-------------
ANNUAL REPORT
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1995
1995
1995
1995
1995
Smith Barney
Municipal
Fund, Inc.
---------------------
December 31, 1995
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
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Smith Barney Municipal Fund, Inc.
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Dear Shareholder:
We are pleased to provide you with this annual report, which includes audited
financial statements for Smith Barney Municipal Fund, Inc. and covers the year
ended December 31, 1995. For your convenience, we summarize the period's
prevailing economic and market conditions below. In addition, a more detailed
summary of performance and current holdings can be found in the appropriate
sections that follow in the annual report.
Performance Summary
Smith Barney Municipal Fund posted a total return on net asset value of 17.11%
for the year ended December 31, 1995. The Fund's performance was sustained with
only minimal capital gains, thereby preserving a favorable tax status for its
distributions. For the year ended December 31, 1995, the Fund distributed
dividends totaling $0.85 per share. The table below shows the annualized
distribution rates based on the Fund's December 31, 1995 net asset value (NAV)
per share and its American Stock Exchange (AMEX) closing price.
Annualized
Distribution Rate
-----------------
$15.75 (NAV) 5.40%
$13.75 (AMEX) 6.18%
1995: The Year In Review
The year 1995 was a positive one for the fixed income markets in general as low
rates prevailed. One of the more notable events of the year was a significant
drop in long-term interest rates, as measured by the decline of 30-Year
Treasuries from more than 8% at the beginning of 1995 to 7.43% on March 31,
1995, 6.50% on September 30, 1995, and, lastly, 6% by year end. This drop of 200
basis points was unprecedented and responsible in part for the stock market's
remarkable showing in 1995 -- a performance that defied all expectations. In
another surprising development, the U.S. dollar finished the year in an
extremely strong position relative to other currencies, which will likely
encourage lower interest rates going forward.
The Municipal Bond Market
As Treasury yields were falling in 1995, long-term municipal bond yields barely
moved. Yields on municipal bonds are now topping 90% of those offered by
Treasuries, an extremely high premium that translates into up to 30% higher
after-tax yields for top-bracket investors in states with high tax rates.
1
<PAGE>
However, slow economic growth, low rates, and a diminishing supply of issues
generally combined to create a subdued municipal bond market environment in
1995, offering value primarily to investors who were willing to carefully sift
through the supply and focus on municipal bonds with strong credit ratings, as
Smith Barney Municipal Fund did during this time period.
Looking Ahead
It now appears that the Federal Reserve has been successful in containing
inflation -- which averaged 2.8% in 1995 -- and in encouraging a slower rate of
economic growth, which totaled 2.5% in 1995 as measured by gross domestic
product (GDP). The Federal Open Market Committee, which controls the federal
funds rate, declined to alter the rate in both September and November after a
quarter point reduction in July. The federal funds rate is a key indicator
because it represents the rate banks charge each other for overnight loans and
affects all other interest rates, including those offered by municipal bonds.
Lower rates typically increase economic growth because they make it less
expensive for businesses to fund expansion. The Federal Reserve acted to lower
short-term rates at their last meeting held in December 1995.
Going forward, we expect to see yet another year of slow economic growth with
GDP posting growth of around 2%. We also forecast steady or slightly lower
interest rates of half a point to a full point in 1996. Our outlook for the
municipal bond market remains positive. Limited supply is driving prices higher,
yields are excellent relative to U.S. Treasuries and growing credit strength in
a number of states is increasing the attractiveness of many issues.
What's Ahead for Municipal Bonds
Experts predict that approximately $155 billion in new long-term municipal bond
issues will come to market in 1996 (roughly the same amount seen in 1995). Yet
those new issues will be more than offset by the $150 to $175 billion in
municipal bonds set to retire in 1996. In our view, tightened supply could drive
municipal bond prices higher, increasing appreciation opportunities --
particularly for bonds with long maturities and good call protection.
Not only are the yields of municipal bonds attractive relative to Treasuries,
what does come to market is likely to be of higher credit quality than in the
past. The National Governor's Association believes the fiscal condition of many
states is now the strongest it has been since the late 1980s, with many of the
larger states showing remarkable improvement in their ability to service
outstanding bonds and support new debt.
However, any municipal bond market rally will depend on tax reform and the
success of Washington, D.C. in reaching a consensus on the federal budget. At
this time, we do not expect any flat tax proposals to be taken seriously given
the upcoming Presidential election. That does not mean, however, that the
municipal bond market will not worry about such a prospect, which could depress
municipal bond prices in 1996. In addition, federal spending reductions
2
<PAGE>
could impact funding for state and local projects which, if combined with
resistance to higher local taxes that back some municipal bonds, could affect
credit quality or supply.
Portfolio Strategy and Outlook
In light of conflicting economic forces affecting the municipal bond
marketplace, we are taking a cautious investment approach to portfolio
management and being very selective about new investments. We are carefully
balancing the interest-rate sensitivity of Smith Barney Municipal Fund by
investing in a strategically diversified combination of maturities, with a bias
towards lengthening the overall maturity structure in search of appreciation
opportunities. We remain substantially committed to high-quality coupon issues
with call protection in anticipation of a downturn in rates in 1996. The Fund's
average weighted maturity for the one-year period ended December 31, 1995 was
11.80 years.
At this time, we would like to thank you for your investment in Smith Barney
Municipal Fund.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman and Vice President and
Chief Executive Officer Investment Officer
January 24, 1996
3
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Smith Barney Municipal Fund, Inc.
<TABLE>
<CAPTION>
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Schedule of Investments December 31, 1995
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FACE
AMOUNT RATING SECURITY VALUE
=======================================================================================================================
<C> <C> <S> <C>
Education -- 6.9%
$1,000,000 A* Arizona Education Loan Marketing Corp., 6.625% due 9/1/05(a) $1,076,250
1,000,000 A1* New England Education Loan Marketing Corporation
Massachusetts Refunding Student Loan Revenue,
5.625% due 7/1/04(a) 1,047,500
1,000,000 AAA Pasadena, TX Independent School District Refunding Capital
Appreciation, PSFG, zero coupon due 2/15/07 567,500
Utah State School District Co-Op Revenue Financing Pool LOC
Swiss Bank (Special Mandatory Redemption 8/15/98 @100):
530,000 AAA 8.375% due 2/15/10 573,725
470,000 AAA 8.375% mandatory tender 2/15/07 509,950
500,000 AAA 8.375% mandatory tender 2/15/09 541,250
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4,316,175
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Escrowed to Maturity(b) -- 16.9%
1,270,000 AAA Boston, MA Water & Sewer Community Revenue, Series A,
10.875% due 1/1/09, Sinking Fund Average Life 5/3/05 1,827,213
810,000 AAA Illinois Health Facility Authority Revenue (Methodist Medical Center
Project), 9.000% due 10/1/10, Sinking Fund Average Life 4/1/03 1,034,775
1,000,000 AAA Jackson, TN Water and Sewer Revenue,
7.200% due 7/1/12, Sinking Fund Average Life 1/25/06 1,208,750
500,000 AAA Lake County, OH Hospital Improvement Revenue (Lake County
Memorial Hospital), 8.625% due 11/1/09, Sinking Fund Average
Life 10/31/04 646,250
1,120,000 AAA Los Angeles, CA (Hollywood Presbyterian Medical Center),
9.625% due 7/1/13, Sinking Fund Average Life 2/28/08 1,528,800
225,000 AAA Louisiana Public Facilities (Southern Baptist Hospital),
8.000% due 5/15/12, Sinking Fund Average Life 6/18/06 277,031
325,000 AAA Nacogdoches County, TX Hospital District Revenue,
9.000% due 5/15/04, Sinking Fund Average Life 8/27/00 396,906
620,000 AAA New Jersey State Turnpike Authority Revenue Refunding Bond,
10.375% due 1/1/03, Sinking Fund Average Life 1/6/00 754,075
790,000 AAA Ohio State Water Development Authority Revenue Safe Water Series 2,
9.375% due 12/1/10, Sinking Fund Average Life 11/26/03 1,022,062
400,000 AAA Ringwood Borough, NJ Sewer Authority Special Obligation Refunding,
9.875% due 7/1/13, Sinking Fund Average Life 2/6/05 552,000
1,000,000 AAA Riverside, CA Single-Family Mortgage Revenue, GNMA-Insured,
7.800% due 5/1/21, Sinking Fund Average Life 3/17/16(a) 1,328,750
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10,576,612
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</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Smith Barney Municipal Fund, Inc.
<TABLE>
<CAPTION>
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Schedule of Investments (continued) December 31, 1995
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FACE
AMOUNT RATING SECURITY VALUE
=======================================================================================================================
<C> <C> <S> <C>
General Obligation -- 4.6%
$ 500,000 AAA Anchorage, AK GO, 6.000% due 10/1/14 $ 541,250
670,000 BBB New Haven, CT GO, Series B, 9.000% due 12/1/01 811,538
New Orleans, LA Certificates of Indebtedness:
1,000,000 BBB- Series A, 6.650% due 8/1/01 1,026,250
500,000 BBB- Series C, 6.650% due 8/1/01 513,125
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2,892,163
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Finance -- 2.7%
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 1,100,000
545,000 BBB Tampa, FL Capital Improvement Program Revenue, Series B, Den Danske
Bank Royal, Trust Canada and Yasuda Trust, 8.000% due 10/1/02 581,788
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1,681,788
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Hospital -- 20.2%
500,000 BBB+ Alachua County, FL Health Authority Revenue Refunding (Sante Fe
Medical Center), 6.000% due 11/15/09 506,250
700,000 BBB Allentown, PA Area Hospital Authority Revenue Revenue Refunding
(Sacred Heart Hospital), Series A, 6.200% due 11/15/03 737,625
650,000 AAA Calcasieu Parish, LA Memorial Hospital Service District Revenue
Refunding (Lake Charles Memorial Hospital), Series A,
CONNIE LEE-Insured, 7.500% due 12/1/05 771,062
1,500,000 A+ California Statewide Community Development Authority Revenue, COP
Refunding Hospital (Triad Healthcare), 6.250% due 8/1/06 1,573,125
1,510,000 Baa1* Fulco, GA Hospital Authority Revenue Anticipation Certificates Refunding
(Georgia Baptist Healthcare), Series A, 6.400% due 9/1/07 1,560,963
1,300,000 A- Illinois Health Facilities Authority Revenue Friendship (VLG Hospital),
6.650% due 12/1/06 1,329,250
1,200,000 BBB+ Klamath Falls, OR Intercommunity (Merle Hospital), 8.000% due 9/1/08 1,462,500
1,650,000 Ba1* Langhorne Manor Borough, PA Higher Education and Health Authority
Bucks County (Lower Bucks Hospital), 6.750% due 7/1/02 1,627,313
860,000 A- Massachusetts State Health and Education Facilities (Melrose
Wakefield Hospital), 6.125% due 7/1/04 899,775
2,000,000 AAA Orange County, FL Health Facilities Authority Revenue
(Adventist Health System/Sunbelt), CGIC-Insured, FLAIRS,
6.340% due 11/15/07(c) 2,155,000
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12,622,863
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</TABLE>
See Notes to Financial Statements.
5
<PAGE>
Smith Barney Municipal Fund, Inc.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT RATING SECURITY VALUE
=======================================================================================================================
<C> <C> <S> <C>
Housing: Multi-Family -- 4.7%
$ 215,000 A Atlanta, GA Urban Residential Finance Authority Multi-Family Housing
Revenue (Cascade Pines Housing Project), 6.250% due 9/1/10 $ 221,181
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 1,167,375
1,470,000 A+ Lynchburg, VA Redevelopment & Housing Authority Multi-Family
Housing Revenue Refunding (Princeton Circle Association),
6.250% due 12/1/10 1,528,800
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2,917,356
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Housing: Single-Family -- 3.6%
370,000 A1* Ford County, KS Single-Family Mortgage Revenue Refunding, Series A,
7.900% due 8/1/10 399,137
995,000 AAA Juneau City and Borough, AK Home Mortgage Revenue Refunding
(Mortgage Backed Securities Program), FNMA-Collateralized,
FHA-Insured, 8.000% due 2/1/09 1,079,575
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 2/17/08 536,250
210,000 Aa* Montgomery County, MD Housing Opportunities Commission
Mortgage Revenue, Series A, 7.200% due 7/1/04 223,913
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2,238,875
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Industrial Development -- 15.1%
500,000 A* Alaska Industrial Development & Export Authority Revenue Fund,
6.100% due 4/1/06 540,000
535,000 BBB Bourbonnais, IL Individual Development Revenue Refunding
(K-Mart Corp. Project), 6.600% due 10/1/06 459,431
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) 1,117,500
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 1,552,500
1,500,000 Baa1* Dickinson County, MI Economic Development Corp. Solid
Waste Disposal Refunding Revenue, Champion International,
6.550% due 3/1/07 1,593,750
1,250,000 AA Noblesville, IN Economic Development Revenue Refunding
(Lions Creek Association Limited Project), Asset Guaranty-Insured,
6.500% due 11/1/04 1,382,813
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 1,076,250
600,000 AA+ Sussex County, DE Economic Development Refunding Revenue Bonds
(Rohoboth Mall Project), Series 1992, 7.250% due 10/15/12 672,750
1,000,000 BBB+ Tooele County, UT Hazardous Waste Disposal Revenue (Laidlaw
Incineration), Series A, 6.750% due 8/1/10 1,055,000
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9,449,994
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</TABLE>
See Notes to Financial Statements.
6
<PAGE>
Smith Barney Municipal Fund, Inc.
<TABLE>
<CAPTION>
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Schedule of Investments (continued) December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT RATING SECURITY VALUE
=======================================================================================================================
<C> <C> <S> <C>
Miscellaneous -- 4.5%
$1,000,000 BBB- Clarksville, TN Natural Gas Acquis Corporation Gas Revenue,
Series A 7.500% due 11/1/04 $1,060,000
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 1,081,250
645,000 Baa1* Indianapolis, IN Economic Development Refunding and Improvement
Revenue, National Benevolent Association (Robin Run Village
Project), 6.900% due 10/1/04 668,381
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2,809,631
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Pollution Control -- 5.6%
1,000,000 Aa3* Brazos River, TX Navigation District BASF, 6.750% due 2/1/10 1,170,000
Broward County, FL Resource Recovery PCR:
725,000 A* North Project, 7.950% due 12/1/08 815,625
440,000 A South Project, 7.950% due 12/1/08 495,000
1,000,000 BBB Nassau County, FL PCR Refunding (ITT Rayonier Inc.), Series 1992,
6.100% due 6/1/05 1,056,250
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3,536,875
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Pre-Refunded(b) -- 3.3%
430,000 AAA Gila County, AZ Industrial Development Authority Revenue Pollution
Control, 11.250% due 4/1/01, Pre-Refunded with U.S. Government
Securities to 4/1/97 Call @ 100, Sinking Fund Average Life 4/29/97 478,912
620,000 Aaa* Philadelphia, PA Hospital Revenue (United Hospitals Inc. Project),
10.875% due 7/1/08, Pre-Refunded with U.S. Government Securities
to 11/1/05 Call @ 100, Sinking Fund Average Life 6/1/02 855,600
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 4/13/04 427,875
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 @ 102 314,875
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2,077,262
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Public Facilities -- 2.9%
500,000 A Dallas, TX Civic Center Convention Complex Revenue, 6.100% due
1/1/08, Sinking Fund Average Life 7/31/03 500,000
250,000 AAA Cobb - Marietta, GA Coliseum and Exhibit Hall Authority Revenue,
MBIA-Insured, 5.625% due 10/1/26 262,188
1,000,000 A Dekalb County, IN Redevelopment Authority Revenue (Mini-Mill Public
Improvement Project), 6.250% due 1/15/08 1,073,750
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1,835,938
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</TABLE>
See Notes to Financial Statements.
7
<PAGE>
Smith Barney Municipal Fund, Inc.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT RATING SECURITY VALUE
=======================================================================================================================
<C> <C> <S> <C>
Short-Term(c) -- 0.8%
$ 500,000 Aa3* Pinellas County, FL Health Facility Pooled Hospital 5.950% $ 500,000
- -----------------------------------------------------------------------------------------------------------------------
Tax Allocation -- 0.4%
250,000 Baa* Lemon Grove, CA Community Development Agency Tax Allocation
Revenue (Lemon Grove Redevelopment Project), 6.650% due 8/1/06 265,937
- -----------------------------------------------------------------------------------------------------------------------
Transportation -- 4.9%
Denver, CO City and County Airport Revenue:
500,000 BBB Series B, 7.000% due 11/15/03(a) 552,500
1,000,000 BBB Series C, 6.650% due 11/15/05(a) 1,076,250
500,000 AAA Maryland State Transportation Authority Special Obligation
Revenue (Baltimore/Washington International Airport Project),
Series B, 5.750% due 7/1/05 538,125
500,000 Baa3* Raleigh-Durham, NC Airport Authority Special Facilities Revenue
(American Airlines Inc. Project), 9.400% due 11/1/00 580,000
295,000 NR Sanford, FL Airport Authority Industrial Development Revenue
(Central Florida Terminals Project), Series B, 7.500% due 5/1/06(a) 295,369
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3,042,244
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Utilities -- 2.1%
1,250,000 A- Union City, NJ Utility Authority Solid Waste Revenue Series A,
6.850% due 6/15/02(a) 1,331,250
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Water & Sewer -- 0.8%
1,000,000 AA+ Gwinnett County, GA Water & Sewer Revenue, zero coupon due 8/1/09 512,500
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TOTAL INVESTMENTS -- 100%
(Cost -- $59,084,893)* $62,607,463
=======================================================================================================================
</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.
+ Duff & Phelps Credit Rating Co.
++ Fitch Investor Services, Inc.
+++ Equivalent rating as determined by the Manager -- issue not rated.
* 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
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Smith Barney Municipal Fund, Inc.
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Ratings and Security Descriptions
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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.
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.
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.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
9
<PAGE>
Smith Barney Municipal Fund, Inc.
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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
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
PSF -- Permanent School Fund RIBS -- Residual Interest Bonds
10
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $59,084,893) $ 62,607,463
Cash 51,533
Interest receivable 1,178,847
Receivable for securities sold 40,165
- --------------------------------------------------------------------------------
Total Assets 63,878,008
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 296,475
Dividends payable 109,101
Management fees payable 37,372
Accrued expenses 27,399
Other liabilities 66,963
- --------------------------------------------------------------------------------
Total Liabilities 537,310
- --------------------------------------------------------------------------------
Total Net Assets $63,340,698
================================================================================
NET ASSETS:
Par value of capital shares $ 4,021
Capital paid in excess of par value 60,192,643
Undistributed net investment income 135,339
Accumulated net realized loss on security transactions (513,875)
Net unrealized appreciation of investments 3,522,570
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $15.75 a share on 4,021,162 shares of $0.001
par value outstanding; 100,000,000 shares authorized) $63,340,698
================================================================================
See Notes to Financial Statements.
11
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $3,870,311
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 3) 427,954
Shareholder and system servicing fees 26,503
Shareholder communications 20,001
Audit and legal 12,202
Directors' fees 11,742
Pricing service fees 10,310
Custody 8,001
Other 6,190
- --------------------------------------------------------------------------------
Total Expenses 522,903
- --------------------------------------------------------------------------------
Net Investment Income 3,347,408
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 4):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 12,532,361
Cost of securities sold 12,354,191
- --------------------------------------------------------------------------------
Net Realized Gain 178,170
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
(Depreciation) of Investments:
Beginning of year (2,210,108)
End of year 3,522,570
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 5,732,678
- --------------------------------------------------------------------------------
Net Gain on Investments 5,910,848
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $9,258,256
================================================================================
See Notes to Financial Statements.
12
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets For the Years Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
==========================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,347,408 $ 3,368,724
Net realized gain (loss) 178,170 (528,664)
Increase in net unrealized appreciation (depreciation) 5,732,678 (5,629,237)
- ------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations 9,258,256 (2,789,177)
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income (3,426,030) (3,426,030)
- ------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions
to Shareholders (3,426,030) (3,426,030)
- ------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 5,832,226 (6,215,207)
NET ASSETS:
Beginning of year 57,508,472 63,723,679
- ------------------------------------------------------------------------------------------
End of year* $63,340,698 $57,508,472
==========================================================================================
* Includes undistributed net investment income of: $135,339 $213,954
==========================================================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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) securities 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) 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; (f) 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 (g) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determing these estimates could cause actual results to differ from
these amounts.
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.
14
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (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 year ended December 31, 1995, the total aggregate cost of purchases
and proceeds from sales of investments (including maturities, excluding
short-term investments) were $14,580,417 and $12,532,361, respectively. At
December 31, 1995, aggregate gross unrealized appreciation for all securities in
which there is an excess of market value over tax cost amounted to $3,669,474
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over market value amounted to $146,904, or a net
unrealized appreciation of $3,522,570.
5. CAPITAL LOSS CARRYFORWARD
At December 31, 1995, the Fund had for Federal tax purposes net capital
loss carryforwards approximately of $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 year:
<TABLE>
<CAPTION>
1995 1994 1993 1992(a)(b)
============================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $14.30 $15.85 $14.81 $15.00
- --------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.83 0.84 0.84 0.32*
Net realized and unrealized gain (loss) 1.47 (1.54) 1.00 (0.21)
- --------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.30 (0.70) 1.84 0.11
- --------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.85) (0.85) (0.80) (0.30)
- --------------------------------------------------------------------------------------------
Total Distributions (0.85) (0.85) (0.80) (0.30)
- --------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.75 $14.30 $15.85 $14.81
- --------------------------------------------------------------------------------------------
Total Return 17.11% (4.09)% 12.82% 0.81%++
- --------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $63,341 $57,508 $63,724 $59,561
- --------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.86% 0.86% 0.85% 0.56%+*
Net investment income 5.48 5.59 5.42 5.22+
- --------------------------------------------------------------------------------------------
Portfolio Turnover Rate 20.84% 34.52% 23.18% 36.38%
- --------------------------------------------------------------------------------------------
Market Price at End of Year $13.75 $12.63 $15.38 $14.25
============================================================================================
</TABLE>
(a) Based on the weighted average shares outstanding for the period.
(b) 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.
- --------------------------------------------------------------------------------
Independent Auditors Report
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of the Smith Barney Municipal Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Smith Barney Municipal Fund, Inc.
as of December 31, 1995, the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the three-year period then ended and for the period from July 31, 1992
(commencement of operations) to December 31, 1992. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. As to securities
purchased and sold but not received or delivered, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Smith Barney Municipal Fund, Inc. as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and the financial highlights for
each of the years in the three-year period then ended and for the period from
July 31, 1992 to December 31, 1992, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
February 2, 1996
17
<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
===============================================================================
1992
3rd Quarter+ $14.50 $14.84 $0.02 $14.75
4th Quarter 14.25 14.81 0.28 14.03
- -------------------------------------------------------------------------------
1993
1st Quarter 14.88 15.29 0.14 15.03
2nd Quarter 15.00 15.57 0.21 15.01
3rd Quarter 15.25 15.85 0.22 15.40
4th Quarter 15.38 15.85 0.23 15.15
- -------------------------------------------------------------------------------
1994
1st Quarter 14.13 15.00 0.21 14.78
2nd Quarter 13.88 14.90 0.21 14.03
3rd Quarter 13.88 14.77 0.21 13.90
4th Quarter 12.63 14.30 0.22 12.42
- -------------------------------------------------------------------------------
1995
1st Quarter 13.50 15.01 0.21 13.90
2nd Quarter 13.50 15.19 0.21 13.58
3rd Quarter 14.00 15.41 0.21 14.02
4th Quarter 13.75 15.75 0.22 14.12
================================================================================
* On the last business day of the quarter.
+ For the period from July 31, 1992 (commencement of operations) to September
30, 1992.
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
100% of the dividends paid by the Fund from net investment income for the
year ended December 31, 1995, are tax-exempt for regular Federal income tax
purposes.
18
<PAGE>
Smith Barney Municipal Fund, Inc.
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
- --------------------------------------------------------------------------------
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 (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 SMITH BARNEY
Municipal Fund, Inc. ------------
A Member of Travelers Group [LOGO]
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
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
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
FD2253 2/96
