N-CSR 1 dncsr.txt SMITH BARNEY MONEY FUNDS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-2490 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) Robert I. Frenkel, Esq. Smith Barney Fund Management LLC 300 First Stamford Place Stamford, CT 06902 (Name and address of agent for service) Registrant's telephone number, including area code: (800) 451-2010 Date of fiscal year end: December 31 Date of reporting period: December 31, 2003 ITEM 1. REPORT TO STOCKHOLDERS. The Annual Report to Stockholders is filed herewith. SMITH BARNEY MONEY FUNDS, INC. ANNUAL REPORT | DECEMBER 31, 2003 [LOGO] Smith Barney Mutual Funds Your Serious Money. Professionally Managed.(R) Your Serious Money. Professionally Managed. is a registered service mark of Citigroup Global Markets Inc. NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE WHAT'S INSIDE Letter from the Chairman............ 1 Manager Overview.................... 2 Schedules of Investments............ 5 Statements of Assets and Liabilities 11 Statements of Operations............ 12 Statements of Changes in Net Assets. 13 Notes to Financial Statements....... 15 Financial Highlights................ 22 Tax Information..................... 24 Independent Auditors' Report........ 25 Additional Information.............. 26
LETTER FROM THE CHAIRMAN [PHOTO] R. Jay Gerken R. JAY GERKEN, CFA Chairman, President and Chief Executive Officer Dear Shareholder, After an extended period of uncertainty mottled by questionable business practices and a faltering economy, business and economic prospects have begun to look more promising. The Fed's reduction of the federal funds rate/i/ appears to have had its intended result of encouraging economic growth. Evidence of sustainable economic improvement has emerged. Stronger retail sales, rising domestic consumption and increasing export activity contributed to a relatively robust annualized growth rate in gross domestic product ("GDP")/ii/ during the third calendar quarter of 2003. However, to forestall potential deflationary forces, the Fed indicated that it was likely to leave rates at prevailing low levels for the foreseeable future, which it did through the end of the funds' fiscal year in December. Please read on for a more detailed look at prevailing economic and market conditions during the funds' fiscal year and to learn how those conditions and changes made to the portfolio during this time may have affected the performance of your fund. Special Shareholder Notice Effective December 5, 2003, the Retirement Portfolio was reorganized into the Smith Barney Money Funds, Inc. -- Cash Portfolio. Information About Your Fund In recent months several issues in the mutual fund industry have come under the scrutiny of federal and state regulators. The funds' Adviser and some of its affiliates have received requests for information from various government regulators regarding market timing, late trading, fees and other mutual fund issues in connection with various investigations. The regulators appear to be examining, among other things, the fund's response to market timing and shareholder exchange activity, including compliance with prospectus disclosure related to these subjects. The funds have been informed that the Adviser and its affiliates are responding to those information requests, but are not in a position to predict the outcome of these requests and investigations. As always thank you for your confidence in our stewardship of your assets. We look forward to helping you continue to meet your financial goals. Sincerely, /s/ R. Jay Gerken R. Jay Gerken, CFA Chairman, President and Chief Executive Officer January 6, 2004 1 Smith Barney Money Funds, Inc. | 2003 Annual Report MANAGER OVERVIEW [PHOTO] Martin R. Hanley MARTIN R. HANLEY Vice President and Investment Officer [PHOTO] Kevin Kennedy KEVIN KENNEDY Vice President and Investment Officer Interest Rates Hit 45-Year Low Short-term interest rates and yields of money market instruments declined during the funds' fiscal year ended December 31, 2003 as the Fed and Bush Administration implemented additional measures to stimulate renewed economic growth. When the funds' fiscal year began in January of 2003, views of the economy's prospects were mixed. U.S. corporations reigned in capital spending as the effects of a declining stock market and corporate accounting scandals took their toll on investor confidence and business activity. Corporations remained cautious as it became clearer early in 2003 that the United States and its allies were likely to go to war in Iraq. In effect, the economy adopted a "wait-and-see" attitude. Even the Fed indicated at its March 2003 meeting that it could not adequately assess prevailing economic risks because of the geopolitical situation. As a result, the U.S. economy expanded sluggishly. As major combat operations in Iraq wound down in the spring, consumers and businesses became increasingly optimistic. Improving sentiment was reinforced by legislation enacting federal tax cuts, including a reduction in taxes on capital gains and dividends. For its part, the Fed cut short-term interest rates by another 0.25% in late June, driving the federal funds rate to just 1%, its lowest level since the Eisenhower Administration. Money market yields continued to decline as well. By the end of August, evidence of sustainable economic improvement began to emerge. Stronger retail sales, rising domestic consumption and increasing export activity contributed to an improvement in GDP during the third calendar quarter of 2003, which grew at a rate not seen in over two decades. However, to forestall potential deflationary forces, the Fed indicated that it was likely to leave rates at prevailing low levels for the foreseeable future, which it did through the end of the period in December. 2 Smith Barney Money Funds, Inc. | 2003 Annual Report SMITH BARNEY MONEY FUNDS CLASS A SHARE YIELDS AS OF DECEMBER 31, 2003 Cash Government Portfolio Portfolio Seven-Day Current Yield 0.58% 0.59% Seven-Day Effective Yield 0.58% 0.60% All figures represent past performance and are not a guarantee of future results. The funds' yields will vary. Performance for the funds' other share classes can be found in the Financial Highlights section of this report. Performance of other share classes may differ. In the cases where current yield and effective yield are the same, it is due to rounding. The seven-day effective yield is calculated similarly to the seven-day current yield but, when annualized, the income earned by an investment in each fund is assumed to be reinvested. The effective yield typically will be slightly higher than the current yield because of the compounding effect of the assumed reinvestment. Please note that your investment is neither insured nor guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or any other government agency. Although each fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a fund. Adjustments to the Government Portfolio In this challenging market environment, we maintained a generally cautious investment posture. When short-term interest rates fell, we set the fund's weighted average maturity in a range that we considered neutral to slightly longer than average. This strategy enabled us to maintain prevailing rates for as long as we deemed practical, while giving us the flexibility required to respond to changing market conditions. In fact, there were times during the reporting period when longer-term yields were lower than their shorter-term counterparts. Cash Portfolio Changes After the Fed reduced short-term interest rates in June, we reduced the fund's weighted average maturity to a relatively short position. This strategy reflected our belief that the June rate-cut was probably the last of the current cycle, and it was designed to help us capture higher yields if they became available. If rates were to rise, this approach would enable us to roll over proceeds from maturing 3 Smith Barney Money Funds, Inc. | 2003 Annual Report securities into potentially higher yielding securities sooner.) Indeed, as of the reporting period's end, we have begun to see a steeper yield curve,/iii/ which suggests to us that the market may be anticipating higher short-term interest rates. Of course, we intend to continue to adjust our strategies as market conditions change. Thank you for your investment in the Smith Barney Money Funds, Inc. --Cash Portfolio and Government Portfolio. We appreciate that you have entrusted us to manage your money and value our relationship with you. Sincerely, /s/ Martin R. Hanley /s/ Kevin Kennedy Martin R. Hanley Kevin Kennedy Vice President and Vice President and Investment Officer Investment Officer January 6, 2004 The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole. Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to change. Please refer to pages 5 through 10 for a list and percentage breakdown of the fund's holdings. /i/The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. /ii/Gross domestic product is a market value of goods and services produced by labor and property in a given country. /iii/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. | 2003 Annual Report SCHEDULES OF INVESTMENTS DECEMBER 31, 2003
CASH PORTFOLIO FACE ANNUALIZED AMOUNT SECURITY YIELD VALUE ------------------------------------------------------------------------------------- U.S. AGENCIES AND INSTRUMENTALITIES -- 4.6% $ 5,000,000 Federal Home Loan Bank matures 4/12/04 1.11% $ 4,984,417 213,065,000 Federal Home Loan Mortgage Corp. mature 3/15/04 to 5/10/04 1.09 to 1.11 212,357,236 569,249,000 Federal National Mortgage Association mature 5/26/04 to 2/25/05 1.12 567,779,472 130,000,000 Federal National Mortgage Association matures 1/28/05+ 1.13 129,957,929 ------------------------------------------------------------------------------------- TOTAL U.S. AGENCIES AND INSTRUMENTALITIES (Cost -- $915,079,054) 915,079,054 ------------------------------------------------------------------------------------- U.S. TREASURY -- 0.1% 22,000,000 U.S. Treasury Bill matures 1/2/04 (Cost -- $21,999,383) 1.01 21,999,383 ------------------------------------------------------------------------------------- COMMERCIAL PAPER -- 45.1% 75,000,000 ABN AMRO N.A. Finance Inc. matures 3/16/04 1.08 74,831,250 116,700,000 ABSC Capital Corp. mature 1/20/04 to 3/8/04 1.12 to 1.15 116,592,232 192,050,000 Amstel Funding Corp. mature 2/5/04 to 3/25/04 1.11 to 1.16 191,692,621 230,000,000 ANZ Delaware Inc. mature 1/9/04 to 1/12/04 1.08 to 1.09 229,931,122 125,000,000 Aquinas Funding LLC matures 3/18/04 1.10 124,705,903 60,179,000 Asset Portfolio Funding matures 2/18/04 1.11 60,089,935 115,192,000 Atlantic Asset Securitization matures 1/2/04 0.98 115,188,864 291,389,000 Atomium Funding Corp. mature 1/20/04 to 2/19/04 1.11 to 1.13 291,120,114 100,000,000 Brahms Funding Corp. matures 1/29/04 1.15 99,910,556 274,017,000 Bryant Park Funding LLC mature 1/16/04 to 2/13/04 1.11 to 1.12 273,808,964 191,778,000 Cancara Asset Securities Ltd. mature 3/10/04 to 3/15/04 1.11 to 1.12 191,360,728 163,000,000 CBA Delaware Finance Inc. mature 2/9/04 to 2/25/04 1.08 to 1.09 162,764,715 115,000,000 Credit Agricole Indosuez N.A. Inc. matures 2/2/04 1.08 114,890,111 5,000,000 Credit Lyonnais N.A. Inc. matures 3/19/04 1.13 4,987,867 271,040,000 Crown Point Capital Co. mature 1/9/04 to 3/16/04 1.12 to 1.13 270,697,419 449,300,000 Danske Corp. mature 1/26/04 to 3/18/04 1.08 to 1.09 448,652,219 222,000,000 Dexia Delaware LLC mature 1/14/04 to 1/20/04 1.08 221,893,910 50,000,000 Eiffel Funding matures 2/13/04 1.12 49,933,111 67,310,000 Fountain Square Commercial Funding matures 1/2/04 0.95 67,308,224
See Notes to Financial Statements. 5 Smith Barney Money Funds, Inc. | 2003 Annual Report SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
CASH PORTFOLIO FACE ANNUALIZED AMOUNT SECURITY YIELD VALUE -------------------------------------------------------------------------------------- COMMERCIAL PAPER -- 45.1% (continued) $108,650,000 Foxboro Funding Ltd. mature 1/15/04 to 1/16/04 1.17% to 1.19% $ 108,598,533 23,000,000 Galleon Capital Corp. matures 1/29/04 1.10 22,980,322 315,000,000 General Electric Capital Corp. mature 2/9/04 to 4/6/04 1.09 to 1.14 314,224,578 260,198,000 Georgetown Funding Co. LLC mature 1/22/04 to 2/5/04 1.14 to 1.15 259,966,166 281,724,000 Hannover Funding Co. LLC mature 1/12/04 to 2/27/04 1.11 to 1.12 281,532,911 49,832,000 Hatteras Funding Corp. matures 1/12/04 1.11 49,815,099 190,000,000 HBOS Treasury Service PLC mature 3/11/04 to 3/17/04 1.09 to 1.10 189,575,949 384,000,000 ING US Funding LLC mature 2/17/04 to 3/22/04 1.07 to 1.09 383,221,714 20,100,000 Lake Constance Funding LLC matures 1/23/04 1.12 20,086,243 71,655,000 Legacy Capital LLC matures 2/9/04 1.11 71,568,835 100,000,000 Main Street Warehouse Funding matures 1/23/04 1.20 99,926,666 250,000,000 Mane Funding Corp. mature 2/3/04 to 2/23/04 1.10 to 1.11 249,664,500 239,700,000 Mica Funding LLC mature 2/10/04 to 3/19/04 1.11 to 1.13 239,256,134 166,750,000 Moat Funding LLC mature 3/1/04 to 4/1/04 1.12 to 1.14 166,359,977 200,000,000 Morgan Stanley matures 2/3/04 1.08 199,802,000 280,000,000 Nationwide Building Society mature 1/7/04 to 2/26/04 1.10 279,678,247 54,505,000 Nieuw Amsterdam Receivables Corp. mature 2/2/04 to 3/10/04 1.10 to 1.13 54,396,806 579,100,000 Nordea North America, Inc. mature 1/9/04 to 3/22/04 1.08 to 1.13 578,507,514 50,000,000 Paradigm Funding LLC matures 2/2/04 1.10 49,951,111 115,768,000 Perry Global Funding mature 3/22/04 to 5/14/04 1.13 to 1.14 115,386,827 48,200,000 Premier Asset LLC matures 2/25/04 1.11 48,118,261 139,289,000 Regency Markets LLC mature 2/20/04 to 3/8/04 1.07 to 1.11 139,022,766 158,550,000 Saint Germain Holdings Ltd. mature 1/13/04 to 2/12/04 1.11 to 1.16 158,432,277 80,000,000 San Paolo US Finance Co. matures 3/2/04 1.10 79,851,567 50,000,000 Scaldis LLC matures 3/24/04 1.10 49,873,194 264,800,000 Societe Generale N.A. Inc. mature 3/10/04 to 3/15/04 1.09 to 1.10 264,228,486 279,600,000 Spintab-Swedmortgage AB mature 2/23/04 to 3/25/04 1.10 to 1.12 278,971,566
See Notes to Financial Statements. 6 Smith Barney Money Funds, Inc. | 2003 Annual Report SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
CASH PORTFOLIO FACE ANNUALIZED AMOUNT SECURITY YIELD VALUE --------------------------------------------------------------------------------------- COMMERCIAL PAPER -- 45.1% (continued) $ 74,000,000 Stanfield Victoria Funding LLC mature 4/5/04 to 4/15/04 1.14% to 1.16% $ 73,774,126 150,000,000 Surrey Funding Corp. matures 1/13/04 1.11 149,944,500 200,760,000 Svenska Handelsbanken Inc. mature 2/6/04 to 2/25/04 1.08 to 1.09 200,486,757 36,800,000 Tango Finance Corp. matures 3/22/04 1.12 36,707,264 12,681,000 Thames Asset Global Securities matures 3/10/04 1.14 12,653,292 242,500,000 UBS Finance Delaware LLC mature 1/5/04 to 2/27/04 0.98 to 1.05 242,329,887 270,224,000 Victory Receivables Corp. mature 1/8/04 to 1/27/04 1.12 to 1.15 270,072,382 165,900,000 Westpac Capital Corp. mature 2/5/04 to 4/29/04 1.09 to 1.13 165,401,292 13,166,000 WhistleJacket Capital Ltd. matures 4/2/04 1.16 13,127,307 --------------------------------------------------------------------------------------- TOTAL COMMERCIAL PAPER (Cost -- $9,027,854,921) 9,027,854,921 --------------------------------------------------------------------------------------- PROMISSORY NOTE -- 1.0% 200,000,000 Goldman Sachs Group Inc. matures 2/19/04+ (Cost -- $200,000,000) 1.11 200,000,000 --------------------------------------------------------------------------------------- MEDIUM-TERM NOTES -- 10.8% 300,000,000 General Electric Capital Corp. matures 1/14/05+ 1.23 300,000,000 225,000,000 K2 USA LLC mature 1/8/04 to 12/13/04+ 1.09 to 1.15 224,981,141 250,000,000 Links Finance LLC mature 4/15/04 to 7/28/04+ 1.10 to 1.13 249,974,283 200,000,000 Morgan Stanley matures 7/1/04+ 1.20 200,000,000 158,000,000 Premier Asset Collaterized Entity LLC mature 5/3/04 to 6/15/04+ 1.09 to 1.14 157,992,535 210,000,000 Sigma Finance Inc. mature 7/15/04 to 11/12/04+ 1.12 to 1.16 209,966,998 100,000,000 Special Purpose Accounts Receivables Corp. matures 4/6/04+ 1.15 100,000,000 150,000,000 Stanfield Victoria Finance Ltd. mature 1/6/04 to 7/15/04+ 1.15 149,995,984 50,000,000 Tango Finance Corp. matures 7/26/04+ 1.12 49,994,509 324,500,000 WhistleJacket Capital Ltd. mature 1/15/04 to 11/29/04+ 1.08 to 1.15 324,483,335 193,000,000 White Pine Finance LLC mature 3/12/04 to 8/16/04+ 1.08 to 1.12 192,983,069 --------------------------------------------------------------------------------------- TOTAL MEDIUM-TERM NOTES (Cost -- $2,160,371,854) 2,160,371,854 ---------------------------------------------------------------------------------------
See Notes to Financial Statements. 7 Smith Barney Money Funds, Inc. | 2003 Annual Report SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
CASH PORTFOLIO FACE ANNUALIZED AMOUNT SECURITY YIELD VALUE ------------------------------------------------------------------------------------ CERTIFICATES OF DEPOSIT -- 3.6% $144,000,000 Bank of America N.A. matures 3/15/04 1.11% $ 144,000,000 572,750,000 Wells Fargo Bank N.A. mature 1/8/04 to 1/16/04 1.07 to 1.08 572,749,833 ------------------------------------------------------------------------------------ TOTAL CERTIFICATES OF DEPOSIT (Cost -- $716,749,833) 716,749,833 ------------------------------------------------------------------------------------ FOREIGN CERTIFICATES OF DEPOSIT -- 30.8% 100,000,000 Australia & New Zealand Banking Group NY matures 1/21/04 1.08 99,999,978 379,000,000 Barclays Bank PLC mature 1/5/04 to 1/24/04 1.10 to 1.16 379,004,310 578,250,000 BNP Paribas mature 2/17/04 to 4/19/04 1.08 to 1.24 578,263,412 282,250,000 Canadian Imperial Bank of Commerce NY mature 2/3/04 to 2/17/04 1.05 to 1.09 282,250,000 80,000,000 Credit Agricole Indosuez NA matures 3/8/04 1.13 80,000,000 443,500,000 Credit Lyonnais NY mature 1/30/04 to 3/5/04 1.10 to 1.14 443,511,927 339,000,000 CS First Boston NY mature 3/5/04 1.08 to 1.30 339,008,962 100,000,000 CS First Boston NY matures 7/6/04+ 1.17 100,000,000 300,000,000 Dexia Bank NY mature 2/25/04 to 2/26/04 1.07 to 1.08 300,000,000 225,000,000 Fortis Bank NY matures 2/19/04 1.07 225,001,452 490,000,000 HBOS PLC mature 2/17/04 to 4/8/04 1.11 to 1.14 490,009,397 150,000,000 ING Bank NV matures 1/12/04 1.10 150,000,418 53,000,000 Landesbank Baden NV matures 2/11/04 1.08 52,999,671 160,000,000 Landesbank Hessen-Thurin matures 3/4/04 1.10 160,002,792 381,000,000 Lloyds Bank PLC NY mature 1/13/04 to 5/7/04 1.06 to 1.20 380,991,452 350,000,000 Royal Bank of Scotland mature 3/4/04 to 5/7/04 1.09 to 1.12 350,004,356 305,000,000 Societe Generale mature 2/3/04 to 3/17/04 1.09 to 1.10 304,999,665 259,500,000 Svenska Handelsbanken NY mature 1/12/04 to 4/5/04 1.10 259,496,323 505,000,000 Toronto Dominion Bank NY mature 1/22/04 to 3/24/04 1.05 to 1.10 505,000,231 569,000,000 Unicredito Italiano S.p.A. NY mature 1/22/04 to 4/30/04 1.10 to 1.15 569,002,238 110,000,000 Westdeutsche Landesbank Girozentrale matures 4/8/04 1.13 110,002,977 ------------------------------------------------------------------------------------ TOTAL FOREIGN CERTIFICATES OF DEPOSIT (Cost -- $6,159,549,561) 6,159,549,561 ------------------------------------------------------------------------------------
See Notes to Financial Statements. 8 Smith Barney Money Funds, Inc. | 2003 Annual Report SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
CASH PORTFOLIO FACE ANNUALIZED AMOUNT SECURITY YIELD VALUE -------------------------------------------------------------------------------- TIME DEPOSITS -- 4.0% $330,000,000 National Australia Bank matures 1/2/04 0.97% $ 330,000,000 190,913,000 Royal Bank of Canada matures 1/2/04 0.98 190,913,000 280,000,000 State Street Bank & Trust matures 1/2/04 0.97 280,000,000 -------------------------------------------------------------------------------- TOTAL TIME DEPOSITS (Cost -- $800,913,000) 800,913,000 -------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.0% (Cost -- $20,002,517,606*) $20,002,517,606 --------------------------------------------------------------------------------
+Variable interest rate -- subject to periodic change. *Aggregate cost for Federal income tax purposes is substantially the same. See Notes to Financial Statements. 9 Smith Barney Money Funds, Inc. | 2003 Annual Report SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003 GOVERNMENT PORTFOLIO
FACE ANNUALIZED AMOUNT SECURITY YIELD VALUE ------------------------------------------------------------------------------------------- U.S. AGENCIES AND INSTRUMENTALITIES -- 92.3% $337,065,000 Federal Farm Credit Bank mature 1/15/04 to 8/24/04 1.01% to 1.24% $ 336,780,703 760,803,000 Federal Home Loan Bank mature 1/6/04 to 11/24/04 0.96 to 1.30 759,242,526 798,935,000 Federal Home Loan Mortgage Corp. mature 1/15/04 to 9/9/05 1.04 to 1.13 797,472,094 730,943,000 Federal National Mortgage Association mature 1/14/04 to 2/18/05 1.04 to 1.13 730,146,803 ------------------------------------------------------------------------------------------ TOTAL U.S. AGENCIES AND INSTRUMENTALITIES (Cost -- $2,623,642,126) 2,623,642,126 ------------------------------------------------------------------------------------------ REPURCHASE AGREEMENTS -- 7.7% 217,000,000 Goldman, Sachs & Co., 0.99% due 1/2/04; Proceeds at maturity -- $217,011,935; (Fully collateralized by U.S. Treasury Bonds, 6.000% to 10.375% due 11/15/09 to 2/15/26; Market value -- $218,000,998) 217,000,000 1,616,000 J.P. Morgan Chase & Co., 0.83% due 1/2/04; Proceeds at maturity -- $1,616,075; (Fully collateralized by U.S. Treasury Bill, due 3/11/04; Market value -- $1,652,120) 1,616,000 ------------------------------------------------------------------------------------------ TOTAL REPURCHASE AGREEMENTS (Cost -- $218,616,000) 218,616,000 ------------------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 100.0% (Cost -- $2,842,258,126*) $2,842,258,126 ------------------------------------------------------------------------------------------
* Aggregate cost for Federal income tax purposes is substantially the same. See Notes to Financial Statements. 10 Smith Barney Money Funds, Inc. | 2003 Annual Report STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2003
Cash Government Portfolio Portfolio -------------------------------------------------------------------------------------------- ASSETS: Investments, at amortized cost $20,002,517,606 $2,842,258,126 Cash 900 133 Receivable for Fund shares sold 611,720,091 43,381,888 Interest receivable 10,245,591 1,076,684 Deferred compensation 415,532 63,524 Other assets 279,382 -- ------------------------------------------------------------------------------------------- Total Assets 20,625,179,102 2,886,780,355 ------------------------------------------------------------------------------------------- LIABILITIES: Payable for Fund shares reacquired 975,342,932 94,319,366 Management fees payable 6,393,137 1,038,705 Distribution plan fees payable 601,509 86,233 Deferred compensation payable 415,532 63,524 Dividends payable 75,048 17,526 Accrued expenses 4,270,366 493,610 ------------------------------------------------------------------------------------------- Total Liabilities 987,098,524 96,018,964 ------------------------------------------------------------------------------------------- Total Net Assets $19,638,080,578 $2,790,761,391 ------------------------------------------------------------------------------------------- NET ASSETS: Par value of capital shares (50,000,000,000 and 10,000,000,000 shares authorized, respectively; par value $0.01 per share) $ 196,378,914 $ 27,907,420 Capital paid in excess of par value 19,441,512,539 2,762,834,585 Accumulated net realized gain from investment transactions 189,125 19,386 ------------------------------------------------------------------------------------------- Total Net Assets $19,638,080,578 $2,790,761,391 ------------------------------------------------------------------------------------------- Shares Outstanding: Class A 19,509,761,413 2,789,721,472 Class L 381,428 13,978 Class Y 127,748,608 1,006,553 Net Asset Value, per class $1.00 $1.00 -------------------------------------------------------------------------------------------
See Notes to Financial Statements. 11 Smith Barney Money Funds, Inc. | 2003 Annual Report STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
Cash Government Portfolio Portfolio ------------------------------------------------------------------------ INVESTMENT INCOME: Interest $257,192,344 $37,617,006 ------------------------------------------------------------------------ EXPENSES: Management fees (Note 3) 82,168,878 13,626,290 Distribution plan fees (Note 5) 20,705,977 3,152,650 Shareholder servicing fees (Note 5) 10,981,739 559,312 Custody 900,814 152,798 Shareholder communications (Note 5) 475,739 26,349 Registration fees 181,083 186,894 Directors' fees 171,657 27,722 Audit and legal 143,124 74,641 Other 189,686 45,961 ------------------------------------------------------------------------ Total Expenses 115,918,697 17,852,617 Less: Management fee waiver (Note 3) -- (28,289) ------------------------------------------------------------------------ Net Expenses 115,918,697 17,824,328 ------------------------------------------------------------------------ Net Investment Income 141,273,647 19,792,678 ------------------------------------------------------------------------ Net Realized Gain From Investment Transactions 189,125 26,082 ------------------------------------------------------------------------ Increase in Net Assets From Operations $141,462,772 $19,818,760 ------------------------------------------------------------------------
See Notes to Financial Statements. 12 Smith Barney Money Funds, Inc. | 2003 Annual Report STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, Cash Portfolio 2003 2002 ----------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 141,273,647 $ 347,335,927 Net realized gain 189,125 42,844 ---------------------------------------------------------------------------------------------- Increase in Net Assets From Operations 141,462,772 347,378,771 ---------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTES 2 AND 6): Net investment income (141,273,647) (347,378,771) ---------------------------------------------------------------------------------------------- Decrease in Net Assets From Distributions to Shareholders (141,273,647) (347,378,771) ---------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 7): Net proceeds from sale of shares 86,286,428,316 91,261,777,742 Net asset value of shares issued for reinvestment of dividends 137,283,219 336,979,727 Net asset value of shares issued in connection with the transfer of the Smith Barney Money Funds, Inc. -- Retirement Portfolio's net assets (Note 9) 646,749,540 -- Cost of shares reacquired (90,616,867,506) (100,599,025,378) ---------------------------------------------------------------------------------------------- Decrease in Net Assets From Fund Share Transactions (3,546,406,431) (9,000,267,909) ---------------------------------------------------------------------------------------------- Decrease in Net Assets (3,546,217,306) (9,000,267,909) NET ASSETS: Beginning of year 23,184,297,884 32,184,565,793 ---------------------------------------------------------------------------------------------- End of year $ 19,638,080,578 $ 23,184,297,884 ----------------------------------------------------------------------------------------------
See Notes to Financial Statements. 13 Smith Barney Money Funds, Inc. | 2003 Annual Report STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the Years Ended December 31, Government Portfolio 2003 2002 ----------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 19,792,678 $ 45,672,627 Net realized gain 26,082 51,600 ---------------------------------------------------------------------------------------------------- Increase in Net Assets From Operations 19,818,760 45,724,227 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTES 2 AND 6): Net investment income (19,792,678) (45,724,227) Net realized gains (6,696) -- ---------------------------------------------------------------------------------------------------- Decrease in Net Assets From Distributions to Shareholders (19,799,374) (45,724,227) ---------------------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 7): Net proceeds from sale of shares 9,903,440,532 11,059,499,198 Net asset value of shares issued for reinvestment of dividends 19,286,025 44,636,094 Cost of shares reacquired (10,516,977,932) (11,970,131,557) ---------------------------------------------------------------------------------------------------- Decrease in Net Assets From Fund Share Transactions (594,251,375) (865,996,265) ---------------------------------------------------------------------------------------------------- Decrease in Net Assets (594,231,989) (865,996,265) NET ASSETS: Beginning of year 3,384,993,380 4,250,989,645 ---------------------------------------------------------------------------------------------------- End of year $ 2,790,761,391 $ 3,384,993,380 ----------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 14 Smith Barney Money Funds, Inc. | 2003 Annual Report NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies Smith Barney Money Funds, Inc. ("Company"), a Maryland corporation, is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Company consists of two separate investment funds ("Funds"): the Cash Portfolio and the Government Portfolio. The significant accounting policies consistently followed by the Funds are: (a) transactions in money market instruments and U.S. government obligations are accounted for on trade date; (b) the Funds use 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) class specific expenses are charged to each Fund and each class; management fees and general fund expenses are allocated on the basis of relative net assets of each Fund and each class or on another reasonable basis; (e) gains or losses on the sale of securities are calculated by using the specific identification method; (f ) the character of income and gains to be distributed is determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. At December 31, 2003, reclassifications were made to the capital accounts of Cash Portfolio to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. Net investment income, net realized gains and net assets were not affected by this adjustment; (g) the Funds 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 (h) 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 Fund 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 Fund's shares on the payable date. 15 Smith Barney Money Funds, Inc. | 2003 Annual Report NOTES TO FINANCIAL STATEMENTS (CONTINUED) Capital gain distributions, if any, are taxable to shareholders, and are declared and paid annually. 3. Management Agreement and Other Transactions Smith Barney Fund Management LLC ("SBFM"), an indirect wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment manager to the Funds. As compensation for its services, each Fund pays SBFM a daily fee. Effective July 1, 2003, the Cash and Government Portfolios pay SBFM a fee calculated at the following rates: 0.45% on the first $1.0 billion of each of the Fund's average daily net assets, 0.425% on the next $1.0 billion; 0.40% on the next $3.0 billion; 0.375% on the next $5.0 billion and 0.35% on each of the Fund's average daily net assets in excess of $10.0 billion. Prior to July 1, 2003, the fees were calculated at the following rates: Cash Portfolio: 0.45% on the first $6.0 billion of the Fund's 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 Fund's average daily net assets in excess of $18.0 billion; and Government Portfolio: 0.45% on the first $2.5 billion of the Fund's average daily net assets, 0.40% on the next $2.5 billion and 0.35% on the Fund's average daily net assets in excess of $5.0 billion. These fees were calculated daily and paid monthly. During the year ended December 31, 2003, the Government Portfolio's Class A, L and Y shares had voluntary expense limitations in place of 0.70% for each class respectively, resulting in waived management fees totaling $28,289 for Class A and L shares. These expense limitations can be terminated at any time by SBFM. Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the Funds' transfer agent. PFPC Inc. ("PFPC") and Primerica Shareholder Services ("PSS"), another subsidiary of Citigroup, act as the Funds' 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, 2003, the Funds' paid transfer agent fees of $14,970,197 and $987,546 for the Cash and Government Portfolios, respectively, to CTB. Citigroup Global Markets Inc. ("CGM") (formerly known as Salomon Smith Barney Inc.) and PFS Distributors, Inc., both of which are subsidiaries of Citigroup, act as the Funds' distributors. All officers and one Director of the Company are employees of Citigroup or its affiliates. 16 Smith Barney Money Funds, Inc. | 2003 Annual Report NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. Repurchase Agreements Each Fund purchases, and the custodian takes possession of , U.S. government securities from securities dealers subject to agreements to resell the securities to the sellers at a future date (generally, the next business day), at an agreed-upon higher repurchase price. The Funds require continual maintenance of the market value (plus accrued interest) of the collateral in amounts at least equal to the repurchase price. At December 31, 2003, the Cash Portfolio did not have any repurchase agreements outstanding. 5. Class Specific Expenses Pursuant to a Rule 12b-1 Distribution Plan, each Fund makes payments to CGM for assistance in distributing Class A and L shares calculated at an annual rate of 0.10% of the average daily net assets of each class, respectively. For the year ended December 31, 2003, total Rule 12b-1 Distribution Plan fees, which are accrued daily and paid monthly, were as follows:
Class A Class L ---------------------------------------- Cash Portfolio $20,705,601 $376 ---------------------------------------- Government Portfolio 3,152,578 72 ----------------------------------------
For the year ended December 31, 2003, total Shareholder Servicing fees were as follows:
Class A Class L Class Y ------------------------------------------------ Cash Portfolio $10,939,252 $157 $42,330 ------------------------------------------------ Government Portfolio 559,107 3 202 ------------------------------------------------
For the year ended December 31, 2003, total Shareholder Communication expenses were as follows:
Class A Class L Class Y --------------------------------------------- Cash Portfolio $475,696 $20 $23 --------------------------------------------- Government Portfolio 26,339 -- 10 ---------------------------------------------
17 Smith Barney Money Funds, Inc. | 2003 Annual Report NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. Distributions Paid to Shareholders by Class
Year Ended Year Ended Cash Portfolio December 31, 2003 December 31, 2002 --------------------------------------------------------- Net Investment Income Class A $139,522,047 $340,865,876 Class L 2,519 3,979 Class Y 738,527 846,964 Class Z * 1,010,554 5,661,952 --------------------------------------------------------- Total $141,273,647 $347,378,771 --------------------------------------------------------- Government Portfolio --------------------------------------------------------- Class A Net investment income $ 19,757,661 $ 45,443,904 Net realized gains 6,685 -- --------------------------------------------------------- Total $ 19,764,346 $ 45,443,904 --------------------------------------------------------- Class L Net investment income $ 467 $ 1,376 Net realized gains 0** -- --------------------------------------------------------- Total $ 467 $ 1,376 --------------------------------------------------------- Class Y Net investment income $ 34,550 $ 278,947 Net realized gains 11 -- --------------------------------------------------------- Total $ 34,561 $ 278,947 ---------------------------------------------------------
* As of April 21, 2003, Class Z shares were fully redeemed. **Amount represents less than $1. 7. Capital Shares The Company 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 shares can only be purchased by participants in the Smith Barney 401(k) Program. 18 Smith Barney Money Funds, Inc. | 2003 Annual Report NOTES TO FINANCIAL STATEMENTS (CONTINUED) Transactions in shares of each Fund were as follows:
Year Ended Year Ended Cash Portfolio December 31, 2003 December 31, 2002 ------------------------------------------------------------------------------ Class A Shares sold 86,041,295,627 90,760,175,185 Shares issued on reinvestment 135,909,343 330,807,374 Net asset value of shares issued in connection with the transfer of the Smith Barney Money Funds, Inc. -- Retirement Portfolio's net assets (Note 9) 646,749,540 -- Shares reacquired (90,061,010,242) (100,060,391,471) ------------------------------------------------------------------------------ Net Decrease (3,237,055,732) (8,969,408,912) ------------------------------------------------------------------------------ Class L Shares sold 97,225 88,366 Shares issued on reinvestment 2,512 3,944 Shares reacquired (65,475) (49,149) ------------------------------------------------------------------------------ Net Increase 34,262 43,161 ------------------------------------------------------------------------------ Class Y Shares sold 114,923,543 168,716,757 Shares issued on reinvestment 418,995 524,759 Shares reacquired (50,994,850) (166,022,311) ------------------------------------------------------------------------------ Net Increase 64,347,688 3,219,205 ------------------------------------------------------------------------------ Class Z* Shares sold 130,111,921 332,797,434 Shares issued on reinvestment 952,375 5,643,650 Shares reacquired (504,796,939) (372,562,447) ------------------------------------------------------------------------------ Net Decrease (373,732,643) (34,121,363) ------------------------------------------------------------------------------ Government Portfolio ------------------------------------------------------------------------------ Class A Shares sold 9,829,329,633 11,000,216,447 Shares issued on reinvestment 19,251,108 44,356,635 Shares reacquired (10,441,931,975) (11,890,947,145) ------------------------------------------------------------------------------ Net Decrease (593,351,234) (846,374,063) ------------------------------------------------------------------------------ Class L Shares sold 8,682 42,696 Shares issued on reinvestment 414 1,372 Shares reacquired (126,545) (35,623) ------------------------------------------------------------------------------ Net Increase (Decrease) (117,449) 8,445 ------------------------------------------------------------------------------ Class Y Shares sold 74,102,215 59,240,055 Shares issued on reinvestment 34,503 278,087 Shares reacquired (74,919,412) (79,148,789) ------------------------------------------------------------------------------ Net Decrease (782,694) (19,630,647) ------------------------------------------------------------------------------
*As of April 21, 2003, Class Z shares were fully redeemed. 19 Smith Barney Money Funds, Inc. | 2003 Annual Report NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. Income Tax Information and Distributions to Shareholders At December 31, 2003, the tax basis components of distributable earnings were:
Cash Government Portfolio Portfolio --------------------------------------------------- Undistributed ordinary income $1,715,325 $275,728 ---------------------------------------------------
The tax character of distributions paid during the year ended December 31, 2003 were:
Cash Government Portfolio Portfolio --------------------------------------------------- Ordinary income $141,273,647 $19,799,374 ---------------------------------------------------
At December 31, 2002, the tax basis components of distributable earnings were:
Cash Government Portfolio Portfolio --------------------------------------------------- Undistributed ordinary income $1,519,103 $259,927 ---------------------------------------------------
The tax character of distributions paid during the year ended December 31, 2002 were:
Cash Government Portfolio Portfolio --------------------------------------------------- Ordinary income $347,378,771 $45,724,227 ---------------------------------------------------
9. Transfer of Net Assets On December 5, 2003, the Cash Portfolio acquired the assets and certain liabilities of Retirement Portfolio pursuant to a plan of reorganization approved by Retirement Portfolio shareholders on July 30, 2003. Total shares issued by the Cash Portfolio and the total net assets of the Retirement Portfolio and the Cash Portfolio on the date of the transfer were as follows:
Shares Issued Total Net Assets by the Cash Total Net Assets of of the Cash Acquired Fund Portfolio Retirement Portfolio Portfolio ------------------------------------------------------------------------ Retirement Portfolio 646,749,540 $646,749,540 $19,634,679,276 ------------------------------------------------------------------------
Total net assets of the Cash Portfolio immediately after the transfer were $20,281,428,816. The transaction was structured to qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended. 20 Smith Barney Money Funds, Inc. | 2003 Annual Report NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10.Additional Information The Funds have received the following information from Citigroup Asset Management ("CAM"), the Citigroup business unit which includes the Funds' Investment Manager and other investment advisory companies, all of which are indirect, wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an affiliate, into the transfer agent business in the period 1997-1999. As CAM currently understands the facts, at the time CAM decided to enter the transfer agent business, CAM sub-contracted for a period of five years certain of the transfer agency services to a third party and also concluded a revenue guarantee agreement with this sub-contractor providing that the sub-contractor would guarantee certain benefits to CAM or its affiliates (the "Revenue Guarantee Agreement"). In connection with the subsequent purchase of the sub-contractor's business by an affiliate of the current sub-transfer agent (PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee Agreement was amended eliminating those benefits in exchange for arrangements that included a one-time payment from the sub-contractor. The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue Guarantee Agreement with the sub-contractor at the time the Boards considered and approved the transfer agent arrangements. Nor were the Boards informed of the subsequent amendment to the Revenue Guarantee Agreement when that occurred. CAM has begun to take corrective actions. CAM will pay to the applicable funds approximately $17 million (plus interest) that CAM and its affiliates received from the Revenue Guarantee Agreement and its amendment. CAM also plans an independent review to verify that the transfer agency fees charged by CAM were fairly priced as compared to competitive alternatives. CAM is instituting new procedures and making changes designed to ensure no similar arrangements are entered into in the future. CAM has briefed the SEC, the New York State Attorney General and other regulators with respect to this matter, as well as the U.S. Attorney who is investigating the matter. CAM is cooperating with governmental authorities on this matter, the ultimate outcome of which is not yet determinable. 21 Smith Barney Money Funds, Inc. | 2003 Annual Report 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 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------- Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00 ---------------------------------------------------------------------------- Net investment income 0.007 0.013 0.037 0.058 0.046 Dividends from net investment income (0.007) (0.013) (0.037) (0.058) (0.046) ---------------------------------------------------------------------------- Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00 ---------------------------------------------------------------------------- Total Return 0.67% 1.28% 3.78% 5.98% 4.73% ---------------------------------------------------------------------------- Net Assets, End of Year (billions) $20 $23 $32 $55 $45 ---------------------------------------------------------------------------- Ratios to Average Net Assets: Expenses/(1)/ 0.56% 0.62% 0.59% 0.57% 0.62% Net investment income 0.68 1.27 3.93 5.84 4.63 ---------------------------------------------------------------------------- Class L Shares -------------------------------------- Cash Portfolio 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------- Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00 ---------------------------------------------------------------------------- Net investment income 0.007 0.013 0.037 0.058 0.047 Dividends from net investment income (0.007) (0.013) (0.037) (0.058) (0.047) ---------------------------------------------------------------------------- Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00 ---------------------------------------------------------------------------- Total Return 0.67% 1.29% 3.81% 6.01% 4.78% ---------------------------------------------------------------------------- Net Assets, End of Year (000s) $381 $347 $304 $193 $582 ---------------------------------------------------------------------------- Ratios to Average Net Assets: Expenses/(1)/ 0.55% 0.61% 0.56% 0.54% 0.57% Net investment income 0.67 1.28 3.53 5.58 4.70 ---------------------------------------------------------------------------- Class Y Shares -------------------------------------- Cash Portfolio 2003 2002 2001 2000 1999 ---------------------------------------------------------------------------- Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00 ---------------------------------------------------------------------------- Net investment income 0.008 0.014 0.039 0.060 0.048 Dividends from net investment income (0.008) (0.014) (0.039) (0.060) (0.048) ---------------------------------------------------------------------------- Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00 ---------------------------------------------------------------------------- Total Return 0.78% 1.45% 3.94% 6.17% 4.91% ---------------------------------------------------------------------------- Net Assets, End of Year (millions) $128 $63 $60 $25 $67 ---------------------------------------------------------------------------- Ratios to Average Net Assets: Expenses/(1)/ 0.44% 0.45% 0.40% 0.38% 0.42% Net investment income 0.76 1.44 3.96 5.92 4.76 ----------------------------------------------------------------------------
(1) The fund has a voluntary expense limitation. Expense ratios for each class will not exceed 0.70%. 22 Smith Barney Money Funds, Inc. | 2003 Annual Report FINANCIAL HIGHLIGHTS (CONTINUED) For a share of each class of capital stock outstanding throughout each year ended December 31, unless otherwise noted:
Class A Shares ---------------------------------------- Government Portfolio 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------ Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00 ------------------------------------------------------------------------------ Net investment income/(1)/ 0.006 0.012 0.036 0.057 0.045 Dividends from net investment income (0.006) (0.012) (0.036) (0.057) (0.045) Distributions from net realized gains (0.000)* -- -- -- -- ------------------------------------------------------------------------------ Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00 ------------------------------------------------------------------------------ Total Return/(2)/ 0.62% 1.22% 3.67% 5.85% 4.60% ------------------------------------------------------------------------------ Net Assets, End of Year (billions) $3 $3 $4 $6 $5 ------------------------------------------------------------------------------ Ratios to Average Net Assets: Expenses/(1)(3)/ 0.56% 0.61% 0.56% 0.59% 0.61% Net investment income 0.63 1.21 3.74 5.71 4.50 ------------------------------------------------------------------------------ Class L Shares ---------------------------------------- Government Portfolio 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------ Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00 ------------------------------------------------------------------------------ Net investment income/(1)/ 0.006 0.012 0.036 0.057 0.045 Dividends from net investment income (0.006) (0.012) (0.036) (0.057) (0.045) Distributions from net realized gains (0.000)* -- -- -- -- ------------------------------------------------------------------------------ Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00 ------------------------------------------------------------------------------ Total Return/(2)/ 0.58% 1.21% 3.68% 5.87% 4.62% ------------------------------------------------------------------------------ Net Assets, End of Year (000s) $14 $131 $123 $121 $113 ------------------------------------------------------------------------------ Ratios to Average Net Assets: Expenses/(1)(3)/ 0.61% 0.61% 0.63% 0.58% 0.59% Net investment income 0.65 1.21 3.53 5.70 4.47 ------------------------------------------------------------------------------
(1) The investment manager has waived a portion of its fees for the year ended December 31, 2003. If such fees were not waived, the per share decreases to net investment income and the actual expense ratios would have been as follows: Per Share Decreases to Expense Ratios Net Investment Income Without Fee Waivers --------------------- ------------------- 2003 2003 ---- ---- Class A $0.0001 0.57% Class L 0.0001 0.62 (2) Performance figures may reflect fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of fee waivers and/or expense reimbursements, the total return would be reduced. (3) The fund has a voluntary expense limitation. Expense ratios for each class will not exceed 0.70%. * Amount represents less than $0.001 per share. 23 Smith Barney Money Funds, Inc. | 2003 Annual Report 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 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------ Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00 ------------------------------------------------------------------------------ Net investment income 0.007 0.013 0.037 0.058 0.047 Dividends from net investment income (0.007) (0.013) (0.037) (0.058) (0.047) Distributions from net realized gains (0.000)* -- -- -- -- ------------------------------------------------------------------------------ Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00 ------------------------------------------------------------------------------ Total Return 0.75% 1.35% 3.78% 6.02% 4.78% ------------------------------------------------------------------------------ Net Assets, End of Year (millions) $1 $2 $21 $20 $8 ------------------------------------------------------------------------------ Ratios to Average Net Assets: Expenses/(1)/ 0.44% 0.48% 0.44% 0.44% 0.45% Net investment income 0.76 1.38 3.69 5.85 4.64 ------------------------------------------------------------------------------
(1) The fund has a voluntary expense limitation. Expense ratios for each class will not exceed 0.70%. * Amount represents less than $0.001 per share. TAX INFORMATION (UNAUDITED) For Federal tax purposes, the Fund hereby designates for the fiscal year ended December 31, 2003: 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 0.60% . Government Portfolio 29.24 24 Smith Barney Money Funds, Inc. | 2003 Annual Report INDEPENDENT AUDITORS' REPORT The Shareholders and Board of Directors of 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 and Government Portfolios) ("Funds") as of December 31, 2003, 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, 2003, 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, 2003, 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. /s/ KPMG LLP New York, New York February 13, 2004 25 Smith Barney Money Funds, Inc. | 2003 Annual Report 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 Other of Office* Principal Complex Board Position(s) and Length Occupation(s) Overseen Memberships 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 Director of 27 None 13732 LeHavre Drive 1999 Signet Group PLC Frenchman's Creek Palm Beach Gardens, FL 33410 Age 76 Allan J. Bloostein Director Since President of Allan Bloostein 34 Taubman 27 West 67th Street 1999 Associates, a consulting Realty Apt. 5FW firm. Former Director of CVS Corp. New York, NY 10023 Corp. Age 74 Jane F. Dasher Director Since Controller of PBK 27 None Korsant Partners 1999 Holdings Inc., a family 283 Greenwich Avenue investment company 3rd Floor Greenwich, CT 06830 Age 54 Donald R. Foley Director Since Retired 27 None 3668 Freshwater Drive 1982 Jupiter, FL 33477 Age 81 Richard E. Hanson, Jr. Director Since Retired; Former Head of the 27 None 2751 Vermont Route 140 1999 New Atlanta Jewish Poultney, VT 05764 Community High School Age 62 Paul Hardin Director Since Professor of Law & 34 None 12083 Morehead 1994 Chancellor Emeritus at the Chapel Hill, NC University of North Carolina 27514-8426 Age 72 Roderick C. Rasmussen Director Since Investment Counselor 27 None 9 Cadence Court 1982 Morristown, NJ 07960 Age 77 John P. Toolan Director Since Retired 27 John 13 Chadwell Place 1992 Hancock Morristown, NJ 07960 Funds Age 73
26 Smith Barney Money Funds, Inc. | 2003 Annual Report ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of Portfolios Term in Fund Other of Office* Principal Complex Board Position(s) and Length Occupation(s) Overseen Memberships Held with of Time During By Held by Name, Address and Age Fund Served Past Five Years Director Director --------------------------------------------------------------------------------------------------------- Interested Director: R. Jay Gerken, CFA** Chairman, Since Managing Director of 221 None Citigroup Asset Management President and 2002 Citigroup Global Markets ("CAM") Chief Inc. ("CGM"); Chairman, 399 Park Avenue Executive President and Chief 4th Floor Officer Executive Officer of Smith New York, NY 10022 Barney Fund Management Age 52 LLC ("SBFM"), Travelers Investment Adviser, Inc ("TIA") and Citi Fund Management Inc. ("CFM"); President and Chief Executive Officer of certain mutual funds associated with Citigroup Inc. ("Citigroup"); Formerly, Portfolio Manager of Smith Barney Allocation Series Inc. (from 1996 to 2001) and Smith Barney Growth and Income Fund (from 1996 to 2000) Officers: Andrew B. Shoup Senior Vice Since Director of CAM; Senior Vice N/A N/A CAM President and 2003 President and Chief 125 Broad Street Chief Administrative Officer of 10th Floor Administrative mutual funds associated New York, NY 10004 Officer with Citigroup; Treasurer of Age 47 certain mutual funds associated with Citigroup; Head of International Funds Administration of CAM (from 2001 to 2003); Director of Global Funds Administration of CAM (from 2000 to 2001); Head of U.S. Citibank Funds Administration of CAM (from 1998 to 2000) Richard L. Peteka Chief Since Director of CGM; Chief N/A N/A CAM Financial 2002 Financial Officer and 125 Broad Street Officer and Treasurer of certain mutual 11th Floor Treasurer funds associated with New York, NY 10004 Citigroup; Director and Head Age 42 of Internal Control for CAM U.S. Mutual Fund Administration (from 1999 to 2002); Vice President, Head of Mutual Fund Administration and Treasurer at Oppenheimer Capital (from 1996 to 1999)
27 Smith Barney Money Funds, Inc. | 2003 Annual Report ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of Portfolios Term in Fund Other of Office* Principal Complex Board Position(s) and Length Occupation(s) Overseen Memberships Held with of Time During By Held by Name, Address and Age Fund Served Past Five Years Director Director -------------------------------------------------------------------------------------------------------- Martin R. Hanley Vice Since Portfolio Manager N/A N/A CAM President and 1993 399 Park Avenue Investment 4th Floor Officer New York, NY 10022 Age 36 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 49 Andrew Beagley Chief Since Director of CGM (since N/A N/A CAM Anti-Money 2002 2000); Director of 399 Park Avenue, 4th Floor Laundering Compliance, North America, New York, NY 10022 Compliance CAM (since 2000); Chief Age 40 Officer Anti-Money Laundering Compliance Officer and Vice President of certain mutual funds associated with Citigroup; Director of Compliance Europe, the Middle East and Africa, CAM (from 1999 to 2000); Compliance Officer, Salomon Brothers Asset Management Limited, Smith Barney Global Capital Management Inc., Salomon Brothers Asset Management Asia Pacific Limited (from 1997 to 1999) Kaprel Ozsolak Controller Since Vice President of CGM; N/A N/A CAM 2002 Controller of certain funds 125 Broad Street associated with Citigroup 11th Floor New York, NY 10004 Age 38 Robert I. Frenkel Secretary and Since Managing Director and N/A N/A CAM Chief Legal 2003 General Counsel of Global 300 First Stamford Place Officer Mutual Funds for CAM and 4th Floor its predecessor (since 1994); Stamford, CT 06902 Secretary of CFM; Secretary Age 48 and Chief Legal Officer of mutual funds associated with Citigroup
-------- * Each Director and officer serves until his or her successor has been duly elected and qualified. **Mr. Gerken is an "interested person" of the Fund as defined in the Investment Company Act of 1940, as amended, because Mr. Gerken is an officer of SBFM and certain of its affiliates. 28 Smith Barney Money Funds, Inc. | 2003 Annual Report SMITH BARNEY MONEY FUNDS, INC. DIRECTORS OFFICERS (continued) Lee Abraham Kaprel Ozsolak Allan J. Bloostein Controller Jane F. Dasher Donald R. Foley Robert I. Frenkel R. Jay Gerken, CFA Secretary and Chief Chairman Legal Officer Richard E. Hanson, Jr. Paul Hardin INVESTMENT MANAGER Roderick C. Rasmussen Smith Barney Fund John P. Toolan Management LLC OFFICERS DISTRIBUTORS R. Jay Gerken, CFA Citigroup Global Markets Inc. President and PFS Distributors, Inc. Chief Executive Officer CUSTODIAN Andrew B. Shoup State Street Bank and Senior Vice President Trust Company and Chief Administrative Officer TRANSFER AGENT Citicorp Trust Bank, fsb. Richard L. Peteka 125 Broad Street, 11th Floor Chief Financial Officer New York, New York 10004 and Treasurer SUB-TRANSFER AGENTS Martin R. Hanley PFPC Inc. Vice President and P.O. Box 9699 Investment Officer Providence, Rhode Island 02940-9699 Kevin Kennedy Vice President and Primerica Shareholder Services Investment Officer P.O. Box 9662 Providence, Rhode Island Andrew Beagley 02940-9662 Chief Anti-Money Laundering Compliance Officer
Smith Barney Money Funds, Inc. Cash Portfolio Government Portfolio The Funds are separate investment funds of the Smith Barney Money Funds, Inc., a Maryland corporation. 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 Funds. If used as sales material after March 31, 2004, 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. (C)2003 Citigroup Global Markets Inc. Member NASD, SIPC FD0858 2/04 04-6084 ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Board of Directors of the registrant has determined that Jane Dasher, the Chairman of the Board's Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an "audit committee financial expert," and has designated Ms. Dasher as the Audit Committee's financial expert. Ms. Dasher is an "independent" Trustee pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Item 4. Principal Accountant Fees and Services (a) Audit Fees for Smith Barney Money Funds, Inc. of $99,000 and $111,000 for the years ended 12/31/03 and 12/31/02. (b) Audit-Related Fees for Smith Barney Money Funds, Inc. of $6,000 and $0 for the years ended 12/31/03 and 12/31/02. (c) Tax Fees for Smith Barney Money Funds, Inc. of $6,000 and $5,700 for the years ended 12/31/03 and 12/31/02. These amounts represent aggregate fees paid for tax compliance, tax advice and tax planning services, which include (the filing and amendment of federal, state and local income tax returns, timely RIC qualification review and tax distribution and analysis planning) rendered by the Accountant to Smith Barney Money Funds, Inc. (d) There were no all other fees for Smith Barney Money Funds, Inc. for the years ended 12/31/03 and 12/31/02. (e) (1) Audit Committee's pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X. The Charter for the Audit Committee (the "Committee") of the Board of each registered investment company (the "Fund") advised by Smith Barney Fund Management LLC or Salomon Brothers Asset Management Inc. or one of their affiliates (each, an "Adviser") requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund's independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee. The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible. Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund ("Covered Service Providers") constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit. (2) (f) N/A (g) Non-audit fees billed - $100,000 and $1.2 million for the years ended 12/31/2003 and 12/31/2002. (h) Yes. The Smith Barney Money Funds, Inc. Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates which were not pre-approved (not requiring pre-approval) is compatible with maintaining the Accountant's independence. All services provided by the Accountant to the Smith Barney Money Funds, Inc. or to Service Affiliates which were required to be pre-approved were pre- approved as required. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. (a) Code of Ethics attached hereto. Exhibit 99.CODE ETH (b) Attached hereto. Exhibit 99.CERT Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 99.906CERT Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized. Smith Barney Money Funds, Inc. By: /s/ R. Jay Gerken R. Jay Gerken Chief Executive Officer of Smith Barney Money Funds, Inc. Date: March 8, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ R. Jay Gerken (R. Jay Gerken) Chief Executive Officer of Smith Barney Money Funds, Inc. Date: March 8, 2004 By: /s/ Richard L. Peteka (Richard L. Peteka) Chief Financial Officer of Smith Barney Money Funds, Inc. Date: March 8, 2004