Smith Barney
INTERMEDIATE
MUNICIPAL FUND, INC.
Semi-Annual Report
June 30, 1997
<PAGE>
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Smith Barney Intermediate Municipal Fund, Inc.
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Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney
Intermediate Municipal Fund, Inc. ("Fund") for the period ended June 30, 1997.
During the past six months, the Fund distributed income dividends totaling $0.29
per share. The table below shows the annualized distribution rate and six-month
total return based on the Fund's June 30, 1997 net asset value (NAV) per share
and its American Stock Exchange (AMEX) closing price.
Price Annualized Six-Month
Per Share Distribution Rate Total Returns
------------ ----------------- -------------
$10.48 (NAV) 5.50% 3.01%
$10.13 (AMEX) 5.69% 4.83%
In comparison, closed-end intermediate maturity municipal bond funds posted an
average total return of 2.89% based on NAV for the same period, according to
Lipper Analytical Services, Inc., an independent fund-tracking organization.
Market and Economic Overview
Over the last six months, the U.S. economy continued the steady expansion that
began nearly six years ago. Despite robust economic growth and historically low
unemployment, signs of emerging inflationary pressures have been absent.
However, at the beginning of the year, some economic indicators showed that the
U.S. economy may be overheating, raising investor fears of an acceleration in
the underlying rate of inflation. Specifically, the annualized Gross Domestic
Product (GDP) for the first quarter of 1997 was 5.9%, coming on the heels of an
already strong 3.8% reported for the fourth quarter of 1996. This continued
strength in the U.S. economy led the Federal Reserve Board ("Fed") to raise the
federal funds rate by 0.25% at their March 1997 meeting. (The federal funds rate
is the interest rate banks charge each other for overnight loans and a closely
watched indicator of the direction of interest rates.) As a result, both the
bond and equity markets experienced a correction and volatility increased as
investors remained divided over the possibility of a further tightening of
monetary policy by the Fed.
Although the U.S. economy continues to grow, there has not been any meaningful
increase in prices. In fact, the consumer price index (CPI) has risen at less
than a 2% annualized rate so far this year and wholesale prices, as
1
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represented by the producers price index (PPI), have actually fallen. In our
view, inflationary pressure remains well contained primarily because of global
competition and improved productivity.
Some economists have also cited what Fed Chairman Alan Greenspan has called
"heightened job insecurity" as another major reason for the apparent absence of
upward wage pressures in this current economic expansion. As more and more
countries become integrated into the global marketplace, U.S. corporations have
been forced to compete with the lower labor wages and production overheads
enjoyed by many other countries. At the same time, U.S. corporations have
benefited from the use of new technologies that have enabled businesses to
operate more efficiently and require fewer workers.
In response to the mounting evidence of a moderately growing U.S. economy, the
Fed declined to raise short-term interest rates at both its May and July
meetings. Chairman Greenspan further allayed investor fears of a possible
tightening of monetary policy when he delivered a fairly upbeat assessment of
the U.S. economy in his semi-annual report to Congress in July. Mr. Greenspan's
generally positive outlook on the U.S. economy led to a rally in both the bond
and equity markets, with stocks advancing to new record highs and sending the
yield on the benchmark 30 year U.S. Treasury bond down to around 6.4%.
Fund's Investment Strategy
The Smith Barney Intermediate Municipal Fund's investment objective is to
provide as high a level of current income exempt from federal income taxes as is
consistent with prudent investment management. We continue to follow an
investment strategy that emphasizes high-quality, high coupon issues. In
addition, we ladder the maturity and call structure of the Fund's portfolio in
order to provide a consistent stream of income.
As an intermediate-term municipal bond fund, the weighted average maturity of
the Fund's portfolio will not generally be more than ten years. During the past
six months, we have slightly extended the weighted average maturity of the Fund
from 9 to 9.5 years. We believe that by modestly lengthening the weighted
average maturity of the portfolio, the Fund is better positioned to provide
competitive returns over the long term without sacrificing a substantial amount
of current income.
Moreover, we have also maintained the Fund's high-quality credit orientation
during the reporting period. As of June 30, 1997, approximately 91.5% of the
Fund's holdings were rated investment grade or better by either Standard &
Poor's Ratings Service or Moody's Investors Services, Inc., with
2
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approximately 34.5% of the Fund's investments rated AAA. (Standard & Poor's
Ratings Services and Moody's Investors Service Inc. are two major credit
reporting and bond rating agencies.) The majority of the Fund's assets were
allocated among the following types of municipal bond issues as of June 30,
1997: hospital bonds (16.1%), multi-family housing bonds (10.1%), education
bonds (8.7%) and general obligation bonds (7.4%).
Municipal Bond Market Outlook
The bond market has continued to rally in response to the Fed's decision to
leave short-term interest rates unchanged and signs that the U.S. economy's
strong pace of growth is beginning to slow down. We believe that while there is
some risk that the Fed will find it necessary to raise interest rates again if
economic growth rebounds, we expect that short-term interest rates should hold
steady over the next several months.
Given the current economic environment of moderate growth with the relative
absence of inflationary pressure, we also believe that it will become
increasingly important for fixed-income investors to focus on the maturity and
call protection of their portfolios.
In the coming months, we expect a modest pick-up in municipal refinancing which
should improve the balance of supply and demand for municipal bonds. As more
municipalities recall their debt, there should be a greater supply of municipal
bond available for investors as these bonds are reissued with lower coupon
rates. For these reasons, we remain bullish on the municipal bond market for the
remainder of the year.
In closing, we thank you for your investment in the Smith Barney Intermediate
Municipal Fund, Inc. We look forward to continuing to help you achieve your
financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman Vice President
July 23, 1997
3
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Schedule of Investments (unaudited) June 30, 1997
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
====================================================================================================
<C> <C> <S> <C>
Education -- 8.7%
$1,700,000 A* Arizona Education Loan Marketing Corp., 7.000% due 3/1/02(a) $1,825,375
1,030,000 A* Brazos, TX Higher Education Authority Student Loan Revenue,
6.300% due 9/1/98(a) 1,044,162
875,000 NR Idaho Student Loan Fund Refunding Marketing Association Inc.,
Student Loan Refunding, 6.400% due 10/1/99,
Sinking Fund Average Life 1/30/99 882,656
400,000 Aaa* Joshua, TX Independent School Board, Capital Appreciation,
Series C, PSFG, zero coupon due 2/15/12 183,000
310,000 AAA Massachusetts Education Loan Authority Issue E, Series A,
AMBAC-Insured, 6.850% due 1/1/04(a) 331,313
605,000 A* Montana Higher Education Student Assistance Corp.,
Student Loan Revenue, 7.050% due 6/1/04,
Sinking Fund Average Life 7/24/02(a) 644,325
1,000,000 A* Nebraska Higher Education Loan Program,
6.450% due 6/1/18(a) 1,036,250
500,000 A1* New England Education Loan Marketing Corp.,
Massachusetts Refunding Student Loan Revenue,
6.900% due 11/1/09(a) 547,500
1,000,000 Aaa* Northwest, TX Independent School District, Capital Appreciation,
PSFG, zero coupon due 8/15/13 401,250
1,885,000 AAA Romulus, MI Community Schools, Capital Appreciation,
FGIC-Insured, zero coupon due 5/1/20 520,731
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7,416,562
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Electric -- 2.3%
1,750,000 Aa1* Washington Public Power Supply System Nuclear Power
Project #1, 7.750% due 7/1/03 1,988,437
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Escrowed to Maturity(b) -- 8.9%
175,000 AAA Los Angeles Hollywood, CA Presbyterian Single-Family Mortgage,
9.625% due 7/1/13, Sinking Fund Average Life 2/28/08 228,594
965,000 AAA Metropolitan Nashville, TN Airport Authority Revenue,
7.500% due 7/1/05, Sinking Fund Average Life 8/2/01 1,056,675
559,000 AAA New Jersey State Turnpike Authority Revenue Refunding,
10.375% due 1/1/03, Sinking Fund Average Life 5/23/00 662,415
1,855,000 Aaa* New York State Urban Development Corp. Revenue,
7.300% due 4/1/01 2,038,181
275,000 AAA Ohio State Water Development Authority Revenue,
Armco Steel Corp., 7.875% due 11/1/00,
Sinking Fund Average Life 11/1/98 294,250
1,605,000 AAA Ohio State Water Development Authority Safe Water, Series 2,
9.375% due 12/1/10, Sinking Fund Average Life 3/28/04(c) 2,018,287
110,000 AAA Salt Lake City, UT Water Conservancy Distribution Revenue,
Series A, MBIA-Insured, 10.875% due 10/1/02,
Sinking Fund Average Life 2/26/00 128,150
</TABLE>
See Notes to Financial Statements.
4
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Schedule of Investments (unaudited) (continued) June 30, 1997
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
====================================================================================================
<C> <C> <S> <C>
Escrowed to Maturity(b) -- 8.9% (continued)
$1,000,000 AAA Southwest Illinois Development Authority Hospital Revenue
Refunding, Wood River Hospital, 6.875% due 8/1/03,
Sinking Fund Average Life 9/19/01 $1,115,000
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7,541,552
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Finance -- 3.2%
1,000,000 A New York Local Government Assistance Corp., Series 1992A,
6.400% due 4/1/02 1,071,250
1,500,000 A Pennsylvania State Finance Authority Beaver County, Revenue
Refunding Bonds, Municipal Capital Improvement Program,
Series 1993, 6.600% due 11/1/09 1,612,500
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2,683,750
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General Obligation -- 7.4%
1,000,000 AAA Chicago, IL GO, AMBAC-Insured, 6.100% due 1/1/03(c) 1,067,500
1,000,000 AAA District of Columbia GO Refunding, Series B,
MBIA-Insured, 6.750% due 6/1/01 1,034,940
1,000,000 AA Harvey, IL GO Refunding, Asset Guaranty-Insured,
6.700% due 2/1/09 1,063,750
1,250,000 AAA New Haven, CT GO, Series 1992A, 9.250% due 3/1/02,
Sinking Fund Average Life 3/1/00 1,453,125
1,500,000 A-+ New York City GO, Series 1992D, 7.300% due 2/1/01 1,618,125
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6,237,440
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Government Facilities -- 0.8%
2,805,000 AAA Metropolitan Pier & Exposition Authority, IL, Tax Revenue,
Capital Appreciation, McCormick, Series A, MBIA-Insured,
zero coupon due 6/15/22 673,200
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Hospitals -- 16.1%
1,100,000 NR Bowie, TX Hospital Authority Revenue, 6.250% due 8/15/16 1,084,875
Colorado Health Facilities Authority Revenue,
Rocky Mountain Adventist:
1,500,000 BBB 6.250% due 2/1/04 1,567,500
1,500,000 BBB 6.625% due 2/1/13 1,560,000
820,000 BBB+ Defiance, OH Hospital Revenue Refunding, Defiance Hospital,
7.625% due 11/1/03 835,941
1,040,000 AAA Delaware State Health Facilities Authority Refunding,
Medical Center of Delaware, MBIA-Insured,
6.250% due 10/1/03 1,134,900
1,250,000 A Harris County, TX Health Facilities Development Corp. Hospital
Revenue, Memorial Hospital Systems, 7.000% due 6/1/03 1,364,062
1,000,000 A Indiana Health Facilities Authority Hospital Revenue Refunding
Bonds, St. Anthony Medical Center, 7.000% due 10/1/06 1,073,750
1,000,000 AAA Maryland Health & Higher Education Facility Authority Revenue,
(Mercy Medical Center Project), FSA-Insured,
6.500% due 7/1/13 1,131,250
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
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Schedule of Investments (unaudited) (continued) June 30, 1997
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
====================================================================================================
<C> <C> <S> <C>
Hospitals -- 16.1% (continued)
$ 405,000 BBB- McKean County, PA Hospital Authority Revenue,
(Bradford Hospital Project), 6.100% due 10/1/20 $ 402,469
Orange County, FL Health Facilities Authority Hospital
Revenue Bonds, Adventist Health Systems/Sunbelt:
1,180,000 AAA AMBAC-Insured, 6.875% due 11/15/04 1,259,650
500,000 AAA CGIC-Insured, FLAIRS, 6.270% due 11/15/07(d) 526,875
380,000 AA Taos County, NM Gross Receipts Tax Revenue,
Asset Guaranty-Insured, 6.125% due 12/1/01 396,150
1,250,000 AA- Washington State Health Care Facilities Authority Revenue,
Sacred Heart Medical Center, 6.750% due 2/15/06 1,351,563
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13,688,985
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Housing: Multi-Family -- 10.1%
935,000 AA Beaumont, TX Multi-Family Housing Finance, Regency
Place Apartments, Asset Guaranty-Insured,
7.000% mandatory tender 10/1/03(c) 964,219
610,000 AAA Charlotte, NC Mortgage Revenue Refunding, Double Oaks
Apartments, Series A, FHA-Insured, 7.300% due 11/15/07 660,325
945,000 AAA Hudson County, NJ Improvement Authority, Multi-Family
Housing Revenue Bonds, 6.600% due 6/1/04(a) 1,004,062
1,000,000 A2* McMinnville, TN Housing Authority Revenue Refunding,
1st Mortgage, Beersheba Heights, 6.000% due 10/1/09 1,020,000
500,000 AAA Missouri State Housing Development Community
Mortgage Revenue, Series C, GNMA/FNMA-Collateralized,
7.450% due 9/1/27 562,500
Mount Vernon, IL Elderly Housing Corp., First Lien Revenue
Bonds, Section 8 Assisted, Series 1979:
160,000 Baa1* 7.875% due 4/1/01 160,354
170,000 Baa1* 7.875% due 4/1/02 170,376
185,000 Baa1* 7.875% due 4/1/03 185,409
200,000 Baa1* 7.875% due 4/1/04 200,442
215,000 Baa1* 7.875% due 4/1/05 215,475
235,000 Baa1* 7.875% due 4/1/06 235,519
250,000 Baa1* 7.875% due 4/1/07 250,553
270,000 Baa1* 7.875% due 4/1/08 270,597
750,000 AAA San Jose, CA Multi-Family Housing, (Country Brook Project),
FNMA-Collateralized, 6.500% mandatory tender 4/1/02 781,875
980,000 Aa* Streamwood, IL Multi-Family Housing Revenue,
(Southgate Project), FHA-Insured, 6.200% due 11/1/07 1,029,000
865,000 A+ Tulsa, OK Housing Assistance Corp., 7.250% due 10/1/07,
Sinking Fund Average Life 8/12/03(a) 875,813
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8,586,519
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</TABLE>
See Notes to Financial Statements.
6
<PAGE>
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Schedule of Investments (unaudited) (continued) June 30, 1997
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
====================================================================================================
<C> <C> <S> <C>
Housing: Single-Family -- 5.1%
$ 495,000 AA Maine State Housing Authority, Mortgage Purchase, Series D3,
7.600% due 11/15/01, Sinking Fund Average Life 1/8/00(a) $ 514,800
490,000 AAA St. Louis County, MO Single-Family Mortgage Revenue,
MBIA-Insured, 6.750% due 4/1/10 493,165
1,000,000 AAA Texas Department of Housing and Community Affairs,
Collateralized Home Mortgage Revenue Bonds,
Series C, GNMA/FNMA-Collateralized, RIBS, 9.724%
due 7/2/24(a)(d) 1,185,000
1,000,000 AA+ Virginia State Housing Development Authority Commonwealth
Mortgage, Series H, 6.100% due 7/1/03 1,056,250
1,060,000 AA Wisconsin Housing and Education Development Authority,
Home Ownership Revenue, 6.350% due 3/1/01 1,098,425
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4,347,640
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Industrial Development -- 5.6%
1,000,000 A2* Alaska Individual Development Export Authority, Series A,
6.200% due 4/1/07(a) 1,060,000
1,000,000 A Kanawha, WV Commercial Development Revenue,
(May Department Store Project), 6.500% due 6/1/03 1,092,500
1,000,000 NR Newbern, TN Industrial Development Ltd. Obligation,
Newburn Rubber Inc., 7.900% due 3/1/00 1,053,750
675,000 AAA Philadelphia, PA Authority for Industrial Development
Lease Revenue, (City of Philadelphia Project),
Series A, MBIA-Insured, 5.375% due 2/15/27 650,531
900,000 NR Sussex County, DE Economic Development Revenue Refunding
Bonds, (Rehoboth Mall Project), Series 1992,
7.250% due 10/15/12 918,000
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4,774,781
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Miscellaneous -- 5.3%
1,000,000 BBB- Clarksville, TN Natural Gas Acquisition Corp. Gas Revenue,
Series A, 7.500% due 11/1/04 1,055,000
1,000,000 A* Hoffman Estates, IL Tax Increment Revenue, Junior Lien
Hoffman Estates Unconditional Guarantee,
Sears Roebuck & Co., 6.600% due 5/15/02 1,068,750
1,000,000 A- Illinois Development Finance Authority, City East of St. Louis,
6.875% due 11/15/05, Sinking Fund Average Life 7/26/03 1,062,500
500,000 Aaa* New York, NY City Industrial Development Agency,
Civic Facilities Revenue, Anti-Defamation League Foundation,
Series A, MBIA-Insured, 5.375% due 6/1/27 480,625
800,000 A South Dakota Economic Development Finance Authority,
APA Optics, Series A, 6.750% due 4/1/16(a) 860,000
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4,526,875
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</TABLE>
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1997
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
====================================================================================================
<C> <C> <S> <C>
Pollution Control -- 3.9%
$1,000,000 Aa3* Brazos River, TX Navigation District Brazoria County PCR,
6.750% due 2/1/10 $1,151,250
965,000 A* Broward County, FL (Resource South Project),
7.950% due 12/1/08 1,051,850
1,000,000 AAA Monroe County, MI PCR, (Detroit Edison Co. Project),
AMBAC-Insured, 6.350% due 12/1/04(a) 1,082,500
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3,285,600
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Pre-Refunded(e) -- 5.0%
1,000,000 AAA Harrisburg, PA Authority Lease Revenue, FSA-Insured,
(Call 6/1/01 @ 101), 6.500% due 6/1/04 1,072,500
110,000 AAA Indiana University Revenue, Series 1983N, (Call 7/1/01 @ 100),
10.000% due 7/1/03, Sinking Fund Average Life 12/22/99 127,600
900,000 A Nassau County, NY IDA (Hofstra University Project),
Series 1987, (Call 7/1/98 @ 100), 8.000% due 7/1/00 936,000
55,000 AAA Oklahoma State IDA Oklahoma Health Care Corp., Series A,
FGIC-Insured, (Various Call Dates), 9.125% due 11/1/08 69,575
1,830,000 A1* Southwest Allen, IN Multi-School Building Corp.,
1st Mortgage, (Call 1/15/02 @ 101), 6.700% due 7/15/04 1,994,700
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4,200,375
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Public Facilities -- 4.6%
1,000,000 AAA Cleveland, OH COP, (Cleveland Stadium Project),
AMBAC-Insured, 5.250% due 11/15/27 948,750
1,350,000 A Dekalb County, IN Redevelopment Authority Revenue,
Mini-Mill Public Improvement, 6.250% due 1/15/09 1,427,625
1,000,000 AA- La Crosse, WI Resource Recovery Revenue, (Northern States
Power Co. Project), 6.000% due 11/1/21(a) 1,043,750
2,500,000 AAA Southeast, WI Professional Baseball Park District Sales Tax
Revenue, MBIA-Insured, zero coupon due 12/15/27 437,500
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3,857,625
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Solid Waste -- 4.8%
2,000,000 Ba* Atlantic City, NJ Utility Authority Solid Waste Revenue,
7.000% due 3/1/02, Sinking Fund Average Life 4/20/00 2,027,500
2,000,000 BB Union County, NJ Utility Authority Solid Waste Revenue,
6.850% due 6/15/02(a) 2,005,000
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4,032,500
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Transportation -- 6.5%
500,000 AAA Dade County, FL Aviation Revenue Refunding,
Miami International Airport, Series A, FSA-Insured,
5.375% due 10/1/10(a) 498,125
2,035,000 AAA Dallas Fort Worth, TX Regional Airport Revenue Refunding,
Series 1992A, FGIC-Insured, 7.750% due 11/1/03 2,365,688
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
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Schedule of Investments (unaudited) (continued) June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
====================================================================================================
<C> <C> <S> <C>
Transportation -- 6.5% (continued)
$1,920,000 Baa1* Denver, CO City and County Airport Revenue, Series 1990A,
8.250% due 11/15/02(a) $ 2,143,200
500,000 A Pittsfield Township, MI Economic Development Corp.
Revenue Refunding, (Airport Association Project),
Unconditional Guaranty-Lincoln National,
6.400% due 12/1/02 511,875
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5,518,888
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Utilities -- 1.7%
465,000 AA Hogansville, GA Combined Public Utility Revenue,
Asset Guaranty-Insured, 5.850% due 10/1/15 482,438
1,735,000 AAA Palo Duro River Authority, TX Refunding, CGIC-Insured,
zero coupon due 8/1/09 926,056
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1,408,494
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TOTAL INVESTMENTS -- 100%
(Cost -- $80,222,362**) $84,769,223
====================================================================================================
</TABLE>
(a) Income from these issues is considered a preference item for purposes of
calculating the alternative minimum tax.
(b) Bonds are escrowed to maturity with U.S. Government securities and are
considered by the Manager to be triple-A rated even if the issuer has not
applied for new ratings.
(c) Security segregated by custodian for open purchase commitments.
(d) Inverse floating rate security - coupon varies inversely with level of
short-term tax-exempt interest rates.
(e) Bonds are escrowed with U.S. Government securities and are considered by
the Manager to be triple-A rated even if the issuer has not applied for
new ratings.
+ Fitch Investors Services, Inc.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 10 and 11 for definition of ratings and certain security descriptions.
See Notes to Financial Statements.
9
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Bond Ratings
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All ratings are by Standard & Poor's Ratings Service ("Standard &Poor's"),
except those identified by an asterisk (*) are rated by Moody's Investors
Service, Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "AA" to "BBB" may be modified
by the addition of a plus (+) or a minus (-) sign to show relative standings
within the major rating categories.
AAA -- Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issue only in a small
degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher rated categories.
BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB -- Debt rated "BB" have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments.
Moody's-- Numerical modifiers 1, 2, and 3 may be applied to each generic rating
from "Aa" to "Baa", where 1 is the highest and 3 the lowest rating within its
generic category.
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 edge." 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 which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds that are rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds that are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and therefore
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
10
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Security Descriptions
- --------------------------------------------------------------------------------
AMBAC -- AMBAC Indemnity Corporation
CGIC -- Capital Guaranty Insurance Company
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FLAIRS -- Floating Adjustable Interest Rate Securities
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
IDA -- Industrial Development Agency
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
PCFA -- Pollution Control Financing Authority
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund Guaranty
RIBS -- Residual Interest Bonds
11
<PAGE>
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Statement of Assets and Liabilities (unaudited) June 30, 1997
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $80,222,362) $ 84,769,223
Cash 203,104
Interest receivable 1,380,115
Receivable for securities sold 1,212,495
- --------------------------------------------------------------------------------
Total Assets 87,564,937
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 492,297
Dividends payable 120,301
Management fees payable 42,252
Accrued expenses 34,931
- --------------------------------------------------------------------------------
Total Liabilities 689,781
- --------------------------------------------------------------------------------
Total Net Assets $ 86,875,156
================================================================================
NET ASSETS:
Par value of capital shares $ 8,289
Capital paid in excess of par value 82,891,113
Overdistributed net investment income (1,762)
Accumulated net realized loss on security transactions (569,345)
Net unrealized appreciation of investments 4,546,861
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $10.48 a share on 8,288,885 shares of $0.001
par value outstanding; 100,000,000 shares authorized) $ 86,875,156
================================================================================
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1997
INVESTMENT INCOME:
Interest $ 2,700,048
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 3) 256,965
Shareholder communications 19,834
Shareholder and system servicing fees 18,719
Audit and legal 8,031
Pricing service fees 5,453
Registration fees 2,976
Directors' fees 1,933
Custody 1,662
Other 2,228
- --------------------------------------------------------------------------------
Total Expenses 317,801
- --------------------------------------------------------------------------------
Net Investment Income 2,382,247
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE4):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 11,163,661
Cost of securities sold 11,023,934
- --------------------------------------------------------------------------------
Net Realized Gain 139,727
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 4,621,136
End of period 4,546,861
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (74,275)
- --------------------------------------------------------------------------------
Net Gain on Investments 65,452
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 2,447,699
================================================================================
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1997 (unaudited) and the Year Ended December
31, 1996
1997 1996
================================================================================
OPERATIONS:
Net investment income $ 2,382,247 $ 4,819,705
Net realized gain (loss) 139,727 (111,453)
Decrease in net unrealized appreciation (74,275) (1,312,656)
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 2,447,699 3,395,596
- --------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM (NOTE 2):
Net investment income (2,387,118) (4,973,337)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (2,387,118) (4,973,337)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 60,581 (1,577,741)
NET ASSETS:
Beginning of period 86,814,575 88,392,316
- --------------------------------------------------------------------------------
End of period* $ 86,875,156 $ 86,814,575
================================================================================
* Includes undistributed (overdistributed)
net investment income of: $ (1,762) $ 3,109
================================================================================
See Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Intermediate Municipal Fund, Inc. ("Fund"), a Maryland
corporation, is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund
are:(a) security transactions are accounted for on trade date;(b) securities are
valued at the mean between the bid and ask prices provided by an independent
pricing service that are based on transactions in municipal obligations,
quotations from municipal bond dealers, market transactions in comparable
securities and various relationships between securities; (c) securities maturing
within 60 days are valued at cost plus accreted discount, or minus amortized
premium, which approximates value; (d) gains or losses on the sale of securities
are calculated by using the specific identification method; (e) interest income,
adjusted for amortization of premium and accretion of original issue discount,
is recorded on the accrual basis; market discount is recognized upon the
disposition of the security; (f) the Fund intends to comply with the applicable
provisions of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes;
(g) dividends and distributions to shareholders are recorded on the ex-dividend
date; (h) the character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles; and (i) 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. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from Federal income tax and from
designated state income taxes, to retain such tax-exempt status when distributed
to the shareholders of the Fund.
Capital gains distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
3. MANAGEMENT AGREEMENT
AND TRANSACTIONS WITH AFFILIATED PERSONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc., acts as investment manager to the Fund. As compensation
for its services, the Fund pays SBMFM a fee calculated at the annual rate of
0.60% of the Fund's average daily net assets. This fee is calculated daily and
paid monthly.
All officers and one Director of the Fund are employees of Smith Barney
Inc.
4. INVESTMENTS
During the six months ended June 30, 1997, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $10,183,930
- --------------------------------------------------------------------------------
Sales 11,163,661
================================================================================
At June 30, 1997, aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $4,571,314)
Gross unrealized depreciation (24,453)
- --------------------------------------------------------------------------------
Net unrealized appreciation $4,546,861
================================================================================
5. CAPITAL LOSS CARRYFORWARD
At December 31, 1996, the Fund had, for Federal income tax purposes,
approximately $708,000 of capital loss carryforwards available to offset future
realized capital gains. To the extent that these carryforward losses can be used
to offset net realized capital gains, such gains, if any, will not be
distributed. The amount and expiration of the carryforwards are indicated below.
Expiration occurs on the dates indicated:
12/31/02 12/31/03 12/31/04
================================================================================
Carryforward Amounts $591,000 $2,000 $115,000
================================================================================
16
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Fund's basis in the contract. The Fund enters into such contracts to hedge a
portion of its portfolio. The Fund bears the market risk that arises from
changes in the value of the financial instruments and securities indices
(futures contracts) and the credit risk should a counterparty fail to perform
under such contracts.
At June 30, 1997, there were no open futures contracts.
7. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased by the Fund represent
investments, which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are greater
or less than the premium paid for the option. When the Fund exercises a put
option, it will realize a gain or loss from the sale of the underlying security
and the proceeds from such sale will be decreased by the premium originally
paid. When the Fund exercises a call option, the cost of the security which the
Fund purchases upon exercise will be increased by the premium originally paid.
At June 30, 1997, there were no open purchased call or put options
contracts.
When a Fund writes a covered call or put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option
17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
was sold) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is eliminated. When a written
call option is exercised, the cost of the security sold will be decreased by the
premium originally received. When a put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the Fund
purchased upon exercise. When written index options are exercised, settlement is
made in cash.
The risk associated with purchasing options is limited to the premium
originally paid. The Fund enters into options for hedging purposes. The risk in
writing a call option is that the Fund gives up the opportunity to participate
in any increase in the price of the underlying security beyond the exercise
price. The risk in writing a put option is that the Fund is exposed to the risk
of a loss if the market price of the underlying security declines.
At June 30, 1997, the Fund had no open written options contracts.
18
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
1997(1) 1996 1995 1994(2) 1993(2) 1992(2)(3)
==========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.47 $ 10.66 $ 9.95 $ 10.81 $ 10.36 $ 10.00
- ----------------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income 0.29 0.58 0.58 0.58 0.59 0.48*
Net realized and unrealized
gain (loss) 0.01 (0.17) 0.73 (0.84) 0.46 0.34
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.30 0.41 1.31 (0.26) 1.05 0.82
- ----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.29) (0.60) (0.60) (0.60) (0.57) (0.46)
Net realized gains -- -- -- -- (0.03) --
- ----------------------------------------------------------------------------------------------------------
Total Distributions (0.29) (0.60) (0.60) (0.60) (0.60) (0.46)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 10.48 $ 10.47 $ 10.66 $ 9.95 $ 10.81 $ 10.36
- ----------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value 4.83%++ 1.56% 15.93% (9.34)% 16.71% 1.66%++
- ----------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value 3.01%++ 4.13% 13.72% (2.33)% 10.30% 8.44%++
- ----------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $ 86,875 $ 86,815 $ 88,392 $ 82,494 $ 88,966 $ 83,499
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.74%+ 0.77% 0.72% 0.72% 0.73% 0.59%+*
Net investment income 5.56+ 5.56 5.63 5.64 5.56 5.74+
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 11.93% 21.39% 12.57% 25.59% 10.46% 23.48%
- ----------------------------------------------------------------------------------------------------------
Market Price,
End of Period $ 10.13 $ 9.94 $ 10.38 $ 9.50 $ 11.13 $ 10.13
==========================================================================================================
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) Based on the weighted average shares outstanding for the period.
(3) For the period from March 2, 1992 (commencement of operations) to December
31, 1992.
* The manager waived a portion of its fees for the period from March 2, 1992
to December 31, 1992. If such fees were not waived, the per share decrease
in net investment income would have been $0.01 and the ratio of expenses
to average net assets would have been 0.70% (annualized).
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
19
<PAGE>
- --------------------------------------------------------------------------------
Financial Data (unaudited)
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
AMEX Net Asset Income Reinvestment
Period Closing Price* Value* Declared Price
================================================================================
1995
January $ 9.50 $10.12 $0.050 $ 9.50
February 9.75 10.26 0.050 9.99
March 9.63 10.31 0.050 9.81
April 9.88 10.28 0.050 9.81
May 10.00 10.49 0.050 9.94
June 9.88 10.39 0.050 9.90
July 10.13 10.43 0.050 10.15
August 10.13 10.49 0.050 10.14
September 10.00 10.50 0.050 10.24
October 10.13 10.58 0.050 10.26
November 10.25 10.65 0.050 10.27
December 10.38 10.66 0.050 10.34
1996
January 10.63 10.65 0.050 10.52
February 10.50 10.57 0.050 10.47
March 10.25 10.46 0.050 9.88
April 9.81 10.39 0.050 9.88
May 10.38 10.35 0.050 10.15
June 10.00 10.37 0.050 10.01
July 10.13 10.39 0.050 10.15
August 10.38 10.36 0.050 10.34
September 10.25 10.40 0.050 10.24
October 10.13 10.44 0.050 10.27
November 10.25 10.54 0.050 10.27
December 9.94 10.47 0.050 10.14
1997
January 10.00 10.46 0.048 10.00
February 9.94 10.49 0.048 10.00
March 9.88 10.36 0.048 9.94
April 9.88 10.39 0.048 9.85
May 9.88 10.45 0.048 9.97
June 10.13 10.48 0.048 10.24
================================================================================
* On the last business day of the month.
20
<PAGE>
- --------------------------------------------------------------------------------
Additional Shareholder Information (unaudited)
- --------------------------------------------------------------------------------
On April 25, 1997 the annual meeting of the shareholders of the Fund was
held for the purpose of voting on the following matters:
1. To approve or disapprove for the Fund the election of Joseph H.
Fleiss and Heath B. McLendon as Directors; and
2. To approve or disapprove the selection of KPMG Peat Marwick LLP as
the independent auditors for the current fiscal year of the Fund.
The results of the vote on Proposal 1 were as follows:
% of Votes % of
Directors* Votes For Shares Voted Against Shares Voted
================================================================================
Joseph H. Fleiss 7,191,494 98.85% 83,308 1.15%
Heath B. McLendon 7,191,494 98.85 83,308 1.15
================================================================================
The results of the vote on Proposal 2 were as follows:
% of Votes % of Votes % of
Votes For Shares Voted Against Shares Voted Abstained Shares Voted
================================================================================
7,209,835 99.11% 36,526 0.50% 28,441 0.39%
================================================================================
* The following Directors, representing the balance of the Board of
Directors, continue to serve: Donald R. Foley, Paul Hardin, Francis P.
Martin, Roderick C. Rasmussen and John P. Toolan. C. Richard Youngdahl
will continue to serve as a Director Emeritus.
21
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited)
- --------------------------------------------------------------------------------
Pursuant to the Fund's Dividend Reinvestment Plan ("Plan"), all
distributions are automatically reinvested by First Data Investor Services
Group, Inc., as plan agent ("Plan Agent"), in additional shares of its Common
Stock ("Common Shares") as provided below unless a shareholder elects to receive
cash.
Distributions with respect to Common Shares registered in the name of a
broker-dealer or other nominee (i.e., in "street name") are reinvested by the
broker or nominee in additional Common Shares under the Plan, unless the service
is not provided by the broker or nominee. Investors who own Common Shares
registered in street name should consult their broker-dealer for details. All
distributions to shareholders who do not participate in the Plan are paid by
check mailed directly to the record holder by First Data Investor Services
Group, Inc., as dividend disbursing agent.
If the Fund declares a distribution payable either in Common Shares or in
cash, nonparticipants in the Plan receive cash, and Plan participants receive
the equivalent in Common Shares valued in the following manner: whenever the
market price is equal to or exceeds the net asset value per share at the time
Common Shares are valued for the purpose of determining the number of Common
Shares equivalent to the cash distribution, participants are issued Common
Shares valued at the greater of (1) the net asset value most recently determined
or (2) 95% of the then current market price of the Common Shares.
If the net asset value of the Common Shares at the time of valuation
exceeds the market price of the Common Shares, or if the Fund declares a
distribution payable only in cash, the Plan Agent buys Common Shares in the open
market, on the American Stock Exchange or elsewhere, for the participants'
accounts. If, following the commencement of purchases and before the Plan Agent
has completed its purchases the market price exceeds the net asset value of the
Common Shares, the average per Common Share purchase price paid by the Plan
Agent may exceed the net asset value of the Common Shares, resulting in the
acquisition of fewer Common Shares than if the distribution had been paid in
Common Shares issued by the Fund at net asset value. The Plan Agent applies all
cash received as a distribution to purchase Common Shares on the open market as
soon as practicable after the record date of the distribution, but in no event
later than 30 days after such date, except when necessary to comply with
applicable provisions of the Federal securities laws.
Participants in the Plan may withdraw from the Plan upon written notice to
22
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited) (continued)
- --------------------------------------------------------------------------------
the Plan Agent which must be received at least ten business days prior to the
distribution record date to become effective for that distribution. Shares in
the account of each Plan participant are held by the Plan Agent in
non-certificated form in the name of the Plan Agent or participant. When a
participant withdraws from the Plan or upon termination of the Plan as provided
below, certificates for whole Fund shares credited to his or her account under
the Plan are issued and a cash payment is made for any fraction of a Fund share
credited to such account.
The automatic reinvestment of distributions does not relieve participants
to any Federal income tax that may be payable on such distributions.
The Fund does not charge participants for reinvesting distributions. Any
Plan Agent's fees for the handling of reinvestment of distributions under the
Plan are paid by the Fund. There are no brokerage charges with respect to Common
Shares issued directly by the Fund as a result of distributions payable either
in stock or in cash. However, each participant pays a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to amend the Plan as
applied to any distribution paid subsequent to written notice of the change sent
to all shareholders of the Fund at least 90 days before the record date for the
distribution. The Plan also may be terminated by the Fund or the Plan Agent by
at least 30 days' written notice to all shareholders of the Fund. All
correspondence concerning the Plan should be directed to the Plan Agent at First
Data Investor Services Group, Inc., P.O. Box 1376, Boston, Massachussetts 02104.
23
<PAGE>
Smith Barney
----------------------------
INTERMEDIATE
MUNICIPAL FUND, INC.
DIRECTORS
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
C. Richard Youngdahl, Emeritus
OFFICERS
Heath B. McLendon
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Peter M. Coffey
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
INVESTMENT MANAGER
Smith Barney Mutual Funds
Management Inc.
CUSTODIAN
PNC Bank, N.A.
SHAREHOLDER
SERVICING AGENT
First Data Investor Services Group, Inc.
P.O. Box 1376
Boston, MA 02104
This report is submitted for the
general information of the
shareholders of Smith Barney
Intermediate Municipal Fund, Inc.
It is not authorized for distribution
to prospective investors unless
accompanied or preceded by a
current Prospectus for the Fund,
which contains information
concerning the Fund's investment
policies and expenses as well as
other pertinent information.
SMITH BARNEY
INTERMEDIATE
MUNICIPAL FUND, INC.
388 Greenwich Street
New York, New York 10013
FD0633 8/97
