g:\funds\#sbt\1996\edgar\sbtn2.doc
As filed with the Securities and Exchange Commission on
March 21, 1996
Securities Act File No. 33-48166
Investment Company Act File No. 811-6688
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM N-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 x
Pre-Effective Amendment No.
o Post-Effective Amendment No. 1
x
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 3
x
(Check appropriate box or boxes.)
__________________
Smith Barney Municipal Fund, Inc.
(Exact name of registrant as specified in charter)
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices)
Registrant's Telephone Number, Including Area
Code (212) 723-9218
Christina T. Sydor, Secretary
Smith Barney Municipal Fund, Inc.
388 Greenwich Street
New York, New York 10013
(Name and address of agent for
service)
Copy to:
John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Approximate date of proposed public offering: As
soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this
Form N-2 are to be offered on a delayed or continuous
basis
pursuant to Rule 415 of the Securities Act of 1933,
as
amended (the 1933 Act), other than securities offered
only in connection with dividend or interest reinvestment
plans, check the following box. x
It is proposed that this filing will become
effective: x when declared effective
pursuant to section
8(c).
This Registration Statement relates to the
registration of an indeterminate number of shares
solely for marketmaking transactions. Pursuant to Rule
429, this Registration
Statement relates to shares previously registered on Form
N2 (Registration No. 33-48166).
The Registrant hereby amends this
Registration
Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall file a
further amendment which specifically states that this
registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of
1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission
acting pursuant to said Section 8(a) may determine.
SMITH BARNEY MUNICIPAL FUND, INC. Cross-
Reference Sheet
Parts A and B of Prospectus*
Items in Part A and B of Form Location
N-2 *
1 Outside Front Cover Outside Front Cover
2. Inside Front and Outside Back Inside Front and Outside
Back Cover Page. Cover Page
3. Fee Table and Synopsis Prospectus Summary; Fee
Table
4. Financial Highlights Financial Highlights
5. Plan of Distribution Outside Front Cover
6. Selling Shareholders Not Applicable
7. Use of Proceeds Use of Proceeds;
Investment
Objective and Management
Policies
8. General Description of The Fund; Investment
Registrant Objective and Management
Policies; Investment
Restrictions; Net Asset
Value; Description of
Shares
9. Management Management of the Fund;
Custodian, Transfer,
DividendPaying and Plan
Agent
10. Capital Stock, Long-Term Debt Dividends and
Distributions; and Other Securities Dividend Reinvestment
Plan;
Description of Shares;
Taxation
11. Defaults and Arrears on Senior Not Applicable
Securities
12. Legal Proceedings Not Applicable
13. Table of Contents of Statement Not
Applicable of Additional Information
14. Cover Page Not
Applicable
15. Table of Contents Not
Applicable
16. General Information and The Fund, Investment
History Objective and Management
Policies
17. Investment Objective and lnvestment Objective
and
Policies Management Policies;
Investment Restrictions;
Appendix B
18. Management Management of the
Fund;
Custodian, Transfer,
DividendPaying and Plan
Agent
19. Control Persons and Principal Description of Shares
Holders of Securities
20. Investment Advisory and Other Management of the Fund
Services
21. Brokerage Allocation and Other Securities Transactions
and Practices Turnover
22. Tax Status Dividends and
Distributions;
Dividend Reinvestment Plan,
Taxation
23. Financial Statements Experts
* Pursuant to General Instructions of Form N-2, all
information required to be set forth in Part B:
Statement of Additional Information, has been included
in Part A: The Prospectus.
PART C
Information required to be included in Part C is set forth,
under the appropriate item so numbered, in Part C of this
Registration Statement.
<PAGE>
- --------------------------------------------------------------
- ------------------
Smith Barney Municipal Fund, Inc.
PROSPECTUS
MARCH 29, 1996
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Municipal Fund, Inc. (the "Fund") is a
diversified, no load,
closed-end management investment company. The Fund's
investment objective is to
provide common shareholders a high level of current income
exempt from ordinary
Federal income taxes consistent with prudent investing. In
normal market condi-
tions, the Fund will invest only in municipal securities rated
investment grade
and at least two thirds of its total assets in municipal
securities rated in
the category A or better at the time of investment. Investment
grade securities
are securities rated BBB or higher by Standard & Poor's
Corporation or Baa or
higher by Moody's Investors Service, Inc. or have equivalent
ratings by any
other nationally recognized statistical rating organization.
The Fund's policy
is to invest at least 80% of its total assets in municipal
securities with
remaining maturities of less than fifteen years. There can be
no assurance that
the Fund will achieve its investment objective. The Fund may
invest an unlim-
ited portion of its assets in municipal securities that pay
interest that is
subject to the Federal alternative minimum tax. See
"Investment Objective and
Management Policies" and "Taxation". The shares of closed-end
investment compa-
nies have in the past frequently traded at discounts from
their net asset val-
ues. Investors should carefully assess the risks associated
with an investment
in the Fund. See "Investment Objective and Management Policies-
- -Risk Factors
and Special Considerations."
This Prospectus sets forth concisely the information about
the Fund that a
prospective investor ought to know before investing and should
be retained for
future reference. Additional information about the Fund has
been filed with the
Securities and Exchange Commission and is available upon
written or oral
request by calling or writing to the Fund at the telephone
number or address
set forth above or by contacting a Smith Barney Financial
Consultant.
(Continued on page 2)
SMITH BARNEY INC.
Distributor
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Municipal Fund, Inc.
PROSPECTUS (CONTINUED)
MARCH 29
, 1995
Smith Barney Inc. ("Smith Barney") intends to make a market
in the Fund's
Common Stock ("Common Stock"), although it is not obligated to
conduct market-
making activities and any such activities may be discontinued
at any time,
without notice by Smith Barney. The shares of Common Stock
that may be offered
from time to time pursuant to this Prospectus were issued and
sold by the Fund
on July 31, 1992 in an initial public offering at a price of
$15.00 per share.
No assurance can be given as to the liquidity of, or the
trading market for,
the Common Stock as a result of any market-making activities
undertaken by
Smith Barney. The Fund will not receive any proceeds from the
sale of any Com-
mon Stock offered pursuant to this Prospectus. The Fund's
shares of Common
Stock have been approved for listing on the American Stock
Exchange under the
symbol, "SBT."
All dealers effecting transactions in the registered
securities, whether or
not participating in this distribution, may be required to
deliver a Prospec-
tus.
Investors are advised to read this Prospectus and to retain
it for future
reference.
2
<PAGE>
Smith Barney Municipal Fund, Inc.
TABLE OF CONTENTS
<TABLE>
<S>
<C>
PROSPECTUS SUMMARY
4
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- ----------------
FUND EXPENSES
10
- --------------------------------------------------------------
- ----------------
FINANCIAL HIGHLIGHTS
11
- --------------------------------------------------------------
- ----------------
THE FUND
12
- --------------------------------------------------------------
- ----------------
THE OFFERING
12
- --------------------------------------------------------------
- ----------------
USE OF PROCEEDS
12
- --------------------------------------------------------------
- ----------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
12
- --------------------------------------------------------------
- ----------------
INVESTMENT RESTRICTIONS
28
- --------------------------------------------------------------
- ----------------
SHARE PRICE DATA
31
- --------------------------------------------------------------
- ----------------
MANAGEMENT OF THE FUND
32
- --------------------------------------------------------------
- ----------------
SECURITIES TRANSACTIONS AND TURNOVER
38
- --------------------------------------------------------------
- ----------------
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
39
- --------------------------------------------------------------
- ----------------
NET ASSET VALUE
42
- --------------------------------------------------------------
- ----------------
TAXATION
43
- --------------------------------------------------------------
- ----------------
DESCRIPTION OF SHARES
48
- --------------------------------------------------------------
- ----------------
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND
MARKET DISCOUNT 51
- --------------------------------------------------------------
- ----------------
CUSTODIAN, TRANSFER, AND DIVIDEND-PAYING AGENT, REGISTRAR AND
PLAN AGENT 56
- --------------------------------------------------------------
- ----------------
REPORTS TO SHAREHOLDERS
56
- --------------------------------------------------------------
- ----------------
EXPERTS
56
- --------------------------------------------------------------
- ----------------
ADDITIONAL INFORMATION
57
- --------------------------------------------------------------
- ----------------
APPENDIX A
A-1
- --------------------------------------------------------------
- ----------------
APPENDIX B
B-1
- --------------------------------------------------------------
- ----------------
</TABLE>
3
<PAGE>
Smith Barney Municipal Fund, Inc.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
more detailed
information appearing in the body of this Prospectus. Cross
references in this
summary are to headings in the body of the Prospectus.
THE FUND Smith Barney Municipal Fund, Inc. (the "Fund") is a
diversified,
closed-end management investment company. See "The Fund."
INVESTMENT OBJECTIVE The Fund seeks a high level of current
income exempt from
ordinary Federal income tax consistent with prudent investing.
See "Investment
Objective and Management Policies."
TAX-EXEMPT INCOME The Fund is intended to operate in such a
manner that divi-
dends paid by the Fund may be excluded by the Fund's
shareholders from their
gross incomes for Federal income tax purposes. See "Investment
Objective and
Management Policies" and "Taxation."
QUALITY INVESTMENTS The Fund intends to achieve its objective
primarily by
investing in a diversified portfolio of municipal securities
which the Fund's
investment manager believes does not involve undue risk to
income or princi-
pal. Under normal market conditions, the Fund will invest only
in municipal
securities rated investment grade and at least two thirds of
its total assets
in municipal securities rated in category A or better by
Standard & Poor's
Corporation ("S&P") or by Moody's Investors Service, Inc.
("Moody's") or have
an equivalent rating by any nationally recognized statistical
rating organiza-
tion at the time of investment. Investment grade securities
are securities
rated BBB or higher by S&P or Baa or higher by Moody's or have
equivalent rat-
ings by any nationally recognized statistical rating
organization (or, if not
so rated, which are, in the opinion of the Fund's investment
manager applying
standards established by the Fund's Board of Directors, of
comparable credit
quality to those so rated). Securities rated BBB by S&P or Baa
by Moody's are
considered as medium grade obligations, i.e., they are neither
highly pro-
tected nor poorly secured. Such securities lack outstanding
investment charac-
teristics and in fact may have speculative characteristics as
well. The Fund's
policy is to invest at least 80% of its total assets in
municipal securities
with remaining maturities of less than fifteen years. The Fund
may vary from
its investment policies for temporary defensive purposes. See
"Investment
Objective and Management Policies" and "Appendix A."
THE OFFERING Smith Barney intends to make a market in the
Common Stock in addi-
tion to the trading of the Common Stock on the AMEX. Smith
Barney, however, is
not obligated to conduct market-making activities and any such
4
<PAGE>
Smith Barney Municipal Fund, Inc.
PROSPECTUS SUMMARY (CONTINUED)
activities may be discontinued at any time without notice, at
the sole discre-
tion of Smith Barney.
LISTING AMEX.
SYMBOL SBT.
INVESTMENT MANAGER Greenwich Street Advisors, a division of
Smith Barney Mutual
Funds Management Inc. ("SBMFM"), serves as the Fund's
investment manager (the
"Investment Manager"). The Investment Manager provides
investment advisory and
management services to investment companies affiliated with
Smith Barney. Smith
Barney is a wholly owned subsidiary of Smith Barney Holdings
Inc. ("Holdings"),
which is in turn a wholly owned subsidiary of Travelers Group
Inc. ("Travel-
ers"). Subject to the supervision and direction of the Fund's
Board of Direc-
tors, the Investment Manager manages the securities held by
the Fund in accor-
dance with the Fund's stated investment objective and
policies, makes invest-
ment decisions for the Fund, places orders to purchase and
sell securities on
behalf of the Fund and employs professional portfolio
managers. SBMFM acts as
administrator of the Fund and in that capacity provides
certain administrative
services, including overseeing the Fund's non-investment
operations and its
relations with other service providers and providing executive
and other offi-
cers to the Fund. The Fund pays the Investment Manager a fee
("Management Fee")
for services provided to the Fund that is computed daily and
paid monthly at
the annual rate of 0.70% of the value of the Fund's average
daily net assets.
The Fund will bear other expenses and costs in connection with
its operation in
addition to the costs of investment management services. See
"Management of the
Fund-- Investment Manager."
CUSTODIAN PNC Bank, National Association ("PNC Bank") serves
as the Fund's cus-
todian. See "Custodian, Transfer Agent, Dividend-Paying Agent,
Registrar and
Plan Agent."
TRANSFER AGENT, DIVIDEND-PAYING AGENT, REGISTRAR AND PLAN
AGENT First Data
Investor Services Group, Inc. ("First Data") serves as the
Fund's transfer
agent, dividend-paying agent and registrar. See "Custodian,
Transfer Agent,
Dividend-Paying Agent, Registrar and Plan Agent."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment
income (that is,
income other than net realized capital gains) are paid monthly
and distribu-
tions of net realized capital gains, if any, are paid
annually. All dividends
or distributions with respect to shares of Common Stock are
reinvested automati-
5
<PAGE>
Smith Barney Municipal Fund, Inc.
PROSPECTUS SUMMARY (CONTINUED)
cally in additional shares through participation in the Fund's
Dividend Rein-
vestment Plan, unless a shareholder elects to receive cash.
When the market
price of the Common Stock is equal to or exceeds net asset
value, participants
in the Fund's Dividend Reinvestment Plan will receive
distributions through
issuance of additional shares of Common Stock valued at net
asset value or, if
the net asset value is less than 95% of the then current
market price of the
Common Stock, then at 95% of the market price. Whenever market
price is less
than net asset value, participants will receive distributions
through pur-
chases of shares on the open market. See "Dividends and
Distributions; Divi-
dend Reinvestment Plan."
RISK FACTORS AND SPECIAL CONSIDERATIONSThe Fund is a
diversified, closed-end
investment company, designed primarily for the long-term
investor and should
not be considered a vehicle for short-term trading. All or a
portion of the
Fund's dividends may be subject to the alternative minimum
tax. See "Taxa-
tion."
Shares of closed-end investment companies frequently trade
at a discount
from net asset value. This characteristic of shares of closed-
end funds is a
risk separate and distinct from the risk that the Fund's net
asset value will
decrease. It should be noted, however, that in some cases
shares of municipal
bond closed-end funds may trade at or near net asset value.
The Fund cannot
predict whether its Common Stock will trade at, above or below
net asset val-
ue.
The amount of available information about the financial
condition of munici-
pal securities issuers may be less extensive than that for
corporate issuers
with publicly-traded securities and the market for municipal
securities may be
less liquid than the market for corporate debt obligations.
Liquidity relates
to the ability of the Fund to sell a security in a timely
manner at a price
which reflects the value of that security. Further, municipal
securities in
which the Fund may invest include special obligation bonds,
lease obligations,
participation certificates and variable rate instruments. The
market for such
securities may be less liquid than the market for general
obligation municipal
securities. The relative illiquidity of some of the Fund's
portfolio securi-
ties may adversely affect the ability of the Fund to dispose
of such securi-
ties in a timely manner and at a fair price. The market for
less liquid secu-
rities tends to be more volatile than the market for more
liquid securities
and the market values of relatively illiquid securities may be
more suscepti-
ble to change as a result of adverse publicity and investor
perceptions than
are the market values of more liquid securities. The
6
<PAGE>
Smith Barney Municipal Fund, Inc.
PROSPECTUS SUMMARY (CONTINUED)
relative illiquidity of some securities in the Fund's
portfolio may adversely
affect the ability of the Fund to value such securities
accurately. Although
the issuers of some municipal securities may be obligated to
redeem such secu-
rities at face value, such redemption could result in capital
losses to the
Fund to the extent that such municipal securities were
purchased by the Fund at
a premium to face value.
Lease obligations (including installment purchase contract
agreements) in
which the Fund may invest may contain "non-appropriation"
clauses which provide
that the municipality has no obligation to make lease or
installment purchase
payments in future years unless money is appropriated for such
purpose on a
yearly basis. A risk exists that the municipality will not, or
will be unable
to, appropriate money in the future in the event of political
changes, changes
in the economic viability of the project, general economic
changes or for other
reasons. Although such lease obligations generally are secured
by a lien on the
leased property, management and/or disposition of the property
in the event of
foreclosure could be costly and time consuming and result in
unsatisfactory
recoupment of the Fund's original investment. For other
considerations
concerning the municipal securities in which the Fund may
invest, see "Invest-
ment Objectives and Management Policies--Risk Factors and
Special
Considerations."
The Fund may invest in unrated municipal securities
believed, at the time of
investment, by the Investment Manager to have credit
characteristics equivalent
to, and to be of comparable credit quality with, municipal
securities that are
rated investment grade. The Fund may be more dependent upon
the Investment Man-
ager's investment analysis of such unrated municipal
securities than is the
case with respect to rated municipal securities.
The Fund may also purchase and sell options on municipal
securities and may
engage in interest rate and other hedging transactions, such
as purchasing and
selling financial futures contracts and related options
thereon. The Fund also
may engage in when-issued and delayed delivery transactions.
See "Investment
Techniques" and Appendix B.
The net asset value of the Fund's Common Stock will change
with changes in
the value of its portfolio securities. Because the Fund will
invest primarily
in fixed-income municipal securities, the net asset value of
the Common Stock
of the Fund can be expected to change as general levels of
interest rates fluc-
tuate.
While the Fund does not concentrate its investments in any
one industry as
defined in the Investment Company Act of 1940, as amended (the
"1940 Act"),
7
<PAGE>
Smith Barney Municipal Fund, Inc.
PROSPECTUS SUMMARY (CONTINUED)
the Fund may invest more than 25% of its assets in the
following types of
municipal securities: hospital and other health care
facilities obligations,
housing agency revenue obligations, airport revenue
obligations, industrial
development obligations (including pollution control
obligations), electric
utility obligations, water and sewer obligations, university
and college reve-
nue obligations, student loan obligations, bridge authority
and toll road
obligations, resource recovery obligations, or in issuers
located in the same
state. If the Fund so invests more than 25% of its assets in
such securities,
the Fund will be more susceptible to economic, business,
political, regulatory
and other developments generally affecting issuers of such
types of municipal
securities.
The Fund's Articles of Incorporation provide that all shares
of stock are
designated as common stock until designated otherwise by the
Board of Direc-
tors. The Board of Directors may classify or reclassify any
unissued shares of
capital stock and set or change the preferences or other
rights of such stock.
If a class of preferred stock were ever to be issued, under
the requirements
of the 1940 Act holders of the preferred stock would elect two
directors.
Under the 1940 Act, upon failure by the Fund to pay dividends
on the preferred
stock in an amount equal to two years' dividends arrearage,
the holders of the
preferred stock would be entitled to elect a majority of the
Board until such
dividends arrearage had been provided for or paid. In
addition, the terms of
the preferred stock could entitle holders of the preferred
stock to elect a
majority of the Board in certain other circumstances or when
dividends on the
preferred stock are in arrears for a period of less than two
years. If any
preferred stock were outstanding, holders of the Common Stock
would not be
entitled to receive any net income of or other distributions
from the Fund
unless all accrued dividends on the preferred stock had been
paid, and unless
appropriate asset coverage was maintained. See "Description of
Shares."
Certain antitakeover provisions will make a change in the
Fund's business or
management more difficult without the approval of the Fund's
Board of Direc-
tors and may have the effect of depriving Shareholders of an
opportunity to
sell their Common Stock at a premium above the prevailing
market price. See
"Certain Provisions of the Articles of Incorporation and
Market Discount--
Anti-Takeover Provisions."
Under the Internal Revenue Code of 1986, as amended (the
"Code"), the inter-
est on certain "private activity" obligations issued after
August 7, 1986 is
treated as a preference item for the purpose of calculating
alternative mini-
mum taxable income. In addition, for corporations, alternative
minimum taxable
income is increased by a percentage of the amount by which a
measure of
8
<PAGE>
Smith Barney Municipal Fund, Inc.
PROSPECTUS SUMMARY (CONTINUED)
income that includes interest on tax-exempt obligations
exceeds the amount oth-
erwise determined to be alternative minimum taxable income.
There exists no
specific limitation on the amount of the Fund's assets which
may be invested in
municipal securities that pay interest that is subject to the
Federal alterna-
tive minimum tax. Accordingly, the Fund's dividends which
would otherwise be
tax-exempt may not be completely tax-exempt to an investor who
is subject to
the alternative minimum tax or may cause an investor to be
subject to such tax.
As such, an investment in the Fund may not be appropriate for
investors who are
already subject to the Federal alternative minimum tax or who
would become sub-
ject to the Federal alternative minimum tax as a result of an
investment in the
Fund. In addition, investors should consider the tax
implications of certain
hedging transactions in which the Fund may engage. See
"Taxation." The Fund
is authorized to borrow amounts up to 33 1/3% of its total
assets (including the
amount borrowed), although currently the Fund anticipates that
it will not borrow.
The use of borrowed funds involves the speculative factor
known as "leverage".
While the Fund does not currently expect to do so, it is also
permitted to issue
preferred stock which would permit it to assume leverage in an
amount up to
50% of its total assets. If any preferred stock were to be
issued, it would
have a priority on the income and assets of the Fund over the
Common Stock
and would have certain other rights with respect to voting and
the election
of directors. See "Investment Objective and Management
Policies - Investment
Techniques - Borrowing and Leverage."
9
<PAGE>
Smith Barney Municipal Fund, Inc.
FUND EXPENSES
The following tables are intended to assist investors in
understanding the
various costs and expenses directly or indirectly associated
with investing in
the Fund.
<TABLE>
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- ---------
<S>
<C>
ANNUAL EXPENSES
(as a percentage of net assets attributable to Common
Stock)
Management Fees
0.70%
Other Expenses*
0.16%
- --------------------------------------------------------------
- ---------
TOTAL ANNUAL OPERATING EXPENSES*
0.86%
- --------------------------------------------------------------
- ---------
</TABLE>
* "Other Expenses", as shown above, is based upon amounts of
expenses for the
fiscal period ended December 31, 1995.
EXAMPLE
The following example demonstrates the projected dollar
amount of total
cumulative expenses that would be incurred over various
periods with respect
to a hypothetical investment in the Fund. These amounts are
based upon payment
by the Fund of operating expenses at the levels set forth in
the table above.
An investor would pay the following expenses on a $1,000
investment, assuming
(1) a 5% annual return and (2) reinvestment of all dividends
and distributions
at net asset value:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------
<S> <C> <C> <C> <C>
$9 $27 $48 $106
- ------------------------------------
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES OF
THE FUND AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. More-
over, while the example assumes a 5% annual return, the Fund's
performance
will vary and may result in a return greater or less than 5%.
In addition,
while the example assumes reinvestment of all dividends and
distributions at
net asset value, participants in the Fund's Dividend
Reinvestment Plan may
receive shares purchased or issued at a price or value
different from net
asset value. See "Dividends and Distributions; Dividend
Reinvestment Plan."
10
<PAGE>
Smith Barney Municipal Fund, Inc.
FINANCIAL HIGHLIGHTS
The following information for each of the periods ended
December 31, 1995 has
been audited by KPMG Peat Marwick LLP, independent auditors,
whose report
thereon appears in the Fund's Annual Report dated December 31,
1995. The infor-
mation set out below should be read in conjunction with the
financial state-
ments and related notes that also appear in the Fund's Annual
Report, which is
incorporated by reference.
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE
PERIOD:
<TABLE>
<CAPTION>
1995 1994
1993 1992(a)(b)
- --------------------------------------------------------------
- -----------------
<S> <C> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF PERIOD $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) on investments 1.47 (1.54)
1.00 (0.21)
- --------------------------------------------------------------
- -----------------
Total Income (Loss) from Operations 2.30 (0.70)
1.84 0.11
- --------------------------------------------------------------
- -----------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.83) (0.85)
(0.80) (0.30)
- --------------------------------------------------------------
- -----------------
NET ASSET VALUE, END OF PERIOD $15.75 $14.30
$15.85 $14.81
- --------------------------------------------------------------
- -----------------
TOTAL RETURN 17.15%++ (4.09)%
12.82% 0.81%++
- --------------------------------------------------------------
- -----------------
NET ASSETS, END OF PERIOD (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+
- --------------------------------------------------------------
- -----------------
FUND TURNOVER RATE 20.84% 34.52%
23.18% 36.38%
- --------------------------------------------------------------
- -----------------
MARKET PRICE AT END OF PERIOD $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 Investment 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).
11
<PAGE>
Smith Barney Municipal Fund, Inc.
THE FUND
The Fund is a diversified, closed-end management investment
company that
seeks a high level of current income exempt from ordinary
Federal income tax
consistent with prudent investing. The Fund, which was
incorporated under the
laws of the State of Maryland on May 19, 1992, is registered
under the 1940
Act, and has its principal office at 388 Greenwich Street, New
York, New York
10013. The Fund's telephone number is (212) 723-9218.
THE OFFERING
Smith Barney intends to make a market in the Fund's Common
Stock, although it
is not obligated to conduct market-making activities and any
such activities
may be discontinued at any time without notice at the sole
discretion of Smith
Barney. No assurance can be given as to the liquidity of, or
the trading mar-
ket for, the Common Stock as a result of any market-making
activities under-
taken by Smith Barney. This Prospectus is to be used by Smith
Barney in con-
nection with offers and sales of the Common Stock in market-
making transac-
tions in the over-the-counter market at negotiated prices
related to prevail-
ing market prices at the time of the sale.
USE OF PROCEEDS
The Fund will not receive any proceeds from the sale of
Common Stock offered
pursuant to this Prospectus. Proceeds received by Smith Barney
as a result of
its market-making in Common Stock will be utilized by Smith
Barney in connec-
tion with its secondary market operations and for general
corporate purposes.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
Set out below is a description of the investment objective
and principal
investment policies of the Fund. No assurance can be given
that the Fund will
be able to achieve its investment objective, which may be
changed only with
the approval of a majority of the Fund's outstanding voting
securities as
defined in the 1940 Act. Such a majority is defined in the
1940 Act as the
lesser of (i) more than 50% of the Fund's outstanding Common
Stock and of any
outstanding shares of preferred stock, voting by class, or
(ii) 67% of the
Fund's outstand
12
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ing Common Stock and of any outstanding shares of preferred
stock, voting by
class, present at a meeting at which the holders of more than
50% of the out-
standing shares of each such class are present in person or by
proxy. All
other investment policies or practices are considered by the
Fund not to be
fundamental and accordingly may be changed without shareholder
approval.
GENERAL
The Fund's investment objective is to provide shareholders a
high level of
current income exempt from ordinary Federal income tax
consistent with prudent
investing. Under normal market conditions, the Fund will
invest at least two
thirds of its total assets in municipal securities rated in
category A or bet-
ter by S&P or by Moody's or have an equivalent rating by any
nationally recog-
nized statistical rating organization (or, if not so rated,
which are, in the
opinion of the Investment Manager applying standards
established by the Fund's
Board of Directors, of comparable credit quality to those so
rated) at the
time of investment. Under normal market conditions, the Fund
will also invest
only in municipal securities rated investment grade at the
time of investment.
Investment grade securities are securities rated BBB or higher
by S&P or Baa
or higher by Moody's or have equivalent ratings by any
nationally recognized
statistical rating organization (or, if not so rated, which
are, in the opin-
ion of the Investment Manager applying standards established
by the Fund's
Board of Directors, of comparable credit quality to those so
rated). The Fund
will not invest in any municipal securities that are rated
lower than BBB by
S&P or Baa by Moody's. Securities rated BBB by S&P are
regarded by S&P as hav-
ing an adequate capacity to pay interest and repay principal;
whereas such
securities normally exhibit 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. Securities rated Baa by Moody's are
considered by
Moody's as medium grade obligations; 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 charac-
teristically unreliable over any great length of time; they
lack outstanding
investment characteristics and in fact have speculative
characteristics as
well. The Fund may be more dependent upon the Investment
Manager's investment
analysis of unrated municipal securities than is the case with
respect to
rated municipal securities. See "Investment Objective and
Management Poli-
cies--Risk Factors and Special Considerations" and Appendix A.
The Fund's pol-
icy is to invest at least 80% of its total assets in municipal
securities with
remaining maturities of less than fifteen years.
13
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The foregoing policies with respect to credit quality of
portfolio invest-
ments will apply only at the time of the purchase of a
security, and the Fund
will not be required to dispose of securities in the event
that S&P or Moody's
or any other relevant rating organization downgrades its
assessment of the
credit characteristics of a particular issuer or in the event
the Investment
Manager reassesses its view with respect to the credit quality
of the issuer
thereof.
Municipal securities are obligations issued by or on behalf
of states, ter-
ritories and possessions of the United States and the District
of Columbia and
their political subdivisions, agencies and instrumentalities,
the interest on
which, in the opinion of bond counsel or other counsel to the
issuer of such
securities is, at the time of issuance, not includable in
gross income for
Federal income tax purposes. Under normal market conditions,
at least 80% of
the Fund's total assets will be invested in municipal
securities. The policy
stated in the foregoing sentence is a fundamental policy and
cannot be changed
without shareholder approval. The Fund has not established any
limit on the
percentage of its portfolio that may be invested in municipal
securities sub-
ject to the alternative minimum tax provisions of Federal tax
law, and a sub-
stantial portion of the income produced by the Fund may be
taxable under the
alternative minimum tax. The Fund may not be a suitable
investment for invest-
ors who are already subject to the Federal alternative minimum
tax or who
would become subject to the Federal alternative minimum tax as
a result of an
investment in the Fund.
The two principal classifications of municipal bonds are
"general obliga-
tion" bonds and "revenue" or "special obligation" bonds, which
include "indus-
trial revenue bonds." General obligation bonds are secured by
the issuer's
pledge of its faith, credit and taxing power for the payment
of principal and
interest, and accordingly the capacity of the issuer of a
general obligation
bond as to the timely payment of interest and the repayment of
principal when
due is affected by the issuer's maintenance of its tax base.
Revenue or spe-
cial obligation bonds are payable only from the revenues
derived from a par-
ticular facility or class of facilities or, in some cases,
from the proceeds
of a special tax or other specific revenue source such as from
the user of the
facility being financed; accordingly, the timely payment of
interest and the
repayment of principal in accordance with the terms of the
revenue or special
obligation bond is a function of the economic viability of
such facility or
such revenue source. Although the ratings of S&P or Moody's of
the municipal
securities in the Fund's portfolio are relative and
subjective, and are not
absolute standards of quality, such ratings reflect the
assessment of S&P or
Moody's, as the case may be, of the issuer's ability, or the
economic viabil-
ity of the special revenue source, with respect to
14
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
the timely payment of interest and the repayment of principal
in accordance
with the terms of the obligation. See Appendix A.
Also included within the general category of municipal
securities are par-
ticipations in lease obligations or installment purchase
contract obligations
(hereinafter collectively called "lease obligations") of
municipal authorities
or entities. Although lease obligations do not constitute
general obligations
of the municipality for which the municipality's taxing power
is pledged, a
lease obligation is ordinarily backed by the municipality's
covenant to budget
for, appropriate and make the payments due under the lease
obligation. Howev-
er, certain lease obligations contain "non-appropriation"
clauses which pro-
vide that the municipality has no obligation to make lease or
installment pur-
chase payments in future years unless money is appropriated
for such purpose
on a yearly basis. In addition to the "non-appropriation"
risk, these securi-
ties represent a relatively new type of financing that has not
yet developed
the depth of marketability associated with more conventional
bonds. Although
"non-appropriation" lease obligations are often secured by the
underlying
property, disposition of the property in the event of
foreclosure might prove
difficult. There is no limitation on the percentage of the
Fund's assets that
may be invested in "non-appropriation" lease obligations and
in unrated "non-
appropriation" lease obligations believed, at the time of
investment, by the
Investment Manager to have credit characteristics equivalent
to, and to be of
comparable quality as, securities that are rated investment
grade. In evaluat-
ing such unrated lease obligations, the Investment Manager
will consider such
factors as it deems appropriate, including (a) whether the
lease can be can-
celled, (b) the ability of the lease obligee to direct the
sale of the under-
lying assets, (c) the general creditworthiness of the lease
obligor, (d) the
likelihood that the municipality will discontinue
appropriating funding for
the leased property in the event such property is no longer
considered essen-
tial by the municipality, (e) the legal recourse of the lease
obligee in the
event of such a failure to appropriate funding and (f) any
limitations which
are imposed on the lease obligor's ability to utilize
substitute property or
services than those covered by the lease obligations. See
"Investment Objec-
tive and Management Policies--Risk Factors and Special
Considerations."
Participation certificates are obligations issued by state
and local govern-
ments or authorities to finance the acquisition of equipment
and facilities.
They may represent participations in a lease, an installment
purchase con-
tract, or a conditional sales contract. Some municipal leases
and participa-
tion certificates may not be readily marketable. See
"Investment Objective and
Management Policies--Risk Factors and Special Considerations."
15
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The "issuer" of municipal securities is generally deemed to
be the govern-
mental agency, authority, instrumentality or other political
subdivision, or
the non-governmental user of a revenue bond-financed facility,
the assets and
revenues of which will be used to meet the payment
obligations, or the guaran-
tee of such payment obligations, of the municipal securities.
Municipal securities may have fixed or variable interest
rates. The Fund may
purchase floating and variable rate demand notes, which are
municipal securi-
ties normally having a stated maturity in excess of one year,
but which permit
the holder to tender the notes for purchase at the principal
amount thereof.
The interest rate on a floating rate demand note is based on a
known lending
rate, such as a bank's prime rate, and is adjusted each time
such rate is
adjusted. The interest rate on a variable rate demand note is
adjusted at
specified intervals. There generally is no secondary market
for these notes,
although they may be tendered for redemption or remarketing at
face value. See
"Investment Objective and Management Policies--Risk Factors
and Special Con-
siderations." Each such note purchased by the Fund will meet
the criteria
established for the purchase of municipal securities.
SELECTION OF INVESTMENTS
The Investment Manager will select securities for the Fund's
portfolio which
the Investment Manager believes entail reasonable credit risk
considered in
relation to the particular investment policies of the Fund. As
a result, the
Fund will not necessarily invest in the highest yielding
municipal securities
permitted by its investment policies if the Investment Manager
determines that
market risks or credit risks associated with such investments
would subject
the Fund's portfolio to excessive risk. The potential for
realization of capi-
tal gains resulting from possible changes in interest rates
will not be a
major consideration. The Fund's policy is to invest at least
80% of its total
assets in municipal securities with remaining maturities of
less than fifteen
years. For this purpose, any scheduled principal prepayments
on municipal
securities will be reflected in the calculation of dollar-
weighted average
maturity. The Investment Manager may adjust the average
maturity of the Fund's
portfolio from time to time, depending on its assessment of
the relative
yields available on securities of different maturities and its
expectations of
future changes in interest rates.
The Fund will not invest more than 25% of its total assets
in any industry,
nor will the Fund invest more than 5% of its total assets in
the securities of
any single issue. Governmental issuers of municipal securities
are not consid-
ered part of any "industry". However, municipal securities
backed only by the
assets
16
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
and revenues of nongovernmental users may for this purpose be
deemed to be
issued by such nongovernmental users, and the 25% limitation
would apply to the
industries of such nongovernmental users. It is nonetheless
possible that the
Fund may invest more than 25% of its total assets in the
following types of
municipal securities: hospital and other health care
facilities obligations,
housing agency revenue obligations, airport revenue
obligations, electric util-
ity obligations, water and sewer obligations, university and
college revenue
obligations, student loan obligations, bridge authority and
toll road obliga-
tions and resource recovery obligations. The Fund will invest
more than 25% of
its assets in such types of municipal securities if the
Investment Manager
determines that the yields available from such obligations
justify the addi-
tional risks associated with a large investment in such
obligations. Although
such obligations could be supported by the credit of
governmental users, or by
the credit of nongovernmental users engaged in a number of
industries, econom-
ic, business, political and other developments generally
affecting the revenues
of such users (for example, proposed legislation or pending
court decisions
affecting the financing of such projects and market factors
affecting the
demand for their services or products) may have a general
adverse effect on all
such municipal securities. The Fund reserves the right to
invest more than 25%
of its assets in industrial development bonds or in issuers
located in the same
state, although it has no present intention to invest more
than 25% of its
assets in issuers located in the same state. If the Fund were
to invest more
than 25% of its total assets in issuers located in the same
state, it would be
more susceptible to adverse economic, business, or regulatory
conditions in
that state.
From time to time, the Fund's investments may include
securities as to which
the Fund, by itself or together with other funds or accounts
managed by the
Investment Manager, holds a major portion or all of an issue
of municipal secu-
rities. Because there may be relatively few potential
purchasers for such
investments and, in some cases, there may be contractual
restrictions on
resales, the Fund may find it more difficult to sell such
securities at a time
when the Investment Manager believes it advisable to do so.
TEMPORARY DEFENSIVE STRATEGIES
During times when the Investment Manager believes a
temporary defensive pos-
ture in the market is warranted (e.g., times when, in the
Investment Manager's
opinion, temporary imbalances of supply and demand or other
temporary disloca-
tions in the municipal securities market adversely affect the
price at which
municipal securities are available), and in order to keep cash
on hand
17
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
fully invested, the Fund may temporarily invest to a
substantial degree in
high quality, short-term municipal securities. If these high-
quality, short-
term municipal securities are not available or, in the
Investment Manager's
judgment, do not afford sufficient protection against adverse
market condi-
tions, the Fund may invest in the following taxable
securities: obligations of
the U.S. Government, its agencies or instrumentalities; other
debt securities
rated within the four highest grades by S&P or Moody's or any
nationally rec-
ognized statistical rating organization; commercial paper
rated in the highest
grade by any such rating service; certificates of deposit,
time deposits and
bankers' acceptances; or repurchase agreements with respect to
any of the
foregoing investments. To the extent the Fund invests in
taxable securities,
the Fund will not at such times be in a position to achieve
its investment
objective of income exempt from ordinary Federal income taxes.
INVESTMENT TECHNIQUES
The Fund may employ, among others, the investment techniques
described
below, which may give rise to taxable income:
In connection with the investment objective and policies
described above,
the Fund may: engage in interest rate and other hedging and
risk management
transactions; purchase and sell options on municipal
securities and on indices
based on municipal securities and purchase and sell municipal
securities on a
"when-issued" or "delayed delivery" basis. These investment
practices entail
risks. The Investment Manager may use some or all of the
following hedging and
risk management practices when their use appears appropriate.
Although the
Investment Manager believes that these investment practices
may further the
Fund's investment objective, no assurance can be given that
these investment
practices will achieve this result. The Investment Manager may
also decide not
to engage in any of these investment practices.
Securities Options Transactions. The Fund may invest in
options on municipal
securities. Such options are traded over-the-counter, although
if options on
municipal securities were to be listed for trading on a
national securities
exchange, the Fund may trade in exchange-listed options. In
general, the Fund
may purchase and sell (write) options on up to 20% of its
assets. The Securi-
ties and Exchange Commission (the "SEC") requires that
obligations of invest-
ment companies such as the Fund, in connection with options
sold, must comply
with certain segregation or cover requirements which are more
fully described
in Appendix B. There is no limitation on the amount of the
Fund's assets which
can be used to comply with such segregation or cover
requirements.
18
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
A call option gives the purchaser the right to buy, and the
writer the obli-
gation to sell, the underlying security at the agreed-upon
exercise (or
"strike") price during the option period. A put option gives
the purchaser the
right to sell, and the writer the obligation to buy, the
underlying security at
the strike price during the option period. Purchasers of
options pay an amount,
known as a premium, to the option writer in exchange for the
right under the
option contract. Option contracts may be written with terms
which would permit
the holder of the option to purchase or sell the underlying
security only upon
the expiration date of the option.
The Fund may purchase put and call options in hedging
transactions to protect
against a decline in the market value of municipal securities
in the Fund's
portfolio (e.g., by the purchase of a put option) and to
protect against an
increase in the cost of fixed income securities that the Fund
may seek to pur-
chase in the future (e.g., by the purchase of a call option).
In the event the
Fund purchases put and call options, paying premiums therefor,
and price move-
ments in the underlying securities are such that exercise of
the options would
not be profitable for the Fund, to the extent such underlying
securities corre-
late in value to the Fund's portfolio securities, losses of
the premiums paid
may be offset by an increase in the value of the Fund's
portfolio securities
(in the case of a purchase of put options) or by a decrease in
the cost of
acquisition of securities by the Fund (in the case of a
purchase of call
options).
The Fund may also sell put and call options in hedging
transactions as a
means of providing limited protection against decreases in
market value of the
Fund's portfolio. When the Fund sells an option, if the
underlying securities
do not increase (in the case of a call option) or decrease (in
the case of a
put option) to a price level that would make the exercise of
the option profit-
able to the holder of the option, the option generally will
expire without
being exercised and the Fund will realize as profit the
premium received for
such option. When a call option written by the Fund is
exercised, the option
holder purchases the underlying security at the strike price
and the Fund does
not participate in any increase in the price of such
securities above the
strike price. When a put option written by the Fund is
exercised, the Fund will
be required to purchase the underlying securities at the
strike price, which
may be in excess of the market value of such securities.
OTC Options. Over-the-counter options ("OTC options") differ
from exchange-
traded options in several respects. They are transacted
directly with dealers
and not with a clearing corporation, and there is a risk of
non-
19
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
performance by the dealer. OTC options are available for a
greater variety of
securities and for a wider range of expiration dates and
exercise prices than
are exchange-traded options. Because OTC options are not
traded on an
exchange, pricing is normally done by reference to information
from a market
maker, which information is carefully monitored by the
Investment Manager and
verified in appropriate cases. The Fund may be required to
treat certain of
its OTC options transactions as illiquid securities. See
Appendix B.
It will generally be the Fund's policy, in order to avoid
the exercise of an
option sold by it, to cancel its obligation under the option
by entering into
a closing purchase transaction, if available, unless it is
determined to be in
the Fund's interest to sell (in the case of a call option) or
to purchase (in
the case of a put option) the underlying securities. A closing
purchase trans-
action consists of the Fund purchasing an option having the
same terms as the
option sold by the Fund and has the effect of cancelling the
Fund's position
as a seller. The premium which the Fund will pay in executing
a closing pur-
chase transaction may be higher than the premium received when
the option was
sold, depending in large part upon the relative price of the
underlying secu-
rity at the time of each transaction. To the extent options
sold by the Fund
are exercised and the Fund either delivers portfolio
securities to the holder
of a call option or liquidates securities in its portfolio as
a source of
funds to purchase securities put to the Fund, the Fund's
portfolio turnover
rate will increase, which would cause the Fund to incur
additional brokerage
expenses.
During the option period, the Fund, as a covered call
writer, gives up the
potential appreciation above the exercise price should the
underlying security
rise in value, and the Fund, as a secured put writer, retains
the risk of loss
should the underlying security decline in value. For the
covered call writer,
substantial appreciation in the value of the underlying
security would result
in the security being "called away" at the strike price of the
option which
may be substantially below the fair market value of such
security. For the
secured put writer, substantial depreciation in the value of
the underlying
security would result in the security being "put to" the
writer at the strike
price of the option which may be substantially in excess of
the fair market
value of such security. If a covered call option or a secured
put option
expires unexercised, the writer realizes a gain, and the buyer
a loss, in the
amount of the premium.
To the extent that an active market exists or develops,
whether on a
national securities exchange or over-the-counter, in options
on indices based
upon municipal securities, the Fund may purchase and sell
options on such
indices, subject
20
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
to the limitation that the Fund may purchase and sell options
on up to 20% of
its assets. Through the writing or purchase of index options
the Fund can
achieve many of the same objectives as through the use of
options on individual
securities. Options on securities indices are similar to
options on securities
except that, rather than the right to take or make delivery of
a security at a
specified price, an option on a securities index gives the
holder the right to
receive, upon exercise of the option, an amount of cash if the
closing level of
the securities index upon which the option is based is greater
than, in the
case of a call, or less than, in the case of a put, the strike
price of the
option.
Price movements in securities which the Fund owns or intends
to purchase will
not correlate perfectly with movements in the level of an
index and, therefore,
the Fund bears the risk of a loss on an index option which is
not completely
offset by movements in the price of such securities. Because
index options are
settled in cash, a call writer cannot determine the amount of
its settlement
obligations in advance and, unlike call writing on specific
securities, cannot
provide in advance for, or cover, its potential settlement
obligations by
acquiring and holding the underlying securities.
Gains, if any, recognized or deemed to be recognized by the
Fund from trans-
actions in securities options will be taxable income of the
Fund. Under a reve-
nue ruling issued by the Internal Revenue Service, the Fund is
required to
allocate net capital gains and other taxable income, if any,
among Common Stock
and any outstanding shares of preferred stock on a pro rata
basis for the year
in which such net capital gains or other taxable income are
realized. See "Tax-
ation" and "Dividends and Distributions; Dividend Reinvestment
Plan." For a
further discussion of certain characteristics of options and
risks associated
with options transactions, see Appendix B.
Borrowing and Leverage. The Fund is authorized to borrow
amounts up to 33
1/3% of its total assets (including the amount borrowed),
although currently
the Fund anticipates that it will not borrow. The use of
borrowed funds
involves the speculative factor known as "leverage." While the
Fund does not
currently expect to do so, it is also permitted to issue
preferred stock which
would permit it to assume leverage in an amount up to 50% of
its total assets.
If any preferred stock were to be issued, it would have a
priority on the
income and assets of the Fund over the Common Stock and would
have certain
other rights with respect to voting and the election of
directors. See "De-
scription of Shares." The Fund will only utilize leverage when
there is an
expectation that it will benefit the Fund or the holders of
Common Stock. To
the extent the income or other gain derived from securities
purchased with the
proceeds of
21
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
borrowings or preferred stock issuances exceeds the interest
or dividends the
Fund would have to pay thereon, the Fund's net income or other
gain would be
greater than if leverage had not been used. Conversely, if the
income or other
gain from the securities purchased through leverage is not
sufficient to cover
the cost of such leverage, the total return of the Fund would
be less than if
leverage had not been used. If leverage is used, in certain
circumstances the
Fund could be required to liquidate securities it would not
otherwise sell in
order to satisfy dividend or interest obligations. Leverage
creates an oppor-
tunity for increased returns for the holders of Common Stock,
but creates spe-
cial risks at the same time, including the likelihood of
greater volatility of
the net asset value and market value of the Common Stock, and
the risk that
fluctuations in the short-term dividend rates of the preferred
stock may
affect the yield to the holders of Common Stock. Similarly,
since any decline
in the net asset value of the Fund's investments would be
borne entirely by
the holders of Common Stock, the effect of leverage in a
declining market
would result in a greater decrease in net asset value to the
holders of Common
Stock than if the Fund were not leveraged, which would likely
be reflected in
a greater decline in the market price of the Common Stock. See
"Description of
Shares."
Interest Rate and Other Hedging Transactions. In order to
seek to protect
the value of its portfolio securities against declines
resulting from changes
in interest rates or other market changes, the Fund may enter
into the follow-
ing hedging transactions: financial futures contracts and
related options con-
tracts.
The Fund may enter into various interest rate hedging
transactions using
financial instruments with a high degree of correlation to the
municipal secu-
rities which the Fund may purchase for its portfolio,
including interest rate
futures contracts (e.g., futures contracts on U.S. Treasury
securities) and
futures contracts on interest rate related indices (e.g.,
municipal bond indi-
ces). The Fund may also purchase and write put and call
options on such
futures contracts and on the underlying instruments. The Fund
may enter into
these transactions in an attempt to "lock in" a return or
spread on a particu-
lar investment or portion of its portfolio, to protect against
any increase in
the price of securities the Fund anticipates purchasing at a
later date, or
for other risk management strategies. Financial futures and
options contracts
and the risks attendant to the Fund's use thereof, are more
completely
described in Appendix B. The successful utilization of hedging
and risk man-
agement transactions requires skills different from those
needed in the selec-
tion of the Fund's portfolio securities. The Fund believes
that the Investment
Manager possesses the skills necessary for the successful
utilization of hedg-
ing and risk management transactions.
22
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The Fund will not engage in the foregoing transactions for
speculative pur-
poses, but only in limited circumstances as a means to hedge
risks associated
with management of the Fund's portfolio. Typically,
investments in futures
contracts and sales of futures options contracts require the
Fund to deposit
in a custodial account a good faith deposit, known as "initial
margin," in
connection with its obligations in an amount of cash or
specified debt securi-
ties which generally is equal to 1%-15% of the face amount of
the contract,
which initial margin requirement may be revised periodically
by the applicable
exchange as the volatility of the contract fluctuates.
Thereafter, the Fund
must make additional deposits with the applicable financial
intermediary equal
to any net losses due to unfavorable price movements of the
contract, and will
be credited with an amount equal to any net gains due to
favorable price move-
ments. These additional deposits or credits are calculated and
required daily
and are known as "variation margin."
The SEC generally requires that when investment companies,
such as the Fund,
effect transactions of the foregoing nature, such funds must
either segregate
cash or high quality, readily marketable portfolio securities
with its custo-
dian or financial intermediary in the amount of its
obligations under the
foregoing transactions, or cover such obligations by
maintaining positions in
portfolio securities, futures contracts or options that would
serve to satisfy
or offset the risk of such obligations. When effecting
transactions of the
foregoing nature, the Fund will comply with such segregation
or cover require-
ments. There is no limitation on the percentage of the Fund's
assets which may
be segregated with respect to such transactions. A large
percentage of the
Fund's assets segregated to cover hedging transactions may
impair the Fund's
ability to meet current obligations and may limit the Fund's
flexibility to
manage its assets.
The Fund will not enter into a futures contract or related
option if, imme-
diately after such investment, the sum of the amount of its
initial margin
deposits and premiums on open contracts and options would
exceed 5% of the
fair market value of the Fund's total assets after taking into
account
unrealized profits and unrealized losses on any such
contracts. The Fund may,
however, invest more than such amount in the future if it
obtains authority to
do so from the appropriate regulatory agencies without
requiring the Fund to
register as a commodity pool operator or adversely affecting
its status as an
investment company for Federal securities law or income tax
purposes.
All of the foregoing transactions present certain risks. In
particular, the
variable degree of correlation between price movements of
futures contracts
and
23
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
price movements in the securities being hedged creates the
possibility that
losses on the hedge may be greater than gains in the value of
the Fund's secu-
rities. In addition, these instruments may not be liquid in
all circumstances
and generally are closed out by entering into offsetting
transactions rather
than by delivery or cash settlement at maturity. As a result,
in volatile mar-
kets, the Fund may not be able to close out a transaction on
favorable terms
or at all. Although the contemplated use of those contracts
should tend to
reduce the risk of loss due to a decline in the value of the
hedged security,
at the same time the use of these contracts could tend to
limit any potential
gain which might result from an increase in the value of such
security. Final-
ly, the daily deposit requirements for futures contracts and
sales of futures
options contracts create an ongoing greater potential
financial risk than do
option purchase transactions, where the exposure is limited to
the cost of the
premium for the option.
Successful use of futures contracts and options thereon by
the Fund is sub-
ject to the ability of the Investment Manager to predict
correctly movements
in the direction of interest rates and other factors affecting
markets securi-
ties. If the Investment Manager's expectations are not met,
the Fund would be
in a worse position than if a hedging strategy had not been
pursued. For exam-
ple, if the Fund has hedged against the possibility of an
increase in interest
rates which would adversely affect the price of securities in
its portfolio
and the price of such securities increases instead, the Fund
will lose part or
all of the benefit of the increased value of its securities
because it will
have offsetting losses in its futures positions. In addition,
in such situa-
tions, if the Fund has insufficient cash to meet daily
variation margin
requirements, it may have to sell securities to meet such
requirements. Such
sales of securities may be, but will not necessarily be, at
increased prices
which reflect the rising market. The Fund may have to sell
securities at a
time when it is disadvantageous to do so.
In addition to engaging in transactions utilizing options on
futures con-
tracts, the Fund may purchase put and call options on
securities and, as
developed from time to time, on interest indices and other
instruments. Pur-
chasing options may increase investment flexibility and
improve total return,
but also risks loss of the option premium if an asset the Fund
has the option
to buy declines in value or if an asset the Fund has the
option to sell
increases in value.
Gains, if any, recognized or deemed to be recognized by the
Fund from its
hedging activities, will be taxable income of the Fund. See
"Taxation" and
"Dividends and Distributions; Dividend Reinvestment Plan."
24
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
When-Issued and Delayed Delivery Transactions. The Fund may
also purchase
municipal securities on a "when-issued" and "delayed delivery"
basis and may
purchase or sell municipal securities on a "delayed delivery"
basis in order to
hedge against anticipated changes in interest rates and
prices. No income
accrues to the Fund on municipal securities in connection with
such transac-
tions prior to the date the Fund actually takes delivery of
such securities.
These transactions are subject to market fluctuation; the
value of the munici-
pal securities at delivery may be more or less than their
purchase price, and
yields generally available on municipal securities when
delivery occurs may be
higher than yields on the municipal securities obtained
pursuant to such trans-
actions. Because the Fund relies on the buyer or seller, as
the case may be, to
consummate the transaction, failure by the other party to
complete the transac-
tion may result in the Fund missing the opportunity of
obtaining a price or
yield considered to be advantageous. When the Fund is the
buyer in such a
transaction, however, it will maintain, in a segregated
account with its custo-
dian, cash or high-grade municipal portfolio securities having
an aggregate
value equal to the amount of such purchase commitments until
payment is made.
The segregated account will be marked to market daily. When
the Fund is the
seller in such a transaction, it will cover its commitment to
deliver the secu-
rity by maintaining positions in portfolio securities that
would serve to sat-
isfy or offset the risk of such obligations. The Fund will
make commitments to
purchase municipal securities on such basis only with the
intention of actually
acquiring these securities, but the Fund may sell such
securities prior to the
settlement date if such sale is considered to be advisable.
To the extent that the Fund engages in "when-issued" and
"delayed delivery"
transactions, it will do so for the purpose of acquiring
securities for the
Fund's portfolio consistent with the Fund's investment
objective and policies.
However, although the Fund does not intend to engage in such
transactions for
speculative purposes, purchases of securities on such basis
may involve more
risk than other types of purchases. For example, if the Fund
determines it is
necessary to sell the "when-issued" or "delayed delivery"
securities before
delivery, it may incur a gain or a loss because of market
fluctuations since
the time the commitment to purchase such securities was made.
Subject to the
requirement of maintaining a segregated account, no specified
limitation exists
as to the percentage of the Fund's assets which may be used to
acquire securi-
ties on a "when-issued" or "delayed delivery" basis. A
significant percentage
of the Fund's assets committed to the purchase of securities
on a "when-issued"
or "delayed delivery" basis may increase the volatility of the
Fund's net asset
value and may limit the flexibility to manage the Fund's
investments.
25
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Fund involves risk factors and special
considerations,
such as those described below:
The Fund is a closed-end investment company. Shares of
closed-end investment
companies frequently trade at a discount from net asset value,
but in some
cases trade at a premium. The Fund cannot predict whether its
Common Stock
will trade at, above or below net asset value.
In normal market conditions, substantially all of the Fund's
total assets
will be invested in municipal securities rated investment
grade at the time of
investment. The Fund may invest in unrated municipal
securities believed, at
the time of investment, by the Investment Manager to have
credit characteris-
tics equivalent to, and to be of comparable quality as,
municipal securities
that are rated investment grade. The amount of available
information about the
financial condition of municipal securities issuers may be
less extensive than
that for corporate issuers with publicly traded securities,
and the market for
municipal securities may be less liquid than the market for
corporate debt
obligations. Liquidity relates to the ability of the Fund to
sell a security
in a timely manner at a price which reflects the value of that
security. The
market for unrated municipal securities is considered
generally to be less
liquid than the market for rated municipal securities.
Further, municipal
securities in which the Fund may invest include special
obligation bonds,
lease obligations, participation certificates and variable
rate instruments.
The market for such securities may be less liquid than the
market for general
obligation municipal securities. The relative illiquidity of
some of the
Fund's portfolio securities may adversely affect the ability
of the Fund to
dispose of such securities in a timely manner and at a fair
price. The market
for less liquid securities tends to be more volatile than the
market for more
liquid securities and market values of relatively illiquid
securities may be
more susceptible to change as a result of adverse publicity
and investor per-
ceptions than are the market values of more liquid securities.
Although the
issuer of some municipal securities may be obligated to redeem
such securities
at face value, such redemption could result in capital losses
to the Fund to
the extent that such municipal securities were purchased by
the Fund at a pre-
mium to face value.
Although the municipal securities in which the Fund may
invest will be, at
the time of investment, rated investment grade or believed by
the Investment
Manager to be of comparable quality, municipal securities,
like other debt
obligations, are subject to the risk of non-payment. Such non-
payment would
result
26
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
in a reduction of income to the Fund, and could result in a
reduction in the
value of the municipal security experiencing non-payment and a
potential
decrease in the net asset value of the Fund. Issuers of
municipal securities
might seek protection under the bankruptcy laws. In the event
of bankruptcy of
such an issuer, the Fund could experience delays and
limitations with respect
to the collection of principal and interest on such municipal
securities, and
the Fund may not, in all circumstances, be able to collect all
principal and
interest to which it is entitled. To enforce its rights in the
event of a
default in the payment of interest or repayment of principal
or both, the Fund
may take possession of and manage the assets securing the
issuer's obligations
on such securities, which may increase the Fund's operating
expenses and
adversely affect the net asset value of the Fund. Any income
derived from the
Fund's ownership or operation of such assets may not be tax-
exempt. In addi-
tion, the Fund's intention to qualify as a "regulated
investment company"
under the Code, may limit the extent to which the Fund may
exercise its rights
by taking possession of such assets, because as a regulated
investment company
the Fund is subject to certain limitations on its investments
and on the
nature of its income. See "Taxation."
Lease obligations in which the Fund may invest may contain
"non-
appropriation" clauses which provide that the municipality has
no obligation
to make lease or installment purchase payments in future years
unless money is
appropriated for such purpose on a yearly basis. A risk exists
that the munic-
ipality will not, or will be unable to, appropriate money in
the future in the
event of political changes, changes in the economic viability
of the project,
general economic changes or for other reasons. Although such
lease obligations
generally are secured by a lien on the leased property,
disposition of the
property in the event of foreclosure could be costly, time
consuming and
result in unsatisfactory recoupment of the Fund's original
investment.
The Investment Manager values the Fund's investment on the
basis of bid
prices provided by a pricing service when the Fund believes
such prices
reflect fair market value. To the extent that there is no
established retail
market for some of the securities in which the Fund may
invest, there may be
relatively inactive trading in such securities and the ability
of a pricing
service or the Investment Manager to accurately value such
securities may be
adversely affected. During periods of reduced market liquidity
and in the
absence of readily available market quotations for municipal
securities held
in the Fund's portfolio, the responsibility of the Investment
Manager to value
the Fund's securities becomes more difficult and the
Investment Manager's
judgment may play a greater role
27
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
in the valuation of the Fund's securities due to the reduced
availability of
reliable objective data. To the extent that the Fund invests
in illiquid secu-
rities and securities which are restricted as to resale, the
Fund may incur
additional risks and costs. Illiquid and restricted securities
are particu-
larly difficult to dispose of.
The net asset value of the Fund's Common Stock will change
with changes in
the value of its portfolio securities. Because the Fund will
invest primarily
in fixed-income municipal securities, the net asset value of
the Common Stock
of the Fund can be expected to change as general levels of
interest rates
fluctuate. All of the foregoing risks affecting net asset
value will be magni-
fied if the Fund issues preferred stock or borrows money.
Volatility may be
greater during periods of general economic uncertainty.
The Fund has not established any limit on the percentage of
its portfolio
that may be invested in municipal securities subject to the
alternative mini-
mum tax provision of Federal tax law, and a substantial
portion of the income
produced by the Fund may be taxable under the alternative
minimum tax. The
Fund may not be a suitable investment for investors who are
already subject to
the Federal alternative minimum tax or who would become
subject to the Federal
alternative minimum tax as a result of an investment in the
Fund. In addition,
income earned or deemed to be earned with respect to the
Fund's hedging trans-
actions, if any, will be taxable. See "Taxation."
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are
fundamental and cannot
be changed without the approval of the holders of a majority
of the Fund's
outstanding voting securities as defined in the 1940 Act. If a
percentage
restriction on investment or use of assets set forth below is
adhered to at
the time a transaction is effected, later changes in
percentage resulting from
changing market values will not be considered a deviation from
policy. The
Fund may not:
1. With respect to 75% of its total assets, purchase any
securities (other
than obligations issued or guaranteed by the United States
Government or
by its agencies or instrumentalities), if as a result more
than 5% of the
Fund's total assets would then be invested in securities of
a single
issuer or if as a result the Fund would hold more than 10%
of the out-
standing voting securities of any single issuer.
28
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT RESTRICTIONS (CONTINUED)
2. Invest more than 25% of its total assets in a single
industry; however,
as described above under "Investment Objective and
Management Policies,"
the Fund may from time to time invest more than 25% of its
total assets in
a certain types of municipal securities or in obligations of
issuers
located in the same state.
3. Issue senior securities as defined in the 1940 Act, other
than pre-
ferred stock, except to the extent such issuance might be
involved with
respect to borrowings described below or with respect to
transactions
involving futures contracts or the writing of options.
4. Borrow money in excess of 33% of its total assets
(including the amount
of money borrowed but excluding any liabilities and
indebtedness not con-
stituting senior securities) except that the Fund may pledge
its assets
other than to secure such borrowings or in connection with
when-issued and
forward commitment transactions and similar investment
strategies.
5. Make loans of money or property to any person, except to
the extent
that the securities in which the Fund may invest are
considered to be
loans and except that the Fund may lend money or property in
connection
with the deposit of initial or variation margin in
connection with hedging
and risk management transactions.
6. Buy any securities "on margin." Neither the deposit of
initial or vari-
ation margin in connection with hedging and risk management
transactions
nor short-term credits as may be necessary for the clearance
of transac-
tions is considered the purchase of a security on margin.
7. Sell any securities "short," write, purchase or sell
puts, calls or
combinations thereof, or purchase or sell financial futures
or options,
except as described under the heading "Investment Objective
and Management
Policies--Investment Techniques" and in Appendix B to this
Prospectus.
8. Act as an underwriter of securities, except to the extent
that the Fund
may be deemed to be an underwriter in connection with the
sale of securi-
ties held in its portfolio.
9. Make investments for the purpose of exercising control or
participation
in management, except to the extent that exercise by the
Fund of its
rights under agreements related to municipal securities
would be deemed to
constitute such control or participation.
29
<PAGE>
Smith Barney Municipal Fund, Inc.
INVESTMENT RESTRICTIONS (CONTINUED)
10. Invest in securities of other investment companies in an
amount
exceeding the limitation set forth in the 1940 Act and the
rules thereun-
der, except as part of a merger, consolidation or other
acquisition.
11. Invest in equity interests in oil, gas or other mineral
exploration or
development programs except pursuant to the exercise by the
Fund of its
rights under agreements relating to municipal securities.
12. Purchase or sell real estate, except to the extent that
the municipal
securities the Fund may invest in are considered to be
interests in real
estate or to the extent that the Fund exercises its rights
under agree-
ments relating to such municipal securities (in which case
the Fund may
liquidate real estate acquired as a result of default on a
mortgage).
13. Purchase or sell commodities or commodity contracts,
except that the
Fund may purchase or sell financial futures contracts and
related options
thereon.
The Fund generally will not engage in the trading of
securities for the pur-
pose of realizing short-term profits, but it will adjust its
portfolio as it
deems advisable in view of prevailing or anticipated market
conditions to
accomplish the Fund's investment objective. For example, the
Fund may sell
portfolio securities in anticipation of a movement in interest
rates. Other
than for tax purposes, frequency of portfolio turnover will
not be a limiting
factor if the Fund considers it advantageous to purchase or
sell securities,
which must be borne by the Fund and its shareholders. High
portfolio
turnover may also result in the realization of substantial net
short-term
capital gains, and any distributions resulting from such gains
will be
taxable at ordinary income rates for Federal income tax
purposes.
30
<PAGE>
Smith Barney Municipal Fund, Inc.
SHARE PRICE DATA
The Fund's Common Stock is listed on the AMEX under the
symbol "SBT." Smith
Barney also intends to make a market in the Common Stock.
The following table sets forth for the Fund's Common Stock
the following
information for each quarterly period during the last two
fiscal years: high
and low sales prices and net asset values; sales price and net
asset value at
quarter-end; and the premium (discount) of the sales price to
net asset value
at quarter-end.
<TABLE>
<CAPTION>
AMEX
THREE AMEX NAV PRICE AT NAV AT
MONTHS PRICE PRICE QUARTER- QUARTER-
PREMIUM
ENDED RANGE RANGE END END
(DISCOUNT)
- --------------------------------------------------------------
- ------
<S> <C> <C> <C> <C> <C>
3/31/94 $15.75 - 14.13 $15.95 - 15.00 $14.13 $15.00
(5.83)%
6/30/94 14.50 - 13.75 15.26 - 14.74 13.88 14.90
(6.88)
9/30/94 14.38 - 13.75 15.05 - 14.76 13.88 14.77
(6.06)
12/31/94 13.75 - 12.25 14.77 - 13.95 12.63 14.30
(11.71)
3/31/95 14.00 - 12.63 15.02 - 14.29 13.50 15.01
(10.06)
6/30/95 14.38 - 13.25 15.53 - 14.96 13.50 15.19
(11.13)
9/30/95 14.00 - 13.38 15.54 - 15.12 14.00 15.41
(9.15)
12/31/95 14.50 - 13.75 15.81 - 15.43 13.75 15.75
(12.70)
- --------------------------------------------------------------
- ------
</TABLE>
As of March 15, 1996, the price per share of Common Stock as
quoted on the
AMEX was $14.00, representing a 8.20% discount from the Common
Stock's net
asset value calculated on that day.
31
<PAGE>
Smith Barney Municipal Fund, Inc.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The business and affairs of the Fund, including the general
supervision of
the duties performed by the Investment Manager under the
Investment Management
Agreement, are the responsibility of the Fund's Board of
Directors. The Direc-
tors and officers of the Fund, their addresses and their
principal occupations
for at least the past five years are set forth below:
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL
OCCUPATIONS
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE
YEARS AND AGE
- --------------------------------------------------------------
- -----------
<S> <C> <C>
*+Heath B. McLendon Chairman of the Managing Director
of
388 Greenwich Street Board of Smith Barney;
Director of
New York, NY 10013 Directors and forty-one
investment com-
Chief Executive panies associated
with
Officer Smith Barney;
Chairman of
the Board of
Smith Barney
Strategy Advisers
Inc.
and President of
SBMFM.
Formerly, Senior
Execu-
tive Vice
President of
Shearson Lehman
Brothers
Inc.; Vice
Chairman of
Shearson Asset
Manage-
ment; Director of
PanAgora Asset
Manage-
ment, Inc. and
PanAgora
Asset Management
Limited;
62.
*+Jessica Bibliowicz Director and Executive Vice
President
388 Greenwich Street President of Smith Barney;
Director
New York, NY 10013 of twelve
investment com-
panies associated
with
Smith Barney;
President
of thirty-nine
investment
companies
associated with
Smith Barney.
Formerly
Director of Sales
and
Marketing for
Prudential
Mutual Funds;
prior to
September 1991,
First
Vice President,
Asset
Management
Division of
Shearson Lehman
Brothers,
Inc.; 36.
+Joseph H. Fleiss Director Retired; Director
of ten
3849 Torrey Pines Blvd. investment
companies
Sarasota, FL 34238 associated with
Smith
Barney. Formerly
Senior
Vice President of
Citibank; Manager
of
Citibank's Bond
Invest-
ment Fund and
Money Man-
agement Desk and
a Direc-
tor of Citicorp
Securi-
ties Co., Inc.;
78.
</TABLE>
32
<PAGE>
Smith Barney Municipal Fund, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL
OCCUPATIONS
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE
YEARS AND AGE
- --------------------------------------------------------------
- --------------
<S> <C> <C>
+Donald R. Foley Director Retired;
Director of ten
3668 Freshwater Drive investment
companies
Jupiter, FL 33477 associated
with Smith
Barney.
Formerly Vice
President of
Edwin Bird
Wilson,
Incorporated (ad-
vertising);
73.
+Paul Hardin Director Professor of
Law at the
60134 Davie Street University of
North Caro-
Chapel Hill, NC 27599 lina at Chapel
Hill;
Director of
twelve
investment
companies
associated
with Smith
Barney;
Director of The
Summit
Bancorporation.
Formerly,
Chancellor of
the University
of North
Carolina at
Chapel Hill;
64.
+Francis P. Martin Director Practicing
physician;
2000 North Village Ave. Director of
ten invest-
Rockville Centre, NY 11570 ment companies
associated
with Smith
Barney. For-
merly
President of the
Nassau
Physicians' Fund,
Inc; 71.
+Roderick C. Rasmussen Director Investment
Counselor;
81 Mountain Road Director of
ten invest-
Verona, NJ 07044 ment companies
associated
with Smith
Barney. For-
merly Vice
President of
Dresdner and
Company Inc.
(Investment
counselors);
69.
+John P. Toolan Director Retired;
Director of ten
82 Druid Road investment
companies
Summit, NJ 07901 associated
with Smith
Barney.
Formerly, Direc-
tor and
Chairman of Smith
Barney Trust
Company,
Director of
Smith Barney
and SBMFM and
Senior
Executive Vice
President,
Director and
Member of
the Executive
Committee
of Smith
Barney; 65.
+C. Richard Youngdahl Director Retired;
Director of ten
339 River Drive investment
companies
Tequesta, FL 33469 associated
with Smith
Barney; Member
of the
Board of
Directors of
D.W. Rich &
Company, Inc.
Formerly
Chairman of the
Board of
Pensions of the
Lutheran
Church in Ameri-
ca; Chairman
of the Board
and Chief
Executive Offi-
cer of Aubrey
G. Lanston
& Co. (dealers
in U.S.
Government
securities)
and President
of the
Association of
Primary
Dealers in
U.S. Govern-
ment
Securities; 80.
</TABLE>
33
<PAGE>
Smith Barney Municipal Fund, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL
OCCUPATIONS
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
AND AGE
- --------------------------------------------------------------
- --------
<S> <C> <C>
Lewis E. Daidone Senior Vice Managing Director of
388 Greenwich Street President, Smith Barney, Senior
Vice
New York, NY 10013 Chief Financial President and/or
Trea-
and surer of other
investment
Accounting companies associated
with
Officer and Smith Barney;
Director
Treasurer and Senior Vice
President
of SBMFM and Senior
Vice
President of Smith
Barney
Strategy Advisers
Inc.;
38.
Peter Coffey Vice President Vice President of
SBMFM;
388 Greenwich Street and Investment investment officer
of
New York, NY 10013 Officer other investment
compa-
nies associated with
Smith Barney;
Managing
Director of Smith
Barney;
48.
Thomas M. Reynolds Controller and Director of Smith
Barney
388 Greenwich Street Assistant in the Financial
Services
New York, NY 10013 Secretary Division and
Controller
and Assistant
Secretary
of certain other
invest-
ment companies
associated
with Smith Barney.
Prior
to September 1991,
Assis-
tant Treasurer of
Aquila
Management
Corporation
and its associated
investment
companies; 36.
Christina T. Sydor Secretary Managing Director of
388 Greenwich Street Smith Barney and
Secre-
New York, NY 10013 tary of the other
Invest-
ment companies
associated
with Smith Barney;
Secre-
tary and General
Counsel
of SBMFM; 44.
- --------------------------------------------------------------
- --------
</TABLE>
* "Interested person" of the Fund as defined in the 1940 Act.
+ Director, trustee and/or general partner of other investment
companies reg-
istered under the 1940 Act with which Smith Barney is
affiliated.
Fees for Directors who are not "interested persons" of the
Fund and who are
directors of a group of funds sponsored by Smith Barney are
set at $40,000 per
annum and are allocated based on relative net assets of each
fund in the
group. In addition, these Directors receive $100 per fund or
portfolio for
each day of Board meetings attended plus travel and out-of-
pocket expenses
incurred in connection with Board meetings. The Board meeting
fees and out-of-
pocket expenses are borne equally by each individual fund or
portfolio in the
group.
34
<PAGE>
Smith Barney Municipal Fund, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
The following table shows the compensation paid by the Fund
to each incum-
bent Director during the Fund's most recent fiscal year (from
January 1, 1995
to December 31, 1995).
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR
COMPENSATION NUMBER OF
RETIREMENT FROM
FUND FUNDS FOR
AGGREGATE BENEFITS ACCRUED AND
FUND WHICH DIRECTOR
COMPENSATION AS PART OF
COMPLEX SERVES WITHIN
NAME OF PERSON FROM FUND FUND EXPENSES PAID TO
DIRECTORS FUND COMPLEX
-------------- ------------ ---------------- ---------
- -------- --------------
<S> <C> <C> <C>
<C>
Jessica Bibliowicz* $ 0 $ 0 $
0 12
Joseph H. Fleiss 472.00 0
53,300.00 10
Donald R. Foley 572.00 0
56,100.00 10
Paul Hardin 372.00 0
68,200.00 12
Francis P. Martin 572.00 0
56,100.00 10
Heath B. McLendon* 0 0
0 41
Roderick C. Rasmussen 572.00 0
56,100.00 10
John P. Toolan 572.00 0
56,100.00 10
C. Richard Youngdahl 472.00 0
53,300.00 10
</TABLE>
- ----------
* Designates an "interested director".
At the close of business on March 8, 1996, 3,863,014 shares
of Common
Stock or 96.1% of the Fund's total shares outstanding on that
date were held
in accounts, but not beneficially owned by, CEDE & Co., c/o
Depository Trust
Company, Box 20, Bowling Green Station, NY, NY 10004-9998. As
of that date,
the officers and Board members of the Fund beneficially owned
less than 1% of
the outstanding shares of the Fund.
INVESTMENT MANAGER
Greenwich Street Advisors, a division of Smith Barney Mutual
Funds Manage-
ment Inc. ("SBMFM" or the "Investment Manager") serves as the
Fund's invest-
ment manager. SBMFM, located at 388 Greenwich Street, New
York, New York
10013, serves as the Fund's investment adviser pursuant to a
transfer of the
investment advisory agreement effective December 31, 1994,
from its affiliate,
Mutual Management Corp. (Mutual Management Corp. and SBMFM are
both wholly
owned subsidiaries of Holdings, which in turn is a wholly-
owned subsidiary of
Travelers.) Investment advisory services continue to be
provided to the Fund
by the same portfolio managers who had provided services under
the agreement
with Mutual Management Corp. SBMFM (through its predecessors)
has been in the
investment counseling business since 1934 and is a registered
investment
adviser. SBMFM was incorporated in 1968 and currently man-
35
<PAGE>
Smith Barney Municipal Fund, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
ages investment companies that had total assets in excess of
$64 billion as of
November 30, 1995, of which approximately $7.7 billion
consisted of municipal
bond portfolios.
Pursuant to the Investment Management Agreement (the
"Management Agreement"),
the Fund has retained the Investment Manager to manage the
investment of the
Fund's assets and to provide such investment research, advice
and supervision,
in conformity with the Fund's investment objective and
policies, as may be nec-
essary for the investment activities of the Fund. The
Investment Manager also
administers the Fund's corporate affairs subject to the
supervision of the
Fund's Board of Directors and in connection therewith
furnishes the Fund with
office facilities together with such ordinary clerical and
bookkeeping services
(e.g., preparation of annual and other reports to shareholders
and the SEC and
filing of Federal, state and local income tax returns) as are
not being fur-
nished by the Fund's custodian.
The Management Agreement provides, among other things, that
the Investment
Manager will bear all expenses of its employees and overhead
incurred in con-
nection with its duties under the Management Agreement, other
than those
assumed by the Fund, as described below, and will pay all
director's fees and
salaries of the Fund's directors and officers who are
affiliated persons (as
such term is defined in the 1940 Act) of the Investment
Manager.
The Management Agreement provides that the Fund shall pay to
the Investment
Manager a monthly fee in arrears equal to .70% per annum of
the Fund's average
daily net assets during the month.
Although the Investment Manager intends to devote such time
and effort to the
business of the Fund as reasonably necessary to perform its
duties to the Fund,
the services of the Investment Manager are not exclusive and
the Investment
Manager provides similar services to other investment
companies and may engage
in other activities.
The Management Agreement also provides that in the absence
of willful misfea-
sance, bad faith, gross negligence or reckless disregard of
its obligations
thereunder, the Investment Manager is not liable to the Fund
or any of the
Fund's shareholders for any act or omission by the Investment
Manager in the
supervision or management of its investment activities or for
any loss sus-
tained by the Fund or the Fund's shareholders.
The Management Agreement will continue in effect for
successive periods of 12
months, provided that each continuance is specifically
approved at least
36
<PAGE>
Smith Barney Municipal Fund, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
annually by both (1) the vote of a majority of the Fund's
Board of Directors
or the vote of a majority of the outstanding voting securities
of the Fund (as
such term is defined in the 1940 Act) and (2) by the vote of a
majority of the
directors who are not parties to such Agreement or interested
persons (as such
term is defined in the 1940 Act) of any such party, cast in
person at a meet-
ing called for the purpose of voting on such approval. The
Management Agree-
ment may be terminated as a whole at any time by the Fund,
without the payment
of any penalty, upon the vote of a majority of the Fund's
Board of Directors
or a majority of the outstanding voting securities of the Fund
or by the
Investment Manager, on 60 days' written notice by either party
to the other.
The Management Agreement will terminate automatically in the
event of its
assignment (as such term is defined in the 1940 Act and the
rules thereunder).
For each of the years ended December 31, 1993, December 31,
1994 and Decem-
ber 31, 1995, the Fund paid $436,488, $421,105 and $427,954 in
management fees
to SBMFM.
Peter Coffey, Vice President and Investment Officer of the
Fund, is primar-
ily responsible for management of the Fund's assets. Mr.
Coffey is a Vice
President of the Investment Manager and is the senior asset
manager for eight
other investment companies and other accounts investing in tax-
exempt securi-
ties with aggregate assets of approximately $1.6 billion as of
February 5,
1996.
Except as indicated above, the Fund will pay all of its
expenses, including
fees of the directors not affiliated with the Investment
Manager and Board
meeting expenses; fees of the Investment Manager; interest
charges; taxes;
charges and expenses of the Fund's legal counsel and
independent accountants,
and of the transfer agent, registrar and dividend disbursing
agent of the
Fund; expenses of repurchasing shares; expenses of printing
and mailing share
certificates, shareholder reports, notices, proxy statements
and reports to
governmental offices; brokerage and other expenses connected
with the execu-
tion, recording and settlement of portfolio security
transactions; expenses
connected with negotiating of, effecting purchase or sale of,
or registering
privately issued portfolio securities; fees and expenses of
the Fund's custo-
dian for all services to the Fund, including safekeeping of
funds and securi-
ties and maintaining required books and accounts; expenses of
calculating and
publishing the net asset value of the Fund's Common Stock;
expenses of member-
ship in investment company associations; expenses of fidelity
bonding and
other insurance premiums; expenses of shareholders' meetings;
SEC and state
blue sky registration fees; American Stock Exchange listing
fees; and its
other business and operating expenses.
37
<PAGE>
Smith Barney Municipal Fund, Inc.
SECURITIES TRANSACTIONS AND TURNOVER
GENERAL
Subject to the general supervision of the Board of
Directors, the Investment
Manager is responsible for decisions to buy and sell
securities and the selec-
tion of brokers and dealers to effect the transactions. The
Fund invests pri-
marily in the over-the-counter market. Securities are
generally traded in the
over-the-counter market on a "net" basis with dealers acting
as principal for
their own accounts without charging a stated commission,
although the price of
the security usually includes a profit to the dealer. The Fund
also purchases
securities at times in underwritten offerings, where the price
includes a
fixed amount of compensation, generally referred to as the
underwriter's con-
cession or discount. On occasion, the Fund may also purchase
certain money
market instruments directly from an issuer, in which case no
commissions or
discounts are paid. The Fund will not engage in any principal
transactions
with Smith Barney.
The Investment Manager currently serves as investment
adviser to other
investment companies, some of which invest principally in
municipal securi-
ties. In the future it may act as investment adviser to other
investment com-
panies or accounts that invest in municipal securities.
Although each invest-
ment company is individually managed, from time to time the
Investment Manager
may, to the extent permitted by law, allocate purchase or sale
transactions
among various investment companies. In making such allocations
the Investment
Manager will consider, among other things, the respective
investment objec-
tives, the relative size of portfolio holdings of the same or
comparable secu-
rities and the liquidity of the portfolio.
The policy of the Fund regarding purchases and sales of
securities for its
portfolio is that primary consideration will be given to
obtaining the most
favorable prices consistent with efficient execution of
transactions in seek-
ing to implement the Fund's policies. The Investment Manager
will effect
transactions with those dealers who the Investment Manager
believes provide
the most favorable prices and who are capable of providing
efficient execu-
tions. Those factors that the Investment Manager believes
contribute to effi-
cient execution include size of the order, difficulty of
execution, opera-
tional capabilities and facilities of the dealer involved,
whether that dealer
has risked its own capital in positioning a block of
securities and the deal-
er's prior experience in effecting transactions of this type.
If the Invest-
ment Manager believes such price and execution are obtainable
from more than
one dealer, it may give consideration to placing portfolio
transactions with
those dealers who also furnish research and other services to
the Investment
Manager. Such services may include, but are not limited to,
any one or more of
the following: information as to the availability of
securities for
38
<PAGE>
Smith Barney Municipal Fund, Inc.
SECURITIES TRANSACTIONS AND TURNOVER (CONTINUED)
purchase or sale; statistical or factual information or
opinions pertaining to
investment; economic analysis; and appraisals or evaluations
of portfolio
securities.
The information and services so received by the Investment
Manager may be of
benefit to the Investment Manager in the management of other
accounts and may
not in all cases benefit the Fund directly. While the receipt
of such informa-
tion and services is useful in varying degrees and would
generally reduce the
amount of research or services otherwise performed by the
Investment Manager
and thus may reduce its expenses, it is of indeterminable
value and the advi-
sory fee paid to the Investment Manager is not reduced by any
amount that may
be attributable to the value of such services.
TURNOVER
The Fund cannot accurately predict its turnover rate, but
anticipates that
its annual turnover rate will not exceed 100%. The Fund's
turnover rate is
calculated by dividing the lesser of the Fund's sales or
purchases of securi-
ties during a year (excluding any security the maturity of
which at the time
of acquisition is one year or less) by the average monthly
value of the Fund's
securities for the year. Higher turnover rates can result in
corresponding
increases in the Fund's transaction costs. The Fund will not
consider turnover
rate a limiting factor in making investment decisions
consistent with its
investment objective and policies.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
The Fund expects to pay monthly dividends of substantially
all net invest-
ment income (that is, income (including its tax-exempt income
and its accrued
original issue discount income) other than net realized
capital gains) to the
holders of the Common Stock. Under the Fund's current policy,
which may be
changed at any time by its Board of Directors, the Fund's
monthly dividends
will be made at a level that reflects the past and projected
performance of
the Fund, which policy over time will result in the
distribution of all net
investment income of the Fund. Net income of the Fund consists
of all interest
income accrued on the Fund's assets less all expenses of the
Fund. Expenses of
the Fund are accrued each day. Net realized capital gains, if
any, will be
distributed to the shareholders at least once a year. Net
income available for
distribution will also be reduced by dividends on any
preferred stock.
39
<PAGE>
Smith Barney Municipal Fund, Inc.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
(CONTINUED)
Pursuant to the Fund's Dividend Reinvestment Plan (the
"Plan"), all distri-
butions will be automatically reinvested by First Data, as
plan agent (the
"Plan Agent") in additional Common Stock as provided below
unless a share-
holder elects to receive cash.
Distributions with respect to Common Stock registered in the
name of a
broker-dealer or other nominee (i.e., in "street name") will
be reinvested by
the broker or nominee in additional shares under the Plan,
unless the service
is not provided by the broker or nominee. Investors who own
Common Stock reg-
istered in street name should consult their broker-dealer for
details. All
distributions to shareholders who do not participate in the
Plan will be paid
by check mailed directly to the record holder by First Data,
as dividend dis-
bursing agent.
If the Fund declares a distribution payable either in shares
of Common Stock
or in cash, nonparticipants in the Plan will receive cash, and
Plan partici-
pants will receive the equivalent amount in shares of Common
Stock valued in
the following manner: whenever the market price is equal to or
exceeds the net
asset value per share at the time the Common Stock is valued
for the purpose
of determining the number of Common Stock shares equivalent to
the cash dis-
tribution, participants will be issued shares of Common Stock
valued at the
greater of (1) the net asset value most recently determined as
provided under
"Net Asset Value" or (2) 95% of the then current market price
of the Common
Stock.
If the net asset value of the Common Stock at the time of
valuation exceeds
the market price of the Common Stock, or if the Fund declares
a distribution
payable only in cash, the Plan Agent will buy Common Stock 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 com-
pleted its purchases the market price exceeds the net asset
value of the Com-
mon Stock, the Plan Agent may cease purchasing shares of the
Fund in the
open market and the Fund may issue the remaining shares at a
price equal
to the greater of (a) net asset value or (b) 95% of the then
current market
price. The Plan Agent will apply all cash received as a
distribution to
purchase Common Stock 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.
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
40
<PAGE>
Smith Barney Municipal Fund, Inc.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
(CONTINUED)
distribution record date to become effective for that
distribution. Shares in
the account of each Plan participant will be held by the Plan
Agent in non-
certificated form in the name of the Plan Agent or
participant, and each
shareholder's proxy will include those shares of Common Stock
purchased pursu-
ant to the Plan. When a participant withdraws from the Plan or
upon termina-
tion of the Plan as provided below, certificates for whole
Fund shares cred-
ited to his or her account under the Plan will be issued and a
cash payment
will be made for any fraction of a Fund share credited to such
account.
The Plan Agent will maintain each shareholder's account in
the Plan and fur-
nish written confirmations of all transactions in the
accounts, including
information needed by shareholders for personal and tax
records.
In the case of shareholders, such as banks, brokers or
nominees, that hold
Common Stock for others who are the beneficial owners, the
Plan Agent will
administer the Plan on the basis of the number of shares of
Common Stock cer-
tified from time to time by the record shareholders, as
representing the total
amount registered in the record shareholder's name and held
for the account of
beneficial owners who are participants in the Plan.
The automatic reinvestment of distributions will not relieve
participants of
any Federal income tax that may be payable on such
distributions.
The Fund will not charge participants for reinvesting
distributions. Any
Plan Agent's fees for the handling of reinvestment of
distributions under the
Plan will be paid by the Fund. There will be no brokerage
charges with respect
to Common Stock issued directly by the Fund as a result of
distributions pay-
able either in stock or in cash. However, each participant
will pay 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. Accord-
ingly, 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 Investors Services Group, Inc., One Exchange Place,
Boston, Massa-
chusetts 02109 or by telephone at 1-800-331-1710.
41
<PAGE>
Smith Barney Municipal Fund, Inc.
NET ASSET VALUE
The net asset value per share of the Fund's Common Stock is
determined by
calculating the total value of the Fund's assets, deducting
its total liabili-
ties and the liquidation value of any preferred stock
outstanding, and divid-
ing the result by the number of shares of Common Stock
outstanding. The net
asset value will be computed as of the close of regular
trading on the New
York Stock Exchange ("NYSE") on each day that the NYSE is
open.
The Fund's securities will be valued on the basis of bid
prices provided by
a pricing service when the Fund believes such prices reflect
fair market val-
ue. Pricing services generally determine value by reference to
transactions in
municipal securities, quotations from municipal bond dealers,
market transac-
tions in comparable securities and various relationships
between securities.
If a pricing service is not used, municipal securities will be
valued at the
quoted bid prices provided by municipal bond dealers. Short-
term instruments
maturing within 60 days will be valued at cost plus amortized
discount, if
any, when the Board of Directors has determined that amortized
cost equals
fair value. Securities and other assets that are not priced by
a pricing serv-
ice and for which market quotations are not available will be
valued in good
faith at fair value by or under the direction of the Board of
Directors.
If any securities held by the Fund are restricted as to
resale, the Invest-
ment Manager will determine their fair value following
procedures approved by
the directors. The directors will periodically review such
valuations and pro-
cedures. The fair value of such securities generally will be
determined as the
amount which the Fund could reasonably expect to realize from
an orderly dis-
position of such securities over a reasonable period of time.
The valuation
procedures applied in any specific instance are likely to vary
from case to
case. However, consideration will be generally given to the
financial position
of the issuer and other fundamental analytical data relating
to the investment
and to the nature of the restrictions on disposition of
securities (including
any registration expenses that might be borne by the Fund in
connection with
such disposition). In addition, specific factors also
generally will be con-
sidered, such as the cost of the investment, the market value
of any unre-
stricted securities of the same class (both at the time of
purchase and at the
time of valuation), the size of the holding, the prices of any
recent transac-
tions or offers with respect to such securities, and any
available analysts'
reports regarding the issuer.
42
<PAGE>
Smith Barney Municipal Fund, Inc.
TAXATION
The Federal income tax discussion set forth below is for
general information
only. Investors should consult their own advisors regarding
the specific Fed-
eral tax consequences of holding and disposing of Common
Stock, as well as the
effects of state, local and foreign tax laws.
TAXATION OF THE FUND
The Fund has qualified and intends to continue to qualify
each year to be
treated as a regulated investment company under Subchapter M
of the Code. To
qualify as a regulated investment company, the Fund must,
among other things,
(i) derive at least 90% of its gross income in each taxable
year from divi-
dends, interest, proceeds from loans of stock and securities,
gains from the
sale or other disposition of stock or securities, or certain
other income (in-
cluding but not limited to gains from options and futures
contracts) derived
from its business of investing in stock or securities; (ii)
derive less than
30% of its gross income in each taxable year from the sale or
other disposition
of stocks, securities, options or futures contracts that were
held for less
than three months; and (iii) diversify its holdings so that,
at the end of each
quarter of its taxable year: (a) at least 50% of the market
value of the Fund's
total assets is represented by cash, U.S. Government
securities, securities of
other regulated investment companies and other securities,
with such other
securities limited, in respect of any one issuer, to an amount
not greater than
5% of the Fund's assets and not more than 10% of the
outstanding voting securi-
ties of such issuer; and (b) not more than 25% of the value of
the Fund's
assets is invested in securities of any one issuer (other than
U.S. Government
securities or securities of other regulated investment
companies).
Legislation currently pending before the U.S. Congress would
repeal the
requirement contained in Subchapter M of the Code that a
regulated investment
company must derive less than 30% of its gross income from the
sale or other
disposition of assets described above that are held for less
than three months.
It is unclear at this time whether this legislation will
become law and, if it
is so enacted, the form it will take.
If the Fund so qualifies and distributes to its shareholders
at least 90% of
its net investment income (including tax-exempt interest and
other taxable
income including net short-term capital gain, but not net
capital gains, which
are the excess of net long-term capital gains over net short-
term capital loss-
es) in each year, it will not be required to pay Federal
income taxes on any
income distributed to shareholders. The Fund intends to
distribute at least the
minimum
43
<PAGE>
Smith Barney Municipal Fund, Inc.
TAXATION (CONTINUED)
amount of net investment income necessary to satisfy the 90%
distribution
requirement.
If at any time when any shares of preferred stock are
outstanding the Fund
does not meet applicable asset coverage requirements, the Fund
would be
required to suspend distributions to holders of Common Stock
until the asset
coverage is restored. See "Description of Shares." Any such
suspension may
prevent the Fund from satisfying the 90% distribution
requirement and the dis-
tribution requirements for avoiding income or excise taxes (as
described
below), with the result that, among other things, dividends
paid by the Fund
in that year will not be tax-exempt. Upon any failure to meet
applicable asset
coverage requirements, however, the Fund currently intends to
redeem shares of
preferred stock in order to maintain or restore the requisite
asset coverage
and allow the Fund to make distributions necessary to satisfy
the 90% distri-
bution requirement and avoid income and excise taxes.
The Fund will generally be subject to a nondeductible excise
tax of 4% to
the extent that it does not meet certain minimum distribution
requirements as
of the end of each calendar year. The Fund intends to make
timely distribu-
tions of its income (including any net capital gains) in
compliance with these
requirements. As a result, it is anticipated that the Fund
will not be subject
to the excise tax.
Options and futures contracts entered into by the Fund may
create "strad-
dles" for Federal income tax purposes and this may affect the
character and
timing of gains or losses realized by the Fund on such
contracts or options or
on the underlying securities. Straddles may also result in the
loss of the
holding period of underlying property, and therefore, the
Fund's ability to
enter into options and futures contracts may be limited by the
30% of gross
income test described above.
Certain options and futures contracts held by the Fund at
the end of each
taxable year will be required to be "marked to market" for
Federal income tax
purposes; that is, treated as having been sold at market
value. Sixty percent
of any capital gain or loss recognized on these deemed sales
and on actual
dispositions will be treated as long-term capital gain or
loss, and the
remainder will be treated as short-term capital gain or loss
regardless of how
long the Fund has held such options or contracts.
44
<PAGE>
Smith Barney Municipal Fund, Inc.
TAXATION (CONTINUED)
DISTRIBUTIONS
If, at the close of each quarter of the Fund's taxable year,
at least 50% of
the total value of the Fund's total assets consists of
obligations exempt from
Federal income tax, the Fund will be qualified to pay exempt-
interest dividends
to its shareholders to the extent of its tax-exempt interest
income (less
expenses applicable thereto). Exempt-interest dividends are
treated by share-
holders as interest excludable from their gross income for
Federal income tax
purposes but are included in determining what portion, if any,
of a person's
social security and railroad retirement benefits will be
includable in gross
income subject to Federal income tax. Exempt-interest
dividends may be subject
to state and local tax. Interest with respect to indebtedness
incurred or con-
tinued by a shareholder to purchase or carry shares of the
Fund is not deduct-
ible to the extent that such dividends relate to exempt-
interest dividends
received from the Fund.
In accordance with a revenue ruling issued by the Internal
Revenue Service,
the Fund will designate distributions made to holders of
Common Stock and to
holders of any outstanding shares of preferred stock in
accordance with each
class's proportionate share of each item of Fund income (such
as net capital
gains and other taxable income). The terms of the shares of
any preferred stock
may require the Fund to pay an additional dividend on the
preferred stock in an
amount such that the net after tax return to such preferred
stocks would be the
same as the net after tax return that would have been derived
if the dividends
paid to such preferred shareholders, including any additional
dividends with
respect to shares of the preferred stock, had qualified in
their entirety as
tax-exempt income.
Distributions of the Fund's investment company taxable
income (which does not
include tax-exempt interest income) are taxable to holders of
Common Stock and
any preferred shareholders as ordinary income whether paid in
cash or, in the
case of holders of Common Stock, reinvested in additional
Common Stock. Distri-
butions of the Fund's net capital gains ("capital gains
dividends"), if any,
whether paid in cash or, in the case of holders of Common
Stock, reinvested in
additional Common Stock, are taxable to holders of Common
Stock and any pre-
ferred shareholders at the rates applicable to long-term
capital gains regard-
less of the length of time shares of the Fund have been held
by such holders of
Common Stock and any preferred shareholders. Distributions in
excess of the
Fund's earnings and profits will first reduce the adjusted tax
basis of a hold-
er's shares and, after such adjusted tax basis is reduced to
zero, will consti-
tute capital gains to such holder (assuming such shares are
held as a capital
asset). It
45
<PAGE>
Smith Barney Municipal Fund, Inc.
TAXATION (CONTINUED)
is not expected that any portion of the distributions from the
Fund will be
eligible for the dividends received deduction for
corporations.
The Fund will inform shareholders of the source and tax
status of all dis-
tributions promptly after the close of each calendar year. A
portion of such
distributions may constitute taxable income and a return of
capital, regard-
less of whether such distributions are received in cash or in
the form of Com-
mon Stock. Holders of Common Stock receiving distributions in
the form of
additional shares of Common Stock issued by the Fund will be
treated for Fed-
eral income tax purposes as receiving a distribution in an
amount equal to the
fair market value of the Common Stock received, determined as
of the distribu-
tion date. The basis of such Common Stock will equal the fair
market value on
the distribution date. Holders of Common Stock receiving
distributions in the
form of additional shares of Common Stock purchased by the
Plan Agent under
the Fund's Dividend Reinvestment Plan will be treated for
Federal income tax
purposes as receiving the amount of cash received by the Plan
Agent on their
behalf. In general, the basis of such Common Stock will equal
the price paid
by the Plan Agent for such Common Stock.
Although dividends generally will be treated as distributed
when paid, divi-
dends declared in October, November or December, payable to
shareholders of
record on a specified date in such a month and paid during
January of the fol-
lowing year will be treated as having been distributed by the
Fund and
received by the shareholders on the December 31 prior to the
date of payment.
In addition, certain other distributions made after the close
of a taxable
year of the Fund may be treated as paid by the Fund (except
for purposes of
the 4% excise tax) during such taxable year. In such case,
shareholders will
be treated as having received such dividends in the taxable
year in which the
distribution was actually made.
Exempt-interest dividends allocable to interest received by
the Fund on cer-
tain "private activity" obligations issued after August 7,
1986 will be
treated as interest on such obligations and thus will give
rise to an item of
tax preference that will increase a shareholder's alternative
minimum taxable
income. Unless otherwise provided in regulations, the portion
of the Fund's
interest on such "private activity" obligations allocable to
holders of Common
Stock will correspond to the portion of the Fund's total net
tax-exempt income
distributed to holders of Common Stock. In addition, exempt-
interest divi-
dends, whether or not attributable to private activity bonds,
received by cor-
porations will be taken into account (i) in determining the
alternative mini-
mum tax imposed on 75%
46
<PAGE>
Smith Barney Municipal Fund, Inc.
TAXATION (CONTINUED)
of the excess of adjusted current earnings over alternative
minimum taxable
income (ii) in calculating the environmental tax equal to 0.12
percent of a
corporation's modified alternative minimum taxable income in
excess of $2 mil-
lion, and (iii) in determining the foreign branch profits tax
imposed on the
effectively connected earnings and profits (with adjustments)
of United States
branches of foreign corporations. Accordingly, investment in
the Fund may
cause holders of Common Stock to be subject to (or result in
an increased lia-
bility under) the alternative minimum tax, the environmental
tax or the branch
profits tax.
Exempt-interest dividends will not be tax-exempt to the
extent made to any
shareholder who is a "substantial user" of the facilities
financed by tax-
exempt obligations held by the Fund or "related persons" of
such substantial
users.
For taxpayers other than corporations, net capital gains
will be taxed at a
maximum marginal rate of 28%, while short-term capital gains
and other taxable
income will be taxed at a maximum marginal rate of 31%.
SALES OF SHARES
The sale of Common Stock (including transfers in connection
with a redemp-
tion or repurchase of Common Stock) will be a taxable
transaction for Federal
income tax purposes. Selling shareholders will generally
recognize gain or
loss in an amount equal to the difference between their
adjusted tax basis in
the Common Stock and the amount received. If such shares of
Common Stock are
held as a capital asset, the gain or loss will be a capital
gain or loss and
will be long-term if such shares have been held for more than
one year. Any
loss realized upon a taxable disposition of Common Stock held
for six months
or less will be disallowed to the extent of any exempt-
interest dividends
received with respect to such Common Stock. If any such loss
is not disal-
lowed, it will be treated as long-term capital loss to the
extent of any capi-
tal gains dividends received with respect to such Common
Stock. Additionally,
any loss realized on a redemption or exchange of Common Stock
will be disal-
lowed to the extent the shares disposed of are replaced within
a period of 61
days beginning 30 days before and ending 30 days after such
disposition, such
as pursuant to reinvestment of dividends in Common Stock.
STATEMENTS AND NOTICES
Statements as to the tax status of the dividends and
distributions received
by shareholders of the Fund are mailed annually. These
statements show the
dollar
47
<PAGE>
Smith Barney Municipal Fund, Inc.
TAXATION (CONTINUED)
amount of income excluded from Federal income taxes and the
dollar amount, if
any, subject to Federal income taxes. The statements will also
designate the
amount of exempt-interest dividends that are a specific
preference item for
purposes of the Federal individual and corporate alternative
minimum taxes.
The Fund will notify shareholders annually as to the interest
excluded from
Federal income taxes earned by the Fund with respect to those
states and pos-
sessions in which the Fund has or had investments. The dollar
amount of divi-
dends paid by the Fund that is excluded from Federal income
taxation and the
dollar amount of dividends paid by the Fund that is subject to
Federal income
taxation, if any, will vary for each shareholder depending
upon the size and
duration of the shareholder's investment in the Fund. To the
extent that the
Fund earns taxable net investment income, it intends to
designate as taxable
dividends the same percentage of each day's dividend as its
taxable net
investment income bears to its total net investment income
earned on that
date. Therefore, the percentage of each day's dividend
designated as taxable,
if any, may vary from day to day.
BACKUP WITHHOLDING
If a shareholder fails to furnish a correct taxpayer
identification number,
fails to report fully dividend or interest income, or fails to
certify that he
has provided a correct taxpayer identification number and that
he is not sub-
ject to "backup withholding," the shareholder may be subject
to a 31% "backup
withholding" tax with respect to (1) taxable dividends and
distributions and
(2) the proceeds of any sales or repurchases of shares of
Common Stock. An
individual's taxpayer identification number is his social
security number. The
31% backup withholding tax is not an additional tax and may be
credited
against a taxpayer's Federal income tax liability.
DESCRIPTION OF SHARES
The Fund was incorporated under the laws of the State of
Maryland on May 19,
1992 by the Articles of Incorporation. The Articles of
Incorporation authorize
issuance of the Common Stock. The Articles of Incorporation
provide that the
Fund shall continue without limitation of time.
48
<PAGE>
Smith Barney Municipal Fund, Inc.
DESCRIPTION OF SHARES (CONTINUED)
COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
EXCLUSIVE OF
SHARES
HELD BY FUND FOR
ITS
AMOUNT HELD OWN ACCOUNT AS OF
TITLE OF SHARES BY FUND FOR ITS MARCH 8,
CLASS AUTHORIZED OWN ACCOUNT 1996
- --------------------------------------------------------------
- --
<S> <C> <C> <C>
Common Stock 100,000,000 0 4,021,162
</TABLE>
No shares, other than those currently outstanding, are
offered for sale pur-
suant to this Prospectus.
The Fund has authorized capital of 100 million shares, all
of which are cur-
rently designated as Common Stock, par value $.001 per share.
Unissued shares
of capital stock may be reclassified by the Board of Directors
without a share-
holder vote into one or more classes of preferred or other
stock with no
restrictions on the rights and preferences of any such classes
except as may be
imposed by the 1940 Act or Maryland law. The description of
preferred stock
below generally reflects the requirements of the 1940 Act. The
Fund may issue
preferred stock for such consideration as the Board considers
appropriate. Any
such consideration to be received by the Fund will be limited
to cash or
securities.
Shares of Common Stock, when issued, are fully paid and
nonassessable. Share-
holders are entitled to one vote for each share of Common
Stock held for the
election of directors and other matters submitted to
shareholders. There are no
preemptive rights. Each share of Common Stock is entitled to
participate
equally in the net distributable assets of the Fund upon
liquidation or termi-
nation.
If any preferred stock were outstanding, holders of the
Common Stock would
not be entitled to receive any net income of or other
distributions from the
Fund unless all accrued dividends on the preferred stock had
been paid, and
unless appropriate asset coverage was maintained.
Under the requirements of the 1940 Act, the Fund must,
immediately after any
issuance of preferred stock and after giving effect to any
distribution on the
Common Stock, have an "asset coverage" of at least 200%. With
respect to pre-
ferred stock, asset coverage means the ratio which the value
of the total
assets of the Fund, less all liability and indebtedness not
represented by
senior securities (as defined in the 1940 Act), bears to the
aggregate amount
of senior
49
<PAGE>
Smith Barney Municipal Fund, Inc.
DESCRIPTION OF SHARES (CONTINUED)
securities representing indebtedness of the Fund, if any, plus
the aggregate
liquidation preference of the preferred stock. If the Fund
were to seek a rat-
ing of any preferred stock, asset coverage requirements in
addition to, and
more stringent than, those set forth in the 1940 Act may be
imposed. The liq-
uidation value of shares of the preferred stock would be
expected to equal
their aggregate original purchase price plus any accrued and
unpaid distribu-
tions thereon. In addition, such rating service could require
the Fund to
maintain a portion of its assets, in an amount approximating
the accrued dis-
tributions on the preferred stock plus certain projected
distribution amounts,
in short-term, high quality fixed income securities. The terms
of the pre-
ferred stock, including its distribution rate, voting rights,
liquidation
preference and redemption provisions, would be determined by
the Board at the
time of offering and may contain any provisions permitted by
applicable law.
In the event of any voluntary or involuntary liquidation,
dissolution or
winding up of the Fund, the holders of preferred stock would
be entitled to
receive a preferential liquidating distribution expected to
equal the original
purchase price per share plus accrued and unpaid distributions
(whether or not
earned or declared) before any distribution of assets could be
made to holders
of Common Stock. After payment of the full amount of the
liquidating distribu-
tion to which they would be entitled, the holders of preferred
stock would not
be entitled to any further participation in any distribution
of assets by the
Fund. A consolidation or merger of the Fund with or into any
other corporation
or corporations or a sale of all or substantially all of the
assets of the
Fund shall not be deemed to be a liquidation, dissolution or
winding up of the
Fund.
Except as indicated below and set forth below under "Certain
Provisions
of the Articles of Incorporation and Market Discount - Anti-
Takeover Provi-
sions" or except as expressly required by applicable law or
expressly set
forth in the designation of rights and preferences with
respect to any pre-
ferred stock, the holders of preferred stock would have no
voting rights.
Holders of preferred stock, voting as a class, would at all
times be enti-
tled to elect two of the Fund's directors. In addition, under
the 1940 Act, if
at any time distributions on the Fund's preferred stock were
to be unpaid in
an amount equal to two full years' distributions thereon, the
holders of all
outstanding preferred stock, voting as a class, would be
entitled to elect a
majority of the Fund's directors until all distributions in
default have been
paid or declared and set apart for payment.
The affirmative vote of the holders of a majority of the
outstanding pre-
ferred stock voting as a class, would be required to amend,
alter or repeal
any of the
50
<PAGE>
Smith Barney Municipal Fund, Inc.
DESCRIPTION OF SHARES (CONTINUED)
preferences, rights or powers of holders of preferred stock so
as to affect
materi ally and adversely such preferences, rights or powers,
or increase or
decrease the number of preferred stock authorized to be
issued. Unless a higher
percentage is required as described under "Antitakeover
Provisions," the affir-
mative vote of the holders of a majority of the outstanding
preferred stock,
voting as a class, would be required to approve any plan of
reorganization
adversely affecting such shares or any action requiring a vote
of security
holders under Section 13(a) of the 1940 Act including, among
other things,
changes in the Fund's investment objective or changes in the
investment
restrictions described above under "Investment Restrictions".
The Fund has no present intention of offering additional
Common Stock or any
preferred stock. Other offerings of its Common Stock, if made,
will require
approval of the Fund's Board of Directors. Any additional
offering will be sub-
ject to the requirements of the 1940 Act that such Common
Stock may not be
issued at a price below the then current net asset value,
exclusive of under-
writing discounts and commissions, except in connection with
an offering to
existing shareholders or with the consent of the holders of a
majority of the
Fund's outstanding voting securities.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND
MARKET DISCOUNT
ANTI-TAKEOVER PROVISIONS
The Fund presently has provisions in its Articles of
Incorporation and Bylaws
(commonly referred to as "antitakeover" provisions) which may
have the effect
of limiting the ability of other entities or persons to
acquire control of the
Fund, to cause it to engage in certain transactions or to
modify its structure.
The Board of Directors is classified into three classes,
each with a term of
three years with only one class of directors standing for
election in any year.
Such classification may prevent replacement of a majority of
the directors for
up to a two year period. Directors may be removed from office
only for cause by
vote of at least 75% of the shares entitled to be voted on the
matter. In addi-
tion, unless 70% of the Board of Directors approves the
transaction, the affir-
mative vote of the holders of at least 75% of the shares will
be required to
authorize the Fund's conversion from a closed-end to an open-
end investment
company, or generally to authorize any of the following
transactions: (i) merg
51
<PAGE>
Smith Barney Municipal Fund, Inc.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND MARKET
DISCOUNT
(CONTINUED)
er, consolidation or share exchange of the Fund with or into
any other corpo-
ration; (ii) dissolution or liquidation of the Fund; (iii)
sale, lease,
exchange or other disposition of all or substantially all of
the assets of the
Fund; (iv) change in the nature of the business of the Fund so
that it would
cease to be an investment company registered under the 1940
Act; or (v) sale,
lease or exchange to the Fund, in exchange for securities of
the Fund, of any
assets of any entity or person (except assets having an
aggregate fair market
value of less than $1,000,000). The affirmative vote of at
least 75% of the
shares will be required to amend the Articles of Incorporation
or Bylaws to
change any of the foregoing provisions.
The percentage votes required under these provisions, which
are greater than
the minimum requirements under Maryland law or the 1940 Act,
will make more
difficult a change in the Fund's business or management and
may have the
effect of depriving shareholders of an opportunity to sell
shares at a premium
over prevailing market prices by discouraging a third party
from seeking to
obtain control of the Fund in a tender offer or similar
transaction. The
Fund's Board of Directors, however, has considered these
antitakeover provi-
sions and believes they are in the best interests of
shareholders.
MARKET DISCOUNT
Shares of common stock of closed-end investment companies
frequently trade
at a discount from net asset value, or in some cases trade at
a premium. Shares of
closed-end investment companies investing primarily in fixed
income securities
tend to trade on the basis of income yield on the market price
of the shares and the
market price may also be affected by trading volume, general
market conditions and
economic conditions and other factors beyond the control of
the Fund. As a result,
the market price of the Fund's shares may be greater or less
than the net asset
value. From March 12, 1993 through March 1, 1996, the Fund's
shares have
traded from a premium of 1.22% to a market discount of
(12.70%).
Some closed-end companies have taken certain actions,
including the repurchase
of common stock in the market at market prices and the making
of one or more
tender offers for common stock at net asset value, in an
effort to reduce or mitigate
the discount, and others have converted to an open-end
investment company, the
shares of which are redeemable at net asset value.
The Fund's Board of Directors has seen no reason to adopt any
of the steps, which
some other closed-end funds have used to address the discount.
In addition, the
52
<PAGE>
Smith Barney Municipal Fund, Inc.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND MARKET
DISCOUNT
(CONTINUED)
experience of many closed-end funds have used to address
the discount.
In addition, the experience of many closed-end funds suggests
that the effect of
many of these steps (other than open-ending) on the discount
may be temporary
or insignificant. Accordingly, there can be no assurance that
any of these actions will
be taken or, if undertaken, will cause the Fund's shares to
trade at a price equal to
their net asset value.
Smith Barney Municipal Fund, Inc.
CUSTODIAN, TRANSFER, AND DIVIDEND-PAYING AGENT, REGISTRAR AND
PLAN AGENT
PNC Bank, located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania
19103, acts as custodian of the Fund's investments. First
Data, located at One
Exchange Place, Boston, Massachusetts 02109, serves as the
Fund's transfer
agent, dividend-paying agent and registrar. First Data also
serves as agent in
connection with the Plan.
REPORTS TO SHAREHOLDERS
The Fund sends unaudited quarterly and audited annual
reports to the holders
of its securities, including a list of investments held.
EXPERTS
The audited financial statements incorporated into this
Prospectus have been
so included in reliance on the report of KPMG Peat Marwick
LLP, independent
auditors, given on the authority of said firm as experts in
auditing and
accounting.
53
<PAGE>
Smith Barney Municipal Fund, Inc.
ADDITIONAL INFORMATION
This Prospectus does not contain all of the information set
forth in the
Registration Statement filed with the SEC. The complete
Registration Statement
may be obtained from the SEC upon payment of the fee
prescribed by its Rules
and Regulations.
--------------------
No person has been authorized to give any information or to
make any repre-
sentations not contained in this Prospectus and, if given or
made, the infor-
mation or representations must not be relied upon as having
been authorized by
the Fund, the Investment Manager or Smith Barney. This
Prospectus does not
constitute an offer to sell or a solicitation of an offer to
buy any security
other than the shares of Common Stock offered by this
Prospectus, nor does it
constitute an offer to sell or a solicitation of an offer to
buy the shares of
Common Stock by anyone in any jurisdiction in which the offer
or solicitation
would be unlawful. Neither the delivery of this Prospectus nor
any sale made
hereunder will, under any circumstances, create any
implication that there has
been no change in the affairs of the Fund since the date of
this Prospectus.
If any material change occurs while this Prospectus is
required by law to be
delivered, however, this Prospectus will be supplemented or
amended according-
ly.
54
<PAGE>
Smith Barney Municipal Fund, Inc.
APPENDIX A
DESCRIPTION OF MOODY'S, S&P AND FITCH RATINGS
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS:
AAA--Bonds that are rated Aaa are judged to be of the best
quality, carry
the smallest degree of investment risk and are generally
referred to as "gilt
edge." Interest payments with respect to these bonds are
protected by a large
or by an exceptionally stable margin, and principal is secure.
Although the
various protective elements applicable to these bonds are
likely to change,
those changes are most unlikely to impair the fundamentally
strong position of
these bonds.
AA--Bonds that are rated Aa are judged to be of high
quality by all stan-
dards and together with the Aaa group comprise what are
generally known as high
grade bonds. They are rated lower than the best bonds because
margins of pro-
tection may not be as large as in Aaa securities, or
fluctuation of protective
elements may be of greater amplitude, or other elements may be
present that
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 with respect to these bonds are
considered adequate,
but elements may be present that suggest a susceptibility to
impairment some-
time in the future.
BAA--Bonds rated Baa are considered to be medium grade
obligations, that is
they are neither highly protected nor poorly secured. Interest
payment 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. These bonds lack outstanding investment
characteristics and may
have speculative characteristics as well.
Moody's applies the numerical modifiers 1, 2 and 3 in each
generic rating
classification from Aa through B. The modifier 1 indicates
that the security
ranks in the higher end of its generic rating category; the
modifier 2 indi-
cates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in
the lower end of its generic rating category.
A-1
<PAGE>
Smith Barney Municipal Fund, Inc.
APPENDIX A (CONTINUED)
DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS:
Moody's ratings for state and municipal notes and other
short-term loans
are designated Moody's Investment Grade (MIG) and for variable
demand obliga-
tions are designated Variable Moody's Investment Grade (VMIG).
This distinc-
tion recognizes the differences between short-term credit risk
and long-term
risk. Loans bearing the designation MIG 1/VMIG 1 are of the
best quality,
enjoying strong protection from established cash flows of
funds for their ser-
vicing or from established and broad-based access to the
market for refinanc-
ing, or both. Loans bearing the description MIG 2/VMIG 2 are
of high quality,
with margins of protection ample, although not as large as the
preceding
group. Loans bearing the designation MIG 3/VMIG 3 are of
favorable quality,
with all security elements accounted for but lacking the
undeniable strength
of the preceding grades. Market access for refinancing, in
particular, is
likely to be less well established.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating
assigned by
Moody's. Issuers rated Prime-1 (or related supporting
institutions) are con-
sidered to have a superior capacity for repayment of short-
term promissory
obligations. Issuers rates Prime-2 (or related supporting
institutions) are
considered to have a strong capacity for repayment of short-
term promissory
obligations, normally evidenced by many of the characteristics
of issuers
rated Prime-1 but to a lesser degree. Earnings trends and
coverage ratios,
while sound, will be more subject to variation. Capitalization
characteris-
tics, while still appropriate, may be more affected by
external conditions.
Ample alternative liquidity is maintained.
DESCRIPTION OF S&P MUNICIPAL BOND RATINGS:
AAA--These bonds are the obligations of the higher quality
and have the
strongest capacity for timely payment of debt service.
GENERAL OBLIGATION BONDS RATED AAA--In a period of
economic stress, the
issuers of these bonds will suffer the smallest declines in
income and will be
least susceptible to autonomous decline. Debt burden is
moderate. A strong
revenue structure appears more than adequate to meet future
expenditure
requirements. Quality of management appears superior.
A-2
<PAGE>
Smith Barney Municipal Fund, Inc.
APPENDIX A (CONTINUED)
REVENUE BONDS RATED AAA--Debt service coverage with
respect to these bonds
has been, and is expected to remain, substantial. Stability of
the pledged
revenues is also exceptionally strong due to the competitive
position of the
municipal enterprise or to the nature of the revenues. Basic
security provi-
sions (including rate covenant, earnings test for issuance of
additional
bonds, debt service reserve requirements) are rigorous. There
is evidence of
superior management.
AA--The investment characteristics of bonds in this group
are only
slightly less marked than those of the prime quality issues.
Bonds rated AA
have the second strongest capacity for payment of debt
service.
A--Principal and interest payments on bonds in this
category are regarded
as safe although the bonds are somewhat more susceptible to
the adverse
effects of changes in circumstances and economic conditions
than bonds in
higher rated categories. This rating describes the third
strongest capacity
for payment of debt service.
GENERAL OBLIGATION BONDS RATED A--There is some weakness,
either in the
local economic base, in debt burden, in the balance between
revenues and
expenditures, or in quality of management. Under certain
adverse circumstanc-
es, any one such weakness might impair the ability of the
issuer to meet debt
obligations at some future date.
REVENUE BONDS RATED A--Debt service coverage is good, but
not exceptional.
Stability of the pledged revenues could show some variations
because of
increased competition or economic influences on revenues.
Basic security pro-
visions, while satisfactory, are less stringent. Management
performance
appearance appears adequate.
BBB--The bonds in this group are regarded as having an
adequate capacity
to pay interest and repay principal. Whereas bonds in this
group normally
exhibit adequate protection parameters, adverse economic
conditions or chang-
ing circumstances are more likely to lead to a weakened
capacity to pay inter-
est and repay principal for debt in this category than in
higher rated catego-
ries. Bonds rated BBB have the fourth strongest capacity or
payment of debt
service.
S&P's letter ratings may be modified by the addition of a
plus or a minus
sign, which is used to show relative standing within the major
rating catego-
ries, except in the AAA category.
A-3
<PAGE>
Smith Barney Municipal Fund, Inc.
APPENDIX A (CONTINUED)
DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS:
Municipal notes with maturities of three years or less are
usually given
note ratings (designated SP-1, -2 or -3) to distinguish more
clearly the
credit quality of notes as compared to bonds. Notes rated SP-1
have a very
strong or strong capacity to pay principal and interest. Those
issues deter-
mined to possess overwhelming safety characteristics are given
the designation
of SP-1+. Notes rated SP-2 have a satisfactory capacity to pay
principal and
interest.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:
Commercial paper rated A-1 by S&P indicates that the
degree of safety
regarding timely payment is either overwhelming or very
strong. Those issues
determined to possess overwhelming safety characteristics are
denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is
strong, but the
relative degree of safety is not as high as for issues
designated A-1.
DESCRIPTION OF FITCH MUNICIPAL BOND RATINGS:
AAA--Bonds rated AAA by Fitch are considered to be
investment grade and of
the highest credit quality. The obligor has an exceptionally
strong ability to
pay interest and repay principal, which is unlikely to be
affected by reason-
ably foreseeable events.
AA--Bonds rated AA by Fitch are considered to be
investment grade and of
very high credit quality. The obligor's ability to pay
interest and repay
principal is very strong, although not quite as strong as
bonds rated AAA.
Because bonds rated in the AAA and AA categories are not
significantly vulner-
able to foreseeable future developments, short-term debt of
these issues is
generally rated F-1+ by Fitch.
A--Bonds rated A by Fitch are considered to be investment
grade and of
high credit quality. The obligor's ability to pay interest and
repay principal
is considered to be strong, but may be more vulnerable to
adverse changes in
economic conditions and circumstances than bonds with higher
ratings.
BBB--Bonds rated BBB by Fitch are considered to be
investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay
principal is considered to be adequate. Adverse changes in
economic conditions
and circumstances, however, are more likely to have adverse
consequences on
these bonds, and therefore impair timely payment. The
likelihood that the
A-4
<PAGE>
Smith Barney Municipal Fund, Inc.
APPENDIX A (CONTINUED)
ratings of these bonds will fall below investment grade is
higher than for
bonds with higher ratings.
Plus and minus signs are used by Fitch to indicate the
relative position of
a credit within a rating category. Plus and minus signs,
however, are not used
in the AAA category.
DESCRIPTION OF FITCH SHORT-TERM RATINGS:
Fitch's short-term ratings apply to debt obligations that
are payable on
demand or have original maturities of generally up to three
years, including
commercial paper, certificates of deposit, medium-term notes,
and municipal and
investment notes.
The short-term rating places greater emphasis than a long-
term rating on
the existence of liquidity necessary to meet the issuer's
obligations in a
timely manner.
Fitch's short-term ratings are as follows:
F-1+--Issues assigned this rating are regarded as having
the strongest
degree of assurance for timely payment.
F-1--Issues assigned this rating reflect an assurance of
timely payment
only slightly less in degree than issues rated F-1+.
F-2--Issues assigned this rating have a satisfactory
degree of assurance
for timely payment but the margin of safety is not as great as
for issues
assigned F-1+ and F-1 ratings.
F-3--Issues assigned this rating have characteristics
suggesting that the
degree of assurance for timely payment is adequate, although
near-term adverse
changes could cause these securities to be rated below
investment grade.
LOC--The symbol LOC indicates that the rating is based on
a letter of
credit issued by a commercial bank.
A-5
<PAGE>
Smith Barney Municipal Fund, Inc.
APPENDIX B
OPTIONS AND FUTURES
GENERAL. The Fund may engage in futures and options
transactions in accor-
dance with its investment objective and policies. The Fund may
engage in such
transactions if it appears advantageous to the Investment
Manager to do so in
order to pursue its investment objective, to hedge against the
effects of mar-
ket conditions and to stabilize the value of its assets. The
Investment Manager
may also decide not to engage in any of these investment
practices. The use of
futures and options, and the possible benefits and attendant
risks are dis-
cussed below, along with information concerning certain other
investment poli-
cies and techniques.
FINANCIAL FUTURES CONTRACTS. The Fund may enter into
financial futures con-
tracts for the future delivery of a financial instrument, such
as a security,
or the cash value of a securities index. This investment
technique is designed
primarily to hedge (i.e., protect) against anticipated future
changes in market
conditions which otherwise might adversely affect the value of
securities which
the Fund holds or intends to purchase. A "sale" of a futures
contract means the
undertaking of a contractual obligation to deliver the
securities, or the cash
value of an index, called for by the contract at a specified
price during a
specified delivery period. A "purchase" of a futures contract
means the under-
taking of a contractual obligation to acquire the securities,
or cash value of
an index, at a specified price during a specified delivery
period. At the time
of delivery, in the case of fixed income securities pursuant
to the contract,
adjustments are made to recognize differences in value arising
from the deliv-
ery of securities with a different interest rate than that
specified in the
contract. In some cases, securities called for by a futures
contract may not
have been issued at the time the contract was written.
Although some financial futures contracts by their terms
call for the
actual delivery or acquisition of securities, in most cases
the contractual
commitment is closed out before delivery without having to
make or take deliv-
ery of the security. The offsetting of a contractual
obligation is accomplished
by purchasing (or selling, as the case may be) on a
commodities exchange an
identical futures contract calling for delivery in the same
period. Such a
transaction cancels the obligation to make or take delivery of
the securities.
All transactions in the futures market are made, offset or
fulfilled through a
clearing house associated with the exchange on which the
contracts are traded.
The Fund will incur brokerage fees when it purchases or sells
contracts, and
will be required to maintain margin deposits. Futures
contracts entail risk. If
the Investment Manager's
B-1
<PAGE>
Smith Barney Municipal Fund, Inc.
APPENDIX B (CONTINUED)
judgment about the general direction of securities markets or
interest rates
is wrong, the Fund's overall performance may be poorer than if
the Fund had
not entered into such contracts.
There may be an imperfect correlation between movements in
prices of
futures contracts and portfolio securities being hedged. In
addition, the mar-
ket prices of futures contracts may be affected by certain
factors. If partic-
ipants in the futures market elect to close out their
contracts through off-
setting transactions rather than meet margin requirements,
distortions in the
normal relationship between the securities and futures markets
could result.
Price distortions could also result if investors in futures
contracts decide
to make or take delivery of underlying securities rather than
engage in clos-
ing transactions due to the resultant reduction in the
liquidity of the
futures market. In addition, because from the point of view of
speculators,
the margin requirements in the futures market may be less
onerous than margin
requirements in the cash market, increased participation by
speculators in the
futures market could cause temporary price distortions. Due to
the possibility
of price distortions in the futures market and because of the
imperfect corre-
lation between movements in the prices of securities and
movements in the
prices of futures contracts, a correct forecast of market
trends by the
Investment Manager may still not result in a successful
hedging transaction.
If this should occur, the Fund could lose money on the
financial futures con-
tracts and also on the value of its portfolio securities.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund may
purchase and write
call and put options on financial futures contracts. An option
on a futures
contract gives the purchaser the right, in return for the
premium paid, to
assume a position in a futures contract at a specified
exercise price at any
time during the period specified in the terms of the option.
Upon exercise,
the writer of the option delivers the futures contract to the
holder at the
exercise price. The Fund would be required to deposit with its
custodian ini-
tial margin and maintenance margin with respect to put and
call options on
futures contracts written by it. Options on futures contracts
involve risks
similar to those risks relating to transactions in financial
futures contracts
described above. Also, an option purchased by the Fund may
expire worthless,
in which case the Fund would lose the premium paid therefor.
OPTIONS ON SECURITIES. The Fund may write covered call
options so long as
it owns securities which are acceptable for escrow purposes
and may write
secured put options, which means that so long as the Fund is
obligated as
B-2
<PAGE>
Smith Barney Municipal Fund, Inc.
APPENDIX B (CONTINUED)
a writer of a put option, it will invest an amount, not less
than the exercise
price of the put option, in securities consistent with the
Fund's investment
objective and policies and restrictions on investment. See
"Investment Objec-
tive and Management Policies" and "Investment Restrictions." A
call option
gives the purchaser the right to buy, and the writer the
obligation to sell,
the underlying security at the exercise price during the
period specified in
the terms of the option. A put option gives the purchaser the
right to sell,
and the writer the obligation to buy, the underlying security
at the exercise
price during the period specified in the terms of the option.
The premium
received for writing an option will reflect, among other
things, the current
market price of the underlying security, the relationship of
the exercise
price to the market price, the price volatility of the
underlying security,
the option period, supply and demand and interest rates. The
Fund may write or
purchase spread options, which are options for which the
exercise price may be
a fixed dollar spread or yield spread between the security
underlying the
option and another security that is used as a benchmark. The
exercise price of
an option may be below, equal to or above the current market
value of the
underlying security at the time the option is written. The
buyer of a put who
also owns the related security is protected by ownership of a
put option
against any decline in that security's price below the
exercise price, less
the amount paid for the option. At times the Fund may wish to
establish a
position in a security upon which call options are available.
By purchasing a
call option on such security the Fund would be able to fix the
cost of acquir-
ing the security, this being the cost of the call plus the
exercise price of
the option. This procedure also provides some protection from
an unexpected
downturn in the market, because the Fund is only at risk for
the amount of the
premium paid for the call option which it can, if it chooses,
permit to
expire.
OPTIONS ON SECURITIES INDICES. The Fund also may purchase
and write call
and put options on securities indices. Through the writing or
purchase of
index options, the Fund can achieve many of the same
objectives as through the
use of options on individual securities. Options on securities
indices are
similar to options on a security except that, rather than the
right to take or
make delivery of a security at a specified price, an option on
a securities
index gives the holder the right to receive, upon exercise of
the option, an
amount of cash, if the closing level of the securities index
upon which the
option is based is greater than, in the case of a call, or
less than, in the
case of a put, the exercise price of the option. This amount
of cash is equal
to the difference between the closing price of the index and
the exercise
price of the option. The writer of the option is obligated, in
return for the
premium received, to make delivery of this amount. Unlike
options on securi-
ties (which require, upon exercise, delivery of
B-3
<PAGE>
Smith Barney Municipal Fund, Inc.
APPENDIX B (CONTINUED)
the underlying security), settlements of options on securities
indices, upon
exercise thereof, are in cash, and the gain or loss of an
option on an index
depends on price movements in the market generally (or in a
particular indus-
try or segment of the market on which the underlying index base)
rather than
price movements in individual securities, as is the case with
respect to
options on securities.
When the Fund writes an option on a securities index, it
will be required
to deposit with its custodian eligible securities equal in
value to 100% of
the exercise price in the case of a put, or the contract's
value in the case
of a call. In addition, where the Fund writes a call option on
a securities
index at a time when the contract value exceeds the exercise
price, the Fund
will segregate, until the option expires or is closed out,
cash or cash equiv-
alents equal in value to such excess.
Options on securities and index options involve risks
similar to those
risks relating to transactions in financial futures described
above. Also, an
option purchased by the Fund may expire worthless, in which
case the Fund
would lose the premium paid therefor.
OVER-THE-COUNTER OPTIONS. As previously indicated in this
Prospectus (see
"Investment Objectives and Management Policies--Investment
Techniques"), the
Fund may deal in OTC options. The Fund understands the
position of the staff
of the SEC to be that purchased OTC options and the assets
used as "cover" for
written OTC options are illiquid securities. The Fund and the
Investment Man-
ager disagree with this position and have found the dealers
with which they
engage in OTC options transactions generally agreeable to and
capable of
entering into closing transactions. The Fund has adopted
procedures for engag-
ing in OTC options for the purpose of reducing any potential
adverse impact of
such transactions upon the liquidity of the Fund's portfolio.
As part of these procedures the Fund will only engage in
OTC options
transactions with respect to U.S. government securities with
primary dealers
that have been specifically approved by the Board of Directors
of the Fund.
The Fund will engage in OTC options transactions with respect
to municipal
securities only with dealers that have been specifically
approved by the Board
of Directors. The Fund and its Investment Manager believe that
the approved
dealers should be agreeable and able to enter into closing
transactions as
necessary and, therefore, present minimal credit risks to the
Fund. The Fund
anticipates entering into written agreements with those
dealers to whom the
Fund may sell OTC options, pursuant to which the Fund would
have the absolute
right to repur
B-4
<PAGE>
Smith Barney Municipal Fund, Inc.
APPENDIX B (CONTINUED)
chase the OTC options from such dealers at any time at a price
with respect to
U.S. Government securities determined pursuant to a formula
set forth in cer-
tain no action letters published by the SEC staff. The Fund
will not engage in
OTC options transactions if the amount invested by the Fund in
OTC options,
plus, with respect to OTC options written by the Fund, the
amounts required to
be treated as illiquid pursuant to the terms of such letters
(and the value of
the assets used as cover with respect to OTC option sales
which are not within
the scope of such letters), plus the amount invested by the
Fund in illiquid
securities, would exceed 25% of the Fund's total assets. OTC
options on securi-
ties other than U.S. Government securities, including options
on municipal
securities, may not be within the scope of such letters and,
accordingly, the
amount invested by the Fund in OTC options on such other
securities and the
value of the assets used as cover with respect to OTC options
sales regarding
such non-U.S. Government securities will be treated as
illiquid and subject to
the 25% limitation on the Fund's assets which may be invested
in illiquid secu-
rities.
REGULATORY RESTRICTIONS. To the extent required to comply
with applicable
SEC releases and staff positions, when purchasing a futures
contract or writing
a put option, the Fund will maintain, in a segregated account,
cash or liquid
high-grade securities equal to the value of such contracts.
The Fund will not enter into a futures contract or
purchase an option
thereon if immediately thereafter the initial margin deposits
for futures con-
tracts held by the Fund plus premiums paid by it for open
options on futures
would exceed 5% of the fair market value of the Fund's total
assets after tak-
ing into account unrealized profits and unrealized losses on
any such con-
tracts. The Fund will not engage in transactions in financial
futures contracts
or options thereon for speculation, but only to attempt to
hedge against
changes in market conditions affecting the values of
securities which the Fund
holds or intends to purchase.
ACCOUNTING AND TAX CONSIDERATIONS. When the Fund writes an
option, an
amount equal to the premium received by it is included in the
Fund's Statement
of Assets and Liabilities as a liability. The amount of the
liability is subse-
quently marked to market to reflect the current market value
of the option
written. When the Fund purchases an option, the premium paid
by the Fund is
recorded as an asset and is subsequently adjusted to the
current market value
of the option.
In the case of a regulated futures contract purchased or
sold by the Fund,
an amount equal to the initial margin deposit is recorded as
an asset. The
B-5
<PAGE>
Smith Barney Municipal Fund, Inc.
APPENDIX B (CONTINUED)
amount of the asset is subsequently adjusted to reflect
changes in the amount
of the deposit as well as changes in the value of the
contract.
Certain listed options and futures contracts are
considered "section 1256
contracts" for Federal income tax purposes. In general, gain
or loss realized
by the Fund on section 1256 contracts will be considered 60%
long term and 40%
short term capital gain or loss. Also, section 1256 contracts
held by the Fund
at the end of each taxable year (and at October 31 for
purposes of calculating
the excise tax) will be "marked to market", that is, treated
for Federal
income tax purposes as though sold for fair market value on
the last business
day of such taxable year. The Fund can elect to exempt its
section 1256 con-
tracts which are part of a "mixed straddle" (as described
below) from the
application of section 1256.
Gain or loss realized by the Fund upon the expiration or
sale of certain
over-the-counter put and call options held by the Fund will be
either long
term or short term capital gain or loss depending upon the
Fund's holding
period with respect to such option. However, gain or loss
realized upon the
expiration or closing out of such options that are written by
the Fund will be
treated as short term capital gain or loss. In general, if the
Fund exercises
an option, or an option that the Fund has written is
exercised, gain or loss
on the option will not be separately recognized, but the
premium received or
paid will be included in the calculation of gain or loss upon
disposition of
the property underlying the option.
Any security, option or futures contract, delayed delivery
transaction, or
other position entered into or held by the Fund in conjunction
with any other
position held by the Fund may constitute a "straddle" for
Federal income tax
purposes. A straddle of which at least one, but not all, the
positions are
section 1256 contracts will constitute a "mixed straddle". In
general, strad-
dles are subject to certain rules that may affect the
character and timing of
the Funds' gains and losses with respect to straddle positions
by requiring,
among other things, that loss realized on disposition of one
position of a
straddle be deferred to the extent of any unrealized gain in
an offsetting
position until such position is disposed of; that the Fund's
holding period in
certain straddle positions not begin until the straddle is
terminated (possi-
bly resulting in gain being treated as short term capital gain
rather than
long term capital gain); and that losses recognized with
respect to certain
straddle positions, that otherwise constitute short term
capital losses, be
treated as long term capital losses. Different elections are
available to the
Fund which may mitigate the effects of the straddle rules,
particularly with
respect to mixed straddles.
B-6
<PAGE>
- --------------------------------------------------------------
- ------------------
SMITH BARNEY
------------
A Member of TravelersGroup[ART]
Smith
Barney
Municipal
Fund, Inc.
COMMON STOCK
388 Greenwich Street
New York, New York 10013
FD0620 3/96
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(1) Financial Statements
Parts A and B
(a) Financial Highlights
(b) The Registrants Annual Report for the
period ended December 31, 1995 and the Independent
Auditors Report are incorporated by reference to the
definitive 30b-2 filed on February 22, 1996 as
accession number 0000091155-96-000086.
Part C
None
(2) Exhibits:
Exhibit
Number Description
(a) Articles of
Incorporation
of Registrant*
(b) By-Laws.*
(c) Not Applicable.
(d) Form of Specimen
Certificate representing shares of
Common Stock, par
value $.001 per share**
(e) Registrants Dividend
Reinvestment Plan (filed herewith)
(f) Not Applicable
(g)(1) Form of Investment
Management Agreement.**
(2) Form of Transfer
and
Assumption of Investment
Management Agreement
between Registrant, Mutual
Management Corp and
Smith Barney Mutual Funds
Management Inc. (filed
herewith)
(h) Form of Underwriting
Agreement.**
(i) Not Applicable.
(j) Form of Custodian
Services Agreement.**
(k) Form of Transfer
Agency
and Registrar Agreement
(filed herewith)
(l)(1) Opinion and
consent
of Sullivan & Cromwell.**
(2) Opinion and
consent
of Sullivan & Cromwell.**
(m) Not Applicable
(n) Consent of KPMG Peat
Marwick LLP (filed herewith)
(o) Not Applicable.
(p) Not
Applicable.
(q) Not
Applicable.
(r) Financial Data Schedule
(filed herewith)
* Previously filed. by Registrant with its
initial Registration Statement (No. 33-48166) on
May 27, 1992
** Previously filed by Registrant with
PreEffective Amendment No. 2 to its
Registration
Statement (No. 33-48166) on July 30, 1992
Item 25. Marketing Arrangements.
Reference is made to the Underwriting Agreement,
filed as Exhibit (h) by Registrant with Pre-Effective
Amendment No. 2 to its Registration Statement .
Item 26. Other Expense of Issuance and Distribution.
The following table sets forth the estimated expenses
to be incurred in connection with the offering described
in this Registration Statement:
Securities and Exchange Commission registration $ 0
fees
National Association of Securities Dealers, Inc. 0
fee
American Stock Exchange listing fee 0
Blue Sky fees and expenses 0
Costs of Stock Certificates 0
Printing 5,000
Legal fees and expenses 0
Independent Auditors' fees and expenses 0
Miscellaneous 0_
Total $5,000
Item 27. Persons Controlled by or Under Common Control.
None
Item 28. Number of Holders of Securities.
The number of record holders of Registrant as of
March 8,1996 is as follows:
(1) (2)
Title of Class Number of Record
Holders Shares of Common Stock, par
107 value $.001 per share
Item 29. Indemnification.
Under Registrant's Articles of Incorporation, the
directors and officers of Registrant will be indemnified to
the fullest extent allowed and in the manner provided by
Maryland law and applicable provisions of the Investment
Company Act of 1940, as amended (the 1940 Act), including
advancing of expenses incurred in connection therewith.
Indemnification shall not be provided however to any officer
or director against any liability to the Registrant or its
security holders to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of his or her office.
Article 2, Section 405.2 of the Maryland General
Corporation Law provides that the Articles of
Incorporation of a Maryland corporation may limit the
extent to which directors or officers may be personally
liable to the Corporation or its shareholders for money
damages in certain instances. The Registrant's Articles
of Incorporation provide that, to the fullest extent
permitted by Maryland law, as it may be amended or
interpreted from time to time, no director or officer of
the Registrant shall be personally liable to the
Registrant or its shareholders. The Registrant's Articles
of Incorporation also provide that no amendment of the
Registrant's Articles of Incorporation or repeal of any of
its provisions shall limit or eliminate any of the
benefits provided to directors and officers in respect of
any act or omission that occurred prior to such amendment
or repeal.
Insofar as indemnification for liabilities under the
1933 Act may be permitted to the directors and officers,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is
therefore unenforceable. If a claim for indemnification
against such liabilities under the 1933 Act (other than
for expenses incurred in a successful defense) is asserted
against the Fund by the directors or officers in
connection with the Common Shares, the Registrant will,
unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as
expressed in such Act and will be governed by the final
adjudication of such issue.
Item 30. Business and other Connections of Investment
Manager.
Smith Barney Mutual Funds Management Inc.
(SBMFM) was incorporated in 1968 and is a wholly owned
subsidiary of Smith Barney Holdings Inc. (Holdings),
which is in turn a wholly owned subsidiary of Travelers
Group Inc. (Travelers). For additional information, see
Management of the Fund in the Prospectus.
The list required by this Item 30 of officers and
directors of SBMFM, together with information as to any
other business, profession, vocation or employment of a
substantial nature engaged in by such officers and
directors during the past five fiscal years, is
incorporated by reference to Schedules A and D of FORM ADV
filed by SBMFM pursuant to the Advisers Act (SEC File No.
801-8314).
Item 31. Location of Accounts and Records.
Each Person maintaining physical possession of
accounts, books and other documents of the Registrant
required to be maintained pursuant to Section 31(a) of the
1940 Act, is listed below:
(1) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(2) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103.
(3) First Data Investor Services
Group, Inc.
Exchange Place
Boston, Massachusetts 02109
Item 32. Management Services.
Not Applicable.
Item 33. Undertakings.
(1) Not Applicable.
(2) Not Applicable.
(3) Not Applicable.
(4)(a) The Registrant undertakes to file, during
any
period in which offers or sales are being made, a
PostEffective Amendment to the Registration Statement:
(1) to include any prospectus required by
Section 10(a)(3) of the 1933 Act;
(2) to reflect in the prospectus any facts
or events after the effective date of the
Registration Statement (or the most recent Post-
Effective Amendment thereof) which, individually or in
the aggregate, represent
a fundamental change in the formation set forth in
the Registration Statement; and
(3) to include any material information
with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material
change to such information in this Registration
Statement.
(4)(b) Registrant undertakes that, for the
purpose of determining any liability under the 1933
Act, each subsequent Post-Effective Amendment shall be
deemed to be a new Registration Statement
relating to the securities
offered therein, and the offering of those securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(4)(c) Not Applicable.
(5) Not Applicable.
(6) Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933, as amended, and the Investment Company Act of
1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 1 to its Registration
Statement on Form N-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
New York, State of New York, on the 21st day of March,
1996.
SMITH
BARNEY MUNICIPAL FUND, INC.
By /s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman of the Board
and Chief
Executive
Officer
Pursuant to the requirements of the Securities Act
of 1933, as amended, this Post-Effective Amendment No. 1
to the Registration Statement has been signed by the
following persons in the capacities and on the dates
indicated:
signature Title Date
/s/ Heath B. McLendon Chairman of the Board and
Heath B. McLendon Chief Executive
Officer March 21, 1996
/s/ Jessica Bibliowicz President and
Director
March21, 1996
Jessica Bibliowicz
/s/ Joseph H. Fleiss* Director
March 21, 1996
Joseph H. Fleiss
/s/ Donald R. Foley* Director
March 21, 1996
Donald R. Foley
____________________ Director
March 21, 1996
Paul Hardin
/s/ Francis P. Martin* Director
March 21, 1996
Francis P. Martin
/s/ Roderick C. Rasmussen* Director
March 21, 1996
Roderick C. Rasmussen
/s/ John P. Toolan*
Director
March 21, 1996
John P. Toolan
/s/ C. Richard Youngdahl* Director
March 21, 1996
C. Richard Youngdahl
/s/ Lewis E. Daidone Senior Vice President and
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)
March 21, 1996
*By: /s/Lewis E. Daidone
Lewis E. Daidone
Pursuant to Power of Attorney.
SMITH BARNEY MUNICIPAL FUND,
INC. EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
(e) Form of
Dividend
Reinvestment Plan
(g)(2) Form of Transfer
and
Assumption of
Investment Management Agreement
(k) Form of Transfer
Agency
Agreement
(n) Consent of KPMG Peat
Marwick
LLP
(r) Financial Data Schedule
Cover Letter
SMITH BARNEY MUNICIPAL FUND, INC.
FORM OF TERMS AND CONDITIONS OF DIVIDEND REINVESTMENT PLAN
1. You, First Data Investor Services
Group,
Inc., will act as Agent for the stockholders
(the
"Participants") of Smith Barney Municipal Fund, Inc.
(the "Fund"), and will open an account for each of
the
Participants under the Dividend Reinvestment Plan
(the "Plan") in the name of the record owner in which
shares of common stock, par value $.001 per share of
the Fund are registered ("Common Shares"), and put
into effect for Participants the distribution
reinvestment provisions of the Plan as of the first
record date for a dividend or capital gain distribution
after you have implemented the Plan.
2. If the Fund declares a distribution
payable
either in Common Shares or in cash, nonparticipants in
the Plan will receive cash, and Participants will receive
the equivalent amount in Common Shares valued on the
valuation date in the following manner: whenever the
market price of the Common Shares on the valuation date
is equal to or exceeds the net asset value per share of
the Common Shares on that date, you will acquire shares
directly from the Fund at a price equal to the greater of
(1) net asset value on the valuation date or (2) 95% of
the then current market price of the Common Shares. If
the net asset value of the Common Shares on the valuation
date exceeds the market price of the Common Shares on that
date, or if the Fund declares a distribution payable only
in cash, you will buy Common Shares in the open market,
on the American Stock Exchange or
elsewhere, for the Participants' accounts. If the
market price exceeds the net asset value of the Common
Shares before you have completed the purchases, you are
permitted to cease purchasing shares and the Fund may
issue the remaining shares at a price equal to the greater
of (a) net asset value or (b) 95% of the then current
market price. Such purchases will be made on or shortly
after the payment date for such 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.
3. For all purposes of the Plan: (a)
the
valuation date will be the dividend or distribution
record date; (b) the market price of the Fund's common
stock on a particular date shall be the mean between the
highest and lowest sales prices on the American Stock
Exchange on that date, or, if there is no sale on such
Exchange on that date, then the mean between the closing
bid and asked quotations for such stock on such Exchange
on such date; (c) the net asset value per share of the
Fund's common stock on a particular date shall be as
determined by or on behalf of the Fund; and (d) all
distributions and other payments shall be made net of any
applicable withholding tax.
4. The open-market purchases provided for
above
may be made on any securities exchange where the
Fund's common stock is traded, in the over-the-counter
market or in negotiated transactions and may be on such
terms as to price, delivery and otherwise as you
shall determine. Participant funds held by you
uninvested will not bear interest, and it is understood
that, in any event, you shall have no liability in
connection with any inability to purchase shares
within 30 days after the initial date of such purchase as
herein provided, or with the timing of any purchases
effected. You shall have no responsibility as to
the value of the common stock of the Fund acquired for
a
Participant's account. For the purposes of cash
investments you may commingle a Participant's funds with
those of other Participants for whom you similarly act as
Agent and the average price (including brokerage
commissions) of all shares purchased by you as Agent
shall be the price per share allocable to each
Participant in connection therewith.
5. You may hold shares acquired pursuant to
the
Plan, together with the shares of other
Participants acquired pursuant to the Plan, in
noncertificated form in
your name or that of your nominee. You will forward
to
Participants any proxy solicitation material and will
vote any shares so held for Participants only in
accordance with the proxy returned by Participants to the
Fund. Upon a
Participant's written request, you will deliver to
him, without charge, a certificate or certificates for the
full shares.
6. You will confirm to each Participant
each
acquisition made for his account as soon as practicable
but not later than 60 days after the date thereof.
Although participants may from time to time have an
undivided fractional interest (computed to three decimal
places) in a
share of the Fund, no certificates for a fractional
share will be issued. However, distributions on fractional
shares will be credited to their accounts. In the
event of
termination of a Participant's account under the Plan,
you will adjust for any such undivided fractional
interest in
cash at the market value of the Fund's shares at the time
of termination less the pro rata expense of any sale
required to make such an adjustment.
7. Any stock dividends or split
shares distributed by the Fund on shares held by you
for a
Participant will be credited to his account. In the
event
that the Fund makes available to its stockholders rights
to
purchase additional shares or other securities, the
shares held for a Participant under the Plan will be added
to other shares held by such Participant in calculating the
number of rights to be issued to him.
8. Your service fee for handling
the
reinvestment of capital gains distributions or
income dividends will be paid by the Fund. Participants
will be
charged a pro rata share of brokerage commissions on
all open market purchases.
9. A Participant may terminate his account
under the Plan by notifying you in writing. Such
termination will be effective immediately if his notice is
received by you not less than ten business days prior
to any distribution record date; otherwise such
termination will be effective on the first trading day
after the payment date for such distribution with
respect to any subsequent distribution. The Plan may be
terminated by you or the Fund upon notice in writing mailed
to record holders of shares at least 30 days prior to any
record date for the payment of any distribution by the
Fund. Upon any termination you will cause a
certificate or certificates for the full shares held
for each Participant under the Plan and cash adjustment for
any fraction to be delivered to each Participant without
charge. If a Participant elects by notice to you in
writing in
advance of such termination to have you sell part or all
of
his shares and remit the proceeds to him, you are
authorized to deduct a $2.50 fee plus brokerage
commission for this transaction from the proceeds.
10. These terms and conditions may be amended
or supplemented by you or the Fund at any time or times
but, except when necessary or appropriate to comply
with
applicable law or the rules or policies of the
Securities
and Exchange Commission or any other regulatory
authority, only by mailing to Participants appropriate
written notice at least 90 days prior to the record
date for the first distribution to which such amendment
or supplement applies if by the Fund or if by you 90
days prior to the effective date of such amendment or
supplement. The amendment or
supplement shall be deemed to be accepted by
Participants unless, prior to the effective date thereof,
you receive written notice of the termination of a
Participant's account under the Plan. Any such
amendment may include an
appointment by you in your place and stead of a
successor Agent under these terms and conditions, with full
power and authority to perform all or any of the acts to
be performed by the Agent under these terms and
conditions. Upon any
such appointment of an Agent for the purpose of
receiving distributions, the Fund will be authorized to
pay such successor Agent, for a Participant's
account, all
distributions payable on common stock of the Fund held
in
his name or under the Plan for retention or application
by
such successor Agent as provided in these terms
and
conditions.
11. You shall at all times act in good faith
and
agree to use your best efforts within reasonable limits
to
insure the accuracy of all services performed under
this Agreement and to comply with applicable law, but
assume no
responsibility and shall not be liable for loss or
damage dueto errors unless such error is caused by
your
negligence, bad faith or willful misconduct or that of
your employees.
12. These terms and conditions shall be
governed
by the laws of the State of New York.
SMITH BARNEY MUNICIPAL FUND, INC.
Heath B. McLendon
Chairman and Chief
Executive Officer
FIRST DATA INVESTOR SERVICES
GROUP, INC.
FORM OF TRANSFER AND ASSUMPTION
OF INVESTMENT MANAGEMENT AGREEMENT
for
SMITH BARNEY MUNICIPAL FUND, INC.
TRANSFER AND ASSUMPTION OF MANAGEMENT AGREEMENT, made
as of the 31st day of December, 1994, by and among Smith
Barney Municipal Fund, Inc. (the "Company"), a corporation
organized under the laws of the State of Maryland, Mutual
Management Corp., a New York corporation ("MMC") and Smith
Barney Mutual Funds Management Inc., a Delaware corporation
("SBMFM").
WHEREAS, the Company is registered with the Securities
and Exchange Commission as a closed-end management
investment company under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, the Company, and MMC entered into a
Management Agreement on July 30, 1992 under which MMC
serves as the investment manager (the "Investment Manager")
for the Company; and
WHEREAS, MMC desires that its interest, rights,
responsibilities and obligations in and under the
Management Agreement be transferred to SBMFM and SBMFM
desires to assume MMC's interest, rights, responsibilities
and obligations in and under the Management Agreement; and
WHEREAS, this Agreement does not result in a change of
actual control or management of the Investment Manager to
the Company and, therefore, is not an "assignment" as
defined in Section 2(a)(4) of the Act nor an "assignment"
for the purposes of Section 15(a)(4) of the Act.
NOW, THEREFORE, in consideration of the mutual
covenants set forth in this Agreement and other good and
valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as
follows:
1. Assignment. Effective as of December 31, 1994
(the "Effective Date"), MMC hereby transfers to SBMFM all
of MMC's interest, rights, responsibilities and obligations
in and under the Management Agreement dated July 30, 1992,
to
which MMC is a party with the Company.
2. Assumption and Performance of Duties. As of the
Effective Date, SBMFM hereby accepts all of MMC's interest
and rights, and assumes and agrees to perform all of MMC's
responsibilities and obligations in and under the
Management Agreement; SBMFM agrees to be subject to all of
the terms and conditions of said Agreement; and SBMFM shall
indemnify and hold harmless MMC from any claim or demand
made thereunder arising or incurred after the Effective
Date.
3. Representation of SBMFM. SBMFM represents and
warrants that : (1) it is registered as an investment
adviser under the Investment Advisers Act of 1940, as
amended; and (2) Smith Barney Holdings Inc. is its sole
shareholder.
4. Consent. The Company hereby consents to this
transfer by MMC to SBMFM of MMC's interest, rights,
responsibilities and obligations in and under the
Management Agreement and to acceptance and assumption by
SBMFM of the same. The Company agrees, subject to the
terms and conditions of said Agreement, to look solely to
SBMFM for the performance of the Investment Manager's
responsibilities and obligations under said Agreement from
and after the Effective Date, and to recognize as inuring
solely to SBMFM the interest and rights heretofore held by
MMC thereunder.
5. Counterparts. This Agreement may be signed in
any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized
officers hereunto duly attested.
Attest:
By:
Secretary Smith Barney Municipal
Fund, Inc.
Date: December 31, 1994
Attest:
By:
Secretary
Mutual Management Corp.
Date:December 31, 1994
Attest:
Secretary By:
Smith Barney Mutual
Funds Management Inc.
Date:December 31, 1994
FORM OF TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, dated as of ___________, 1996 between Smith
Barney Municipal Fund, Inc. (the "Fund"), a corporation
organized under the laws of Maryland and having its
principal place of business at 388 Greenwich Street New
York, NY 10013, and The Shareholder Services Group,
Inc.Inc. (MA) (the "Transfer Agent"), a Massachusetts
corporation with principal offices at One Exchange Place,
53 State Street, Boston, Massachusetts 02109.
W I T N E S S E T H
That for and in consideration of the mutual covenants
and promises hereinafter set forth, the Fund and the
Transfer Agent agree as follows:
1. Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise
requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the
Articles of Incorporation, Declaration of Trust,
Partnership Agreement, or similar organizational document
as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to
include any person, whether or not such person is an
officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the
Fund as indicated in a certificate furnished to the
Transfer Agent pursuant to Section 4(c) hereof as may be
received by the Transfer Agent from time to time.
(c) "Board of Directors" shall mean the Board of
Directors, Board of Trustees or, if the Fund is a limited
partnership, the General Partner(s) of the Fund, as the
case may be.
(d) "Commission" shall mean the Securities and
Exchange Commission.
(e) "Custodian" refers to any custodian or
subcustodian of securities and other property which the
Fund may from time to time deposit, or cause to be
deposited or held under the name or account of such a
custodian pursuant to a Custodian Agreement.
(f) "Fund" shall mean the entity executing this
Agreement, and if it is a series fund, as such term is used
in the 1940 Act, such term shall mean each series of the
Fund hereafter created, except that appropriate
documentation with respect to each series must be presented
to the Transfer Agent before this Agreement shall become
effective with respect to each such series.
(g) "1940 Act" shall mean the Investment Company
Act of 1940.
(h) "Oral Instructions" shall mean instructions,
other than Written Instructions, actually received by the
Transfer Agent from a person reasonably believed by the
Transfer Agent to be an Authorized Person;
(i) "Prospectus" shall mean the most recently
dated Fund Prospectus and Statement of Additional
Information, including any supplements thereto if any,
which has become effective under the Securities Act of 1933
and the 1940 Act.
(j) "Shares" refers collectively to such shares
of capital stock, beneficial interest or limited
partnership interests, as the case may be, of the Fund as
may be issued from time to time and, if the Fund is a
closed-end or a series fund, as such terms are used in the
1940 Act any other classes or series of stock, shares of
beneficial interest or limited partnership interests that
may be issued from time to time.
(k) "Shareholder" shall mean a holder of shares
of capital stock, beneficial interest or any other class or
series, and also refers to partners of limited
partnerships.
(l) "Written Instructions" shall mean a written
communication signed by a person reasonably believed by the
Transfer Agent to be an Authorized Person and actually
received by the Transfer Agent. Written Instructions shall
include manually executed originals and authorized
electronic transmissions, including telefacsimile of a
manually executed original or other process.
2. Appointment of the Transfer Agent. The Fund
hereby appoints and constitutes the Transfer Agent as
transfer agent, registrar and dividend disbursing agent for
Shares of the Fund and as shareholder servicing agent for
the Fund. The Transfer Agent accepts such appointments and
agrees to perform the duties hereinafter set forth.
3. Compensation.
(a) The Fund will compensate or cause the
Transfer Agent to be compensated for the performance of its
obligations hereunder in accordance with the fees set forth
in the written schedule of fees annexed hereto as Schedule
A and incorporated herein. The Transfer Agent will
transmit an invoice to the Fund as soon as practicable
after the end of each calendar month which will be detailed
in accordance with Schedule A, and the Fund will pay to the
Transfer Agent the amount of such invoice within thirty
(30) days after the Fund's receipt of the invoice.
In addition, the Fund agrees to pay, and will be
billed separately for, reasonable out-of-pocket expenses
incurred by the Transfer Agent in the performance of its
duties hereunder. Out-of-pocket expenses shall include, but
shall not be limited to, the items specified in the written
schedule of out-of-pocket charges annexed hereto as
Schedule B and incorporated herein. Unspecified out-of-
pocket expenses shall be limited to those out-of-pocket
expenses reasonably incurred by the Transfer Agent in the
performance of its obligations hereunder. Reimbursement by
the Fund for expenses incurred by the Transfer Agent in any
month shall be made as soon as practicable but no later
than 15 days after the receipt of an itemized bill from the
Transfer Agent.
(b) Any compensation agreed to hereunder may be
adjusted from time to time by attaching to Schedule A, a
revised fee schedule executed and dated by the parties
hereto.
4. Documents. In connection with the appointment of
the Transfer Agent the Fund shall deliver or caused to be
delivered to the Transfer Agent the following documents on
or before the date this Agreement goes into effect, but in
any case within a reasonable period of time for the
Transfer Agent to prepare to perform its duties hereunder:
(a) If applicable, specimens of the certificates
for Shares of the Fund;
(b) All account application forms and other
documents relating to Shareholder accounts or to any plan,
program or service offered by the Fund;
(c) A signature card bearing the signatures of
any officer of the Fund or other Authorized Person who will
sign Written Instructions or is authorized to give Oral
Instructions.
(d) A certified copy of the Articles of
Incorporation, as amended;
(e) A certified copy of the By-laws of the Fund,
as amended;
(f) A copy of the resolution of the Board of
Directors authorizing the execution and delivery of this
Agreement;
(g) A certified list of Shareholders of the Fund
with the name, address and taxpayer identification number
of each Shareholder, and the number of Shares of the Fund
held by each, certificate numbers and denominations (if any
certificates have been issued), lists of any accounts
against which stop transfer orders have been placed,
together with the reasons therefore, and the number of
Shares redeemed by the Fund; and
(h) An opinion of counsel for the Fund with
respect to the validity of the Shares and the status of
such Shares under the Securities Act of 1933, as amended.
5. Further Documentation. The Fund will also furnish
the Transfer Agent with copies of the following documents
promptly after the same shall become available:
(a) each resolution of the Board of Directors
authorizing the issuance of Shares;
(b) any registration statements filed on behalf
of the Fund and all pre-effective and post-effective
amendments thereto filed with the Commission;
(c) a certified copy of each amendment to the
Articles of Incorporation or the By-laws of the Fund;
(d) certified copies of each resolution of the
Board of Directors or other authorization designating
Authorized Persons; and
(e) such other certificates, documents or
opinions as the TransferAgent may reasonably request in
connection with the performance of its duties hereunder.
6. Representations of the Fund. The Fund represents
to the Transfer Agent that all outstanding Shares are
validly issued, fully paid and non-assessable. When Shares
are hereafter issued in accordance with the terms of the
Fund'sArticles of Incorporation and its Prospectus, such
Shares shall be validly issued, fully paid and non
assessable.
7. Distributions Payable in Shares. In the event
that the Board of Directors of the Fund shall declare a
distribution payable in Shares, the Fund shall deliver or
cause to be delivered to the Transfer Agent written notice
of such declaration signed on behalf of the Fund by an
officer thereof, upon which the Transfer Agent shall be
entitled to rely for all purposes, certifying (i) the
identity of the Shares involved, (ii) the number of Shares
involved, and (iii) that all appropriate action has been
taken.
8. Duties of the Transfer Agent. The Transfer Agent
shall be responsible for administering and/or performing
those functions typically performed by a transfer agent;
for acting as service agent in connection with dividend and
distribution functions; and for performing shareholder
account and administrative agent functions in connection
with the issuance, transfer and redemption or repurchase
(including coordination with the Custodian) of Shares in
accordance with the terms of the Prospectus and applicable
law. The operating standards and procedures to be followed
shall be determined from time to time by agreement between
the Fund and the Transfer Agent and shall initially be as
described in Schedule C attached hereto. In addition, the
Fund shall deliver to the Transfer agent all notices issued
by the Fund with respect to the Shares in accordance with
and pursuant to the Articles of Incorporation or By-laws of
the Fund or as required by law and shall perform such other
specific duties as are set forth in the
9. Record Keeping and Other Information. The
Transfer Agent shall create and maintain all records
required of it pursuant to its duties hereunder and as set
forth in Schedule C in accordance with all applicable laws,
rules and regulations, including records required by
Section 31(a) of the 1940 Act. All records shall be
available during regular business hours for inspection and
use by the Fund. Where applicable, such records shall be
maintained by the Transfer
Agent for the periods and in the places required by Rule
31a2 under the 1940 Act.
Upon reasonable notice by the Fund, the Transfer Agent
shall make available during regular business hours such of
its facilities and premises employed in connection with the
performance of its duties under this Agreement for
reasonable visitation by the Fund, or any person retained
by the Fund as may be necessary for the Fund to evaluate
the quality of the services performed by the Transfer Agent
pursuant hereto.
10. Other Duties. In addition to the duties set
forth in Schedule C, the Transfer Agent shall perform such
other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in
writing between the Fund and the Transfer Agent. The
compensation for such other duties and functions shall be
reflected in a written amendment to Schedule A or B and the
duties and functions shall be reflected in an amendment to
Schedule C, both dated and signed by authorized persons of
the parties
hereto.
11. Reliance by Transfer Agent; Instructions
(a) The Transfer Agent will have no liability
when acting upon Written or Oral Instructions believed to
have been executed or orally communicated by an Authorized
Person and will not be held to have any notice of any
change of authority of any person until receipt of a
Written Instruction thereof from the Fund pursuant to
Section 4(c). The Transfer Agent will also have no
liability when processing Share certificates which it
reasonably believes to bear the proper manual or facsimile
signatures of the officers of the Fund and the proper
countersignature of the Transfer Agent.
(b) At any time, the Transfer Agent may apply to
any Authorized Person of the Fund for Written Instructions
and may seek advice from legal counsel for the Fund, or its
own legal counsel, with respect to any matter arising in
connection with this Agreement, and it shall not be liable
for any action taken or not taken or suffered by it in good
faith in accordance with such Written Instructions or in
accordance with the opinion of counsel for the Fund or for
the Transfer Agent. Written Instructions requested by the
Transfer Agent will be provided by the Fund within a
reasonable period of time. In addition, the Transfer
Agent, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any
person representing or acting on behalf of the Fund only if
said representative is an Authorized Person. The Fund
agrees that all Oral Instructions shall be followed within
one business day by confirming Written Instructions, and
that the Fund's failure to so confirm shall not impair in
any respect the Transfer Agent's right to rely on Oral
Instructions. The Transfer Agent shall have no duty or
obligation to inquire into, nor shall the Transfer Agent be
responsible for, the legality of any act done by it upon
the request or direction of a person reasonably believed by
the Transfer Agent to be an Authorized Person.
(c) Notwithstanding any of the foregoing
provisions of this Agreement, the Transfer Agent shall be
under no duty or obligation to inquire into, and shall not
be liable for: (i) the legality of the issuance or sale of
any Shares or the sufficiency of the amount to be received
therefor; (ii) the legality of the redemption of any
Shares, or the propriety of the amount to be paid therefor;
(iii) the legality of the declaration of any dividend by
the Board of Directors, or the legality of the issuance of
any Shares in payment of any dividend; or (iv) the legality
of any recapitalization or readjustment of the Shares.
12. Acts of God, etc. The Transfer Agent will not be
liable or responsible for delays or errors by acts of God
or by reason of circumstances beyond its control, including
acts of civil or military authority, national emergencies,
labor difficulties, mechanical breakdown, insurrection,
war, riots, or failure or unavailability of transportation,
communication or power supply, fire, flood or other
catastrophe.
13. Duty of Care and Indemnification. Each party
hereto (the "Indemnifying Party') will indemnify the other
party (the "Indemnified Party") against and hold it
harmless from any and all losses, claims, damages,
liabilities or
expenses of any sort or kind (including reasonable counsel
fees and expenses) resulting from any claim, demand, action
or suit or other proceeding (a "Claim") unless such Claim
has resulted from a negligent failure to act or omission to
act or bad faith of the Indemnified Party in the
performance of its duties hereunder. In addition, the Fund
will indemnify the Transfer Agent against and hold it
harmless from any Claim, damages, liabilities or expenses
(including reasonable counsel fees) that is a result of:
(i) any action taken in accordance with Written or Oral
Instructions, or any other instructions, or share
certificates reasonably believed by the Transfer Agent to
be genuine and to be signed, countersigned or executed, or
orally communicated by an Authorized Person; (ii) any
action taken in accordance with written or oral advice
reasonably believed by the Transfer Agent to have been
given by counsel for the Fund or its own counsel; or (iii)
any action taken as a result of any error or omission in
any record (including but not limited to magnetic tapes,
computer printouts, hard copies and microfilm copies)
delivered, or caused to be delivered by the Fund to the
Transfer Agent in connection with this Agreement.
In any case in which the Indemnifying Party may be
asked to indemnify or hold the Indemnified Party harmless,
the Indemnifying Party shall be advised of all pertinent
facts concerning the situation in question. The
Indemnified Party will notify the Indemnifying Party
promptly after identifying any situation which it believes
presents or appears likely to present a claim for
indemnification against the Indemnifying Party although the
failure to do so shall not prevent recovery by the
Indemnified Party. The Indemnifying Party shall have the
option to defend the Indemnified Party against any Claim
which may be the subject of this indemnification, and, in
the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the
Indemnifying Party and satisfactory to the Indemnified
Party, and thereupon the Indemnifying Party shall take over
complete defense of the Claim and the Indemnified Party
shall sustain no further legal or other expenses in respect
of such Claim. The Indemnified Party will not confess any
Claim or make any compromise in any case in which the
Indemnifying Party will be asked to provide
indemnification, except with the Indemnifying Party's prior
written consent. The obligations of the parties hereto
under this Section shall survive the termination of this
Agreement.
14. Consequential Damages. In no event and under no
circumstances shall either party under this Agreement be
liable to the other party for indirect loss of profits,
reputation or business or any other special damages under
any provision of this Agreement or for any act or failure
to act hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the
date first written above and shall continue until September
2, 1994, and thereafter shall automatically continue for
successive annual periods ending on the anniversary of the
date first written above, provided that it may be
terminated by either party upon written notice given at
least 60 days prior to termination.
(b) In the event a termination notice is given
by
the Fund, it shall be accompanied by a resolution of the
Board of Directors, certified by the Secretary of the Fund,
designating a successor transfer agent or transfer agents.
Upon such termination and at the expense of the Fund, the
Transfer Agent will deliver to such successor a certified
list of shareholders of the Fund (with names and
addresses), and all other relevant books, records,
correspondence and other Fund records or data in the
possession of the Transfer Agent, and the Transfer Agent
will cooperate with the Fund and any successor transfer
agent or agents in the substitution process.
16. Confidentiality. Both parties hereto agree that
any non public information obtained hereunder concerning
the other party is confidential and may not be disclosed to
any other person without the consent of the other party,
except as may be required by applicable law or at the
request of the Commission or other governmental agency.
The parties further agree that a breach of this provision
would irreparably damage the other party and accordingly
agree that each of them is entitled, without bond or other
security, to an injunction or injunctions to prevent
breaches of this provision.
17. Amendment. This Agreement may only be amended or
modified by a written instrument executed by both parties.
18. Subcontracting. The Fund agrees that the
Transfer Agent may, in its discretion, subcontract for
certain of the services described under this Agreement or
the Schedules hereto; provided that the appointment of any
such Transfer Agent shall not relieve the Transfer Agent of
its responsibilities hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other instrument
authorized or required by this Agreement to be given in
writing to the Fund or the Transfer Agent, shall be
sufficiently given if addressed to that party and received
by it at its office set forth below or at such other place
as it may from time to time designate in writing.
To the Fund: To the Transfer Agent:
Smith Barney Municipal Fund, Inc First Data
Services Group, Inc
388 Greenwich Street, 22 Floor One Exchange
Place
New York, NY 10013 53 State Street
Attention:Heath B. McLendon Boston,
Massachusetts 02109
.
(b) Successors. This Agreement shall extend to
and shall be binding upon the parties hereto, and their
respective successors and assigns, provided, however, that
this Agreement shall not be assigned to any person other
than a person controlling, controlled by or under common
control with the assignor without the written consent of
the other party, which consent shall not be unreasonably
withheld.
(c) Governing Law. This Agreement shall be
governed exclusively by the laws of the State of New York
without reference to the choice of law provisions thereof.
Each party hereto hereby agrees that (i) the Supreme Court
of New York sitting in New York County shall have exclusive
jurisdiction over any and all disputes arising hereunder;
(ii) hereby consents to the personal jurisdiction of such
court over the parties hereto, hereby waiving any defense
of lack of personal jurisdiction; and (iii) appoints the
person to whom notices hereunder are to be sent as agent
for service of process.
(d) Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall
be deemed to be an original; but such counterparts shall,
together, constitute only one instrument.
(e) Captions. The captions of this Agreement
are included for convenience of reference only and in no
way define or delimit any of the provisions hreof or
otherwise affect their construction or effect.
(f) Use of Transfer Agent's Name. The Fund
shall not use the name of the Transfer Agent in any
Prospectus, Statement of Additional Information,
shareholders' report, sales literature or other material
relating to the Fund in a manner not approved prior thereto
in writing; provided, that the Transfer Agent need only
receive notice of all reasonable uses of its name which
merely refer in accurate terms to its appointment hereunder
or which are required by any government agency or
applicable law or rule. Notwithstanding the foregoing, any
reference to the Transfer Agent shall include a statement
to the effect that it is a wholly owned subsidiary of First
Data Corporation.
(g) Use of Fund's Name. The Transfer Agent
shall not use the name of the Fund or material relating to
the Fund on any documents or forms for other than internal
use in a manner not approved prior thereto in writing;
provided, that the Fund need only receive notice of all
reasonable uses of its name which merely refer in accurate
terms to the appointment of the Transfer Agent or which are
required by any government agency or applicable law or
rule.
(h) Independent Contractors. The parties agree
that they are independent contractors and not partners or
coventurers.
(i) Entire Agreement; Severability. This
Agreement and the Schedules attached hereto constitute the
entire agreement of the parties hereto relating to the
matters covered hereby and supersede any previous
agreements. If any provision is held to be illegal,
unenforceable or invalid for any reason, the remaining
provisions shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed by their duly
authorized officers, as of the day and year first above
written.
SMITH BARNEY MUNICIPAL FUND, INC. FIRST DATA SERVICES
GROUP, INC.
By: _______________ By:
_______________________
Heath B. McLendon Michael
G. McCarthy
President Vice
President
Transfer Agent Fee/Schedule A
Class A shares
The Fund shall pay the Transfer Agent an annualized fee of
$11.00 per shareholder account that is open during any
monthly period. Such fee shall be billed by the Transfer
Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during
such a month.
The Fund shall pay the Transfer Agent an additional fee of
$.125 per closed account per month applicable to those
shareholder accounts which close in a given month and
remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent
monthly in arrears.
Class B shares
The Fund shall pay the Transfer Agent an annualized fee of
$12.50 per shareholder account that is open during any
monthly period. Such fee shall be billed by the Transfer
Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during
such a month.
The Fund shall pay the Transfer Agent an additional fee of
$.125 per closed account per month applicable to those
shareholder accounts which close in a given month and
remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent
monthly in arrears.
Class C shares
The Fund shall pay the Transfer Agent an annualized fee of
$8.50 per shareholder account that is open during any
monthly period. Such fee shall be billed by the Transfer
Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during
such a month.
The Fund shall pay the Transfer Agent an additional fee of
$.125 per closed account per month applicable to those
shareholder accounts which close in a given month and
remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent
monthly in arrears.
Class D shares
The Fund shall pay the Transfer Agent an annualized fee of
$9.50 per shareholder account that is open during any
monthly period. Such fee shall be billed by the Transfer
Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during
such a month.
The Fund shall pay the Transfer Agent an additional fee of
$.125 per closed account per month applicable to those
shareholder accounts which close in a given month and
remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent
monthly in arrears.
Out-of-Pocket Expenses/Schedule B
The Fund shall reimburse the Transfer Agent monthly
for applicable out-of-pocket expenses, including, but not
limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates,
envelopes, checks and stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding,
first class) direct pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs,
including all lease, maintenance and line
costs
- Proxy solicitations, mailings and
tabulations - Daily & Distribution advice
mailings
- Shipping, Certified and Overnight mail and
insurance
- Year-end form production and mailings
- Terminals, communication lines, printers
and other equipment and any
expenses incurred in connection with such
terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction
costs, including, but not
limited to exit fees charged by third party
record keeping vendors
- Third party audit reviews
- Insurance
- Such other miscellaneous expenses
reasonably incurred by the Transfer
Agent in performing its duties and
responsibilities under this Agreement.
The Fund agrees that postage and mailing expenses
will be paid on the day of or prior to mailing as agreed
with the Transfer Agent. In addition, the Fund will
promptly reimburse the Transfer Agent for any other
unscheduled expenses incurred by the Transfer Agent
whenever the Fund and the Transfer Agent mutually agree
that such expenses are not otherwise properly borne by the
Transfer Agent as part of its duties and obligations under
the Agreement.
Duties of the Transfer Agent/Schedule C
1. Shareholder Information. The Transfer Agent or
its agent shall maintain a record of the number of Shares
held by each holder of record which shall include name,
address, taxpayer identification and which shall indicate
whether such Shares are held in certificates or
uncertificated form.
2. Shareholder Services. The Transfer Agent or
its
agent will investigate all inquiries from shareholders of
the Fund relating to Shareholder accounts and will respond
to all communications from Shareholders and others
relating to its duties hereunder and such other
correspondence as may from time to time be mutually agreed
upon between the Transfer Agent and the Fund. The
Transfer Agent shall
provide the Fund with reports concerning shareholder
inquires and the responses thereto by the Transfer Agent,
in such form and at such times as are agreed to by the
Fund and the Transfer Agent.
3. Share Certificates.
(a) At the expense of the Fund, it shall supply
the Transfer Agent or its agent with an adequate supply of
blank share certificates to meet the Transfer Agent or its
agent's requirements therefor. Such Share certificates
shall be properly signed by facsimile. The Fund agrees
that, notwithstanding the death, resignation, or removal
of any officer of the Fund whose signature appears on such
certificates, the Transfer Agent or its agent may continue
to countersign certificates which bear such signatures
until otherwise directed by Written Instructions.
(b) The Transfer Agent or its agent shall issue
replacement Share certificates in lieu of certificates
which have been lost, stolen or destroyed, upon receipt by
the Transfer Agent or its agent of properly executed
affidavits and lost certificate bonds, in form
satisfactory to the Transfer Agent or its agent, with the
Fund and the Transfer Agent or its agent as obligees under
the bond.
(c) The Transfer Agent or its agent shall also
maintain a record of each certificate issued, the number
of Shares represented thereby and the holder of record.
With respect to Shares held in open accounts or
uncertificated form, i.e., no certificate being issued
with respect thereto, the Transfer Agent or its agent
shall maintain comparable records of the record holders
thereof, including their names, addresses and taxpayer
identification. The Transfer Agent or its agent shall
further maintain a stop transfer record on lost and/or
replaced certificates.
4. Mailing Communications to Shareholders; Proxy
Materials. The Transfer Agent or its agent will address
and mail to Shareholders of the Fund, all reports to
Shareholders, dividend and distribution notices and proxy
material for the Fund's meetings of Shareholders. In
connection with meetings of Shareholders, the Transfer
Agent or its Agent will prepare Shareholder lists, mail
and certify as to the mailing of proxy materials, process
and tabulate returned proxy cards, report on proxies voted
prior to meetings, act as inspector of election at
meetings and certify Shares voted at meetings.
5. Sales of Shares
(a) Suspension of Sale of Shares. The Transfer
Agent or its agent shall not be required to issue any
Shares of the Fund where it has received a Written
Instruction from the Fund or official notice from any
appropriate authority that the sale of the Shares of the
Fund has been suspended or discontinued. The existence of
such Written Instructions or such official notice shall be
conclusive evidence of the right of the Transfer Agent or
its agent to rely on such Written Instructions or official
notice.
(b) Returned Checks. In the event that any
check or other order for the payment of money is returned
unpaid for any reason, the Transfer Agent or its agent
will: (i) give prompt notice of such return to the Fund
or its designee; (ii) place a stop transfer order against
all
Shares issued as a result of such check or order; and
(iii) take such actions as the Transfer Agent may from
time to time deem appropriate.
6. Transfer and Repurchase
(a) Requirements for Transfer or Repurchase of
Shares. The Transfer Agent or its agent shall process all
requests to transfer or redeem Shares in accordance with
the transfer or repurchase procedures set forth in the
Fund's Prospectus.
The Transfer Agent or its agent will transfer or
repurchase Shares upon receipt of Oral or Written
Instructions or otherwise pursuant to the Prospectus and
Share certificates, if any, properly endorsed for transfer
or redemption, accompanied by such documents as the
Transfer Agent or its agent reasonably may deem necessary.
The Transfer Agent or its agent reserves the
right to refuse to transfer or repurchase Shares until it
is satisfied that the endorsement on the instructions is
valid and genuine. The Transfer Agent or its agent also
reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the requested transfer
or repurchase is legally authorized, and it shall incur no
liability for the refusal, in good faith, to make
transfers or repurchases which the Transfer Agent or its
agent, in its good judgement, deems improper or
unauthorized, or until it is reasonably satisfied that
there is no basis to any claims adverse to such transfer
or repurchase.
(b) Notice to Custodian and Fund. When Shares
are redeemed, the Transfer Agent or its agent shall, upon
receipt of the instructions and documents in proper form,
deliver to the Custodian and the Fund or its designee a
notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected
on appropriate accounts maintained by the Transfer Agent
or its agent reflecting outstanding Shares of the Fund and
Shares attributed to individual accounts.
(c) Payment of Repurchase Proceeds. The
Transfer Agent or its agent shall, upon receipt of the
moneys paid to it by the Custodian for the repurchase of
Shares, pay such moneys as are received from the
Custodian, all in accordance with the procedures described
in the written instruction received by the Transfer Agent
or its agent from the Fund.
The Transfer Agent or its agent shall not
process or effect any repurchase with respect to Shares of
the Fund after receipt by the Transfer Agent or its agent
of notification of the suspension of the determination of
the net asset value of the Fund.
7. Dividends
(a) Notice to Agent and Custodian. Upon the
declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with
respect to Shares of the Fund, the Fund shall furnish or
cause to be furnished to the Transfer Agent or its agent a
copy of a resolution of the Fund's Board of Directors
certified by the Secretary of the Fund setting forth the
date of the declaration of such dividend or distribution,
the ex-dividend date, the date of payment thereof, the
record date as of which shareholders entitled to payment
shall be determined, the amount payable per Share to the
shareholders of record as of that date, the total amount
payable to the Transfer Agent or its agent on the payment
date and whether such dividend or distribution is to be
paid in Shares of such class at net asset value.
On or before the payment date specified in such
resolution of the Board of Directors, the Custodian of the
Fund will pay to the Transfer Agent sufficient cash to
make payment to the shareholders of record as of such
payment date.
(b) Insufficient Funds for Payments. If the
Transfer Agent or its agent does not receive sufficient
cash from the Custodian to make total dividend and/or
distribution payments to all shareholders of the Fund as
of the record date, the Transfer Agent or its agent will,
upon notifying the Fund, withhold payment to all
Shareholders of record as of the record date until
sufficient cash is provided to the Transfer Agent or its
agent.
Exhibit 1 to Schedule C/Summary of Services
The services to be performed by the Transfer Agent or
its agent shall be as follows:
A. DAILY RECORDS
Maintain daily the following information with
respect to each Shareholder account as received:
o Name and Address (Zip Code)
o Class of Shares
o Taxpayer Identification Number
o Balance of Shares held by Agent
o Beneficial owner code: i.e., male,
female,
joint tenant, etc.
o Dividend code (reinvestment)
o Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
o Answer written inquiries relating to
Shareholder accounts (matters relating to portfolio
management, distribution of Shares and other management
policy questions will be
referred to the Fund).
o Process additional payments into
established
Shareholder accounts in accordance with Written
Instruction from the Agent.
o Upon receipt of proper instructions and all
required documentation, process requests for repurchase of
Shares.
o Identify redemption requests made with
respect to accounts in which Shares have been purchased
within an agreed-upon period of time for determining
whether good funds have been collected with respect to
such purchase and process as agreed by the Agent in
accordance with written instructions set forth by the
Fund.
o Examine and process all transfers of
Shares,
ensuring that all transfer requirements and legal
documents
have been supplied.
o Issue and mail replacement checks.
o Open new accounts and maintain records of
exchanges between accounts
C. DIVIDEND ACTIVITY
o Calculate and process Share dividends and
distributions as instructed by the Fund.
o Compute, prepare and mail all necessary
reports to Shareholders or various authorities as
requested by the Fund. Report to the Fund reinvestment
plan share purchases and determination of the reinvestment
price.
D. MEETINGS OF SHAREHOLDERS
o Cause to be mailed proxy and related
material
for all meetings of Shareholders. Tabulate returned
proxies (proxies must be adaptable to mechanical equipment
of the Agent or its agents) and supply daily reports when
sufficient proxies have been received.
o Prepare and submit to the Fund an Affidavit
of Mailing.
o At the time of the meeting, furnish a
certified list of Shareholders, hard copy, microfilm or
microfiche and, if requested by the Fund, Inspection of
Election.
E. PERIODIC ACTIVITIES
o Cause to be mailed reports, Prospectuses, and
any
other enclosures requested by the Fund (material must be
adaptable to mechanical equipment of Agent or its agents).
o Receive all notices issued by the Fund with
respect to the Preferred Shares in accordance with and
pursuant to the Articles of Incorporation and the
Indenture and perform such other specific duties as are
set forth in the Articles of Incorporation including a
giving of notice of a special meeting and notice of
redemption in the circumstances and otherwise in
accordance with all relevant provisions of the Articles of
Incorporation.
Independent Auditors' Consent
To the Shareholders and Directors of the
Smith Barney Municipals Fund, Inc.:
We consent to the use of our report dated February 2,
1996 incorporated herein by reference and to the
references to our Firm under the headings "Financial
Highlights" in the Prospectus.
KPMG Peat
Marwick LLP
New York, New York
March 21, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> SMITH BARNEY INTERMEDIATE MUNICIPAL FUND,INC.
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<NET-CHANGE-FROM-OPS> 10,871,226
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<DISTRIBUTIONS-OF-INCOME> (4,973,331)
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