Rule 12b-1 for the Government
Portfolio is incorporated by reference to Exhibit 15(b) to
Post-Effective Amendment No. 44.
10(c) Plan of Distribution Pursuant to Rule 12b-1 for the Retirement
Portfolio is incorporated by reference to Exhibit 15 to
Post-Effective Amendment No. 42.
10(d) Form of Amended and Restated Plan of Distribution pursuant to
Rule 12b-1 for the Registrant is incorporated by reference to
Post-Effective Amendment No. 51 filed on March 1, 1999.
10(e) Form of Amended Plan of Distribution pursuant to Rule 12b-1
between the Registrant and PFS Distributors, Inc. is incorporated
by reference to Post-Effective Amendment No. 52 filed on April
30, 1999.
C-3
10(f) Form of Amended and Restated Shareholder Services Distribution
Plan pursuant to Rule 12b-1 between the Registrant and PFS
Distributors, Inc. is incorporated by reference to Post-Effective
Amendment No. 54 filed on April 26, 2001.
10(g) Plan pursuant to Rule 18f-3 is incorporated by reference to
Exhibit 18 to Post-Effective Amendments No. 47.
10(h) Plan pursuant to Rule 18f-3 is incorporated by reference to
Post-Effective Amendment No. 51 filed on March 1, 1999.
11(a) Opinion and consent of Willkie Farr & Gallagher is incorporated
by reference to the Registrant's Registration Statement on
Form N-14 filed on July 30, 2003.
11(b) Opinion and consent of Venable, Baetjer and Howard, LLP is
incorporated by reference to the Registrant's Registration
Statement on Form N-14 filed on July 30, 2003.
12 Form of tax opinion of Willkie Farr & Gallagher is incorporated
by reference to the Registrant's Registration Statement on
Form N-14 filed on July 30, 2003.
13(a) Form of Transfer Agency Agreement is incorporated by reference to
Exhibit 9 to Post-Effective Amendment No. 49.
13(b) Form of Sub-Transfer Agency Agreement between Registrant and PFS
Shareholder Services is incorporated by reference to
Post-Effective Amendment No. 52 filed on April 30, 1999.
13(c) Transfer Agency Agreement between Registrant and Citi Fiduciary
Trust is incorporated by reference to Post-Effective Amendment
No. 54 filed on April 26, 2001.
13(d) Sub-Transfer Agency Agreement between Registrant and PFPC Global
Fund Services is incorporated by reference to Post-Effective
Amendment No. 54 filed on April 26, 2001.
13(e) Sub-Transfer Agency Agreement between Registrant and PFS
Shareholder Services is incorporated by reference to
Post-Effective Amendment No. 54 filed on April 26, 2001.
14 Auditors' Consent is incorporated by reference to the
Registrant's Registration Statement on Form N-14 filed on
July 30, 2003.
15 Not applicable.
16 Power of Attorney is incorporated by reference to the
Registrant's Registration Statement on Form N-14 filed on
July 30, 2003.
17(a) Form of proxy card is filed herewith.
17(b) Annual Report of Cash Portfolio, dated April 30, 2003, is
incorporated
C-4
herein by reference.
17(c) Prospectus and statement of additional information of Cash
Portfolio, dated December 31, 2002, are incorporated herein by
reference.
17(d) Annual Report of Registrant, dated April 30, 2003, is
incorporated herein by reference.
17(e) Prospectus and statement of additional information of Registrant,
dated December 31, 2002, are incorporated herein by reference.
17(f) Code of Ethics of the Registrant is incorporated by reference to
Post-Effective Amendment No. 53 filed on April 26, 2001.
17(g) Code of Ethics - Salomon Smith Barney is incorporated by
reference to Post-Effective Amendment No. 57 filed on April 24,
2003.
17(h) Code of Ethics - PFS Investments Inc. is incorporated by
reference to Post-Effective Amendment No. 57 filed on April 24,
2003.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR
230.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other terms of
the applicable form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
registration statements and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-5
SIGNATURES
As required by the Securities Act of 1933, this registration statement has been
signed on behalf of the Registrant, in the City of New York and State of New
York on the 12th day of August, 2003.
SMITH BARNEY MONEY FUNDS, INC.
By: /s/ R. Jay Gerken
--------------------------------------
R. Jay Gerken
Chairman of the Board, President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below, hereby makes, constitutes and
appoints each of R. Jay Gerken, Lewis E. Daidone and Christina T. Sydor, each
with full power to act without the other, as his or her agent and
attorney-in-fact for the purpose of executing his or her name, in his or her
capacity as a Director of the Smith Barney Money Funds, Inc., all amendments to
the registration statement on Form N-14 to be filed with the United States
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and the rules and
regulations promulgated thereunder.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/ R. Jay Gerken President and Chief Executive August 12, 2003
- ----------------------------------
(R. Jay Gerken) Officer
/s/ Lewis E. Daidone* Senior Vice President and
- ----------------------------------
(Lewis E. Daidone) Chief Financial Officer August 12, 2003
/s/ Lee Abraham* Director August 12, 2003
- ----------------------------------
(Lee Abraham)
/s/ Allan J. Bloostein* Director August 12, 2003
- ----------------------------------
(Allan J. Bloostein)
/s/ Jane F. Dasher* Director August 12, 2003
- ----------------------------------
(Jane F. Dasher)
C-6
/s/ Donald R. Foley* Director August 12, 2003
- ----------------------------------
(Donald R. Foley)
/s/ Richard E. Hanson* Director August 12, 2003
- ----------------------------------
(Richard E. Hanson)
/s/ Paul Hardin* Director August 12, 2003
- ----------------------------------
(Paul Hardin)
/s/ Roderick C. Rasmussen* Director August 12, 2003
- ----------------------------------
(Roderick C. Rasmussen)
/s/ John P. Toolan* Director August 12, 2003
- ----------------------------------
(John P. Toolan)
*By: /s/ R. Jay Gerken
---------------------------------
R. Jay Gerken as Attorney-in-Fact
C-7
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
17(a) Proxy Card
SMITH BARNEY MONEY FUNDS INC.
on behalf of the
CASH PORTFOLIO
GOVERNMENT PORTFOLIO
(the "Funds")
Supplement dated July 2, 2003
to Statement of Additional Information, as amended,
dated April 30, 2003
The Board of Directors of the Funds approved a change in the asset level
breakpoints in the current advisory fees for each fund. With the exception of
this change in asset level breakpoints, the terms of the Advisory Agreement
remains the same. The advisory fees will be calculated as follows:
0.45% on the first 1 billion of average daily net assets;
0.425% on the next 1 billion;
0.40% on the next 3 billion;
0.375% on the next 5 billion; and
0.35% on the net assets in excess of 10 billion.
This change was effective on July 1, 2003.
FD02798
PROSPECTUS
--------------------------------------------------------------------
SMITH BARNEY
MONEY
FUNDS, INC.
--------------------------------------------------------------------
Retirement Portfolio
Class A Shares
Cash Portfolio
Government Portfolio
Class A, L and Y Shares
April 30, 2003
Each fund is a separate series of Smith Barney Money Funds, Inc., a
Maryland corporation.
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is acccurate or
complete.
Any statement to the contrary is a crime.
LOGO
--------------------------------------------------------------------
INVESTMENT PRODUCTS: NOT FDIC INSURED . NO BANK GUARANTEE . MAY LOSE VALUE
--------------------------------------------------------------------
Smith Barney Money Funds, Inc.
Contents
Investments, risks and performance........... 2
Management................................... 8
Choosing a class of shares to buy............ 9
Comparing the funds' classes................. 10
Deferred sales charges....................... 11
Buying shares................................ 12
Exchanging shares............................ 13
Redeeming shares............................. 14
Other things to know about share transactions 16
Dividends, distributions and taxes........... 18
Share price.................................. 19
Financial highlights......................... 20
You should know: An investment in a fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency. There is no
assurance that each fund will be able to maintain a stable net asset value of
$1.00 per share.
1
Smith Barney Mutual Funds
Investments, risks and performance
Investment objectives
Each fund seeks maximum current income and preservation of capital.
Principal investment strategies
Key investments
Government Portfolio The fund invests exclusively in U.S. government
obligations, including mortgage-backed securities and related repurchase
agreements. These securities may pay interest at fixed, floating or adjustable
rates.
Cash Portfolio and Retirement Portfolio Each fund invests in high quality, U.S.
dollar denominated short-term debt securities. These may include obligations
issued by U.S. and foreign banks, the U.S. government, its agencies or
instrumentalities, U.S. states and municipalities and U.S. and foreign
corporate issuers. Each fund will invest at least 25% of its assets in
obligations of domestic and foreign banks. Either the principal amount of each
obligation must be fully insured by the FDIC or the issuing bank must have more
than $100 million of working capital or more than $1 billion of total assets.
Cash Portfolio and Retirement Portfolio may invest in all types of money market
securities, including commercial paper, certificates of deposit, bankers'
acceptances, mortgage-backed and asset-backed securities, repurchase agreements
and other short-term debt securities. These securities may pay interest at
fixed, floating or adjustable rates. The funds limit foreign investments to
issuers located in major industrialized countries.
Minimum credit quality Cash Portfolio and Retirement Portfolio invest in
commercial paper and other short-term obligations rated by a nationally
recognized rating organization in the highest short-term rating category, or if
unrated, of equivalent quality, and in other corporate obligations and
municipal obligations rated in the two highest rating categories, or if
unrated, of equivalent quality. Government Portfolio invests exclusively in
securities rated in the highest short-term rating category, or if unrated, of
equivalent quality.
Maximum maturity Each fund invests exclusively in securities having remaining
maturities of 397 days or less. Each fund maintains a dollar-weighted average
portfolio maturity of 90 days or less.
Selection process In selecting investments for the funds, the manager looks for:
.. The best relative values based on an analysis of yield, price, interest rate
sensitivity and credit quality
.. Issuers offering minimal credit risk
.. Maturities consistent with the manager's outlook for interest rates
Smith Barney Money Funds, Inc.
2
All investments involve some degree of risk. However, each fund is a "money
market fund" and, as such, seeks income by investing in short-term debt
securities that meet strict standards established by the Board of Directors
based on special rules for money market funds adopted under federal law.
Principal risks of investing in the funds
Although the funds seek to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the funds, or the funds
could underperform other short-term debt instruments or money market funds if:
. Interest rates rise sharply
. An issuer or guarantor of securities held by the funds defaults, or has
its credit rating downgraded
. The manager's judgment about the value or credit quality of a particular
security proves to be incorrect
Cash Portfolio and Retirement Portfolio each invests at least 25% of its
assets in obligations of domestic and foreign banks and, as a result, is more
susceptible to events affecting the banking industry. The value of the funds'
foreign securities may go down because of unfavorable government actions or
political instability.
Who may want to invest The funds may be an appropriate investment if you:
. Are seeking current income
. Are looking for an investment with lower risk than most other types of
funds
. Are looking to allocate a portion of your assets to money
market securities
Smith Barney Mutual Funds
3
Risk return bar charts
The bar charts indicate the risks of investing in the funds by showing changes
in the funds' performance from year to year. Past performance does not
necessarily indicate how a fund will perform in the future.
The bar chart shows the performance of the Cash Portfolio's Class A shares for
each of the past 10 calendar years. Class L and Y shares have different
performance because of their different expenses.
Total Return for Class A Shares
Cash Portfolio
[CHART]
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
2.63% 3.73% 5.53% 4.98% 5.12% 5.07% 4.73% 5.98% 3.78% 1.28%
Calendar years ended December 31
Quarterly returns:
Highest: 1.55% in 3rd quarter 2000; Lowest: 0.29% in 4th quarter 2002
The bar chart shows the performance of the Government Portfolio's Class A
shares for each of the past 10 calendar years. Class L and Y shares have
different performance because of their different expenses.
Total Return for Class A Shares
Government Portfolio
[CHART]
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
2.55% 3.63% 5.45% 4.89% 5.04% 5.00% 4.60% 5.85% 3.67% 1.22%
Calendar years ended December 31
Quarterly returns:
Highest: 1.52% in 3rd quarter 2000; Lowest: 0.26% in 4th quarter 2002
The bar chart shows the performance of the Retirement Portfolio's Class A
shares for each of the past 10 calendar years.
Total Return for Class A Shares
Retirement Portfolio
[CHART]
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
2.58% 3.67% 5.42% 4.86% 5.03% 5.04% 4.65% 5.89% 3.60% 1.11%
Calendar years ended December 31
Quarterly returns:
Highest: 1.52% in 3rd quarter 2000; Lowest: 0.24% in 4th quarter 2002
Smith Barney Money Funds, Inc.
4
Risk return table
The table indicates the risks of investing in the funds by comparing the
average annual total return of each class of the funds for the periods shown
with that of the 90 day Treasury bill. Past performance does not necessarily
indicate how the funds will perform in the future. This table assumes
redemption of shares at the end of the period and reinvestment of distributions
and dividends.
Average Annual Total Returns
Calendar years ended December 31, 2002
Fund 1 year 5 years 10 years Since Inception Inception Date
Cash Portfolio.............
Class A............. 1.28% 4.15% 4.27% N/A 5/28/74
Class L/(1)/........ 1.29% 4.19% N/A 4.59% 11/10/94
Class Y............. 1.45% 4.34% N/A 4.71% 12/29/94
90 day T-bill....... 1.59% 4.11% 4.38% N/A *
Government Portfolio...............
Class A............. 1.22% 4.06% 4.18% N/A 5/28/74
Class L/(2)/........ 1.21% 4.07% N/A 4.31% 3/5/93
Class Y/(3)/........ 1.35% 4.20% N/A 4.43% 10/28/93
90 day T-bill....... 1.59% 4.11% 4.38% N/A *
Retirement Portfolio...............
Class A............. 1.11% 4.05% 4.18% N/A 5/28/74
90 day T-bill....... 1.59% 4.11% 4.38% N/A *
/(1)/ Represents previously issued Class C shares which were renamed Class L
shares on June 12, 1998.
/(2)/ Represents previously issued Class B shares which were renamed Class C
shares on November 7, 1994 and renamed Class L shares on June 12, 1998.
/(3)/ Represents previously issued Class C shares which were renamed Class Y
shares on November 7, 1994.
* Index comparison begins on December 31, 1992.
7 day yield as of December 31, 2002
Retirement
Cash Portfolio Government Portfolio Portfolio
Class A Class L Class Y Class A Class L Class Y Class A
7 day yield......... 0.91% 0.91% 1.06% 0.86% 0.86% 0.98% 0.78%
Smith Barney Mutual Funds
5
Fee table
This table sets forth the fees and expenses you may pay if you invest in the
funds' shares.
Shareholder fees
Cash Portfolio and
All Funds Government Portfolio only
(fees paid directly from your investment) Class A Class L Class Y
Maximum sales charge (load) imposed on purchases (as a % of offering
price) None None None
Maximum deferred sales charge (load) (as a % of the lower of net
asset value at purchase or redemption) None(1) None None
Annual fund operating expenses
Retirement
Cash Portfolio Government Portfolio Portfolio
(expenses deducted from fund assets) Class A Class L Class Y Class A Class L Class Y Class A
Management fee/(2)/ 0.41% 0.41% 0.41% 0.43% 0.43% 0.43% 0.45%
Distribution and/or service (12b-1) fee 0.10 0.10 N/A 0.10 0.10 N/A 0.10
Other Expenses 0.11 0.10 0.04 0.08 0.08 0.05 0.15
---- ---- ---- ---- ---- ---- ----
Total annual fund operating
expenses/(3)/ 0.62% 0.61% 0.45% 0.61% 0.61% 0.48% 0.70%
/(1)/ Class A shares exchanged from another Smith Barney fund subject to a
deferred sales charge remain subject to the original fund's
deferred sales charge while held in the funds.
/(2)/ The manager may from time to time agree to waive part or all of its
management fees and reimburse a fund for other expenses above a specified
limit.
/(3)/ The manager has voluntarily agreed to limit total annual fund operating
expenses to 0.70% of the fund's average daily net assets. The manager may
change or eliminate these expense limits at any time on fourteen day's
prior notice to shareholders.
Smith Barney Money Funds, Inc.
6
Example
This example helps you compare the costs of investing in the funds with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. Redemption of all your shares at the end of the period
. Each fund's operating expenses (before fee waivers and/or expense
reimbursements, if any) remain the same
Number of years you own your shares
1 year 3 years 5 years 10 years
Cash Portfolio...........
Class A................. $63 $199 $346 $774
Class L................. $62 $195 $340 $762
Class Y................. $46 $144 $252 $567
Government Portfolio.....
Class A................. $ 62 $195 $340 $762
Class L................. $ 62 $195 $340 $762
Class Y................. $ 49 $154 $269 $604
Retirement Portfolio.....
Class A................. $72 $224 $390 $871
Smith Barney Mutual Funds
7
Management
Manager The funds' investment manager is Smith Barney Fund Management LLC
("SBFM"), an affiliate of Citigroup Global Markets Inc. ("CGM"). The manager's
address is 399 Park Avenue, New York, New York 10022. The manager selects the
funds' investments and oversees their operations. The manager and CGM are
subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range of
financial services--asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading--and use
diverse channels to make them available to consumer and corporate customers
around the world.
Management fees During the fiscal year ended December 31, 2002, the manager
received a management fee equal to the amount shown below:
Management fee as a percentage of
Fund the fund's average daily net assets
Cash Portfolio................ 0.41%
Government Portfolio.......... 0.43%
Retirement Portfolio.......... 0.45%
Distribution plan The funds have adopted a Rule 12b-1 distribution plan for
their Class A and, if applicable, Class L shares. Under the plan, the funds pay
service fees.
In addition, the distributor may make payments for distribution and/or
shareholder servicing activities out of its past profits and other available
sources. The distributor may also make payments for marketing, promotional or
related expenses to dealers. The amount of these payments is determined by the
distributor and may be substantial. The manager or an affiliate may make
similar payments under similar arrangements.
Transfer agent and shareholder servicing agent Citicorp Trust Bank, fsb
(formerly Travelers Bank & Trust, fsb) serves as the funds' transfer agent and
shareholder servicing agent (the "transfer agent"). The transfer agent has
entered into a sub-transfer agency and services agreement with PFPC Global Fund
Services to serve as the funds' sub-transfer agent (the "sub-transfer agent").
The sub-transfer agent will perform certain shareholder recordkeeping and
accounting services.
Smith Barney Money Funds, Inc.
8
Choosing a class of shares to buy
Retirement Portfolio is available only through qualified retirement plans
and offers only Class A shares. For Cash Portfolio and Government Portfolio,
you can choose between two classes of shares: Classes A and Y. Class L shares
are available only to certain retirement plans opened prior to June 21, 1996.
Each class has different expenses, allowing you to choose the class that best
meets your needs.
You may buy shares from:
. A broker-dealer, financial intermediary, financial institution or the
distributor's financial consultants (each called a "Service Agent")
. Each fund, but only if you are investing through certain qualified plans
or Service Agents
All funds and classes of shares are not available through all Service
Agents. You should contact your Service Agent for further information.
Investment minimums--Cash Portfolio and Government Portfolio Minimum initial
and additional investment amounts vary depending on the class of shares you buy
and the nature of your investment account.
Initial Additional
Class A Class Y All Classes
General......................................... $1,000 $15 million $50
IRAs, Self Employed Retirement Plans, Uniform
Gifts or Transfers to Minor Accounts........... $250 $15 million $50
Qualified Retirement Plans*..................... $25 $15 million $25
Simple IRAs..................................... $1 n/a $1
* Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans.
Investment minimums--Retirement Portfolio The minimum initial investment is
$200; each additional investment must be $1 or more.
Smith Barney Mutual Funds
9
Comparing the funds' classes
Your Service Agent can help you decide which class meets your goals. The
Service Agent may receive different compensation depending upon which class you
choose.
Class A Class L Class Y
all funds for the Cash Portfolio and
Government Portfolio only
Key features .Higher .Higher .Must
annual annual invest at
expenses expenses least $15
than than million
Class Y Class .Lower
Y annual
expenses
than
either
Class A
or Class
L
- ----------------------------------------------------------------
Initial sales charge/(1)/ None None None
- ----------------------------------------------------------------
Deferred sales charge/(2)/ None None None
- ----------------------------------------------------------------
Annual service fees 0.10% 0.10% None
of of
average average
daily net daily
assets net
assets
- ----------------------------------------------------------------
Exchange privilege/(3)/ Class A Class Class Y
shares of L shares of
most shares most
Smith of Smith
Barney most Barney
funds Smith funds
Barney
funds
- ----------------------------------------------------------------
/(1)/Initial sales charges may apply if you exchange shares of the funds for
shares of another Smith Barney fund.
/(2)/Shares exchanged from another Smith Barney fund subject to a deferred
sales charge remain subject to the original fund's deferred sales charge
while held in the funds.
/(3)/Ask your Service Agent for the Smith Barney funds available for exchange.
Smith Barney Money Funds, Inc.
10
Class Y shares (available through certain Service Agents)
You may buy Class Y shares of Cash Portfolio or Government Portfolio at net
asset value with no initial sales charge. To purchase Class Y shares, you must
meet the $15,000,000 initial investment requirement. You can use a letter of
intent to meet this requirement by buying Class Y shares of a fund over a
13-month period. To qualify, you must initially invest at least $5,000,000.
Deferred sales charges
If Class A shares of the Cash Portfolio or Government Portfolio are acquired
by exchange from another Smith Barney fund subject to a deferred sales charge,
the original deferred sales charge will apply to these shares. If you redeem
any of these shares within 12 months of the date you purchased shares of the
original fund, the funds' shares may be subject to a deferred sales charge of
1.00%.
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares that represent reinvested distributions and dividends
. Shares that are no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund will first redeem
any shares in your account that are not subject to a deferred sales charge and
then the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Service Agent.
The fund's distributor receives deferred sales charges as partial
compensation for their expenses in selling shares, including the payment of
compensation to your Service Agent.
Smith Barney Mutual Funds
11
Deferred sales charge waivers
The deferred sales charge that may be applicable to Class A shares will
generally be waived:
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Service Agent or consult the Statement of Additional Information
("SAI").
Buying shares
Through a Service You should contact your Service Agent to open a
Agent brokerage account and make arrangements to buy shares.
If you do not provide the following information,
your order will be rejected:
. Specific fund being bought
. Class of shares being bought
. Dollar amount or number of shares being
bought
Your Service Agent may charge an annual account
maintenance fee.
-----------------------------------------------------------------------------
Through the fund Qualified retirement plans and certain other
investors who are clients of certain Service Agents are
eligible to buy shares directly from the fund.
. Write the funds at the following address:
Smith Barney Money Funds, Inc.
(Specify Portfolio and Class of Shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
. Enclose a check to pay for the shares. For initial
purchases, complete and send an account
application.
. For more information, please call Smith Barney
Shareholder Services at 1-800-451-2010.
For more information, contact your Service Agent or the transfer
agent or consult the SAI.
Smith Barney Money Funds, Inc.
12
Exchanging shares
Smith Barney You should contact your Service Agent to exchange
offers a distinctive into other Smith Barney funds. Be sure to read the
family of funds prospectus of the fund into which you are exchanging.
tailored to help An exchange is a taxable transaction.
meet the varying
needs of both . You may exchange shares only for shares of the
large and small same class of another Smith Barney fund. Not
investors all Smith Barney funds offer all classes
. Not all Smith Barney funds may be offered in
your state of residence. Contact your Service
Agent or the transfer agent for further
information
. Exchanges of Class A and Class L shares are
subject to minimum investment requirements
and all shares are subject to the other
requirements of the fund into which exchanges
are made
. If you hold share certificates, the applicable
sub-transfer agent must receive the certificates
endorsed for transfer or with signed stock
powers (documents transferring ownership of
certificates) before the exchange is effective
. The fund may suspend or terminate your
exchange privilege if you engage in an
excessive pattern of exchanges
- -----------------------------------------------------------------------------------
Sales charges Your shares may be subject to an initial sales charge
at the time of the exchange.
Your deferred sales charge (if any) will continue to
be measured from the date of your original purchase of
shares subject to a deferred sales charge. If the fund into
which you exchange has a higher deferred sales charge,
you will be subject to that charge. If you exchange at any
time into a fund with a lower charge, the sales charge
will not be reduced.
- -----------------------------------------------------------------------------------
Smith Barney Mutual Funds
13
By telephone If you do not have a brokerage account with a
Service Agent, you may be eligible to exchange shares
through the fund. You must complete an authorization
form to authorize telephone transfers. If eligible, you
may make telephone exchanges on any day the New
York Stock Exchange is open. Call Smith Barney
Shareholder Services at 1-800-451-2010 between 9:00
a.m. and 4:00 p.m. (Eastern time). Requests received
after 12:00 p.m., Eastern time are priced at the net asset
value next determined.
You can make telephone exchanges only between
accounts that have identical registrations.
--------------------------------------------------------------------------
By mail If you do not have a brokerage account, contact
your Service Agent or write to the sub-transfer agent at
the address below.
Redeeming shares
Generally Contact your Service Agent to redeem shares of the
funds.
If you hold share certificates, the sub-transfer agent
must receive the certificates endorsed for transfer or with
signed stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation,
other documents may be required.
Your redemption proceeds generally will be sent
within three business days after your request is received
in good order. However, if you recently purchased your
shares by check, your redemption proceeds will not be
sent to you until your original check clears, which may
take up to 15 days.
If you have a brokerage account with a Service
Agent, your redemption proceeds will be placed in your
account and not reinvested without your specific
instruction. In other cases, unless you direct otherwise,
your redemption proceeds will be paid by check mailed
to your address of record.
------------------------------------------------------------------------
Smith Barney Money Funds, Inc.
14
By mail For accounts held directly at the fund, send written
requests to the fund at the following address:
Smith Barney Money Funds, Inc.
(Specify Portfolio and Class of Shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
. The name of the fund and account number
. The class of shares and the dollar amount or number
of shares to be redeemed
. Signatures of each owner exactly as the account is
registered
- -------------------------------------------------------------------------------
By telephone If you do not have a brokerage account with a Service
Agent, you may be eligible to redeem shares (except
those held in certain retirement plans) in amounts up
to $50,000 per day through the fund. You must
complete an authorization form to authorize
telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York
Stock Exchange is open. Call the transfer agent at 1-
800-451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern
time). Requests received after 12:00 p.m., Eastern time,
are priced at the net asset value next determined.
Your redemption proceeds can be sent by check to
your address of record or by wire or electronic transfer
(ACH) to a bank account designated on your
authorization form. You must submit a new
authorization form to change the bank account
designated to receive wire or electronic transfers and
you may be asked to provide certain other documents.
The sub-transfer agent may charge a fee on a wire or an
electronic transfer (ACH).
For more information, contact your Service Agent or consult the
SAI.
15
Smith Barney Mutual Funds
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information without which your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or redeemed
. Signature of each owner exactly as the account is registered
A request to purchase shares becomes effective only when a Service Agent,
the transfer agent or the sub-transfer agent receives, or converts the purchase
amount into federal funds.
The funds' sub-transfer agent will employ reasonable procedures to confirm
that any telephone exchange or redemption request is genuine, including
recording calls, asking the caller to provide certain personal identification
information, sending you a written confirmation or requiring other confirmation
procedures from time to time. If these procedures are followed, neither the
funds, the transfer agent nor the sub-transfer agent will bear any liability
for such transactions.
Signature guarantees To be in good order, your redemption request must
include a signature guarantee if you:
. Are redeeming over $50,000
. Are sending signed share certificates or stock powers to the sub-transfer
agent
. Instruct the sub-transfer agent to mail the check to an address different
from the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers,
credit unions and federal savings and loan institutions, but not from a notary
public.
Each fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
Smith Barney Money Funds, Inc.
16
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the
New York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances/Mandatory redemptions If your account falls below
$500 ($250 for IRA accounts and $100 for Retirement Portfolio) because of a
redemption of fund shares, the fund may ask you to bring your account up to the
applicable minimum investment amount. If you choose not to do so within
60 days, the fund may close your account and send you the redemption proceeds.
The fund may adopt other policies from time to time requiring mandatory
redemption of shares in certain circumstances.
For more information, contact your Service Agent, the transfer agent or consult
the SAI.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the funds may limit additional purchases and/or exchanges
by the shareholder.
Share certificates The funds do not issue share certificates unless a
written request signed by all registered owners is made to the sub-transfer
agent. If you hold share certificates, it will take longer to exchange or
redeem shares.
17
Smith Barney Mutual Funds
Dividends, distributions and taxes
Dividends and distributions Each fund declares a dividend of substantially
all of its net investment income on each day the New York Stock Exchange is
open. Income dividends are paid monthly. Each fund generally makes capital gain
distributions, if any, once a year, typically in December. Each fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Each fund expects distributions to be primarily from
income. Dividends and capital gain distributions are reinvested in additional
fund shares of the same class that you hold. Alternatively, you can instruct
your Service Agent, the transfer agent or the sub-transfer agent to have your
distributions and/or dividends paid in cash. You can change your choice at any
time to be effective as of the next distribution or dividend, except that any
change given to your Service Agent, the transfer agent or the sub-transfer
agent less than five days before the payment date will not be effective until
the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving
dividends and distributions (whether in cash or additional shares) are all
taxable events. However, distributions from the Retirement Portfolio are not
taxable to the qualified retirement plans that hold its shares.
Transaction Federal tax status
Redemption or exchange of shares..... Usually no gain or loss; loss may
result to extent of any deferred
sales charge
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
Each fund anticipates that it will normally not earn or distribute any
long-term capital gains.
After the end of each year, each fund will provide you with information about
the distributions and dividends you received and any redemptions of shares
during the previous year. If you do not provide the fund with your correct
taxpayer identification number and any required certifications, you may be
subject to back-up withholding on your distributions, dividends and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the funds.
Smith Barney Money Funds, Inc.
18
Share price
You may buy, exchange or redeem shares at their net asset value, plus
applicable sales charge, next determined after receipt of your request in good
order. Each fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
Each fund calculates its net asset value at noon, Eastern time, every day the
New York Stock Exchange is open. The New York Stock Exchange is closed on
certain holidays listed in the SAI.
Each fund uses the amortized cost method to value its portfolio securities.
Using this method, a fund constantly amortizes over the remaining life of a
security the difference between the principal amount due at maturity and the
cost of the security to the fund.
Form of purchase payment Purchase is effective and dividends begin
..Payment in federal funds If received before noon, At noon, Eastern
..Having a sufficient cash balance in your Eastern time: time, on that day
account with a Service Agent
If received after noon: At noon the next
business day
- ------------------------------------------------------------------------------------
..Other forms of payment, with con- At noon on the next business day
version into, or advance of, federal
funds by a Service Agent
..Other forms of payment received by the
transfer agent
- ------------------------------------------------------------------------------------
Service Agents must transmit all orders to buy, exchange or redeem shares to
the sub-transfer agent before the sub-transfer agent's close of business.
Smith Barney Mutual Funds
19
Financial highlights
The financial highlights tables are intended to help you understand the
performance of each fund's classes for the past 5 years. Certain information
reflects financial results for a single share. Total return represents the rate
that a shareholder would have earned (or lost) on a fund share assuming
reinvestment of all dividends and distributions. The information in the
following tables have been audited by KPMG LLP, independent auditors, whose
report, along with the funds' financial statements, is incorporated by
reference and is available upon request.
Cash Portfolio
For a Class A share of capital stock outstanding throughout each year ended
December 31:
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------
Net asset value, beginning of year... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------
Net investment income.............. 0.013 0.037 0.058 0.046 0.050
- ---------------------------------------------------------------------------------
Dividends from net investment income (0.13) (0.037) (0.058) (0.046) (0.050)
- ---------------------------------------------------------------------------------
Net asset value, end of year......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------
Total return......................... 1.28% 3.78% 5.98% 4.73% 5.07%
- ---------------------------------------------------------------------------------
Net assets, end of year (billions)... $ 23 $ 32 $ 55 $ 45 $ 40
- ---------------------------------------------------------------------------------
Ratios to average net assets:........
Expenses/(1)/...................... 0.62% 0.59% 0.57% 0.62% 0.63%
Net investment income.............. 1.27 3.93 5.84 4.63 4.95
- ---------------------------------------------------------------------------------
/(1)/ As a result of a voluntary expense limitation, expense ratios will not
exceed 0.70%
Smith Barney Money Funds, Inc.
20
Cash Portfolio
For a Class L(1) share of capital stock outstanding throughout each year
ended December 31:
2002 2001 2000 1999 1998/(1)/
- -----------------------------------------------------------------------------------
Net asset value, beginning of year... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------
Net investment income.............. 0.013 0.037 0.058 0.047 0.050
- -----------------------------------------------------------------------------------
Dividends from net investment income (0.013) (0.037) (0.058) (0.047) (0.050)
- -----------------------------------------------------------------------------------
Net asset value, end of year......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------
Total return......................... 1.29% 3.81% 6.01% 4.78% 5.12%
- -----------------------------------------------------------------------------------
Net assets, end of year (000s)....... $ 347 $ 304 $ 193 $ 582 $ 412
- -----------------------------------------------------------------------------------
Ratios to average net assets:........
Expenses/(2)/...................... 0.61% 0.56% 0.54% 0.57% 0.59%
Net investment income.............. 1.28 3.53 5.58 4.70 5.07
- -----------------------------------------------------------------------------------
/(1)/ On June 12, 1998 Class C shares were renamed Class L shares.
/(2)/ As a result of a voluntary expense limitation, expense ratios will not
exceed 0.70%
Smith Barney Mutual Funds
21
Cash Portfolio
For a Class Y share of capital stock outstanding throughout each year ended
December 31:
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------
Net investment income........... 0.014 0.039 0.060 0.048 0.052
- -------------------------------------------------------------------------------
Dividends from net investment
income (0.014) (0.039) (0.060) (0.048) (0.052)
- -------------------------------------------------------------------------------
Net asset value, end of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------
Total return...................... 1.45% 3.94% 6.17% 4.91% 5.29%
- -------------------------------------------------------------------------------
Net assets, end of year (millions) $ 63 $ 60 $ 25 $ 67 $ 159
- -------------------------------------------------------------------------------
Ratios to average net assets:.....
Expenses/(1)/................... 0.45% 0.40% 0.38% 0.42% 0.42%
Net investment income........... 1.44 3.96 5.92 4.76 5.17
- -------------------------------------------------------------------------------
/(1)/ As a result of a voluntary expense limitation, expense ratios will not
exceed 0.70%
Smith Barney Money Funds, Inc.
22
Government Portfolio
For a Class A share of capital stock outstanding throughout each year ended
December 31:
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------
Net asset value, beginning of year..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------
Net investment income 0.012 0.036 0.057 0.045 0.049
- ------------------------------------------------------------------------------------
Less distributions from:...............
Dividends from net investment income. (0.012) (0.036) (0.057) (0.045) (0.049)
- ------------------------------------------------------------------------------------
Net asset value, end of year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------
Total return........................... 1.22% 3.67% 5.85% 4.60% 5.00%
- ------------------------------------------------------------------------------------
Net assets, end of year (billions)..... $ 3 $ 4 $ 6 $ 5 $ 5
- ------------------------------------------------------------------------------------
Ratios to average net assets:..........
Expenses/(1)/........................ 0.61% 0.56% 0.59% 0.61% 0.60%
Net investment income................ 1.21 3.74 5.71 4.50 4.88
- ------------------------------------------------------------------------------------
/(1)/ As result of a voluntary expense limitation, expense ratios will not
exceed 0.70%
Smith Barney Mutual Funds
23
Government Portfolio
For a Class L/(1)/ share of capital stock outstanding throughout each year
ended December 31:
2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------
Net asset value, beginning of year... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------
Net investment income 0.012 0.036 0.057 0.045 0.049
- ----------------------------------------------------------------------------------
Dividends from net investment income (0.012) (0.036) (0.057) (0.045) (0.049)
- ----------------------------------------------------------------------------------
Net asset value, end of year......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------
Total return......................... 1.21% 3.68% 5.87% 4.62% 5.01%
- ----------------------------------------------------------------------------------
Net assets, end of year (000s)....... $ 131 $ 123 $ 121 $ 113 $ 206
- ----------------------------------------------------------------------------------
Ratios to average net assets:........
Expenses/(2)/...................... 0.61% 0.63% 0.58% 0.59% 0.59%
Net investment income.............. 1.21 3.53 5.70 4.47 4.94
- ----------------------------------------------------------------------------------
/(1)/ On June 12, 1998, Class C shares were renamed Class L shares.
/(2)/ As a result of voluntary expense limitation, expense ratios will not
exceed 0.70%
Smith Barney Money Funds, Inc.
24
Government Portfolio
For a Class Y share of capital stock outstanding throughout each year ended
December 31:
2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------
Net asset value, beginning of
year............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------
Net investment income............. 0.013 0.037 0.058 0.047 0.050
- --------------------------------------------------------------------------------
Dividends from net investment
income........................... (0.013) (0.037) (0.058) (0.047) (0.050)
- --------------------------------------------------------------------------------
Net asset value, end of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------
Total return...................... 1.35% 3.78% 6.02% 4.78% 5.13%
- --------------------------------------------------------------------------------
Net assets, end of year (millions) 1.789 $ 21 $ 20 $ 8 $ 4
- --------------------------------------------------------------------------------
Ratios to average net assets:.....
Expenses/(1)/................... 0.48% 0.44% 0.44% 0.45% 0.48%
Net investment income........... 1.38 3.69 5.85 4.64 5.06
- --------------------------------------------------------------------------------
/(1)/ As a result of a voluntary expense limitation, expense ratios will not
exceed 0.70%
Smith Barney Mutual Funds
25
Retirement Portfolio
For a Class A share of capital stock outstanding throughout each year ended
December 31:
2002 2001 2000// 1999// 1998//
- -------------------------------------------------------------------------------
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------
Net investment income/(2)/........ 0.011 0.035 0.057 0.046 0.049
- -------------------------------------------------------------------------------
Less distributions from:..........
Dividends from net investment
income......................... (0.011) (0.035) (0.057) (0.046) (0.049)
- -------------------------------------------------------------------------------
Net asset value, end of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------
Total return...................... 1.11% 3.60% 5.89% 4.65% 5.04%
- -------------------------------------------------------------------------------
Net assets, end of year (millions) $ 821 $ 990 $1,882 $1,704 $1,682
- -------------------------------------------------------------------------------
Ratios to average net assets:.....
Expenses/(1)(2)/................ 0.70% 0.69% 0.68% 0.69% 0.70%
Net investment income........... 1.11 3.78 5.74 4.55 4.92
- -------------------------------------------------------------------------------
/(1)/ As a result of a voluntary expense limitation, expense ratios will not
exceed 0.70%.
/(2)/ The investment manager waived a portion of its management fees for the
years ended December 31, 1999 and 1998. If such fees were
not waived, the per share decrease in net investment income and the
actual expense ratio would have been as follows:
Per Share Decreases to Expense Ratios
Net Investment Income Without Reimbursement
1999.......................... $0.0001 0.71%
- ---------------------------------------------------------------------------
1998.......................... 0.0002 0.72
- ---------------------------------------------------------------------------
Smith Barney Money Funds, Inc.
26
[LOGO] Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed/R/
Cash Portfolio
Government Portfolio
Retirement Portfolio
Each an investment portfolio of Smith Barney Money Funds, Inc.
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the funds' investments. These reports discuss the
market conditions and investment strategies that significantly affected the
funds' performance during their last fiscal year or period.
The funds send only one report to a household if more than one account has the
same address. Contact your Service Agent or the transfer agent if you do not
want this policy to apply to you.
Statement of additional information The statement of additional information
provides more detailed information about the funds and is incorporated by
reference into (is legally a part of) this prospectus.
You can make inquiries about the funds or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Service
Agent, by calling Smith Barney Shareholder Services at 1-800-451-2010, or by
writing to the funds at Smith Barney Mutual Funds, 125 Broad Street, New York,
New York 10004.
Information about the funds (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-202-942-8090. Reports and other information about the funds are available on
the EDGAR Database on the Commission's Internet site at http://www.sec.gov.
Copies of this information may be obtained for a duplicating fee by electronic
request at the following E-mail address: publicinfo@sec.gov, or by writing the
Commission's Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the funds that is not in this prospectus,
you should not rely upon that information. Neither the funds nor the
distributor is offering to sell shares of the funds to any person to whom the
funds may not lawfully sell their shares.
Your Serious Money. Professionally Managed./R/ is a registered service mark of
Citigroup Global Markets Inc.
(Investment Company Act file no. 811-02490)
FD2322 4/03
April 30, 2003
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY MONEY FUNDS, INC.
125 Broad Street
New York, New York 10004
(800) 451-2010
Class A Shares
Class L Shares
Class Y Shares
Smith Barney Money Funds, Inc. (the "Company") currently offers its shares
in three Portfolios (each, a "fund"):
Cash Portfolio
Government Portfolio
Retirement Portfolio
Each Fund is a money market fund that invests in high quality money market
instruments. The Funds seek to provide:
Daily Income
Convenience
Daily Liquidity
Stability of Net Asset Value
This Statement of Additional Information is not a Prospectus. It is intended
to provide more detailed information about the Company and the funds as well as
matters discussed in the April 30, 2003 Prospectus applicable to your class of
shares and, therefore, should be read in conjunction with such Prospectus. The
Prospectus may be obtained from your Citigroup Global Markets Inc. ("CGM")
Financial Consultant, a PFS Investments Inc. ("PFS") Registered Representative,
a broker/dealer, financial intermediary or a financial institution (each called
a "Service Agent") or by writing or calling the Company at the address or phone
number set forth above.
CONTENTS
Directors and Executive Officers........................................... 2
Investment Objectives and Management Policies.............................. 6
Risk Factors............................................................... 9
Investment Restrictions and Fundamental Policies........................... 10
Computation of Yield....................................................... 11
Valuation of Shares and Amortized Cost Valuation........................... 12
IRA and Other Prototype Retirement Plans................................... 12
Purchase of Shares......................................................... 13
Redemption of Shares....................................................... 16
PFS Accounts............................................................... 18
Exchange Privilege......................................................... 19
Taxes...................................................................... 19
Investment Management and Other Services................................... 22
Additional Information about the Funds..................................... 26
Voting Rights.............................................................. 26
Other Information.......................................................... 29
Financial Statements....................................................... 30
Appendix A--Securities Ratings............................................. A-1
There can be no assurance that a fund will achieve its investment objective.
Shares of the funds are not insured or guaranteed by the U.S. Government.
There is no assurance that each fund will be able to maintain a stable net
asset value of $1.00 per share.
1
MANAGEMENT OF THE FUND
Directors and Executive Officers
The Directors and Officers of the Company, their ages, their principal
occupations during the past five years (their titles may have varied during
that period), the number of investment companies associated with Citigroup Inc.
("Citigroup") that the Directors oversee, and other directorships held by the
Directors are set forth below. The address of each Director and Officer is 125
Broad Street, New York, New York 10004, unless noted otherwise. Each Director
is elected and holds office until a successor is appointed. "Fund Complex"
consists of the Company and any other investment companies associated with
Citigroup.
The table below identifies those Directors and Officers who are "interested
persons" of the Company as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). Each Director and Officer of the Company noted as an
interested person is interested by virtue of that individual's position with
Citigroup or its affiliates described as in the table below, and is referred to
as an "Interested Director." All other Directors are not deemed to be
"interested persons" of the Company, as defined in the 1940 Act, and are
referred to as "Independent Directors."
Term of Number of
Office* Portfolios
and in Fund
Position(s) Length Complex
Held with of Time Principal Occupation(s) Overseen Other Directorships
Name, Address, and Age Fund Served During Past 5 Years by Director Held by Director
- ---------------------- ----------- ------- ---------------------------------- ----------- --------------------
INDEPENDENT DIRECTORS
Lee Abraham Director Since Retired; Former Chairman and 28 Signet Group PLC
13732 LeHavre Drive 1999 CEO of Associated
Frenchman's Creek Merchandising Corp., a major
Palm Beach Gardens, FL retail merchandising organization.
33410 Former Director of Galey & Lord,
Age 75 Liz Claiborne, R.G. Barry
Corporation
Allan J. Bloostein Director Since President of Allan Bloostein 35 Taubman Centers Inc.
27 West 67th Street 1999 Associates, a consulting firm.
Apt. 5FW Former Director of CVS
New York, NY 10023 Corporation
Age 72
Jane F. Dasher Director Since Controller of PBK 28 None
Korsant Partners 1999 Holdings Inc., a family
283 Greenwich Avenue investment company
3rd Floor
Greenwich, CT 06830
Age 53
Donald R. Foley Director Since Retired 19 None
3668 Freshwater Drive 1982
Jupiter, FL 33477
Age 80
Richard E. Hanson, Jr. Director Since Retired; Former Head of the New 28 None
2751 Vermont Route 140 1999 Atlanta Jewish Community High
Poultney, VT 05764 School, Atlanta, Georgia
Age 61
Dr. Paul Hardin Director Since Professor of Law & Chancellor 36 None
12083 Morehead 1994 Emeritus at the University of
Chapel Hill, NC North Carolina
27514-8426
Age 71
Roderick C. Rasmussen Director Since Investment Counselor 28 None
9 Cadence Court 1982
Morristown, NJ 07960
Age 76
2
Term of Number of
Office* Portfolios
and in Fund
Position(s) Length Complex
Held with of Time Principal Occupation(s) Overseen Other Directorships
Name, Address, and Age Fund Served During Past 5 Years by Director Held by Director
- ---------------------- -------------- ------- -------------------------------- ----------- -------------------
John P. Toolan Director Since Retired 28 John Hancock Funds
7202 Southeast Golf 1992
Ridge Way
Hobe Sound, FL 33455
Age 72
INTERESTED DIRECTOR:
R. Jay Gerken** Chairman, Since Managing Director of CGM; 225 None
CGM President and 2002 Chairman, President and Chief
399 Park Avenue Chief Executive Officer of Smith
4th Floor Executive Barney Fund Management LLC
New York, NY 10022 Officer ("SBFM"), Travelers Investment
Age 52 Adviser, Inc. (''TIA") and Citi
Fund Management Inc.
OFFICERS:
Lewis E. Daidone Senior Vice Since Managing Director of CGM; N/ N/A
CGM President and 1990 formerly Chief Financial Officer A
125 Broad Street Chief and Treasurer of mutual funds
11th Floor Administrative affiliated with Citigroup Inc.;
New York, NY 10004 Officer Director and Senior Vice
Age 45 President of SBFM and TIA
Richard L. Peteka Chief Since Director and Head of Internal N/ N/A
CGM Financial 2002 Control for Citigroup Asset A
125 Broad Street Officer and Management ("CAM") U.S.
11th Floor Treasurer Mutual Fund Administration from
New York, NY 10004 1999-2002; Vice President, Head
Age 41 of Mutual Fund Administration
and Treasurer at Oppenheimer
Capital from 1996-1999
Martin R. Hanley Vice Since Portfolio Manager N/ N/A
CGM President and 1993 A
399 Park Avenue Investment
4th Floor Officer
New York, NY 10022
Age 35
Kevin Kennedy Vice President Since Portfolio Manager N/ N/A
CAM and 2001 A
399 Park Avenue Investment
4th Floor Officer
New York, NY 10022
Age 48
Kaprel Ozsolak Controller Since Vice President of CGM N/ N/A
CGM 2002 A
125 Broad Street
11th Floor
New York, NY 10004
Age 37
Christina T. Sydor Secretary Since Managing Director of CGM; N/ N/A
CGM 1987 General Counsel and Secretary of A
300 First Stamford Place 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 a Director who is an "interested person" of the Company as
defined in the Investment Company Act of 1940 because Mr. Gerken is an
officer of SBFM and certain of its affiliates.
3
The business affairs of each fund are managed by or under the direction of
the Board of Directors.
The Board has a standing Audit Committee comprised of the Independent
Directors that includes Abraham, Dasher and Toolan. The Audit Committee met
once during the funds' last fiscal year to review the internal and external
accounting procedures of the funds and, among other things, to consider the
selection of independent certified public accountants for the funds, to approve
all significant services proposed to be performed by the accountants and to
consider the possible effect of such services on their independence.
The Board also has a standing Administrative and Governance Committee
comprised of Abraham, Hanson and Foley, Independent Directors. The Governance
Committee is responsible for, among other things, recommending candidates to
fill vacancies on the Board and acts as Compensation Committee of the Board of
Directors. The Governance Committee does not have a procedure to consider
nominees recommended by shareholders. The Board also has an Investment
Performance Committee comprised of Bloostein, Hardin, Rasmussen and Toolan,
responsible for reviewing the investment performance of the Fund. The directors
of these respective committees are not "interested persons" of the Fund as
defined under the 1940 Act (the "independent directors"). The Fund has a
pricing committee composed of all directors which is charged with determining
fair value prices for securities when required.
The following table sets forth the dollar range of equity securities in the
Company beneficially owned by a Director, and, on an aggregate basis, in all
registered investment companies overseen by a Director in the Fund Complex as
of December 31, 2002:
Aggregate Dollar Range of Equity*
Securities in All Registered Investment
Dollar Range of Equity* Companies Overseen by Director in
Name of Director Securities in the Company Family of Investment Companies
---------------- ------------------------- ---------------------------------------
Lee Abraham........... A A
Allan J. Bloostein.... A E
Jane F. Dasher........ D D
Donald R. Foley....... A E
R. Jay Gerken......... A E
Richard E. Hanson, Jr. A B
Paul Hardin........... A E
Roderick C. Rasmussen. A D
John P. Toolan........ A E
- --------
* The dollar ranges are as follows:
A = None
B = $1-$10,000
C = $10,001-$50,000
D = $50,001-$100,000
E = Over $100,000
As of December 31, 2002 none of the Independent Directors, or his or her
immediate family members, beneficially owned or of record any securities in the
manager or principal underwriter of the fund, or in a person (other than a
registered investment company) directly or indirectly controlling, controlled
by, or under common control with the manager or principal underwriter of the
fund.
4
The following table shows the compensation paid by the Company and other
Smith Barney Mutual Funds to each director during the Company's last fiscal
year. None of the officers of the Company received any compensation from the
Company for such period. The Company does not pay retirement benefits to its
directors and officers. Officers and interested directors of the Company are
compensated by CGM. Fees for directors who are not "interested persons" of the
Company and who are directors of a group of funds sponsored by CGM are set at
$60,000 per annum and are allocated based on the relative net assets of each
fund in the group plus a per meeting fee of $2,500 with respect to in-person
meetings. In addition, these directors receive $500 per fund for each telephone
meeting plus travel and out-of-pocket expenses incurred in connection with
board meetings. The board meeting fees and out-of-pocket expenses are borne
proportionately by each individual fund or portfolio in the group. During the
fiscal year ended December 31, 2002 such expenses totaled $15,261.
COMPENSATION TABLE
Total Number of
Total Funds for Which
Aggregate Compensation Director Serves
Compensation from Fund and within
Name of Director from the Fund Fund Complex Fund Complex
---------------- ------------- ------------- ---------------
Lee Abraham........................ $28,072 $ 75,000 28
Allan J. Bloostein................. $28,072 $122,250 35
Jane Dasher........................ $28,073 $ 76,600 28
Donald R. Foley*................... $27,227 $ 75,000 28
Richard E. Hanson, Jr.............. $27,972 $ 73,900 28
Paul Hardin........................ $27,972 $132,300 36
R. Jay Gerken+..................... $ -- $ -- 225
Roderick C. Rasmussen*............. $28,074 $ 75,200 28
John P. Toolan*.................... $27,873 $ 73,400 28
- --------
+ Mr. Gerken is an "interested person" as defined in the 1940 Act, because he
is Managing Director of CGM and Chairman, President and Chief Executive
Officer of SBFM, the Fund's investment adviser or "Manager".
Designates a director who is an "interested person" of the Company.
* Pursuant to the Company's deferred compensation plan, the indicated directors
have elected to defer the following amounts of their aggregate compensation
from the Company: Donald R. Foley: $9,871, Roderick C. Rasmussen: $12,341 and
John P. Toolan: $20,641, and the following amounts of their total
compensation from the Fund Complex: Donald R. Foley: $24,000, Roderick C.
Rasmussen: $30,000 and John P. Toolan: $70,800.
Upon attainment of age 72 the Company's current directors may elect to change
to emeritus status. Any directors elected or appointed to the Board of
Directors in the future will be required to change to emeritus status upon
attainment of age 80 unless elected as a director prior to the adoption of
the emeritus program. Directors Emeritus are entitled to serve in emeritus
status for a maximum of 10 years during which time they are paid 50% of the
annual retainer fee and meeting fees otherwise applicable to the Company's
directors, together with reasonable out-of-pocket expenses for each meeting
attended. During the Company's last fiscal year, aggregate compensation from
the Company to Emeritus Directors totaled $21,000.
As of April 4, 2003 directors and officers of the Company owned, in the
aggregate, less than 1% of the outstanding shares of each of the funds.
5
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
General. The Prospectus discusses each fund's investment objective and the
policies each fund employs to achieve its objective. Each fund is an open-end,
diversified management investment company under the 1940 Act. Each fund's
investment manager is SBFM.
The funds operate as money market funds, and utilize certain investment
policies so that, to the extent reasonably possible, each fund's price per
share will not change from $1.00, although no assurance can be given that this
goal will be achieved on a continuous basis.
Each fund's investments are limited to United States dollar-denominated
instruments (and repurchase agreements thereon) that, at the time of
acquisition (including any related credit enhancement features) have received a
rating in one of the two highest categories (for Cash Portfolio, the highest
category) for short-term debt obligations from the "Requisite NRSROs,"
securities of issuers that have received such a rating with respect to other
comparable securities, and comparable unrated securities. "Requisite NRSROs"
means (a) any two nationally recognized statistical rating organizations
("NRSROs") that have issued a rating with respect to a security or class of
debt obligations of an issuer, or (b) one NRSRO, if only one NRSRO has issued
such a rating at the time that the fund acquires the security. The NRSROs
currently designated as such by the Securities and Exchange Commission ("SEC")
are the Standard & Poor's Division of The McGraw-Hill Companies Inc. ("S&P"),
Moody's Investors Service, Inc. ("Moody's") and Fitch Inc.
The following is a description of the types of money market instruments in
which each fund may invest:
U.S. government obligations (each fund). Obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government (including
Treasury bills, notes and bonds) or by its agencies and instrumentalities (such
as the Government National Mortgage Association, the Student Loan Marketing
Association, the Tennessee Valley Authority, the Bank for Cooperatives, the
Farmers Home Administration, Federal Farm Credit Banks, Federal Home Loan
Banks, Federal Intermediate Credit Banks, Federal Land Banks, the Export-Import
Bank of the U.S., the Federal Housing Administration, the Federal Home Loan
Mortgage Corporation, the U.S. Postal Service, the Federal Financing Bank and
the Federal National Mortgage Association). Some of these securities (such as
Treasury bills) are supported by the full faith and credit of the U.S.
Treasury; others (such as obligations of the Federal Home Loan Bank) are
supported by the right of the issuer to borrow from the Treasury; while still
others (such as obligations of the Student Loan Marketing Association) are
supported only by the credit of the particular agency or instrumentality.
Repurchase Agreements (each fund). Each fund may enter into repurchase
agreements with respect to U.S. government securities and may engage in
repurchase agreement transactions on portfolio securities. The funds may agree
to purchase securities from a bank or recognized securities dealer and
simultaneously commit to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities ("repurchase
agreements"). The funds would maintain custody of the underlying securities
prior to their repurchase; thus, the obligation of the bank or dealer to pay
the repurchase price on the date agreed to would be, in effect, secured by such
securities. In the event a tri-party repurchase agreement is utilized, the
collateral can be held by a third party. If the value of such securities were
less than the repurchase price, plus interest, the other party to the agreement
would be required to provide additional collateral so that at all times the
collateral is at least 102% of the repurchase price plus accrued interest.
Default by or bankruptcy of a seller would expose the fund to possible loss
because of adverse market action, expenses and/or delays in connection with the
disposition of the underlying obligations. The financial institutions with
which the funds may enter into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities listed on the Federal Reserve Bank of New
York's list of reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the funds' portfolio manager. The portfolio manager
6
will continue to monitor creditworthiness of the seller under a repurchase
agreement. The portfolio manager will mark-to-market daily the value of the
securities. Repurchase agreements are considered to be loans by the fund under
the 1940 Act.
The following are permitted investments for the Cash Portfolio and
Retirement Portfolio; the Government Portfolio will invest only in U.S.
Government obligations and repurchase agreements secured by those obligations.
Commercial Paper and Other Short-term Obligations (Cash Portfolio and
Retirement Portfolio). Commercial paper (including variable amount master
demand notes and funding agreements) consists of short-term, unsecured
promissory notes issued by corporations, partnerships, trusts and other
entities to finance short-term credit needs. Short-term obligations also
include mortgage-related or asset-backed debt or debt-like instruments,
including pass-through certificates representing participations in, or bonds
and notes backed by, pools of mortgage, credit card, automobile or other types
of receivables. These structured financings will be supported by sufficient
collateral and other credit enhancements, including letters of credit,
insurance, reserve funds and guarantees by third parties, to enable such
instruments to obtain the requisite quality ratings from NRSROs. Commercial
paper and such other short-term obligations will be rated in the highest
category for short-term debt obligations by the requisite NRSROs at the time of
acquisition by a fund, or will be unrated securities determined to be
comparable thereto.
High Quality Corporate Obligations (Cash Portfolio and Retirement
Portfolio). Obligations of corporations that are originally issued with a
maturity of greater than 397 days and are: (1) rated as long-term debt
obligations in the two highest rating categories (the highest for Cash
Portfolio) by the requisite NRSROs or (2) issued by an issuer that has a class
of short-term debt obligations that are comparable in priority and security
with the obligation and that have been rated in one of the two highest rating
categories for short-term debt obligations, or are otherwise comparable to
short-term debt obligations having such a rating. Each fund will invest only in
corporate obligations with remaining maturities of 13 months or less.
Bank Obligations (Cash Portfolio and Retirement Portfolio). Obligations
(including certificates of deposit, bankers' acceptances and fixed time
deposits) and securities backed by letters of credit of U.S. banks or other
U.S. financial institutions that are members of the Federal Reserve System or
the Federal Deposit Insurance Corporation ("FDIC") (including obligations of
foreign branches of such members) if either: (a) the principal amount of the
obligation is insured in full by the FDIC, or (b) the issuer of such obligation
has capital, surplus and undivided profits in excess of $100 million or total
assets of $1 billion (as reported in its most recently published financial
statements prior to the date of investment). Under current FDIC regulations,
the maximum insurance payable as to any one certificate of deposit is $100,000;
therefore, certificates of deposit in denominations greater than $100,000 that
are purchased by a fund will not be fully insured. The Cash Portfolio and
Retirement Portfolio each will not purchase a fixed time deposit with an
ultimate maturity of more than six months, and will limit its investment in
fixed time deposits maturing from two business to seven calendar days and/or
any other investments deemed to be illiquid to 10% of its net assets.
The Cash Portfolio and Retirement Portfolio each will maintain at least 25%
of its total assets invested in obligations of domestic and foreign banks,
subject to the above-mentioned size criteria. Each fund may invest in
instruments issued by domestic banks, including those issued by their branches
outside the United States and subsidiaries located in Canada, and in
instruments issued by foreign banks through their branches located in the
United States and the United Kingdom. In addition, the Cash Portfolio and
Retirement Portfolio may invest in fixed time deposits of foreign banks issued
through their branches located in Grand Cayman Island, London, Nassau, Tokyo
and Toronto.
Municipal Obligations (Cash Portfolio and Retirement Portfolio). Debt
obligations of states, cities, counties, municipalities, municipal agencies and
regional districts rated SP-1+ or A-1 or AA or better by S&P or MIG 2, VMIG 2
or Prime-1 or Aa or better by Moody's or, if not rated, determined by the
Manager to be of
7
comparable quality. Cash Portfolio only invests in municipal obligations rated
in the highest short-term rating category. At certain times, supply/demand
imbalances in the tax-exempt market cause municipal obligations to yield more
than taxable obligations of equivalent credit quality and maturity length. The
purchase of these securities could enhance a fund's yield. Each of Cash
Portfolio and Retirement Portfolio will not invest more than 10% of its total
assets in municipal obligations.
Time Deposits (Cash Portfolio and Retirement Portfolio). Cash Portfolio and
Retirement Portfolio may invest in fixed time deposits with an ultimate
maturity of not more than six months. In addition, each of these funds
currently intends to limit investment in fixed time deposits with a maturity of
two business days or more, when combined with other illiquid assets of the
fund, so that not more than 10% of its assets would be invested in all such
illiquid instruments. Fixed time deposits, unlike negotiable certificates of
deposit, generally do not have a market and may be subject to penalties for
early withdrawal of funds.
Asset-Backed Securities (Cash Portfolio and Retirement Portfolio). Cash
Portfolio and Retirement Portfolio may invest in asset-backed securities
arising through the grouping by governmental, government-related and private
organizations of loans, receivables and other assets originated by various
lenders. Interests in pools of these assets differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Instead,
asset-backed securities provide periodic payments which generally consist of
both interest and principal payments.
The estimated life of an asset-backed security varies with the prepayment
experience with respect to the underlying debt instruments. The rate of such
prepayments, and hence the life of an asset-backed security, will be primarily
a function of current market interest rates, although other economic and
demographic factors may be involved. For example, falling interest rates
generally result in an increase in the rate of prepayments of mortgage loans
while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. In periods of
sharply rising rates, prepayments generally slow, increasing the security's
average life and its potential for price depreciation.
Illiquid and Restricted Securities (Cash Portfolio and Retirement
Portfolio). Each fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933, as amended (the
"1933 Act"), but can be offered and sold to "qualified institutional buyers"
under Rule 144A under the 1933 Act ("Rule 144A"). Each fund may also invest a
portion of its assets in illiquid investments, which include repurchase
agreements maturing in more than seven days. The Board of Directors may
determine, based upon a continuing review of the trading markets for the
specific restricted security, that such restricted securities are liquid. The
Board of Directors has adopted guidelines and delegated to management the daily
function of determining and monitoring liquidity of restricted securities
available pursuant to Rule 144A. The Board, however, retains sufficient
oversight and is ultimately responsible for the determinations. Since it is not
possible to predict with assurance exactly how the market for Rule 144A
restricted securities will develop, the Board will monitor each fund's
investments in these securities, focusing on such important factors, among
others, as valuation, liquidity and availability of information. Investments in
restricted securities could have the effect of increasing the level of
illiquidity in a fund to the extent that qualified institutional buyers become
for a time uninterested in purchasing these restricted securities. The funds
may also purchase restricted securities that are not registered under Rule 144A.
The Articles of Incorporation of the Company permit the Board of Directors
to establish additional funds of the Company from time to time. The investment
restrictions applicable to any such additional fund would be established by the
Board of Directors at the time such funds were established and may differ from
those set forth above.
8
Other Investment Techniques
The following pertains to each fund:
Portfolio Turnover. Each fund may, to a limited degree, engage in
short-term trading to attempt to take advantage of short-term market
variations, or may dispose of a portfolio security prior to its maturity if it
believes such disposition advisable or it needs to generate cash to satisfy
redemptions. In such cases, a fund may realize a gain or loss.
Borrowing. Each fund may borrow money from banks for temporary or emergency
purposes, including for the purpose of accommodating requests for the
redemption of shares while effecting an orderly liquidation of portfolio
securities, and not for leveraging purposes.
Reverse Repurchase Agreements. The Government Portfolio may invest 33 1/3%
of its total assets in reverse repurchase agreements and enter into reverse
repurchase agreements with broker/dealers and other financial institutions,
including the funds' custodian. Such agreements involve the sale of portfolio
securities with an agreement to repurchase the securities at an agreed-upon
price, date and interest payment and have the characteristics of borrowing.
Since the proceeds of borrowings under reverse repurchase agreements are
invested, this would introduce the speculative factor known as "leverage." Such
transactions are advantageous only if the Government Portfolio has an
opportunity to earn a greater rate of interest on the cash derived from the
transaction than the interest cost of obtaining that cash. Opportunities to
realize earnings from the use of the proceeds equal to or greater than the
interest required to be paid may not always be available, and the Fund intends
to use the reverse repurchase technique only when the Manager believes it will
be advantageous to the Government Portfolio. The use of reverse repurchase
agreements may exaggerate any interim increase or decrease in the value of the
Government Portfolio's assets. The funds' custodian bank will maintain a
separate account for the Government Portfolio with securities having a value
equal to or greater than such commitments.
RISK FACTORS
Interest Rate Risk. General changes in interest rates result in increases
or decreases in the market value of the obligations held by a fund (but do not
affect the amortized cost valuations). The market value of the obligations held
by each fund can be expected to vary inversely to changes in prevailing
interest rates. Investors also should recognize that, in periods of declining
interest rates, each fund's yield will tend to be somewhat higher than
prevailing market rates, and in periods of rising interest rates, each fund's
yield will tend to be somewhat lower. Also, when interest rates are falling,
the inflow of net new money to a fund from the continuous sale of its shares
will likely be invested in instruments producing lower yields than the balance
of its investments, thereby reducing the Portfolio's current yield. In periods
of rising interest rates, the opposite can be expected to occur.
Foreign Investments (Cash Portfolio and Retirement Portfolio). Investments
in securities issued by foreign banks or foreign issuers present certain
additional risks. Foreign issuers generally are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements applicable to domestic issuers. In addition, there
may be less publicly available information about a foreign issuer than about a
domestic issuer. Cash Portfolio and Retirement Portfolio may invest in
Eurodollar and Yankee obligations, which are certificates of deposit issued in
U.S. dollars by foreign banks and foreign branches of U.S. banks. The risks of
Eurodollar obligations include the possibility that a foreign government will
not allow U.S. dollar-denominated assets to leave the foreign country and the
possibility that adverse political or economic developments will affect
investments in a foreign country.
9
INVESTMENT RESTRICTIONS AND FUNDAMENTAL POLICIES
The funds are subject to following restrictions and policies that are
"fundamental," which means that they cannot be changed without approval by a
vote of a majority of the outstanding voting securities of a fund affected by
the change, as defined in the 1940 Act and in accordance with Rule 18f-2
thereunder (see "Voting Rights").
Fundamental Policies--Each fund. Without the approval of a majority of its
outstanding voting securities, no fund may:
1. Invest in a manner that would cause it to fail to be a "diversified
company" under the 1940 Act and the rules, regulations and orders
thereunder. (However, since each of the funds operates as a money market
fund under Rule 2a-7 under the Act, compliance with Rule 2a-7 is deemed to
satisfy the diversification requirements otherwise applicable to diversified
investment companies under the 1940 Act.)
2. Issue "senior securities" as defined in the 1940 Act and the rules,
regulations and orders thereunder, except as permitted under the 1940 Act
and the rules, regulations and orders thereunder.
3. Borrow money, except that (a) the fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests which might otherwise require the untimely disposition
of securities, and (b) the fund may, to the extent consistent with its
investment policies, enter into reverse repurchase agreements, forward roll
transactions and similar investment strategies and techniques. To the extent
that it engages in transactions described in (a) and (b), the fund will be
limited so that no more than 33 1/3% of the value of its total assets
(including the amount borrowed), valued at the lesser of cost or market,
less liabilities (not including the amount borrowed), is derived from such
transactions.
4. Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the fund may invest consistent with its investment
objectives and policies; (b) repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent permitted under the 1940 Act.
5. Purchase or sell real estate, real estate mortgages, real estate
investment trust securities, commodities or commodity contracts, but this
restriction shall not prevent each fund from (a) investing in securities of
issuers engaged in the real estate business or the business of investing in
real estate (including interests in limited partnerships owning or otherwise
engaging in the real estate business or the business of investing in real
estate) and securities which are secured by real estate or interests
therein; (b) holding or selling real estate received in connection with
securities it holds or held; or (c) trading in futures contracts and options
on futures contracts (including options on currencies to the extent
consistent with the fund's investment objective and policies).
Additional Fundamental Policies--Cash Portfolio and Retirement
Portfolio. In addition to the fundamental policies stated above for all funds:
1. Neither Cash Portfolio nor Retirement Portfolio may invest less than
25% of its assets in bank obligations (including both domestic and foreign
bank obligations) and each of Cash Portfolio and Retirement Portfolio
reserves freedom of action to concentrate in securities issued or guaranteed
as to principal and interest by the U.S. government, its agencies and
instrumentalities.
Nonfundamental Policies. The funds are subject to the following
restrictions and policies which are "non-fundamental" and which may be changed
by the Company's Board of Directors without shareholder approval, subject to
any applicable disclosure requirements. As a nonfundamental policy, no fund may:
1. Purchase any securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except "against the box"). For
purposes of this restriction, the deposit or payment by the fund of
underlying securities and other assets in escrow and collateral agreements
with respect to initial or maintenance margin in connection with
10
futures contracts and related options and options on securities, indexes or
similar items is not considered to be the purchase of a security on margin.
2. Invest in securities of other investment companies except as may be
acquired as part of a merger, consolidation, or acquisition of assets.
3. Purchase or otherwise acquire any security if, as a result, more than
10% of its net assets would be invested in securities that are illiquid.
4. Invest in oil and gas interests.
5. Invest in any company for the purpose of exercising control.
6. Write or purchase put or call options.
All of the foregoing restrictions that are stated in terms of percentages
will apply at the time an investment is made; a subsequent increase or decrease
in the percentage that may result from changes in values or net assets will not
result in a violation of the restriction. Notwithstanding any of the foregoing
investment restrictions, each of the funds may invest up to 100% of its assets
in U.S. Government Obligations.
COMPUTATION OF YIELD
From time to time the Company may advertise the yield and effective yield of
its funds. For Cash Portfolio and Government Portfolio, each fund may advertise
the yield and effective yield of Class A, Class L and Class Y shares. These
yield figures are based on historical earnings and are not intended to indicate
future performance. The yield of a fund or a class refers to the net investment
income generated by an investment in the fund or the class over a specific
seven-day period (which will be stated in the advertisement). This net
investment income is then annualized. The effective yield is calculated
similarly but, when annualized, the income earned by an investment in the fund
or the class is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of the assumed
reinvestment.
The yield and the effective yield for each fund for the seven-day period
ended December 31, 2002, is set forth below. The Company quotes current yield
of each fund and class by dividing the net change in the value of a
hypothetical preexisting account having a balance of one share at the beginning
of a recent seven-day base period by the value of the account at the beginning
of the base period and multiplying this base period return by 365/7. Net change
in account value is the value of additional shares purchased with dividends
from original shares and dividends declared on both original shares and any
additional shares, but does not include any changes in unrealized appreciation
or depreciation. In addition, for each fund and class the Company may from time
to time quote effective yield figures assuming the compounding of dividends.
The effective yield will be slightly higher than the yield because of the
compounding effect. The Company also quotes for each fund and class the average
dollar-weighted portfolio maturity for the corresponding seven-day period.
Cash Portfolio* Government Portfolio** Retirement Portfolio***
-------------------- -------------------- ----------------------
7 day 7 day effective 7 day 7 day effective 7 day 7 day effective
----- --------------- ----- --------------- ----- ---------------
Class A............. 0.91% 0.92% 0.86% 0.86% 0.78% 0.78%
Class L............. 0.91 0.92 0.86 0.86 NA NA
Class Y............. 1.06 1.07 0.90 0.99 NA NA
- --------
* Average dollar-weighted portfolio maturity of 42 days.
** Average dollar-weighted portfolio maturity of 49 days.
*** Average dollar-weighted portfolio maturity of 41 days.
Although principal is not insured and there can be no assurance that a $1.00
per share net asset value will be maintained, it is not expected that the net
asset value of any fund's shares will fluctuate because the Company
11
uses the amortized cost method of valuation. (See "Valuation of Shares and
Amortized Cost Valuation.") Investors should bear in mind that yield is a
function of the type, quality and maturity of the instruments in a fund and the
fund's operating expenses. While current yield information may be useful,
investors should realize that each fund's current yield will fluctuate, is not
necessarily representative of future results and may not provide a basis for
comparison with bank deposits or other investments that pay a fixed yield for a
stated period of time.
VALUATION OF SHARES AND AMORTIZED COST VALUATION
The net asset value per share of each fund is determined as of 12 Noon
Eastern time on each day that the New York Stock Exchange ("NYSE") is open by
dividing the fund's net assets attributable to each class (i.e., the value of
its assets less liabilities) by the total number of shares of the class
outstanding. Each fund may also determine net asset value per share on days
when the NYSE is not open, but when the settlement of securities may otherwise
occur. As noted above, each fund employs the amortized cost method of valuing
portfolio securities and seeks to continue to maintain a constant net asset
value of $1.00 per share.
The Prospectus states that net asset value will be determined on any day the
NYSE is open and that the net asset value may be determined on any day that the
settlement of securities otherwise occurs. The New York Stock Exchange is
closed on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
The Company uses the "amortized cost method" for valuing portfolio
securities pursuant to Rule 2a-7 under the 1940 Act. The amortized cost method
of valuation of each fund's portfolio securities involves valuing a security at
its cost at the time of purchase and thereafter assuming a constant
amortization to maturity of any discount from or premium to the stated
principal amount of the security, regardless of the impact of fluctuating
interest rates on its market value. The market value of portfolio securities
will fluctuate on the basis of the creditworthiness of the issuers of such
securities and with changes in interest rates generally. While the amortized
cost method provides certainty in valuation, it may result in periods during
which value, as determined by amortized cost, is higher or lower than the price
the fund would receive if it sold the instrument. During such periods the
yields to investors in a fund may differ somewhat from that obtained in a
similar fund that uses mark-to-market values for all its portfolio securities.
For example, if the use of amortized cost resulted in a lower (higher)
aggregate portfolio value on a particular day, a prospective investor in the
funds would be able to obtain a somewhat higher (lower) yield than would result
from investment in such similar company, and existing investors would receive
less (more) investment income.
The purpose of this method of valuation is to attempt to maintain a constant
net asset value per share, and it is expected that the price of the funds'
shares will remain at $1.00; however, shareholders should be aware that despite
procedures that will be followed to maintain a stabilized price, including
maintaining a maximum dollar-weighted average portfolio maturity of 90 days and
investing in securities with remaining maturities of only 13 months or less,
there is no assurance that at some future date there will not be a rapid change
in prevailing interest rates, a default by an issuer or some other event that
could cause the fund's price per share to change from $1.00.
IRA AND OTHER PROTOTYPE RETIREMENT PLANS
Copies of the following plans with custody or trust agreements have been
approved by the Internal Revenue Service and are available from the Company or
CGM; investors should consult with their own tax or retirement planning
advisors prior to the establishment of a plan.
12
IRA, Rollover IRA and Simplified Employee Pension-IRA
If you or your spouse have earned income, each of you may establish an
Individual Retirement Account ("IRA") and make maximum annual contributions
equal to the lesser of earned income or $3,000 ($3,500 if you are age 50 or
older by the end of the year). Married couples where one spouse is non-working
may contribute a total of $6,000 ($7,000 if both you and your spouse are age 50
or older by the end of the year) annually to their IRAs.
If you are considered an active participant in an employer-sponsored
retirement plan, you may still be eligible for a full or partial deduction
depending upon your combined adjusted gross income ("AGI"). For married couples
filing jointly for 2003, a full deduction is permitted if your combined AGI is
$60,000 or less ($40,000 for unmarried individuals); a partial deduction will
be allowed when AGI is between $60,000-$70,000 ($40,000-$50,000 for an
unmarried individual); and no deduction when AGI is $70,000 ($50,000 for an
unmarried individual). However, if you are married and your spouse is covered
by a employer-sponsored retirement plan, but you are not, you will be eligible
for a full deduction if your combined AGI is $150,000 or less. A partial
deduction is permitted if your combined AGI is between $150,000-$160,000, and
no deduction is permitted for AGI of $160,000 or above.
The rules applicable to so-called "Roth IRAs" differ from those described
above.
A Rollover IRA is available to defer taxes on lump sum payments and other
qualifying rollover amounts (no maximum) received from another retirement plan.
An employer who has established a Simplified Employee Pension-IRA
("SEP-IRA") on behalf of eligible employees may make a maximum annual
deductible contribution of 25% (up to $40,000 for 2003) of each participant's
compensation. Compensation is capped at $200,000 for 2003.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and non-corporate
entities may purchase shares of the Company through the Smith Barney Prototype
Paired Defined Contribution Plan (the "Prototype"). The Prototype permits
adoption of profit-sharing provisions, money purchase pension provisions, or
both, to provide benefits for eligible employees and their beneficiaries. The
Prototype provides for a maximum annual tax deductible contribution on behalf
of participants of up to 25% of compensation, but not to exceed $40,000 for any
individual participant. Additional deductions are allowed with respect to
401(k) contributions, provided total allocation to any individual participant
may not exceed $40,000.
PURCHASE OF SHARES
Cash Portfolio and Government Portfolio. The minimum initial investment for
Class A is $1,000 for each Cash Portfolio and Government Portfolio account and
the minimum subsequent investment is $50, except for purchases through (a) IRAs
and Self-Employed Retirement Plans, for which the minimum initial and
subsequent investments are $250 and $50, respectively, and (b) retirement plans
qualified under Section 403(b)(7) or Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), for which the minimum initial and
subsequent investments are $25. There are no minimum investment requirements in
Class A shares for employees of Citigroup and its subsidiaries, including CGM,
and Directors or Trustees of any Citigroup-affiliated funds, including the
Smith Barney Mutual Funds, and their spouses and children. Class Y shares are
sold without an initial sales charge or Deferred Sales Charge and are available
only to investors investing a minimum of $15,000,000 (except there is no
minimum purchase amount for purchases of Class Y shares by (i) Smith Barney
Allocation Series Inc.; (ii) the Bright Start(R) and Scholars Choice/SM/
College Savings Programs; and (iii) a pension, profit-sharing or other benefit
plan for employees of Citigroup and its subsidiaries). The minimum subsequent
investment is $50.
13
Class A and Class Y shares of the Cash Portfolio and Government Portfolio
are available for purchase directly by investors. Class L shares of the Cash
Portfolio and Government Portfolio are available for purchase only by
Participating Plans (as defined under "Purchase of Shares--Smith Barney
Retirement Programs") opened prior to June 21, 1996, either directly or as part
of an exchange privilege transaction with certain other funds distributed by
CGM. Class L shares of the Government Portfolio that represent previously
issued "Class B" shares may only be redeemed or exchanged out of the fund.
Retirement Portfolio. Shares of the Retirement Portfolio are offered
exclusively to retirement plans under Sections 401 and 408 of the Code. To
purchase these shares, a brokerage account for your retirement plan must be
established with CGM upon completion of an account application available from
your Service Agent. CGM has advised the fund that the minimum initial purchase
is $200 for each Retirement Portfolio account, and subsequent investments may
be $1.00 or more. CGM also has advised the fund that on each business day it
will automatically invest all good funds of $1.00 or more in the brokerage
account in full shares of the Retirement Portfolio, and there is no charge for
this service.
All funds' shares are sold continuously at their net asset value next
determined after a purchase order is received and becomes effective. A purchase
order becomes effective, and income dividends begin to accrue, when the fund,
CGM or an Introducing Broker receives, or converts the purchase amount into,
Federal funds (i.e., monies of member banks within the Federal Reserve System
held on deposit at a Federal Reserve Bank). When orders for the purchase of
fund shares are paid for in Federal funds, which is required if shares are
purchased through PFPC Global Fund Services ("PFPC" or the applicable
"sub-transfer agent" with regard to CGM accounts), or are placed by an investor
with sufficient Federal funds or cash balance in the investor's brokerage
account with CGM or the Introducing Broker, the order becomes effective on the
day of receipt if received prior to 12 noon, Eastern time, on any day the Fund
calculates its net asset value. See "Valuation of Shares." Purchase orders
received after 12 noon on any business day are effective as of the next time
the net asset value is determined. When orders for the purchase of fund shares
are paid for other than in Federal funds, CGM or the Introducing Broker, acting
on behalf of the investor, will complete the conversion into, or itself
advance, Federal funds, and the order will become effective on the day
following its receipt by the fund, CGM or the Introducing Broker.
Smith Barney Retirement Programs. You may be eligible to participate in a
retirement program sponsored by CGM or one of its affiliates. The Cash
Portfolio and Government Portfolio each offers Class A and Class L shares at
net asset value to participating plans under the programs. You can meet minimum
investment and exchange amounts, if any, by combining the plan's investments in
any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of
shares you may purchase depends on the amount of your initial investment and/or
the date your account is opened. Once a class of shares is chosen, all
additional purchases must be of the same class.
For plans opened on or after March 1, 2000 that are not plans for which
Paychex Inc. or an affiliate provides administrative services (a "Paychex
plan"), Class A shares may be purchased regardless of the amount invested.
For plans opened prior to March 1, 2000 and for Paychex plans, the class of
shares you may purchase depends on the amount of your initial investment:
Class A Shares. Class A shares may be purchased by plans investing at least
$3 million.
Class L Shares. Class L shares may be purchased by plans investing less
than $3 million. Class L shares are eligible to exchange into Class A shares
not later than 8 years after the plan joined the program. They are eligible for
exchange in the following circumstances:
If the plan was opened on or after April 10, 2003 and a total of $3 million
is invested in Smith Barney Funds Class L shares (other than money market
funds), all Class L shares are eligible for exchange after the plan is in the
program for 5 years.
If the plan was opened on or after June 21, 1996 and prior to April 10, 2003
and a total of $1 million is invested in Smith Barney Funds Class L shares
(other than money market funds), all Class L shares are eligible for exchange
after the plan is in the program 5 years.
14
If the plan was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L shares (other than money market funds)
on December 31 in any year, all Class L shares are eligible for exchange on or
about March 31 of the following year.
A plan that has not previously qualified for an exchange into Class A shares
will be offered the opportunity to exchange all of its Class L shares for Class
A shares of the same fund regardless of asset size, at the end of the eighth
year after the date the participating plan enrolled in the Smith Barney
Retirement Program.
For more information, call your Service Agent or the transfer agent.
Retirement Programs Opened On or After June 21, 1996. If, at the end of the
fifth year after the date the participating plan enrolled in the Smith Barney
Retirement Programs, a participating plan's total Class L holdings in all
non-money market Smith Barney Mutual Funds equal at least $1,000,000, the
participating plan will be offered the opportunity to exchange all of its Class
L shares for Class A shares of the fund. (For participating plans that were
originally established through a CGM retail brokerage account, the five-year
period will be calculated from the date the retail brokerage account was
opened.) Such participating plans will be notified of the pending exchange in
writing within 30 days after the fifth anniversary of the enrollment date and,
unless the exchange offer has been rejected in writing, the exchange will occur
on or about the 90th day after the fifth anniversary date. If the participating
plan does not qualify for the five-year exchange to Class A shares, a review of
the participating plan's holdings will be performed each quarter until either
the participating plan qualifies or the end of the eighth year.
Retirement Programs Opened Prior to June 21, 1996. In any year after the
date a participating plan enrolled in the Smith Barney 401(k) Program, if its
total Class L holdings in all non-money market Smith Barney Mutual Funds equal
at least $500,000 as of the calendar year-end, the participating plan will be
offered the opportunity to exchange all of its Class L shares for Class A
shares of the same fund. Such Plans will be notified in writing within 30 days
after the last business day of the calendar year and, unless the exchange offer
has been rejected in writing, the exchange will occur on or about the last
business day of the following March.
Any participating plan in the Smith Barney Retirement Programs, whether
opened before or after June 21, 1996, that has not previously qualified for an
exchange into Class A shares will be offered the opportunity to exchange all of
its Class L shares for Class A shares of the same fund regardless of asset
size, at the end of the eighth year after the date the participating plan
enrolled in the Salomon Smith Barney Retirement Programs. Such plans will be
notified of the pending exchange in writing approximately 60 days before the
eighth anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth anniversary
date. Once an exchange has occurred, a participating plan will not be eligible
to acquire additional Class L shares, but instead may acquire Class A shares of
the same fund. Any Class L shares not converted will continue to be subject to
the distribution fee.
Participating plans wishing to acquire shares of a fund through the Smith
Barney Retirement Programs must purchase such shares directly from the transfer
agent. For further information regarding these Programs, investors should
contact a Service Agent.
Letter of Intent--Class Y Shares (Cash and Government Portfolios). A Letter
of Intent may be used as a way for investors to meet the minimum investment
requirement for Class Y shares. Such investors must make an initial minimum
purchase of $5,000,000 in Class Y shares of the Fund and agree to purchase a
total of $15,000,000 of Class Y shares of the fund within 13 months from the
date of the Letter. If a total investment of $15,000,000 is not made within the
13-month period, all Class Y shares purchased during such period will be
transferred to Class A shares, where they will be subject to all fees
(including a service fee of 0.25%) and expenses applicable to the fund's Class
A shares, which may include a deferred sales charge of 1.00%. Please contact a
Service Agent or Citicorp Trust Bank, fsb (the "Transfer Agent") for further
information.
15
REDEMPTION OF SHARES
Shareholders may redeem their shares without charge on any day a fund
calculates its net asset value. See "Valuation of Shares and Amortized Cost
Valuation." Redemption requests received in proper form before 12 Noon, Eastern
time, are priced at the net asset value as next determined on that day.
Redemption requests received after 12 Noon, Eastern time, are priced at the net
asset value next determined. Redemption requests must be made through a Service
Agent through whom the shares were purchased, or, for PFS accounts, through
Primerica Shareholders Services ("PSS"), except that shareholders who purchased
shares of the fund from PFPC or PSS may also redeem shares directly through
PFPC or PSS. A shareholder desiring to redeem shares represented by
certificates also must present the certificates to a Service Agent, or PFPC or
PSS endorsed for transfer (or accompanied by an endorsed stock power), signed
exactly as the shares are registered. Redemption requests involving shares
represented by certificates will not be deemed received until the certificates
are received by PFPC or PSS in proper form.
Each fund normally transmits redemption proceeds on the business day
following receipt of a redemption request but, in any event, payment will be
made within three days thereafter, exclusive of days on which the NYSE is
closed and the settlement of securities does not otherwise occur, or as
permitted under the 1940 Act in extraordinary circumstances. Generally, if the
redemption proceeds are remitted to a CGM brokerage account, these funds will
not be invested for the shareholder's benefit without specific instruction and
CGM will benefit from the use of temporarily uninvested funds. A shareholder
who pays for fund shares by personal check will be credited with the proceeds
of a redemption of those shares only after the purchase check has been
collected, which may take up to ten days or more. A shareholder who anticipates
the need for more immediate access to his or her investment should purchase
shares with Federal funds, by bank wire or with a certified or cashier's check.
Fund shareholders who purchase securities through a Service Agent may take
advantage of special redemption procedures under which Class A shares of the
fund will be redeemed automatically to the extent necessary to satisfy debit
balances arising in the shareholder's account with a Service Agent. One example
of how an automatic redemption may occur involves the purchase of securities.
If a shareholder purchases securities but does not pay for them by the
settlement date, the number of fund shares necessary to cover the debit will be
redeemed automatically as of the settlement date, which usually occurs three
business days after the trade date. Class A shares that are subject to a
deferred sales charge (see "Redemption of Shares--Deferred Sales Charge") are
not eligible for such automatic redemption and will only be redeemed upon
specific request. If the shareholder does not request redemption of such
shares, the shareholder's account with a Service Agent may be margined to
satisfy debit balances if sufficient fund shares that are not subject to any
applicable deferred sales charge are unavailable. No fee is currently charged
with respect to these automatic transactions. Shareholders not wishing to
participate in these arrangements should notify their Service Agent.
A written redemption request must (a) state the class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are
registered. If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by an endorsed
stock power) and must be submitted to PFPC or PSS together with the redemption
request. Any signature appearing on a written redemption request in excess of
$50,000, share certificate or stock power must be guaranteed by an eligible
guarantor institution such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal Reserve System or member firm
of a national securities exchange. Written redemption requests of $50,000 or
less do not require a signature guarantee unless more than one such redemption
request is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. The Transfer Agent may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees or guardians. A redemption request will not be deemed
properly received until the Transfer Agent receives all required documents in
proper form.
Telephone Redemption and Exchange Program. To determine if a shareholder is
entitled to participate in this program, he or she should contact the Transfer
Agent at 1-800-451-2010. Once eligibility is confirmed, the
16
shareholder must complete and return a Telephone/Wire Authorization Form, along
with a signature guarantee, that will be provided by the Transfer Agent upon
request. (Alternatively, an investor may authorize telephone redemptions on the
new account application with the applicant's signature guarantee when making
his or her initial investment in the fund.)
Redemptions. Redemption requests of up to $50,000 of any class or classes
of a fund's shares may be made by eligible shareholders by calling the Transfer
Agent at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 4:00
p.m. (Eastern time) on any day the NYSE is open. Requests received after the
close of regular trading on the NYSE are priced at the net asset value next
determined. Redemptions of shares (i) by retirement plans or (ii) for which
certificates have been issued are not permitted under this program.
A shareholder will have the option of having the redemption proceeds mailed
to his or her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent relationship with
a member bank. The fund reserves the right to charge shareholders a nominal fee
for each wire redemption. Such charges, if any, will be assessed against the
shareholder's account from which shares were redeemed. In order to change the
bank account designated to receive redemption proceeds, a shareholder must
complete a new Telephone/Wire Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a signature guarantee and
certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged. Such exchange requests
may be made by calling the Transfer Agent at 1-800-451-2010 between 9:00 a.m.
and 4:00 p.m. (Eastern time) on any day on which the NYSE is open. See
"Exchange Privilege" for more information.
Additional Information regarding Telephone Redemption and Exchange
Program. Neither the funds nor their agents will be liable for following
instructions communicated by telephone that are reasonably believed to be
genuine. Each fund and its agents will employ procedures designed to verify the
identity of the caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required and phone calls may be
recorded). Each fund reserves the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose a charge for this
service at any time following at least seven (7) days prior notice to
shareholders.
Deferred Sales Charge--Cash Portfolio and Government Portfolio
Class A shares of the Cash Portfolio and Government Portfolio and Class L
shares of the Government Portfolio that represent previously issued "Class B"
shares acquired as part of an exchange privilege transaction, and were
originally acquired in one of the other Smith Barney Mutual Funds at net asset
value subject to a deferred sales charge, continue to be subject to any
applicable deferred sales charge of the original fund. Therefore, such Class A
and Class L shares that are redeemed within 12 months of the date of purchase
of the original fund may be subject to a deferred sales charge of 1.00%. The
amount of any deferred sales charge will be paid to and retained by CGM. The
deferred sales charge will be assessed based on an amount equal to the account
value at the time of redemption, and will not be imposed on increases in value
above the initial purchase price in the original fund. In addition, no charge
will be assessed on shares derived from reinvestment of dividends or capital
gains distributions.
In determining the applicability of any deferred sales charge, it will be
assumed that a redemption is made first of shares representing capital
appreciation, next of shares representing the reinvestments of dividends and
capital gain distributions and finally of other shares held by the shareholder
for the longest period of time. The length of time that Class A and Class L
shares have been held will be calculated from the date that the shares were
initially acquired in one of the other Smith Barney Mutual Funds, and the
amount of shares being redeemed
17
will be considered to represent, as applicable, the value of capital
appreciation or dividend and capital gain distribution reinvestments in such
other funds. For federal income tax purposes, the amount of the deferred sales
charge will reduce the gain (if any) or increase the loss (if any), as the case
may be, on redemption.
The deferred sales charge on Class A and Class L shares, if any, will be
waived on (a) exchanges (see "Exchange Privilege" below); (b) redemptions of
shares within twelve months following the death or disability of the
shareholder; (c) redemption of shares made in connection with qualified
distributions from retirement plans or IRAs upon the attainment of age 59 1/2;
(d) involuntary redemptions; and (e) redemptions of shares to effect a
combination of a Portfolio with any investment company by merger, acquisition
of assets or otherwise. In addition, a shareholder who has redeemed shares from
other funds of the Smith Barney Mutual Funds may, under certain circumstances,
reinvest all or part of the redemption proceeds within 60 days and receive pro
rata credit for any deferred sales charge imposed on the prior redemption.
Deferred sales charge waivers will be granted subject to confirmation (by
CGM in the case of shareholders who are also CGM clients or by the Transfer
Agent in the case of all other shareholders) of the shareholder's status or
holdings, as the case may be.
For information concerning the deferred sales charge applicable to Class A
and Class L shares acquired through the Smith Barney Retirement Programs, see
"Purchase of Shares."
PFS ACCOUNTS
Initial purchases of the Cash Portfolio--Class A shares must be made through
a PFS Investments Inc. Registered Representative by completing the appropriate
application. The completed application must be forwarded to Primerica
Shareholder Services, P.O. Box 9662, Providence, RI 02940-9662. Checks drawn on
foreign banks must be payable in U.S. dollars and have the routing number of
the U.S. bank encoded on the check. Subsequent investments must be sent
directly to PSS. In processing applications and investments, Citicorp Trust
Bank, fsb (formerly Travelers Bank & Trust, fsb), the Transfer Agent acts as
agent for the investor and for PFS Investments and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If the Transfer
Agent ceases to act as such, a successor company named by the Company will act
in the same capacity so long as the account remains open.
Redemption proceeds can be sent by check to the address of record or by wire
transfer to a bank account designated on the application. PSS will process and
mail usually within two to three business days after receiving the redemption
request in good order. The shareholder may request the proceeds to be mailed by
two day air express for a $8 fee that will be deducted from the shareholder's
account or by one day express for a $15 fee that will be deducted from the
shareholder's account.
PFS Distributors, Inc. pays to PFS Investments a promotional fee calculated
as a percentage of the sales charge reallowed to PFS. The percentage used in
the calculation is 3%.
An Account Transcript is available at a shareholder's request which
identifies every financial transaction in an account since it was opened.
Additional copies of tax forms are available at the shareholder's request.
Shareholders who establish telephone transaction authority on their account
and supply bank account information may make additions to their accounts at any
time. Shareholders should contact PSS at (800) 544- 5445 between 8:00 a.m. and
8:00 p.m. Eastern time any day that the NYSE is open. If a shareholder does not
18
wish to allow subsequent investments by telephone by any person in his or her
account, he or she should decline the telephone transaction option on the
account application. The minimum telephone subsequent investment is $250 and
can be up to a maximum of $50,000. By requesting a purchase by telephone, you
authorize PSS to transfer funds from the bank account provided for the amount
of the purchase. Subsequent investments by telephone may not be available if
the shareholder cannot reach PSS because all telephone lines are busy or for
any other reason; in such case, a shareholder would have to use the fund's
regular subsequent investment procedure described above.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each class may be exchanged for
shares of the same class in any of the Smith Barney Mutual Funds, to the extent
shares are offered for sale in the shareholder's state of residence. Exchanges
of Class A and Class L shares are subject to minimum investment requirements
and all shares are subject to other terms or requirements of the fund into
which exchanges are made and a sales charge may apply.
Class A Exchanges. Class A shares of each fund will be subject to the
applicable sales charge upon the exchange of such shares for Class A shares of
another fund of the Smith Barney Mutual Funds sold with a sales charge.
Class Y Exchanges. Class Y shareholders of a fund who wish to exchange all
or a portion of their Class Y shares for Class Y shares in any of the funds
above may do so without imposition of any charge.
Additional Information Regarding Exchanges. The funds are not designed to
provide investors with a means of speculation on short-term market movements. A
pattern of frequent exchanges by investors can be disruptive to efficient
portfolio management and, consequently, can be detrimental to the funds and
their shareholders. Accordingly, if the Funds' management in its sole
discretion determines that an investor is engaged in excessive trading, the
funds, with or without prior notice, may temporarily or permanently terminate
the availability to that investor of fund exchanges, or reject in whole or part
any purchase or exchange request with respect to such investor's account. Such
investors also may be barred from purchases and exchanges involving other funds
in the Smith Barney Mutual Fund family. Accounts under common ownership or
control will be considered as one account for purposes of determining a pattern
of excessive trading. The funds may notify an investor of rejection of a
purchase or exchange order after the day the order is placed. If an exchange
request is rejected, the funds will take no other action with respect to the
shares until it receives further instructions from the investor. The funds'
policy on excessive trading applies to investors who invest in the funds
directly or through Service Agents, but does not apply to any systematic
investment plans described in the Prospectus.
During times of drastic economic or market conditions, the funds may suspend
the Exchange Privilege temporarily without notice and treat exchange requests
based on their separate components--redemption orders with a simultaneous
request to purchase the other fund's shares. In such a case, the redemption
request would be processed at the fund's next determined net asset value but
the purchase order would be effective only at the net asset value next
determined after the fund being purchased formally accepts the order, which may
result in the purchase being delayed.
TAXES
The following is a summary of certain material United States federal income
tax considerations regarding the purchase, ownership and disposition of shares
of the funds by United States persons. This summary does not address all of the
potential federal income tax consequences that may be applicable to a fund or
to all categories of investors, some of which may be subject to special tax
rules. Each prospective shareholder is urged to consult his own tax adviser
with respect to the specific federal, state, local and foreign tax consequences
of investing in a
19
fund. The summary is based on the laws in effect on the date of this SAI and
existing judicial and administrative interpretations thereof, all of which are
subject to change, possibly with retroactive effect.
The Fund and Its Investments
Each fund intends to continue to qualify to be treated as a regulated
investment company under the Code each taxable year. To so qualify, a fund
must, among other things: (a) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of stock or securities,
foreign currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (b) diversify its
holdings so that, at the end of each quarter of the fund's taxable year, (i) at
least 50% of the market value of the fund's assets is represented by cash,
securities of other regulated investment companies, United States government
securities and other securities, with such other securities limited, in respect
of any one issuer, to an amount not greater than 5% of the fund's assets and
not greater than 10% of the outstanding voting securities of such issuer and
(ii) not more than 25% of the value of its assets is invested in the securities
(other than United States government securities or securities of other
regulated investment companies) of any one issuer or any two or more issuers
that the fund controls and that are determined to be engaged in the same or
similar trades or businesses or related trades or businesses.
As a regulated investment company, a fund will not be subject to United
States federal income tax on its net investment income (i.e., income other than
its net realized long-term and short-term capital gains) and its net realized
long-term and short-term capital gains, if any, that it distributes to its
shareholders, provided an amount equal to at least (i) 90% of the sum of its
investment company taxable income (i.e., its taxable income minus the excess,
if any, of its net realized long-term capital gains over its net realized
short-term capital losses (including any capital loss carryovers), plus or
minus certain other adjustments as specified in the Code) and (ii) 90% of its
net tax-exempt income for the taxable year is distributed to its shareholders
in compliance with the Code's timing and other requirements. However, any
taxable income or gain the fund does not distribute will be subject to tax at
regular corporate rates.
The Code imposes a 4% nondeductible excise tax on a fund to the extent it
does not distribute by the end of any calendar year at least 98% of its
ordinary income for that year and at least 98% of its capital gains (both
long-term and short-term) for the one-year period ending, as a general rule, on
October 31 of that year. For this purpose, however, any ordinary income or net
capital gain retained by a fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the minimum
amounts that must be distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or overdistribution, as
the case may be, from the previous year. Each fund anticipates that it will pay
such dividends and will make such distributions as are necessary in order to
avoid the application of this excise tax.
If, in any taxable year, a fund fails to qualify as a regulated investment
company under the Code or fails to meet the distribution requirement, it would
be taxed in the same manner as an ordinary corporation and distributions to its
shareholders would not be deductible by the fund in computing its taxable
income. In addition, in the event of a failure to qualify, the fund's
distributions, to the extent derived from the fund's current or accumulated
earnings and profits, would constitute dividends (eligible for the corporate
dividends-received deduction) that are taxable to shareholders as ordinary
income, even though those distributions might otherwise (at least in part) have
been treated in the shareholders' hands as long-term capital gains. Moreover,
if a fund fails to qualify as a regulated investment company in any year, it
must pay out its earnings and profits accumulated in that year in order to
qualify again as a regulated investment company. In addition, the fund may be
required to recognize any net built-in gains with respect to certain of its
assets (i.e. the excess of the aggregate gains, including items of income, over
aggregate losses that would have been realized with respect to such assets if
the fund had been liquidated) in order to qualify as a regulated investment
company in a subsequent year.
20
Taxation of United States Shareholders
Dividends and Distributions. Dividends and other distributions by a fund
are generally treated under the Code as received by the shareholders at the
time the dividend or distribution is made. However, any dividend or
distribution declared by a fund in October, November or December of any
calendar year and payable to shareholders of record on a specified date in such
a month shall be deemed to have been received by each shareholder on December
31 of such calendar year and to have been paid by the fund not later than such
December 31, provided such dividend is actually paid by the fund during January
of the following calendar year.
Each fund intends to distribute annually to its shareholders substantially
all of its investment company taxable income, and any net realized long-term
capital gains in excess of net realized short-term capital losses (including
any capital loss carryovers). However, if a fund retains for investment an
amount equal to all or a portion of its net long-term capital gains in excess
of its net short-term capital losses (including any capital loss carryovers),
it will be subject to a corporate tax (currently at a rate of 35%) on the
amount retained. In that event, the fund will designate such retained amounts
as undistributed capital gains in a notice to its shareholders who (a) will be
required to include in income for United Stares federal income tax purposes, as
long-term capital gains, their proportionate shares of the undistributed
amount, (b) will be entitled to credit their proportionate shares of the 35%
tax paid by the fund on the undistributed amount against their United States
federal income tax liabilities, if any, and to claim refunds to the extent
their credits exceed their liabilities, if any, and (c) will be entitled to
increase their tax basis, for United States federal income tax purposes, in
their shares by an amount equal to 65% of the amount of undistributed capital
gains included in the shareholder's income. Organizations or persons not
subject to federal income tax on such capital gains will be entitled to a
refund of their pro rata share of such taxes paid by the fund upon filing
appropriate returns or claims for refund with the IRS.
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable to a United States shareholder as ordinary
income, whether paid in cash or in shares, unless the shareholder is a
tax-exempt entity or the shares are held through a tax deferred retirement plan
or account. Each fund anticipates that it will not make any long-term capital
gain distributions. However, any such distributions would be taxable (for
taxable shareholders) as long-term capital gain, whether paid in cash or in
shares and regardless of how long a shareholder has held shares of the fund. No
portion of a fund's distributions will be eligible for the dividends received
deduction for corporations. Distributions in excess of a fund's current and
accumulated earnings and profits will, as to each shareholder, be treated as a
tax-free return of capital to the extent of a shareholder's basis in his shares
of the fund, and as a capital gain thereafter (if the shareholder holds his
shares of the fund as capital assets). Shareholders receiving dividends or
distributions in the form of additional shares should be treated for United
States federal income tax purposes as receiving a distribution in an amount
equal to the amount of money that the shareholders receiving cash dividends or
distributions will receive, and should have a cost basis in the shares received
equal to such amount.
If a shareholder redeems in full an account between payment days, all
dividends declared up to and including the date of liquidation will be paid
with the proceeds from the redemption of shares. The per share dividends of
Class A and Class L shares of the Cash Portfolio and the Government Portfolio
may be less than the per share dividends of Class Y shares of each such
Portfolio principally as a result of the service fee applicable to Class A and
Class L shares. Long-term capital gains, if any, will be in the same per share
amount for each class and will be distributed annually.
Sales of Shares. Upon the sale or exchange of his shares, a shareholder
will realize a taxable gain or loss, if any, equal to the difference between
the amount realized and his basis in his shares, unless the shareholder is a
tax-exempt entity or the shares are held through a tax deferred retirement plan
or account. A redemption of shares by a fund will be treated as a sale for this
purpose. Such gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands, and will be long-term
capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for one year or less.
Any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced, including replacement through the reinvesting
of dividends and capital gains distributions in the fund, within a 61-day
21
period beginning 30 days before and ending 30 days after the disposition of the
shares. In such a case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a shareholder on the sale of
a fund share held by the shareholder for six months or less will be treated for
United States federal income tax purposes as a long-term capital loss to the
extent of any distributions or deemed distributions of long-term capital gains
received by the shareholder with respect to such share during such six-month
period. If a shareholder incurs a sales charge in acquiring shares of a fund,
disposes of those shares within 90 days and then acquires shares in a mutual
fund for which the otherwise applicable sales charge is reduced by reason of a
reinvestment right (e.g., an exchange privilege), the original sales charge
will not be taken into account in computing gain/loss on the original shares to
the extent the subsequent sales charge is reduced. Instead, the disregarded
portion of the original sales charge will be added to the tax basis of the
newly acquired shares. Furthermore, the same rule also applies to a disposition
of the newly acquired shares made within 90 days of the second acquisition.
This provision prevents a shareholder from immediately deducting the sales
charge by shifting his or her investment in a family of mutual funds.
Backup Withholding. A fund may be required to withhold, for United States
federal income tax purposes, a portion of the dividends, distributions and
redemption proceeds payable to shareholders who fail to provide the fund with
their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Certain shareholders are exempt from backup withholding.
Backup withholding is not an additional tax and any amount withheld may be
credited against a shareholder's United States federal income tax liabilities.
Notices. Shareholders will receive, if appropriate, various written notices
after the close of a fund's taxable year regarding the United States federal
income tax status of certain dividends, distributions and deemed distributions
that were paid (or that are treated as having been paid) by the fund to its
shareholders during the preceding taxable year.
The foregoing is only a summary of certain material United States federal
income tax consequences affecting the funds and their shareholders.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a fund.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Manager. SBFM manages the day to day operations of each fund pursuant to
management agreements entered into by the Company on behalf of each fund. Under
the management agreements, the Manager offers each fund advice and assistance
with respect to the acquisition, holding or disposal of securities and
recommendations with respect to other aspects of the business and affairs of
each fund. It also furnishes each fund with executive and other personnel;
management, bookkeeping, accounting and administrative services; office space
and equipment; and the services of the officers and employees of the funds.
SBFM is an indirect wholly-owned subsidiary of Citigroup Inc., a publicly owned
financial services company. SBFM is an investment manager to investment
companies that had assets under management as of March 31, 2003 of
approximately $105.9 billion.
The Advisory Agreement has an initial term of two years and continues in
effect, from year to year thereafter if such continuance is specifically
approved at least annually by the fund's board of directors, or by a majority
of the outstanding voting securities of the fund, and in either event, by a
majority of the independent trustees of the fund's board with such independent
directors casting votes in person at a meeting called for such purpose, or by a
vote of a majority of the outstanding shares. In approving the continuation of
the fund's Advisory Agreement, the board, including the independent directors,
considered the reasonableness of the advisory fee in light of the extent and
quality of the advisory services provided and any additional benefits received
by the manager or its affiliates in connection with providing services to the
fund, compared the fees charged by the manager to those paid by similar funds
or clients for comparable services, and analyzed the
22
expenses incurred by the manager with respect to the fund. The board also
considered the fund's performance relative to a selected peer group and to
other benchmarks, the expense ratio of the fund in comparison to other funds of
comparable size, and other factors. Specifically, the board noted information
received at regular meetings throughout the year related to fund performance
and manager services, and benefits potentially accruing to the manager and its
affiliates from securities lending, administrative and brokerage relationships
with affiliates of the manager, as well as research services received by the
manager from brokers-dealers who execute transactions on behalf of the fund.
After requesting and reviewing such information as they deemed necessary, the
board concluded that the continuation of the Advisory Agreement was in the best
interests of the fund and its shareholders. The independent directors were
advised by separate independent legal counsel throughout the process. The fund
or the manager may terminate the Advisory Agreement on sixty days' written
notice without penalty. The Advisory Agreement will terminate automatically in
the event of assignment (as defined in the 1940 Act).
For the years 2000, 2001 and 2002 the funds paid management fees as shown
below:
Fund Management Fees
---- --------------------------------------
2000 2001 2002
------------ ------------ ------------
Cash Portfolio..................... $193,310,073 $159,076,536 $108,717,599
Government Portfolio............... 23,567,106 $ 21,124,677 $ 16,324,462
Retirement Portfolio............... 7,602,080 $ 5,842,660 $ 3,987,026
The respective funds' management agreements, which were approved by their
shareholders on September 16, 1994 and became effective on November 21, 1994,
and were most recently approved by the Board of Directors, including a majority
of the Independent Directors of the Company on June 29, 2002 provide for
compensation of the Manager accrued daily and paid monthly at the following
annual rates:
Management Fee as a
Percentage of Average
Fund Fund Asset Breakpoints Daily Net Assets
- ---- ---------------------------------- ---------------------
Cash Portfolio..................... First $6 billion 0.45%
Over $6 billion up to $12 billion 0.425%
Over $12 billion up to $18 billion 0.40%
Over $18 billion 0.35%
Government Portfolio............... First $2.5 billion 0.45%
Over $2.5 billion up to $5 billion 0.40%
Over $5 billion 0.35%
Retirement Portfolio............... First $1 billion 0.45%
Over $1 billion up to $2 billion 0.40%
Over $2 billion 0.35%
Each fund's management agreement further provides that all other expenses
not specifically assumed by the Manager under the agreement are borne by the
Company. Expenses payable by the Company include, but are not limited to, all
charges of custodians (including sums as custodian and sums for keeping books,
performing portfolio valuations, and for rendering other services to the
Company) and shareholder servicing agents, filing fees and expenses relating to
the registration and qualification of the Company's shares under Federal or
state securities laws and maintaining such registrations and qualifications
(including the printing of the Company's registration statements and
prospectuses), expenses of preparing, printing and distributing all proxy
material, reports and notices to shareholders, out-of-pocket expenses of
directors and fees of directors who are not "interested persons" as defined in
the 1940 Act, fees of auditors and legal counsel, interest, taxes, fees and
commissions of every kind, expenses of issue, repurchase or redemption of
shares, and all other costs incident to the Company's corporate existence and
extraordinary expenses such as litigation and indemnification expenses. Direct
expenses are charged to the relevant fund; general corporate expenses of the
Company are allocated among all the funds on the basis of relative net assets.
No sales or promotion expenses are incurred by the funds,
23
but expenses incurred in complying with laws regulating the issue or sale of
the Company's shares are not deemed sales or promotion expenses.
The Manager has agreed that if in any fiscal year the total expenses of any
fund, exclusive of taxes, brokerage, interest and extraordinary expenses,
exceed 0.70% of the average daily net assets for that fiscal year of the fund,
the Manager will reduce its fee to the extent of such excess, or reimburse any
such excess amount to the relevant fund. The 0.70% voluntary expense limitation
shall be in effect until it is terminated by 14 days' written notice to
shareholders and by supplement to the then-current prospectus.
Each fund's management agreement will continue in effect if specifically
approved annually by a majority of the directors of the Company, including a
majority of the directors who are not parties to such contract or "interested
persons" of any such parry. Each agreement may be terminated without penalty by
either of the parties on 60 days' written notice and must terminate in the
event of its assignment. It may be amended or modified only if approved by vote
of the holders of "a majority of the outstanding voting securities" of such
fund as defined in the 1940 Act and rules thereunder which is discussed below
under "Voting Rights."
SBFM (manager/adviser) serves as investment adviser to the Fund pursuant to
a written agreement ("Management Agreement"), which was most recently approved
by the fund's board of trustees, including a majority of the trustees who are
not interested persons of the Fund or CGM on June 26, 2002.
SBAM (sub-adviser) serves as investment sub-adviser to the Fund pursuant to
a written agreement ("Sub-Adviser Agreement"), which was most recently approved
by the the fund's board of trustee's, including a majority of the trustees who
are not interested persons of the Fund or CGM on June 26, 2002.
Each agreement provides that the Manager is not liable for any act or
omission in the course of or in connection with rendering services under the
agreement in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties.
The term "Smith Barney" in the title of the Company has been adopted by
permission of CGM, formerly Salomon Smith Barney, Inc. and is subject to the
right of CGM to elect that the Company stop using the term in any form or
combination of its name.
Distributor. CGM, located at 388 Greenwich Street, New York, New York 10013
and PFS Distributors, Inc. serve as the funds' co-distributors pursuant to a
written agreement dated June 5, 2000 (the "Distribution Agreement") which was
approved by the Company's board of directors, including a majority of the
Independent Directors, on March 15, 2000. Prior to and up to June 5, 2000,
CFBDS, Inc. served as the funds' distributor.
To compensate CGM and PFS Distributors for the service they provide and for
the expense they bear under the Distribution Agreement, the fund has adopted a
services and distribution plan (the "Plan") pursuant to Rule 12b-1 under the
1940 Act. Under the Plan, the fund pays CGM a service fee, accrued daily and
paid monthly, calculated at the annual rate of 0.10% of the value of the fund's
average daily net assets attributable to the Class A and Class L shares. The
fund also pays PFS Distributors a service fee of 0.10% of the average daily net
assets of Class A shares held in accounts at PFS Distributors.
The following Plan fees were incurred under the Plan during the fiscal years
indicated:
Class A
-----------------------------------
Portfolio 2000 2001 2002
--------- ----------- ----------- -----------
Cash..................... $51,151,942 $41,084,796 $26,754,151
Government............... 5,636,273 5,019,811 3,747,887
Retirement............... 1,775,178 1,382,102 886,006
Class L
-----------------------------------
Portfolio 2000 2001 2002
--------- ----------- ----------- -----------
Cash..................... $ 265 $ 283 $ 310
Government............... 119 129 89
24
CGM and/or PFS Distributors incurred distribution expenses for advertising,
printing and mailing prospectuses, support services and overhead expenses, to
CGM Financial Consultants or PFS Registered Representatives and for accruals
for interest on the excess of CGM and/or PFS Distributors expenses incurred in
the distribution of the fund's shares over the sum of the distribution fees and
deferred sales charge received by CGM and/or PFS Distributors are expressed in
the following table:
Financial Mutual Fund
Consultant Branch Marketing Printing Interest
Fiscal Year Ended December 31, 2002 Compensation Expenses Expenses Expenses Expenses
- ----------------------------------- ------------ ---------- ----------- -------- --------
Cash................... 13,986,493 37,555,359 4,071,261 195,546 -0-
Retirement............. 463,134 778,097 136,272 6,607 -0-
Government............. 1,959,118 2,623,580 580,523 28,073 -0-
Brokerage. The Manager places orders for the purchase and sale of
securities for the funds. All of the portfolio transactions have been principal
transactions with major dealers in money market instruments, on which no
brokerage commissions are paid. Purchases from or sales to dealers serving as
market-makers include the spread between the bid and asked prices. No portfolio
transactions are handled by CGM.
The following table lists holdings by each of the three portfolios of the
following securities issued by broker/dealers who executed brokerage
transactions on behalf of the Fund:
Value of
Shares Held
------------------
As of
Fiscal Year Ending
December 31,
2002
------------------
Cash Portfolio
--------------
Broker/dealer
-------------
Goldman, Sachs and Co.......................... $469,767,000
Morgan Stanley................................. 349,392,000
Merrill Lynch and Co........................... 199,995,055
J.P. Morgan Chase and Co....................... 99,934,000
Government Portfolio
--------------------
Broker/dealer
-------------
Goldman, Sachs and Co.......................... 200,000,000
Merrill Lynch and Co........................... 200,000,000
J.P. Morgan Chase and Co....................... 6,247,000
Retirement Portfolio
--------------------
Morgan Stanley................................. 24,963,000
Goldman, Sachs and Co.......................... 19,973,000
Code of Ethics. Pursuant to Rule 17j-1 of the 1940 Act, the funds, their
manager and principal underwriters have adopted codes of ethics that permit
personnel to invest in securities for their own accounts, including securities
that may be purchased or held by the funds. All personnel must place the
interests of clients first and avoid activities, interests and relationships
that might interfere with the duty to make decisions in the best interests of
the clients. All personal securities transactions by employees must adhere to
the requirements of the codes and must be conducted in such a manner as to
avoid any actual or potential conflict of interest, the appearance of such a
conflict, or the abuse of an employee's position of trust and responsibility.
The Codes of Ethics of the funds, the manager and the principal underwriters
are on file with the Securities and Exchange Commission.
25
ADDITIONAL INFORMATION ABOUT THE FUNDS
The Company, an open-end, diversified management investment company, was
incorporated under Maryland law on May 28, 1974. The Company currently has
outstanding three series of shares, representing shares in separate funds--the
Cash Portfolio, the Government Portfolio and the Retirement Portfolio--and the
Company's Board of Directors may authorize the creation of additional series of
shares. Each share of a fund or class represents an equal proportionate
interest in the net assets of that fund or class with each other share of the
same fund or class and is entitled to such dividends and distributions out of
the net income of that fund or class as are declared in the discretion of the
Board. Shareholders are entitled to one vote for each share held and will vote
in the aggregate and not by fund or class except as otherwise required by the
1940 Act or Maryland law. In the event of the liquidation or dissolution of a
fund or of the Company, shares of a fund are entitled to receive the assets
belonging to that fund and a proportionate distribution of any general assets
not belonging to any particular fund that are available for distribution based
upon the relative net assets of the respective funds.
VOTING RIGHTS
As permitted by Maryland law, there will normally be no meetings of
shareholders for the purpose of electing directors unless and until such time
as less than a majority of the directors holding office have been elected by
shareholders. At that time, the directors then in office will call a
shareholders' meeting for the election of directors. The directors must call a
meeting of shareholders for the purpose of voting upon the question of removal
of any director when requested in writing to do so by the record holders of not
less than 10% of the outstanding shares of the Company. At such a meeting, a
director may be removed after the holders of record of not less than a majority
of the outstanding shares of the Company have declared that the director be
removed either by declaration in writing or by votes cast in person or by
proxy. Except as set forth above, the directors shall continue to hold office
and may appoint successor directors.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted by the provisions of the Act or applicable state law, or otherwise,
to the holders of the outstanding voting securities of an investment company
shall not be deemed to have been effectively acted upon unless approved by
"vote of a majority of the outstanding voting securities" (as defined below) of
each fund or class affected by the matter. Rule 18f-2 further provides that a
fund or class shall be deemed to be affected by a matter unless it is clear
that the interests of each fund or class in a matter are identical or that the
matter does not affect any interest of the fund or class. Under the rule the
approval of a management agreement or any change in a fundamental investment
policy would be effectively acted upon with respect to a fund only if approved
by a majority of the outstanding voting securities of the fund affected by the
matter. The rule further provides that the ratification of independent public
accountants, the election of directors, and the approval of a distribution
agreement that is submitted to shareholders are not subject to the separate
voting requirements and may be effectively acted upon by a vote of the holders
of a majority of all Company shares voting without regard to fund.
As used in the Prospectus and this Statement of Additional Information, a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of (a) more than 50% of the outstanding shares of the
Company (or the affected fund or class) or (b) 67% or more of such shares
present at a meeting if more than 50% of the outstanding shares of the Company
(or the affected fund or class) are represented at the meeting in person or by
proxy.
26
As of April 4, 2003, to the knowledge of the fund and the board of
directors, no single shareholder or group (as the term is used in Section 13(d)
of the Securities Exchange Act of 1934) beneficially owned of record more than
5% of the outstanding shares of any Class of a fund with the exception of the
following:
Name & Address Percent
-------------- -------
Retirement Portfolio
Class A
Smith Barney Multi Choice Trust................... 19.0503%
Smith Barney Corporate Trust Co
Two Tower Center
P.O. Box 1063
East Brunswick, NJ 08816-1063
Cash Portfolio
Class Y
State Street Bank Trust TTEE...................... 44.0228%
FBO Travelers 401K Plan
105 Rosemont Ave.
Westwood, MA 02090-2318
Smith Barney...................................... 14.8919%
Scholar's Choice Portfolio Six
State Street Bank
ATTN: James Casey
61 Broadway
New York, NY 10006-2701
Smith Barney...................................... 9.0538%
Scholar's Choice Portfolio Five
State Street Bank
ATTN: James Casey
61 Broadway
New York, NY 10006-2701
Smith Barney...................................... 8.9255%
Illinois College Pro Port 5
State Street Bank
ATTN: James Casey
61 Broadway
New York, NY 10006-2701
Mr. Kevin J. Maher................................ 7.4058%
Mrs. Jana B. Maher Jtwros
Miller Road
New Vernon, NJ 07976
Smith Barney...................................... 5.3108%
Scholar's Choice Portfolio 7
State Street Bank
ATTN: James Casey
61 Broadway
New York, NY 10006-2701
Smith Barney...................................... 5.2379%
Illinois College Pro Port 6
State Street Bank
ATTN: James Casey
61 Broadway
New York, NY 10006-2701
27
Name & Address Percent
-------------- -------
Class L
Dina K. Whitaker.................................... 30.9183%
SSB IRA Custodian
715 South Oregon Avenue
Tampa, FL 33606
Frontier Trust Company TTEE......................... 30.8013%
HB Machine/Medtek
401 K Profit Sharing Plan
P.O. Box 87687
Phoenix, AZ 85080-7687
Cash Portfolio
Class L
Frontier Trust Company TTEE......................... 21.1656%
Peer Bearing Company Union
Employees Money Purchase Plan
2200 Norman Drive South
Waukegan, IL 60085
SB Corp Trust Cust
FBO Muriel Ouellette
R/O IRA
293 Paquette Ave
Manchester, NH 03104
Government Portfolio
Class A
Sanford I Weill,.................................... 8.7098%
c/o Cornelia Leo
Citigroup Inc.
399 Park Avenue, 3rd Floor
New York, NY 10022-4610
Class L
Frontier Trust Company as TTEE...................... 69.2804%
Southern Floral Company
P.O. Box 1313
Houston, TX 77251-1313
Terry Donofrio...................................... 20.3265%
SSB IRA Custodian
21 Glenair Avenue
Waldwick, NJ 07463-1214
Walker Harris MD.................................... 5.782%
SSB IRA Rollover Custodian
2860 Cromwell Drive
Columbus, GA 31906-1219 100.00%
Class Y
CSEA Employee Benefit Fund.......................... 100.00%
A Non-Profit Organization
ATTN: Karl Bellinger/Director of Internal Operations
1 Lear Jet Lane, Suite #1
Latham, NY 12110-2313
28
Custodian. State Street Bank and Trust Company, located at 225 Franklin
Street, Boston, Massachusetts 02110 serves as custodian of the funds'
investments.
Transfer and Dividend Disbursing Agent and Sub-Transfer Agents. Citicorp
Trust Bank, fsb (formerly Travelers Bank & Trust, fsb), located at 125 Broad
Street, New York, New York 10004, serves as the Company's transfer, dividend
disbursing and shareholder services agent. PFPC Global Fund Services, P.O. Box
9699, Providence, Rhode Island 02940-9699 serves as the Company's sub-transfer
agent to render certain shareholder record keeping and accounting services
functions. Primerica Shareholder Services serves as the sub-transfer agent for
PFS accounts. Primerica Shareholder Services is located at 3100 Breckinridge
Boulevard, Building 200, Duluth, Georgia 30099.
Independent Auditors. KPMG LLP, 757 Third Avenue, New York, New York 10017,
has been selected as independent auditors for each fund for its fiscal year
ending December 31, 2003 to examine and report on each fund's financial
statements and financial highlights.
Annual and Semi-Annual Reports. Each fund sends its shareholders a
semi-annual report and an audited annual report, which include listings of the
investment securities held by each fund at the end of the period covered. In an
effort to reduce the funds' printing and mailing costs, the funds consolidate
the mailing of their semi-annual and annual reports by household. This
consolidation means that a household having multiple accounts with the
identical address of record receive a single copy of each report. Shareholders
who do not want this consolidation to apply to their accounts should contact
their Service Agent or the Transfer Agent.
Minimum Account Size. The Company reserves the right to redeem
involuntarily any shareholder's account in Cash Portfolio or Government
Portfolio if the aggregate net asset value of the shares held in the account in
either fund is less than $500 ($250 for IRA accounts), and to redeem
involuntarily any shareholder's account in Retirement Portfolio if the
aggregate net asset value of the shares held in the account is less than $100.
With respect to Cash Portfolio and Government Portfolio, any applicable
deferred sales charge will be deducted from the proceeds of this redemption.
(If a shareholder has more than one account in these funds, each account must
satisfy the minimum account size.) Before the Board of Directors of the Company
elects to exercise such right, shareholders will receive prior written notice
and will be permitted 60 days to bring accounts up to the minimum to avoid
involuntary redemption.
OTHER INFORMATION
Smith Barney mutual funds offer more than 60 mutual funds. We understand
that many investors prefer an active role in allocating the mix of funds in
their portfolio, while others want the asset allocation decisions to be made by
experienced managers.
That's why we offer four "styles" of fund management that can be tailored to
suit each investor's unique financial goals.
Classic Series--our portfolio manager driven funds
Our Classic Series lets investors participate in mutual funds whose
investment decisions are determined by experienced portfolio managers, based
on each fund's investment objectives and guidelines. Classic Series funds
invest across asset classes and sectors, utilizing a range of strategies in
order to achieve their objectives.
Premier Selections Series--our best ideas, concentrated funds
We offer a series of Premier Selections funds managed by several of our
most experienced and proven managers. This series of funds is built on a
unique strategy of combining complementary investment management styles to
create broader, multiclass and multicap products that are distinguished by a
highly concentrated focus.
29
Research Series--driven by exhaustive fundamental securities analysis
Built on a foundation of substantial buy-side research under the
direction of our Citibank Global Asset Management (CGAM) colleagues, our
Research funds focus on well-defined industries, sectors and trends.
Style Pure Series--our solution to funds that stray
Our Style Pure Series funds are the building blocks of asset allocation.
The funds stay fully invested within their asset class and investment style,
enabling you to make asset allocation decisions in conjunction with your
financial professional.
FINANCIAL STATEMENTS
The Company's Annual Report for the fiscal year ended December 31, 2002 is
incorporated herein by reference in its entirety. The Annual Report was filed
on March 4, 2003, accession number 0000950130-03-001720.
30
APPENDIX A--SECURITIES RATINGS
BOND (AND NOTES) RATINGS
Moody's Investors Service, Inc. ("Moody's")
Aaa--Bonds that are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present that make the long term risks appear somewhat larger than in "Aaa"
securities.
Note: The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Standard & Poor's Division of The McGraw-Hill Companies, Inc. ("Standard &
Poor's")
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Superior financial security on an absolute and relative basis. Capacity to meet
policyholder obligations is extremely strong under a variety of economic and
underwriting conditions.
AA--Debt rated AA is an excellent financial instrument. Capacity to meet
policyholder obligations is strong under a variety of economic and underwriting
conditions.
Plus (+) or Minus (-): The rating of "AA" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise judgment with respect to such likelihood and risk.
L--The letter "L" indicates that the rating pertains to the principal amount
of those bonds where the underlying deposit collateral is fully insured by the
Federal Savings & Loan Insurance Corp. or the Federal Deposit Insurance Corp.
+--Continuance of the rating is contingent upon S&P's receipt of closing
documentation confirming investments and cash flow.
*--Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement.
Fitch Inc. ("Fitch")
AAA--Bonds rated AAA by Fitch have the lowest expectation of credit risk.
The obligor has an exceptionally strong capacity for timely payment of
financial commitments which is highly unlikely to be adversely affected by
foreseeable events.
A-1
AA--Bonds rated AA by Fitch have a very low expectation of credit risk. They
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
COMMERCIAL PAPER RATINGS
Moody's
Issuers rated "Prime-1" (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
will normally be evidenced by the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderated reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial changes and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage rations, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Standard & Poor's
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issuers determined to
possess overwhelming safety characteristics will be denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Fitch
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet financial commitment in a timely
manner.
Fitch's short-term ratings are as follows:
F1+--Issues assigned this rating are regarded as having the strongest
capacity for timely payments of financial commitments. The "+" denotes an
exceptionally strong credit feature.
F1--Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments.
F2--Issues assigned this rating have a satisfactory capacity for timely
payment of financial commitments, but the margin of safety is not as great as
in the case of the higher ratings.
A-2
SMITH BARNEY
MONEY FUNDS, INC.
ANNUAL REPORT | DECEMBER 31, 2002
[LOGO]Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed./SM/
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
Dear Shareholder:
Please allow me to introduce myself as the new Chairman, President and Chief
Executive Officer of the Smith Barney Money Funds, Inc. ("Fund"), replacing
Heath B. McLendon, who has been appointed Chairman of Salomon Smith Barney
Inc.'s new Equity Research Policy Committee. On behalf of all our shareholders
and the Fund's Board of Directors, I would like to extend my deepest gratitude
to Heath for his years of service and for his dedication to keeping
shareholders' needs as the firm's top priority. I look forward to keeping you
informed about the investment perspectives of the Fund's management team by
regularly providing you with these shareholder letters in the future.
To better acquaint you with my experience, I am currently a managing
director of Salomon Smith Barney Inc., and I have previously managed the Smith
Barney Growth and Income Fund for six years; developed and managed the Smith
Barney Allocation Series Inc. from its inception in 1996 through the end of
2001; and was responsible for the investment design and implementation of
Citigroup Asset Management's college savings programs with the states of
Illinois and Colorado.
I am pleased to provide the annual report for the Fund for the year ended
December 31, 2002. In this report, the Fund's managers summarize what they
believe to be the period's prevailing economic and market conditions and
outline the Fund's investment strategy. A detailed summary of the Fund's
performance can be found in the appropriate sections that follow. I hope you
find this report to be useful and informative.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken
Chairman, President and
Chief Executive Officer
[PHOTO]
R. JAY GERKEN
Chairman, President and Chief Executive Officer
1 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
LETTER FROM THE CHAIRMAN
Performance Review
The chart below shows yields for the seven-day period ended December 31, 2002
for the Cash, Government and Retirement Portfolios ("Portfolio(s)") that make
up the Fund.
Smith Barney Money Funds' Yields (Class A Shares)
Portfolio Seven-Day Yield Seven-Day Effective Yield/1/
--------- --------------- ---------------------------
Cash...... 0.91% 0.92%
Government 0.86 0.86
Retirement 0.78 0.78
Investment Strategies
Each Portfolio seeks maximum current income and preservation of capital.
Cash and Retirement Portfolios
The Cash and Retirement Portfolios invest in high-quality, U.S.
dollar-denominated short-term debt securities. These may include obligations
issued by U.S. and foreign banks, the U.S. government, its agencies or
instrumentalities, U.S. states and municipalities/2/ and U.S. and foreign
corporate issuers. Each portfolio will invest at least 25% of its assets in
obligations of domestic and foreign banks. Please note that your investment is
neither insured nor guaranteed by the Federal Deposit Insurance Corporation
("FDIC") or any other government agency. Although the Portfolios seek to
preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund.
[PHOTO]
MARTIN R. HANLEY
Vice President and
Investment Officer
[PHOTO]
KEVIN KENNEDY
Vice President and
Investment Officer
- --------
1 The seven-day effective yield is calculated similarly to the seven-day
current yield but, when annualized, the income earned by an investment in
the Portfolio or the Class is assumed to be reinvested. The effective yield
will be slightly higher than the current yield because of the compounding
effect of the assumed reinvestment.
2 Please note a portion of the Portfolio's income may be subject to the
Alternative Minimum Tax ("AMT"). Capital gains, if any, are fully taxable.
Please consult your personal tax adviser.
2 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
LETTER FROM THE MANAGER
Government Portfolio
The Government Portfolio invests exclusively in U.S. government obligations,
including mortgage-backed securities and related repurchase agreements. These
securities may pay interest at fixed, floating or adjustable rates. Please note
that your investment is neither insured nor guaranteed by the FDIC or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund.
Portfolio Manager Market Overview
Macroeconomic fundamentals such as perceptions of benign inflation, slow
economic growth and historically low interest rates, in our view, prompted many
investors concerned about equity market volatility to shift their money from
equities into fixed-income investment instruments during 2002.
In contrast to 2001, when the Federal Open Market Committee ("FOMC")/3/ cut
the short-term federal funds rate ("fed funds rate")/4/ on 11 occasions to help
stimulate economic activity, the FOMC refrained from reducing its target for
the rate during the first 10 months of 2002. During this time, amid investors'
concerns about reports of fraudulent corporate accounting practices at several
high-profile firms and uncertainties about the strength of the U.S. economy,
prices of high-grade fixed-income securities, particularly U.S. Treasuries,
benefited from "flight-to-quality" buying as investors sought less-volatile
investment alternatives.
As the reporting period advanced, the release of new economic data prompted
investors to question the momentum behind an economic recovery. Short-term
yields dropped lower in the second half of the calendar year, as it appeared
that the U.S. economy would continue to grow at a below-trend pace through the
remainder of 2002. In response, on November 6th the FOMC reduced its target for
the fed funds rate by half a percentage point to a 40-year low of 1.25%. From
our perspective, geopolitical concerns, falling equity prices and the
reluctance on the part of corporate America to shift from a cost-cutting to a
spending-and-hiring mode reinforced the widespread view among investors that
the economic recovery was not coming along as many had anticipated.
- --------
3 The FOMC is a policy-making body of the Federal Reserve System responsible
for the formulation of a policy designed to promote economic growth, full
employment, stable prices and a sustainable pattern of international trade
and payments.
4 The fed funds rate is the interest rate that banks with excess reserves at a
Federal Reserve district bank charge other banks that need overnight loans.
The fed funds rate often points to the direction of U.S. interest rates.
3 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
Portfolio Manager Fund Overview
Supply of investment-grade commercial paper contracted during 2002. Many
corporations had less of a need to borrow capital, as they had cut back on
business investment and capital expenditures. Still, other firms focused more
on liquidity and repairing their financial health as short-term debt was termed
out and maturities were extended. In terms of our investment approach given
these market considerations, we purchased high-quality bank certificates of
deposits, government securities and asset-backed securities. In the government
market, especially during the latter part of 2002, we observed an increase in
short-dated government agency discount notes to replace maturing medium-dated
callable securities.
Portfolio Manager Market Outlook
As 2003 gets underway, the U.S. economy is facing many obstacles on its
course towards establishing a more solid growth path. However, we believe the
seeds continue to be sown for what could be a stronger rebound than anticipated
toward the latter part of the year. Monetary and fiscal policies are extremely
stimulative and selected economic indicators have improved over prior periods
(e.g., manufacturing data from the Institute of Supply Management ("ISI") and
jobless claims data). Commodity prices have risen quite sharply versus prior
periods, and mortgage refinancings continue to be reported at a strong pace,
positively impacting consumer balance sheets. We believe these factors bode
well for a strong recovery beginning in the middle of 2003. We believe that Fed
policy will essentially remain stable over the next several months and that the
next move in short-term interest rates may be higher rather than lower. Given
that prices of fixed-income securities, particularly those with longer-term
maturities, move inversely to interest rates and yields, we believe that in
anticipation of a rate hike, the combination of scenarios above could likely
lead to a steeper yield curve/5/ (i.e., the gap between yields on fixed-income
securities with longer-term maturities versus those on shorter-term issues will
likely widen) during the first half of 2003.
Portfolio Manager Fund Outlook
Currently, the short-term yield curve is fairly flat and we do not believe that
investing in issues with extended maturities would generate significant rewards
for investors. In our view, a series of critical events have added uncertainty
to the marketplace, and the potential for war with Iraq is at the forefront.
The sooner
- --------
5 The yield curve is the graphical depiction of the relationship between the
yield on bonds of the same credit quality but different maturities.
4 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
this issue can be resolved, the more focused investors may become on the
economy. Given our aforementioned market outlook, our investment tactics call
for maintaining neutral average maturities in the portfolios and seeking issues
with extended maturities only when more competitive yields present themselves.
Thank you for your investment in the Smith Barney Money Funds, Inc. We look
forward to continuing to help you meet your investment objectives.
Sincerely,
LOGO LOGO
Martin R. Hanley Kevin Kennedy
Vice President and Vice President and
Investment Officer Investment Officer
January 14, 2003
The information provided in this commentary by the portfolio managers
represents the opinion of the portfolio managers and is not intended to be a
forecast of future events, a guarantee of future results or investment advice.
Views expressed are those of the portfolio managers and may differ from those
of other portfolio managers or of the firm as a whole. Furthermore, there is no
assurance that certain securities will remain in or out of the Fund or that the
percentage of the Fund's assets in various sectors will remain the same. Please
refer to pages 6 through 13 for a list and percentage breakdown of the Fund's
holdings. Also, please note that any discussion of the Fund's holdings, the
Fund's performance and the portfolio managers' views are as of December 31,
2002 and are subject to change.
5 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
SCHEDULES OF INVESTMENTS DECEMBER 31, 2002
CASH PORTFOLIO
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- ---------------------------------------------------------------------------------
U.S. AGENCIES AND INSTRUMENTALITIES -- 7.3%
$130,000,000 Federal Home Loan Bank
mature 1/29/03 to 4/23/03 1.71% to 1.76% $ 129,608,233
578,939,000 Federal Home Loan Mortgage Corp.
mature 1/2/03 to 4/25/03 1.25 to 2.57 578,243,698
979,702,000 Federal National Mortgage
Association
mature 1/29/03 to 4/30/03 1.25 to 2.61 976,601,584
- ---------------------------------------------------------------------------------
TOTAL U.S. AGENCIES AND INSTRUMENTALITIES
(Cost -- $1,684,453,515) 1,684,453,515
- ---------------------------------------------------------------------------------
CORPORATE NOTES -- 0.4%
100,202,000 Witmer Funding matures 2/4/03
(Cost -- $100,065,725) 1.44 100,065,725
- ---------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 3.1%
200,000,000 Links Finance LLC mature 3/27/03 to
9/30/03+ 1.39 to 1.40 199,991,444
200,000,000 PACE mature 5/15/03 to 12/15/03+ 1.42 200,000,000
200,000,000 Sigma Finance Inc. mature 7/7/03 to
7/22/03+ 1.35 to 1.39 199,989,198
116,000,000 Sparcs Trust matures 6/16/03+ 1.58 116,000,000
- ---------------------------------------------------------------------------------
TOTAL ASSET-BACKED
SECURITIES
(Cost -- $715,980,642) 715,980,642
- ---------------------------------------------------------------------------------
COMMERCIAL PAPER -- 43.7%
125,000,000 Abbey National North America
mature 2/13/03 to 2/14/03 1.32 124,801,083
114,746,000 ABN AMRO Bank N.V.
mature 1/21/03 to 1/28/03 1.31 to 2.23 114,571,018
181,533,000 ABSC Capital Corp. mature 1/13/03
to 3/10/03 1.37 to 1.52 181,309,932
190,000,000 Amstel Funding Corp. mature 1/8/03 to
3/10/03 1.37 to 1.75 189,663,678
210,500,000 ANZ Delaware Inc. mature 1/16/03 to
2/12/03 1.31 to 1.34 210,269,246
180,000,000 Aquinas Funding LLC
mature 1/10/03 to 4/15/03 1.36 to 1.71 179,593,306
100,000,000 Aspen Funding matures 1/6/03 1.59 99,977,917
55,000,000 Asset Portfolio Funding matures
1/17/03 1.40 54,965,778
100,000,000 Banc One Corp. matures 1/10/03 1.71 99,957,500
50,000,000 Bank of Nova Scotia matures 2/18/03 1.33 49,911,333
25,000,000 Barclays US Funding matures 3/13/03 1.33 24,934,424
100,000,000 BNP Paribas Finance Inc. matures
4/2/03 1.33 99,666,333
271,000,000 CBA Finance Inc. mature 1/6/03 to
3/20/03 1.32 to 1.36 270,781,284
30,000,000 Coca-Cola Co. matures 2/10/03 1.29 29,957,000
195,050,000 Compass Securitization LLC
mature 1/21/03 to 3/17/03 1.35 to 1.39 194,726,930
324,100,000 Danske Corp. mature 1/21/03 to
3/12/03 1.31 to 1.77 323,643,605
250,000,000 Dexia Delaware LLC mature 1/27/03 to
2/13/03 1.32 to 1.35 249,644,561
110,000,000 Edison Asset Securitization
mature 1/13/03 to 3/3/03 1.33 to 1.71 109,820,767
See Notes to Financial Statements.
6 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2002
CASH PORTFOLIO
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- -----------------------------------------------------------------------------------
COMMERCIAL PAPER -- 43.7% (continued)
$156,266,000 Enterprise Funding Corp.
mature 1/17/03 to 2/14/03 1.35% $ 156,155,161
50,177,000 Erasmus Capital Corp. matures 2/13/03 1.34 50,097,288
165,000,000 Falcon Asset Securitization Corp.
mature 1/14/03 to 1/22/03 1.34 to 1.38 164,887,028
175,000,000 Gemini Securitization Corp.
mature 1/8/03 to 1/23/03 1.35 to 1.58 174,884,347
50,000,000 General Electric Capital Corp. matures
3/17/03 1.33 49,862,500
108,303,000 Giro Balanced Funding Corp.
mature 1/10/03 to 1/15/03 1.38 to 1.73 108,254,984
151,780,000 Giro Multi-Funding Corp.
mature 1/15/03 to 1/21/03 1.37 to 1.39 151,675,191
170,000,000 Goldman, Sachs & Co. mature 1/23/03 to
2/12/03 1.32 to 1.76 169,767,442
50,000,000 Grampian Funding PLC matures
1/31/03 1.39 49,942,083
321,694,000 HBOS Treasury Service PLC
mature 1/13/03 to 2/26/03 1.32 to 1.77 321,178,182
100,000,000 ING US Funding LLC
mature 1/22/03 to 1/28/03 1.35 to 1.64 99,899,500
95,895,000 Ivory Funding Corp. mature 1/7/03 to
2/12/03 1.37 to 1.73 95,807,311
100,000,000 J.P. Morgan Chase & Co. matures
1/15/03 1.71 99,933,889
51,625,000 Jupiter Securitization Corp. matures
1/22/03 1.39 51,583,141
95,130,000 Kitty Hawk Inc. mature 1/14/03 to
2/27/03 1.34 to 1.35 95,009,874
190,069,000 Lake Constance Funding mature 1/10/03 to
4/8/03 1.38 to 1.39 189,713,579
50,000,000 Links Finance LLC matures 2/13/03 1.35 49,919,972
274,350,000 Lloyds TSB Bank mature 2/7/03 to
3/20/03 1.30 to 1.64 273,738,745
50,000,000 Mane Funding Corp. matures 2/4/03 1.39 49,934,361
100,000,000 Market Street Funding matures 1/10/03 1.35 99,966,250
120,093,000 Mont Blanc Capital Corp. mature 1/6/03 to
3/6/03 1.34 to 1.71 119,876,853
350,000,000 Morgan Stanley mature 2/11/03 to
2/25/03 1.32 to 1.35 349,391,514
100,000,000 Moriarty Ltd. matures 2/14/03 1.36 99,833,778
125,000,000 National Australia Funding matures
1/6/03 1.34 124,976,736
103,540,000 Ness LLC mature 2/3/03 to 2/20/03 1.33 to 1.68 103,376,301
50,000,000 Nestle Capital Corp. matures 1/24/03 1.62 49,948,569
50,000,000 Newport Funding matures 1/7/03 1.71 49,985,833
285,000,000 Nieuw Amsterdam Receivables Corp.
mature 1/17/03 to 2/21/03 1.36 to 1.40 284,621,847
395,000,000 Nordea North America, Inc.
mature 1/16/03 to 3/5/03 1.32 to 1.35 394,456,191
256,230,000 Old Line Funding Corp.
mature 1/6/03 to 2/26/03 1.33 to 1.38 256,069,884
150,000,000 Paradigm Funding LLC mature 1/27/03 to
1/28/03 1.36 to 1.37 149,849,291
125,000,000 Pennine Funding mature 2/11/03 to
3/4/03 1.54 to 1.68 124,707,278
107,078,000 Perry Global Funding LLC
mature 2/27/03 to 3/6/03 1.35 to 1.37 106,833,915
See Notes to Financial Statements.
7 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2002
CASH PORTFOLIO
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- --------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 43.7% (continued)
$150,000,000 Polonius Inc. mature 1/10/03 to 1/27/03 1.38% to 1.44% $ 149,901,833
246,260,000 Preferred Receivable Funding
mature 1/8/03 to 1/31/03 1.33 to 1.35 246,150,840
303,942,000 Quincy Capital Corp. mature 1/7/03 to
1/28/03 1.34 to 1.37 303,702,830
98,323,000 Receivable Capital Corp.
mature 1/7/03 to 1/16/03 1.32 to 1.35 98,276,160
158,350,000 Royal Bank of Canada
mature 2/5/03 to 2/19/03 1.31 to 1.76 158,064,567
310,070,000 Royal Bank of Scotland
mature 1/6/03 to 2/5/03 1.33 to 1.36 309,860,281
154,855,000 Societe Generale N.A. Inc.
mature 2/3/03 to 3/27/03 1.32 to 1.77 154,532,164
100,000,000 Special Purpose Accounts Receviables
mature 2/10/03 to 2/12/03 1.37 99,843,972
50,000,000 Starbird Funding Corp. matures 1/15/03 1.39 49,972,972
214,576,000 Svenska Handelsbanken
mature 1/21/03 to 4/17/03 1.32 to 1.74 214,023,233
575,000,000 UBS Finance LLC
mature 2/6/03 to 4/4/03 1.33 to 1.74 573,751,944
50,000,000 Unicredito Italiano Delaware matures
1/27/03 1.62 49,941,861
200,000,000 Variable Funding Capital Corp.
mature 1/8/03 to 1/23/03 1.35 to 1.71 199,889,236
180,000,000 Westpac Capital mature 2/12/03 to
3/25/03 1.31 to 1.36 179,549,217
- --------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost -- $10,111,795,623) 10,111,795,623
- --------------------------------------------------------------------------------------------
PROMISSORY NOTE -- 1.3%
300,000,000 Goldman, Sachs & Co. matures 2/24/03
(Cost -- $300,000,000) 1.45 300,000,000
- --------------------------------------------------------------------------------------------
MEDIUM-TERM NOTES -- 3.4%
300,000,000 American Express Credit Corp. matures
4/8/03+ 1.42 300,000,000
300,000,000 General Electric Capital Corp. matures 12/17/03+ 1.45 300,000,000
200,000,000 Merrill Lynch & Co., Inc. matures
4/1/03+ 1.41 199,995,055
- --------------------------------------------------------------------------------------------
TOTAL MEDIUM-TERM NOTES
(Cost -- $799,995,055) 799,995,055
- --------------------------------------------------------------------------------------------
CERTIFICATE OF DEPOSIT -- 2.6%
602,000,000 Wells Fargo Bank N.A. mature 1/29/03 to 2/27/03
(Cost -- $602,000,725) 1.31 to 1.62 602,000,725
- --------------------------------------------------------------------------------------------
See Notes to Financial Statements.
8 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2002
CASH PORTFOLIO
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- ----------------------------------------------------------------------------------
FOREIGN CERTIFICATES OF DEPOSIT -- 36.0%
$350,000,000 Abbey National PLC mature 2/3/03 to
2/18/03 1.32% to 2.73% $ 349,964,265
350,000,000 ABN AMRO Bank N.V.
mature 2/5/03 to 6/23/03 1.33 to 1.35 349,996,023
130,000,000 ANZ Banking Group Ltd.
mature 1/7/03 to 1/17/03 1.53 to 1.73 130,000,423
485,000,000 Bank of Montreal mature 1/13/03 to
2/28/03 1.31 to 1.70 485,000,000
290,000,000 Bank of Nova Scotia mature 2/20/03 to
3/11/03 1.30 to 1.34 290,002,706
577,000,000 Barclays Bank mature 1/13/03 to
4/11/03 1.33 to 2.83 577,013,693
205,000,000 Bayerische Landesbank mature 1/10/03 to
2/12/03 1.32 to 1.76 205,001,422
520,000,000 BNP Paribas S.A. mature 1/6/03 to
4/9/03 1.32 to 1.81 520,010,112
150,000,000 Canadian Imperial Bank Corp.
matures 4/28/03+ 1.34 149,975,880
345,000,000 Canadian Imperial Bank of Commerce NY
mature 1/6/03 to 3/31/03 1.30 to 1.78 345,011,865
275,000,000 Credit Agricole Indosuez
mature 1/13/03 to 4/16/03 1.33 to 2.68 274,997,631
150,000,000 Credit Agricole Indosuez matures
4/28/03+ 1.34 149,975,879
150,000,000 Credit Lyonnais mature 3/11/03 to
3/18/03 1.34 150,003,054
70,000,000 Danske Bank matures 2/7/03 1.65 70,005,705
238,500,000 Deutsche Bank mature 2/5/03 to
3/10/03 1.32 238,500,000
150,000,000 Dexia Bank mature 1/29/03 to 3/6/03 1.33 to 1.75 150,002,358
541,000,000 Dresdner Bank mature 1/24/03 to
4/22/03 2.38 to 2.77 540,942,481
302,000,000 HBOS PLC mature 2/3/03 to 6/23/03 1.33 to 1.70 302,019,276
335,000,000 Hessische Landesbank Ltd.
mature 1/29/03 to 3/19/03 1.33 to 1.80 335,025,519
125,000,000 ING Bank N.V. mature 3/17/03 to
4/29/03 1.75 125,012,937
340,000,000 Lloyds TSB Bank mature 1/27/03 to
3/26/03 1.31 to 1.70 340,011,046
220,000,000 Rabobank mature 2/18/03 to 4/10/03 1.32 to 2.75 219,951,649
64,000,000 Royal Bank of Canada matures 2/3/03 1.68 64,001,164
309,000,000 Royal Bank of Scotland Group PLC
mature 1/8/03 to 4/14/03 1.36 to 2.66 309,008,165
246,000,000 Societe Generale mature 1/15/03 to
2/12/03 1.32 to 2.42 246,004,128
200,000,000 Societe Generale matures 4/28/03+ 1.33 199,967,839
183,000,000 Svenska Handelsbanken
mature 1/6/03 to 2/13/03 1.32 to 1.76 183,002,393
343,000,000 Toronto Dominion mature 1/10/03 to
2/14/03 1.75 to 2.73 342,924,539
100,000,000 UBS AG matures 2/18/03 1.30 100,000,000
200,000,000 Unicredito Italiano S.p.A.
mature 1/15/03 to 3/19/03 1.34 to 1.72 200,004,029
400,000,000 Westdeutsche Landesbank
mature 1/27/03 to 3/17/03 1.32 to 2.28 400,000,000
- ----------------------------------------------------------------------------------
TOTAL FOREIGN CERTIFICATES OF DEPOSIT
(Cost -- $8,343,336,181) 8,343,336,181
- ----------------------------------------------------------------------------------
See Notes to Financial Statements.
9 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2002
CASH PORTFOLIO
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
---------------------------------------------------------------------------
TIME DEPOSITS -- 2.2%
$302,195,000 Chase Manhattan Bank matures 1/2/03 1.25% $ 302,195,000
200,000,000 HSBC Bank USA matures 1/2/03 1.25 200,000,000
---------------------------------------------------------------------------
TOTAL TIME DEPOSITS
(Cost -- $502,195,000) 502,195,000
---------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $23,159,822,466*) $23,159,822,466
---------------------------------------------------------------------------
+ Variable interest rate -- subject to period change.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
10 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
Schedules of Investments (continued) December 31, 2002
GOVERNMENT PORTFOLIO
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- ------------------------------------------------------------------------------------------------
U.S. AGENCIES AND INSTRUMENTALITIES --
86.8%
$ 217,724,000 Federal Farm Credit Bank
mature 1/8/03 to 2/18/03 1.25% to 1.71% $ 217,532,403
761,953,000 Federal Home Loan Bank
mature 1/3/03 to 5/15/03 1.26 to 1.71 762,665,335
736,591,000 Federal Home Loan Mortgage Corp.
mature 1/8/03 to 5/15/03 1.27 to 2.57 739,087,305
1,227,563,000 Federal National Mortgage Association
mature 1/10/03 to 5/30/03 1.26 to 2.78 1,226,563,485
35,000,000 U.S. Treasury Bills matures 5/22/03 1.24 34,830,702
- ------------------------------------------------------------------------------------------------
TOTAL U.S. AGENCIES AND INSTRUMENTALITIES
(Cost -- $2,980,679,230) 2,980,679,230
- ------------------------------------------------------------------------------------------------
BANK NOTE -- 1.4%
46,365,000 World Bank matures 2/3/03 (Cost -- $46,310,598) 1.28 46,310,598
- ------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 11.8%
200,000,000 Goldman, Sachs & Co., 1.20% due 1/2/03; Proceeds
at maturity -- $200,013,333;
(Fully collateralized by U.S. Treasury Notes,
3.000% to 6.500% due 10/15/06 to 7/15/12;
Market value -- $204,000,261) 200,000,000
6,247,000 J.P. Morgan Chase & Co., 1.04% due 1/2/03;
Proceeds at maturity -- $6,247,361; (Fully
collateralized by U.S. Treasury Bills, 0.000% due
1/2/03; Market value -- $6,374,490) 6,247,000
200,000,000 Merrill Lynch & Co., Inc., 1.20% due 1/2/03;
Proceeds at maturity -- $200,013,333;
(Fully collateralized by various U.S.
Government Agency Obligations, 0.000%
to 8.410% due 5/14/04 to 9/15/28;
Market value -- $204,000,712) 200,000,000
- ------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $406,247,000) 406,247,000
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $3,433,236,828*) $3,433,236,828
- ------------------------------------------------------------------------------------------------
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
11 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2002
RETIREMENT PORTFOLIO
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- ---------------------------------------------------------------------------------
U.S. AGENCIES AND INSTRUMENTALITIES -- 6.1%
$ 5,000,000 Federal Home Loan Bank matures 4/23/03 1.71% $ 4,973,633
25,000,000 Federal Home Loan Mortgage Corp.
mature 1/2/03 to 2/6/03 1.25 to 1.64 24,980,796
20,000,000 Federal National Mortgage Association
mature 3/26/03 to 4/30/03 1.29 to 1.44 19,919,084
- ---------------------------------------------------------------------------------
TOTAL U.S. AGENCIES AND INSTRUMENTALITIES
(Cost -- $49,873,513) 49,873,513
- ---------------------------------------------------------------------------------
COMMERCIAL PAPER -- 45.0%
5,000,000 Abbey National North America matures
2/14/03 1.32 4,991,933
5,000,000 ANZ Delaware Inc. matures 1/22/03 1.33 4,996,127
10,000,000 Aquinas Funding LLC mature 1/10/03 to
3/5/03 1.36 to 1.71 9,986,063
10,000,000 Banc One Corp. matures 1/9/03 1.71 9,996,222
5,000,000 Barclays US Funding matures 3/13/03 1.33 4,986,885
5,000,000 BNP Paribas Finance Inc. matures 4/2/03 1.33 4,983,317
20,000,000 CBA Finance Inc. mature 1/14/03 to
3/18/03 1.32 to 1.33 19,978,532
20,000,000 Danske Corp. matures 1/21/03 1.75 19,980,611
15,000,000 Dexia Delaware LLC mature 2/12/03 to
3/10/03 1.32 14,972,133
5,000,000 Edison Asset Securitization matures 3/3/03 1.33 4,988,817
10,000,000 Falcon Asset Securitization Corp. matures
1/21/03 1.34 9,992,556
25,000,000 General Electric Capital Corp.
mature 1/9/03 to 3/17/03 1.33 to 1.71 24,961,264
5,000,000 Giro Multi-Funding Corp. matures 1/21/03 1.39 4,996,139
20,000,000 Goldman, Sachs & Co. mature 1/23/03 to
2/12/03 1.32 to 1.34 19,972,806
7,400,000 HBOS Treasury Services PLC
mature 2/12/03 to 2/13/03 1.34 to 1.43 7,388,023
13,680,000 ING US Funding LLC mature 1/22/03 to
1/31/03 1.35 to 1.82 13,666,605
5,000,000 Kitty Hawk Inc. matures 1/14/03 1.35 4,997,563
15,000,000 Lloyds TSB Bank mature 2/7/03 to 3/5/03 1.31 to 1.64 14,971,785
25,000,000 Morgan Stanley mature 1/15/03 to 2/19/03 1.33 to 1.36 24,962,997
5,000,000 Moriarty Ltd. matures 2/14/03 1.36 4,991,689
30,000,000 Nordea North America, Inc.
mature 1/16/03 to 2/21/03 1.32 to 1.35 29,950,438
7,000,000 Quincy Capital Corp. matures 1/28/03 1.36 6,992,860
15,000,000 Receivable Capital Corp. matures 1/7/03 1.35 14,996,637
10,000,000 Royal Bank of Scotland mature 1/6/03 to
1/22/03 1.34 to 1.36 9,995,162
20,000,000 Societe Generale N.A. Inc. mature 2/3/03 to
2/18/03 1.33 to 1.77 19,967,484
12,000,000 Svenska Handelsbanken mature 1/21/03 to
3/27/03 1.32 to 1.74 11,977,689
20,000,000 UBS Finance LLC mature 1/13/03 to
3/19/03 1.35 19,966,839
25,000,000 Westpac Capital mature 2/12/03 to 3/25/03 1.31 to 1.36 24,940,322
- ---------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost -- $369,549,498) 369,549,498
- ---------------------------------------------------------------------------------
See Notes to Financial Statements.
12 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2002
RETIREMENT PORTFOLIO
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- ------------------------------------------------------------------------------------
CERTIFICATE OF DEPOSIT -- 3.0%
$25,000,000 Wells Fargo Bank N.A. mature 1/30/03 to
2/27/03
(Cost -- $24,999,933) 1.31% to 1.62% $ 24,999,933
- ------------------------------------------------------------------------------------
FOREIGN CERTIFICATES OF DEPOSIT -- 42.3%
10,000,000 Abbey National PLC matures 2/18/03 1.32 9,999,984
15,000,000 ABN AMRO Bank N.V. mature 2/27/03
to 3/17/03 1.33 to 1.34 15,000,039
10,000,000 ANZ Banking Group Ltd. mature 1/7/03
to 1/17/03 1.53 to 1.73 10,000,022
15,000,000 Bank of Montreal mature 1/14/03 to
2/20/03 1.32 to 1.34 15,000,000
15,000,000 Bank of Nova Scotia mature 3/5/03 to
3/11/03 1.33 to 1.34 15,000,174
25,000,000 Barclays Bank mature 1/13/03 to 4/10/03 1.33 to 1.73 25,000,768
15,000,000 Bayerische Landesbank mature 1/21/03 to
2/12/03 1.32 to 1.76 15,000,172
15,000,000 BNP Paribas S.A. mature 2/18/03 to
4/9/03 1.32 to 1.70 15,000,336
25,000,000 Canadian Imperial Bank of Commerce
NY
mature 2/10/03 to 2/20/03 1.31 to 1.78 25,003,109
25,000,000 Credit Agricole Indosuez
mature 1/13/03 to 2/13/03 1.33 to 1.77 25,000,094
5,000,000 Danske Bank matures 2/7/03 1.65 5,000,408
15,000,000 Deutsche Bank mature 2/5/03 to 3/10/03 1.32 15,000,000
5,000,000 Dresdner Bank matures 1/24/03 2.57 4,999,119
15,000,000 HBOS PLC mature 2/3/03 to 3/10/03 1.33 to 1.70 15,002,210
15,000,000 Hessiche Landesbank Ltd.
mature 1/29/03 to 3/19/03 1.34 to 1.72 15,000,854
5,000,000 ING Bank N.V. matures 3/17/03 1.75 5,000,102
10,000,000 Lloyds TSB Bank mature 2/14/03 to
2/18/03 1.32 10,000,025
10,000,000 Rabobank matures 2/18/03 1.32 9,999,986
15,000,000 Royal Bank of Canada mature 2/5/03 to
2/19/03 1.31 to 1.76 14,975,306
15,000,000 Royal Bank of Scotland Group PLC
mature 1/10/03 to 1/13/03 1.36 to 1.70 14,999,909
5,000,000 Societe Generale matures 2/12/03 1.32 5,000,058
10,000,000 Svenska Handelsbanken matures 2/13/03 1.32 9,999,973
17,000,000 Toronto Dominion mature 1/10/03 to
2/10/03 1.75 to 1.76 16,999,505
20,000,000 Unicredito Italiano S.p.A. mature 1/15/03 to
3/18/03 1.34 to 1.72 20,000,930
15,000,000 Westdeutsche Landesbank
mature 2/18/03 to 3/17/03 1.32 to 1.74 15,000,000
- ------------------------------------------------------------------------------------
TOTAL FOREIGN CERTIFICATES OF DEPOSIT
(Cost -- $346,983,083) 346,983,083
- ------------------------------------------------------------------------------------
TIME DEPOSIT -- 3.6%
29,488,000 Chase Manhattan Bank matures 1/2/03
(Cost -- $29,488,000) 1.25 29,488,000
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $820,894,027*) $820,894,027
- ------------------------------------------------------------------------------------
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
13 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2002
Cash Government Retirement
Portfolio Portfolio Portfolio
ASSETS:...............................
Investments, at amortized cost...... $23,159,822,466 $3,433,236,828 $820,894,027
Cash................................ 71 167 903
Interest receivable................. 43,902,159 3,960,706 1,036,019
Deferred compensation............... 330,535 48,471 16,945
- ---------------------------------------------------------------------------------
Total Assets 23,204,055,231 3,437,246,172 821,947,894
- ---------------------------------------------------------------------------------
LIABILITIES:..........................
Management fees payable............. 8,198,752 1,290,427 318,720
Distribution fees payable........... 765,543 112,664 27,240
Deferred compensation payable....... 330,535 48,471 16,945
Dividends payable................... 73,706 6,849 452
Payable for securities purchased.... -- 49,981,000 --
Accrued expenses.................... 10,388,811 813,381 107,159
- ---------------------------------------------------------------------------------
Total Liabilities 19,757,347 52,252,792 470,516
- ---------------------------------------------------------------------------------
Total Net Assets $23,184,297,884 $3,384,993,380 $821,477,378
- ---------------------------------------------------------------------------------
NET ASSETS:...........................
Par value of capital shares.........
(50,000,000,000,....................
10,000,000,000 and..................
5,000,000,000 shares................
authorized, respectively;...........
par value $0.01 per share).......... $ 231,842,979 $ 33,849,934 $ 8,214,776
Capital paid in excess of par value. 22,952,454,905 3,351,143,446 813,262,602
- ---------------------------------------------------------------------------------
Total Net Assets $23,184,297,884 $3,384,993,380 $821,477,378
- ---------------------------------------------------------------------------------
Shares Outstanding:
Class A............................. 22,746,817,145 3,383,072,706 821,477,619
Class L............................. 347,166 131,427 --
Class Y............................. 63,400,920 1,789,247 --
Class Z............................. 373,732,643 -- --
Net Asset Value, per class $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------
See Notes to Financial Statements.
14 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
Statements of Operations For the Year Ended December 31, 2002
Cash Government Retirement
Portfolio Portfolio Portfolio
INVESTMENT INCOME:......................
Interest.............................. $515,271,952 $68,666,193 $16,030,196
----------------------------------------------------------------------------
EXPENSES:...............................
Management fees (Note 3).............. 108,717,599 16,324,462 3,987,026
Shareholder and system servicing fees. 29,986,338 2,381,059 1,118,834
Distribution fees (Note 3)............ 26,754,461 3,747,976 886,006
Custody............................... 1,169,523 176,958 59,966
Shareholder communications............ 516,422 30,646 27,149
Registration fees..................... 353,506 164,309 70,081
Directors' fees....................... 175,650 33,091 10,130
Audit and legal....................... 74,262 85,779 33,455
Other................................. 188,264 49,286 13,006
----------------------------------------------------------------------------
Total Expenses 167,936,025 22,993,566 6,205,653
----------------------------------------------------------------------------
Net Investment Income 347,335,927 45,672,627 9,824,543
----------------------------------------------------------------------------
Net Realized Gain From
Security Transactions 42,844 51,600 --
----------------------------------------------------------------------------
Increase in Net Assets From Operations $347,378,771 $45,724,227 $ 9,824,543
----------------------------------------------------------------------------
See Notes to Financial Statements.
15 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
Cash Portfolio 2002 2001
- -------------------------------------------------------------------------------
OPERATIONS:
Net investment income.................. $ 347,335,927 $ 1,624,422,261
Net realized gain...................... 42,844 704,230
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations. 347,378,771 1,625,126,491
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
(NOTE 2) (347,378,771) (1,634,065,600)
- -------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):........
Net proceeds from sale of shares....... 91,261,777,742 127,804,359,155
Net asset value of shares issued
for reinvestment of dividends......... 336,979,727 1,766,422,796
Cost of shares reacquired.............. (100,599,025,378) (152,512,634,312)
- -------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share
Transactions (9,000,267,909) (22,941,852,361)
- -------------------------------------------------------------------------------
Decrease in Net Assets (9,000,267,909) (22,950,791,470)
NET ASSETS:
Beginning of year...................... 32,184,565,793 55,135,357,263
- -------------------------------------------------------------------------------
End of year............................ $ 23,184,297,884 $ 32,184,565,793
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
16 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
Statements of Changes in Net Assets (continued)
For the Years Ended December 31,
Government Portfolio 2002 2001
-----------------------------------------------------------------------------
OPERATIONS:
Net investment income.................. $ 45,672,627 $ 187,016,176
Net realized gain...................... 51,600 51,979
-----------------------------------------------------------------------------
Increase in Net Assets From Operations. 45,724,227 187,068,155
-----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
(NOTE 2) (45,724,227) (187,084,112)
-----------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):........
Net proceeds from sale of shares....... 11,059,499,198 13,693,535,580
Net asset value of shares issued
for reinvestment of dividends 44,636,094 201,616,247
Cost of shares reacquired.............. (11,970,131,557) (15,422,940,350)
-----------------------------------------------------------------------------
Decrease in Net Assets From Fund
Share Transactions.................... (865,996,265) (1,527,788,523)
-----------------------------------------------------------------------------
Decrease in Net Assets................... (865,996,265) (1,527,804,480)
NET ASSETS:
Beginning of year...................... 4,250,989,645 5,778,794,125
-----------------------------------------------------------------------------
End of year............................ $ 3,384,993,380 $ 4,250,989,645
-----------------------------------------------------------------------------
See Notes to Financial Statements.
17 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the Years Ended December 31,
Retirement Portfolio 2002 2001
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income............................... $ 9,824,543 $ 50,360,307
Net realized gain................................... -- --
- ----------------------------------------------------------------------------------------
Increase in Net Assets From Operations.............. 9,824,543 50,360,307
- ----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE
2) (9,824,784) (50,360,307)
- ----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares.................... 1,232,035,532 1,752,775,577
Net asset value of shares issued
for reinvestment of dividends...................... 9,633,186 55,463,091
Cost of shares reacquired........................... (1,409,776,412) (2,700,194,529)
- ----------------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share Transactions (168,107,694) (891,955,861)
- ----------------------------------------------------------------------------------------
Decrease in Net Assets (168,107,935) (891,955,861)
NET ASSETS:
Beginning of year................................... 989,585,313 1,881,541,174
- ----------------------------------------------------------------------------------------
End of year......................................... $ 821,477,378 $ 989,585,313
- ----------------------------------------------------------------------------------------
See Notes to Financial Statements.
18 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Smith Barney Money Funds, 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 Fund consists of three
separate investment portfolios ("Portfolios"): the Cash Portfolio, the
Government Portfolio and the Retirement Portfolio.
The significant accounting policies consistently followed by the Fund are:
(a) transactions in money market instruments and U.S. government obligations
are accounted for on trade date; (b) the Fund uses the amortized cost method
for valuing investments; accordingly, the cost of securities plus accreted
discount, or minus amortized premium approximates value; (c) interest income is
recorded on the accrual basis; (d) direct expenses are charged to each
Portfolio and each class; management fees and general fund expenses are
allocated on the basis of relative net assets; (e) gains or losses on the sale
of securities are calculated by using the specific identification method; (f )
the Portfolios intend 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 be relieved from
substantially all Federal income and excise taxes; and (g) 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. Dividends
Each Portfolio declares and records a dividend of substantially all of its
net investment income on each business day. Such dividends are paid or
reinvested monthly in each respective Portfolio's shares on the payable date.
3. Management Agreement and Other Transactions
Smith Barney Fund Management LLC ("SBFM"), a subsidiary of Salomon Smith
Barney Holdings, Inc. which, in turn, is a subsidiary of Citigroup Inc.
("Citigroup"), acts as investment manager to the Fund. As compensation for its
services, each Portfolio pays SBFM a daily fee calculated at the following
rates: Cash Portfolio: 0.45% on the first $6.0 billion of average daily net
assets, 0.425% on the next $6.0 billion, 0.40% on the next $6.0 billion and
0.35% on the average daily net assets in excess of $18.0 billion; Goverment
Portfolio: 0.45% on the first $2.5 billion of the average daily net assets,
0.40% on the next $2.5
19 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
billion and 0.35% on average daily net assets in excess of $5.0 billion; and
Retirement Portfolio: 0.45% on the first $1.0 billion of average daily net
assets, 0.40% on the next $1.0 billion and 0.35% on average daily net assets in
excess of $2.0 billion. These fees are calculated daily and paid monthly.
Citicorp Trust Bank, fsb. ("CTB"), formerly known as Travelers Bank & Trust,
fsb., another subsidiary of Citigroup, acts as the Fund's transfer agent. PFPC
Global Services ("PFPC") and Primerica Shareholder Services ("PSS") act as the
Fund's sub-transfer agents. CTB receives account fees and asset-based fees that
vary according to the size and type of account. PFPC and PSS are responsible
for shareholder recordkeeping and financial processing for all shareholder
accounts. For the year ended December 31, 2002, the Fund paid transfer agent
fees of $18,484,586, $1,280,903 and $1,060,714 for the Cash, Government and
Retirement Portfolios, respectively, to CTB.
Salomon Smith Barney Inc. ("SSB") and PFS Distributors, Inc., both of which
are subsidiaries of Citigroup, act as the Fund's distributors. In addition, SSB
and certain other broker-dealers continue to sell Fund shares to the public as
members of the selling group.
Pursuant to a Distribution Plan, each Portfolio makes payments to SSB for
assistance in distributing Class A and L shares calculated at an annual rate of
0.10% of average daily net assets of each class, respectively.
For the year ended December 31, 2002, total Distribution Plan fees incurred
were:
Portfolio Class A Class L
------------------------------------------------------------
Cash.................................... $26,754,151 $310
------------------------------------------------------------
Government.............................. 3,747,887 89
------------------------------------------------------------
Retirement.............................. 886,006 --
-----------------------------------------------------------
All officers and one Director of the Fund are employees of Citigroup or its
affiliates.
4. Repurchase Agreements
The Fund purchases (and its custodian takes possession of ) U.S. government
securities from banks and securities dealers subject to agreements to resell
the securities to the sellers at a future date (generally, the next business
day) at an agreed-upon higher repurchase price. The Fund requires continual
maintenance of the market value (plus accrued interest) of the collateral in
amounts at least equal to the repurchase price.
20 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Income Tax Information and Distributions to Shareholders
At December 31, 2002, the tax basis components of distributable earnings
were:
Cash Government Retirement
Portfolio Portfolio Portfolio
Undistributed ordinary income $1,519,103 $259,927 $22,145
--------------------------------------------------------------
The tax character of distributions paid during the year ended December 31,
2002 were:
Cash Government Retirement
Portfolio Portfolio Portfolio
Ordinary income........ $347,378,771 $45,724,227 $9,824,784
Long term capital gains -- -- --
- -----------------------------------------------------------
Total.................. $347,378,771 $45,724,227 $9,824,784
- -----------------------------------------------------------
6. Capital Shares
The Fund offers multiple classes of shares within the Cash and Government
Portfolios. Class A and Class Y shares can be purchased directly by investors;
Class L and Class Z shares can only be purchased by participants in the Smith
Barney 401(k) Program.
21 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Transactions in shares of each Portfolio were as follows:
Year Ended Year Ended
Cash Portfolio December 31, 2002 December 31, 2001
-----------------------------------------------------------------
Class A
Shares sold.................. 90,760,175,185 126,740,478,908
Shares issued on reinvestment 330,807,374 1,752,966,829
Shares reacquired............ (100,060,391,471) (151,701,473,737)
-----------------------------------------------------------------
Net Decrease................. (8,969,408,912) (23,208,028,000)
-----------------------------------------------------------------
Class L
Shares sold.................. 88,366 279,006
Shares issued on reinvestment 3,944 10,676
Shares reacquired............ (49,149) (177,835)
-----------------------------------------------------------------
Net Increase................. 43,161 111,847
-----------------------------------------------------------------
Class Y
Shares sold.................. 168,716,757 681,334,489
Shares issued on reinvestment 524,759 2,422,747
Shares reacquired............ (166,022,311) (648,806,314)
-----------------------------------------------------------------
Net Increase................. 3,219,205 34,950,922
-----------------------------------------------------------------
Class Z
Shares sold.................. 332,797,434 382,266,752
Shares issued on reinvestment 5,643,650 11,022,544
Shares reacquired............ (372,562,447) (162,176,426)
-----------------------------------------------------------------
Net Increase (Decrease)...... (34,121,363) 231,112,870
-----------------------------------------------------------------
22 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
Notes to Financial Statements (continued)
Year Ended Year Ended
Government Portfolio December 31, 2002 December 31, 2001
-----------------------------------------------------------------
Class A
Shares sold.................. 11,000,216,447 13,610,926,974
Shares issued on reinvestment 44,356,635 200,674,158
Shares reacquired............ (11,890,947,145) (15,340,445,232)
-----------------------------------------------------------------
Net Decrease................. (846,374,063) (1,528,844,100)
-----------------------------------------------------------------
Class L
Shares sold.................. 42,696 19,536
Shares issued on reinvestment 1,372 5,059
Shares reacquired............ (35,623) (23,084)
-----------------------------------------------------------------
Net Increase................. 8,445 1,511
-----------------------------------------------------------------
Class Y
Shares sold.................. 59,240,055 82,589,070
Shares issued on reinvestment 278,087 937,030
Shares reacquired............ (79,148,789) (82,472,034)
-----------------------------------------------------------------
Net Increase (Decrease)...... (19,630,647) 1,054,066
-----------------------------------------------------------------
Retirement Portfolio
-----------------------------------------------------------------
Class A
Shares sold.................. 1,232,035,532 1,752,775,577
Shares issued on reinvestment 9,633,186 55,463,091
Shares reacquired............ (1,409,776,412) (2,700,194,529)
-----------------------------------------------------------------
Net Decrease................. (168,107,694) (891,955,861)
-----------------------------------------------------------------
23 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
FINANCIAL HIGHLIGHTS
For a share of each class of capital stock outstanding throughout each year
ended December 31, unless otherwise noted:
Class A Shares
---------------------------------------
Cash Portfolio 2002 2001 2000 1999 1998
------------------------------------------------------------------------------
Net Asset Value, Beginning of Year.. $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Net investment income............... 0.013 0.037 0.058 0.046 0.050
Dividends from net investment income (0.013) (0.037) (0.058) (0.046) (0.050)
------------------------------------------------------------------------------
Net Asset Value, End of Year........ $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total Return........................ 1.28% 3.78% 5.98% 4.73% 5.07%
------------------------------------------------------------------------------
Net Assets, End of Year (billions).. $23 $32 $55 $45 $40
------------------------------------------------------------------------------
Ratios to Average Net Assets:.......
Expenses/(1)/ 0.62% 0.59% 0.57% 0.62% 0.63%
Net investment income 1.27 3.93 5.84 4.63 4.95
------------------------------------------------------------------------------
Class L Shares
---------------------------------------
Cash Portfolio 2002 2001 2000 1999 1998/(2)/
------------------------------------------------------------------------------
Net Asset Value, Beginning of Year.. $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Net investment income 0.013 0.037 0.058 0.047 0.050
Dividends from net investment income (0.013) (0.037) (0.058) (0.047) (0.050)
------------------------------------------------------------------------------
Net Asset Value, End of Year........ $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total Return........................ 1.29% 3.81% 6.01% 4.78% 5.12%
------------------------------------------------------------------------------
Net Assets, End of Year (000s)...... $347 $304 $193 $582 $412
------------------------------------------------------------------------------
Ratios to Average Net Assets:.......
Expenses/(1)/ 0.61% 0.56% 0.54% 0.57% 0.59%
Net investment income 1.28 3.53 5.58 4.70 5.07
------------------------------------------------------------------------------
Class Y Shares
---------------------------------------
Cash Portfolio 2002 2001 2000 1999 1998
------------------------------------------------------------------------------
Net Asset Value, Beginning of Year.. $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Net investment income 0.014 0.039 0.060 0.048 0.052
Dividends from net investment income (0.014) (0.039) (0.060) (0.048) (0.052)
------------------------------------------------------------------------------
Net Asset Value, End of Year........ $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total Return........................ 1.45% 3.94% 6.17% 4.91% 5.29%
------------------------------------------------------------------------------
Net Assets, End of Year (millions).. $63 $60 $25 $67 $159
------------------------------------------------------------------------------
Ratios to Average Net Assets:.......
Expenses/(1)/..................... 0.45% 0.40% 0.38% 0.42% 0.42%
Net investment income............. 1.44 3.96 5.92 4.76 5.17
------------------------------------------------------------------------------
(1) As a result of a voluntary expense limitation, expense ratios will not
exceed 0.70%.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
24 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of capital stock outstanding throughout each year
ended December 31, unless otherwise noted:
Class Z Shares
---------------------------------------
Cash Portfolio 2002 2001 2000 1999 1998
------------------------------------------------------------------------------
Net Asset Value, Beginning of Year.. $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Net investment income 0.014 0.039 0.060 0.048 0.052
Dividends from net investment income (0.014) (0.039) (0.060) (0.048) (0.052)
------------------------------------------------------------------------------
Net Asset Value, End of Year........ $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total Return........................ 1.45% 3.96% 6.17% 4.91% 5.29%
------------------------------------------------------------------------------
Net Assets, End of Year (millions).. $374 $408 $177 $128 $2
------------------------------------------------------------------------------
Ratios to Average Net Assets:.......
Expenses/(1)/..................... 0.45% 0.40% 0.38% 0.41% 0.43%
Net investment income............. 1.45 3.48 6.02 4.86 5.21
------------------------------------------------------------------------------
Class A Shares
----------------------------------------
Government Portfolio 2002 2001 2000 1999 1998
------------------------------------------------------------------------------
Net Asset Value, Beginning of Year.. $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Net investment income 0.012 0.036 0.057 0.045 0.049
Dividends from net investment income (0.012) (0.036) (0.057) (0.045) (0.049)
------------------------------------------------------------------------------
Net Asset Value, End of Year........ $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total Return........................ 1.22% 3.67% 5.85% 4.60% 5.00%
------------------------------------------------------------------------------
Net Assets, End of Year (billions).. $3 $4 $6 $5 $5
------------------------------------------------------------------------------
Ratios to Average Net Assets:.......
Expenses/(1)/..................... 0.61% 0.56% 0.59% 0.61% 0.60%
Net investment income............. 1.21 3.74 5.71 4.50 4.88
------------------------------------------------------------------------------
Class L Shares
---------------------------------------
Government Portfolio 2002 2001 2000 1999 1998/(2)/
------------------------------------------------------------------------------
Net Asset Value, Beginning of Year.. $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Net investment income 0.012 0.036 0.057 0.045 0.049
Dividends from net investment income (0.012) (0.036) (0.057) (0.045) (0.049)
------------------------------------------------------------------------------
Net Asset Value, End of Year........ $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total Return........................ 1.21% 3.68% 5.87% 4.62% 5.01%
------------------------------------------------------------------------------
Net Assets, End of Year (000s)...... $131 $123 $121 $113 $206
------------------------------------------------------------------------------
Ratios to Average Net Assets:.......
Expenses/(1)/..................... 0.61% 0.63% 0.58% 0.59% 0.59%
Net investment income............. 1.21 3.53 5.70 4.47 4.94
------------------------------------------------------------------------------
(1) As a result of a voluntary expense limitation, expense ratios will not
exceed 0.70%.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
25 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of capital stock outstanding throughout each year
ended December 31, unless otherwise noted:
Class Y Shares
--------------------------------------
Government Portfolio 2002 2001 2000 1999 1998
----------------------------------------------------------------------------
Net Asset Value, Beginning of Year.. $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------------
Net investment income 0.013 0.037 0.058 0.047 0.050
Dividends from net investment income (0.013) (0.037) (0.058) (0.047) (0.050)
----------------------------------------------------------------------------
Net Asset Value, End of Year........ $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------------
Total Return........................ 1.35% 3.78% 6.02% 4.78% 5.13%
----------------------------------------------------------------------------
Net Assets, End of Year (millions).. $2 $21 $20 $8 $4
----------------------------------------------------------------------------
Ratios to Average Net Assets:.......
Expenses/(1)/..................... 0.48% 0.44% 0.44% 0.45% 0.48%
Net investment income............. 1.38 3.69 5.85 4.64 5.06
----------------------------------------------------------------------------
Class A Shares
--------------------------------------
Retirement Portfolio 2002 2001 2000 1999 1998
----------------------------------------------------------------------------
Net Asset Value, Beginning of Year.. $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------------
Net investment income/(2)/ 0.011 0.035 0.057 0.046 0.049
Dividends from net investment income (0.011) (0.035) (0.057) (0.046) (0.049)
----------------------------------------------------------------------------
Net Asset Value, End of Year........ $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------------
Total Return........................ 1.11% 3.60% 5.89% 4.65% 5.04%
----------------------------------------------------------------------------
Net Assets, End of Year (millions).. $821 $990 $1,882 $1,704 $1,682
----------------------------------------------------------------------------
Ratios to Average Net Assets:.......
Expenses/(1)(2)/.................. 0.70% 0.69% 0.68% 0.69% 0.70%
Net investment income............. 1.11 3.78 5.74 4.55 4.92
----------------------------------------------------------------------------
(1) As a result of a voluntary expense limitation, expense ratios will not
exceed 0.70%.
(2) The investment manager has waived a portion of its management fees for the
years ended December 31, 1999 and December 31, 1998. If such fees were not
waived, the per share decrease on net investment income and the actual
expense ratio would have been as follows:
Per Share Decreases to Expense Ratio
Net Investment Income Without Fee Waiver
---------------------- -----------------
1999 $0.0001 0.71%
1998 0.0002 0.72
26 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of The Smith Barney Money Funds,
Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Smith Barney Money Funds, Inc.
(comprised of the Cash, Government and Retirement Portfolios) ("Fund") as of
December 31, 2002, and the related statements 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 December 31, 2002, by
correspondence with the custodian and brokers. 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 each
of the respective portfolios constituting the Fund as of December 31, 2002, and
the results of their operations for the year then ended, the changes in their
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.
LOGO
New York, New York
February 12, 2003
27 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
ADDITIONAL INFORMATION (UNAUDITED)
Information about Directors and Officers
The business and affairs of the Smith Barney Money Funds, 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 Directors and is
available, without charge, upon request by calling the Fund's transfer agent
(Citicorp Trust Bank, fsb. at 1-800-451-2010) or the Fund's sub-transfer agent
(Primerica Shareholder Services at 1-800-544-5445).
Number of
Portfolios
Term in Fund
of Office* Principal Complex Other
Position(s) and Length Occupation(s) Overseen Directorships
Held with of Time During By Held by
Name, Address and Age Fund Served Past Five Years Director Director
- --------------------------------------------------------------------------------------------------------
Non-Interested Directors:
Lee Abraham Director Since Retired; Former Chairman 28 Signet
13732 LeHavre Drive 1999 and CEO of Associated Group
Frenchman's Creek Merchandising Corp., a PLC
Palm Beach Gardens, FL major retail merchandising
33410 organization. Former
Age 75 Director of Galey & Lord,
Liz Claiborne, R.G. Barry
Corporation
Allan J. Bloostein Director Since President of Allan Bloostein 35 Taubman
27 West 67th Street 1999 Associates, a consulting firm. Centers
Apt. 5FW Former Director of CVS Inc.
New York, NY 10023 Corporation
Age 72
Jane F. Dasher Director Since Controller of PBK 28 None
Korsant Partners 1999 Holdings Inc., a family
283 Greenwich Avenue investment company
3rd Floor
Greenwich, CT 06830
Age 53
Donald R. Foley Director Since Retired 19 None
3668 Freshwater Drive 1982
Jupiter, FL 33477
Age 80
Richard E. Hanson, Jr. Director Since Retired; Former Head of the 28 None
2751 Vermont Route 140 1999 New Atlanta Jewish
Poultney, VT 05764 Community High School
Age 61
28 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of
Portfolios
Term in Fund
of Office* Principal Complex Other
Position(s) and Length Occupation(s) Overseen Directorships
Held with of Time During By Held by
Name, Address and Age Fund Served Past Five Years Director Director
- -----------------------------------------------------------------------------------------------------
Dr. Paul Hardin Director Since Professor of Law & 36 None
12083 Morehead 1994 Chancellor Emeritus at the
Chapel Hill, NC University of North Carolina
27514-8426
Age 71
Roderick C. Rasmussen Director Since Investment Counselor 28 None
9 Cadence Court 1982
Morristown, NJ 07960
Age 76
John P. Toolan Director Since Retired 28 John
7202 Southeast Golf 1992 Hancock
Ridge Way Funds
Hobe Sound, FL 33455
Age 72
Interested Director:
R. Jay Gerken** Chairman, Since Managing Director of 227 None
SSB President and 2002 Salomon Smith Barney Inc.
399 Park Avenue Chief ("SSB"); Chairman,
4th Floor Executive President and Chief
New York, NY 10022 Officer Executive Officer of Smith
Age 51 Barney Fund Management
LLC ("SBFM"), Travelers
Investment Adviser, Inc.
(''TIA") and Citi Fund
Management Inc.
Officers:
Lewis E. Daidone Senior Vice Since Managing Director of SSB; N/A N/A
SSB President and 1990 formerly Chief Financial
125 Broad Street Chief Officer and Treasurer of
11th Floor Administrative mutual funds affiliated with
New York, NY 10004 Officer Citigroup Inc.; Director and
Age 45 Senior Vice President of
SBFM and TIA
29 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of
Portfolios
Term in Fund
of Office* Principal Complex Other
Position(s) and Length Occupation(s) Overseen Directorships
Held with of Time During By Held by
Name, Address and Age Fund Served Past Five Years Director Director
- --------------------------------------------------------------------------------------------------------
Richard L. Peteka Chief Since Director and Head of Internal N/A N/A
SSB Financial 2002 Control for Citigroup Asset
125 Broad Street Officer and Management ("CAM") U.S.
11th Floor Treasurer Mutual Fund Administration
New York, NY 10004 from 1999-2002; Vice
Age 41 President, Head of Mutual
Fund Administration and
Treasurer at Oppenheimer
Capital from 1996-1999
Martin R. Hanley Vice Since Portfolio Manager N/A N/A
SSB President and 1993
399 Park Avenue Investment
4th Floor Officer
New York, NY 10022
Age 35
Kevin Kennedy Vice Since Portfolio Manager N/A N/A
CAM President and 2001
399 Park Avenue Investment
4th Floor Officer
New York, NY 10022
Age 48
Kaprel Ozsolak Controller Since Vice President of SSB N/A N/A
SSB 2002
125 Broad Street
11th Floor
New York, NY 10004
Age 37
Christina T. Sydor Secretary Since Managing Director of SSB; N/A N/A
SSB 1987 General Counsel and
300 First Stamford Place Secretary of SBFM and TIA
4th Floor
Stamford, CT 06902
Age 52
- --------
* Each Trustee and Officer serves until his or her successor has been duly
elected and qualified.
** Mr. Gerken is a Trustee who is an "interested person" of the Trust as
defined in the Investment Company Act of 1940 because Mr. Gerken is an
officer of SBFM and certain of its affiliates.
30 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
TAX INFORMATION (UNAUDITED)
For Federal tax purposes, the Fund hereby designates for the fiscal year
ended December 31, 2002:
Percentage 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:
. Cash Portfolio 2.00%
. Government Portfolio 38.78
. Retirement Portfolio 1.45
31 Smith Barney Money Funds, Inc. | 2002 Annual Report to Shareholders
SMITH BARNEY
MONEY FUNDS, INC.
DIRECTORS INVESTMENT MANAGER
Lee Abraham Smith Barney Fund
Allan J. Bloostein Management LLC
Jane F. Dasher
Donald R. Foley DISTRIBUTORS
R. Jay Gerken, Chairman Salomon Smith Barney Inc.
Richard E. Hanson, Jr. PFS Distributors, Inc.
Dr. Paul Hardin
Roderick C. Rasmussen CUSTODIAN
John P. Toolan State Street Bank and
Trust Company
OFFICERS
R. Jay Gerken 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 SUB-TRANSFER AGENTS
and Chief Administrative PFPC Global Fund Services
Officer P.O. Box 9699
Providence, Rhode Island
Richard L. Peteka 02940-9699
Chief Financial Officer
and Treasurer Primerica Shareholder Services
P.O. Box 9662
Martin R. Hanley Providence, Rhode Island
Vice President and 02940-9662
Investment Officer
Kevin Kennedy
Vice President and
Investment Officer
Kaprel Ozsolak
Controller
Christina T. Sydor
Secretary
Smith Barney Money Funds, Inc.
This report is submitted for general information of the shareholders of Smith
Barney Money Funds, Inc., but it may also be used as sales literature when
preceded or accompanied by the current prospectus which gives details about
changes, expenses, investment objectives and operating policies of the
Portfolios. If used as sales material after March 31, 2003, this report must
be accompanied by performance information for the most recently completed
calendar quarter.
SMITH BARNEY MONEY FUNDS, 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.smithbarney.com/mutualfunds
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FD0858 2/03 03-4456