-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pg4lCpHTIDyzADWk7YZEjx/qaNOKeqtoMMGRO9kwI5oL2QGknpNcRNVM/j8aLVgk bfNdWpkBspwDmNHuAbM+7Q== 0000091155-96-000098.txt : 19960304 0000091155-96-000098.hdr.sgml : 19960304 ACCESSION NUMBER: 0000091155-96-000098 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19960301 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITH BARNEY APPRECIATION FUND INC CENTRAL INDEX KEY: 0000089558 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 132653031 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01940 FILM NUMBER: 96529797 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 6175731332 FORMER COMPANY: FORMER CONFORMED NAME: SMITH BARNEY SHEARSON APPRECIATION FUND INC DATE OF NAME CHANGE: 19931015 FORMER COMPANY: FORMER CONFORMED NAME: SHEARSON LEHMAN BROTHERS APPRECIATION FUND INC DATE OF NAME CHANGE: 19930326 FORMER COMPANY: FORMER CONFORMED NAME: SHEARSON LEHMAN APPRECIATION FUND INC/MD/ DATE OF NAME CHANGE: 19930326 N-30D 1 A N N U A L R E P O R T 1995 1995 1995 1995 1995 [PHOTO APPEARS HERE] Smith Barney Appreciation Fund Inc. - --------------------------------- December 31, 1995 [LOGO] Smith Barney Mutual Funds Investing for your future. Every day. - -------------------------------------------------------------------------------- Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to provide the annual report for the period ended December 3l, l995 for Smith Barney Appreciation Fund Inc. In this report, we summarize the period's prevailing economic and market conditions and outline our portfolio strategy. A more detailed summary of performance and current holdings can be found in the appropriate sections that follow in the annual report. The superlatives have been exhausted when it comes to discussing the performance of the U.S. stock and bond markets in l995. The major driving factors behind the great stock market rally were falling interest rates, better-than-expected profits (fueled in part by corporate restructurings) and unprecedented inflows of money into domestic equity mutual funds. Set against a backdrop of pessimism which we outlined in last year's letter, these and other factors converged, ignited and fed the bull market. During the period covered by this report, the Smith Barney Appreciation Fund had a total return of 29.26% for Class A shares. After our strong optimism about the financial markets at the end of 1994, and even after the first quarter's powerful upward surge, by the middle of the summer we saw signs of overspeculation and stretched valuation. In our view, technology stocks became much too popular and moved to levels that imply normally cyclical industries would never experience a drop. In addition, dividend yields on stocks declined to unprecedented levels. At the same time, the value of all stocks in relation to Gross Domestic Product (GDP) reached the highest level in this century. Yet, investors remained undaunted. Despite sharp declines in the technology sector, the overall market continued to new highs throughout the second half of the year. We raised cash reserve levels in the Fund around mid-year and that defensive move hindered the Fund's relative performance during the second half. Our outlook a year ago was fairly simple. We believed the market had shaken out earlier excesses, and interest rates had gone up much more than any inflation scenario would dictate. Valuations, while not inexpensive, were decent. Hints of corporate restructurings were being dropped, giving the earnings outlook a big boost. We were very optimistic, and while we didn't know then that the year would be so tremendous, we did write that any surprises were likely to be on the upside. 1 This coming year is trickier by far because interest rates are low enough to keep the market afloat. There are not enough signs of economic deterioration to predict a big stock market fall. However, we believe 1996 will be a year when a fund's performance will depend on its focus on relative rather than absolute values in stock selection. The successful major corporate restructuring stories that we had anticipated earlier have been generally recognized in the marketplace. During 1995, the Smith Barney Appreciation Fund has had excellent successes with stocks such as: - - Eastman Kodak - - Xerox Corporation - - Allied Signal - - Dupont - - Minnesota Mining & Manufacturing (3M) - - AT&T Great growth companies such as Johnson and Johnson, Proctor and Gamble, Merck & Co., Inc., Coca Cola and Gillette have experienced significant advances. However, these companies may have difficulty posting gains equal to their earnings growth rates as any capital gains cut would leave them vulnerable to selling pressures. Unless the economy goes into a tailspin (which we do not believe is likely), cyclical stocks look reasonably valued at this time. Technology stocks--which we remained underweighted in throughout 1995-- have had steep corrections recently, yet they may still offer some relative attractive values and present us with occasional trading opportunities. Lastly, energy stocks, which have already had a good run, continue to offer better than average dividends. In addition, they should benefit from any potential upside surprises on oil prices. 1995 was the year that the U.S. population collectively woke up and realized they were not saving enough for retirement. As the year progressed, the stock market became the vehicle of choice for newly-converted savers. Combined with low interest rates, this enormous inflow of investment dollars propelled stock prices. However, as can be seen with the pronounced rise and subsequent fall in technology stocks, the popularity of a specific industry sector can greatly increase its investment risk. For this reason, we are trying to maintain a longer-term perspective. And, though the stock market remains a great investment vehicle, our job is to occasionally lean against prevailing sentiment. Our strategy in the first part of 1996 will be to look for areas where the fundamentals are good, but where stock prices have lagged. In addition, we intend to maintain a modest amount of buying reserves. 2 As you no doubt know, 1995 was a very good year. Our focus now is making 1996 a profitable year for our shareholders. Lastly, in closing, it is with deep sadness that we inform you of the passing of Harold Williamson, Jr., our long-time colleague and co-portfolio manager of Smith Barney Appreciation Fund for many years. Harold's wisdom contributed greatly to the success of the Fund over the past 25 years. Although Harold had reduced his day-to-day responsibilities over the past two years, his insights and judgement were welcomed and appreciated until his death in September. He will be sorely missed. At this time, we would like to thank you for your investment in Smith Barney Appreciation Fund. Sincerely, /s/ Heath B. McLendon /s/ Harry D. Cohen Heath B. McLendon Harry D. Cohen Chairman and Vice President and Chief Executive Officer Investment Officer January 16. 1996 3 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Historical Performance -- Class A Shares - -------------------------------------------------------------------------------- Net Asset Value --------------- Beginning Ended Income Capital Gain Total Year Ended of Year of Year Dividends Distributions Return/1/ ================================================================================ 12/31/95 $10.15 $11.90 $0.20 $1.00 29.26% 12/31/94 11.01 10.15 0.18 0.60 (0.77) 12/31/93 10.66 11.01 0.16 0.36 8.13 12/31/92 10.26 10.66 0.15 0.09 6.29 12/31/91 8.30 10.26 0.20 0.07 26.94 12/31/90 8.66 8.30 0.25 0.08 (0.27) 12/31/89 7.04 8.66 0.24 0.22 29.55 12/31/88 6.49 7.04 0.19 0.13 13.45 12/31/87 6.54 6.49 0.26 0.25 6.95 12/31/86 5.82 6.54 0.00 0.41 19.93 - ------------------------------------------------------------------------------- Total $1.83 $3.21 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Historical Performance -- Class B Shares - ------------------------------------------------------------------------------- Net Asset Value --------------- Beginning Ended Income Capital Gain Total Year Ended of Year of Year Dividends Distributions Return/1/ ============================================================================== 12/31/95 $10.14 $11.88 $0.11 $1.00 28.29% 12/31/94 11.00 10.14 0.10 0.60 (1.53) 12/31/93 10.65 11.00 0.08 0.36 7.38 Inception*- 10.55 10.65 0.16 0.09 3.28+ 12/31/92 - ------------------------------------------------------------------------------- Total $0.45 $2.05 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Historical Performance -- Class C Shares - ------------------------------------------------------------------------------- Net Asset Value --------------- Beginning Ended Income Capital Gain Total Year Ended of Year of Year Dividends Distributions Return/1/ ============================================================================== 12/31/95 $10.14 $11.88 $0.11 $1.00 28.29% 12/31/94 11.00 10.14 0.11 0.60 (1.41) Inception*- 10.99 11.00 0.08 0.36 4.09+ 12/31/93 - ------------------------------------------------------------------------------- Total $0.30 $1.96 - ------------------------------------------------------------------------------- 4 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Historical Performance -- Class Z Shares - -------------------------------------------------------------------------------- Net Asset Value Beginning End Income Capital Gain Total Year Ended of Year of Year Dividends Distributions Return/1/ ================================================================================ 12/31/95 $10.16 $11.91 $0.23 $1.00 29.52% 12/31/94 11.02 10.16 0.22 0.60 (0.41) 12/31/93 10.66 11.02 0.18 0.36 8.47 Inception*- 12/31/92 10.55 10.66 0.16 0.09 3.38+ - -------------------------------------------------------------------------------- Total $0.79 $2.05 - -------------------------------------------------------------------------------- It is the Fund's policy to distribute dividends and capital gains, if any, annually. - -------------------------------------------------------------------------------- Average Annual Total Return - -------------------------------------------------------------------------------- Without Sales Charge/1/ ---------------------- Class A Class B Class C Class Z ================================================================================ Year Ended 12/31/95 29.26% 28.29% 28.29% 28.29% Five Years Ended 12/31/95 13.35 N/A N/A N/A Ten Years Ended 12/31/95 13.40 N/A N/A N/A Inception*through 21/31/95 11.81 11.30 9.93 12.43 - -------------------------------------------------------------------------------- With Sales Charge/2/ -------------------- Class A Class B Class C Class Z ================================================================================ Year Ended 12/31/95 22.84% 23.29% 27.29% 29.52% Five Years Ended 12/31/95 12.19 N/A N/A N/A Ten Years Ended 12/31/95 12.82 N/A N/A N/A Inception*through 21/31/95 11.59 10.79 9.93 12.43 - -------------------------------------------------------------------------------- 5 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Cumulative Total Return - -------------------------------------------------------------------------------- Without Sales Charge/1/ =============================================================================== Class A (12/31/85 through 12/31/95) 251.52% Class B (Inception* through 12/31/95) 40.10 Class C (Inception* through 12/31/95) 31.65 Class Z (Inception* through 12/31/95) 44.65 - -------------------------------------------------------------------------------- (1) Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charges ("CDSC") with respect to Class B and C shares. (2) Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value. In addition, Class A shares reflect the deduction of the maximum initial sales charge of 5.00% and Class B shares reflect the deduction of a 5.00% CDSC, which applies if shares are redeemed less than one year from initial purchase and declines thereafter by 1.00% per year until no CDSC is incurred. Class C shares reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed within the first year of purchase. * The inception dates for Class A, B, C and Z shares are March 10, 1970, November 6, 1992, February 4, 1993 and November 6, 1992, respectively. + Total return is not annualized, as it may not be representative of the total return for the year. 6 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Historical Performance (unaudited) - -------------------------------------------------------------------------------- Growth of $10,000 Invested in Class A Shares of the Smith Barney Appreciation Fund Inc. vs. Standard & Poor's 500 Index+ - -------------------------------------------------------------------------------- December 1985 - December 1995 [CHART APPEARS HERE] + Hypothetical illustration of $10,000 invested in Class A shares on December 31, 1985, assuming deduction of the maximum 5.00% sales charge at the time of investment and reinvestment of dividends and capital gains, if any, at net asset value through December 31, 1995. The Standard & Poor's 500 Index is an index composed of widely held common stocks listed on the New York Stock Exchange, American Stock Exchange and over-the-counter market. Figures for the index include reinvestment of dividends. The index is unmanaged and it is not subject to the same management and trading expenses as a mutual fund. The performance of the Fund's other classes may be greater or less than the Class A shares' performance indicated on this chart, depending on whether greater or lesser sales charges and fees were incurred by shareholders investing in other classes. All figures represent past performance and are not a guarantee of future results. Investment returns and principal value will fluctuate, and redemption value may be more or less than the original cost. No adjustment has been made for shareholder tax liability on dividends or capital gains. 7 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Portfolio Highlights (unaudited) December 31, 1995 - -------------------------------------------------------------------------------- Industry Breakdown [PIE GRAPH APPEARS HERE] Automobiles 3.1% Healthcare 8.9% Diversified/Conglomerates 7.7% Oil 8.9% Telephone/Communications 5.4% Publishing 4.9% Consumer Products 4.7% Banking 4.5% Office Equipment & Supplies 4.5% Chemicals 3.8% Financial Services 3.8% Convertible Preferred and Other Common Stocks 19.3% Repurchase Agreement 13.6% Electrical Equipment 3.5% Insurance 3.4% Top Ten Holdings Percentage of Company Total Investments =========================================================== Eastman Kodak Co. 3.9% Xerox Corp. 3.4 American Telephone & Telegraph Corp. 3.0 Minnesota Mining and Manufacturing Co. 2.8 Mobil Corp. 2.4 Amoco Corp. 2.1 E.I. du Pont de Nemours & Co. 1.8 AMP Inc. 1.8 American Home Products Corp. 1.7 Merck Co., Inc. 1.7 =========================================================== 8 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Schedule of Investments December 31, 1995 - -------------------------------------------------------------------------------- SHARES SECURITY VALUE ================================================================================ COMMON STOCKS -- 86.2% Aerospace -- 2.5% 650,000 Allied Signal Inc. $ 30,875,000 300,000 Boeing Co. 23,512,500 300,000 Lockheed Martin Corp. 23,700,000 - -------------------------------------------------------------------------------- 78,087,500 - -------------------------------------------------------------------------------- Airlines -- 0.5% 200,000 AMR Corp.* 14,850,000 - -------------------------------------------------------------------------------- Auto-Parts & Accessories -- 0.9% 600,000 Goodyear Tire & Rubber Co. 27,225,000 - -------------------------------------------------------------------------------- Automobiles -- 3.1% 600,000 Chrysler Corp. 33,225,000 1,300,000 Ford Motor Co. 37,700,000 450,000 General Motors Corp. 23,793,750 - -------------------------------------------------------------------------------- 94,718,750 - -------------------------------------------------------------------------------- Banking -- 4.5% 300,000 Chase Manhattan Corp. 18,187,500 300,000 Chemical Banking Corp. 17,625,000 200,000 Crestar Financial Corp. 11,825,000 50,000 First of America Bank Corp. 2,218,750 400,000 First Virginia Banks, Inc. 16,700,000 250,000 National City Corp. 8,281,250 330,000 Republic New York Corp. 20,501,250 200,000 Union Planters Corp. 6,375,000 175,000 Wells Fargo & Co. 37,800,000 - -------------------------------------------------------------------------------- 139,513,750 - -------------------------------------------------------------------------------- Beverages, Food and Tobacco -- 2.8% 210,000 Coca-Cola Co. 15,592,500 400,000 CPC International, Inc. 27,450,000 650,000 McDonalds Corp. 29,331,250 250,000 W.M. Wrigley Jr. Corp. 13,125,000 - -------------------------------------------------------------------------------- 85,498,750 - -------------------------------------------------------------------------------- Broadcasting -- 1.0% 375,000 Scandinavian Broadcasting Systems* 8,203,125 450,000 Viacom Inc., Non-Voting Shares* 21,318,750 - -------------------------------------------------------------------------------- 29,572,875 - -------------------------------------------------------------------------------- See Notes to Financial Statements 9 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Schedule of Investments (Continued) December 31, 1995 - -------------------------------------------------------------------------------- SHARES SECURITY VALUE ================================================================================ Chemicals -- 3.8% 800,000 E.I. du Pont de Nemours & Co. $ 55,900,000 560,000 Hercules Inc. 31,570,000 390,800 Olin Corp. 29,016,900 - -------------------------------------------------------------------------------- 116,486,900 - -------------------------------------------------------------------------------- Computer Software & Services - 0.1% 50,000 Microsoft Corp.* 4,387,500 - -------------------------------------------------------------------------------- Consumer Products - 4.7% 400,000 Corning Inc. 12,800,000 455,000 Gillette Co. 23,716,875 347,000 International Flavors & Fragrances Inc. 16,656,000 850,000 Newell Co. 21,993,750 250,000 Perrigo Co.* 2,968,750 475,000 Procter & Gamble Co. 39,425,000 400,000 Scotts Co., Class A Shares* 7,950,000 550,000 Tyco International Ltd. 19,593,750 - -------------------------------------------------------------------------------- 145,104,125 - -------------------------------------------------------------------------------- Diversified/Conglomerates - 7.7% 1,775,000 Eastman Kodak Co. 118,925,000 525,000 Honeywell Inc. 25,528,125 500,000 Horsham Corp. 6,750,000 1,275,000 Minnesota Mining & Manufacturing Co. 84,468,750 - -------------------------------------------------------------------------------- 235,671,875 - -------------------------------------------------------------------------------- Electrical Equipment - 3.5% 1,400,000 AMP Inc. 53,725,000 200,000 Emerson Electric Co. 16,350,000 500,000 General Electric Co. 36,000,000 - -------------------------------------------------------------------------------- 106,075,000 - -------------------------------------------------------------------------------- Entertainment & Leisure - 1.9% 100,000 Dick Clark Productions Inc.* 925,000 475,000 Walt Disney Co. 28,025,000 700,000 Savoy Pictures Entertainment Inc.* 4,418,750 650,000 Time Warner Inc. 24,618,750 - -------------------------------------------------------------------------------- 57,987,500 - -------------------------------------------------------------------------------- See Notes to Financial Statements. 10 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Schedule of Investments (Continued) December 31, 1995 - -------------------------------------------------------------------------------- SHARES SECURITY VALUE ================================================================================ Financial Services - 3.8% 1,200,000 American Express Co. $ 49,650,000 200,000 Charles Schwab Corp. 4,025,000 125,000 Federal National Mortgage Association 15,515,625 450,000 Fiserv Inc.* 13,500,000 550,000 Household International, Inc. 32,518,750 - -------------------------------------------------------------------------------- 115,209,375 - -------------------------------------------------------------------------------- Healthcare - 8.9% 700,000 Abbott Laboratories Inc. 29,225,000 550,000 American Home Products Corp. 53,350,000 590,000 Bristol-Myers Squibb Co. 50,666,250 250,000 Forest Laboratories Inc., Class A Shares* 11,312,500 540,000 Johnson & Johnson 46,237,500 800,000 Merck & Co., Inc. 52,600,000 300,000 Warner Lambert Co. 29,137,500 - -------------------------------------------------------------------------------- 272,528,750 - -------------------------------------------------------------------------------- Insurance - 3.4% 1,000,000 Allstate Insurance Corp. 41,125,000 300,000 American International Group Inc. 27,750,000 150,000 CNA Financial Corp.* 17,025,000 800,000 Leucadia National Corp. 20,000,000 - -------------------------------------------------------------------------------- 105,900,000 - -------------------------------------------------------------------------------- Machinery - 0.6% 150,000 Caterpillar Inc. 8,812,500 300,000 Ingersoll-Rand Co. 10,537,500 - -------------------------------------------------------------------------------- 19,350,000 - -------------------------------------------------------------------------------- Metals - 0.7% 200,000 Aluminum Co. of America 10,575,000 300,000 Cyprus Amax Minerals Co. 7,837,500 300,000 Santa Fe Pacific Gold Corp. 3,637,500 - -------------------------------------------------------------------------------- 22,050,000 - -------------------------------------------------------------------------------- Office Equipment & Supplies - 4.5% 400,000 International Business Machines Corp. 36,700,000 750,000 Xerox Corp. 102,750,000 - -------------------------------------------------------------------------------- 139,450,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Schedule of Investments (Continued) December 31, 1995 - -------------------------------------------------------------------------------- SHARES SECURITY VALUE ================================================================================ Oil-Domestic & Crude - 2.6% 200,000 Atlantic Richfield Co. $ 22,150,000 300,000 Baker Hughes Inc. 7,312,500 600,000 Burlington Resources Inc. 23,550,000 700,000 Global Marine Inc.* 6,125,000 500,000 Union Pacific Resources Group Inc. 12,687,500 250,000 Unocal Corp. 7,281,250 - -------------------------------------------------------------------------------- 79,106,250 - -------------------------------------------------------------------------------- Oil-International - 6.3% 875,000 Amoco Corp. 62,890,625 450,000 Chevron Corp. 23,625,000 650,000 Mobil Corp. 72,800,000 240,000 Royal Dutch Petroleum Co. ADR 33,870,000 - -------------------------------------------------------------------------------- 193,185,625 - -------------------------------------------------------------------------------- Paper & Paper Products - 1.7% 250,000 International Paper Co. 9,468,750 300,000 Louisiana Pacific Corp. 7,275,000 350,000 Mead Corp. 18,287,500 310,000 St. Joe Paper Co. 17,050,000 - -------------------------------------------------------------------------------- 52,081,250 - -------------------------------------------------------------------------------- Publishing - 4.9% 450,000 Gannett Co. 27,618,750 389,500 Meredith Corp. 16,310,313 720,000 New York Times Co., Class A Shares 21,330,000 1,300,000 R.R. Donnelley & Sons Co. 51,187,500 550,000 Tribune Co. 33,618,750 - -------------------------------------------------------------------------------- 150,065,313 - -------------------------------------------------------------------------------- Railroads - 1.1% 100,000 Conrail Inc. 7,000,000 400,000 Union Pacific Corp. 26,400,000 - -------------------------------------------------------------------------------- 33,400,000 - -------------------------------------------------------------------------------- Real Estate - 0.2% 100,000 General Growth Properties 2,075,000 150,000 Spieker Properties Inc. 3,768,750 - -------------------------------------------------------------------------------- 5,843,750 - -------------------------------------------------------------------------------- See Notes to Financial Statements. 12 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Schedule of Investments (continued) December 31, 1995 - -------------------------------------------------------------------------------- SHARES SECURITY VALUE ================================================================================ Retail -- 2.5% 300,000 Home Depot Inc. $ 14,362,500 550,000 J.C. Penney Co. 26,193,750 1,600,000 Wal-Mart Stores Inc. 35,800,000 - -------------------------------------------------------------------------------- 76,356,250 - -------------------------------------------------------------------------------- Technology - 2.6% 400,000 ACX Technologies, Inc.* 6,050,000 150,000 Compaq Computer Corp.* 7,200,000 225,000 Hewlett-Packard Co. 18,843,750 350,000 Intel Corp. 19,862,500 175,000 Motorola Inc. 9,975,000 150,000 Silicon Graphics Co.* 4,125,000 250,000 Texas Instruments Inc. 12,937,500 - -------------------------------------------------------------------------------- 78,993,750 - -------------------------------------------------------------------------------- Telephone/Communications -- 5.4% 1,400,000 American Telephone & Telegraph Corp. 90,650,000 700,000 Comcast Corp., Class A Shares 12,731,250 250,000 Mobil Telecommunications Technologies Corp.* 5,343,750 550,000 Nynex Corp. 29,700,000 1,300,000 Tele-Communications Inc., Class A Shares* 25,837,500 - -------------------------------------------------------------------------------- 164,262,500 - -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost -- $1,888,750,223) 2,642,911,338 ================================================================================ CONVERTIBLE PREFERRED STOCK -- 0.2% Entertainment & Leisure -- 0.2% 200,000 Time Warner Financing Trust (Cost -- $6,200,000) 6,250,000 ================================================================================ TOTAL COMMON AND CONVERTIBLE PREFERRED STOCKS (Cost - $1,894,950,223) 2,649,161,338 ================================================================================ See Notes to Financial Statements. 13 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Schedule of Investments (continued) December 31, 1995 - -------------------------------------------------------------------------------- FACE AMOUNT SECURITY VALUE ================================================================================ REPURCHASE AGREEMENTS - 13.6% $372,309,000 Goldman Sachs & Co., 5.650% due 1/2/96; Proceeds at maturity - $372,542,680; (Fully collateralized by U.S. Treasury Notes, 5.375% due 11/30/97; Market value - $379,928,909) $ 372,309,000 45,026,000 Morgan Stanley Group, Inc., 5.850% due 1/2/96; Proceeds at maturity - $45,055,239; (Fully collateralized by U.S. Treasury Notes, 5.125% due 4/30/98; Market value - $45,939,498) 45,026,000 - -------------------------------------------------------------------------------- TOTAL REPURCHASE AGREEMENTS (Cost - $417,335,000) 417,335,000 ================================================================================ TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS -- 100% (Cost - $2,312,285,223)++ $ 3,066,496,338 ================================================================================ * Non-income producing security. ++ Aggregate cost for Federal income tax purposes is substantially the same. See Notes to Financial Statements. 14 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Statement of Assets and Liabilities December 31, 1995 - -------------------------------------------------------------------------------- ASSETS: Investments, at value (Cost - $1,894,950,223) $2,649,161,338 Repurchase agreements (Cost - $417,335,000) 417,335,000 Cash 360 Receivable for securities sold 2,514,497 Receivable for Fund shares sold 3,322,722 Dividends and interest receivable 4,334,449 - -------------------------------------------------------------------------------- Total Assets 3,076,668,366 - -------------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased 4,134,963 Dividends payable 1,541,214 Payable for Fund shares purchased 1,395,223 Distribution fees payable 1,258,116 Investment advisory fees payable 1,161,250 Administration fees payable 425,853 Accrued expenses 99,980 - -------------------------------------------------------------------------------- Total Liabilities 10,016,599 - -------------------------------------------------------------------------------- Total Net Assets $3,066,651,767 ================================================================================ NET ASSETS: Par value of capital shares $ 257,842 Capital paid in excess of par value 2,217,941,506 Undistributed net investment income 467,289 Accumulated net realized gain on security transactions 93,774,015 Net unrealized appreciation of investments 754,211,115 - -------------------------------------------------------------------------------- Total Net Assets $3,066,651,767 ================================================================================ Shares Outstanding: Class A 162,380,390 Class B 83,198,378 Class C 1,233,676 Class Z 11,029,303 Net Asset Value: Class A (and redemption price) $11.90 Class B* $11.88 Class C** $11.88 Class Z (and redemption price) $11.91 Class A Maximum Public Offering Price Per Share (net asset value plus 5.26% of net asset value per share) $12.53 ================================================================================ * Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares are redeemed less than one year from initial purchase (See Note 2). ** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares are redeemed within the first year of purchase. See Notes to Financial Statements. 15 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Statement of Operations For the Year Ended December 31, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 56,754,649 Interest 20,385,339 Less: Foreign withholding tax (287,762) - -------------------------------------------------------------------------------- Total Investment Income 76,852,226 - -------------------------------------------------------------------------------- EXPENSES: Distribution fees (Note 2) 13,409,794 Investment advisory fees (Note 2) 12,764,132 Administration fees (Note 2) 4,675,818 Shareholder and system servicing fees 3,275,000 Shareholder communications 520,755 Custody 175,000 Registration fees 146,000 Audit and legal 73,000 Directors' fees 50,000 - -------------------------------------------------------------------------------- Total Expenses 35,089,499 - -------------------------------------------------------------------------------- Net Investment Income 41,762,727 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 3): Realized Gain From Security Transactions (excluding short-term securities): Proceeds from sales 1,688,907,227 Cost of securities sold 1,412,008,505 - -------------------------------------------------------------------------------- Net Realized Gain 276,898,722 - -------------------------------------------------------------------------------- Change in Net Unrealized Appreciation of Investments: Beginning of year 365,357,847 End of year 754,211,115 - -------------------------------------------------------------------------------- Increase in Net Unrealized Appreciation 388,853,268 - -------------------------------------------------------------------------------- Net Gain on Investments 665,751,990 - -------------------------------------------------------------------------------- Increase in Net Assets From Operations $ 707,514,717 ================================================================================ See Notes to Financial Statements. 16 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Statements of Changes in Net Assets For the Years Ended December 31, - -------------------------------------------------------------------------------- 1995 1994 ================================================================================ OPERATIONS: Net investment income $ 41,762,727 $ 36,423,127 Net realized gain 276,898,722 173,322,683 Increase in net unrealized appreciation (depreciation) 388,853,268 (239,245,191) - -------------------------------------------------------------------------------- Increase (Decrease) in Net Assets From Operations 707,514,717 (29,499,381) - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (43,641,495) (36,643,881) Net realized gains (235,509,609) (140,417,671) - -------------------------------------------------------------------------------- Decrease in Net Assets From Distributions to Shareholders (279,151,104) (177,061,552) - -------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (Note 5): Net proceeds from sale of shares 306,829,899 669,137,931 Net asset value of shares issued for reinvestment of dividends 269,686,363 171,376,919 Cost of shares reacquired (495,067,915) (1,102,418,686) - -------------------------------------------------------------------------------- Increase (Decrease) in Net Assets From Fund Share Transactions 81,448,347 (261,903,836) - -------------------------------------------------------------------------------- Increase (Decrease) in Net Assets 509,811,960 (468,464,769) NET ASSETS: Beginning of year 2,556,839,807 3,025,304,576 End of year* $ 3,066,651,767 $ 2,556,839,807 ================================================================================ *Includes undistributed net investment income of: $ 467,289 $ 1,640,913 ================================================================================ See Notes to Financial Statements. 17 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES The Smith Barney Appreciation Fund Inc. ("Fund"), a Maryland Corporation, is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The significant accounting policies consistently followed by the Fund are: (a) securities transactions are accounted for on trade date; (b) securities traded on national securities markets are valued at the closing prices on such markets; securities traded in the over-the-counter market and listed securities for which no sales price was reported and U.S. Government and Agency Obligations are valued at bid price, or in the absence of a recent bid price, at the bid equivalent obtained from one or more of the major market makers in the securities; (c) short-term investments and securities maturing within 60 days or less are valued at cost plus accreted discount, or minus amortized premium, which approximates market value; (d) dividend income is recorded on the ex- dividend date and interest income is recorded on the accrual basis; (e) gains or losses on the sale of securities are calculated by using the specific identification method; (f) direct expenses are charged to each class; management fees and general fund expenses are allocated on the basis of relative net assets; (g) the accounting records are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, and income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. Differences between income and expense amounts recorded and collected or paid are adjusted when reported by the custodian bank; (h) 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; (i) 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, 1995, reclassifications are made to the Fund's capital accounts to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. Net investment income, net realized gains and net assets were not affected by this change; and (j) 18 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- 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 from these amounts. 2. Management Agreement and Transactions with Affiliated Persons Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith Barney Holdings Inc. ("SBH"), acts as investment adviser of the Fund. The Fund pays SBMFM an investment advisory fee calculated at the annual rate of 0.55% on the Fund"s average daily net assets up to $250 million; 0.513% on the next $250 million; 0.476% on the next $500 million; 0.439% on the next $1 billion; 0.402% on the next $1 billion; and 0.365% on average daily net assets in excess of $3 billion. This fee is calculated daily and paid monthly. SBMFM also serves as the Fund's administrator for which the Fund pays a fee calculated at an annual rate of 0.20% on the Fund's average daily net assets up to $250 million; 0.187% on the next $250 million; 0.174% on the next $500 million; 0.161% on the next $1 billion; 0.148% on the next $1 billion and 0.135% on the average daily net assets in excess of $3 billion. This fee is calculated daily and paid monthly. In addition, The Boston Company Advisors, Inc. ("Boston Advisors"), an indirect wholly owned subsidiary of Mellon Bank Corporation, acted as sub- administrator to the Fund. The Fund paid Boston Advisors a portion of its administration fee at a rate agreed upon from time to time between SBMFM and Boston Advisors. As of May 15, 1995 this relationship was terminated. Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of Fund shares and primary broker for its portfolio agency transactions. For the year ended December 31, 1995, SB received brokerage commissions of $637,506 and sales charges of approximately $1.7 million on sales of the FundOs Class A shares. There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B shares, which applies if redemption occurs less than one year from initial purchase and declines thereafter by 1.00% until no CDSC is incurred. Class C shares have a 1.00% CDSC, which applies if 19 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- redemption occurs within the first year of purchase. For the year ended December 31, 1995, CDSCs paid to SB were approximately: Class B Class C =================================================== CDSCs $1,912,000 $4,000 =================================================== Pursuant to a Distribution Plan, the Fund pays a service fee with respect to its Class A, B and C shares calculated at the annual rate of 0.25% of the average daily net assets of each respective class. In addition, the Fund also pays a distribution fee with respect to Class B and C shares calculated at the annual rate of 0.75% of the average daily net assets for each class. For the year ended December 31, 1995, total Distribution Plan fees were as follows: Class A Class B Class C ========================================================= Distribution Plan Fees $4,551,117 $8,770,866 $87,811 ========================================================= All officers and one Director of the Fund are employees of SB. 3. INVESTMENTS During the year ended December 31, 1995, the aggregate cost of purchases and proceeds from sales of investments (including maturities, but excluding short- term securities) were as follows: ========================================================= Purchases $1,405,137,848 - --------------------------------------------------------- Sales 1,688,907,227 ========================================================= At December 31, 1995, the aggregate unrealized appreciation and depreciation of investments for Federal income tax purposes were approximately as follows: ========================================================= Gross unrealized appreciation $766,758,033 Gross unrealized depreciation (12,546,918) - --------------------------------------------------------- Net unrealized appreciation $754,211,115 ========================================================= 4. REPURCHASE AGREEMENTS The Fund purchases (and its custodian take possession of) U.S. Government Securities from banks and securities dealers subject to 20 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Notes to Financial Statements (continued) - -------------------------------------------------------------------------------- agreements to resell the securities to the sellers at a future date (generally, the next business day) at an agreed-upon higher repurchase price. The Fund requires continual maintenance of the market value of the collateral in amounts at least equal to the repurchase price. 5. Capital Shares At December 31, 1995, the Fund had two billion shares of capital stock authorized with a par value of $0.001 per share. The Fund has the ability to issue multiple classes of shares. Each share of a class represents an identical interest and has the same rights except that each class bears expenses specifically related to the distribution of its shares. At December 31, 1995, total paid-in capital amounted to the following for each class:
Class A Class B Class C Class Z ================================================================================== Total Paid-in Capital $1,300,565,336 $ 786,795,528 $ 14,119,864 $ 116,718,620 ==================================================================================
Transactions in shares of each class were as follows:
Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------- -------------------------- Shares Amount Shares Amount =========================================================================================== Class A Shares sold 7,620,507 $ 89,452,092 44,094,284 $ 488,137,245 Shares issued on reinvestment 14,668,264 174,069,009 11,449,490 116,212,319 Shares redeemed (26,276,992) (300,583,374) (32,594,240) (358,392,877) - ------------------------------------------------------------------------------------------- Net Increase (Decrease) (3,988,221) $ (37,062,273) 22,949,534 $ 245,956,687 =========================================================================================== Class B Shares sold 14,923,988 $ 177,804,234 13,930,876 $ 152,849,192 Shares issued on reinvestment 6,941,401 81,718,744 4,660,147 47,253,894 Shares redeemed (13,719,120) (161,328,324) (60,436,380) (664,262,057) - ------------------------------------------------------------------------------------------- Net Increase (Decrease) 8,146,269 $ 98,194,654 (41,845,357) $(464,158,971) =========================================================================================== Class C Shares sold 1,074,749 $ 12,534,789 327,092 $ 3,573,460 Shares issued on reinvestment 94,795 1,116,130 32,039 324,876 Shares redeemed (432,791) (4,957,997) (63,463) (694,090) - ------------------------------------------------------------------------------------------- Net Increase 736,753 $ 8,692,922 295,668 $ 3,204,246 ===========================================================================================
21 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Notes to Financial Statements (continued) - --------------------------------------------------------------------------------
Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------- -------------------------- Shares Amount Shares Amount =========================================================================================== Class Y* Shares sold 973,805 $ 12,162,013 -- -- Shares issued on reinvestment 13,581 161,209 -- -- Shares redeemed (987,386) (12,189,962) -- -- - ------------------------------------------------------------------------------------------- Net Increase -- $ 133,260 -- -- =========================================================================================== Class Z Shares sold 1,316,558 $ 14,876,771 2,221,990 $ 24,578,034 Shares issued on reinvestment 1,060,434 12,621,271 746,636 7,585,830 Shares redeemed (1,345,826) (16,008,258) (7,290,364) (79,069,662) - ------------------------------------------------------------------------------------------- Net Increase (Decrease) 1,031,166 $ 11,489,784 (4,321,738) $(46,905,798) ===========================================================================================
*For the period from October 13, 1995 to November 27, 1995. 22 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- For a share of each class of capital stock outstanding throughout each year:
Class A Shares 1995(1) 1994 1993(1) 1992 1991 ================================================================================================================ Net Asset Value, Beginning of Year $10.15 $11.01 $10.66 $10.26 $8.30 - ---------------------------------------------------------------------------------------------------------------- Income (Loss) From Operations: Net investment income 0.20 0.16 0.15 0.18 0.18 Net realized and unrealized gain (loss) 2.75 (0.24) 0.72 0.46 2.05 - ---------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations 2.95 (0.08) 0.87 0.64 2.23 - ---------------------------------------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.20) (0.18) (0.16) (0.15) (0.20) Net realized gains (1.00) (0.60) (0.36) (0.09) (0.07) - ---------------------------------------------------------------------------------------------------------------- Total Distributions (1.20) (0.78) (0.52) (0.24) (0.27) - ---------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Year $11.90 $10.15 $11.01 $10.66 $10.26 - ---------------------------------------------------------------------------------------------------------------- Total Return 29.26% (0.77)% 8.13% 6.29% 26.94% - ---------------------------------------------------------------------------------------------------------------- Net Assets, End of Year (000s) $1,932,573 $1,689,268 $1,579,248 $1,712,411 $1,752,884 - ---------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets: Expenses 1.02% 1.02% 1.03% 0.88% 0.80% Net investment income 1.71 1.61 1.35 1.58 2.20 - ---------------------------------------------------------------------------------------------------------------- Portfolio Turnover Rate 57% 52% 52% 21% 19% ================================================================================================================ Average commissions paid on equity security transactions(2) $0.06 -- -- -- -- ================================================================================================================
(1) Per share amounts have been calculated using the monthly average shares method, which more appropriately presents per share data for this year since the use of the undistributed income method did not accord with results of operations. (2) New SEC disclosure guidelines require that the average commission per share be calculated for the current year only. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 23 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Financial Highlights (continued) - -------------------------------------------------------------------------------- For a share of each class of capital stock outstanding throughout each year:
Class B Shares 1995(1) 1994 1993(1) 1992(1)(2) ================================================================================================= Net Asset Value, Beginning of Year $10.14 $11.00 $10.65 $10.55 - ------------------------------------------------------------------------------------------------- Income (Loss) From Operations: Net investment income 0.11 0.13 0.06 0.01 Net realized and unrealized gain (loss) 2.74 (0.29) 0.73 0.34 - ------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations 2.85 (0.16) 0.79 0.35 - ------------------------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.11) (0.10) (0.08) (0.16) Net realized gains (1.00) (0.60) (0.36) (0.09) - ------------------------------------------------------------------------------------------------- Total Distributions (1.11) (0.70) (0.44) (0.25) - ------------------------------------------------------------------------------------------------- Net Asset Value, End of Year $11.88 $10.14 $11.00 $10.65 - ------------------------------------------------------------------------------------------------- Total Return 28.29% (1.53)% 7.38% 3.28%++ - ------------------------------------------------------------------------------------------------- Net Assets, End of Year (000s) $988,069 $761,000 $1,285,966 $1,122,249 - ------------------------------------------------------------------------------------------------- Ratios to Average Net Assets: Expenses 1.77% 1.80% 1.83% 1.82% Net investment income 0.96 0.83 0.56 0.64 - ------------------------------------------------------------------------------------------------- Portfolio Turnover Rate 57% 52% 52% 21% ================================================================================================= Average commissions paid on equity security transactions(3) $0.06 -- -- -- =================================================================================================
(1) Per share amounts have been calculated using the monthly average shares method, which more appropriately presents per share data for this year since the use of the undistributed income method did not accord with results of operations. (2) For the period from November 6, 1992 (inception date) to December 31, 1992. (3) New SEC disclosure guidelines require that the average commissions per share be calculated for the current year only. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 24 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Financial Highlights (continued) - -------------------------------------------------------------------------------- For a share of each class of capital stock outstanding throughout each year:
Class C Shares 1995(1) 1994 1993(1)(2) ============================================================================== Net Asset Value, Beginning of Year $ 10.14 $ 11.00 $ 10.99 - ------------------------------------------------------------------------------ Income (Loss) From Operations: Net investment income 0.11 0.10 0.07 Net realized and unrealized gain (loss) 2.74 (0.25) 0.38 - ------------------------------------------------------------------------------ Total Income (Loss) From Operations 2.85 (0.15) 0.45 - ------------------------------------------------------------------------------ Less Distributions From: Net investment income (0.11) (0.11) (0.08) Net realized gains (1.00) (0.60) (0.36) - ------------------------------------------------------------------------------ Total Distributions (1.11) (0.71) (0.44) - ------------------------------------------------------------------------------ Net Asset Value, End of Year $ 11.88 $ 10.14 $ 11.00 - ------------------------------------------------------------------------------ Total Return 28.29% (1.41)% 4.09%++ - ------------------------------------------------------------------------------ Net Asset, End of Year (000s) $14,653 $ 5,040 $ 2,214 - ------------------------------------------------------------------------------ Ratios to Average Net Assets: Expenses 1.77% 1.66% 1.68%+ Net investment income 0.96 0.98 0.71+ - ------------------------------------------------------------------------------ Portfolio Turnover Rate 57% 52% 52% ============================================================================== Average commissions paid on equity security transactions(3) $ 0.06 -- -- ==============================================================================
(1) Per share amounts have been calculated using the monthly average shares method, which more appropriately presents per share data for this year since the use of the undistributed income method did not accord with results of operations. (2) For the period from February 4, 1993 (inception date) to December 31, 1993. (3) New SEC disclosure guidelines require that average commissions per share be calculated for current year only. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 25 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Financial Highlights (continued) - -------------------------------------------------------------------------------- For a share of each class of capital stock outstanding throughout each year:
Class Z Shares 1995(1) 1994 1993(1) 1992(2) ============================================================================================ Net Asset Value, Beginning of Year $10.16 $11.02 $10.66 $10.55 - -------------------------------------------------------------------------------------------- Income (Loss) From Operations: Net investment income 0.23 0.20 0.19 0.03 Net realized and unrealized gain (loss) 2.75 (0.24) 0.71 0.33 - -------------------------------------------------------------------------------------------- Total Income (Loss) From Operations 2.98 (0.04) 0.90 0.36 - -------------------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.23) (0.22) (0.18) (0.16) Net realized gains (1.00) (0.60) (0.36) (0.09) - -------------------------------------------------------------------------------------------- Total Distributions (1.23) (0.82) (0.54) (0.25) - -------------------------------------------------------------------------------------------- Net Asset Value, End of Year $11.91 $10.16 $11.02 $10.66 - -------------------------------------------------------------------------------------------- Total Return 29.52% (0.41)% 8.47% 3.38%++ - -------------------------------------------------------------------------------------------- Net Assets, End of Year (000s) $131,357 $101,532 $157,876 $151,427 - -------------------------------------------------------------------------------------------- Ratios to Average Net Assets: Expenses 0.77% 0.64% 0.66% 0.80% Net investment income 1.96 1.99 1.73 1.66 - -------------------------------------------------------------------------------------------- Portfolio Turnover Rate 57% 52% 52% 21% ============================================================================================ Average commissions paid on equity security transactions(3) $0.06 -- -- -- ============================================================================================
(1) Per share amounts have been calculated using the monthly average shares method, which more appropriately presents per share data for this year since the use of the undistributed income method did not accord with results of operations. (2) For the period from November 6, 1992 (inception date) to December 31, 1992. (3) New SEC disclosure guidelines require that the average commissions per share be calculated for current year only. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. - -------------------------------------------------------------------------------- Tax Information (unaudited) - -------------------------------------------------------------------------------- The amount of long-term capital gains paid by the Fund to its shareholders for the fiscal year ended December 31, 1995, was $235,509,609. 26 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Independent Auditors' Report - -------------------------------------------------------------------------------- To Shareholders and Board of Directors of Smith Barney Appreciation Fund Inc.: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Smith Barney Appreciation Fund Inc. as of December 31, 1995, and the related statements of operations, changes in net assets, and financial highlights for the year 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 audit. The statement of changes in net assets for the year ended December 31, 1994 and the financial highlights for each of the years in the four-year period then ended were audited by other auditors whose report thereon, dated February 8, 1995, expressed an unqualified opinion on that statement of changes in net assets and those financial highlights. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian. As to securities purchased and sold but not received or delivered, we performed other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Smith Barney Appreciation Fund Inc. as of December 31, 1995, and the results of its operations, changes in its net assets and financial highlights for the year then ended, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP New York, New York February 9, 1996 27 Smith Barney Appreciation Fund Inc. - -------------------------------------------------------------------------------- Shareholder Information (unaudited) - -------------------------------------------------------------------------------- On April 17, 1995 a Special Meeting of Shareholders of the Fund was held for the purpose of voting on the following matters: 1. To elect ten Directors of the Fund; and 2. To ratify the selection of KPMG Peat Marwick LLP as the independent auditors for the fiscal year ending December 31, 1995. The results of Proposal 1 were as follows: % of % of Outstanding Outstanding Directors Votes For Shares Voted Votes Against Shares Voted ================================================================================ [S] [C] [C] [C] [C] Herbert Barg 123,428,349.837 94.696% 7,037,087.165 5.304% Alfred Bianchetti 123,435,019.626 94.611 7,030,417.376 5.389 Martin Brody 123,426,392.411 94.605 7,039,044.591 5.393 Dwight Crane 123,679,671.353 94.799 6,785,765.649 5.201 Burt Dorsett 123,624,836.151 94.757 6,840,600.851 5.243 Elliot Jaffe 123,543,276.229 94.694 6,922,160.773 5.306 Stephen Kaufman 123,660,206.426 94.784 6,805,230.576 5.216 Joseph McCann 123,705,872.586 94.819 6,759,564.416 5.181 Heath McLendon 123,886,476.509 94.957 6,578,960.493 5.043 Cornelius Rose 123,866,829.801 94.942 6,598,607.201 5.058 The results of Proposal 2 were as follows: % of % of Outstanding Outstanding Votes For Shares Voted Votes Against Shares Voted =============================================================================== 119,371,209.563 91.946% 11,094,227.439 8.054% - -------------------------------------------------------------------------------- Additional Information - -------------------------------------------------------------------------------- Change in Independent Auditor: On October 19, 1994, based upon the recommendation of the Audit Committee of the Fund, the Board of Directors determined not to retain Coopers & Lybrand L.L.P ("Coopers & Lybrand") as the Fund's independent auditor and voted to appoint KPMG Peat Marwick LLP. During the Fund's two most recent fiscal years, Coopers & Lybrand's audit reports contained no adverse opinion or disclaimer of opinion; nor were the reports qualified or modified as to uncertainty, audit scope, or accounting principles. Further, during this same period there were no disagreements with Coopers & Lybrand on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Coopers & Lybrand, would have caused it to make references to the subject matter of such disagreements in connection with its audit reports. The Fund has requested Coopers & Lybrand to provide a letter to the Securities and Exchange Commission stating whether Coopers & Lybrand agrees with the foregoing statements, and to provide the Fund with a copy of such letter. A copy of this letter is available upon request by calling the Fund at (212) 723-9218. 28 Smith Barney Appreciation Fund Inc. Directors Herbert Barg Alfred Bianchetti Martin Brody Dwight Crane Burt N. Dorsett Elliot S. Jaffe Stephen Kaufman Joseph McCann Heath B. McLendon, Chairman Cornelius C. Rose, Jr. Officers Heath B. McLendon Chief Executive Officer Jessica M. Bibliowicz President Lewis E. Daidone Senior Vice President and Treasurer Harry D. Cohen Vice President and Investment Officer Thomas M. Reynolds Controller Christina T. Sydor Secretary SMITH BARNEY - ------------ A Member of TravelersGroup [LOGO] Investment Manager Smith Barney Mutual Funds Management Inc. Distributor Smith Barney Inc. Custodian PNC Bank Shareholder Servicing Agent First Data Investor Services Group, Inc. P.O. Box 9134 Boston, MA 02205-9134 This report is submitted for the general information of the shareholders of Smith Barney Appreciation Fund Inc. It is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus for the Fund, which contains information concerning the Fund's investment policies and expenses as well as other pertinent information. Smith Barney Appreciation Fund Inc. 388 Greenwich Street New York, New York 10013 FD0312 2/96 -----END PRIVACY-ENHANCED MESSAGE-----