SEMI-ANNUAL REPORT
================================================================================
Smith Barney
Municipal
Fund, Inc.
------------
June 30, 1996
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- ---------------------------------
Smith Barney Municipal Fund, Inc.
- ---------------------------------
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the six months
ended June 30, 1996 for the Smith Barney Municipal Fund, Inc. For your
convenience, we have summarized the prevailing economic and market conditions
and outlined the investment strategy employed by the Fund during this time. A
detailed summary of performance and current holdings for the Fund can be found
in the appropriate sections that follow in the semi-annual report.
Fund Performance Summary
For the six months ended June 30, 1996, the Smith Barney Municipal Fund produced
a total return on net asset value of -0.45%, which compares to its Lipper peer
group average total return of -1.49% for the same period. During the past six
months, the Fund distributed dividends totaling $0.426 per share. The table
below shows the annualized distribution rates based on the Fund's June 30, 1996
net asset value (NAV) per share and its American Stock Exchange closing price.
Price Annualized
Per Share Distribution Rate
--------- -----------------
$15.22 (NAV) 5.60%
$13.875 (AMEX) 6.14%
Market and Economic Overview
Interest rates declined steadily over the latter part of 1995 in response to low
inflation and very sluggish economic growth. During the first six months of
1996, however, interest rates rose sharply as economic reports pointed to much
stronger growth than was expected by most market participants and as concerns
over the stalemated federal budget negotiations continued.
In recent months, the volatility of the municipal bond market has increased and
municipal bond yields have recently reached their highest levels in over a year.
However, despite continued uncertainty over the direction of short-term interest
rates, there have been some signs of a possible municipal bond market turnaround
as the recent higher yields offered by municipal bonds have begun to attract a
growing number of individual and institutional investors.
1
<PAGE>
Fund's Investment Strategy
While there are still some trading risks in the municipal bond market, we
believe that the annual rate of inflation will remain at approximately 3%.
Therefore, in our view, municipal bond yields are currently attractive, with
municipal bonds providing tax-free yields that are roughly double the rate of
inflation. In this environment, we are keeping the portfolio close to fully
invested.
We remain committed to a balanced approach in structuring this intermediate-term
municipal bond fund's market sensitivity. Moreover, we have a bias toward
discount (or low-coupon) bonds over current coupon (or premium) bonds for better
performance potential with relatively little sacrifice in yield. We also retain
more defensive, high-coupons with short calls. This type of portfolio structure
gives the Smith Barney Municipal Fund higher yields but with the market
sensitivity comparable to longer-term intermediate paper.
During the period covered by this report, the Fund maintained its high credit
quality. As of June 30, 1996, approximately 93% of the Fund's holdings were
rated investment grade (BBB/Baa and higher) by either Standard and Poor's
Corporation or Moody's Investors Service, Inc., with approximately 34% of the
Fund's investments rated triple-A. (Standard & Poor's and Moody's are two major
credit reporting and bond rating agencies.) As of June 30, 1996, the Fund's
assets were allocated among the following top industry sectors: hospital bonds
(21.2%), education bonds (6.4%), general obligation bonds (4.6%) and IDR
(Industrial Development Revenue) bonds (16.5%). The average weighted maturity of
the Fund as of June 30, 1996 was just over 12 years.
Outlook
While day-to-day volatility in the fixed income markets is likely, the recent
sharp increase in interest rates has made municipal bonds more attractive on a
relative basis than many other fixed-income vehicles. In our view, competitive
pressures in the global economy and changing demographics such as increasing
population growth should help to keep inflation in check and keep wages from
going up. (Labor costs constitute roughly two-thirds of the total cost of all
finished goods.) With municipal bonds providing roughly 90% of the yield
available on comparable maturity Treasury securities, we believe investors are
well compensated for any potential risks.
While it has recently receded from the Presidential political debate, it was not
too long ago that the "flat tax" issue was touted as potentially the biggest
issue of the upcoming Presidential election in November. While between now and
November, tax reform again could move into the political spotlight as the
campaign intensifies, we nevertheless believe there is little chance that
radical tax reforms will be enacted.
2
<PAGE>
Therefore, in our view, the municipal bond market remains quite attractive and
the Smith Barney Municipal Fund is well positioned to meet the challenges
presented by the current environment.
Thank you for investing in the Smith Barney Municipal Fund. 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 and Vice President
Chief Executive Officer
July 12, 1996
3
<PAGE>
Smith Barney Municipal Fund, Inc.
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Schedule of Investments (unaudited) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=================================================================================================================
<C> <C> <S> <C>
Education -- 6.4%
$1,000,000 A* Arizona Education Loan Corp., 6.625% due 9/1/05(a) $ 1,043,750
1,000,000 AAA Keller, TX Independent School District,
PSFG, zero coupon due 8/15/16 303,750
1,000,000 AAA Pennsylvania State Higher Educational Facilities Authority,
Health Services Revenue Allegheny Delaware, Series A,
MBIA-Insured, 5.700% due 11/15/11 1,002,500
Utah State School District Co-Op Revenue Financing Pool LOC
Swiss Bank (Special Mandatory Redemption 8/15/98 @100):
470,000 AAA 8.375% mandatory tender 2/15/07 496,437
500,000 AAA 8.375% mandatory tender 2/15/09 527,500
530,000 AAA 8.375% due 2/15/10 559,150
- -----------------------------------------------------------------------------------------------------------------
3,933,087
- -----------------------------------------------------------------------------------------------------------------
Escrowed to Maturity(b) -- 19.4%
500,000 AAA Alachua County, FL Health Facility Authority, Health Facility Revenue,
(Santa Fe Healthcare Facilities Project), 6.000% due 11/15/09,
(Escrowed to Maturity with U.S. Government Securities), Sinking Fund
Average Life 1/23/05 513,750
1,270,000 AAA Boston, MA Water & Sewer Community Revenue, Series A,
10.875% due 1/1/09, (Escrowed to Maturity with U.S. Government
Securities), Sinking Fund Average Life 5/3/05 1,738,312
810,000 AAA Illinois Health Facility Authority Revenue, (Methodist Medical Center
Project), 9.000% due 10/1/10, (Escrowed to Maturity with U.S.
Government Securities), Sinking Fund Average Life 4/1/03 982,125
1,000,000 AAA Jackson, TN Water and Sewer Revenue, 7.200%
due 7/1/12, (Escrowed to Maturity with U.S. Government
Securities), Sinking Fund Average Life 1/25/06 1,140,000
500,000 AAA Lake County, OH Hospital Improvement Revenue,
Lake County Memorial Hospital, 8.625% due 11/1/09,
(Escrowed to Maturity with U.S. Government Securities),
Sinking Fund Average Life 10/31/04 613,750
1,000,000 AAA Los Angeles, CA Harbor Development Revenue, 7.600% due 10/1/18,
(Escrowed to Maturity with U.S. Government Securities),
Sinking Fund Average Life 1/27/13 1,192,500
1,310,000 AAA Los Angeles, CA Hollywood Presbyterian Medical Center,
9.625% due 7/1/13, (Escrowed to Maturity with U.S. Government
Securities), Sinking Fund Average Life 2/28/08 1,689,900
225,000 AAA Louisiana Public Facilities, Southern Baptist Hospital, 8.000%
due 5/15/12, (Escrowed to Maturity with U.S. Government Securities),
Sinking Fund Average Life 6/18/06 262,125
300,000 AAA Nacogdoches County, TX Hospital District Revenue,
9.000% due 5/15/04, (Escrowed to Maturity with U.S. Government
Securities), Sinking Fund Average Life 5/30/01 351,750
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=================================================================================================================
<C> <C> <S> <C>
Escrowed to Maturity(b) -- 19.4% (continued)
$ 565,000 AAA New Jersey State Turnpike Authority Revenue Refunding Bond,
10.375% due 1/1/03, (Escrowed to Maturity with U.S. Government
Securities) Sinking Fund Average Life 1/6/00 $ 673,763
790,000 AAA Ohio State Water Development Authority Revenue, Safe Water Series 2,
9.375% due 12/1/10, (Escrowed to Maturity with U.S. Government
Securities) Sinking Fund Average Life 3/28/04 969,725
400,000 AAA Ringwood Borough, NJ Sewer Authority Special Obligation Refunding,
9.875% due 7/1/13, (Escrowed to Maturity with U.S. Government
Securities) Sinking Fund Average Life 2/6/05 522,000
1,000,000 AAA Riverside, CA Single-Family Mortgage Revenue, GNMA-Insured,
7.800% due 5/1/21, (Escrowed to Maturity with U.S. Government
Securities) Sinking Fund Average Life 3/17/16(a) 1,216,250
- -----------------------------------------------------------------------------------------------------------------
11,865,950
- -----------------------------------------------------------------------------------------------------------------
General Obligation -- 4.6%
500,000 AAA Anchorage, AK GO, 6.000% due 10/1/14 516,875
670,000 BBB New Haven, CT GO, Series B, 9.000% due 12/1/01 788,925
New Orleans, LA Certificates of Indebtedness:
1,000,000 BBB- Series A, 6.650% due 8/1/01 1,017,150
500,000 BBB- Series C, 6.650% due 8/1/01 508,575
- -----------------------------------------------------------------------------------------------------------------
2,831,525
- -----------------------------------------------------------------------------------------------------------------
Finance -- 2.6%
1,000,000 A Pennsylvania State Finance Authority, Beaver County Revenue
Refunding Bonds, Municipal Capital Improvement Program,
Series 1993, LOC Societe Generale, 6.600% due 11/1/09 1,052,500
545,000 BBB Tampa, FL Capital Improvement Program Revenue, Series B,
Den Danske Bank Royal, Trust Canada and Yasuda Trust,
8.000% due 10/1/02 570,206
- -----------------------------------------------------------------------------------------------------------------
1,622,706
- -----------------------------------------------------------------------------------------------------------------
Hospital -- 21.2%
700,000 BBB Allentown, PA Area Hospital Authority Revenue Refunding,
Sacred Heart Hospital, Series A, 6.200% due 11/15/03 714,875
650,000 AAA Calcasieu Parish, LA Memorial Hospital Service District Refunding,
Lake Charles Memorial Hospital, Series A, CONNIE LEE-Insured,
7.500% due 12/1/05 742,625
1,500,000 A+ California Statewide Community Development Authority Revenue,
COP Refunding Hospital, Triad Healthcare, 6.250% due 8/1/06 1,541,250
500,000 BBB Colorado Health Facility Authority Revenue, Rocky Mountain Adventist,
6.625% due 2/1/13 501,875
1,510,000 Baa1* Fulco, GA Hospital Authority Revenue Anticipation Certificates Refunding,
Georgia Baptist Healthcare, Series A, 6.400% due 9/1/07 1,511,887
1,300,000 A- Illinois Health Facilities Authority Revenue Friendship, VLG Hospital,
6.650% due 12/1/06 1,347,125
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=================================================================================================================
<C> <C> <S> <C>
Hospital -- 21.2% (continued)
$ 645,000 Baa1* Indianapolis, IN Economic Development Refunding and Improvement
Revenue, National Benevolent Association, (Robin Run Village
Project), 6.900% due 10/1/04 $ 660,319
1,200,000 BBB+ Klamath Falls, OR Intercommunity, Merle Hospital, 8.000% due 9/1/08 1,399,500
1,650,000 Ba* Langhorne Manor Borough, PA Higher Education and Health Authority
Bucks County, Lower Bucks Hospital, 6.750% due 7/1/02 1,569,563
860,000 A- Massachusetts State Health and Education Facilities,
Melrose Wakefield Hospital, 6.125% due 7/1/04 889,025
2,000,000 AAA Orange County, FL Health Facilities Authority Revenue, Adventist Health
System/Sunbelt, CGIC-Insured, FLAIRS, 6.340% due 11/15/07 2,070,000
- -----------------------------------------------------------------------------------------------------------------
12,948,044
- -----------------------------------------------------------------------------------------------------------------
Housing: Multi-Family -- 5.2%
1,100,000 A* Dallas, TX Housing Corp. Capital Program Revenue Refunding,
Section 8 Assisted, 7.700% due 8/1/05,
Sinking Fund Average Life 9/2/03 1,145,375
500,000 A- Lees Summit, MO Individual Development Authority Health Facilities,
Refunding and Improvement Revenue, (John Knox Village Project),
7.125% due 8/15/12, Sinking Fund Average Life 8/15/05 520,000
1,470,000 A Lynchburg, VA Redevelopment & Housing Authority, Multi-Family
Housing Revenue Refunding, Princeton Circle Association,
6.250% due 12/1/10 1,492,050
- -----------------------------------------------------------------------------------------------------------------
3,157,425
- -----------------------------------------------------------------------------------------------------------------
Housing: Single-Family -- 2.4%
335,000 A1* Ford County, KS Single-Family Mortgage Revenue Refunding,
Series A, FHA-Insured, 7.900% due 8/1/10 352,169
880,000 AAA Juneau City and Borough, AK Home Mortgage Revenue Refunding,
Mortgage Backed Securities Program, FNMA-Collateralized,
8.000% due 2/1/09 936,100
200,000 Aa* Montgomery County, MD Housing Opportunities Commission
Mortgage Revenue, Series A, 7.200% due 7/1/04 209,500
- -----------------------------------------------------------------------------------------------------------------
1,497,769
- -----------------------------------------------------------------------------------------------------------------
Industrial Development -- 16.5%
500,000 A* Alaska Industrial Development & Export Authority Revenue,
6.100% due 4/1/06 (a) 521,875
535,000 B+ Bourbonnais, IL Individual Development Revenue Refunding,
(K-Mart Corp. Project), 6.600% due 10/1/06 448,731
1,000,000 Aaa* Cohoes, NY IDA, (Norlite Corp. Project), LOC Dresdner Bank,
6.750% due 5/1/09, Sinking Fund Average Life 1/8/07(a) 1,077,500
1,500,000 AA Des Moines, IA Industrial Development Refunding Revenue Bonds,
(The Printer Project 1992), LOC Norwest Bank, 6.375% due 9/1/09 1,488,750
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=================================================================================================================
<C> <C> <S> <C>
Industrial Development -- 16.5% (continued)
$1,500,000 Baa1* Dickinson County, MI Economic Development Corp. Solid Waste
Disposal Refunding Revenue, Champion International,
6.550% due 3/1/07 $ 1,563,750
1,250,000 AA Noblesville, IN Economic Development Revenue Refunding,
(Lions Greek Association Limited Project), Asset Guaranty-Insured,
6.500% due 11/1/04 1,345,312
1,000,000 AA Northampton County, PA, Industrial Development Authority Revenue,
(Moravian Hall Square Project), Series A, 5.550% due 7/1/14 941,250
1,000,000 AAA Salt Lake City, UT Individual Development Refunding Revenue,
(Plaza 5400 Project), Mass Mutual Life Insured, Series A,
6.050% due 9/1/07 1,046,250
600,000 A Sussex County, DE Economic Development Refunding Revenue Bonds,
(Rohoboth Project), Series 1992, 7.250% due 10/15/12 645,000
1,000,000 BBB+ Tooele County, UT Hazardous Waste Disposal Revenue,
Laidlaw Incineration, Series A, 6.750% due 8/1/10 1,022,500
- -----------------------------------------------------------------------------------------------------------------
10,100,918
- -----------------------------------------------------------------------------------------------------------------
Miscellaneous -- 3.4%
1,000,000 BBB- Clarksville, TN Natural Gas Acquis Corp. Gas Revenue,
Series A, 7.500% due 11/1/04 1,037,500
1,000,000 A- Illinois Development Finance Authority Revenue, City of East St. Louis,
6.875% due 11/15/05, Sinking Fund Average Life 11/15/00 1,047,500
- -----------------------------------------------------------------------------------------------------------------
2,085,000
- -----------------------------------------------------------------------------------------------------------------
Pollution Control -- 4.8%
1,000,000 Aa3* Brazos River, TX Navigation Harbor District, Brazonia County PCR,
(BASF Corp. Project), 6.750% due 2/1/10 1,116,250
Broward County, FL Resource Recovery PCR:
725,000 A North Project, 7.950% due 12/1/08 798,406
440,000 A* South Project, 7.950% due 12/1/08 484,550
500,000 BBB Nassau County, FL PCR Refunding, ITT Rayonier Inc., Series 1992,
6.100% due 6/1/05 511,875
- -----------------------------------------------------------------------------------------------------------------
2,911,081
- -----------------------------------------------------------------------------------------------------------------
Pre-Refunded(b) -- 3.0%
325,000 AAA Gila County, AZ Industrial Development Authority Revenue
Pollution Control, 11.250% due 4/1/01, (Pre-Refunded in U.S.
Government Securities to 4/1/97 Call @ 100), Sinking Fund
Average Life 4/29/97 352,625
595,000 AAA Philadelphia, PA Hospital Revenue, (United Hospitals Inc. Project),
10.875% due 7/1/08, (Pre-Refunded in U.S. Government
Securities to 7/1/05 Call @ 100), Sinking Fund Average Life 6/1/02 782,425
300,000 AAA San Leandro, CA Redevelopment Agency Residential Mortgage Revenue,
11.250% due 4/1/13, (Pre-Refunded with U.S. Government
Securities to 10/1/04 Call @ 100), Sinking Fund Average Life 4/13/04 407,250
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=================================================================================================================
<C> <C> <S> <C>
Pre-Refunded(b) -- 3.0% (continued)
$ 275,000 AAA Texas National Research Lab Community Finance Corp., Lease Revenue,
(Superconducting Supercollider Project), 6.850% due 12/1/05,
(Pre-Refunded with U.S. Government Securities to 12/1/02 Call @ 102) $ 305,938
- -----------------------------------------------------------------------------------------------------------------
1,848,238
- -----------------------------------------------------------------------------------------------------------------
Public Facilities -- 2.5%
500,000 A Dallas, TX Civic Center Convention Complex Revenue,
6.100% due 1/1/08, Sinking Fund Average Life 7/31/03 501,100
1,000,000 A Dekalb County, IN Redevelopment Authority Revenue, (Mini-Mill
Public Improvement Project), 6.250% due 1/15/08 1,038,750
- -----------------------------------------------------------------------------------------------------------------
1,539,850
- -----------------------------------------------------------------------------------------------------------------
Short-Term(c) -- 0.5%
300,000 Aa3* NYC, Water & Sewer, 3.550% due 6/15/24 300,000
- -----------------------------------------------------------------------------------------------------------------
Tax Allocation -- 0.4%
250,000 Baa* Lemon Grove, CA Community Development Agency Tax Allocation
Revenue, (Lemon Grove Redevelopment Project), 6.650% due 8/1/06 260,000
- -----------------------------------------------------------------------------------------------------------------
Transportation -- 5.0%
650,000 Baa2* Dallas Fort Worth, TX International Airport Facility Improvement Corp.
Revenue, American Airlines Inc., 6.000% due 11/1/14 636,188
Denver, CO City and County Airport Revenue:
500,000 BBB Series B, 7.000% due 11/15/03(a) 536,250
1,000,000 BBB Series C, 6.650% due 11/15/05(a) 1,052,500
500,000 Baa3* Raleigh-Durham, NC Airport Authority Special Facilities Revenue,
(American Airlines Inc. Project), 9.400% due 11/1/00 563,125
295,000 NR Sanford, FL Airport Authority Industrial Development Revenue,
(Central Florida Terminals Project), Series A, 7.500% due 5/1/06(a) 287,994
- -----------------------------------------------------------------------------------------------------------------
3,076,057
- -----------------------------------------------------------------------------------------------------------------
Utilities -- 2.1%
1,250,000 A- Union City, NJ Utility Authority Solid Waste Revenue, Series A,
6.850% due 6/15/02(a) 1,262,500
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $59,759,574**) $61,240,150
=================================================================================================================
</TABLE>
(a)Income from these issues is considered a preference item for purposes of
calculating the alternative minimum tax.
(b)Pre-Refunded bonds escrowed by U.S. Government Securities and bonds escrowed
to maturity by U.S. Government Securities are considered by the Manager to be
triple-Arated even if the issuer has not applied for new ratings.
(c)Inverse floating rate security-coupon varies inversely with level of
short-term tax-exempt interest rates.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 9 and 10 for definition of ratings and certain security
descriptions.
See Notes to Financial Statements.
8
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Ratings and Security Descriptions
- --------------------------------------------------------------------------------
BOND RATINGS
All ratings are by Standard & Poor's Corporation ("Standard & Poor's"), except
that those identified by an asterisk (*) are rated by Moody's Investors Services
("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 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" has less near-term vulnerability to default than
other speculative issues. However, it faces 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 thereby 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.
9
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Short-Term Securities Ratings
- --------------------------------------------------------------------------------
SP-1 --Standard & Poor's highest rate rating indicating very strong or strong
capacity to pay principal and interest; those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign.
VMIG 1--Moody's highest rating for issues having demand feature -- variable-rate
demand obligation (VRDO).
- --------------------------------------------------------------------------------
Security Descriptions
- --------------------------------------------------------------------------------
AMBAC -- AMBAC Indemnity Corporation
CGIC -- Capital Guaranty Insurance Company
CONNIE LEE -- College Construction Loan Insurance Association
COP -- Certificate of Participation
FHA -- Federal Housing Administration
FLAIRS -- Floating Adjustable Interest Rate Securities
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
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
NBA -- National Benevolent Association
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund Guaranty
RIBS -- Residual Interest Bonds
10
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (Cost -- $59,759,574) $ 61,240,150
Cash 182,970
Interest receivable 1,189,620
Receivable for securities sold 30,165
- ----------------------------------------------------------------------------------------
Total Assets 62,642,905
- ----------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 1,203,020
Dividends payable 112,921
Management fees payable 34,742
Accrued expenses 62,234
- ----------------------------------------------------------------------------------------
Total Liabilities 1,412,917
- ----------------------------------------------------------------------------------------
Total Net Assets $ 61,229,988
========================================================================================
NET ASSETS:
Par value of capital shares $ 4,021
Capital paid in excess of par value 60,192,643
Undistributed net investment income 106,357
Accumulated net realized loss on security transactions (553,609)
Net unrealized appreciation of investments 1,480,576
- ----------------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $15.23 a share on 4,021,162 shares of $0.001 par value
outstanding; 100,000,000 shares authorized) $ 61,229,988
========================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest $ 1,945,360
- --------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 3) 215,675
Shareholder communications 13,000
Shareholder and system servicing fees 12,000
Audit and legal 8,000
Pricing service fees 6,000
Directors' fees 2,200
Custody 1,650
Other 2,802
- --------------------------------------------------------------------------------------
Total Expenses 261,327
- --------------------------------------------------------------------------------------
Net Investment Income 1,684,033
- --------------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (NOTE 4):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 7,222,776
Cost of securities sold 7,262,510
- --------------------------------------------------------------------------------------
Net Realized Loss (39,734)
- --------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of Investments:
Beginning of period 3,522,570
End of period 1,480,576
- --------------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (2,041,994)
- --------------------------------------------------------------------------------------
Net Loss on Investments (2,081,728)
- --------------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (397,695)
======================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1996 (unaudited)
and the Year Ended December 31, 1995
<TABLE>
<CAPTION>
1996 1995
=======================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,684,033 $ 3,347,408
Net realized gain (loss) (39,734) 178,170
Increase in net unrealized appreciation (depreciation) (2,041,994) 5,732,678
- ---------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations (397,695) 9,258,256
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income (1,713,015) (3,426,030)
- ---------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions
to Shareholders (1,713,015) (3,426,030)
- ---------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (2,110,710) 5,832,226
NET ASSETS:
Beginning of period 63,340,698 57,508,472
- ---------------------------------------------------------------------------------------
End of period* $ 61,229,988 $ 63,340,698
=======================================================================================
* Includes undistributed net investment income of: $ 106,357 $ 135,339
=======================================================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney 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 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; short-term securities maturing within 60 days
are valued at cost plus accreted discount, or minus amortized premium, which
approximates market value; (c) gains or losses on the sale of securities are
calculated by using the specific identification method; (d) 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; (e) dividends and distributions to shareholders are
recorded on the ex-dividend date; (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) 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. Accordingly, at December 31, 1995, a
portion of paid-in capital amounting to $7 had been reclassified to
undistributed net investment income. Net investment income, net realized gains
and net assets were not affected by this change; 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 determing 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
taxable to shareholders, and are declared and paid at least annually.
14
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
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
0.70% of the Fund's average daily net assets. This fee is calculated daily and
paid monthly.
All officers and two Directors of the Fund are employees of Smith Barney Inc.
4. INVESTMENTS
For the six-months ended June 30, 1996, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, excluding short-term
investments) were $8,184,741 and $7,222,776, respectively. At June 30, 1996,
aggregate gross unrealized appreciation for all securities in which there is an
excess of market value over tax cost amounted to $1,846,237 and aggregate gross
unrealized depreciation for all securities in which there is an excess of tax
cost over market value amounted to $365,661, or a net unrealized appreciation of
$1,480,576.
5. CAPITAL LOSS CARRYFORWARD
At December 31, 1995, the Fund had for Federal tax purposes net capital loss
carryforwards of approximately $509,000 available to offset future capital gains
through 2002. To the extent that these carryforward losses are used to offset
capital gains, it is probable that the gains so offset will not be distributed.
15
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
1996(1) 1995 1994 1993 1992(2)(3)
================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.75 $14.30 $15.85 $14.81 $15.00
- ------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.42 0.83 0.84 0.84 0.32*
Net realized and unrealized gain (loss) (0.51) 1.47 (1.54) 1.00 (0.21)
- ------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.09) 2.30 (0.70) 1.84 0.11
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.43) (0.85) (0.85) (0.80) (0.30)
- ------------------------------------------------------------------------------------------------
Total Distributions (0.43) (0.85) (0.85) (0.80) (0.30)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.23 $15.75 $14.30 $15.85 $14.81
- ------------------------------------------------------------------------------------------------
Total Return (0.45)%++ 17.11% (4.09)% 12.82% 0.81%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $61,230 $63,341 $57,508 $63,724 $59,561
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.85%+ 0.86% 0.86% 0.85% 0.56%+*
Net investment income 5.50+ 5.48 5.59 5.42 5.22+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 11.64% 20.84% 34.52% 23.18% 36.38%
- ------------------------------------------------------------------------------------------------
Market Price at End of Period $13.88 $13.75 $12.63 $15.38 $14.25
================================================================================================
</TABLE>
(1) For the six months ended June 30, 1996 (unaudited).
(2) Based on the weighted average shares outstanding for the period.
(3) For the period from July 31, 1992 (commencement of operations) to December
31, 1992.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
* The manager waived a portion of its fees for the period from July 31, 1992
to December 31, 1992. If such fees were not waived, the per share decrease
in net investment income would have been $0.014 and the ratio of expenses
to average net assets would have been 0.79% (annualized).
16
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
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 $0.071 $13.35
February 9.75 10.26 0.071 13.83
March 13.50 15.01 0.071 13.58
April 13.38 14.97 0.071 13.40
May 13.75 15.35 0.071 13.65
June 13.50 15.19 0.071 13.90
July 14.00 15.27 0.071 13.98
August 13.50 15.36 0.071 13.65
September 14.00 15.41 0.071 14.02
October 14.38 15.53 0.071 14.40
November 14.00 15.70 0.071 14.45
December 13.75 15.75 0.071 14.12
- --------------------------------------------------------------------------------
1996
January 14.75 15.72 0.071 14.55
February 14.63 15.57 0.071 14.59
March 14.38 15.35 0.071 14.46
April 14.25 15.24 0.071 14.13
May 14.25 15.18 0.071 14.24
June 13.88 15.22 0.071 13.82
- --------------------------------------------------------------------------------
* On the last business day of the month.
17
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Additional Shareholder Information (unaudited)
- --------------------------------------------------------------------------------
On April 25, 1996 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 Jessica M.
Bibliowicz and Donald R. Foley 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 Proposal 1 were as follows:
% of Votes % of
Directors Votes For Shares Voted Against Shares Voted
================================================================================
Jessica M. Bibliowicz 3,727,244.561 99.08% 34,476.000 0.92%
Donald R. Foley 3,733,470.561 99.25% 28,250.000 0.75%
================================================================================
The results of Proposal 2 were as follows:
% of Votes % of Votes % of
Votes For Shares Voted Against Shares Voted Abstained* Shares Voted
================================================================================
3,712,805.561 98.70% 5,981.000 0.16 302,358.732 1.14%
================================================================================
* There are approximately 259,425 broker non-votes included in the amount
abstaining.
The following directors, representing the balance of the Board of Directors,
continue to serve as Directors: Joseph H. Fleiss, Paul Hardin, Francis P.
Martin, Heath B. McLendon, Roderick C. Rasmussen, John P. Toolan and C. Richard
Youngdahl.
18
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
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. (formerly known as "The Shareholder 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 payment 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.
19
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited) (continued)
- --------------------------------------------------------------------------------
Participants in the Plan may withdraw from the Plan upon written notice to
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.
20
<PAGE>
Smith Barney
Municipal Fund, Inc.
Directors
Jessica M. Bibliowicz
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
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
Peter M. Coffey
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
------------
A Member of Travelers Group [Logo]
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney 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
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
Municipal Fund, Inc.
388 Greenwich Street
New York, New York 10013
FD0624 8/96
