Smith Barney
--------------------
MUNICIPAL FUND, INC.
[GRAPHIC OMITTED]
Annual Report
December 31, 1998
<PAGE>
Smith Barney
Municipal
Fund Inc.
[PHOTO OMITTED] [PHOTO OMITTED]
HEATH B. PETER M.
MCLENDON COFFEY
Chairman Vice President
Dear Shareholder:
We are pleased to provide you with the annual re port for the Smith Barney
Municipal Fund, Inc. ("Fund") for the year ended December 31, 1998. During the
past twelve months, the Fund distributed income dividends totaling $0.81 per
share. The table below shows the annualized distribution rate and twelve-month
total return based on the Fund's December 31, 1998 net asset value ("NAV") per
share and its American Stock Exchange ("AMEX") closing price.
Price Annualized Twelve-Month
Per Share Distribution Rate* Total Return
--------------- ------------------ ------------
$15.82 (NAV) 4.78% 5.69%
$15.00 (AMEX) 5.04% 6.71%
The Fund's performance was roughly in-line with average total return of 5.80%
for closed-end municipal bond funds based on NAV for the same period, according
to Lipper, 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 order 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. From time to time, we may adjust the
average maturity of the Fund's portfolio, depending on our assessment of the
relative yields available on securities of different maturities and its
expectations of future changes in interest rates.
- ----------
* The annualized distribution rate assumes a current monthly income dividend
rate of $0.063 per share for twelve months.
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Smith Barney Municipal Fund, Inc. 1
<PAGE>
During the course of the year, we slightly lengthened the Fund's average
weighted maturity to 12.23 years. In addition, we significantly raised the
credit quality of the portfolio. As of December 31, 1998, approximately 96.4% of
the Fund's holdings were rated investment grade and roughly 50.2% of the Fund's
investments were rated triple-A.
A major portion of the Fund's assets were allocated among the following types of
municipal bond issues as of December 31, 1998: hospital bonds (18.1%), escrowed
to maturity bonds (13.0%) and education bonds (11.9%).
Municipal Bond Market Update
Municipal bond yields remained relatively unchanged during the reporting period
as an unusually heavy new issuance volume outpaced the demand for tax-exempt
investments. Low inflation, declining interest rates and a healthy U.S. economy
helped to fill state and local coffers and encouraged many of these issuers to
take advantage of historically low interest rates.
In contrast, U.S. Treasury bond yields fell dramatically over the course of the
Fund's fiscal year as many investors sought shelter from troubled overseas
markets. More than a year after the Asian crisis first broke, key Asian
economies, including Japan, have yet to deliver the necessary reforms to restore
investor confidence in the region. Moreover, the sudden collapse of Russia's
currency last summer cast a pall over other developing economies as fears of a
similar crisis in Brazil began to surface. As a result of this shift in investor
sentiment, long-term U.S. Treasury bond yields fell roughly 1% in the past year.
Because foreign investors, who do not benefit from tax-free bonds, were large
buyers of U.S. Treasury bonds, the sharp drop in their yields was not followed
in the municipal bond market. Under typical market conditions, municipal bonds
generally yield approximately 85% of similar-maturity U.S. Treasury securities.
However, at the close of the period, long-term municipal bonds yielded as much
as 100% of U.S. Treasury bonds. Intermediate-term municipal bonds yielded nearly
93% of similar maturity U.S. Treasury bonds, reflecting the steeper yield curve
of municipal bonds. (The yield curve shows the difference in yields between long
and shorter-term bonds.)
In order to help keep the U.S. economy moving, the Federal Reserve Board ("Fed")
lowered short-term interest rates by 0.75% in a series of actions over the
course of several weeks. Fed Chairman Alan Greenspan cited a potential credit
crunch as a major reason for monetary policy change. Growing uncertain ties in
the world's financial markets caused many creditors to avoid any perception of
risk and many high-quality companies suddenly encountered difficulty in securing
financing. The latest actions taken by the Fed helped calm concerned investors
and provided more liquidity to the banking system.
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2 1998 Annual Report to Shareholders
<PAGE>
Municipal Bond Market Outlook
We believe that the lack of inflationary pressures and a healthy U.S. economy
should continue to provide favorable conditions for municipal bonds. Despite
financial troubles in many parts of the world, a number of key U.S. economic
indicators continue to point to a growing U.S. economy. In our view, ongoing
global weakness and falling commodity prices should help to offset any upward
wage pressures. In addition, we believe that as financial markets began to
stabilize further, U.S. Treasury security prices should move closer to their
historical norm relative to municipal bonds. However, we also expect that the
heavy municipal bond issuance volume will likely continue in the coming year to
meet the demand for infrastructure improvements. We remain positive on the
prospects for municipal bonds and believe the Fund is well positioned for the
coming months.
Thank you for investing in the Smith Barney Municipal Fund, Inc. We encourage
you to visit our Web site at www.smithbarney.com. 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
February 3, 1999
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Smith Barney Municipal Fund, Inc. 3
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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. 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
determination date, you will be issued shares by the Fund at a price reflecting
the NAV, or 95% of the market price, whichever is greater.
If the market price is less than the NAV at the time of valuation (the close of
business on the determination date), or if the Fund declares a dividend or
capital gains distribution payable only in cash, First Data Investor Services
Group, Inc. (the "Plan Agent") will buy common stock for your account in the
open market.
If the Plan Agent begins to purchase additional shares in the open market and
the market price of the shares subsequently rises above the NAV previously
determined before the purchases are completed, the Plan Agent will attempt to
terminate purchases and have the Fund issue the remaining dividend or
distribution in shares at the greater of the previously determined NAV. 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.
Restated Plan Adopted
A more complete description of the current Plan appears in the section of this
report beginning on page 22. The descriptions in here are based on a restated
version of the Plan, which was recently adopted to reflect current practices of
the Plan Agent and for the purpose of standardizing the terms among all
closed-end mutual funds managed by Mutual Management Corp.
To find out more detailed information about the Plan and about how you can
participate, please call First Data Investor Services Group, Inc. at (800)
331-1710.
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4 1998 Annual Report to Shareholders
<PAGE>
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Schedule of Investments December 31, 1998
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Education -- 11.9%
$1,000,000 Aa2* Arizona Education Loan Corp., 6.625% due 9/1/05 (b) $1,078,750
1,000,000 AAA Bastrop, TX Independent School District, Capital
Appreciation, PSFG, zero coupon due 2/15/22 310,000
565,000 Aaa* Du Page County, IL School District No. 041, Glen Ellyn,
Capital Appreciation, FGIC-Insured, zero coupon due 2/1/17 225,294
1,000,000 AAA Keller, TX Independent School District, PSFG,
zero coupon due 8/15/16 416,250
Lago Vista, TX Independent School District, Capital
Appreciation, PSFG:
1,075,000 Aaa* Zero coupon due 8/15/15 474,344
1,075,000 Aaa* Zero coupon due 8/15/21 342,656
1,000,000 Aaa* Lake & McHenry Counties, IL Community School
District No. 118, Capital Appreciation, FGIC-Insured,
zero coupon due 2/1/11 566,250
1,000,000 AAA Metropolitan Government Nashville & Davidson County,
TN, McHarry Medical College, AMBAC-Insured,
6.000% due 12/1/19 1,131,250
500,000 AAA Redford, MI School District, Refunding Bonds,
AMBAC-Insured, 5.000% due 5/1/22 505,625
1,345,000 AAA Rhode Island State Health & Education Building Corp. Revenue,
Higher Education Facilities, Roger Williams University,
AMBAC-Insured, 5.125% due 11/15/11 1,412,250
1,145,000 AAA Stephenville, TX Independent School District, Capital
Appreciation, PSFG, zero coupon due 2/15/08 777,169
Vermont State Colleges Revenue, Capital Appreciation:
500,000 A Zero coupon due 7/1/12 248,125
515,000 A Zero coupon due 7/1/13 240,763
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7,728,726
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Escrowed to Maturity(c) -- 13.0%
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 (d) 1,623,975
650,000 AAA Illinois Health Facility Authority Revenue, (Methodist
Medical Center Project), 9.000% due 10/1/10,
Sinking Fund Average Life 3/31/05 805,188
920,000 AAA Jackson, TN Water & Sewer Revenue, 7.200% due 7/1/12,
Sinking Fund Average Life 9/30/06 1,085,600
450,000 AAA Lake County, OH Hospital Improvement Revenue,
Lake County Memorial Hospital, 8.625% due 11/1/09,
Sinking Fund Average Life 7/31/05 564,188
1,310,000 AAA Los Angeles, CA Hollywood Presbyterian Medical Center,
9.625% due 7/1/13, Sinking Fund Average Life 2/28/08 (d) 1,778,325
395,000 AAA Louisiana Public Facilities, Southern Baptist Hospital,
8.000% due 5/15/12, Sinking Fund Average Life 2/4/07 488,812
245,000 Aaa* Nacogdoches County, TX Hospital District Revenue,
9.000% due 5/15/04, Sinking Fund Average Life 3/31/02 283,281
290,000 AAA New Jersey State Turnpike Authority Revenue
Refunding Bond, 10.375% due 1/1/03,
Sinking Fund Average Life 8/16/01 333,137
</TABLE>
See Notes to Financial Statements.
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Smith Barney Municipal Fund, Inc. 5
<PAGE>
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Schedule of Investments (continued) December 31, 1998
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Escrowed to Maturity(c) -- 13.0% (continued)
$ 695,000 AAA Ohio State Water Development Authority Revenue,
Safe Water, Series 2, 9.375% due 12/1/10,
Sinking Fund Average Life 5/5/05 $ 882,650
400,000 AAA Ringwood Borough, NJ Sewer Authority Special
Obligation Refunding, 9.875% due 7/1/13,
Sinking Fund Average Life 2/28/05 539,000
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8,384,156
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General Obligation -- 6.2%
500,000 AAA Anchorage, AK, FGIC-Insured, 6.000% due 10/1/14 570,625
1,000,000 AAA Chicago, IL Board of Education, Capital Appreciation,
School Reform, Series B-1, FGIC-Insured,
zero coupon due 12/1/10 577,500
1,000,000 AAA Chicago, IL Lakefront Millennium Parking Facilities,
MBIA-Insured, 5.000% due 1/1/13 1,015,000
290,000 Baa1* New Haven, CT, Unrefunded Balance, Series B,
9.000% due 12/1/01 325,887
1,500,000 AAA Philadelphia, PA School District, Series A, MBIA-Insured,
5.250% due 4/1/13 1,558,125
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4,047,137
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Hospital -- 18.1%
500,000 A2* Abingdon, VA IDA Hospital Facilities Revenue Refunding,
Johnston Memorial Hospital, 5.000% due 7/1/10 514,375
530,000 BBB Allentown, PA Area Hospital Authority Revenue Refunding,
Sacred Heart Hospital, Series A, 6.200% due 11/15/03 564,450
1,000,000 Aaa* Amarillo, TX Health Facilities Corp., Baptist St. Anthony's
Hospital Corp., FSA-Insured, 5.500% due 1/1/11 1,078,750
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 (d) 778,375
1,500,000 A+ California Statewide Community Development Authority
Revenue, COP Refunding Hospital, Triad Healthcare,
6.250% due 8/1/06 1,683,750
1,300,000 A- Illinois Health Facilities Authority Revenue Friendship,
VLG Hospital, 6.650% due 12/1/06 1,381,250
1,200,000 BBB+ Klamath Falls, OR Intercommunity, Merle Hospital,
8.000% due 9/1/08 1,491,000
1,000,000 Ba3* Langhorne Manor Borough, PA Higher Education and
Health Authority, Bucks County, Lower Bucks Hospital,
6.750% due 7/1/02 1,030,000
2,000,000 AAA Orange County, FL Health Facilities Authority Revenue,
Adventist Health System/Sunbelt, FSA-Insured, FLAIRS,
6.370% due 11/15/07 (e) 2,170,000
1,000,000 AAA Pennsylvania State Higher Educational Facilities Authority,
Health Services Revenue, MBIA-Insured,
5.600% due 11/15/09 1,010,000
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11,701,950
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</TABLE>
See Notes to Financial Statements.
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6 1998 Annual Report to Shareholders
<PAGE>
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Schedule of Investments (continued) December 31, 1998
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Housing: Multi-Family -- 8.5%
$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 $1,145,375
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 1,515,937
Maricopa County, AZ IDA, Multi-Family Housing Revenue:
1,000,000 AAA National Health Facilities II Project A, FSA-Insured,
5.500% due 1/1/18 1,061,250
300,000 AA Pines At Camelback Apartments Project A,
5.300% due 5/1/13 303,750
500,000 BBB+++ Montgomery County, PA Redevelopment Authority,
Multi-Family Housing Revenue, Series A,
6.375% due 7/1/12, Sinking Fund Average Life 1/29/09 524,375
865,000 AAA Nevada Housing Division, Multi-Unit Housing Saratoga Palms,
6.250% due 10/1/16, Sinking Fund Average Life 8/8/12 (b) 927,712
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5,478,399
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Housing: Single-Family -- 4.8%
195,000 A1* Ford County, KS Single-Family Mortgage Revenue Refunding,
Series A, FHA-Insured, 7.900% due 8/1/10 208,894
300,000 AA+ Juneau City and Borough, AK Home Mortgage Revenue
Refunding, Mortgage Backed Securities Program,
FNMA-Collateralized, FHA-Insured, 8.000% due 2/1/09 319,500
500,000 A-++ Lees Summit, MO IDA Health Facilities, Refunding &
Improvement Revenue, (John Knox Village Project),
7.125% due 8/15/12, Sinking Fund Average Life 2/17/08 531,250
145,000 Aa2* Montgomery County, MD Housing Opportunities Commission
Mortgage Revenue, Series A, 7.200% due 7/1/04 151,344
810,000 AAA Pima County, AZ IDA, Single-Family Mortgage Revenue,
Series A, GNMA/FNMA-Collateralized,
step bond to yield 6.564% due 11/1/29 (b) 861,637
960,000 AAA Utah State Housing Finance Agency, Single-Family Mortgage
Revenue, Series C-2, 6.000% due 7/1/17 (b) 1,008,000
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3,080,625
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Industrial Development -- 10.9%
500,000 A2* Alaska Industrial Development & Export Authority Revenue,
6.100% due 4/1/06 (b) 550,625
535,000 BB Bourbonnais, IL IDR Refunding, (KMart Corp. Project),
6.600% due 10/1/06 569,775
1,500,000 AA- Des Moines, IA IDR Refunding, (The Printer Project 1992),
LOC Norwest Bank, 6.375% due 9/1/09 1,563,750
1,500,000 Baa1* Dickinson County, MI Economic Development Corp., Solid
Waste Disposal Refunding Revenue, Champion International,
6.550% due 3/1/07 1,575,000
1,000,000 AA- LaCrosse, WI Resource Recovery Revenue, (Northern States
Power Co. Project), 6.000% due 11/1/21 (b) 1,125,000
</TABLE>
See Notes to Financial Statements.
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Smith Barney Municipal Fund, Inc. 7
<PAGE>
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Schedule of Investments (continued) December 31, 1998
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Industrial Development -- 10.9% (continued)
$ 600,000 NR Sussex County, DE Economic Development Refunding
Revenue Bonds, (Rehoboth Mall Project), Series 1992,
7.250% due 10/15/12 $ 570,750
1,000,000 BBB+ Toole County, UT Hazardous Waste Disposal Revenue,
Laidlaw Incineration, Series A, 6.750% due 8/1/10 (b) 1,101,250
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7,056,150
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Miscellaneous -- 10.5%
1,885,000 AA Bernalillo County, NM Gross Receipts Tax Revenue Refunding,
5.200% due 4/1/21 1,950,975
500,000 AAA Central Puget Sound, WA Regional Transit Authority Sales
Tax & Motor, FGIC-Insured, 5.250% due 2/1/15 526,875
1,000,000 BBB- Clarksville, TN Natural Gas Acquisition Corp. Gas Revenue,
Series A, 7.500% due 11/1/04 1,048,750
1,000,000 A Illinois Development Finance Authority Revenue,
City of East St. Louis, 6.875% due 11/15/05,
Sinking Fund Average Life 7/26/03 1,118,750
645,000 Baa1* Indianapolis, IN Economic Development Refunding &
Improvement Revenue, National Benevolent Association,
(Robin Run Village Project), 6.900% due 10/1/04 704,663
2,755,000 AAA Jefferson, LA Sales Tax District, Special Sales Tax Revenue
Refunding, Capital Appreciation, FSA-Insured,
zero coupon due 12/1/12 1,439,487
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6,789,500
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Pollution Control -- 4.1%
1,000,000 Aa3* Brazos River, TX Navigation Harbor District, Brazonia
County, PCR, (BASF Corp. Project), 6.750% due 2/1/10 1,192,500
635,000 A- Broward County, FL Resource Recovery PCR, (North Project),
7.950% due 12/1/08 673,424
750,000 A3* Port Umpqua, OR Pollution Control, (International Paper Co.
Projects), Industrial Revenue, Series B, 5.200% due 6/1/11 767,813
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2,633,737
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Pre-Refunded(f) -- 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 12/24/03 688,500
300,000 AAA 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 (d) 395,250
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1,083,750
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Public Facilities -- 2.5%
1,000,000 A- Dekalb County, IN Redevelopment Authority Revenue,
(Mini-Mill LOC Public Improvement Project), Series A,
6.250% due 1/15/08 1,102,500
500,000 AAA Honolulu, HI City & County, Tax & Lease Revenue,
Series B, FGIC-Insured, 5.500% due 11/1/10 551,250
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1,653,750
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</TABLE>
See Notes to Financial Statements.
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8 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1998
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
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 $ 1,522,500
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Short-Term(g) -- 1.9%
400,000 VMIG 1* New Jersey Economic Development Authority, Natural Gas
Facilities Revenue, (Nui Corp. Project), Series A,
AMBAC-Insured, 4.000% due 6/1/26 400,000
200,000 VMIG 1* New York City, NY GO, Subseries E2, 4.000% due 8/1/21 200,000
600,000 VMIG 1* Pasco County, FL Housing Financial Authority, Multi-Family
Revenue, Carlton Arms Magnolia, 3.975% due 12/1/07 600,000
- -----------------------------------------------------------------------------------------------------------
1,200,000
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Transportation -- 3.5%
1,000,000 AAA Chicago, IL Midway Airport Revenue, Series C, MBIA-Insured,
5.500% due 1/1/16 1,068,750
500,000 BBB- Raleigh-Durham, NC Airport Authority Special Facilities
Revenue, (American Airlines Inc. Project),
9.400% due 11/1/00 545,000
595,000 NR Sanford, FL Airport Authority IDR, (Central Florida Terminals
Project), Series B, 7.500% due 5/1/06 (b) 656,731
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2,270,481
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TOTAL INVESTMENTS -- 100%
(Cost -- $61,059,432**) $64,630,861
===========================================================================================================
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service, except those which
are identified by an asterisk (*) are rated by Moody's Investors Service,
Inc. and those identified by a double dagger (++) are rated by Fitch
Investor Services, Inc.
(b) Income from these issues is considered a preference item for purposes of
calculating the alternative minimum tax.
(c) 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.
(d) Security segregated by custodian for open purchase commitment.
(e) Inverse floating rate security - coupon varies inversely with level of
short-term tax-exempt interest rates.
(f) 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.
(g) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 10 and 11 for definition of ratings and certain security
descriptions.
See Notes to Financial Statements.
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Smith Barney Municipal Fund, Inc. 9
<PAGE>
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Bond Ratings (unaudited)
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The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("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" have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in
small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they 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 bonds in this category than
for bonds in higher rated categories.
BB -- Bonds rated "BB" are regarded, on balance, as predominantly
speculative with respect to 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 Investors Service, Inc. ("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 that 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 that suggest a susceptibility to
impairment some time in the future.
Baa -- Bonds rated "Baa" are considered to be medium grade obligations,
i.e., 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. 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.
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10 1998 Annual Report to Shareholders
<PAGE>
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Bond Ratings (unaudited) (continued)
- --------------------------------------------------------------------------------
Fitch IBCA, Inc. ("Fitch") -- Ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standings within the major ratings
categories.
A -- Bonds rated "A" by Fitch are considered to have a low expectation
of credit risk. The capacity for timely payment of financial
commitments is considered to be strong, but may be more vulnerable to
changes in economic conditions and circumstances than bonds with
higher ratings.
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, how ever, 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
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
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 11
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost -- $61,059,432) $64,630,861
Cash 107,235
Interest receivable 1,097,950
Receivable for securities sold 186,167
- ---------------------------------------------------------------------------------------
Total Assets 66,022,213
- ---------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 2,107,645
Dividends payable 201,239
Management fees payable 36,222
Accrued expenses 43,850
- ---------------------------------------------------------------------------------------
Total Liabilities 2,388,956
- ---------------------------------------------------------------------------------------
Total Net Assets $63,633,257
=======================================================================================
NET ASSETS:
Par value of capital shares $ 4,021
Capital paid in excess of par value 60,061,277
Overdistributed net investment income (2,814)
Accumulated net realized loss on security transactions
and futures contracts (656)
Net unrealized appreciation of investments 3,571,429
- ---------------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $15.82 a share on 4,021,162 shares of $0.001 par value
outstanding; 100,000,000 shares authorized) $63,633,257
=======================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $3,690,376
- -------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 3) 445,553
Shareholder and system servicing fees 36,277
Shareholder communications 31,297
Audit and legal 12,960
Pricing service fees 9,983
Custody 4,932
Director's fees 2,472
Registration fees 1,683
Other 6,336
- -------------------------------------------------------------------------------
Total Expenses 551,493
- -------------------------------------------------------------------------------
Net Investment Income 3,138,883
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 4 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) 138,718
Futures contracts (5,150)
- -------------------------------------------------------------------------------
Net Realized Gain 133,568
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 3,514,293
End of year 3,571,429
- -------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 57,136
- -------------------------------------------------------------------------------
Net Gain on Investments and Future Contracts 190,704
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations $3,329,587
===============================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 13
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Years Ended December 31,
1998 1997
===============================================================================
OPERATIONS:
Net investment income $ 3,138,883 $ 3,321,120
Net realized gain 133,568 743,293
Increase in net unrealized appreciation 57,136 1,281,162
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations 3,329,587 5,345,575
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income (3,240,994) (3,398,185)
In excess of net investment income -- (29,719)
Net realized gains (133,568) (251,463)
- -------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (3,374,562) (3,679,367)
- -------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (44,975) 1,666,208
NET ASSETS:
Beginning of year 63,678,232 62,012,024
- -------------------------------------------------------------------------------
End of year* $63,633,257 $63,678,232
===============================================================================
* Includes overdistributed net investment income of: $(2,814) $(2,350)
===============================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Municipal Fund, Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund are:(a)
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) gains or losses on the sale of securities are calculated
by using the specific identification method; (e) interest income, adjusted for
amortization of premium and accretion of original issue discount, is recorded on
the accrual basis; market discount is recognized upon the disposition of the
security; (f) dividends 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 and excise taxes; (h) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. At December 31, 1998, 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 amounting to $101,647 was
reclassified to paid-in capital. Net investment income, net realized gains and
net assets were not affected by this change; and (i) estimates and assumptions
are required to be made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ.
2. Exempt-Interest Dividends and Other Distributions
The Fund intends to satisfy conditions that will enable interest from municipal
securities, which is exempt from 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.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
3. Management Agreement and Transactions with Affiliated Persons
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney Holdings
Inc. ("SSBH"), acts as investment manager to the Fund. As compensation for its
services, the Fund pays MMC a fee calculated at the annual rate of 0.70% of the
Fund's average daily net assets. This fee is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Salomon Smith Barney
Inc., another subsidiary of SSBH.
4. Investments
For the year ended December 31, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $39,051,811
- --------------------------------------------------------------------------------
Sales 41,890,978
================================================================================
At December 31, 1998, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
===============================================================================
Gross unrealized appreciation $3,624,120
Gross unrealized depreciation (52,691)
- -------------------------------------------------------------------------------
Net unrealized appreciation $3,571,429
===============================================================================
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 port
folio. The Fund bears the market risk that arises from changes in the value of
the financial instruments and securities indices (futures contracts).
At December 31, 1998, the Fund did not have any open futures contracts.
- --------------------------------------------------------------------------------
16 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (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 December 31, 1998, the Fund did not have any open purchased call or put
options contracts.
When the Fund writes a covered call or put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss depending upon whether
the cost of the closing transaction is greater or less 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 premium originally received will reduce the cost of the
security which the Fund purchased upon exercise. When written index options are
exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Fund enters into options for hedging purposes. The risk in writing a
call option is that the Fund gives up the opportunity to participate in any in
crease 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 year ended December 31, 1998, the Fund did not have any open written
options contracts.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 17
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
===================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 15.84 $ 15.42 $ 15.75 $ 14.30 $ 15.85
- ---------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.78 0.83 0.84 0.83 0.84
Net realized and unrealized gain (loss) 0.04 0.50 (0.32) 1.47 (1.54)
- ---------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.82 1.33 0.52 2.30 (0.70)
- ---------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.81) (0.84) (0.85) (0.85) (0.85)
In excess of net investment income -- (0.01) -- -- --
Net realized gains (0.03) (0.06) -- -- --
- ---------------------------------------------------------------------------------------------------
Total Distributions (0.84) (0.91) (0.85) (0.85) (0.85)
- ---------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 15.82 $ 15.84 $ 15.42 $ 15.75 $ 14.30
- ---------------------------------------------------------------------------------------------------
Total Return, Based on Market Value* 6.71% 10.18% 11.02% 15.83% (12.96)%
- ---------------------------------------------------------------------------------------------------
Total Return, Based on Net Asset Value* 5.69% 9.38% 3.96% 17.11% (4.09)%
- ---------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $64 $64 $62 $63 $58
- ---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.87% 0.85% 0.90% 0.86% 0.86%
Net investment income 4.93 5.31 5.45 5.48 5.59
- ---------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 58% 30% 21% 35%
- ---------------------------------------------------------------------------------------------------
Market Price, End of Year $15.000 $14.875 $14.375 $13.750 $12.625
===================================================================================================
</TABLE>
* The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
- --------------------------------------------------------------------------------
18 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of the Smith Barney Municipal Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Smith Barney Municipal Fund, Inc.
as of December 31, 1998, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the five-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian. As to securities
purchased or sold but not received or delivered, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Smith Barney Municipal Fund, Inc. as of December 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 8, 1999
- --------------------------------------------------------------------------------
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
================================================================================
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
July 14.94 15.75 0.0660 14.91
August 14.88 15.91 0.0660 14.74
September 15.00 16.03 0.0660 14.89
October 14.81 15.89 0.0660 14.97
November 15.13 15.89 0.0660 15.00
December 15.00 15.82 0.0660 14.81
December+ 15.00 15.82 0.0322 14.67
================================================================================
* On the last business day of the month.
+ Capital gain distribution.
- --------------------------------------------------------------------------------
20 1998 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 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.
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
For Federal tax purposes the Fund hereby designates for the fiscal year ended
December 31, 1998:
o 100% of the dividends paid by the Fund from net investment income as
tax exempt for regular Federal income tax purposes.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 21
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited)
- --------------------------------------------------------------------------------
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose shares
of common stock are registered in his own name will have all distributions from
the Fund reinvested automatically by First Data Investor Services Group, Inc.
("First Data") as purchasing agent under the Plan, unless the shareholder elects
to receive cash. Distributions with respect to shares registered in the name of
a broker-dealer or other nominee (that is, 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 or the shareholder elects to receive
distributions in cash. Investors who own common stock registered in street name
should consult their broker-dealers for details regarding reinvestment. All
distributions to shareholders who do not participate in the Plan will be paid by
check mailed directly to the record holder by or under the direction of First
Data as dividend paying agent.
The number of shares of common stock distributed to participants in the Plan in
lieu of a cash dividend is determined in the following manner. When the market
price of the common stock is equal to or exceeds the net asset value ("NAV") per
share of the common stock on the determination date (generally, the record date
for the distribution), the Plan participants will be issued shares of common
stock by the Fund at a price equal to the greater of NAV determined as described
below under NAV or 95% of the market price of the common stock.
If the market price of the common stock is less than the NAV of the common stock
at the time of valuation (which is the close of business on the determination
date), or if the Fund declares a dividend or capital gains distribution payable
only in cash, First Data will buy common stock in the open market, on the stock
exchange or elsewhere, for the participants' accounts. If following the
commencement of the purchases and before First Data has completed its purchases,
the market price exceeds the NAV of the common stock as of the valuation time,
First Data will attempt to terminate purchases in the open market and cause the
Fund to issue the remaining portion of the dividend or distribution in shares at
a price equal to the greater of (a) NAV as of the valuation time or (b) 95% of
the then current market price. In this case, the number of shares received by a
Plan participant 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 the extent First Data is unable to stop open market
purchases and cause the Fund to issue the remaining shares, the average per
share purchase price paid by First Data may exceed the NAV of the common stock
as of the valuation time, resulting in the acquisition of fewer shares than if
the dividend or capital gains distribution had been paid in common stock issued
by the Fund at such NAV. First Data will begin to purchase common stock on the
open mar-
- --------------------------------------------------------------------------------
22 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited) (continued)
- --------------------------------------------------------------------------------
ket as soon as practicable after the determination date for the dividend or
capital gains distribution, but in no event shall such purchases continue later
than 30 days after the payment date for such dividend or distribution, or the
record date for a succeeding dividend or distribution, except when necessary to
comply with applicable provisions of the federal securities laws.
First Data maintains all shareholder accounts in the Plan and furnishes written
confirmation of all transactions in each account, including information needed
by a shareholder for personal and tax records. The automatic reinvestment of
dividends and capital gains distributions will not relieve Plan participants of
any income tax that may be payable on the dividends or capital gains
distributions. Common stock in the account of each Plan participant will be held
by First Data in uncertificated form in the name of the Plan participant.
Plan participants are subject to no charge for reinvesting dividends and capital
gains distribution under the Plan. First Data's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. No brokerage charges apply with respect to shares of common stock issued
directly by the Fund under the Plan. Each Plan participant will, however, bear a
proportionate share of any brokerage commissions actually incurred with respect
to any open market purchases made under the Plan.
Experience under the Plan may indicate that changes to it are desirable. The
Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by First Data, with the Fund's prior written consent, on at least 30
days' written notice to Plan participants. All correspondence concerning the
Plan should be directed by mail to First Data Investor Services Group, Inc.,
P.O. Box 8030, Boston, Massachusetts 02266-8030 or by telephone at
1-800-451-2010.
- --------------------------------------------------------------------------------
Smith Barney Municipal Fund, Inc. 23
<PAGE>
(This page left intentionally 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
Paul A. Brook
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
FD2253 2/99
