Smith Barney
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MUNICIPAL FUND, INC.
Semi-Annual Report
June 30, 1998
<PAGE>
Smith Barney
Municipal
Fund Inc.
[PHOTO OMITTED] [PHOTO OMITTED]
HEATH B. MCLENDON PETER M. COFFEY
Chairman Vice President
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the Smith Barney
Municipal Fund, Inc. ("Fund") for the period ended June 30, 1998. During the
past six months, the Fund distributed income dividends totaling $0.41 per share.
The table below shows the annualized distribution rates and six-month total
returns based on the Fund's June 30, 1998 net asset value ("NAV") per share and
its American Stock Exchange ("AMEX") closing share price.
Price Annualized Six-Month
Per Share Distribution Rate* Total Return
--------- ------------------ ------------
$15.79 (NAV) 5.02% 2.51%
$15.063 (AMEX) 5.26% 4.13%
In comparison, closed-end municipal bond funds posted an average total return of
2.67% based on NAV for the same period, according to Lipper Analytical Services,
Inc. (Lipper is a major fund tracking organization.)
Investment Strategy
The Fund's investment objective is to provide as high a level of current income
exempt from federal income taxes as is consistent with prudent investment
management. We continue to follow an investment strategy that emphasizes
high-quality, high coupon issues. In addition, we ladder the maturity and call
structure of the Fund's portfolio in an attempt to provide a consistent stream
of income.
As a fund investing primarily in intermediate-term municipal bonds, the Fund
must invest at least 80% of its total assets in municipal bonds that have
remaining maturities of less than 15 years. During the reporting period, we
maintained the Fund's average weighted maturity at roughly 11.96 years. In
addition, in accordance with the Fund's investment policies, we maintained a
high credit quality orientation. As of June 30, 1998, approximately 90% of the
Fund's holdings were rated investment grade with about 39.1% of the Fund's
investments rated triple-A. (Investment-grade bonds are those rated in one of
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* This distribution assumes that the current monthly income dividend rate of
$0.066 per share will be paid for twelve months.
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Smith Barney Municipal Fund, Inc. 1
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the four highest ratings categories by any nationally recognized statistical
rating organization, or determined by the manager to be of equivalent quality.)
A major portion of the Fund's assets was allocated among the following types of
municipal bond issues at June 30, 1998: hospital bonds (17.2%), education bonds
(12.2%), industrial development bonds (11.4%), and multi-family housing bonds
(8.8%).
Municipal Bond Market Update
During the six months covered by this report, the domestic bond market's
performance was influenced primarily by a healthy economy with low inflation and
the uncertainties that continue to cloud many of the world's major stock
markets. Despite robust consumer demand and labor shortages in many areas,
consumer prices remained fairly stable while wholesale prices for many key
commodities, particularly oil, actually fell.
Just fifteen months ago, Federal Reserve Board Chairman Alan Greenspan warned
against what he viewed as "irrational exuberance" in financial markets. Since
that time, the economy has continued to expand, the stock market has soared to
even greater heights and the unemployment rate touched historic lows. Yet,
inflation has remained subdued. In a widely expected action, Federal Reserve
("Fed") policy-makers emerged from their July 1, 1998 meeting with no decision
and let stand the 5.5% federal-funds rate, which has remained unchanged since
March 1997. (The federal-funds rate is the interest rate banks charge each other
for overnight loans and a closely watched indicator of the direction of interest
rates.) While the Fed's motivation for its decision is not yet known, persistent
weakness in Asian economies has undoubtedly made the Fed more cautious in its
monetary policy.
Since the Asia crisis first began last summer, many investors began to shift
their attention towards "safe haven" investments such as U.S. Treasury
securities. This renewed demand helped push the yield on the bellwether 30-year
U.S. Treasury bond, which moves in the opposite direction of its price, to a
record low of 5.58% on June 15, 1998.
Foreign investors, who do not benefit from the tax advantages of municipal
bonds, have been substantial buyers of U.S. Treasury notes and bonds. So far,
municipal bonds have not fully participated in this market rally and,
consequently, the yield spread between U.S. Treasury securities and municipal
bonds has narrowed.
For example, the yield on 30-year U.S. Treasury bonds fell from 5.93% to 5.63%
during the reporting period. Municipal bond yields have also declined, but not
as sharply. According to the Bond Buyer 25-Bond Revenue Index, municipal bond
yields have only fallen from 5.41% at the beginning of January to 5.36% on June
25, 1998.
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2 1998 Semi-Annual Report to Shareholders
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One result of these historically low interest rates has been a record volume of
municipal bond issuance. In the first half of 1998 alone, more than $146 billion
of bonds were sold, representing an increase of roughly 50% from the same period
last year. Many municipalities took advantage of the low interest rates by
refinancing older, higher-coupon bonds. Moreover, the strength of the economy
has filled state coffers and increased their debt capacity while the economic
expansion has accelerated demand for more infrastructure improvements, many of
which have been on hold in an era of fiscal conservatism.
While municipal bonds have tended to lag the taxable bond market, we believe
this has created investment opportunities in the tax-exempt bond market. The
massive issuance volume that we have witnessed recently has helped keep
municipal bond yields from falling as much as their taxable counterparts. As
noted above, this yield differential has narrowed in recent weeks and as of June
30, 1998, long-term municipal bonds yielded as much as roughly 95% of 30-year
U.S. Treasury bonds. While this narrowing of yield differential between
municipals and U.S. Treasury bonds is less pronounced in the intermediate
maturity ranges, many municipal issues currently offer an after tax yield
advantage over many other taxable fixed-income investments, especially for
investors in the 28% and higher tax brackets.
Municipal Bond Market Outlook
We remain optimistic on the prospects for the municipal bond market in the
coming months. We believe our positive outlook is supported by the following
factors:
o The full impact of the Asian crisis on the U.S. economy has yet to be
realized. As Asian companies attempt to recover, domestic companies will
face fierce competition and that will tend to hold prices down and help to
contain any emerging inflationary pressures. Moreover, there exists a
significant possibility that the Asian economic and financial recovery
will take longer than many investment professionals currently anticipate,
therefore extending the disinflationary influence on the U.S. economy.
o The rate of inflation remains historically low.
o The reduction of the federal budget, which should also reduce the need for
federal borrowing.
In addition, municipal bonds may be a safe haven in a potentially volatile stock
market.
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Smith Barney Municipal Fund, Inc. 3
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Thank you for investing in the Smith Barney Municipal Fund, Inc. We look forward
to continuing to help you pursue your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman Vice President
July 9, 1998
Shareholder Notice
On a more somber note, we report with much sadness the passing of Emeritus
Director C. Richard Youngdahl on August 6, 1998. Dick made many valuable
contributions to the Board and the Fund during his tenure and he will be missed.
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4 1998 Semi-Annual Report to Shareholders
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Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that fund investors who reinvest their dividends are taking
advantage of one of the most effective wealth-building tools available today?
Systematic investments put time to work for you through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend Reinvestment
Plan ("Plan"), a convenient, simple and efficient way to reinvest your dividends
and capital gains distributions, if any, in additional shares of the Fund. The
Fund's complete Plan begins on page 22. Below is a short summary of how the Plan
works.
Plan Summary
If you are a Plan participant who has not elected to receive your dividends in
the form of a cash payment, then your dividend and capital gain distributions
will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a cash
dividend is determined in the following manner. If the market price of the
common stock is equal to or exceeds the net asset value ("NAV") per share on the
date of valuation, you will be issued shares for the equivalent of the most
recently determined NAV per share or 95% of the market price, whichever is
greater.
If the NAV per share at the time of valuation is greater than the market price
of the common stock, or if the Fund declares a dividend or capital gains
distribution payable only in cash, the Fund will buy common stock for your
account in the open market or on the American Stock Exchange.
If the Fund begins to purchase additional shares in the open market and the
market price of the shares subsequently rises above the NAV before the purchases
are completed, the Fund will attempt to cancel any remaining orders and issue
the remaining dividend or distribution in shares at the Fund's NAV per share. In
that case, the number of Fund shares you receive will be based on the weighted
average of prices paid for shares purchased in the open market and the price at
which the Fund issues the remaining shares.
To find out more detailed information about the Plan and about how you can
participate, please call First Data Investors Services Group at (800) 331-1710.
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Smith Barney Municipal Fund, Inc. 5
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Schedule of Investments (Unaudited) June 30, 1998
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
===============================================================================================
<S> <C> <C> <C>
Education -- 12.2%
$1,000,000 Aa2* Arizona Education Loan Corp., 6.625% due 9/1/05(a) $1,071,250
1,000,000 AAA Bastrop, TX Independent School District,
Capital Appreciation, PSFG, zero coupon due 2/15/22 290,000
565,000 AAA Du Page County, IL School District No. 041, Glen Ellyn,
Capital Appreciation, FGIC-Insured, zero coupon due 2/1/17 214,700
1,000,000 AAA Keller, TX Independent School District, PSFG,
zero coupon due 8/15/16 393,750
Lago Vista, TX Independent School District,
Capital Appreciation, PSFG:
1,075,000 Aaa* Zero coupon due 8/15/15 447,469
1,075,000 Aaa* Zero coupon due 8/15/21 319,812
1,000,000 Aaa* Lake & McHenry Counties, IL Community School District No. 118,
Capital Appreciation, FGIC-Insured, zero coupon due 2/1/11 540,000
1,000,000 AAA Metropolitan Government Nashville & Davidson County, TN
McHarry Medical College, AMBAC-Insured,
6.000% due 12/1/19 1,122,500
500,000 AAA Redford, Michigan School District, Refunding Bonds,
AMBAC-Insured, 5.000% due 5/1/22 496,250
1,145,000 AAA Stephenville, TX Independent School District, Capital
Appreciation, PSFG, zero coupon due 2/15/08 737,094
Utah State School District Finance Co-op Revenue Financing
Pool LOC Swiss Bank, (Special Mandatory Redemption
8/15/98 @ 100):
530,000 AA+ 8.375% due 2/15/10 532,311
470,000 AA+ 8.375% mandatory tender 2/15/07 471,918
500,000 AA+ 8.375% mandatory tender 2/15/09 502,050
Vermont State Colleges Revenue, Capital Appreciation:
500,000 A Zero coupon due 7/1/12 240,625
515,000 A Zero coupon due 7/1/13 233,681
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7,613,410
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Escrowed to Maturity(b) -- 13.4%
1,180,000 AAA Boston, MA Water & Sewer Community Revenue, Series A,
10.875% due 1/1/09, Sinking Fund Average Life 5/3/05(c) 1,612,175
705,000 AAA Illinois Health Facility Authority Revenue,
(Methodist Medical Center Project), 9.000% due 10/1/10,
Sinking Fund Average Life 4/1/03 861,862
920,000 AAA Jackson, TN Water and Sewer Revenue, 7.200% due 7/1/12,
Sinking Fund Average Life 1/25/06 1,066,050
475,000 AAA Lake County, OH Hospital Improvement Revenue,
Lake County Memorial Hospital, 8.625% due 11/1/09,
Sinking Fund Average Life 10/31/04 588,406
1,310,000 NR Los Angeles, CA Hollywood Presbyterian Medical Center,
9.625% due 7/1/13, Sinking Fund Average Life 2/28/08(c) 1,750,488
210,000 AAA Louisiana Public Facilities, Southern Baptist Hospital,
8.000% due 5/15/12, Sinking Fund Average Life 6/18/06 255,675
245,000 Aaa* Nacogdoches County, TX Hospital District Revenue,
9.000% due 5/15/04, Sinking Fund Average Life 5/30/01 283,281
</TABLE>
See Notes to Financial Statements.
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6 1998 Semi-Annual Report to Shareholders
<PAGE>
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Schedule of Investments (Unaudited)(continued) June 30, 1998
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
===============================================================================================
<S> <C> <C> <C>
Escrowed to Maturity(b) -- 13.4% (continued)
$ 440,000 AAA New Jersey State Turnpike Authority Revenue Refunding Bond,
10.375% due 1/1/03, Sinking Fund Average Life 1/6/00(c) $ 509,300
740,000 AAA Ohio State Water Development Authority Revenue,
Safe Water Series 2, 9.375% due 12/1/10,
Sinking Fund Average Life 11/26/03 934,250
400,000 AAA Ringwood Borough, NJ Sewer Authority Special
Obligation Refunding, 9.875% due 7/1/13,
Sinking Fund Average Life 2/6/05 531,000
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8,392,487
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Finance -- 0.9%
545,000 A+ Tampa, FL Capital Improvement Program Revenue, Series B,
Den Danske Bank Royal, Trust Canada and Yasuda Trust,
8.000% due 10/1/02 549,017
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General Obligation -- 3.0%
500,000 AAA Anchorage, AK GO, FGIC-Insured, 6.000% due 10/1/14 562,500
1,000,000 AAA Chicago, IL Lakefront Millennium Parking Facilities,
MBIA-Insured, 5.000% due 1/1/13 1,001,250
290,000 Baa1* New Haven, CT GO, Unrefunded Balance,
Series B, 9.000% due 12/1/01 319,363
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1,883,113
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Hospital -- 17.2%
500,000 A2* Abingdon, VA Industrial Development Authority
Hospital Facilities Revenue Refunding,
Johnston Memorial Hospital, 5.000% due 7/1/10 503,750
615,000 BBB Allentown, PA Area Hospital Authority Revenue Refunding,
Sacred Heart Hospital, Series A, 6.200% due 11/15/03 658,050
650,000 AAA Calcasieu Parish, LA Memorial Hospital Service District Revenue
Refunding, Lake Charles Memorial Hospital,
Series A, CONNIE LEE-Insured, 7.500% due 12/1/05 768,625
1,500,000 A+ California Statewide Community Development
Authority Revenue, COP Refunding Hospital, Triad Healthcare,
6.250% due 8/1/06 1,670,625
1,300,000 A- Illinois Health Facilities Authority Revenue Friendship,
VLG Hospital, 6.650% due 12/1/06 1,391,000
1,200,000 BBB+ Klamath Falls, OR Intercommunity, Merle Hospital,
8.000% due 9/1/08 1,477,500
1,000,000 Ba3* Langhorne Manor Borough, PA Higher Education
and Health Authority Bucks County, Lower Bucks Hospital,
6.750% due 7/1/02 1,035,000
2,000,000 AAA Orange County, FL Health Facilities Authority Revenue,
Adventist Health System/Sunbelt, FSA-Insured, FLAIRS,
6.810% due 11/15/07(d) 2,165,000
1,000,000 AAA Pennsylvania State Higher Educational Facilities Authority,
Health Services Revenue, MBIA-Insured,
5.600% due 11/15/09 1,083,750
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10,753,300
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</TABLE>
See Notes to Financial Statements.
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Smith Barney Municipal Fund, Inc. 7
<PAGE>
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Schedule of Investments (Unaudited)(continued) June 30, 1998
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
===============================================================================================
<S> <C> <C> <C>
Housing: Multi-Family -- 8.8%
$1,100,000 Baa2* Dallas, TX Housing Corp. Capital Program Revenue Refunding,
Section 8 Assisted, 7.700% due 8/1/05,
Sinking Fund Average Life 9/2/03 $1,152,250
1,470,000 NR Lynchburg, VA Redevelopment & Housing Authority, Multi-Family
Housing Revenue Refunding, Princeton Circle Association,
6.250% due 12/1/10, Sinking Fund Average Life 9/24/07 1,523,287
Maricopa County, AZ Industrial Development Authority,
Multi-Family Housing Revenue:
1,000,000 AAA National Health Facilities II Project A, FSA-Insured,
5.500% due 1/1/18 1,050,000
300,000 AA Pines At Camelback Apartments Project A,
5.300% due 5/1/13 301,125
500,000 BBB+++ Montgomery County, PA Redevelopment Authority,
Multi-Family Housing Revenue, Series A, 6.375% due 7/1/12,
Sinking Fund Average Life 1/29/09 520,625
865,000 AAA Nevada Housing Division, Multi-Unit Housing Saratoga Palms,
6.250% due 10/1/16, Sinking Fund Average Life 8/8/12(a) 923,387
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5,470,674
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Housing: Single-Family -- 5.5%
215,000 A1* Ford County, KS Single-Family Mortgage Revenue
Refunding, Series A, FHA-Insured, 7.900% due 8/1/10 232,200
405,000 AA+ Juneau City and Borough, AK Home Mortgage Revenue Refunding,
Mortgage Backed Securities Program, FNMA-Collateralized,
FHA-Insured, 8.000% due 2/1/09 435,375
500,000 A-++ Lees Summit, MO IDA Health Facilities, Refunding and
Improvement Revenue, (John Knox Village Project),
7.125% due 8/15/12, Sinking Fund Average Life 8/15/05 533,750
145,000 Aa2* Montgomery County, MD Housing Opportunities Commission
Mortgage Revenue, Series A, 7.200% due 7/1/04 152,431
1,000,000 AAA Pima County, AZ Individual Development Authority,
Single-Family Mortgage Revenue, Series A, GNMA/FNMA-
Collateralized, step bond to yield 6.250% due 11/1/29(a) 1,061,250
960,000 AAA Utah State Housing Finance Agency, Single-Family Mortgage
Revenue, Series C-2, 6.000% due 7/1/17(a) 1,009,200
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3,424,206
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Industrial Development -- 11.4%
500,000 A2* Alaska Industrial Development & Export Authority Revenue,
6.100% due 4/1/06(a) 545,000
535,000 BB Bourbonnais, IL Industrial Development Revenue Refunding,
(K-Mart Corp. Project), 6.600% due 10/1/06 567,100
1,500,000 AA Des Moines, IA Industrial Development Refunding Revenue,
(The Printer Project 1992), LOC Norwest Bank,
6.375% due 9/1/09 1,563,750
</TABLE>
See Notes to Financial Statements.
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8 1998 Semi-Annual Report to Shareholders
<PAGE>
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Schedule of Investments (Unaudited)(continued) June 30, 1998
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
===============================================================================================
<S> <C> <C> <C>
Industrial Development -- 11.4% (continued)
$1,500,000 Baa1* Dickinson County, MI Economic Development Corp.,
Solid Waste Disposal Refunding Revenue,
Champion International, 6.550% due 3/1/07 $1,590,000
1,000,000 AA- LaCrosse, WI Resource Recovery Revenue,
(Northern States Power Co. Project), 6.000% due 11/1/21(a) 1,120,000
600,000 NR Sussex County, DE Economic Development Refunding
Revenue Bonds, (Rehoboth Mall Project), Series 1992,
7.250% due 10/15/12 642,000
1,000,000 BBB+ Toole County, UT Hazardous Waste Disposal Revenue,
Laidlaw Incineration, Series A, 6.750% due 8/1/10(a) 1,098,750
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7,126,600
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Miscellaneous -- 9.8%
1,885,000 AA Bernalillo County, NM Gross Receipts Tax Revenue Refunding,
5.200% due 4/1/21 1,929,769
1,000,000 BBB- Clarksville, TN Natural Gas Acquisition Corp. Gas Revenue,
Series A, 7.500% due 11/1/04 1,053,750
1,000,000 A Illinois Development Finance Authority Revenue,
City of East St. Louis, 6.875% due 11/15/05,
Sinking Fund Average Life 11/15/00 1,110,000
645,000 Baa1* Indianapolis, IN Economic Development Refunding and
Improvement Revenue, National Benevolent Association,
(Robin Run Village Project), 6.900% due 10/1/04 703,856
2,755,000 AAA Jefferson, LA Sales Tax District, Special Sales Tax
Revenue Refunding, Capital Appreciation, FSA-Insured,
zero coupon due 12/1/12 1,356,837
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6,154,212
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Pollution Control -- 4.3%
1,000,000 Aa3* Brazos River, TX Navigation Harbor District, Brazonia County,
PCR, (BASF Corp. Project), 6.750% due 2/1/10 1,198,750
665,000 A Broward County, FL Resource Recovery PCR,
North Project, 7.950% due 12/1/08 715,706
750,000 A- Port Umpqua, OR Pollution Control, (International Paper Co.
Projects), Industrial Revenue, Series B, 5.200% due 6/1/11 763,125
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2,677,581
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Pre-Refunded(e) -- 1.7%
540,000 Aaa* Philadelphia, PA Hospital Revenue (United Hospitals
Inc. Project), 10.875% due 7/1/08, (Call 7/1/05 @ 100),
Sinking Fund Average Life 6/1/02(c) 693,225
300,000 NR San Leandro, CA Redevelopment Agency Residential Mortgage
Revenue, 11.250% due 4/1/13, (Call 10/1/04 @ 100),
Sinking Fund Average Life 4/13/04(c) 400,125
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1,093,350
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</TABLE>
See Notes to Financial Statements.
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Smith Barney Municipal Fund, Inc. 9
<PAGE>
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Schedule of Investments (Unaudited)(continued) June 30, 1998
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
===============================================================================================
<S> <C> <C> <C>
Public Facilities -- 2.6%
$1,000,000 A- Dekalb County, IN Redevelopment Authority Revenue,
(Mini-Mill LOC Public Improvement Project), Series A,
6.250% due 1/15/08 $ 1,097,500
500,000 AAA Honolulu, Hawaii City & County, Tax & Lease Revenue,
Series B, FGIC-Insured, 5.500% due 11/1/10 538,750
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1,636,250
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Public Power Supply -- 2.4%
1,500,000 Aa1* Washington State Public Power Supply Systems Revenue,
(Nuclear Project No. 2), Series A, 5.000% due 7/1/12 1,492,500
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Short-Term(f) -- 2.1%
700,000 A-1+ Guadalupe-Blanco River Authority, Texas Pollution
Control Revenue Refunding, Central Power & Lighting
Company Project, 3.800% due 11/1/15 700,000
600,000 A-1+ Port St Helens, OR Pollution Control Revenue,
(Portland General Electric Company Project A),
4.250% due 8/1/14 600,000
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1,300,000
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Transportation -- 1.9%
500,000 Baa3* Raleigh-Durham, NC Airport Authority Special Facilities Revenue,
(American Airlines Inc. Project), 9.400% due 11/1/00 553,750
595,000 NR Sanford, FL Airport Authority IDR, (Central Florida
Terminals Project), Series B, 7.500% due 5/1/06(a) 653,013
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1,206,763
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Utilities -- 2.8%
500,000 AAA Eugene, OR Electric Utilities Revenue Refunding, FSA-Insured,
4.850% due 8/1/15 496,250
1,250,000 BB++ Union City, NJ Utility Authority Solid Waste
Revenue, Series A, 6.850% due 6/15/02(a)(c) 1,254,688
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1,750,938
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TOTAL INVESTMENTS -- 100%
(Cost-- $59,434,745**) $62,524,401
===============================================================================================
</TABLE>
(a) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(b) Bonds are escrowed to maturity with U.S. Government securities and are
considered by the Manager to be triple-A rated even if the issuer has not
applied for new ratings.
(c) Security segregated by custodian for open purchase committment.
(d) Inverse floating rate security-coupon varies inversely with level of
short-term tax-exempt interest rates.
(e) Bonds are escrowed with U.S. Government securities and are considered by
the Manager to be triple-A rated even if the issuer has not applied for
new ratings.
(f) Variable rate obligation payable at par on demand at any time on no more
than seven day notice.
** Aggregate cost for Federal income tax purposes is substantially the
same.
See pages 11 and 12 for definition of ratings and certain security
descriptions.
See Notes to Financial Statements.
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10 1998 Semi-Annual Report to Shareholders
<PAGE>
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Bond Ratings (unaudited)
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All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's"),
except those which are identified by an asterisk (*) are rated by Moody's
Investors Service, Inc. ("Moody's") and those identified by a double dagger (++)
are rated by Fitch IBCA, Inc. ("Fitch"). The definitions of the applicable
rating symbols are set forth below:
Standard & Poor's -- Ratings from "AA" to "BB" may be modified by the addition
of a plus (+) or a minus (-) sign to show relative standings within the major
rating categories.
AAA -- Bonds rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issue only in small
degree.
A -- Bonds rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB -- Bonds rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher rated categories.
BB -- Bonds rated "BB" are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation.
While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Moody's -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating
from "Aa" to "Ba," where 1 is the highest and 3 the lowest rating within its
generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally
strong position of these bonds.
Aa -- Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 11
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited) (continued)
- --------------------------------------------------------------------------------
Fitch -- Ratings may be modified by the addition of a plus (+) or minus (-) sign
to show relative standings within the major ratings categories.
BBB -- Bonds rated "BBB" by Fitch currently have a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to
impair this capacity. This is the lowest investment grade category
assigned by Fitch.
BB -- Bonds rated "BB" by Fitch carry the possibility of credit risk
developing, particularly as the result of adverse economic change
over time. Business or financial alternatives may, however, be
available to allow financial commitments to be met. Securities rated
in this category are not considered by Fitch to be investment grade.
NR -- Indicates that the bond is not rated by Standard & Poor's, Moody's
or Fitch.
- --------------------------------------------------------------------------------
Short-Term Securities Ratings (unaudited)
- --------------------------------------------------------------------------------
A-1 -- Standard & Poor's highest commercial paper rating indicating that
the degree of safety regarding timely payment is either overwhelming
or very strong. Those issuers determined to possess overwhelming
safety characteristics will be denoted with a plus (+) sign
designation.
VMIG 1 -- Moody's highest rating for issues having a demand feature--VRDO.
- --------------------------------------------------------------------------------
Security Descriptions (unaudited)
- --------------------------------------------------------------------------------
AMBAC -- AMBAC Indemnity Corporation
CGIC -- Capital Guaranty Insurance Company
CONNIE LEE -- College Construction Loan Insurance Association
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FLAIRS -- Floating Adjustable Interest Rate Securities
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation
IDA -- Industrial Development Agency
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
NBA -- National Benevolent Association
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund Guaranty
RIBS -- Residual Interest Bonds
- --------------------------------------------------------------------------------
12 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 1998
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $59,434,745) $ 62,524,401
Interest receivable 1,062,541
Receivable for securities sold 540,000
- --------------------------------------------------------------------------------
Total Assets 64,126,942
- --------------------------------------------------------------------------------
LIABILITIES:
Payable to bank 469,325
Dividends payable 109,689
Management fees payable 37,240
Accrued expenses 30,885
- --------------------------------------------------------------------------------
Total Liabilities 647,139
- --------------------------------------------------------------------------------
Total Net Assets $ 63,479,803
================================================================================
NET ASSETS:
Par value of capital shares $ 4,021
Capital paid in excess of par value 60,162,924
Overdistributed net investment income (67,729)
Accumulated net realized gain on security transactions 290,931
Net unrealized appreciation of investments 3,089,656
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $15.79 a share on 4,021,162 shares of
$0.001 par value outstanding; 100,000,000 shares authorized) $ 63,479,803
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 13
<PAGE>
- -------------------------------------------------------------------------------
Statement of Operations (unaudited)
- -------------------------------------------------------------------------------
For the Six Months Ended June 30, 1998
INVESTMENT INCOME:
Interest $1,859,235
- -------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 3) 220,290
Shareholder and system servicing fees 18,447
Shareholder communications 12,893
Audit and legal 6,545
Pricing service fees 5,059
Director's fees 2,876
Custody 2,083
Registration fees 1,240
Other 2,480
- -------------------------------------------------------------------------------
Total Expenses 271,913
- -------------------------------------------------------------------------------
Net Investment Income 1,587,322
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 4):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 28,433,427
Cost of securities sold 28,141,840
- -------------------------------------------------------------------------------
Net Realized Gain 291,587
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of Period 3,514,293
End of Period 3,089,656
- -------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (424,637)
- -------------------------------------------------------------------------------
Net Loss on Investments (133,050)
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations $1,454,272
===============================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1998 (unaudited)
and the Year Ended December 31, 1997
1998 1997
================================================================================
OPERATIONS:
Net investment income $ 1,587,322 $ 3,321,120
Net realized gain 291,587 743,293
Increase (decrease) in net unrealized
appreciation (424,637) 1,281,162
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 1,454,272 5,345,575
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income (1,652,701) (3,398,185)
In excess of net investment income -- (29,719)
Net realized gains -- (251,463)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (1,652,701) (3,679,367)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (198,429) 1,666,208
NET ASSETS:
Beginning of period 63,678,232 62,012,024
- --------------------------------------------------------------------------------
End of period* $ 63,479,803 $ 63,678,232
================================================================================
* Includes overdistributed net investment
income of: $ (67,729) $ (2,350)
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Municipal Fund, Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on the trade date; (b) securities
are valued at the mean between bid and ask prices provided by an independent
pricing service that are based on transactions in municipal obligations,
quotations from municipal bond dealers, market transactions in comparable
securities and various relationships between securities; (c) securities maturing
within 60 days are valued at cost plus accreted discount or minus amortized
premium, which approximates value; (d)Egains or losses on the sale of securities
are calculated by using the specific identification method; (e)Einterest income,
adjusted for amortization of premium and accretion of original issue discount,
is recorded on the accrual basis; market discount is recognized upon the
disposition of the security; (f)Edividends and distributions to shareholders are
recorded on the ex-dividend date; (g) the Fund intends to comply with the
applicable provisions of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
andEexcise taxes; (h)Ethe character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At December 31, 1997,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Accordingly, a portion of overdistributed net investment
income and overdistributed net realized gains amounting to $27,849 and $1,870,
respectively, was reclassified to paid in capital. Net investment income, net
realized gains and net assets were not affected by this change; and
(i)Eestimates and assumptions areErequired to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ.
2. Exempt-Interest Dividends and Other Distributions
The Fund intends to satisfy conditions that will enable interest from municipal
securities, which is exempt from regular Federal income tax and from designated
state income taxes, to retain such tax-exempt status when distributed to the
shareholders of the Fund.
Capital gains distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
- --------------------------------------------------------------------------------
16 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
3. Management Agreement and Transactions with Affiliated Persons
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney Holdings
Inc., acts as investment manager to the Fund. As compensation for itsEservices,
the Fund pays MMC a fee calculated at the annual rate of 0.70% ofEthe Fund's
average daily net assets. This fee is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Smith Barney Inc.
4. Investments
For the six months ended June 30, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $23,741,328
- --------------------------------------------------------------------------------
Sales 28,433,427
================================================================================
At June 30, 1998, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 3,232,953
Gross unrealized depreciation (143,297)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 3,089,656
================================================================================
5. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. The initial margin is segregated by the custodian and is noted in the
schedule of investments. During the period the futures contract is open, changes
in the value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the contract
at the end of each day's trading. Variation margin payments are made or received
and recognized as assets due from or liabilities due to broker, depending upon
whether unrealized gains or losses are incurred. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the closing transactions and the Fund's basis in the
contract. The Fund enters into such contracts to hedge a portion of its
portfolio. The Fund bears the market risk that arises from changes in the value
of the financial instruments and securities indices (futures contracts).
At June 30, 1998, there were no open futures contracts.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
6. Options Contracts
Premiums paid when put or call options are purchased by the Fund represent
investments, which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are greater
or less than the premium paid for the option. When the Fund exercises a put
option, it will realize a gain or loss from the sale of the underlying security
and the proceeds from such sale will be decreased by the premium originally
paid. When the Fund exercises a call option, the cost of the security which the
Fund purchases upon exercise will be increased by the premium originally paid.
At June 30, 1998, there were no open purchased call or put options contracts.
When a Fund writes a covered call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into aEclosing
purchase transaction, the Fund realizes a gain or loss than the premium
originally received without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised, the cost of the security sold will be
decreased by the premium originally received. When a put option is exercised,
the amount of the premiumEoriginally received will reduce the cost of the
security which the Fund purchased upon exercise. When written index options are
exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Fund enters into options for hedging purposes. The risk in writing a
call option is that the Fund gives up the opportunity to participate in any
increase in the price of the underlying security beyond the exercise price. The
risk in writing a put option is that the Fund is exposed to the risk of a loss
if the market price of the underlying security declines.
During the six months ended June 30, 1998, the Fund had no open written options
contracts.
- --------------------------------------------------------------------------------
18 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
1998(1) 1997 1996 1995 1994 1993
==================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 15.84 $ 15.42 $ 15.75 $ 14.30 $ 15.85 $ 14.81
- ------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.39 0.83 0.84 0.83 0.84 0.84
Net realized and unrealized
gain (loss) (0.03) 0.50 (0.32) 1.47 (1.54) 1.00
- ------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.36 1.33 0.52 2.30 (0.70) 1.84
- ------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.41) (0.84) (0.85) (0.85) (0.85) (0.80)
In excess of net
investment income -- (0.01) -- -- -- --
Net realized gains -- (0.06) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total Distributions (0.41) (0.91) (0.85) (0.85) (0.85) (0.80)
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 15.79 $ 15.84 $ 15.42 $ 15.75 $ 14.30 $ 15.85
- ------------------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value* 4.13%++ 10.18% 11.02% 15.83% (12.96)% 14.30%
- ------------------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value* 2.51%++ 9.38% 3.96% 17.11% (4.09)% 12.82%
- ------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $63 $64 $62 $63 $58 $64
- ------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 0.86%+ 0.85% 0.90% 0.86% 0.86% 0.85%
Net investment income 5.03+ 5.31 5.45 5.48 5.59 5.42
- ------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 38% 58% 30% 21% 35% 23%
- ------------------------------------------------------------------------------------------------------------------
Market Price, End of Period $ 15.063 $ 14.875 $ 14.375 $ 13.750 $ 12.625 $ 15.375
==================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
* The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 19
<PAGE>
- --------------------------------------------------------------------------------
Financial Data (unaudited)
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
AMEX Net Asset Dividends Reinvestment
Period Closing Price* Value* Paid Price
================================================================================
1996
July $13.75 $15.25 $0.071 $13.76
August 14.00 15.19 0.071 14.02
September 14.25 15.30 0.071 14.32
October 13.75 15.37 0.071 13.89
November 14.50 15.53 0.071 14.51
December 14.38 15.42 0.071 14.38
1997
January 14.25 15.39 0.071 14.18
February 14.25 15.46 0.071 14.25
March 14.13 15.22 0.071 14.22
April 14.25 15.28 0.071 14.22
May 14.13 15.40 0.071 14.17
June 14.75 15.47 0.071 14.88
July 15.00 15.78 0.071 14.78
August 14.50 15.58 0.071 14.65
September 14.75 15.71 0.071 14.70
October 14.44 15.71 0.071 14.43
November 14.56 15.74 0.071 14.78
December 14.88 15.84 0.071 14.96
December+ 14.88 15.84 0.063 15.09
1998
January 15.25 15.91 0.0685 15.10
February 15.13 15.83 0.0685 14.98
March 14.38 15.76 0.0685 14.39
April 14.06 15.65 0.0685 14.28
May 14.50 15.77 0.0685 14.57
June 15.06 15.79 0.0685 15.06
================================================================================
* On the last business day of the month.
+ Capital gain distribution.
- --------------------------------------------------------------------------------
20 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Additional Shareholder Information (unaudited)
- --------------------------------------------------------------------------------
On April 24, 1998, the annual meeting of shareholders of the Fund was held for
the purpose of voting on the following matters:
1. To vote on the election of Paul Hardin, Roderick C. Rasmussen and John P.
Toolan as Directors; and
2. To approve or disapprove the selection of KPMG Peat Marwick LLP as the
independent auditors for the current fiscal year of the Fund.
The results of the vote on Proposal 1 were as follows:
% of Votes % of
Directors* Votes For Shares Voted Against Shares Voted
================================================================================
Paul Hardin 3,875,594 96.38% 39,873 0.99%
Roderick C. Rasmussen 3,875,604 96.38 39,863 0.99
John P. Toolan 3,876,994 96.42 38,473 0.96
================================================================================
The results of the vote on Proposal 2 were as follows.
% of Votes % of Votes % of
Votes For Shares Voted Against Shares Voted Abstained Shares Voted
================================================================================
3,873,958 96.34% 6,809 0.17% 34,700 0.86%
================================================================================
* The following Directors, representing the balance of the Board of
Directors, continue to serve: Donald R. Foley and Heath B. McLendon.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 21
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited)
- --------------------------------------------------------------------------------
Pursuant to the Fund's Dividend Reinvestment Plan ("Plan"), all distributions
are automatically reinvested by First Data Investor Services Group, Inc. as plan
agent ("Plan Agent"), in additional shares of its Common Stock ("Common Shares")
as provided below unless a shareholder elects to receive cash.
Distributions with respect to Common Shares registered in the name of a
broker-dealer or other nominee (i.e., in "street name") are reinvested by the
bro ker or nominee in additional Common Shares under the Plan, unless the
service is not provided by the broker or nominee. Investors who own Common
Shares registered in street name should consult their broker-dealer for details.
All dis tributions to shareholders who do not participate in the Plan are paid
by check mailed directly to the record holder by First Data Investor Services
Group, Inc., as dividend disbursing agent.
If the Fund declares a distribution payable either in Common Shares or in cash,
non participants in the Plan receive cash, and Plan participants receive the
equivalent in Common Shares valued in the following manner: whenever the market
price is equal to or exceeds the net asset value per share at the time Common
Shares are valued for the purpose of determining the number of Common Shares
equivalent to the cash distribution, participants are issued Com mon Shares
valued at the greater of (1) the net asset value most recently determined or (2)
95% of the then current market price of the Common Shares.
If the net asset value of the Common Shares at the time of valuation exceeds the
market price of the Common Shares, or if the Fund declares a distribution
payable only in cash, the Plan Agent buys Common Shares in the open market, on
the American Stock Exchange or elsewhere, for the participants' accounts. If,
following the commencement of purchases and before the Plan Agent has completed
its purchases the market price exceeds the net asset value of the Common Shares,
the Plan Agent is permitted to cease purchasing shares on the open market and
the Fund may issue the remaining share at a price equal to the greater of (a)
net asset value or (b) 95% of the then current market price. In a case where the
Plan Agent has terminated open market purchases and the Fund has issued the
remaining shares, the number of shares received by the par ticipant in respect
of the cash dividend or distribution will be based on the weighted average of
price paid for shares purchased in the open market and the price at which the
Fund issued the remaining shares. The Plan Agent applies all cash received as a
distribution to purchase Common Shares on the open market as soon as practicable
after the record date of the distribution, but in no event later than 30 days
after such date, except when necessary to comply with ap plica ble provisions of
the Federal securities laws.
- --------------------------------------------------------------------------------
22 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited) (continued)
- --------------------------------------------------------------------------------
Participants in the Plan may withdraw from the Plan upon written notice to the
Plan Agent which must be received at least ten business days prior to the dis
tri bu tion record date to become effective for that distribution. Shares in the
account of each Plan participant are held by the Plan Agent in non-certificated
form in the name of the Plan Agent or participant. When a participant with draws
from the Plan or upon termination of the Plan as provided below, certificates
for whole Fund shares credited to his or her account under the Plan are issued
and a cash payment is made for any fraction of a Fund share credited to such
account.
The automatic reinvestment of distributions does not relieve participants to any
Federal income tax that may be payable on such distributions.
The Fund does not charge participants for reinvesting distributions. Any Plan
Agent's fees for the handling of reinvestment of distributions under the Plan
are paid by the Fund. There are no brokerage charges with respect to Common
Shares issued directly by the Fund as a result of distributions payable either
in stock or in cash. However, each participant pays a pro rata share of
brokerage com missions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund and the Plan Agent reserve the right to amend the Plan as applied to
any distribution paid subsequent to written notice of the change sent to all
share holders of the Fund at least 30 days before the record date for the dis
tri bu tion. 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 cor res pon
dence con cern ing the Plan should be directed to the Plan Agent at First Data
Investor Services Group, Inc., P.O. Box 8030, Boston, Massachusetts 02266-8030.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 23
<PAGE>
(This page intentionally left blank)
<PAGE>
Smith Barney
------------
MUNICIPAL FUND, INC.
DIRECTORS
Donald R. Foley
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
Joseph H. Fleiss, Emeritus
OFFICERS
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Peter M. Coffey
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
INVESTMENT MANAGER
Mutual Management Corp.
CUSTODIAN
PNC Bank, N.A.
SHAREHOLDER
SERVICING AGENT
First Data Investor Services Group, Inc.
P.O. Box 8030
Boston, MA 02266-8030
This report is submitted for the general information of the shareholders of
Smith Barney Municipal Fund, Inc. It is not authorized for distribution to
prospective investors unless accompanied or preceded by a current Prospectus for
the Fund, which contains information concerning the Fund's investment policies
and expenses as well as other pertinent information.
SMITH BARNEY
MUNICIPAL FUND, INC.
388 Greenwich Street
New York, New York 10013
FD0624 8/98
