As filed with the Securities and Exchange Commission
on July 3, 1995
Registration Nos. 2-34576
811-1940
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 39 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 26 X
SMITH BARNEY APPRECIATION FUND INC.
(Exact name of Registrant as specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices) (Zip Code)
(212) 723-9218
(Registrant's telephone number, including Area Code)
Christina T. Sydor
Secretary
Smith Barney New Jersey Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
(22nd Floor)
(Name and address of agent for service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule
485(b)
X on July 3, 1995 pursuant to Rule 485(b)
on pursuant to Rule 485(a)
The Registrant has previously filed a declaration of
indefinite registration of its shares pursuant to Rule 24f-2
under the Investment Company Act of 1940. Registrant's Rule
24f-2 Notice for the fiscal year ended December 31, 1994 was
filed on February 23, 1995.
SMITH BARNEY APPRECIATION FUND INC.
CONTENTS OF
REGISTRATION STATEMENT
This Registration Statement contains the following pages and
documents:
Front Cover
Contents Page
Cross-Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
SMITH BARNEY APPRECIATION FUND INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No. Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Information Financial
Highlights;
4. General Description of Registrant Cover Page;
Prospectus Summary;
Investment Objective and
Management Policies; Additional
Information;
Annual Report
5. Management of the Fund Management of the
Fund; Distributor;
Additional Information;
Annual Report
6. Capital Stock and Other Securities Investment
Objective and Management Policies;
Dividends, Distributions and
Taxes;
Additional Information
7. Purchase of Securities Being Offered Valuation
of Shares; Purchase of Shares;
Exchange Privilege;
Redemption of Shares;
Minimum Account
Size
Distributor
8. Redemption or Repurchase Purchase of Shares;
Redemption of Shares
; Exchange Privilege
9. Legal Proceedings Not Applicable
Part B Statement of
Item No. Additional Information Caption
10. Cover Cover Page
11. Table of Contents Table of Contents
12. General Information Distributor; Additional
Information
13. Investment Objectives and Policies Investment Objective
and Management
Policies
14. Management of the Fund Management of the
Fund; Distributor
15. Control Persons and Principal Management of the
Fund
Holders of Securities
16. Investment Advisory and Other Services Management of
the Fund; Distributor
17. Brokerage Allocation Investment Objective
and Management Policies
18. Capital Stock and Other Securities Purchase of Shares;
Redemption of Shares;
Taxes
19. Purchase, Redemption and Pricing of Valuation of
Shares; Purchase of Shares;
Securities Being Offered Exchange
Privilege; Redemption of Shares
Distributor
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Data Performance
Data
23. Financial Statements Financial Statements
PART A
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PROSPECTUS JULY 3,
1995
- ------------------------------------------------------------
- --------------------
3100 Breckenridge Blvd., Bldg 200
Duluth, Georgia 30199-0062
(800) 544-5445
Smith Barney Appreciation Fund Inc. (the "Fund") is a
mutual fund which seeks
long-term appreciation of shareholders' capital through
investments primarily
in equity securities.
This Prospectus sets forth concisely certain information
about the Fund,
including sales charges, distribution and service fees and
expenses, that pro-
spective investors will find helpful in making an investment
decision. Invest-
ors are encouraged to read this Prospectus carefully and
retain it for future
reference.
Additional information about the Fund is contained in a
Statement of Addi-
tional Information dated July 3, 1995, as amended or
supplemented from time to
time, that is available upon request and without charge by
calling or writing
the Fund at the telephone number or address set forth above
or by contacting an
Investments Representative of PFS Investments Inc. ("PFS
Investments"). The
Statement of Additional Information has been filed with the
Securities and
Exchange Commission (the "SEC") and is incorporated by
reference into this Pro-
spectus in its entirety.
PFS DISTRIBUTORS
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 9
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 12
- -------------------------------------------------
VALUATION OF SHARES 15
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 15
- -------------------------------------------------
PURCHASE OF SHARES 17
- -------------------------------------------------
EXCHANGE PRIVILEGE 23
- -------------------------------------------------
REDEMPTION OF SHARES 24
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 26
- -------------------------------------------------
PERFORMANCE 27
- -------------------------------------------------
MANAGEMENT OF THE FUND 27
- -------------------------------------------------
DISTRIBUTOR 29
- -------------------------------------------------
ADDITIONAL INFORMATION 30
- -------------------------------------------------
</TABLE>
No person has been authorized to give any information or
to
make any representations in connection with this offering
other
than those contained in this Prospectus and, if given or
made,
such other information or representations must not be
relied upon
as having been authorized by the Company or the
distributor. This
Prospectus does not constitute an offer by the Fund or the
distributor to sell or a solicitation of an offer to buy
any of
the securities offered hereby in any jurisdiction to any
person
to whom it is unlawful to make such offer or solicitation
in such
jurisdiction.
2
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
detailed information
appearing elsewhere in this Prospectus and in the Statement
of Additional
Information. Cross references in this summary are to
headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, diversified
management investment
company whose sole investment objective is to seek long-term
appreciation of
shareholders' capital through investments primarily in
equity securities. See
"Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers two
classes of shares ("Clas-
ses") to investors purchasing through PFS Investments
Representatives designed
to provide them with the flexibility of selecting an
investment best suited to
their needs--the two classes of shares available are: Class
A shares and Class
B shares. In addition to Class A and Class B shares, the
Fund offers Class C
and Class Y shares to investors purchasing through Smith
Barney Inc. ("Smith
Barney"), a distributor of the Fund. Those shares have
different sales charges
and other expenses than Class A and Class B shares which may
affect perfor-
mance.
Class A Shares. Class A shares are sold at net asset value
plus an initial
sales charge of up to 5.00% and are subject to an annual
service fee of 0.25%
of the average daily net assets of the Class. The initial
sales charge may be
reduced or waived for certain purchases. Purchases of Class
A shares, which
when combined with current holdings of Class A shares equal
or exceed $500,000
in the aggregate, will be made at net asset value with no
initial sales charge,
but will be subject to a contingent deferred sales charge
("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See
"Prospectus Summary--Reduced
or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset
value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by
1.00% each year
after the date of purchase to zero. This CDSC may be waived
for certain redemp-
tions. Class B shares bear an annual service fee of 0.25%
and an annual distri-
bution fee of 0.75% of the average daily net assets of the
Class. The Class B
shares' distribution fee may cause that Class to have higher
expenses and pay
lower dividends than Class A shares.
3
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
Class B Shares Conversion Feature. Class B shares will
convert automatically
to Class A shares, based on relative net asset value, eight
years after the
date of the original purchase. Upon conversion, these shares
will no longer be
subject to an annual distribution fee. In addition, a
certain portion of Class
B shares that have been acquired through the reinvestment of
dividends and dis-
tributions ("Class B Dividend Shares") will be converted at
that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
In deciding which Class of Fund shares to purchase,
investors should consider
the following factors, as well as any other relevant facts
and circumstances:
Intended Holding Period. The decision as to which Class of
shares is more
beneficial to an investor depends on the amount and intended
length of his or
her investment. Shareholders who are planning to establish a
program of regular
investment may wish to consider Class A shares; as the
investment accumulates
shareholders may qualify for reduced sales charges and the
shares are subject
to lower ongoing expenses over the term of the investment.
As an alternative,
Class B shares are sold without any initial sales charge so
the entire purchase
price is immediately invested in the Fund. Any investment
return on these addi-
tional invested amounts may partially or wholly offset the
higher annual
expenses of this Class. Because the Fund's future return
cannot be predicted,
however, there can be no assurance that this would be the
case.
Reduced or No Initial Sales Charge. The initial sales
charge on Class A
shares may be waived for certain eligible purchasers, and
the entire purchase
price will be immediately invested in the Fund. In addition,
Class A share pur-
chases, which when combined with current holdings of Class A
shares equal or
exceed $500,000 in the aggregate, will be made at net asset
value with no ini-
tial sales charge, but will be subject to a CDSC of 1.00% on
redemptions made
within 12 months of purchase. The $500,000 aggregate
investment may be met by
adding the purchase to the net asset value of all Class A
shares held in funds
sponsored by Smith Barney listed under "Exchange Privilege."
Class A share pur-
chases may also be eligible for a reduced initial sales
charge. See "Purchase
of Shares". Because the ongoing expenses of Class A shares
may be lower than
those for Class B shares, purchasers eligible to purchase
Class A shares at net
asset value or at a reduced sales charge should consider
doing so.
PFS Investments Representatives may receive different
compensation for sell-
ing each Class of shares. Investors should understand that
the purpose of the
4
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
CDSC on the Class B shares is the same as that of the
initial sales charge on
the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for
a complete descrip-
tion of the sales charges and service and distribution fees
for each Class of
shares and "Valuation of Shares," "Dividends, Distributions
and Taxes" and "Ex-
change Privilege" for other differences between the Classes
of shares.
PURCHASE OF SHARES Shares may be purchased through PFS
Distributors ("PFS"), a
distributor of the Fund. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A and Class B shares
may open an account
by making an initial investment of at least $1,000 for each
account, or $250
for an individual retirement account ("IRA") or a Self-
Employed Retirement
Plan. The initial investment amount will be waived for
accounts establishing a
Systematic Investment Plan. Subsequent investments of at
least $50 may be made
for both Classes. For participants in retirement plans
qualified under Section
403(b)(7) of the Internal Revenue Code of 1986, as amended
(the "Code"), the
minimum initial and subsequent investment requirement for
both Classes is $25.
The minimum initial and subsequent investment requirement
for both Classes
through the Systematic Investment Plan described below is
$50. See "Purchase of
Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a
Systematic Investment
Plan under which they may authorize the automatic placement
of a purchase order
each month or quarter for Fund shares in an amount of at
least $50. See "Pur-
chase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the
New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase
of Shares" and "Re-
demption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management
Inc. (the "Manag-
er") serves as the Fund's investment adviser. The Manager
provides investment
advisory and management services to investment companies
affiliated with Smith
Barney. The Manager is a wholly owned subsidiary of Smith
Barney Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of
Travelers Group Inc.
("Travelers"), a diversified financial services holding
company engaged,
through its subsidiaries, principally in four business
5
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
segments: Investment Services, Consumer Finance Services,
Life Insurance Serv-
ices and Property & Casualty Insurance Services. The Manager
also serves as the
Fund's administrator. See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for
shares of the same
Class of certain other funds of the Smith Barney Mutual
Funds at the respective
net asset values next determined, plus any applicable sales
charge differen-
tial. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the
prior day generally is
quoted daily in the financial section of most newspapers and
is also available
from PFS Shareholder Services (the "Sub-Transfer Agent").
See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment
income and
distributions of net realized capital gains, if any, are
declared and paid
annually. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid
on shares of a Class
will be reinvested automatically, unless otherwise specified
by an investor, in
additional shares of the same Class at current net asset
value. Shares acquired
by dividend and distribution reinvestments will not be
subject to any sales
charge or CDSC. Class B shares acquired through dividend and
distribution
reinvestments will become eligible for conversion to Class A
shares on a pro-
rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no
assurance that the
Fund's investment objective will be achieved. The value of
the Fund's
investments will fluctuate in response to changes in market
and economic
conditions, as well as the financial condition and prospects
of issuers in
which the Fund invests. The Fund may invest in foreign
securities though
management intends to limit such investments to 10% of the
Fund's assets.
Foreign investments may include additional risks associated
with currency
exchange rates, less complete financial information about
individual companies,
less market liquidity and political instability. See
"Investment Objective and
Management Policies."
6
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES The following expense table lists the
costs and estimated
expenses that an investor will incur either directly or
indirectly as a
shareholder of the Fund, based on the maximum sales charge
or maximum CDSC that
may be incurred at the time of purchase or redemption:
<TABLE>
<CAPTION>
CLASS A CLASS B
- ------------------------------------------------------------
- -----------------
<S>
<C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price)
5.00% None
Maximum CDSC (as a percentage of original cost or
redemption
proceeds, whichever is lower)
None* 5.00%
- ------------------------------------------------------------
- -----------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of offering price)
Management Fees
0.62% 0.62%
12b-1 Fees**
0.25% 1.00%
Other Expenses
0.15% 0.18%
- ------------------------------------------------------------
- -----------------
TOTAL FUND OPERATING EXPENSES
1.02% 1.80%
- ------------------------------------------------------------
- -----------------
</TABLE>
* Purchases of Class A shares, which when combined with
current holdings of
Class A shares offered with a sales charge, equal or
exceed $500,000 in the
aggregate, will be made at net asset value with no sales
charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12
months.
** Upon conversion of Class B shares to Class A shares, such
shares will no
longer be subject to a distribution fee.
The sales charge and CDSC set forth in the above table are
the maximum
charges imposed on purchases or redemptions of Fund shares
and investors may
actually pay lower or no charges, depending on the amount
purchased and, in the
case of Class B and certain Class A shares, the length of
time the shares are
held. See "Purchase of Shares" and "Redemption of Shares."
PFS receives an
annual 12b-1 service fee of 0.25% of the value of average
daily net assets of
Class A shares. With respect to Class B shares, PFS receives
an annual 12b-1
fee of 1.00% of the value of average daily net assets of
that Class, consisting
of a 0.25% service fee and a 0.75% distribution fee. "Other
expenses" in the
above table include fees for shareholder services, custodial
fees, legal and
accounting fees, printing costs and registration fees.
7
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
EXAMPLE
The following example is intended to assist an investor in
understanding the
various costs that an investor in the Fund will bear
directly or indirectly.
The example assumes payment by the Fund of operating
expenses at the levels set
forth in the table above. See "Purchase of Shares,"
"Redemption of Shares" and
"Management of the Fund."
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
5 YEARS 10 YEARS*
- ------------------------------------------------------------
- ------------------
<S> <C> <C>
<C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A $60 $81
$104 $169
Class B 68 87
107 191
- ------------------------------------------------------------
- ------------------
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A $60 $81
$104 $169
Class B 18 57
97 191
- ------------------------------------------------------------
- ------------------
</TABLE>
* Ten-year figures assume conversion of Class B shares to
Class A shares at the
end of the eighth year following the date of purchase.
The example also provides a means for the investor to
compare expense levels
of funds with different fee structures over varying
investment periods. To
facilitate such comparison, all funds are required to
utilize a 5.00% annual
return assumption. However, the Fund's actual return will
vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN
THOSE SHOWN ABOVE.
8
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers &
Lybrand L.L.P., inde-
pendent accountants, whose report thereon appears in the
Fund's Annual Report.
The information set out below should be read in conjunction
with the financial
statements and related notes that also appear in the Fund's
Annual Report dated
December 31, 1994, which is incorporated by reference into
the Statement of
Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR ENDED: 12/31/94 12/31/93# 12/31/92**
12/31/91 12/31/90
- ------------------------------------------------------------
- --------------------------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $11.01 $10.66 $10.26
$8.30 $8.66
- ------------------------------------------------------------
- --------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.16 0.15 0.18
0.18 0.23
Net realized and
unrealized
gain/(loss) on
investments (0.24) 0.72 0.46
2.05 (0.26)
- ------------------------------------------------------------
- --------------------------
TOTAL FROM INVESTMENT
OPERATIONS (0.08) 0.87 0.64
2.23 (0.03)
- ------------------------------------------------------------
- --------------------------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.18) (0.16)
(0.15) (0.20) (0.25)
Distributions from cap-
ital gains (0.60) (0.36)
(0.09) (0.07) (0.08)
- ------------------------------------------------------------
- --------------------------
TOTAL DISTRIBUTIONS (0.78) (0.52)
(0.24) (0.27) (0.33)
- ------------------------------------------------------------
- --------------------------
NET ASSET VALUE, END OF
YEAR $10.15 $11.01 $10.66
$10.26 $8.30
- ------------------------------------------------------------
- --------------------------
TOTAL RETURN+ (0.77)% 8.13%
6.29% 26.94% (0.27)%
- ------------------------------------------------------------
- --------------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) $1,689,268 $1,579,248 $1,712,411
$1,752,884 $1,103,293
Ratio of expenses to
average net assets 1.02% 1.03%
0.88% 0.80% 0.80%
Ratio of net income to
average net assets 1.61% 1.35%
1.58% 2.20% 2.90%
- ------------------------------------------------------------
- --------------------------
PORTFOLIO TURNOVER RATE 52% 52%
21% 19% 30%
- ------------------------------------------------------------
- --------------------------
</TABLE>
**All shares in existence prior to November 6, 1992 were
designated as Class A
shares.
+ Total return represents aggregate total return for the
periods indicated and
does not reflect any applicable sales charges.
# Per share amounts have been calculated using the monthly
average shares
method, which more appropriately presents per share data
for this year since
use of the undistributed income method did not accord
with results of opera-
tions.
9
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR ENDED: 12/31/89* 12/31/88* 12/31/87*
12/31/86* 12/31/85*
- ------------------------------------------------------------
- -------------------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $7.04 $6.49 $6.54
$5.82 $4.45
- ------------------------------------------------------------
- -------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.18 0.18 0.14
0.12 0.12
Net realized and
unrealized
gain/(loss) on
investments 1.90 0.69 0.32
1.01 1.38
- ------------------------------------------------------------
- -------------------
TOTAL FROM INVESTMENT
OPERATIONS 2.08 0.87 0.46
1.13 1.50
- ------------------------------------------------------------
- -------------------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.24) (0.19) (0.26)
- -- (0.04)
Distributions from cap-
ital gains (0.22) (0.13) (0.25)
(0.41) (0.09)
- ------------------------------------------------------------
- -------------------
TOTAL DISTRIBUTIONS (0.46) (0.32) (0.51)
(0.41) (0.13)
- ------------------------------------------------------------
- -------------------
NET ASSET VALUE, END OF
YEAR $8.66 $7.04 $6.49
$6.54 $5.82
- ------------------------------------------------------------
- -------------------
TOTAL RETURN+ 29.55% 13.45% 6.95%
19.93% 34.38%
- ------------------------------------------------------------
- -------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) $1,000,433 $491,397 $431,092
$315,804 $179,186
Ratio of expenses to
average net assets 0.90% 0.90% 0.90%
1.00% 1.00%
Ratio of net income to
average net assets 3.20% 2.70% 2.20%
2.10% 2.40%
- ------------------------------------------------------------
- -------------------
PORTFOLIO TURNOVER RATE 24% 25% 26%
30% 62%
- ------------------------------------------------------------
- -------------------
</TABLE>
* Per share data and shares outstanding data adjusted for 4-
for-1 stock split
which occurred on August 7, 1989.
+ Total return represents aggregate total return for the
periods indicated and
does not reflect any applicable sales charge.
10
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED: 12/31/94
12/31/93# 12/31/92*#
- ------------------------------------------------------------
- ------------------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $11.00
$10.65 $10.55
- ------------------------------------------------------------
- ------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.13
0.06 0.01
Net realized and unrealized gain/(loss) on
investments (0.29)
0.73 0.34
- ------------------------------------------------------------
- ------------------
TOTAL FROM INVESTMENT OPERATIONS (0.16)
0.79 0.35
- ------------------------------------------------------------
- ------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.10)
(0.08) (0.16)
Distributions from capital gains (0.60)
(0.36) (0.09)
- ------------------------------------------------------------
- ------------------
TOTAL DISTRIBUTIONS (0.70)
(0.44) (0.25)
- ------------------------------------------------------------
- ------------------
NET ASSET VALUE, END OF YEAR $10.14
$11.00 $10.65
- ------------------------------------------------------------
- ------------------
TOTAL RETURN++ 1.53%
7.38% 3.28%
- ------------------------------------------------------------
- ------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of year (in 000's) $761,000
$1,285,966 $1,122,249
Ratio of expenses to average net assets 1.80%
1.83% 1.82%+
Ratio of net income to average net assets 0.83%
0.56% 0.64%+
- ------------------------------------------------------------
- ------------------
PORTFOLIO TURNOVER RATE 52%
52% 21%
- ------------------------------------------------------------
- ------------------
</TABLE>
*The Fund commenced offering Class B shares on November 6,
1992.
+Annualized.
++ Total return represents aggregate total return for the
periods indicated and
does not reflect any applicable sales charge.
# Per share amounts have been calculated using the monthly
average shares
method, which more appropriately presents per share data
for this year since
use of the undistributed income method did not accord
with results of opera-
tions.
11
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's sole investment objective is long-term
appreciation of sharehold-
ers' capital through investments primarily in equity
securities. This invest-
ment objective may not be changed without the approval of
the holders of a
majority of the Fund's outstanding shares. There can be no
assurance that the
Fund's investment objective will be achieved.
The Fund attempts to achieve its investment objective by
investing primarily
in equity securities (consisting of common stocks, preferred
stocks, warrants,
rights and securities convertible into common stocks) which
are believed to
afford attractive opportunities for investment appreciation.
The core holdings
of the Fund are blue chip companies that are dominant in
their industries. At
the same time, the Fund may hold securities of companies
with prospects of sus-
tained earnings growth and/or companies with a cyclical
earnings record if it
is felt these offer attractive investment opportunities. For
example, the Fund
may invest in the securities of companies whose earnings are
expected to
increase, companies whose securities prices are lower than
are believed justi-
fied in relation to their underlying assets or earning
power, or companies in
which changes are anticipated that would result in improved
operations or prof-
itability. Typically, the Fund invests in middle- and larger-
sized companies,
though it does invest in smaller companies whose securities
may reasonably be
expected to appreciate. The Fund's investments are spread
broadly among differ-
ent industries. The Fund may hold issues traded over-the-
counter as well as
those listed on one or more national exchanges, and the Fund
may make invest-
ments in foreign securities though management intends to
limit such investments
to 10% of the Fund's assets. In analyzing securities for
investment, the Man-
ager considers many different factors, including past growth
records, manage-
ment capability, future earnings prospects and technological
innovation, as
well as general market and economic factors which can
influence the price of
securities. While the Manager considers dividend potential
in selecting invest-
ments, current income for distribution to shareholders is
secondary to the
Fund's principal objective of long-term capital
appreciation. The value of the
Fund's investments, and thus the net asset value of the
Fund's shares, will
fluctuate in response to changes in market and economic
conditions, as well as
the financial condition and prospects of issuers in which
the Fund invests.
Under normal market conditions, the majority of the Fund's
portfolio consists
of common stocks, but it also may contain other equity
securities as described
above, as well as short-term money market instruments for
cash management pur-
poses. When the Manager believes that market conditions
warrant,
12
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
the Fund may adopt a temporary defensive investment posture,
and invest in debt
obligations or increase investment in short-term money
market instruments, and
may engage in repurchase agreement transactions with respect
to the securities
it is authorized to hold (as described below under
"Investments and Strate-
gies").
Further information about the Fund's investment policies,
including a list of
those restrictions on its investment activities that cannot
be changed without
shareholder approval, appears in the Statement of Additional
Information.
INVESTMENTS AND STRATEGIES
LENDING OF PORTFOLIO SECURITIES. From time to time, the
Fund may lend its
portfolio securities to brokers, dealers and other financial
organizations.
These loans may not exceed 33 1/3% of the Fund's total
assets taken at value.
Loans of portfolio securities by the Fund will be
collateralized by cash, let-
ters of credit or obligations of the United States
government or its agencies
and instrumentalities ("U.S. government securities") which
are maintained at
all times in an amount equal to at least 100% of the current
market value of
the loaned securities. By lending its portfolio securities,
the Fund will seek
to generate income by continuing to receive interest on the
loaned securities,
by investing the cash collateral in short-term instruments
or by obtaining
yield in the form of interest paid by the borrower when U.S.
government securi-
ties are used as collateral. The risks in lending portfolio
securities, as with
other extensions of secured credit, consist of possible
delays in receiving
additional collateral or in the recovery of the securities
or possible loss of
rights in the collateral should the borrower fail
financially. Loans will be
made to firms deemed by the Manager to be of good standing
and will not be made
unless, in the judgment of the Manager, the consideration to
be earned from
such loans would justify the risk.
SHORT-TERM INVESTMENTS. As noted above, the Fund may
invest in short-term
money market instruments, such as: U.S. government
securities; certificates of
deposit, time deposits and bankers' acceptances issued by
domestic banks (in-
cluding their branches located outside the United States and
subsidiaries
located in Canada), domestic branches of foreign banks,
savings and loan asso-
ciations and similar institutions; high grade commercial
paper; and repurchase
agreements with respect to such instruments.
REPURCHASE AGREEMENTS. The Fund will enter into repurchase
agreements with
banks which are the issuers of instruments acceptable for
purchase by the
13
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Fund and with certain dealers on the Federal Reserve Bank of
New York's list of
reporting dealers. Under the terms of a typical repurchase
agreement, the Fund
would acquire an underlying obligation for a relatively
short period (usually
not more than one week) subject to an obligation of the
seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon
price and time,
thereby determining the yield during the Fund's holding
period. This arrange-
ment results in a fixed rate of return that is not subject
to market fluctua-
tions during the Fund's holding period. Further information
on repurchase
agreements and the risks associated with such investments
appears in the State-
ment of Additional Information.
PORTFOLIO TRANSACTIONS AND TURNOVER. Portfolio securities
transactions on
behalf of the Fund are placed by the Manager with a number
of brokers and deal-
ers, including Smith Barney. Smith Barney has advised the
Fund that in transac-
tions with the Fund, Smith Barney charges a commission rate
at least as favora-
ble as the rate that Smith Barney charges its comparable
unaffiliated customers
in similar transactions.
The Fund generally does not engage in short-term trading
but intends to pur-
chase securities for long-term capital appreciation. While
the Fund's portfolio
rate has in the past exceeded 100%, the Fund's annual
portfolio turnover rate
is not expected to exceed 100%.
FOREIGN SECURITIES. The Fund may invest in securities of
non-U.S. issuers in
the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts
("EDRs") or similar securities representing interests in the
common stock of
foreign issuers. Management intends to limit the Fund's
investment in these
types of securities, together with other types of foreign
securities, to 10% of
the Fund's net assets. ADRs are receipts, typically issued
by a U.S. bank or
trust company, which evidence ownership of underlying securities
issued by a
foreign corporation. EDRs are receipts issued in Europe
which evidence a simi-
lar ownership arrangement. Generally, ADRs, in registered
form, are designed
for use in the U.S. securities markets and EDRs are designed
for use in Euro-
pean securities markets. The underlying securities are not
always denominated
in the same currency as the ADRs or EDRs. Although
investment in the form of
ADRs or EDRs facilitates trading in foreign securities, it
does not mitigate
the risks associated with investing in foreign securities.
Investments in foreign securities incur higher costs than
investments in U.S.
securities, including higher costs in making securities
transactions as well as
14
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
foreign government taxes which may reduce the investment
return of the Fund. In
addition, foreign investments may include additional risks
associated with cur-
rency exchange rates, less complete financial information
about individual com-
panies, less market liquidity and political instability.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of
the close of regular
trading on the NYSE, on each day that the NYSE is open, by
dividing the value
of the Fund's net assets attributable to each Class by the
total number of
shares of the Class outstanding.
Generally, the Fund's investments are valued at market
value or, in the
absence of a market value with respect to any securities, at
fair value as
determined by or under the direction of the Fund's Board of
Directors. Short-
term investments that mature in 60 days or less are valued
at amortized cost
whenever the Fund's Board of Directors determines that
amortized cost is the
fair value of those instruments. Further information
regarding the Fund's valu-
ation policies is contained in the Statement of Additional
Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute substantially all of
its net investment
income (that is, its income other than its net realized
capital gains) and net
realized capital gains, if any, once a year, normally at the
end of the year in
which earned or at the beginning of the next year.
If a shareholder does not otherwise instruct, dividends
and capital gains
distributions will be reinvested automatically in additional
shares of the same
Class at net asset value, subject to no sales charge or
CDSC. In order to avoid
the application of a 4.00% nondeductible excise tax on
certain undistributed
amounts of ordinary income and capital gains, the Fund may
make an additional
distribution, shortly before December 31 in each year, of
any undistributed
ordinary income or capital gains and expects to pay any
other dividends and
distributions necessary to avoid the application of this
tax.
15
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
The per share dividends on Class B shares of the Fund may
be lower than the
per share dividends on Class A shares principally as a
result of the distribu-
tion fee applicable with respect to Class B shares.
Distributions of capital
gains, if any, will be in the same amount for Class A and
Class B shares.
TAXES
The Fund has qualified and intends to continue to qualify
as a "regulated
investment company" under the Code. To qualify, the Fund
must first meet cer-
tain tests, including the distribution of at least 90% of
its investment com-
pany taxable income (which includes, among other items,
dividends, interest and
the excess of any net short-term capital gains over net long-
term capital loss-
es).
Dividends paid from net investment income and
distributions of net realized
short-term capital gains are taxable to shareholders as
ordinary income,
regardless of how long shareholders have held their Fund
shares and whether
such dividends and distributions are received in cash or
reinvested in addi-
tional Fund shares. Distributions of net realized long-term
capital gains will
be taxable to shareholders as long-term capital gains,
regardless of how long
shareholders have held Fund shares and whether such
distributions are received
in cash or are reinvested in additional Fund shares.
Furthermore, as a general
rule, a shareholder's gain or loss on a sale or redemption
of Fund shares will
be a long-term capital gain or loss if the shareholder has
held the shares for
more than one year and will be a short-term capital gain or
loss if the share-
holder has held the shares for one year or less. Some of the
Fund's dividends
declared from net investment income may qualify for the
Federal dividends-
received deduction for corporations.
Statements as to the tax status of each shareholder's
dividends and distribu-
tions are mailed annually. Each shareholder also will
receive, if appropriate,
various written notices after the close of the Fund's prior
taxable year as to
the Federal income tax status of his or her dividends and
distributions which
were received from the Fund during the Fund's prior taxable
year. Shareholders
should consult their own tax advisors about the status of
the Fund's dividends
and distributions for state and local tax liabilities.
16
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PURCHASE OF SHARES
GENERAL
The Fund offers two Classes of shares to investors
purchasing through PFS
Investments Representatives. Class A shares are sold to
investors with an ini-
tial sales charge and Class B shares are sold without an
initial sales charge
but are subject to a CDSC payable upon certain redemptions.
See "Prospectus
Summary--Alternative Purchase Arrangements" for a discussion
of factors to con-
sider in selecting which Class of shares to purchase.
Initial purchases of Fund shares must be made through a
PFS Investments Rep-
resentative by completing the appropriate application found
in the prospectus.
The completed application should be forwarded to the Sub-
Transfer Agent, 3100
Breckinridge Blvd., Bldg 200, Duluth, Georgia 30199-0062.
Checks drawn on for-
eign banks must be payable in U.S. dollars and have the
routing number of the
U.S. bank encoded on the check. Subsequent investments may
be sent directly to
the Sub-Transfer Agent.
Investors in Class A and Class B shares may open an
account by making an ini-
tial investment of at least $1,000 for each account, or $250
for an IRA or a
Self-Employed Retirement Plan in the Fund. The initial
investment amount will
be waived for accounts establishing a Systematic Investment
Plan. Subsequent
investments of at least $50 may be made for both Classes.
For participants in
retirement plans qualified under Section 403(b)(7) of the
Code, the minimum
initial and subsequent investment requirement for both
Classes in the Fund is
$25. For the Fund's Systematic Investment Plan, the minimum
initial and subse-
quent investment requirement for both Classes is $50. There
are no minimum
investment requirements for Class A shares for employees of
Travelers and its
subsidiaries, including Smith Barney, Directors of the Fund
and their spouses
and children. The Fund reserves the right to waive or change
minimums, to
decline any order to purchase its shares and to suspend the
offering of shares
from time to time. Shares purchased will be held in the
shareholder's account
by the Sub-Transfer Agent. Share certificates are issued
only upon a sharehold-
er's written request to the Sub-Transfer Agent.
Purchase orders received by the Sub-Transfer Agent prior
to the close of reg-
ular trading on the NYSE, on any day the Fund calculates its
net asset value,
are priced according to the net asset value determined on
that day (the "trade
date").
17
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PURCHASE OF SHARES (CONTINUED)
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any
time by purchasing
shares through a service known as the Systematic Investment
Plan. Under the
Systematic Investment Plan, the Sub-Transfer Agent is
authorized through preau-
thorized transfers of $50 or more to charge the regular bank
account or other
financial institution indicated by the shareholder on a
monthly or quarterly
basis to provide systematic additions to the shareholder's
Fund account. A
shareholder who has insufficient funds to complete the
transfer will be charged
a fee of up to $25 by PFS or the Sub-Transfer Agent.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A
shares of the Fund are
as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS
------------------------------
DEALERS'
% OF % OF
REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED
OFFERING PRICE
- ------------------------------------------------------------
- ---------------
<S> <C> <C> <C>
Less than $ 25,000 5.00% 5.26%
4.50%
$ 25,000 - 49,999 4.00 4.17
3.60
50,000 - 99,999 3.50 3.63
3.15
100,000 - 249,999 3.00 3.09
2.70
250,000 - 499,999 2.00 2.04
1.80
500,000 - and over * *
*
- ------------------------------------------------------------
- ---------------
</TABLE>
* PURCHASES OF CLASS A SHARES, WHICH WHEN COMBINED WITH
CURRENT HOLDINGS OF
CLASS A SHARES OFFERED WITH A SALES CHARGE EQUAL OR EXCEED
$500,000 IN THE
AGGREGATE, WILL BE MADE AT NET ASSET VALUE WITHOUT ANY
INITIAL SALES CHARGE,
BUT WILL BE SUBJECT TO A CDSC OF 1.00% ON REDEMPTIONS MADE
WITHIN 12 MONTHS
OF PURCHASE. THE CDSC ON CLASS A SHARES IS PAYABLE TO PFS,
WHICH, IN TURN,
PAYS PFS INVESTMENTS TO COMPENSATE ITS INVESTMENTS
REPRESENTATIVES WHOSE
CLIENTS MAKE PURCHASES OF $500,000 OR MORE. THE CDSC IS
WAIVED IN THE SAME
CIRCUMSTANCES IN WHICH THE CDSC APPLICABLE TO CLASS B
SHARES IS WAIVED. SEE
"DEFERRED SALES CHARGE ALTERNATIVES" AND "WAIVERS OF
CDSC."
The reduced sales charges shown above apply to the
aggregate of purchases of
Class A shares of the Fund made at one time by "any person,"
which includes an
individual, his or her spouse and children, or a trustee or
other fiduciary of
a single trust estate or single fiduciary account. The
reduced sales charge
minimums may also be met by aggregating the purchase with
the net asset value
of all Class A shares offered with a sales charge held in
funds sponsored by
Smith Barney that are offered with a sales charge listed
under "Exchange Privi-
lege."
18
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PURCHASE OF SHARES (CONTINUED)
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value
without a sales
charge in the following circumstances: (a) sales of Class A
shares to Directors
of the Fund and employees of Travelers and its subsidiaries,
or the spouses and
children of such persons (including the surviving spouse of
a deceased Director
or employee, and retired Directors or employees), or sales
to any trust, pen-
sion, profit-sharing or other benefit plan for such persons
provided such sales
are made upon the assurance of the purchaser that the
purchase is made for
investment purposes and that the securities will not be
resold except through
redemption or repurchase; (b) offers of Class A shares to
any other investment
company in connection with the combination of such company
with the Fund by
merger, acquisition of assets or otherwise; (c) shareholders
who have redeemed
Class A shares in the Fund (or Class A shares of another
fund in the Smith Bar-
ney Mutual Funds that are offered with a sales charge equal
to or greater than
the maximum sales charge of the Fund) and who wish to
reinvest their redemption
proceeds in the Fund, provided the reinvestment is made
within 60 calendar days
of the redemption; (d) accounts managed by registered
investment advisory sub-
sidiaries of Travelers; and (e) sales through PFS
Investments Representatives
where the amounts invested represent the redemption proceeds
from investment
companies distributed by an entity other than PFS, on the
condition that (i)
the redemption has occurred no more than 60 days prior to
the purchase of the
shares, (ii) the shareholder paid an initial sales charge on
such redeemed
shares and (iii) the shares redeemed were not subject to a
deferred sales
charge. PFS Investments may pay its Investments
Representatives an amount equal
to 0.40% of the amount invested if the purchase represents
redemption proceeds
from an investment company distributed by an entity other
than PFS. In order to
obtain such discounts, the purchaser must provide sufficient
information at the
time of purchase to permit verification that the purchase
would qualify for the
elimination of the sales charge.
VOLUME DISCOUNTS
The "Amount of Investment" referred to in the sales charge
table set forth
above under "Initial Sales Charge Alternative--Class A
Shares" includes the
purchase of Class A shares in the Fund and of other funds
sponsored by Smith
Barney that are offered with a sales charge listed under
"Exchange Privilege."A
person eligible for a volume discount includes: an
individual; members of a
family unit comprising a husband, wife and minor children; a
trustee or other
19
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PURCHASE OF SHARES (CONTINUED)
fiduciary purchasing for a single fiduciary account
including pension, profit-
sharing and other employee benefit trusts qualified under
Section 401(a) of the
Code, or multiple custodial accounts where more than one
beneficiary is
involved if purchases are made by salary reduction and/or
payroll deductionfor
qualified and nonqualified accounts and transmitted by a
common employer enti-
ty. Employer entity for payroll deduction accounts may
include trade and craft
associations and any other similar organizations.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides
an opportunity for
an investor to obtain a reduced sales charge by aggregating
the investments
over a 13-month period, provided that the investor refers to
such Letter when
placing orders. For purposes of a Letter of Intent, the
"Amount of Investment"
as referred to in the preceding sales charge table includes
purchases of all
Class A shares of the Fund and other funds of the Smith
Barney Mutual Funds
that are offered with a sales charge listed under "Exchange
Privilege" over a
13-month period based on the total amount of intended
purchases plus the value
of all Class A shares previously purchased and still owned.
An alternative is
to compute the 13-month period starting up to 90 days before
the date of execu-
tion of a Letter of Intent. Each investment made during the
period receives the
reduced sales charge applicable to the total amount of the
investment goal. If
the goal is not achieved within the period, the investor
must pay the differ-
ence between the sales charges applicable to the purchases
made and the charges
previously paid, or an appropriate number of escrowed shares
will be redeemed.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined
without an initial
sales charge so that the full amount of an investor's
purchase payment may be
immediately invested in the Fund. A CDSC, however, may be
imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B
shares, and (b)
Class A shares which, when combined with Class A shares
offered with a sales
charge currently held by an investor, equal or exceed
$500,000 in the
aggregate.
Any applicable CDSC will be assessed on an amount equal to
the lesser of the
original cost of the shares being redeemed or their net
asset value at the time
of redemption. CDSC Shares that are redeemed will not be
subject to a
20
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PURCHASE OF SHARES (CONTINUED)
CDSC to the extent that the value of such shares represents:
(a) capital appre-
ciation of Fund assets; (b) reinvestment of dividends or
capital gain distribu-
tions; (c) with respect to Class B shares, shares redeemed
more than five years
after their purchase; or (d) with respect to Class A shares
that are CDSC
Shares, shares redeemed more than 12 months after their
purchase.
Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed
within 12 months of purchase. In circumstances in which the
CDSC is imposed on
Class B shares, the amount of the charge will depend on the
number of years
since the shareholder made the purchase payment from which
the amount is being
redeemed. Solely for purposes of determining the number of
years since a pur-
chase payment, all purchase payments made during a month
will be aggregated and
deemed to have been made on the last day of the preceding
Smith Barney state-
ment month. The following table sets forth the rates of the
charge for redemp-
tions of Class B shares by shareholders.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- --------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth 0.00
Seventh 0.00
Eighth 0.00
- --------------------------------
</TABLE>
Class B shares will convert automatically to Class A
shares eight years after
the date on which they were purchased and thereafter will no
longer be subject
to any distribution fee. There will also be converted at
that time such propor-
tion of Class B Dividend Shares owned by the shareholder as
the total number of
his or her Class B shares converting at the time bears to
the total number of
outstanding Class B shares (other than Class B Dividend
Shares) owned by the
shareholder.
In determining the applicability of any CDSC, it will be
assumed that a
redemption is made first of shares representing capital
appreciation, next of
shares representing the reinvestment of dividends and
capital gains distribu-
tions and finally of other shares held by the shareholder
for the longest
period of time. The length of time that CDSC Shares acquired
through an
exchange have been held will be calculated from the date
that the shares
exchanged were initially
21
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
PURCHASE OF SHARES (CONTINUED)
acquired in one of the other Smith Barney Mutual Funds, and
Fund shares being
redeemed will be considered to represent, as applicable,
capital appreciation
or dividend and capital gain distribution reinvestments in
such other funds.
For Federal income tax purposes, the amount of the CDSC will
reduce the gain or
increase the loss, as the case may be, on the amount
realized on redemption.
The amount of any CDSC will be paid to PFS.
To provide an example, assume an investor purchased 100
Class B shares at $10
per share for a cost of $1,000. Subsequently the investor
acquired 5 additional
shares through dividend reinvestment. During the fifteenth
month after the pur-
chase, the investor decided to redeem $500 of his or her
investment. Assuming
at the time of the redemption the net asset value had
appreciated to $12 per
share, the value of the investor's shares would be $1,260
(105 shares at $12
per share). The CDSC would not be applied to the amount
which represents appre-
ciation ($200) and the value of the reinvested dividend
shares ($60). There-
fore, $240 of the $500 redemption proceeds ($500-$260) would
be charged at a
rate of 4% (the applicable rate for Class B shares) for a
total deferred sales
charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than
1.00% per month of
the value of the shareholder's shares at the time the
withdrawal plan commences
(see "Redemption of Shares--Automatic Cash Withdrawal
Plan"); (c) redemption of
shares within 12 months following the death or disability of
the shareholder;
(d) redemption of shares made in connection with qualified
distributions from
retirement plans or IRAs upon the attainment of age 59 1/2;
(e) involuntary
redemptions, and (f) redemption of shares in connection with
a combination of
the Fund with any investment company by merger, acquisition
of assets or other-
wise. In addition, a shareholder who has redeemed shares
from other funds of
the Smith Barney Mutual Funds may, under certain
circumstances, reinvest all or
part of the redemption proceeds within 60 days and receive
pro rata credit for
any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation by
PFS of the sharehold-
er's status or holdings, as the case may be.
22
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may
be exchanged at the
net asset value next determined for shares of the same Class
in the following
funds of the Smith Barney Mutual Funds, to the extent shares
are offered for
sale in the shareholder's state of residence. Exchanges of
shares are subject
to minimum investment requirements and all shares are
subject to the other
requirements of the fund into which exchanges are made and a
sales charge dif-
ferential may apply.
FUND NAME:
Smith Barney Growth Opportunity Fund
Smith Barney Investment Grade Bond Fund
Class A Exchanges. Class A shares of Smith Barney Mutual
Funds sold without a
sales charge or with a maximum sales charge of less than the
maximum charged by
other Smith Barney Mutual Funds will be subject to the
appropriate "sales
charge differential" upon the exchange of their shares for
Class A shares of a
fund sold with a higher sales charge. The "sales charge
differential" is lim-
ited to a percentage rate no greater than the excess of the
sales charge rate
applicable to purchases of shares of the mutual fund being
acquired in the
exchange over the sales charge rate(s) actually paid on the
mutual fund shares
relinquished in the exchange and on any predecessor of those
shares. For pur-
poses of the exchange privilege, shares obtained through
automatic reinvestment
of dividends and capital gains distributions are treated as
having paid the
same sales charges applicable to the shares on which the
dividends or distribu-
tions were paid; however, if no sales charge was imposed
upon the initial pur-
chase of the shares, any shares obtained through automatic
reinvestment will be
subject to a sales charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder
wishes to exchange all
or a portion of his or her shares in any of the funds
imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B shares
will be subject to
the higher applicable CDSC. Upon an exchange, the new Class
B shares will be
deemed to have been purchased on the same date as the Class
B shares of the
Fund that have been exchanged.
Additional Information Regarding the Exchange Privilege.
Although the
exchange privilege is an important benefit, excessive
exchange transactions can
23
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
be detrimental to the Fund's performance and its
shareholders. The Manager may
determine that a pattern of frequent exchanges is excessive
and contrary to the
best interests of the Fund's other shareholders. In this
event, the Manager
will notify PFS and PFS may, at its discretion, decide to
limit additional pur-
chases and/or exchanges by the shareholder. Upon such a
determination by the
Fund, PFS will provide notice in writing or by telephone to
the shareholder at
least 15 days prior to suspending the exchange privilege and
during the 15-day
period the shareholder will be required to (a) redeem his or
her shares in the
Fund or (b) remain invested in the Fund or exchange into any
of the Smith Bar-
ney Mutual Funds listed under "Exchange Privilege," which
position the share-
holder would be expected to maintain for a significant
period of time. All rel-
evant factors will be considered in determining what
constitutes an abusive
pattern of exchanges.
Exchanges will be processed at the net asset value next
determined, plus any
applicable sales charge differential. Redemption procedures
discussed below are
also applicable for exchanging shares, and exchanges will be
made upon receipt
of all supporting documents in proper form. If the account
registration of the
shares of the fund being acquired is identical to the
registration of the
shares of the fund exchanged, no signature guarantee is
required. A capital
gain or loss for tax purposes will be realized upon the
exchange, depending
upon the cost or other basis of shares redeemed. Before
exchanging shares,
investors should read the current prospectus describing the
shares to be
acquired. The Fund reserves the right to modify or
discontinue exchange privi-
leges upon 60 days' prior notice to shareholders.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their
shares of the Fund at
any time by sending a written request in proper form
directly to the Sub-Trans-
fer Agent, PFS Shareholder Services, at 3100 Breckinridge
Blvd., Bldg. 200,
Duluth, Georgia 30199-0062. Shareholders who, after
reviewing the information
below, have questions on how to redeem their accounts should
contact the Sub-
Transfer Agent at (800) 544-5445 or Spanish-speaking
representatives at (800)
544-7278 or TDD Line for the Hearing Impaired at (800) 824-
1721.
As described under "Purchase of Shares," redemptions of
Class B shares are
subject to a contingent deferred sales charge.
24
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
The request for redemption must be signed by all persons
in whose names the
shares are registered. Signatures must conform exactly to
the account registra-
tion. If the proceeds of the redemption exceed $50,000, or
if the proceeds are
not to be paid to the record owner(s) at the record address,
if the sharehold-
er(s) has had an address change in the past 45 days, or if
the shareholder(s)
is a corporation, sole proprietor, partnership, trust or
fiduciary, signa-
ture(s) must be guaranteed by one of the following: a bank
or trust company; a
broker-dealer; a credit union; a national securities
exchange, registered secu-
rities association or clearing agency; a savings and loan
association; or a
federal savings bank.
Generally, a properly completed Redemption Form with any
required signature
guarantee is all that is required for a redemption. In some
cases, however,
other documents may be necessary. For example, in the case
of shareholders
holding certificates, the certificates for the shares being
redeemed must
accompany the redemption request. Additional documentary
evidence of authority
is required by the Sub-Transfer Agent in the event
redemption is requested by a
corporation, partnership, trust, fiduciary, executor or
administrator. Addi-
tionally, if a shareholder requests a redemption from a
Retirement Plan account
(IRA, SEP or 403(b)(7) ), such request must state whether or
not federal income
tax is to be withheld from the proceeds of the redemption
check.
A shareholder may utilize the Sub-Transfer Agent's FAX to
redeem his or her
account as long as a signature guarantee or other
documentary evidence is not
required. Redemption requests should be properly signed by
all owners of the
account and faxed to the Sub-Transfer Agent at (800) 554-
2374. Facsimile
redemptions may not be available if the shareholder cannot
reach the Sub-Trans-
fer Agent by FAX, whether because all telephone lines are
busy or for any other
reason; in such case, a shareholder would have to use the
Fund's regular
redemption procedure described above. Facsimile redemptions
received by the
Sub-Transfer Agent prior to 4:00 p.m. Eastern time on a
regular business day
will be processed at the net asset value per share
determined that day.
In all cases, the redemption price is the net asset value
per share of the
Fund next determined after the request for redemption is
received in proper
form by the Sub-Transfer Agent. Payment for shares redeemed
will be made by
check mailed within three days after acceptance by the Sub-
Transfer Agent of
the request and any other necessary documents in proper
order. Such payment may
be postponed or the right of redemption suspended as
provided by the rules of
the SEC. If the shares to be redeemed have been recently
purchased by check or
draft, the Sub-Transfer Agent may hold the payment of the
proceeds until the
25
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
purchase check or draft has cleared, usually a period of up
to 15 days. Any
taxable gain or loss will be recognized by the shareholder
upon redemption of
shares.
After following the above-stated redemption guidelines, a
shareholder may
elect to have the redemption proceeds wire-transferred
directly to the share-
holder' bank account of record (defined as a currently
established pre-autho-
rized draft on the shareholder's account with no changes
within the previous 45
days), as long as the bank account is registered in the same
name(s) as the
account with the Fund. If the proceeds are not to be wired
to the bank account
of record, or mailed to the registered owner, a signature
guarantee will be
required from all shareholders. A $25 service fee will be
charged by the Sub-
Transfer Agent to help defray the administrative expense of
executing a wire
redemption. Redemption proceeds will normally be wired to
the designated bank
account on the next business day following the redemption,
and should ordinar-
ily be credited to the shareholder's bank account by his/her
bank within 48 to
72 hours.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal
plan, under which
shareholders who own shares with a value of at least $10,000
may elect to
receive periodic cash payments of at least $50 monthly or
quarterly. Retirement
plan accounts are eligible for automatic cash withdrawal
plans only where the
shareholder is eligible to receive qualified distributions
and has an account
value of at least $5,000. The withdrawal plan will be
carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC
will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per
month of the value of
the shareholder's shares subject to the CDSC at the time the
withdrawal plan
commences. For further information regarding the automatic
cash withdrawal
plan, shareholders should contact the Sub-Transfer Agent.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any
shareholder's
account in the Fund if the aggregate net asset value of the
shares held in the
Fund account is less than $500. (If a shareholder has more
than one account in
this Fund, each account must satisfy the minimum account
size). The Fund, how-
ever, will not redeem shares based solely on market
reductions in net asset
value. Before the Fund exercises such right, shareholders
will receive written
26
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
MINIMUM ACCOUNT SIZE
notice and will be permitted 60 days to bring accounts up to
the minimum to
avoid automatic redemption.
PERFORMANCE
From time to time the Fund may include its total return,
average annual total
return and current dividend return in advertisements and/or
other types of
sales literature. These figures are computed separately for
Class A and Class B
shares of the Fund. These figures are based on historical
earnings and are not
intended to indicate future performance. Total return is
computed for a speci-
fied period of time assuming deduction of the maximum sales
charge, if any,
from the initial amount invested and reinvestment of all
income dividends and
capital gain distributions on the reinvestment dates at
prices calculated as
stated in this Prospectus, then dividing the value of the
investment at the end
of the period so calculated by the initial amount invested
and subtracting
100%. The standard average annual total return, as
prescribed by the SEC, is
derived from this total return, which provides the ending
redeemable value.
Such standard total return information may also be
accompanied with nonstandard
total return information for differing periods computed in
the same manner but
without annualizing the total return or taking sales charges
into account. The
Fund calculates current dividend return for each Class by
annualizing the most
recent monthly distribution and dividing by the net asset
value or the maximum
public offering price (including sales charge) on the last
day of the period
for which current dividend return is presented. The current
dividend return for
each Class may vary from time to time depending on market
conditions, the com-
position of its investment portfolio and operating expenses.
These factors and
possible differences in the methods used in calculating
current dividend return
should be considered when comparing a Class' current return
to yields published
for other investment companies and other investment
vehicles. The Fund may also
include comparative performance information in advertising
or marketing its
shares. Such performance information may include data from
Lipper Analytical
Services, Inc. and other financial publications. The Fund
will include perfor-
mance data for Class A and Class B shares in any
advertisement or information
including performance data of the Fund.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of
the Fund rests with
the Fund's Board of Directors. The Directors approve all
significant agreements
27
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
MANAGEMENT OF THE FUND (CONTINUED)
between the Fund and the companies that furnish services to
the Fund, including
agreements with its distributor, investment adviser,
custodian and transfer
agent. The day-to-day operations of the Fund are delegated
to the Fund's
investment adviser. The Statement of Additional Information
contains background
information regarding each Director and executive officer of
the Fund.
MANAGER -- SBMFM
The Manager, located at 388 Greenwich Street, New York,
New York 10013,
serves as the Fund's investment adviser and manages the day-
to-day operations
of the Fund pursuant to a management agreement entered into
by the Manager and
the Fund. The Manager, which is a registered investment
adviser, has (through
its predecessors) been in the investment counseling business
since 1940 and
renders investment advice to investment companies that had
aggregate assets
under management as of January 31, 1995, in excess of $51.9
billion.
Subject to the supervision and direction of the Fund's
Board of Directors,
the Manager manages the Fund's portfolio in accordance with
the Fund's stated
investment objective and policies, makes investment
decisions for the Fund,
places orders to purchase and sell securities and employs
professional portfo-
lio managers and securities analysts who provide research
services to the Fund.
Investment advisory fees are computed daily and paid
monthly at the following
annual rates of the Fund's average daily net assets 0.55% up
to $250 million;
0.513% of the next $250 million; 0.476% of the next $500
million; 0.439% of the
next $1 billion; 0.402% of the next $1 billion, and 0.365%
of the net assets in
excess of $3 billion. For the fiscal year ended December 31,
1994, the Fund
paid investment advisory fees equal to 0.45% of the value of
its net assets.
PORTFOLIO MANAGEMENT
Harry D. Cohen, Vice President and Investment Officer of
the Fund, is primar-
ily responsible for management of the Fund's assets. Mr.
Cohen has served in
this capacity since January 1979, and manages the day-to-day
operations of the
Fund including making all investment decisions.
Management's discussion and analysis, and additional
performance information
regarding the Fund during the fiscal year ended December 31,
1994 are
28
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
MANAGEMENT OF THE FUND (CONTINUED)
included in the Annual Report dated December 31, 1994. A
copy of the Annual
Report may be obtained upon request and without charge from
the Sub-Transfer
Agent or by writing or calling the Fund at the address or
phone number listed
on page one of this Prospectus.
ADMINISTRATOR
The Manager also serves as the Fund's administrator and
oversees all aspects
of the Fund's administration and operation. Administration
fees are computed
daily and paid monthly at the following annual rates of the
Fund's average
daily net assets: 0.20% up to $250 million; 0.187% of the
next $250 million;
0.174% of the next $500 million; 0.161% of the next $1
billion; 0.148% of the
next billion; and 0.135% of net assets in excess of $3
billion. For the fiscal
year ended December 31, 1994, the Fund paid administration
fees equal to 0.17%
of the value of the average daily net assets of the Fund.
DISTRIBUTOR
PFS is located at 3100 Breckenridge Boulevard, Duluth,
Georgia 30199-0001.
PFS distributes shares of the Fund as a principal
underwriter and as such con-
ducts a continuous offering pursuant to a "best efforts"
arrangement requiring
PFS to take and pay for only such securities as may be sold
to the public. Pur-
suant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the
1940 Act (the "Plan"), PFS is paid an annual service fee
with respect to Class
A and Class B shares of the Fund at the annual rate of 0.25%
of the average
daily net assets of the respective Class. PFS is also paid
an annual distribu-
tion fee with respect to Class B shares at the annual rate
of 0.75% of the
average daily net assets attributable to that Class. Class B
shares that auto-
matically convert to Class A shares eight years after the
date of original pur-
chase will no longer be subject to distribution fees. The
fees are paid to PFS
which, in turn, pays PFS Investments to pay its Investments
Representatives for
servicing shareholder accounts and, in the case of Class B
shares, to cover
expenses primarily intended to result in the sale of those
shares. These
expenses include: advertising expenses; the cost of printing
and mailing pro-
spectuses to potential investors; payments to and expenses
of Investments Rep-
resentatives and other persons who provide support services
in connection with
the distribution of shares; interest and/or carrying
charges; and indirect and
overhead costs of PFS
29
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
DISTRIBUTOR (CONTINUED)
Investments associated with the sale of Fund shares,
including lease, utility,
communications and sales promotion expenses.
The payments to PFS Investments Representatives for
selling shares of a Class
include a commission or fee paid by the investor or PFS at
the time of sale and
a continuing fee for servicing shareholder accounts for as
long as a share-
holder remains a holder of that Class. PFS Investments
Representatives may
receive different levels of compensation for selling
different Classes.
PFS Investments may be deemed to be an underwriter for
purposes of the Secu-
rities Act of 1933. From time to time, PFS or its affiliates
may also pay for
certain non-cash sales incentives provided to PFS
Investments Representatives.
Such incentives do not have any effect on the net amount
invested. In addition
to the reallowances from the applicable public offering
price described above,
PFS may, from time to time, pay or allow additional
reallowances or promotional
incentives, in the form of cash or other compensation to PFS
Investments Repre-
sentatives that sell shares of the Fund.
Payments under the Plan are not tied exclusively to the
distribution and
shareholder service expenses actually incurred by PFS and
the payments may
exceed distribution expenses actually incurred. The Fund's
Board of Directors
will evaluate the appropriateness of the Plan and its
payment terms on a con-
tinuing basis and in so doing will consider all relevant
factors, including
expenses borne by PFS, amounts received under the Plan and
proceeds of the
CDSC.
ADDITIONAL INFORMATION
The Fund was organized as a Maryland corporation pursuant
to Articles of
Incorporation dated September 2, 1969, as amended from time
to time, and is
registered with the SEC as a diversified open-end management
investment compa-
ny. The Fund offers to investors purchasing through PFS
shares of common stock
currently classified into two Classes, A and B. Each Class
represents an iden-
tical interest in the Fund's investment portfolio. As a
result, the Classes
have the same rights, privileges and preferences, except
with respect to: (a)
the designation of each Class; (b) the effect of the
respective sales charges
for each Class; (c) the distribution and/or service fees
borne by each Class
pursuant to the Plan; (d) the expenses allocable exclusively
to each Class; (e)
voting rights on matters exclusively affecting a single
Class; (f) the exchange
privilege of each
30
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
ADDITIONAL INFORMATION (CONTINUED)
Class; and (g) the conversion feature of the Class B shares.
The Fund's Board
of Directors does not anticipate that there will be any
conflicts among the
interests of the holders of the two Classes. The Directors,
on an ongoing
basis, will consider whether any such conflicts exists and,
if so, take appro-
priate action.
PNC Bank, National Association, located at 17th and
Chestnut Streets, Phila-
delphia, Pennsylvania 19103 serves as custodian of the
Fund's investments.
The Shareholder Services Group, Inc. is located at
Exchange Place, Boston,
Massachusetts 02109, and serves as the Fund's transfer
agent.
PFS Shareholder Services is located at 3100 Breckenridge
Blvd., Bldg. 200,
Duluth, Georgia 30199-0062 and serves as the Fund's Sub-
Transfer Agent.
The Fund does not hold annual shareholder meetings. There
normally will be no
meeting of shareholders for the purpose of electing
Directors unless and until
such time as less than a majority of the Directors holding
office have been
elected by shareholders. The Directors will call a meeting
for any purpose upon
written request of shareholders holding at least 10% of the
Fund's outstanding
shares and the Fund will assist shareholders in calling such
a meeting as
required by the 1940 Act. When matters are submitted for
shareholder vote,
shareholders of each Class will have one vote for each full
share owned and a
proportionate, fractional vote for any fractional share held
of that Class.
Generally, shares of the Fund will be voted on a Fund-wide
basis on all matters
except matters affecting only the interests of one Class of
shares.
The Fund sends its shareholders a semi-annual report and
an audited annual
report, each of which includes a list of the investment
securities held by the
Fund at the end of the reporting period. In an effort to
reduce the Fund's
printing and mailing costs, the Fund plans to consolidate
the mailing of its
semi-annual and annual reports by household. This
consolidation means that a
household having multiple accounts with the identical
address of record will
receive a single copy of each report. In addition, the Fund
plans to consoli-
date the mailing of its Prospectuses so that a shareholder
having multiple
accounts (i.e., individual, IRA and/or Self-Employed
Retirement Plan accounts)
will receive a single Prospectus annually. Shareholders who
do not want this
consolidation to apply to their accounts should contact the
Fund's Sub-Transfer
Agent.
31
<PAGE>
- ------------------------------------------------------------
- --------------------
Smith Barney
Appreciation
Fund Inc.
3100 Breckenridge Blvd, Bldg 200
Duluth, Georgia 30199-0062
FDXXXX XX
PART B
Smith Barney
Appreciation Fund Inc.
3100 Breckenridge Blvd.,Bldg. 200
Duluth, Georgia 30199-0062
(800)544-5445
Statement of July 3, 1995
Additional Information
This Statement of Additional Information expands upon and
supplements the information contained in the current
Prospectus of Smith Barney Appreciation Fund Inc. (the
"Fund") dated July 3, 1995, as amended or supplemented from
time to time, and should be read in conjunction with the
Fund's Prospectus. The Fund's Prospectus may be obtained
from an Investments Representative of PFS Investments Inc.
("PFS Investments"), or by writing or calling the Fund at
the address or telephone number set forth above. This
Statement of Additional Information, although not in itself
a prospectus, is incorporated by reference into the
Prospectus in its entirety.
CONTENTS
For ease of reference, the same section headings are used in
both the Prospectus and this Statement of Additional
Information, except where shown below:
Management of the Fund 1
...............................................
........................................
Investment Objective and Management 5
Policies
...............................................
....
Purchase of Shares 10
...............................................
...............................................
..
Redemption of Shares 11
...............................................
............................................
Distributor 12
...............................................
...............................................
...............
Valuation of Shares 13
...............................................
...............................................
.
Exchange Privilege 14
...............................................
...............................................
..
Performance Data (See in the Prospectus 14
"Performances"
..................................
Taxes (See in the Prospectus "Dividends, 16
Distributions and Taxes ......................
Additional Information 18
...............................................
..........................................
Financial Statements 18
...............................................
..............................................
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain
of the organizations that provide services to the Fund.
These organizations are the following:
Name Service
PFS Distributors ("PFS") Distributor
..................................
............
Smith Barney Mutual Funds
Management Inc.
("SBMFM") Investment Adviser and
.................................. Administrator
.............................
PNC Bank, National Association Custodian
("PNC") ........
The Shareholder Services Group,
Inc.("TSSG"),
a subsidiary of First Data Transfer Agent
Corporation
.......................
PFS Shareholder Services Sub-Transfer Agent
..................................
............
These organizations and the functions they perform for the
Fund are discussed in the Prospectus and in this Statement
of Additional Information.
Directors and Executive Officers of the Fund
The Directors and executive officers of the Fund, together
with information as to their principal business occupations
during the past five years, are shown below. Each Director
who is an "interested person" of the Fund, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"),
is indicated by an asterisk.
Herbert Barg, Director (Age 73). Private Investor. His
address is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania
19004.
*Alfred J. Bianchetti, Director (Age 72). Retired;
formerly Senior Consultant to Dean Witter Reynolds Inc. His
address is 19 Circle End Drive, Ramsey, New Jersey 17466.
Martin Brody, Director (Age 73). Vice Chairman of the
Board of Restaurant Associates Industries Corp.; a Director
of Jaclyn, Inc. His address is HMK Associates, Three ADP
Boulevard, Roseland, New Jersey 07068.
Dwight B. Crane, Director (Age 57). Professor, Graduate
School of Business Administration, Harvard University; a
Director of Peer Review Analysis, Inc. His address is
Graduate School of Business Administration, Harvard
University, Boston, Massachusetts 02163.
Burt N. Dorsett, Director (Age 64). Managing Partner of
Dorsett, McCabe Management, Inc., an investment counseling
firm; Director of Research Corporation Technologies, Inc., a
non-profit patent-clearing and licensing firm. His address
is 201 East 62nd Street, New York, New York 10021.
Elliot S. Jaffe, Director (Age 68). Chairman of the Board
and President of The Dress Barn, Inc. His address is 30
Dunnigan Drive, Suffern, New York 10901.
Stephen E. Kaufman, Director (Age 63). Attorney. His
address is 277 Park Avenue, New York, New York 10017.
Joseph J. McCann, Director (Age 64). Financial
Consultant; formerly Vice President of Ryan Homes, Inc.,
Pittsburgh, Pennsylvania. His address is 200 Oak Park Place,
Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment
Officer (Age 61). Managing Director of Smith Barney,
Chairman of the Board of Smith Barney Strategy Advisers Inc.
and President of SBMFM; prior to July 1993, Senior Executive
Vice President of Shearson Lehman Brothers Inc. ("Shearson
Lehman Brothers"), Vice Chairman of Asset Management
Division of Shearson Lehman Brothers, a Director of PanAgora
Asset Management, Inc. and PanAgora Asset Management
Limited. His address is 388 Greenwich Street, New York, New
York 10013.
Cornelius C. Rose, Jr., Director (Age 61). President,
Cornelius C. Rose Associates, Inc., financial consultants,
and Chairman and Director of Performance Learning Systems,
an educational consultant. His address is Fair Oaks,
Enfield, New Hampshire 03748.
Jessica M. Bibliowicz, President (Age 35). Executive Vice
President of Smith Barney; prior to 1994, Director of Sales
and Marketing for Prudential Mutual Funds; prior to 1990,
First Vice President, Asset Management Division of Shearson
Lehman Brothers. Ms. Bibliowicz also serves as President of
25 other mutual funds of the Smith Barney Mutual Funds. Her
address is 388 Greenwich Street, New York, New York 10013.
Harry D. Cohen, Vice President and Investment Officer
(Age 54). President and Director of Smith Barney Investment
Advisors, a division of SBMFM; Executive Vice President of
Smith Barney; prior to July 1993, President of Asset
Management Division of Shearson Lehman Brothers and
Executive Vice President of Shearson Lehman Brothers.
Mr. Cohen also serves as Vice President and Investment
Officer of 5 other mutual funds of the Smith Barney Mutual
Funds. His address is 388 Greenwich Street, New York, New
York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 37). Managing Director of Smith Barney; Chief Financial
Officer of the Smith Barney Mutual Funds; Director and
Senior Vice President of SBMFM. Mr. Daidone also serves as
Senior Vice President and Treasurer of 41 other mutual funds
of the Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 44). Managing Director
of Smith Barney; General Counsel and Secretary of SBMFM. Ms.
Sydor also serves as Secretary of 41 other mutual funds of
the Smith Barney Mutual Funds. Her address is 388 Greenwich
Street, New York, New York 10013.
Isaac B. Grainger, Director Emeritus (Age 100). Director
of the Fund from commencement of the Fund's operations until
February 26, 1990. Director of Hartford Insurance Group;
Director of Safety Railway Service Corporation; Advisory
Director of Union Electric Company, St. Louis, Missouri;
retired President and currently adviser to Chemical Bank.
His address is Chemical Bank, 11 West 51st Street, 2nd
Floor, New York, New York 10019.
A Director Emeritus may attend meetings of the Fund's
Board of Directors but has no voting rights at such
meetings.
Each Director also serves as a director, trustee and/or
general partner of certain other mutual funds for which
Smith Barney serves as distributor. As of February 15, 1995,
the Directors and officers of the Fund, as a group, owned
less than 1.00% of the outstanding common stock of the Fund.
No officer, director or employee of Smith Barney or PFS
or any parent or subsidiary of either of them receives any
compensation from the Fund for serving as an officer or
Director of the Fund. The Fund pays each Director who is not
an officer, director or employee of Smith Barney or PFS or
any of their affiliates a fee of $3,000 per annum plus $500
per meeting attended and each Director Emeritus $1,500 per
annum plus $250 per meeting attended. All Directors are
reimbursed for travel and out-of-pocket expenses. For the
Fund's fiscal year ended December 31, 1994, such fees and
expenses totaled $21,895.
For the calendar year ended December 31, 1994, the Directors
of the Fund were paid the following compensation:
Aggregate
Compensation
Aggregate from the
Compensation Smith Barney
Director from the Fund Mutual Funds
Burt N. Dorsett (11) $5,500 32,300
.....................
.........
Elliot S. Jaffe (11) 5,500 32,300
.....................
............
Heath B. McLendon N/A N/A
.....................
.........
Cornelius C. Rose, 5,500 32,300
Jr. (11)
....................
Isaac B. 3,000 7,000
Grainger**(1)
.....................
.....
*Number of directorships/trusteeships held with
other mutual funds in the Smith Barney Mutual Fund
family
**Director Emeritus
Investment Adviser and Administrator-SBMFM
SBMFM (formerly known as Smith, Barney Advisers, Inc.)
serves as investment adviser to the Fund pursuant to a
written agreement (the "Advisory Agreement"), which was
first approved by the Fund's Board of Directors, including a
majority of the Directors who are not "interested persons"
of the Fund or Smith Barney, on April 1, 1993 and by
shareholders on June 1, 1993. The services provided by SBMFM
under the Advisory Agreement are described in the Prospectus
under "Management of the Fund." SBMFM pays the salary of any
officer and employee who is employed by both it and the
Fund. SBMFM bears all expenses in connection with the
performance of its services. SBMFM is a wholly owned
subsidiary of Smith Barney Holdings Inc. ("Holdings"), which
in turn is a wholly owned subsidiary of The Travelers Inc.
("Travelers").
As compensation for SBMFM's investment advisory services
rendered to the Fund, the Fund pays a fee computed daily and
paid monthly at the following annual rates of the Fund's
average daily net assets: 0.55% up to $250 million; 0.513%
of the next $250 million; 0.476% of the next $500 million;
0.439% of the next $1 billion; 0.402% of the next $1
billion; and 0.365% of the net assets in excess of $3
billion. For the fiscal years ended December 31, 1994, 1993
and 1992, the Fund paid $12,564,785, $13,580,825 and
$9,037,827, respectively, in investment advisory fees.
SBMFM also serves as administrator to the Fund pursuant
to a written agreement dated April 20, 1994 (the
"Administration Agreement"), which was most recently
approved by the Fund's Board of Directors, including a
majority of the Directors who are not "interested persons"
of the Fund or Smith Barney, on July 20, 1994. The services
provided by SBMFM under the Administration Agreement are
described in the Prospectus under "Management of the Fund."
SBMFM pays the salary of any officer and employee who is
employed by both it and the Fund and bears all expenses in
connection with the performance of its services.
As compensation for administrative services rendered to
the Fund, SBMFM receives a fee computed daily and paid
monthly at the following annual rates: 0.20% of the value of
the Fund's average daily net assets up to $250 million;
0.187% of the next $250 million; 0.174% of the next $500
million; 0.161% of the next $1 billion; 0.148% of the next
$1 billion and 0.135% of the net assets in excess of $3
billion. For the fiscal period from April 20, 1994 through
December 31, 1994, the Fund paid $3,228,079 in
administration fees.
The Fund bears expenses incurred in its operation,
including: taxes, interest, brokerage fees and commissions,
if any; fees of Directors who are not officers, directors,
shareholders or employees of Smith Barney or SBMFM; SEC fees
and state Blue Sky qualification fees; charges of
custodians; transfer and dividend disbursing agent's fees;
certain insurance premiums; outside auditing and legal
expenses; costs of maintaining corporate existence; investor
services (including allocated telephone and personnel
expenses); costs of preparation and printing of prospectuses
and statements of additional information for regulatory
purposes and for distribution to existing shareholders;
costs of shareholders' reports and shareholder meetings; and
meetings of the officers or Board of Directors of the Fund.
SBMFM has agreed that if in any fiscal year the aggregate
expenses of the Fund (including fees paid pursuant to the
Advisory and Administration Agreements, but excluding
interest, taxes, brokerage, fees paid pursuant to the Fund's
services and distribution plan, and, with the prior written
consent of the necessary state securities commissions,
extraordinary expenses) exceed the expense limitation of any
state having jurisdiction over the Fund, SBMFM will, to the
extent required by state law, reduce its fees by such excess
expense. Such a fee reduction, if any, will be reconciled on
a monthly basis. The most restrictive state expense
limitation applicable to the Fund would require SBMFM to
reduce its fees in any year that such excess expenses exceed
2.50% of the first $30 million of average net assets, 2.00%
of the next $70 million of average net assets and 1.50% of
the remaining average net assets. No fee reduction was
required for the 1994, 1993 and 1992 fiscal years.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Fund. The
Directors who are not "interested persons" of the Fund have
selected Stroock & Stroock & Lavan to serve as their legal
counsel.
KPMG Peat Marwick LLP ("KPMG Peat Marwick"), independent
accountants, 345 Park Avenue, New York, New York 10154,
serve as auditors of the Fund and will render an opinion on
the Fund's financial statements annually beginning with the
fiscal year ending December 31, 1995. Prior to KPMG Peat
Marwick's appointment, Coopers & Lybrand L.L.P., independent
accountants, served as auditors of the Fund and rendered an
opinion on the Fund's financial statements for the fiscal
year ended December 31, 1994.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and
the policies it employs to achieve its objective. This
section contains supplemental information concerning the
types of securities and other instruments in which the Fund
may invest, the investment policies and portfolio strategies
that the Fund may utilize and certain risks attendant to
such investments, policies and strategies.
Money Market Instruments. As stated in the Prospectus, the
Fund may invest for temporary
defensive purposes in corporate and government bonds and
notes and money market instruments. Money market instruments
in which the Fund may invest include: obligations issued or
guaranteed by the United States government, its agencies or
instrumentalities ("U.S. government securities");
certificates of deposit, time deposits and bankers'
acceptances issued by domestic banks (including their
branches located outside the United States and subsidiaries
located in Canada), domestic branches of foreign banks,
savings and loan associations and similar institutions; high
grade commercial paper; and repurchase agreements with
respect to the foregoing types of instruments. The following
is a more detailed description of such money market
instruments.
Certificates of deposit ("CDs") are short-term,
negotiable obligations of commercial banks. Time deposits
("TDs") are non-negotiable deposits maintained in banking
institutions for specified periods of time at stated
interest rates. Bankers' acceptances are time drafts drawn
on commercial banks by borrowers, usually in connection with
international transactions.
Domestic commercial banks organized under Federal law are
supervised and examined by the Comptroller of the Currency
and are required to be members of the Federal Reserve System
and to be insured by the Federal Deposit Insurance
Corporation (the "FDIC"). Domestic banks organized under
state law are supervised and examined by state banking
authorities but are members of the Federal Reserve System
only if they elect to join. Most state banks are insured by
the FDIC (although such insurance may not be of material
benefit to the Fund, depending upon the principal amount of
CDs of each bank held by the Fund) and are subject to
Federal examination and to a substantial body of Federal law
and regulation. As a result of governmental regulations,
domestic branches of domestic banks are, among other things,
generally required to maintain specified levels of reserves,
and are subject to other supervision and regulation designed
to promote financial soundness.
Obligations of foreign branches of domestic banks, such
as CDs and TDs, may be general obligations of the parent
bank in addition to the issuing branch, or may be limited by
the terms of a specific obligation and governmental
regulation. Such obligations are subject to different risks
than are those of domestic banks or domestic branches of
foreign banks. These risks include foreign economic and
political developments, foreign governmental restrictions
that may adversely affect payment of principal and interest
on the obligations, foreign exchange controls and foreign
withholding and other taxes on interest income. Foreign
branches of domestic banks are not necessarily subject to
the same or similar regulatory requirements that apply to
domestic banks, such as mandatory reserve requirements, loan
limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information
may be publicly available about a foreign branch of a
domestic bank than about a domestic bank. CDs issued by
wholly owned Canadian subsidiaries of domestic banks are
guaranteed as to repayment of principal and interest (but
not as to sovereign risk) by the domestic parent bank.
Obligations of domestic branches of foreign banks may be
general obligations of the parent bank in addition to the
issuing branch, or may be limited by the terms of a specific
obligation and by Federal and state regulation as well as
governmental action in the country in which the foreign bank
has its head office. A domestic branch of a foreign bank
with assets in excess of $1 billion may or may not be
subject to reserve requirements imposed by the Federal
Reserve System or by the state in which the branch is
located if the branch is licensed in that state. In
addition, branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State
Branches") may or may not be required: (a) to pledge to the
regulator by depositing assets with a designated bank within
the state, an amount of its assets equal to 5% of its total
liabilities; and (b) to maintain assets within the state in
an amount equal to a specified percentage of the aggregate
amount of liabilities of the foreign bank payable at or
through all of its agencies or branches within the state.
The deposits of State Branches may not necessarily be
insured by the FDIC. In addition, there may be less publicly
available information about a domestic branch of a foreign
bank than about a domestic bank.
In view of the foregoing factors associated with the
purchase of CDs and TDs issued by foreign branches of
domestic banks or by domestic branches of foreign banks,
SBMFM will carefully evaluate such investments on a case-by-
case basis. Savings and loans associations whose CDs may be
purchased by the Fund are supervised by the Office of Thrift
Supervision and are insured by the Savings Association and
Insurance Fund. As a result, such savings and loan
associations are subject to regulation and examination.
American, European and Continental Depositary Receipts. The
Fund may invest in the securities of foreign and domestic
issuers in the form of American Depositary Receipts ("ADRs")
and European Depositary Receipts ("EDRs"). These securities
may not necessarily be denominated in the same currency as
the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company
that evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which sometimes are referred to
as Continental Depositary Receipts ("CDRs"), are receipts
issued in Europe typically by foreign banks and trust
companies that evidence ownership of either foreign or
domestic securities. Generally, ADRs, in registered form,
are designed for use in U.S. securities markets and EDRs and
CDRs, in bearer form, are designed for use in European
securities markets.
Lending of Portfolio Securities. As stated in the
Prospectus, the Fund has the ability to lend securities from
its portfolio to brokers, dealers and other financial
organizations. Such loans, if and when made, may not exceed
33 1/3% of the Fund's total assets taken at value. The Fund
may not lend its portfolio securities to Smith Barney or its
affiliates unless it has applied for and received specific
authority from the SEC. Loans of portfolio securities by the
Fund will be collateralized by cash, letters of credit or
U.S. government securities that are maintained at all times
in an amount equal to at least 100% of the current market
value of the loaned securities.
In lending its portfolio securities, the Fund can
increase its income by continuing to receive interest on the
loaned securities as well as by either investing the cash
collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when U.S.
government securities are used as collateral. Requirements
of the SEC, which may be subject to future modifications,
currently provide that the following conditions must be met
whenever the Fund's portfolio securities are loaned: (a) the
Fund must receive at least 100% cash collateral or
equivalent securities from the borrower; (b) the borrower
must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (c)
the Fund must be able to terminate the loan at any time; (d)
the Fund must receive reasonable interest on the loan, as
well as an amount equal to any dividends, interest or other
distributions on the loaned securities, and any increase in
market value; (e) the Fund may pay only reasonable custodian
fees in connection with the loan; and (f) voting rights on
the loaned securities may pass to the borrower; however, if
a material event adversely affecting the investment occurs,
the Fund's Board of Directors must terminate the loan and
regain the right to vote the securities. The risks in
lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving
additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made to firms
deemed by SBMFM to be of good standing and will not be made
unless, in the judgment of SBMFM, the consideration to be
earned from such loans would justify the risk. From time to
time, the Fund may return a part of the interest earned from
the investment of collateral received for securities loaned
to: (a) the borrower; and/or (b) a third party, which is
unaffiliated with the Fund or with Smith Barney and, which
is acting as a "finder."
Convertible Securities. Convertible securities are fixed-
income securities that may be converted at either a stated
price or stated rate into underlying shares of common stock.
Convertible securities have general characteristics similar
to both fixed-income and equity securities. Although to a
lesser extent than with fixed-income securities generally,
the market value of convertible securities tends to decline
as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market
value of the underlying common stocks and, therefore, also
will react to variations in the general market for equity
securities. A unique feature of convertible securities is
that as the market price of the underlying common stock
declines, convertible securities tend to trade increasingly
on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock.
When the market price of the underlying common stock
increases, the prices of the convertible securities tend to
rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk,
investments in convertible securities generally entail less
risk than investments in common stock of the same issuer.
As fixed-income securities, convertible securities are
investments that provide for a stable stream of income with
generally higher yields than common stocks. Of course, like
all fixed-income securities, there can be no assurance of
current income because the issuers of the convertible
securities may default on their obligations. Convertible
securities, however, generally offer lower interest or
dividend yields than non-convertible securities of similar
quality because of the potential for capital appreciation. A
convertible security, in addition to providing fixed income,
offers the potential for capital appreciation through the
conversion feature, which enables the holder to benefit from
increases in the market price of the underlying common
stock. There can be no assurance of capital appreciation,
however, because securities prices fluctuate.
Convertible securities generally are subordinated to
other similar but non-convertible securities of the same
issuer, although convertible bonds, as corporate debt
obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior
to common stock, of the same issuer. Because of the
subordination feature, however, convertible securities
typically have lower ratings than similar nonconvertible
securities.
Warrants. Because a warrant does not carry with it the
right to dividends or voting rights with respect to the
securities that the warrant holder is entitled to purchase,
and because it does not represent any rights to the assets
of the issuer, a warrant may be considered more speculative
than certain other types of investments. In addition, the
value of a warrant does not necessarily change with the
value of the underlying securities and a warrant ceases to
have value if it is not exercised prior to its expiration
date. The investment in warrants, valued at the lower of
cost or market, may not exceed 5% of the value of the Fund's
net assets. Included within that amount, but not to exceed
2% of the value of the Fund's net assets, may be warrants
that are not listed on the New York Stock Exchange, Inc.
(the "NYSE") or the American Stock Exchange. Warrants
acquired by the Fund in units or attached to securities may
be deemed to be without value.
Preferred Stock. Preferred stocks, like debt obligations,
are generally fixed-income securities. Shareholders of
preferred stocks normally have the right to receive
dividends at a fixed rate when and as declared by the
issuer's board of directors, but do not participate in other
amounts available for distribution by the issuing
corporation. Dividends on the preferred stock may be
cumulative, and all cumulative dividends usually must be
paid prior to common shareholders receiving any dividends.
Preferred stock dividends must be paid before common stock
dividends and, for that reason, preferred stocks generally
entail less risk than common stocks. Upon liquidation,
preferred stocks are entitled to a specified liquidation
preference, which is generally the same as the par or stated
value, and are senior in right of payment to common stock.
Preferred stocks are, however, equity securities in the
sense that they do not represent a liability of the issuer
and, therefore, do not offer as great a degree of protection
of capital or assurance of continued income as investments
in corporate debt securities. In addition, preferred stocks
are subordinated in right of payment to all debt obligations
and creditors of the issuer, and convertible preferred
stocks may be subordinated to other preferred stock of the
same issuer.
Investment Restrictions
The Fund has adopted the following investment restrictions
for the protection of shareholders. Restrictions 1 through 8
below cannot be changed without approval by the holders of a
majority of the outstanding shares of the Fund, defined as
the lesser of (a) 67% or more of the Fund's shares present
at a meeting, if the holders of more than 50% of the
outstanding shares are present in person or by proxy or (b)
more than 50% of the Fund's outstanding shares. The
remaining restrictions may be changed by the Fund's Board of
Directors at any time. In accordance with these
restrictions, the Fund will not:
1. With respect to 75% of the value of its total
assets, invest more than 5% of its total assets in
securities of any one issuer, except securities issued or
guaranteed by the United States government, or purchase more
than 10% of the outstanding voting securities of such
issuer.
2. Issue senior securities as defined in the 1940 Act
and any rules and orders thereunder, except insofar as the
Fund may be deemed to have issued senior securities by
reason of: (a) borrowing money or purchasing securities on a
when-issued or delayed-delivery basis; (b) purchasing or
selling futures contracts and options on futures contracts
and other similar instruments; and (c) issuing separate
classes of shares.
3. Invest more than 25% of its total assets in
securities, the issuers of which are in the same industry.
For purposes of this limitation, U.S. government securities
and securities of state or municipal governments and their
political subdivisions are not considered to be issued by
members of any industry.
4. Borrow in excess of 33 1/3% of the total value of
its assets (including the amount borrowed) less its
liabilities (not including such borrowings). See the
discussion of "Certain Investment Activities" later in this
Statement of Additional Information.
5. Make loans. This restriction does not apply to: (a)
the purchase of debt obligations in which the Fund may
invest consistent with its investment objective and
policies; (b) repurchase agreements; and (c) loans of its
portfolio securities.
6. Engage in the business of underwriting securities
issued by other persons, except to the extent that the Fund
may technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, in disposing of
portfolio securities.
7. Purchase or sell real estate, real estate mortgages,
real estate investment trust securities, commodities or
commodity contracts, but this shall not prevent the Fund
from: (a) investing in securities of issuers engaged in the
real estate business and securities which are secured by
real estate or interests therein; (b) holding or selling
real estate received in connection with securities it holds;
or (c) trading in futures contracts and options on futures
contracts.
8. Purchase any securities on margin (except for such
short-term credits as are necessary for the clearance of
purchases and sales of portfolio securities) or sell any
securities short (except against the box). For purposes of
this restriction, the deposit or payment by the Fund of
initial or maintenance margin in connection with futures
contracts and related options and options on securities is
not considered to be the purchase of a security on margin.
9. Pledge, hypothecate, mortgage or otherwise encumber
its assets in an amount in excess of 5% of its assets to
secure borrowings for investment purposes or otherwise.
10. Invest more than 2% of the value of its assets in
warrants, provided that warrants acquired in connection with
other securities shall not be subject to this restriction.
11. Invest in mineral-type programs or leases.
12. Purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets would be invested in
securities that are illiquid.
13. Purchase or retain the securities of any issuer if
those officers andDirectors of the Fund or SBMFM owning
individually more than 1 1/2 of 1% of the securities of such
issuer, together own more than 5% of the securities of such
issuer.
14. Purchase the securities of any other open-end
investment company, except through a purchase on the open
market involving no commission or profit to a sponsor or
dealer (other than the customary stock exchange or over-the-
counter brokerage commission) and except as part of a
merger, consolidation or acquisition of assets.
15. Invest for the purpose of exercising control of
management.
16. Purchase securities of any company with a record of
less than three
years' continuous operation if such purchase would cause its
investments in such companies to exceed 5% of the value of
its total assets. (For purposes of this limitation, issuers
include predecessors, sponsors, controlling persons, general
partners, guarantors and originators of underlying assets.)
17. Purchase or write put or call options.
If any percentage restriction described above is complied
with at the time of an
investment, a later increase or decrease in percentage
resulting from a change in values
or assets will not constitute a violation of such
restriction.
Certain of these restrictions were adopted as the result
of undertakings to state
securities commissions and must be complied with only as
long as the Fund's shares are registered in the particular
state. In order to permit the sale of the Fund's shares in
certain states, the Fund may make commitments more
restrictive than the investment restrictions described above
such as those regarding oil and mineral leases and real
estate limited partnerships.
Certain Investment Activities
While the Fund is authorized to borrow money from banks for
purposes of investment (leveraging) and to invest in
securities of foreign issuers, it has no current intention
of engaging in these investment activities and will do so
only when the Fund's Board of Directors determines that
either or both of these activities are in the best interests
of shareholders.
Portfolio Turnover
The Fund generally does not engage in short-term trading but
intends to purchase securities for long-term capital
appreciation. While the Fund's portfolio turnover rate has
in the past exceeded 100%, the Fund's annual portfolio
turnover rate is not expected to exceed 100%. A portfolio
turnover rate of 100% would occur if all of the securities
in the Fund's portfolio were replaced once during a period
of one year. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio
securities for the year by the monthly average value of
portfolio securities. Securities with remaining maturities
of one year or less at the date of acquisition are excluded
from the calculation. For each of the fiscal years ended
December 31, 1994 and 1993, the Fund's portfolio turnover
rate was 52%.
Future portfolio turnover rates may vary greatly from
year to year as well as within a particular year and may be
affected by cash requirements for redemptions of the Fund's
shares as well as by requirements that enable the Fund to
receive favorable tax treatment. Portfolio turnover rates
will largely depend on the level of purchases and
redemptions of Fund shares. Higher portfolio turnover rates
can result in corresponding increases in brokerage
commissions. In addition, to the extent that the Fund
realizes short-term gains as the result of more portfolio
transactions, such gains would be taxable to shareholders at
ordinary income tax rates.
Portfolio Transactions
Decisions to buy and sell securities for the Fund are made
by SBMFM, subject to the overall supervision and review of
the Fund's Board of Directors. Portfolio securities
transactions for the Fund are effected by or under the
supervision of SBMFM.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the
over-the-counter market, but the price of those securities
includes an undisclosed commission or mark-up. Over-the-
counter purchases and sales are transacted directly with
principal market makers except in those cases in which
better prices and executions may be obtained elsewhere. The
cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at
which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down. For the fiscal
years ended December 31, 1994, 1993 and 1992, the Fund paid
total brokerage commissions of $3,433,551, $3,034,751 and
$1,094,930, respectively. The increase in brokerage
commissions from 1992 to 1993 was attributable to a merger
of Appreciation Portfolio, a series of Shearson Lehman
Brothers Investment Portfolios, into the Fund on November
20, 1992, which caused the Fund's net assets to increase
substantially.
In executing portfolio transactions and selecting brokers
or dealers, it is the Fund's policy to seek the best overall
terms available. SBMFM, in seeking the most favorable price
and execution, considers all factors it deems relevant,
including, for example, the price, the size of the
transaction, the reputation, experience and financial
stability of the broker-dealer involved and the quality of
service rendered by the broker-dealer in other transactions.
SBMFM receives research, statistical and quotation services
from several broker-dealers with which it places the Fund's
portfolio transactions. It is possible that certain of the
services received primarily will benefit one or more other
accounts for which SBMFM exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of
services received as a result of portfolio transactions
effected for other accounts. SBMFM's fee under the Advisory
Agreement is not reduced by reason of its receiving such
brokerage and research services. The Fund's Board of
Directors, in its discretion, may authorize SBMFM to cause
the Fund to pay a broker that provides brokerage and
research services to SBMFM a commission in excess of that
which another qualified broker would have charged for
effecting the same transaction. Smith Barney will not
participate in commissions from brokerage given by the Fund
to other brokers or dealers and will not receive any
reciprocal brokerage business resulting therefrom.
In accordance with Section 17(e) of the 1940 Act and Rule
17(e) thereunder, the Fund's Board of Directors has
determined that any portfolio transaction for the Fund may
be executed through Smith Barney or an affiliate of Smith
Barney if, in SBMFM's judgment, the use of Smith Barney or
an affiliate is likely to result in price and execution at
least as favorable as those of other qualified brokers and
if, in the transaction, Smith Barney or the affiliate
charges the Fund a commission rate consistent with those
charged by Smith Barney or an affiliate to comparable
unaffiliated customers in similar transactions. In addition,
under rules recently adopted by the SEC, Smith Barney may
directly execute such transactions for the Fund on the floor
of any national securities exchange, provided: (a) the Board
of Directors has expressly authorized Smith Barney to effect
such transactions; and (b) Smith Barney annually advises the
Fund of the aggregate compensation it earned on such
transactions. For the fiscal year ended December 31, 1994,
the Fund paid $487,203 in brokerage commissions to Smith
Barney, or 14% of the total brokerage commissions paid.
Smith Barney executed 14% of the aggregate dollar amount of
transactions involving commissions during the 1994 fiscal
year. For the 1993 and 1992 fiscal years, the Fund paid
$579,597 and $204,301, respectively, in brokerage
commissions to Smith Barney and/or Shearson Lehman Brothers,
the Fund's distributor prior to Smith Barney.
Even though investment decisions for the Fund are made
independently from those of the other accounts managed by
SBMFM, investments of the kind made by the Fund also may be
made by those other accounts. When the Fund and one or more
accounts managed by SBMFM are prepared to invest in, or
desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in
a manner believed by SBMFM to be equitable. In some cases,
this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained
for or disposed of by the Fund.
PURCHASE OF SHARES
Volume Discounts
The schedule of sales charges on Class A shares described
in the Prospectus applies to purchases made by any
"purchaser," which is defined to include the following: (a)
an individual; (b) an individual's spouse and his or her
children purchasing shares for their account; (c) a trustee
or other fiduciary purchasing shares for a single trust
estate or single fiduciary account; (d) a pension, profit-
sharing or other employee benefit plan qualified under
Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and qualified employee benefit plans
of employers who are "affiliated persons" of each other
within the meaning of the 1940 Act; (e) tax-exempt
organizations enumerated in Section 501(c)(3) or (13) of the
Code; and (f) a trustee or other professional fiduciary
(including a bank, or an investment adviser registered with
the SEC under the Investment Advisers Act of 1940, as
amended) purchasing shares of the Fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to
combine purchase orders to take advantage of volume
discounts should contact a Smith Barney Financial Consultant
or a PFS Investments Representative.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedule in
the Prospectus, apply to any purchase of Class A shares if
the aggregate investment in Class A shares of the Fund and
in Class A shares of other funds of the Smith Barney Mutual
Funds that are offered with a sales charge, including the
purchase being made, of any purchaser is $25,000 or more.
The reduced sales charge is subject to confirmation of the
shareholder's holdings through a check of appropriate
records. The Fund reserves the right to terminate or amend
the combined right of accumulation at any time after written
notice to shareholders. For further information regarding
the combined right of accumulation, shareholders should
contact a Smith Barney Financial Consultant or a PFS
Investments Representative.
Determination of Public Offering Price
The Fund offers its shares to the public on a continuous
basis. The public offering price for a Class A, Class Y and
Class Z share of the Fund is equal to the net asset value
per share at the time of purchase, plus for Class A shares,
an initial sales charge based on the aggregate amount of the
investment. The public offering price for a Class B and
Class C share (and Class A share purchases, including
applicable rights of accumulation, equalling or exceeding
$500,000) is equal to the net asset value per share at the
time of purchase and no sales charge is imposed at the time
of purchase. A contingent deferred sales charge ("CDSC"),
however, is imposed on certain redemptions of Class B and
Class C shares, and of Class A shares when purchased in
amounts equalling or exceeding $500,000. The method of
computation of the public offering price is shown in the
Fund's financial statements incorporated by reference in
their entirety to this Statement of Additional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of
payment postponed (a) for any period during which the NYSE
is closed (other than for customary weekend or holiday
closings), (b) when trading in markets the Fund normally
utilizes is restricted, or an emergency, as determined by
the SEC, exists so that disposal of the Fund's investments
or determination of net asset value is not reasonably
practicable or (c) for such other periods as the SEC by
order may permit for the protection of the Fund's
shareholders.
Distributions in Kind
If the Board of Directors of the Fund determines that it
would be detrimental to the best interests of the remaining
shareholders to make a redemption payment wholly in cash,
the Fund may pay, in accordance with SEC rules, any portion
of a redemption in excess of the lesser of $250,000 or 1% of
the Fund's net assets by distribution in kind of portfolio
securities in lieu of cash. Securities issued as a
distribution in kind may incur brokerage commissions when
shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is
available to shareholders who own shares with a value of at
least $10,000 ($5,000 for retirement plan accounts) and who
wish to receive specific amounts of cash monthly or
quarterly. Withdrawals of at least $50 may be made under the
Withdrawal Plan by redeeming as many shares of the Fund as
may be necessary to cover the stipulated withdrawal payment.
Any applicable CDSC will not be waived on amounts withdrawn
by shareholders that exceed 1.00% per month of the value of
a shareholder's shares at the time the Withdrawal Plan
commences. (With respect to Withdrawal Plans in effect prior
to November 7, 1994, any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00% per month of the
value of a shareholder's shares at the time the Withdrawal
Plan commences.) To the extent withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment
in the Fund, there will be a reduction in the value of the
shareholder's investment and continued withdrawal payments
will reduce the shareholder's investment and ultimately may
exhaust it. Withdrawal payments should not be considered as
income from investment in the Fund. Furthermore, as it
generally would not be advantageous to a shareholder to make
additional investments in the Fund at the same time he or
she is participating in the Withdrawal Plan, purchases by
such shareholders in amounts of less than $5,000 ordinarily
will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan
and who hold their shares in certificate form must deposit
their share certificates with TSSG as agent for Withdrawal
Plan members. All dividends and distributions on shares in
the Withdrawal Plan are reinvested automatically at net
asset value in additional shares of the Fund. Withdrawal
Plans should be set up with a Smith Barney Financial
Consultant. A shareholder who purchases shares directly
through TSSG may continue to do so and applications for
participation in the Withdrawal Plan must be received by
TSSG no later than the eighth day of the month to be
eligible for participation beginning with that month's
withdrawal. For additional information, shareholders should
contact a Smith Barney Financial Consultant.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best
efforts basis pursuant to a written agreement (the
"Distribution Agreement") which was most recently approved
by the Fund's Board of Directors on July 20, 1994. For the
fiscal years ended December 31, 1994, 1993 and 1992, Smith
Barney and/or its predecessor, Shearson Lehman Brothers,
received $1,386,775, $3,119,921 and $9,741,203,
respectively, in sales charges for the sale of Class A
shares and did not reallow any portion thereof to dealers.
For the fiscal years ended December 31, 1994 and 1993, and
for the fiscal period from November 6, 1992 through December
31, 1992, Smith Barney or Shearson Lehman Brothers received
$2,313,010, $1,794,608 and $109,000, respectively,
representing CDSC on redemptions of the Fund's Class B
shares. For the fiscal year ended December 31, 1994, Smith
Barney received $1.00 representing CDSC on redemptions of
the Fund's Class C shares.
Beginning July 3, 1995, PFS serves as one of the Fund's
Distributors with respect to Class A and Class B shares
pursuant to a Distribution Agreement dated April 30, 1995.
When payment is made by the investor, unless otherwise
noted by the investor, the funds will be held as a free
credit balance in the investor's brokerage account and Smith
Barney may benefit from the temporary use of the funds. The
investor may designate another use for the funds prior to
settlement date, such as an investment in a money market
fund (other than Smith Barney Exchange Reserve Fund) of the
Smith Barney Mutual Funds. If the investor instructs Smith
Barney to invest the funds in a Smith Barney money market
fund, the amount of the investment will be included as part
of the average daily net assets of both the Fund and the
Smith Barney money market fund, and affiliates of Smith
Barney that serve the funds in an investment advisory or
administrative capacity will benefit from the fact they are
receiving fees from both such investment companies for
managing these assets computed on the basis of their average
daily net assets. The Fund's Board of Directors has been
advised of the benefits to Smith Barney resulting from these
settlement procedures and will take such benefits into
consideration when reviewing the Advisory, Administration
and Distribution Agreements for continuance.
For the fiscal year ended December 31, 1994, Smith Barney
incurred distribution expenses totaling approximately
$17,425,000, consisting of approximately $132,000 for
advertising, $125,000 for printing and mailing of
Prospectuses, $6,893,000 for support services, $4,602,000 to
Smith Barney Financial Consultants, and $710,000 in accruals
for interest on the excess of Smith Barney expenses incurred
in distribution of the Fund's shares over the sum of the
distribution fees and CDSC received by Smith Barney from the
Fund.
Distributions Arrangements
To compensate Smith Barney and PFS for the services they
provide and for the expense they bear under the Distribution
Agreements, the Fund has adopted a services and distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act.
Under the Plan, the Fund pays Smith Barney or PFS, with
respect to Class A and Class B shares, a service fee,
accrued daily and paid monthly, calculated at the annual
rate of 0.25% of the value of the Fund's average daily net
assets attributable to the Class A, Class B and Class C
shares. In addition, the Fund pays a distribution fee to
Smith Barney with respect to the Class B and Class C shares
and PFS with respect to Class B shares, primarily intended
to compensate Smith Barney and/or PFS for its initial
expense of paying Financial Consultants or Investments
Representatives a commission upon sales of those shares. The
Class B and Class C distribution fee is calculated at the
annual rate of 0.75% of the value of the Fund's average
daily net assets attributable to the shares of the
respective Class.
The following service and distribution fees were incurred
during the periods
indicated:
Service
Fees
For Period For Period
Fiscal Fiscal From From
Year Year 2/4/93 11/6/92
Ended Ended Through Through
12/31/94 12/31/93 12/31/93 12/31/92
Class A $3,818,714 $4,143,053 - $622,309
................
................
Class B - 309,736
................ 2,832,127 3,054,126
................
Class C - $1,600 -
................ 9,200
................
Distribution
Fees
For Period For Period
Fiscal Fiscal From From
Year Year 2/4/93 11/6/92
Ended Ended Through Through
12/31/94 12/31/93 12/31/93 12/31/92
Class B $8,496,382 $9,162,378 - $929,208
................
................
Class C - $4,800 -
................ 27,602
................
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of
the Fund's Board of Directors, including a majority of the
Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the
operation of the Plan or in the Distribution Agreement (the
"Independent Directors"). The Plan may not be amended to
increase the amount of the service and distribution fees
without shareholder approval, and all amendments of the Plan
also must be approved by the Directors and Independent
Directors in the manner described above. The Plan may be
terminated with respect to a Class of the Fund at any time,
without penalty, by vote of a majority of the Independent
Directors or by vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Class.
Pursuant to the Plan, Smith Barney and PFS will provide the
Fund's Board of Directors with periodic reports of amounts
expended under the Plan and the purpose for which such
expenditures were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each
day, Monday through Friday, except days on which the NYSE is
closed. The NYSE currently is scheduled to be closed on New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas, and
on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively.
Because of the differences in distribution fees and Class-
specific expenses, the per share net asset value of each
Class may differ. The following is a description of the
procedures used by the Fund in valuing its assets.
Securities listed on a national securities exchange will
be valued on the basis of the last sale on the date on which
the valuation is made or, in the absence of sales, at the
mean between the closing bid and asked prices. Over-the-
counter securities will be valued on the basis of the bid
price at the close of business on each day, or, if market
quotations for those securities are not readily available,
at fair value, as determined in good faith by the Fund's
Board of Directors. Short-term obligations with maturities
of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Fund's Board of
Directors. Amortized cost involves valuing an instrument at
its original cost to the Fund and thereafter assuming a
constant amortization to maturity of any discount or
premium, regardless of the effect of fluctuating interest
rates on the market value of the instrument. All other
securities and other assets of the Fund will be valued at
fair value as determined in good faith by the Fund's Board
of Directors.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith
Barney Mutual Funds may exchange all or part of their shares
for shares of the same Class of other funds of the Smith
Barney Mutual Funds, to the extent such shares are offered
for sale in the shareholder's state of residence, on the
basis of relative net asset value per share at the time of
exchange as follows:
A.Class A shares of any fund purchased with a sales
charge may be exchanged for Class A shares of any of
the other funds, and the sales charge differential,
if any, will be applied. Class A shares of any fund
may be exchanged without a sales charge for shares
of the funds that are offered without a sales
charge. Class A shares of any fund purchased without
a sales charge may be exchanged for shares sold with
a sales charge, and the appropriate sales charge
differential will be applied.
B.Class A shares of any fund acquired by a previous
exchange of shares purchased with a sales charge may
be exchanged for Class A shares of any of the other
funds, and the sales charge differential, if any,
will be applied.
C.Class B shares of any fund may be exchanged
without a sales charge. Class B shares of the Fund
exchanged for Class B shares of another fund will be
subject to the higher applicable CDSC of the two
funds and, for purposes of calculating CDSC rates
and conversion periods, will be deemed to have been
held since the date the shares being exchanged were
deemed to be purchased.
Dealers other than Smith Barney must notify TSSG of the
investor's prior ownership of Class A shares of Smith Barney
High Income Fund and the account number in order to
accomplish an exchange of shares of Smith Barney High Income
Fund under paragraph B above.
The exchange privilege enables shareholders to acquire
shares of the same Class in a fund with different investment
objectives when they believe that a shift between funds is
an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the
fund shares being acquired may legally be sold. Prior to any
exchange, the shareholder should obtain and review a copy of
the current prospectus of each fund into which an exchange
is being considered. Prospectuses may be obtained from a
Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are
redeemed at the then-current net asset value and, subject to
any applicable CDSC, the proceeds are immediately invested,
at a price as described above, in shares of the fund being
acquired. Smith Barney or PFS reserves the right to reject
any exchange request. The exchange privilege may be modified
or terminated at any time after written notice to
shareholders.
PERFORMANCE DATA
From time to time, the Fund may quote total return of a
Class in advertisements or in reports and other
communications to shareholders. The Fund may include
comparative performance information in advertising or
marketing the Fund's shares. Such performance information
may include the following industry and financial
publications: Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar
Mutual Fund Values, The New York Times, USA Today and The
Wall Street Journal. To the extent any advertisement or
sales literature of the Fund describes the expenses or
performance of any Class it will also disclose such
information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are computed according
to a formula prescribed by the SEC. The formula can be
expressed as follows:
P (1 + T)n
= ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment made at the beginning
of a 1-, 5- or 10-year period at the end
of the 1-, 5- or 10-year period (or
fractional portion thereof), assuming
reinvestment of all dividends and
distributions.
Class A's average annual total return was as follows for
the periods indicated:
(5.73)% for the one-year period beginning on January 1,
1994 through December 31, 1994
6.53% per annum during the five-year period beginning on
January 1, 1990 through December 31, 1994
13.26% per annum during the ten-year period beginning on
January 1, 1985 through December 31, 1994
The average annual total return figures assume that the
maximum 5.00% sales charge has been deducted from the
investment at the time of purchase. If the maximum sales
charge had not been deducted, Class A's average annual total
return for those same periods would have been (0.77)%, 7.62%
and 13.85%, respectively.
Class B's average annual total return was as follows for
the periods indicated:
(6.14)% for the one-year period beginning on January 1,
1994 through December 31, 1994
2.89% for the period from inception (November 6, 1992)
through December 31, 1994
The average annual total return figures assume that the
maximum applicable CDSC has been deducted from the
investment at the time of redemption. If the maximum CDSC
had not been deducted, Class B's average annual total return
for those same periods would have been (1.53)% and 4.18%,
respectively.
Class C's (formerly Class D's) average annual total return
was as follows for the
periods indicated:
(2.34)% for the one-year period beginning on January 1,
1994 through December 31, 1994
1.37% for the period from inception (February 4, 1993)
through December 31, 1994
The average annual total return figures assume that the
maximum applicable CDSC has been deducted from the
investment at the time of redemption. If the maximum CDSC
had not been deducted, Class C's average annual total return
for those same periods would have been (1.41)% and 1.37%,
respectively.
Aggregate Total Return
"Aggregate total return" figures represent the cumulative
change in the value of an investment in the Class for the
specified period and are computed by the following formula:
ERV-P
P
Where: P = a hypothetical initial payment of
$10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment made at the beginning
of a 1-, 5- or 10-year period at the end
of the 1-, 5- or 10-year period (or
fractional portion thereof), assuming
reinvestment of all dividends and
distributions.
Class A's aggregate total return was as follows for the
periods indicated:
(5.73)% for the one-year period beginning on January 1,
1994 through December 31, 1994
37.17% for the five-year period beginning on January 1,
1990 through December 31, 1994
247.49% for the ten-year period beginning on January 1,
1985 through December 31, 1994
These aggregate total return figures assume the maximum
5.00% sales charge has been deducted from the investment at
the time of purchase. If the maximum sales charge had not
been deducted, Class A's aggregate total return for those
same periods would have been (0.77)%, 44.39% and 265.78%,
respectively.
Class B's aggregate total return was as follows for the
periods indicated:
(6.14)% for the one-year period beginning on January 1,
1994 through December 31, 1994
6.32% for the period from inception (November 6, 1992)
through December 31, 1994.
These aggregate total return figures assume that the
maximum applicable CDSC has been deducted from the
investment at the time of redemption. If the maximum
applicable CDSC had not been deducted, Class B's aggregate
total return for those same periods would have been (1.53)%
and 9.21%, respectively.
Class C's aggregate total return was as follows for the
periods indicated:
(2.34)% for the one-year period beginning on January 1,
1994 through December 31, 1994
2.62% for the period from inception (February 4, 1993)
through December 31, 1994
These aggregate total return figures assume that the
maximum applicable CDSC has been deducted from the
investment at the time of redemption. If the maximum CDSC
had not been deducted, Class C's aggregate total return for
those same periods would have been (1.41)% and 2.62%,
respectively.
Performance will vary from time to time depending on
market conditions, the composition of the Fund's portfolio,
operating expenses and the expenses exclusively attributable
to the Class. Consequently, any given performance quotation
should not be considered representative of the Class'
performance for any specified period in the future. Because
performance will vary, it may not provide a basis for
comparing an investment in the Class with certain bank
deposits or other investments that pay a fixed yield for a
stated period of time. Investors comparing the Class'
performance with that of other mutual funds should give
consideration to the quality and maturity of the respective
investment companies' portfolio securities.
It is important to note that the total return figures set
forth above are based on historical earnings and are not
intended to indicate future performance.
TAXES
The following is a summary of certain Federal income tax
considerations that may affect the Fund and its
shareholders. The summary is not intended as a substitute
for individual tax advice and investors are urged to consult
their own tax advisors as to the tax consequences of an
investment in the Fund.
The Fund has qualified and intends to continue to qualify
each year as a regulated investment company under the Code.
To so qualify, the Fund must, among other things, derive
less than 30% of its gross income in each taxable year from
the sale or disposition of stocks, securities, and certain
financial instruments held for less than three months. This
requirement may limit the extent to which the Fund is able
to sell stocks, securities, or financial instruments held
for less than three months. If the Fund (a) qualifies as a
regulated investment company and (b) distributes to its
shareholders at least 90% of its net investment income
(including, for this purpose, its net realized short-term
capital gains), the Fund will not be liable for Federal
income taxes to the extent that its net investment income
and its net realized long- and short-term capital gains, if
any, are distributed to its shareholders.
Gains or losses on the sales of stock or securities by
the Fund generally will be long-term capital gains or losses
if the Fund has held the stock or securities for more than
one year. Gains or losses on sales of stock or securities
held for not more than one year generally will be short-term
capital gains or losses.
Any net long-term capital gains realized by the Fund will
be distributed annually as described in the Prospectus. Such
distributions ("capital gain dividends") will be taxable to
shareholders as long-term capital gains, regardless of how
long a shareholder has held Fund shares, and will be
designated as capital gain dividends in a written notice
mailed by the Fund to shareholders after the close of the
Fund's prior taxable year. If a shareholder receives a
capital gain dividend with respect to any share and if the
share has been held by the shareholder for six months or
less, then any loss on the sale or exchange of such share
will be treated as a long-term capital loss to the extent of
the capital gain dividend.
The portion of the dividends received from the Fund that
qualifies for the dividends-received deduction for
corporations will be reduced to the extent that the Fund
holds dividend-paying stock for less than 46 days (91 days
for certain preferred stocks). The Fund's holding period
will not include any period during which the Fund has
reduced its risk of loss from holding the stock by
purchasing an option to sell or entering into a short sale
of substantially identical stock or securities convertible
into the stock. The holding period for stock may also be
reduced if the Fund diminishes its risk of loss by holding
one or more other positions with respect to substantially
similar or related properties. Dividends-received deductions
will be allowed only with respect to shares that a corporate
shareholder has held for at least 46 days within the meaning
of the same holding period rules applicable to the Fund.
If the Fund is the holder of record of any stock on the
record date for any dividends payable with respect to such
stock, such dividends shall be included in the Fund's gross
income as of the later of (a) the date that such stock
became ex-dividend with respect to such dividends (that is,
the date on which a buyer of the stock would not be entitled
to receive the declared, but unpaid, dividends) or (b) the
date that the Fund acquired such stock. Accordingly, in
order to satisfy its income distribution requirements, the
Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
If a shareholder incurs a sales charge in acquiring
shares of the Fund, disposes of those shares within 90 days
and then acquires shares in a mutual fund for which the
otherwise applicable sales charge is reduced by reason of a
reinvestment right (that is, exchange privilege), the
original sales charge will not be taken into account in
computing gain/loss on the original shares to the extent the
subsequent sales charge is reduced. Instead, it will be
added to the tax basis in the newly acquired shares.
Furthermore, the same rule also applies to a disposition of
the newly acquired or redeemed shares made within 90 days of
the second acquisition. This provision prevents a
shareholder from immediately deducting the sales charge by
shifting his or her investment in a family of mutual funds.
Investors considering buying shares of the Fund on or
just prior to a record date for a taxable dividend or
capital gain distribution should be aware that, regardless
of whether the price of the Fund shares to be purchased
reflects the amount of the forthcoming dividend or
distribution payment, any such payment will be a taxable
dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails fully to report dividend and
interest income, or fails to certify that he or she has
provided a correct taxpayer identification number and that
he or she is not subject to "backup withholding," then the
shareholder may be subject to a 31% backup withholding tax
with respect to (a) any taxable dividends and distributions
and (b) the proceeds of any redemptions of Fund shares. An
individual's taxpayer identification number is his or her
social security number. The backup withholding tax is not an
additional tax and may be credited against a shareholder's
regular Federal income tax liability.
The foregoing is only a summary of certain tax
considerations generally affecting
the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Shareholders are urged
to consult their tax advisors with specific reference to
their own tax situations, including their state and local
tax liabilities.
ADDITIONAL INFORMATION
The Fund was incorporated on September 2, 1969 under the
name The Shearson Appreciation Fund, Inc. On October 28,
1987, November 5, 1992, July 30, 1993 and October 14, 1994,
the Fund changed its name to Shearson Lehman Appreciation
Fund Inc., Shearson Lehman Brothers Appreciation Fund Inc.,
Smith Barney Shearson Appreciation Fund Inc. and Smith
Barney Appreciation Fund Inc., respectively.
PNC Bank, is located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, and serves as the
custodian of the Fund. Under its agreement with the Fund,
PNC Bank holds the Fund's portfolio securities and keeps all
necessary accounts and records. For its services, PNC Bank
receives a monthly fee based upon the month-end market value
of securities held in custody and also receives securities
transaction charges. The assets of the Fund are held under
bank custodianship in compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts
02109, and serves as the Fund's transfer agent. Under the
transfer agency agreement, TSSG maintains the shareholder
account records for the Fund, handles certain communications
between shareholders and the Fund and distributes dividends
and distributions payable by the Fund. For these services,
TSSG receives a monthly fee computed on the basis of the
number of shareholder accounts it maintains for the Fund
during the month and is reimbursed for out-of-pocket
expenses.
PFS Shareholder Services is located at 3100 Breckenridge
Blvd., Bldg. 200, Duluth, Georgia 30199-0062 and Services as
the Funds Sub-Transfer Agent. Under the Sub-Transfer agency
agreement, PFS shareholder Services maintains the
shareholder account records for the Fund, handles certain
communications between the shareholders and the Fund and
distributes dividends and distributions payable by the Fund.
For these Services. PFS Shareholder Services receives a
monthly fee computer on the basis of the number of
shareholder accounts it maintains for the Fund during the
month an is reimbursed for out-of-pocket expenses.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended December
31, 1994 accompanies this Statement of Additional
Information and is incorporated herein by reference in its
entirety.
Smith Barney
Appreciation
Fund Inc.
Statement of
Additional
Information
July 3, 1995
Smith Barney
Appreciation Fund Inc.
3100 Breckenridge Blvd., Bldg. 200
Duluth, Georgia 30199-0062
SMITH BARNEY
A Member of
Travelers Group
SMITH BARNEY APPRECIATION FUND INC.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the year ended
December 31, 1994 and the Report of Independent Accountants
are incorporated by reference to the Definitive 30b-
1 filed on February 27, 1995 as Accession # 0000053798-95-
000097
Included in Part C:
Consents of Independent Accountants
(b) Exhibits
Exhibit No. Description of Exhibits
All references are to the Registrant's
Registration Statement on Form N-8B-1 (the
"Registration Statement") as filed with the SEC on
September 9, 1969 and Form N-1A File No. 2-34576
and 811-1940.
(1)(a) Registrant's Articles of Incorporation,
Articles of Amendment and Articles Supplementary
dated August 25, 1969, May 9, 1983, August 26,
1987, July 20, 1989, November 2, 1992, and July
30, 1993, respectively, are incorporated by
reference to Post-Effective Amendment No. 34 filed
on December 29, 1993 ("Post-Effective Amendment
No.34").
(b) Registrant's Articles of Amendment dated
October 14, 1994, Form of Articles Supplementary
dated November 7, 1994 and Form of Articles of
Amendment dated November 7, 1993 are incorporated
by reference to Post-Effective Amendment No. 37
filed on November 7, 1994 ("Post-Effective
Amendment No. 37").
(2)(a) Registrant's By-Laws are incorporated by
reference to the Registration Statement.
(b) Amendment to Registrant's By-Laws are
incorporated by reference to Post-Effective
Amendment No. 24 filed on February 29, 1988.
(c) Amendment to Registrant's By-Laws dated
January 24, 1987 and October 21, 1987 are
incorporated by reference to Post-Effective
Amendment No. 26.
(3) Not Applicable.
(4)(a) Registrant's form of stock certificate for
Class A, B, C and D shares is incorporated
by reference to Post-Effective Amendment No. 31
filed November 6, 1992 ("Post-Effective Amendment
No. 31").
(5) Investment Advisory Agreement between the
Registrant and Smith Barney Shearson Asset
Management, dated July 30, 1993, is incorporated
by reference to Post-Effective Amendment No. 34.
(6)(a) Distribution Agreement between the Registrant
and Smith Barney Shearson Inc., dated July 30,
1993, is incorporated by reference to Post-
Effective Amendment No. 34.
(b) Form of Distribution Agreement between the
Registrant and PFS Distributors is filed herein.
(7) Not Applicable.
(8) Form of Custodian Agreement between the Registrant
and PNC Bank, National Association is filed
herein.
(9)(a) Administration Agreement between the
Registrant and Smith, Barney Advisers, Inc. dated
April 20, 1994, is incorporated by reference to
Post-Effective Amendment No. 35 filed on July 1,
1994 ("Post-Effective Amendment No. 35").
(b) Transfer Agency Agreement between the
Registrant and The Shareholder Services Group,
Inc., dated April 20, 1993, is incorporated by
reference to Post-Effective Amendment No. 35.
(d) Form of Sub-Transfer Agency Agreement between
the Registrant and PFS Shareholder Services is
filed herein.
(10) Opinion of Counsel regarding shares registered
pursuant to Rule 24e-2 is incorporated by
reference to Post-Effective Amendment No. 38 filed
on February 28, 1995 ("Post-Effective Amendment
No. 38").
(11)(a) Consent of Coopers & Lybrand L.L.P. is filed
herein.
(b) Consent of KPMG Peat Marwick LLP is filed
herein.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Amended Services and Distribution Plan
pursuant to Rule 12b-1 between the Registrant and
Smith Barney Inc., dated November 7, 1994, is
incorporated by reference to Post-Effective
Amendment No. 37.
(16) Performance Data is incorporated by reference
to Post-Effective Amendment No. 26.
Item 25. Persons Controlled by or under Common Control with
Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders
Title of Class by Class as of
December 16, 1994
Common stock, par Class A 185,412
value $.001 per share Class B 96,290
Class C 136
Class Z 19
Item 27. Indemnification
Response to this item is incorporated by reference
to Post-Effective Amendment No. 38.
Item 28(a). Business and Other Connections of Investment
Adviser
Investment Adviser - - Smith Barney Mutual Funds Management
Inc., formerly
known as Smith, Barney Advisers, Inc. ("SBMFM")
SBMFM, through its predecessors, has been in the investment
counseling business since 1934 and was incorporated in
December 1968 under the laws of the State of
Delaware. SBMFM is a wholly owned subsidiary of Smith Barney
Holdings Inc.
(formerly known as Smith Barney Shearson Holdings Inc.),
which in turn is a
wholly owned subsidiary of Travelers Group Inc. (formerly
known as Primerica
Corporation) ("Travelers"). SBMFM is registered as an
investment adviser
under the Investment Advisers Act of 1940 (the "Advisers
Act").
The list required by this Item 28 of the officer and
directors of SBMFM together with information as to any other
business, profession, vocation or employment of a
substantial nature engaged in by such officer and directors
during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by SBMFM
pursuant to the Advisers Act (SEC File No. 801-8314).
Item 29. Principal Underwriters
(a) Smith Barney Inc. ("Smith Barney") currently acts as
distributor for Smith Barney Managed Municipals Fund
Inc., Smith Barney New York Municipals Fund Inc., Smith
Barney California Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Global
Opportunities Fund, Smith Barney Aggressive Growth Fund
Inc., Smith Barney Appreciation Fund Inc., Smith Barney
Principal Return Fund, Smith Barney Managed Governments
Fund Inc., Smith Barney Income Funds, Smith Barney
Equity Funds, Smith Barney Investment Funds Inc., Smith
Barney Precious Metals and Minerals Fund Inc., Smith
Barney Telecommunications Trust, Smith Barney Arizona
Municipals Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., The USA High Yield Fund N.V.,
Garzarelli Sector Analysis Portfolio N.V., Smith Barney
Fundamental Value Fund Inc., Smith Barney Series Fund,
Consulting Group Capital Markets Funds, Smith Barney
Income Trust, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Florida Municipals Fund,
Smith Barney Oregon Municipals Fund, Smith Barney
Funds, Inc., Smith Barney Muni Funds, Smith Barney
World Funds, Inc., Smith Barney Money Funds, Inc.,
Smith Barney Tax-Free Money Fund, Inc., Smith Barney
Variable Account Funds, Smith Barney U.S. Dollar
Reserve Fund (Cayman), Worldwide Special Fund, N.V.,
Worldwide Securities Limited, (Bermuda), Smith Barney
International Fund (Luxembourg) and various series of
unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith
Barney Holdings Inc. (formerly known as Smith Barney
Shearson Holdings Inc.), which in turn is a wholly
owned subsidiary of Travelers Group Inc. (formerly
known as Primerica Corporation) ("Travelers"). On
June 1, 1994, Smith Barney changed its name from Smith
Barney-Shearson Inc. to its current name. The
information required by this Item 29 with respect to
each director, officer and partner of Smith Barney is
incorporated by reference to Schedule A of FORM BD
filed by Smith Barney pursuant to the Securities
Exchange Act of 1934 (SEC File No. 812-8510).
(b) PFS Distributors ("PFS") currently acts as distributor
for Common Sense Growth; Common Sense Growth/Income;
Common Sense Government; Common Sense Money Market;
Common Sense Municipal Bond; CSII Aggressive
Opportunity - A; CSII Aggressive Opportunity - B; CSII
Growth - A; CSII Growth - B; CSII Growth/Income - A;
CSII Growth/Income - B; CSII Government - A; CSII
Government - B; CSII Emerging Growth - A; CSII Emerging
Growth - B; CSII International Equity - A; and CSII
International Equity -B.
On May 8, 1995, PFS changed its name from Common Sense
Distributors to PFS Distributors, its current name. The
information required by this Item 29 with respect to
each director, officer and partner of PFS is
incorporated by reference to Schedule A of FORM BD,
filed by PFS pursuant to the Securities Exchange Act of
1934 (SEC File No. 8-37352).
Item 30. Location of Accounts and Records
(1) Smith Barney Appreciation Fund Inc.
3100 Breckenridge Blvd. Bldg. 200
Duluth, Georgia 30199-0062
(2) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(3) PFS Shareholder Services
3100 Breckenridge Blvd. Bldg. 200
Duluth, Georgia 30199-0062
(4) PNC Bank, National Association
17th & Chestnut Streets
Philadelphia, PA 19103
(5) The Shareholder Services Group, Inc.
One Boston Place
Boston, Massachusetts 02109
Item 31. Management Services
None
Item 32. Undertakings
None
Rule 485(b) Certification
The Registrant hereby certifies that it meets all
of the requirements for effectiveness pursuant to Rule
485(b) under the Securities Act of 1933, as amended.
The Registrant further represents pursuant to Rule
485(b)(2)(iv) that the resignations of Dr. Hardin and Mr.
Frankel as Directors of the Registrant was not due to any
disagreement with the Registrant on any matter relating to
its operation, policies or practices. Messrs. Hardin and
Frankel resigned because of increased board responsibilities
for other investment companies and a desire to reduce travel
and minimize scheduling conflicts with other professional
obligations.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant, SMITH BARNEY APPRECIATION FUND
INC., has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York,
State of New York on the 30th day of
June, 1995 .
SMITH BARNEY APPRECIATION FUND
INC.
By: /s/ Heath B. McLendon
Heath B. McLendon,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of
1933, as amended, this Amendment to the Registration
Statement and the above Power of Attorney has been signed
below by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ Heath B. McLendon Director, Chairman of the Board 06/30/95
Heath B. McLendon
/s/ Lewis E. Daidone Senior Vice President and 06/30/95
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)
/s/ Alfred J. Bianchetti Director
06/30/95
Alfred J. Bianchetti
/s/ Herbert Barg Director
06/30/95
Herbert Barg
/s/ Martin Brody Director
06/30/95
Martin Brody
Signature Title
Date
/s/ Burt N. Dorsett Director
06/30/95
Burt N. Dorsett
/s/ Dwight B. Crane Director
06/30/95
Dwight B. Crane
/s/ Elliott S. Jaffe Director
06/30/95
Elliott S. Jaffe
/s/ Stephen E. Kaufman Director
06/30/95
Stephen E. Kaufman
/s/ Joseph J. McCann Director
06/30/95
Joseph J. McCann
/s/ Cornelius C. Rose, Jr. Director
06/30/95
Cornelius C. Rose
EXHIBITS
1. Form of Distribution Agreement between the
Registrant and PFS Distributors.
2. Form of Custodian Agreement between the
Registrant and PNC Bank, National Association.
3. Form of Sub-Transfer Agency Agreement between
the Registrant and PFS Shareholder Services.
4. Consent of Coopers & Lybrand L.L.P.,
independent accountants.
5 Consent of KPMG Peat Marwick LLP, independent
accountants.
[DESCRIPTION] DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT
[DATE]
PFS Distributors
[address]
Dear Sirs:
This is to confirm that, in consideration of the
agreements hereinafter contained, the undersigned, [Name of
Fund] a [business trust/Corporation] organized under the
laws of the [Commonwealth of Massachusetts/State of
Maryland] has agreed that PFS Distributors ("PFS") shall be,
for the period of this Agreement, the distributor of shares
(the "Shares") of the Fund.
1. Services as Distributor
1.1 PFS will act as agent for the distribution of
Shares covered by the registration statement, prospectus and
statement of additional information then in effect under the
Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act").
1.2 PFS agrees to use its best efforts to solicit
orders for the sale of Shares and will undertake such
advertising and promotion as it believes is reasonable in
connection with such solicitation.
1.3 All activities by PFS as distributor of the
Shares shall comply with all applicable laws, rules, and
regulations, including, without limitation, all rules and
regulations made or adopted by the Securities and Exchange
Commission (the "SEC") or by any securities association
registered under the Securities Exchange Act of 1934.
1.4 PFS will provide one or more persons during
normal business hours to respond to telephone questions
concerning the Fund.
1.5 PFS will transmit any orders received by it for
purchase or redemption of Shares to PFS Shareholder Service
(the "Sub-Transfer Agent"), the Fund's sub-transfer and
dividend agent, or any successor to Sub-Transfer Agent of
which the Fund has notified PFS in writing.
1.6 Whenever in their judgment such action is
warranted for any reason, including, without limitation,
market, economic or political conditions, the Fund's
officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem
it advisable to accept such orders and to make such sales.
1.7 PFS will act only on its own behalf as principal
should it choose to enter into selling agreements with
selected dealers or others.
(For Fund with Plans adopted pursuant to Rule 12b-1)
1.8 The Fund will pay to PFS an annual fee in
connection with the offering and sale of the Shares under
this Agreement. The annual fee paid to PFS, will be
calculated daily and paid monthly by the Fund at an annual
rate set forth in the [Services and Distribution/Shareholder
Servicing] Plan (the "Plan") based on the average daily net
assets of [each portfolio/series of the Fund which has
adopted a Plan/the Fund]; provided that payment shall be
made in any month only to the extent that such payment shall
not exceed the sales charge limitations established by the
National Association of Securities Dealers, Inc.
The annual fee paid to PFS under this Section 1.8 maybe
used by PFS to cover any expenses primarily intended to
result in the sale of Shares, including, but not limited to,
the following:
(a) cost of payments made to PFS Investments
Representatives and other employees of PFS or other
broker-dealers that engage in the distribution of the
Fund's Shares;
(b) payments made to, and expenses of, persons who
provide support services in connection with the
distribution of the Fund's Shares, including, but not
limited to, office space and equipment, telephone
facilities, answering routine inquiries regarding the
Fund, processing shareholder transactions and providing
any other shareholder services;
(c) costs relating to the formulation and
implementation of marketing and promotional activities,
including, but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other
mass media advertising;
(d) costs of printing and distributing prospectuses
and reports of the Fund to prospective shareholders of
the Fund;
(e) costs involved in preparing, printing and
distributing sales literature pertaining to the Fund;
and
(f) costs involved in obtaining whatever
information, analyses and reports with respect to
marketing and promotional activities that the Fund may,
from time to time, deem advisable;
except that distribution expenses shall not include any
expenditures in connection with services which PFS, any of
its affiliates, or any other person have agreed to bear
without reimbursement.
1.9 PFS shall prepare and deliver reports to the
Treasurer of the Fund and to the sub-investment advisor
and/or administrator of the Fund on a regular, at least
quarterly, basis, showing the distribution expenses incurred
pursuant to this Agreement and the Plan and the purposes
therefor, as well as any supplemental reports as the
Directors, from time to time, may reasonably request.
2. Duties of the Fund
2.1 The Fund agrees at its own expense to execute
any and all documents, to furnish any and all information
and to take any other actions that may be reasonably
necessary in connection with the qualification of the Shares
for sale in those states that PFS may designate.
2.2 The Fund shall furnish from time to time for use
in connection with the sale of the Shares, such information
reports with respect to the Fund and its Shares as PFS may
reasonably request, all of which shall be signed by one or
more of the Fund's duly authorized officers; and the Fund
warrants that the statements contained in any such reports,
when so signed by the Fund's officers, shall be true and
correct. The Fund shall also furnish PFS upon request with
(a) annual audits of the Fund's books and accounts made by
independent certified public accountants regularly retained
by the Fund; (b) semi-annual unaudited financial statements
pertaining to the Fund; (c) quarterly earnings statements
prepared by the Fund; (d) a monthly itemized list of the
securities in the Fund's portfolio; (e) monthly balance
sheets as soon as practicable after the end of each month;
and (f) from time to time such additional information
regarding the Fund's financial condition as PFS may
reasonably request.
3. Representations and Warranties
The Fund represents to PFS that all registration
statements, prospectuses and statements of additional
information filed by the Fund with the SEC under the 1933
Act and the 1940 Act with respect to the Shares have been
carefully prepared in conformity with the requirements of
the 1933 Act, the 1940 Act and the rules and regulations of
the SEC thereunder. As used in this Agreement, the terms
"registration statement", "prospectus" and "statement of
additional information" shall mean any registration
statement, prospectus and statement of additional
information filed by the Fund with the SEC and any
amendments and supplements thereto which at any time shall
have been filed with the SEC. The Fund represents and
warrants to PFS that any registration statement, prospectus
and statement of additional information, when such
registration statement becomes effective, will include all
statements required to be contained therein in conformance
with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of fact
contained in any registration statement, prospectus or
statement of additional information will be true and correct
when such registration statement becomes effective; and that
neither any registration statement nor any prospectus or
statement of additional information when such registration
statement becomes effective will include an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading to a purchaser of the Fund's Shares.
The Fund may, but shall not be obligated to, propose from
time to time such amendment or amendments to any
registration statement and such supplement or supplements to
any prospectus or statement of additional information as, in
the light of future developments, may, in the opinion of the
Fund's counsel, be necessary or advisable. If the Fund
shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt
by the Fund of a written request from PFS to do so, PFS may,
at its option, terminate this Agreement. The Fund shall not
file any amendment to any registration statement or
supplement to any prospectus or statement of additional
information without giving PFS reasonable notice thereof in
advance; provided, however, that nothing contained in this
Agreement shall in any way limit the Fund's right to file at
any time such amendments to any registration statement
and/or supplements to any prospectus or statement of
additional information, of whatever character, as the Fund
may deem advisable, such right being in all respects
absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes PFS and dealers to use any
prospectus or statement of additional information furnished
by the Fund from time to time, in connection with the sale
of the Shares. The Fund agrees to indemnify, defend and
hold PFS, its several officers and directors, and any person
who controls PFS within the meaning of Section 15 of the
1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or
liabilities and any such counsel fees incurred in connection
therewith) which PFS, its officers and directors, or any
such controlling person, may incur under the 1933 Act or
under common law or otherwise, arising out of or based upon
any untrue statement, or alleged untrue statement, of a
material fact contained in any registration statement, any
prospectus or any statement of additional information or
arising out of or based upon any omission, or alleged
omission, to state a material fact required to be stated in
any registration statement, any prospectus or any statement
of additional information or necessary to make the
statements in any thereof not misleading; provided, however,
that the Fund's agreement to indemnify PFS, its officers or
directors, and any such controlling person shall not be
deemed to cover any claims, demands, liabilities or expenses
arising out of any statements or representations made by PFS
or its representatives or agents other than such statements
and representations as are contained in any prospectus or
statement of additional information and in such financial
and other statements as are furnished to PFS pursuant to
paragraph 2.2 of this Agreement; and further provided that
the Fund's agreement to indemnify PFS and the Fund's
representations and warranties herein before set forth in
paragraph 3 of this Agreement shall not be deemed to cover
any liability to the Fund or its shareholders to which PFS
would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its
duties, or by reason of PFS's reckless disregard of its
obligations and duties under this Agreement. The Fund's
agreement to indemnify PFS, its officers and directors, and
any such controlling person, as aforesaid, is expressly
conditioned upon the Fund's being notified of any action
brought against PFS, its officers or directors, or any such
controlling person, such notification to be given by letter
or by telegram addressed to the Fund at its principal office
in New York, New York and sent to the Fund by the person
against whom such action is brought, within ten days after
the summons or other first legal process shall have been
served. The failure so to notify the Fund of any such
action shall not relieve the Fund from any liability that
the Fund may have to the person against whom such action is
brought by reason of any such untrue, or alleged untrue,
statement or omission, or alleged omission, otherwise than
on account of the Fund's indemnity agreement contained in
this paragraph 4.1. The Fund will be entitled to assume the
defense of any suit brought to enforce any such claim,
demand or liability, but, in such case, such defense shall
be conducted by counsel of good standing chosen by the Fund
and approved by PFS. In the event the Fund elects to assume
the defense of any such suit and retains counsel of good
standing approved by PFS, the defendant or defendants in
such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but if the Fund does not
elect to assume the defense of any such suit, or if PFS does
not approve of counsel chosen by the Fund, the Fund will
reimburse PFS, its officers and directors, or the
controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses of any
counsel retained by PFS or them. The Fund's indemnification
agreement contained in this paragraph 4.1 and the Fund's
representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of
any investigation made by or on behalf of PFS, its officers
and directors, or any controlling person, and shall survive
the delivery of any of the Fund's Shares. This agreement of
indemnity will inure exclusively to PFS's benefit, to the
benefit of its several officers and directors, and their
respective estates, and to the benefit of the controlling
persons and their successors. The Fund agrees to notify PFS
promptly of the commencement of any litigation or
proceedings against the Fund or any of its officers or
trustees in connection with the issuance and sale of any of
the Fund's Shares.
4.2 PFS agrees to indemnify, defend and hold the
Fund, its several officers and [Directors/Trustees], and any
person who controls the Fund within the meaning of Section
15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including
the costs of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection
therewith) that the Fund, its officers or
[Directors/Trustees] or any such controlling person may
incur under the 1933 Act, or under common law or otherwise,
but only to the extent that such liability or expense
incurred by the Fund, its officers or [Directors/Trustees],
or such controlling person resulting from such claims or
demands shall arise out of or be based upon any untrue, or
alleged untrue, statement of a material fact contained in
information furnished in writing by PFS to the Fund and used
in the answers to any of the items of the registration
statement or in the corresponding statements made in the
prospectus or statement of additional information, or shall
arise out of or be based upon any omission, or alleged
omission, to state a material fact in connection with such
information furnished in writing by PFS to the Fund and
required to be stated in such answers or necessary to make
such information not misleading. PFS's agreement to
indemnify the Fund, its officers or [Directors/Trustees],
and any such controlling person, as aforesaid, is expressly
conditioned upon PFS being notified of any action brought
against the Fund, its officers or [Directors/Trustees], or
any such controlling person, such notification to be given
by letter or telegram addressed to PFS at its principal
office in New York, New York and sent to PFS by the person
against whom such action is brought, within ten days after
the summons or other first legal process shall have been
served. PFS shall have the right to control the defense of
such action, with counsel of its own choosing, satisfactory
to the Fund, if such action is based solely upon such
alleged misstatement or omission on PFS's part, and in any
other event the Fund, its officers or [Directors/Trustees]
or such controlling person shall each have the right to
participate in the defense or preparation of the defense of
any such action. The failure to so notify PFS of any such
action shall not relieve PFS from any liability that PFS may
have to the Fund, its officers or [Directors/Trustees], or
to such controlling person by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission,
otherwise than on account of PFS's indemnity agreement
contained in this paragraph 4.2. PFS agrees to notify the
Fund promptly of the commencement of any litigation or
proceedings against PFS or any of its officers or directors
in connection with the issuance and sale of any of the
Fund's Shares.
4.3 In case any action shall be brought against any
indemnified party under paragraph 4.1 or 4.2, and it shall
notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in,
and, to the extent that it shall wish to do so, to assume
the defense thereof with counsel satisfactory to such
indemnified party. If the indemnifying party opts to assume
the defense of such action, the indemnifying party will not
be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than (a)
reasonable costs of investigation or the furnishing of
documents or witnesses and (b) all reasonable fees and
expenses of separate counsel to such indemnified party if
(i) the indemnifying party and the indemnified party shall
have agreed to the retention of such counsel or (ii) the
indemnified party shall have concluded reasonably that
representation of the indemnifying party and the indemnified
party by the same counsel would be inappropriate due to
actual or potential differing interests between them in the
conduct of the defense of such action.
5. Effectiveness of Registration
None of the Fund's Shares shall be offered by either PFS
or the Fund under any of the provisions of this Agreement
and no orders for the purchase or sale of the Shares under
this Agreement shall be accepted by the Fund if and so long
as the effectiveness of the registration statement then in
effect or any necessary amendments thereto shall be
suspended under any of the provision of the 1933 Act or if
and so long as a current prospectus as required by Section
5(b) (2) of the 1933 Act is not on file with the SEC;
provided, that nothing contained in this paragraph 5 shall
in any way restrict or have an application to or bearing
upon the Fund's obligation to repurchase its Shares from any
shareholder in accordance with the provisions of the Fund's
prospectus, statement of additional information or [Master
Trust Agreement/Articles of Incorporation] dated [Date of
Master Trust Agreement/Articles of Incorporation], as
amended from time to time.
6. Notice to PFS
The Fund agrees to advise PFS immediately in writing:
(a) of any request by the SEC for amendments to the
registration statement, prospectus or statement of
additional information then in effect or for additional
information;
(b) In the event of the issuance by the SEC of any
stop order suspending the effectiveness of the registration
statement, prospectus or statement of additional information
then in effect or the initiation of any proceeding for that
purpose;
(c) of the happening of any event that makes untrue
any statement or a material fact made in the registration
statement, prospectus or statement of additional information
then in effect or that requires the making of a change in
such registration statement, prospectus or statement of
additional information in order to make the statements
therein not misleading; and
(d) of all actions of the SEC with respect to any
amendment to any registration statement, prospectus or
statement of additional information which may from time to
time be filed with the SEC.
7. Term of the Agreement
This Agreement shall become effective on the date first
written above and shall continue in effect for successive
annual periods thereafter so long as such continuance is
specifically approved at least annually by (a) the Fund's
Board of [Directors/Trustees] or (b) by a vote of a majority
(as defined in the 1940 Act) of the Fund's outstanding
voting securities, provided that in either event the
continuance is also approved by a majority of the
[Directors/Trustees] of the Fund who are not interested
persons (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is
terminable, without penalty, on 60 days' notice by the
Fund's Board of [Directors/Trustees], by vote of the holders
of a majority of the Fund's Shares, or on 90 days' notice by
PFS. This Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act).
8. Limitation of Liability (Massachusetts business
trusts only)
The Fund and PFS agree that the obligations of the Fund
under this Agreement shall not be binding upon any of the
Trustees, shareholders, nominees, officers, employees or
agents, whether past, present or future, of the Fund,
individually, but are binding only upon the assets and
property of the Fund, as provided in the Master Trust
Agreement. The execution and delivery of this Agreement
have been authorized by the Trustees and signed by an
authorized officer of the Fund, acting as such, and neither
such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made
by any of them individually or to impose any liability on
any of them personally, but shall bind only the trust
property of the Fund as provided in its Master Trust
Agreement.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance
of this Agreement by signing and returning to us the
enclosed copy of this Agreement.
Very truly yours,
[Name of Fund]
By: _____________________
[Title]
Accepted:
PFS DISTRIBUTORS
By: __________________________
Authorized Officer
FORM OF
CUSTODIAN SERVICES AGREEMENT
This Agreement is made as of by and between SMITH
BARNEY APPRECIATION FUND INC., a Maryland corporation (the
"Fund") and PNC BANK, NATIONAL ASSOCIATION, a national
banking association ("PNC Bank").
The Fund is registered as an open-end investment
company under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Fund wishes to retain PNC Bank to
provide custodian services and PNC Bank wishes to furnish
such services, either directly or through an affiliate or
affiliates, as more fully described herein. In
consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term "Authorized
Person" shall mean any officer of the Fund and any other
person, who is duly authorized by the Fund's Governing
Board, to give Oral and Written Instructions on behalf of
the Fund. Such persons are listed in the Certificate
attached hereto as the Authorized Persons Appendix, as such
Appendix may be amended in writing by the Fund's Governing
Board from time to time.
(b) "Book-Entry System". The term "Book-Entry
System" means Federal Reserve Treasury book-entry system for
United States and federal agency securities, its successor
or successors, and its nominee or nominees and any
book-entry system maintained by an exchange registered with
the SEC under the 1934 Act.
(c) "CFTC". The term "CFTC" shall mean the
Commodities Futures Trading Commission.
(d) "Governing Board". The term "Governing
Board" shall mean the Fund's Board of Directors if the Fund
is a corporation or the Fund's Board of Trustees if the Fund
is a trust, or, where duly authorized, a competent committee
thereof.
(e) "Oral Instructions". The term "Oral
Instructions" shall mean oral instructions received by PNC
Bank from an Authorized Person or from a person reasonably
believed by PNC Bank to be an Authorized Person.
(f) "SEC". The term "SEC" shall mean the
Securities and Exchange Commission.
(g) "Securities and Commodities Laws". The term
"Securities and Commodities Laws" shall mean the "1933 Act"
which shall mean the Securities Act of 1933, the "1934 Act"
which shall mean the Securities Exchange Act of 1934, the
1940 Act, and the "CEA" which shall mean the Commodities
Exchange Act, as amended.
(h) "Shares". The term "Shares" shall mean the
shares of stock of any series or class of the Fund, or,
where appropriate, units of beneficial interest in a trust
where the Fund is organized as a Trust.
(i) "Property". The term "Property" shall mean:
(i) any and all securities
and other investment items which the
Fund may from time to time deposit, or
cause to be deposited, with PNC Bank or
which PNC Bank may from time to time
hold for the Fund;
(ii) all income in respect of
any of such securities or other
investment items;
(iii) all proceeds of the sale
of any of such securities or investment
items; and
(iv) all proceeds of the sale
of securities issued by the Fund, which
are received by PNC Bank from time to
time, from or on behalf of the Fund.
(j) "Written Instructions". The term "Written
Instructions" shall mean written instructions signed by one
Authorized Person and received by PNC Bank. The
instructions may be delivered by hand, mail, tested
telegram, cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to
provide custodian services to the Fund, and PNC Bank accepts
such appointment and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or,
where applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the
resolutions of the Fund's Governing Board, approving the
appointment of PNC Bank or its affiliates to provide
services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of the Fund's advisory agreement or
agreements;
(d) a copy of the Fund's distribution agreement
or agreements;
(e) a copy of the Fund's administration
agreements if PNC Bank is not providing the Fund with such
services; (f) copies of any shareholder
servicing agreements made in respect of the Fund; and
(g) certified or authenticated copies of any and
all amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations.
PNC Bank undertakes to comply with all applicable
requirements of the Securities and Commodities Laws and any
laws, rules and regulations of governmental authorities
having jurisdiction with respect to all duties to be
performed by PNC Bank hereunder. Except as specifically set
forth herein, PNC Bank assumes no responsibility for such
compliance by the Fund.
5. Instructions. Unless otherwise provided in this
Agreement, PNC Bank shall act only upon Oral and Written
Instructions. PNC Bank shall be entitled to rely upon any
Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to
be an Authorized Person) pursuant to this Agreement. PNC
Bank may assume that any Oral or Written Instructions
received hereunder are not in any way inconsistent with the
provisions of organizational documents or this Agreement or
of any vote, resolution or proceeding of the Fund's
Governing Board or of the Fund's shareholders.
The Fund agrees to forward to PNC Bank Written
Instructions confirming Oral Instructions so that PNC Bank
receives the Written Instructions by the close of business
on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not
received by PNC Bank shall in no way invalidate the
transactions or enforceability of the transactions
authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur no
liability to the Fund in acting upon Oral or Written
Instructions provided such instructions reasonably appear to
have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt
as to any action it should or should not take, PNC Bank may
request directions or advice, including Oral or Written
Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in
doubt as to any questions of law pertaining to any action it
should or should not take, PNC Bank may request advice at
its own cost from such counsel of its own choosing (who may
be counsel for the Fund, the Fund's advisor or PNC Bank, at
the option of PNC Bank).
(c) Conflicting Advice. In the event of a
conflict between directions, advice or Oral or Written
Instructions PNC Bank receives from the Fund, and the advice
it receives from counsel, PNC Bank shall be entitled to rely
upon and follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall be
protected in any action it takes or does not take in
reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and
which PNC Bank believes, in good faith, to be consistent
with those directions, advice or Oral or Written
Instructions.
Nothing in this paragraph shall be construed so as to
impose an obligation upon PNC Bank (i) to seek such
directions, advice or Oral or Written Instructions, or (ii)
to act in accordance with such directions, advice or Oral or
Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PNC
Bank's properly taking or not taking such action.
7. Records. The books and records pertaining to the
Fund which are in the possession of PNC Bank, shall be the
property of the Fund. Such books and records shall be
prepared and maintained as required by the 1940 Act and
other applicable securities laws, rules and regulations.
The Fund, or the Fund's Authorized Persons, shall have
access to such books and records at all time during PNC
Bank's normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records shall be
provided by PNC Bank to the Fund or to an Authorized Person
of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep
confidential all records of the Fund and information
relative to the Fund and its shareholders (past, present and
potential), unless the release of such records or
information is otherwise consented to, in writing, by the
Fund. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PNC Bank
may be exposed to civil or criminal contempt proceedings or
when required to divulge. The Fund further agrees that,
should PNC Bank be required to provide such information or
records to duly constituted authorities (who may institute
civil or criminal contempt proceedings for failure to
comply), PNC Bank shall not be required to seek the Fund's
consent prior to disclosing such information.
9. Cooperation with Accountants. PNC Bank shall
cooperate with the Fund's independent public accountants and
shall take all reasonable action in the performance of its
obligations under this Agreement to ensure that the
necessary information is made available to such accountants
for the expression of their opinion, as required by the
Fund.
10. Disaster Recovery. PNC Bank shall enter into and
shall maintain in effect with appropriate parties one or
more agreements making reasonable provision for emergency
use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of
equipment failures, PNC Bank shall, at no additional expense
to the Fund, take reasonable steps to minimize service
interruptions but shall have no liability with respect
thereto.
11. Compensation. As compensation for custody
services rendered by PNC Bank during the term of this
Agreement, the Fund will pay to PNC Bank a fee or fees as
may be agreed to in writing from time to time by the Fund
and PNC Bank.
12. Indemnification. The Fund agrees to indemnify and
hold harmless PNC Bank and its nominees from all taxes,
charges, expenses, assessment, claims and liabilities
(including, without limitation, liabilities arising under
the Securities and Commodities Laws and any state and
foreign securities and blue sky laws, and amendments
thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or
indirectly from any action which PNC Bank takes or does not
take (i) at the request or on the direction of or in
reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its
nominees, shall be indemnified against any liability to the
Fund or to its shareholders (or any expenses incident to
such liability) arising out of PNC Bank's own willful
misfeasance, bad faith, negligence or reckless disregard of
its duties and obligations under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be
under no duty to take any action on behalf of the Fund
except as specifically set forth herein or as may be
specifically agreed to by PNC Bank, in writing. PNC Bank
shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith
and to use its best effort, within reasonable limits, in
performing services provided for under this Agreement. PNC
Bank shall be responsible for its own negligent failure to
perform its duties under this Agreement. Notwithstanding the
foregoing, PNC Bank shall not be responsible for losses
beyond its control, provided that PNC Bank has acted in
accordance with the standard of care set forth above; and
provided further that PNC Bank shall only be responsible for
that portion of losses or damages suffered by the Fund that
are attributable to the negligence of PNC Bank.
Without limiting the generality of the foregoing or of
any other provision of this Agreement, PNC Bank, in
connection with its duties under this Agreement, shall not
be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or
authority or lack thereof of any Oral or Written
Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which PNC
Bank reasonably believes to be genuine; or (b) delays or
errors or loss of data occurring by reason of circumstances
beyond PNC Bank's control, including acts of civil or
military authority, national emergencies, labor
difficulties, fire, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
Notwithstanding anything in this Agreement to the
contrary, PNC Bank shall have no liability to the Fund for
any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of
PNC Bank's performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was
known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. The Fund will
deliver or arrange for delivery to PNC Bank, all the
property owned by the Fund, including cash received as a
result of the distribution of its Shares, during the period
that is set forth in this Agreement. PNC Bank will not be
responsible for such property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank,
acting upon Written Instructions, shall open and maintain
separate account(s) in the Fund's name using all cash
received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial
accounts for each separate series, class or portfolio of the
Fund and shall hold in such account(s) all cash received
from or for the accounts of the Fund specifically designated
to each separate series, class or portfolio. PNC Bank shall
make cash payments from or for the account of the Fund only
for:
(i) purchases of securities
in the name of the Fund or PNC Bank or
PNC Bank's nominee as provided in
sub-paragraph j and for which PNC Bank
has received a copy of the broker's or
dealer's confirmation or payee's
invoice, as appropriate;
(ii) purchase or redemption of
Shares of the Fund delivered to PNC
Bank;
(iii) payment of, subject to
Written Instructions, interest, taxes,
administration, accounting,
distribution, advisory, management fees
or similar expenses which are to be
borne by the Fund;
(iv) payment to, subject to
receipt of Written Instructions, the
Fund's transfer agent, as agent for the
shareholders, an amount equal to the
amount of dividends and distributions
stated in the Written Instructions to be
distributed in cash by the transfer
agent to shareholders, or, in lieu of
paying the Fund's transfer agent, PNC
Bank may arrange for the direct payment
of cash dividends and distributions to
shareholders in accordance with
procedures mutually agreed upon from
time to time by and among the Fund, PNC
Bank and the Fund's transfer agent;
(v) payments, upon receipt of
Written Instructions, in connection with
the conversion, exchange or surrender of
securities owned or subscribed to by the
Fund and held by or delivered to PNC
Bank;
(vi) payments of the amounts
of dividends received with respect to
securities sold short; payments made to
a sub-custodian pursuant to provisions
in sub-paragraph c of this Paragraph;
and
(viii) payments, upon Written
Instructions made for other proper Fund
purposes. PNC Bank is hereby authorized
to endorse and collect all checks,
drafts or other orders for the payment
of money received as custodian for the
account of the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all
securities received by it for the
account of the Fund in a separate
account that physically segregates such
securities from those of any other
persons, firms or corporations, except
for securities held in a Book-Entry
System. All such securities shall be
held or disposed of only upon Written
Instructions of the Fund pursuant to
the terms of this Agreement. PNC Bank
shall have no power or authority to
assign, hypothecate, pledge or otherwise
dispose of any such securities or
investment, except upon the express
terms of this Agreement and upon Written
Instructions, accompanied by a certified
resolution of the Fund's Governing
Board, authorizing the transaction. In
no case may any member of the Fund's
Governing Board, or any officer,
employee or agent of the Fund withdraw
any securities. At PNC Bank's own
expense and for its own convenience, PNC
Bank may enter into sub-custodian
agreements with other banks or trust
companies to perform duties described in
this sub-paragraph c. Such bank or
trust company shall have an aggregate
capital, surplus and undivided profits,
according to its last published report,
of at least one million dollars
($1,000,000), if it is a subsidiary or
affiliate of PNC Bank, or at least
twenty million dollars ($20,000,000) if
such bank or trust company is not a
subsidiary or affiliate of PNC Bank.
In addition, such bank or trust company
must agree to comply with the relevant
provisions of the 1940 Act and other
applicable rules and regulations. PNC
Bank shall remain responsible for the
performance of all of its duties as
described in this Agreement and shall
hold the Fund harmless from PNC Bank's
own (or any sub-custodian chosen by PNC
Bank under the terms of this
sub-paragraph c) acts or omissions,
under the standards of care provided for
herein.
(d) Transactions Requiring Instructions. Upon
receipt of Oral or Written Instructions and not otherwise,
PNC Bank, directly or through the use of the Book-Entry
System, shall:
(i) deliver any securities
held for the Fund against the receipt of
payment for the sale of such securities;
(ii) execute and deliver to
such persons as may be designated in
such Oral or Written Instructions,
proxies, consents, authorizations, and
any other instruments whereby the
authority of the Fund as owner of any
securities may be exercised;
(iii) deliver any securities to
the issuer thereof, or its agent, when
such securities are called, redeemed,
retired or otherwise become payable;
provided that, in any such case, the
cash or other consideration is to be
delivered to PNC Bank;
(iv) deliver any securities
held for the Fund against receipt of
other securities or cash issued or paid
in connection with the liquidation,
reorganization, refinancing, tender
offer, merger, consolidation or
recapitalization of any corporation, or
the exercise of any conversion
privilege;
(v) deliver any securities
held for the Fund to any protective
committee, reorganization committee or
other person in connection with the
reorganization, refinancing, merger,
consolidation, recapitalization or sale
of assets of any corporation, and
receive and hold under the terms of this
Agreement such certificates of deposit,
interim receipts or other instruments or
documents as may be issued to it to
evidence such delivery;
(vi) make such transfer or
exchanges of the assets of the Fund and
take such other steps as shall be
stated in said Oral or Written
Instructions to be for the purpose of
effectuating a duly authorized plan of
liquidation, reorganization, merger,
consolidation or recapitalization of the
Fund;
(vii) release securities
belonging to the Fund to any bank or
trust company for the purpose of a
pledge or hypothecation to secure any
loan incurred by the Fund; provided,
however, that securities shall be
released only upon payment to PNC Bank
of the monies borrowed, except that in
cases where additional collateral is
required to secure a borrowing already
made subject to proper prior
authorization, further securities may be
released for that purpose; and repay
such loan upon redelivery to it of the
securities pledged or hypothecated
therefor and upon surrender of the note
or notes evidencing the loan;
(viii) release and deliver
securities owned by the Fund in
connection with any repurchase agreement
entered into on behalf of the Fund, but
only on receipt of payment therefor; and
pay out moneys of the Fund in connection
with such repurchase agreements, but
only upon the delivery of the
securities;
(ix) release and deliver or
exchange securities owned by the Fund in
connection with any conversion of such
securities, pursuant to their terms,
into other securities;
(x) release and deliver
securities owned by the Fund for the
purpose of redeeming in kind shares of
the Fund upon delivery thereof to PNC
Bank; and
(xi) release and deliver or
exchange securities owned by the Fund
for other corporate purposes. PNC Bank
must also receive a certified resolution
describing the nature of the corporate
purpose and the name and address of the
person(s) to whom delivery shall be made
when such action is pursuant to
sub-paragraph d above.
(e) Use of Book-Entry System. The Fund shall deliver
to PNC Bank certified resolutions of the Fund's Governing
Board approving, authorizing and instructing PNC Bank on a
continuous and on-going basis, to deposit in the Book-Entry
System all securities belonging to the Fund eligible for
deposit therein and to utilize the Book-Entry System to the
extent possible in connection with settlements of purchases
and sales of securities by the Fund, and deliveries and
returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with
borrowings. PNC Bank shall continue to perform such duties
until it receives Written or Oral Instructions authorizing
contrary actions(s).
To administer the Book-Entry System properly, the
following provisions shall apply:
(i) With respect to
securities of the Fund which are
maintained in the Book-Entry system,
established pursuant to this
sub-paragraph e hereof, the records of
PNC Bank shall identify by Book-Entry or
otherwise those securities belonging to
the Fund. PNC Bank shall furnish the
Fund a detailed statement of the
Property held for the Fund under this
Agreement at least monthly and from time
to time and upon written request.
(ii) Securities and any cash
of the Fund deposited in the Book-Entry
System will at all times be segregated
from any assets and cash controlled by
PNC Bank in other than a fiduciary or
custodian capacity but may be commingled
with other assets held in such
capacities. PNC Bank and its
sub-custodian, if any, will pay out
money only upon receipt of securities
and will deliver securities only upon
the receipt of money.
(iii) All books and records
maintained by PNC Bank which relate to
the Fund's participation in the
Book-Entry System will at all times
during PNC Bank's regular business hours
be open to the inspection of the Fund's
duly authorized employees or agents, and
the Fund will be furnished with all
information in respect of the services
rendered to it as it may require.
(iv) PNC Bank will provide the
Fund with copies of any report obtained
by PNC Bank on the system of internal
accounting control of the Book-Entry
System promptly after receipt of such a
report by PNC Bank. PNC Bank will also
provide the Fund with such reports on
its own system of internal control as
the Fund may reasonably request from
time to time.
(f) Registration of Securities. All Securities
held for the Fund which are issued or issuable only in
bearer form, except such securities held in the Book-Entry
System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name
of the Fund; PNC Bank; the Book-Entry System; a
sub-custodian; or any duly appointed nominee(s) of the Fund,
PNC Bank, Book-Entry system or sub-custodian. The Fund
reserves the right to instruct PNC Bank as to the method of
registration and safekeeping of the securities of the Fund.
The Fund agrees to furnish to PNC Bank appropriate
instruments to enable PNC Bank to hold or deliver in proper
form for transfer, or to register its registered nominee or
in the name of the Book-Entry System, any securities which
it may hold for the account of the Fund and which may from
time to time be registered in the name of the Fund. PNC
Bank shall hold all such securities which are not held in
the Book-Entry System in a separate account for the Fund in
the name of the Fund physically segregated at all times from
those of any other person or persons.
(g) Voting and Other Action. Neither PNC Bank
nor its nominee shall vote any of the securities held
pursuant to this Agreement by or for the account of the
Fund, except in accordance with Written Instructions. PNC
Bank, directly or through the use of the Book-Entry System,
shall execute in blank and promptly deliver all notice,
proxies, and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not
the Fund then Written or Oral Instructions must designate
the person(s) who owns such securities.
(h) Transactions Not Requiring Instructions. In
the absence of contrary Written Instructions, PNC Bank is
authorized to take the following actions:
(i) Collection of Income and
Other Payments.
(A) collect and
receive for the account of the
Fund, all income, dividends,
distributions, coupons, option
premiums, other payments and
similar items, included or to be
included in the Property, and, in
addition, promptly advise the Fund
of such receipt and credit such
income, as collected, to the Fund's
custodian account;
(B) endorse and
deposit for collection, in the name
of the Fund, checks, drafts, or
other orders for the payment of
money;
(C) receive and
hold for the account of the Fund
all securities received as a
distribution on the Fund's
portfolio securities as a result of
a stock dividend, share split-up or
reorganization, recapitalization,
readjustment or other rearrangement
or distribution of rights or
similar securities issued with
respect to any portfolio securities
belonging to the Fund held by PNC
Bank hereunder;
(D) present for
payment and collect the amount
payable upon all securities which
may mature or be called, redeemed,
or retired, or otherwise become
payable on the date such securities
become payable; and
(E) take any action
which may be necessary and proper
in connection with the collection
and receipt of such income and
other payments and the endorsement
for collection of checks, drafts,
and other negotiable instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is
authorized to deliver or cause to
be delivered Property against
payment or other consideration or
written receipt therefor in the
following cases:
(1) for
examination by a broker or
dealer selling for the account
of the Fund in accordance with
street delivery custom;
(2) for
the exchange of interim
receipts or temporary
securities for definitive
securities; and
(3) for
transfer of securities into
the name of the Fund or PNC
Bank or nominee of either, or
for exchange of securities for
a different number of
bonds,certificates, or other
evidence, representing the
same aggregate face amount or
number of units bearing the
same interest rate, maturity
date and call provisions, if
any; provided that, in any
such case, the new securities
are to be delivered to PNC
Bank.
(B) Unless and
until PNC Bank receives Oral or
Written Instructions to the
contrary, PNC Bank shall:
(1) pay
all income items held by it
which call for payment upon
presentation and hold the cash
received by it upon such
payment for the account of the
Fund;
(2)
collect interest and cash
dividends received, with
notice to the Fund, to the
Fund's account;
(3) hold
for the account of the Fund
all stock dividends, rights
and similar securities issued
with respect to any securities
held by PNC Bank; and
(4)
execute as agent on behalf of
the Fund all necessary
ownership certificates
required by the Internal
Revenue Code or the Income Tax
Regulations of the United
States Treasury Department or
under the laws of any State
now or hereafter in effect,
inserting the Fund's name, on
such certificate as the owner
of the securities covered
thereby, to the extent it may
lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon
receipt of Written or Oral Instructions
establish and maintain segregated
account(s) on its records for and on
behalf of the Fund. Such account(s) may
be used to transfer cash and securities,
including securities in the Book-Entry
System:
(A) for the
purposes of compliance by the Fund
with the procedures required by a
securities or option exchange,
providing such procedures comply
with the 1940 Act and any releases
of the SEC relating to the
maintenance of segregated accounts
by registered investment companies;
and
(B) Upon receipt of
Written Instructions, for other
proper corporate purposes.
(ii) PNC Bank may enter into
separate custodial agreements with
various futures commission merchants
("FCMs") that the Fund uses ("FCM
Agreement"). Pursuant to an FCM
Agreement, the Fund's margin deposits
in any transactions involving futures
contracts and options on futures
contracts will be held by PNC Bank in
accounts ("FCM Account") subject to the
disposition by the FCM involved in such
contracts and in accordance with the
customer contract between FCM and the
Fund ("FCM Contract"), SEC rules and the
rules of the applicable commodities
exchange. Such FCM Agreements shall
only be entered into upon receipt of
Written Instructions from the Fund
which state that:
(A) a customer
agreement between the FCM and the
Fund has been entered into; and
(B) the Fund is in
compliance with all the rules and
regulations of the CFTC. Transfers
of initial margin shall be made
into a FCM Account only upon
Written Instructions; transfers of
premium and variation margin may be
made into a FCM Account pursuant
to Oral Instructions.
Transfers of
funds from a FCM Account to the FCM
for which PNC Bank holds such an
account may only occur upon
certification by the FCM to PNC
Bank that pursuant to the FCM
Agreement and the FCM Contract, all
conditions precedent to its right
to give PNC Bank such instructions
have been satisfied.
(iii) PNC Bank shall arrange
for the establishment of IRA custodian
accounts for such share- holders holding
Shares through IRA accounts, in
accordance with the Fund's prospectuses,
the Internal Revenue Code (including
regulations), and with such other
procedures as are mutually agreed upon
from time to time by and among the Fund,
PNC Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall
settle purchased securities upon receipt of Oral or Written
Instructions from the Fund or its investment advisor(s) that
specify:
(i) the name of the issuer
and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or
the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and
settlement;
(iv) the purchase price per
unit;
(v) the total amount payable
upon such purchase; and
(vi) the name of the person
from whom or the broker through whom the
purchase was made. PNC Bank shall upon
receipt of securities purchased by or
for the Fund pay out of the moneys held
for the account of the Fund the total
amount payable to the person from whom
or the broker through whom the purchase
was made, provided that the same
conforms to the total amount payable as
set forth in such Oral or Written
Instructions.
(k) Sales of Securities. PNC Bank shall settle
sold securities upon receipt of Oral or Written Instructions
from the Fund that specify:
(i) the name of the issuer and the
title of the security, including CUSIP
number if applicable;
(ii) the number of shares or
principal amount sold, and accrued
interest, if any;
(iii) the date of trade,
settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable
to the Fund upon such sale;
(vi) the name of the broker
through whom or the person to whom the
sale was made; and
(vii) the location to which the
security must be delivered and delivery
deadline, if any. PNC Bank shall deliver
the securities upon receipt of the total
amount payable to the Fund upon such
sale, provided that the total amount
payable is the same as was set forth in
the Oral or Written Instructions.
Subject to the foregoing, PNC Bank may
accept payment in such form as shall be
satisfactory to it, and may deliver
securities and arrange for payment in
accordance with the customs prevailing
among dealers in securities.
(l) Reports.
(i) PNC Bank shall furnish
the Fund the following reports:
(A) such periodic
and special reports as the Fund may
reasonably request;
(B) a monthly
statement summarizing all
transactions and entries for the
account of the Fund, listing the
portfolio securities belonging to
the Fund with the adjusted average
cost of each issue and the market
value at the end of such month, and
stating the cash account of the
Fund including disbursement;
(C) the reports to
be furnished to the Fund pursuant
to Rule 17f-4; and
(D) such other
information as may be agreed upon
from time to time between the Fund
and PNC Bank.
(ii) PNC Bank shall transmit
promptly to the Fund any proxy
statement, proxy material, notice of a
call or conversion or similar
communication received by it as
custodian of the Property. PNC Bank
shall be under no other obligation to
inform the Fund as to such actions or
events.
(m) Collections. All collections of monies or
other property, in respect, or which are to become part of
the Property (but not the safekeeping thereof upon receipt
by PNC Bank) shall be at the sole risk of the Fund. If
payment is not received by PNC Bank within a reasonable time
after proper demands have been made, PNC Bank shall notify
the Fund in writing, including copies of all demand letters,
any written responses, memoranda of all oral responses and
telephonic demands thereto, and await instructions from the
Fund. PNC Bank shall not be obliged to take legal action
for collection unless and until reasonably indemnified to
its satisfaction. PNC Bank shall also notify the Fund as
soon as reasonably practicable whenever income due on
securities is not collected in due course.
15. Duration and Termination. This Agreement shall
continue until terminated by the Fund or by PNC Bank on
sixty (60) days' prior written notice to the other party.
In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the
shareholders of the Fund to dissolve or to function without
a custodian of its cash, securities or other property), PNC
Bank shall not deliver cash, securities or other property of
the Fund to the Fund. It may deliver them to a bank or
trust company of PNC Bank's choice, having an aggregate
capital, surplus and undivided profits, as shown by its last
published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under
terms similar to those of this Agreement. PNC Bank shall
not be required to make any such delivery or payment until
full payment shall have been made to PNC Bank of all of its
fees, compensation, costs and expenses. PNC Bank shall have
a security interest in and shall have a right of setoff
against Property in the Fund's possession as security for
the payment of such fees, compensation, costs and expenses.
16. Notices. All notices and other communications,
including Written Instructions, shall be in writing or by
confirming telegram, cable, telex or facsimile sending
device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address: Airport Business Center, International Court
2, 200 Stevens Drive, Lester, Pennsylvania 19113, marked for
the attention of the Custodian Services Department (or its
successor) (b) if to the Fund, at the address of the Fund;
or (c) if to neither of the foregoing, at such other address
as shall have been notified to the sender of any such notice
or other communication. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall
be deemed to have been given immediately. If notice is sent
by first-class mail, it shall be deemed to have been given
five days after it has been mailed. If notice is sent by
messenger, it shall be deemed to have been given on the day
it is delivered.
17. Amendments. This Agreement, or any term hereof,
may be changed or waived only by a written amendment, signed
by the party against whom enforcement of such change or
waiver is sought. 18. Delegation. PNC Bank may
assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i)
PNC Bank gives the Fund thirty (30) days prior written
notice; (ii) the delegate agrees with PNC Bank to comply
with all relevant provisions of the 1940 Act; and (iii) PNC
Bank and such delegate promptly provide such information as
the Fund may request, and respond to such questions as the
Fund may ask, relative to the assignment, including (without
limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument. 20. Further Actions. Each party
agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes
hereof.
21. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties and
supersedes all prior agreements and understandings relating
to the subject matter hereof, provided that the parties may
embody in one or more separate documents their agreement, if
any, with respect to delegated duties and/or Oral
Instructions. The captions in this Agreement are included
for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect
their construction or effect.
This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law, without
regard to principles of conflicts of law. If any provision
of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below
on the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By:
Title:
SMITH BARNEY APPRECIATION
FUND INC.
By:
Title:
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
FORM OF
SUB-TRANSFER AGENCY AGREEMENT
AGREEMENT made as of the day of 1995 by and
between Smith Barney Appreciation Fund Inc. (the "Fund") and
PFS Shareholders Services (the "Sub-Transfer Agent").
WITNESSETH:
WHEREAS, the Fund desires that Sub-Transfer Agent be
retained to perform certain recordkeeping and accounting
services and functions with respect to transactions in
Fund's Class A and Class B shares ("Shares") made by
shareholders of the Fund (the "Shareholders") when the Sub-
Transfer Agent maintains with the Fund's transfer agent
("Transfer Agent") a single master shareholder account with
respect to the Shareholders; and
WHEREAS, Sub-Transfer Agent desires to provide such services
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the following premises
and mutual covenants, the parties agree as follows:
1. Services Provided by Sub-Transfer Agent
When and to the extent requested by the Fund, Sub-Transfer
Agent agrees to perform recordkeeping and accounting
services and functions with respect to transactions in
Shares made by the Shareholders when the Sub-Transfer Agent
maintains with the Transfer Agent a single master
shareholder account. To the extent requested, Sub-Transfer
will provide the following services:
A. Maintain separate records for each Shareholder
reflecting Shares purchased, redeemed and exchanged on
behalf of such Shareholder and outstanding balances of
Shares owned by or for the benefit of such Shareholder.
B. Prepare and transmit to Shareholders periodic
account statements indicating the number of Shares of
the Fund owned by or for the benefit of Shareholders
and purchases, redemptions and exchanges made on behalf
of Shareholders.
C. Transmit to Shareholders copies of proxy materials,
periodic reports and other materials relating to the
Fund.
D. With respect to each Shareholder, aggregate all
purchase, redemption and exchange orders made by or on
behalf of the Shareholders and transmit instructions
based on such aggregate orders ("Instructions") to the
Transfer Agent for acceptance.
E. Transmit to the Shareholders confirmations of
transactions made in accordance with Instructions.
F. Provide to the Fund, the Transfer Agent and/or other
parties designated by them such other information
relating to transactions in and holdings of Shares by
or on behalf of the Shareholders as is reasonably
requested.
G. Arrange for the delivery to the Transfer Agent of
appropriate documentation and, in the case of purchase
orders, payment, in connection with each aggregate
order transmitted to the Transfer Agent.
2. Appointment as Agent for Limited Purpose
Sub-Transfer Agent shall be deemed to be agent of the Fund
for the sole and limited purpose of receiving purchase,
redemption and exchange orders from Shareholders and
transmitting corresponding Instructions to the Transfer
Agent. Except as provided specifically herein, neither Sub-
Transfer Agent nor any person to which Sub-Transfer Agent
may delegate any of its duties hereunder shall be or hold
itself out as an agent of the Transfer Agent or the Fund.
3. Delegation by Sub-Transfer Agent
With respect to any Shareholder, Sub-Transfer Agent may
delegate some or all of its duties under this Agreement to
other parties which after reasonable inquiry Sub-Transfer
Agent deems to be competent to assume such duties. In the
event of any such delegation, Sub-Transfer Agent shall enter
into a written agreement with the delegatee in which the
delegatee will, among other things:
A. agree to forward Instructions to the Transfer Agent
within such time periods as are specified by the
Transfer Agent, the Fund's prospectus and applicable
law and regulation; and
B. represent and warrant that it is duly registered as
required under all federal and state securities laws.
4. Records and Reporting
Sub-Transfer Agent will maintain and preserve all records as
required by law in connection with its provision of services
under this Agreement. Upon the reasonable request of the
Fund or the Transfer Agent, Sub-Transfer Agent will provide
copies of: historical records relating to transactions
involving the Fund and Shareholders; written communications
regarding the Fund to or from Shareholders; and other
materials relating to the provision of services by Sub-
Transfer under this Agreement. Sub-Transfer Agent will
comply with any reasonable request for such information and
documents made by the board of directors of the Fund or any
governmental body or self-regulatory organization. Sub-
Transfer Agent agrees that it will permit the Fund, the
Transfer Agent or their representatives to have reasonable
access to its personnel and records in order to facilitate
the monitoring of the quality of the services provided by
Sub-Transfer Agent. Notwithstanding anything herein to the
contrary, Sub-Transfer Agent shall not be required to
provide the names and addresses of Shareholders to the Fund
or the Transfer Agent, unless applicable law or regulation
otherwise requires.
5. Sub-Transfer Agent's Ability to Provide Services
Sub-Transfer Agent agrees to notify the Fund promptly if for
any reason it is unable to perform its obligations under
this Agreement.
6. Compensation
A. In consideration of performance of the services by
Sub-Transfer Agent hereunder and the costs it will
incur in providing those services, the Fund agrees to
reimburse Sub-Transfer for its costs (including
payments to delegatees) in amounts that do not exceed
those indicated in the maximum reimbursement schedule
attached as Schedule A hereto. With respect to any
Shareholder, to the extent Sub-Transfer Agent delegates
any obligations hereunder to a third party, Sub-
Transfer Agent will negotiate in good faith with such
third party delegatee regarding the fees to be paid to
the delegatee. Sub-Transfer Agent, and not the Fund,
will be solely responsible for compensating such a
delegatee. If as a result of its fee negotiations with
such a delegatee Sub-Transfer Agent is required to pay
the delegatee less than would be the case if Exhibit A
were the delegatee's fee schedule, Sub-Transfer Agent
will reduce the amount of compensation it receives from
the Fund hereunder by the amount of such differential.
B. The Fund agree to reimburse Sub-Transfer Agent or
its delegatees for their reasonable out-of-pocket costs
incurred in connection with mailings to Shareholders of
materials as described in Paragraph 1 hereto.
C. Sub-Transfer Agent will permit the Fund or its
representatives (including counsel and independent
accountants) with reasonable access to its records to
enable the Fund to verify that Sub-Transfer Agent's
charges to the Fund hereunder comply with the
provisions of this Agreement. Such access shall
include, but not be limited to, up to four on-site
inspections of Sub Transfer Agent's records each year.
7. Indemnification
Sub-Transfer Agent shall indemnify and hold harmless Fund
from and against any and all losses and liabilities that any
one or more of them may incur, including without limitation
reasonable attorneys' fees, expenses and costs arising out
of or related to the performance or non-performance of Sub-
Transfer Agent or any of its delegatees of its
responsibilities under this Agreement; excluding, however,
any such claims, suits, loss, damage or costs caused by,
contributed to or arising from any noncompliance by the Fund
with its obligations under this Agreement, as to which the
Fund shall indemnify, hold harmless and defend Sub-Transfer
Agent on the same basis as set forth above.
8. Termination
This Agreement may be terminated at any time by Sub-Transfer
Agent or the Fund upon 30 days written notice. The
provisions of paragraphs 4 and 7 shall continue in full
force and effect after termination of this Agreement.
9. Addition of Funds
In addition to the Fund, any other mutual fund sponsored by
Smith Barney Inc. or its affiliates may become a party to
this Agreement by having this Agreement executed on its
behalf.
10. Miscellaneous
This Agreement represents the entire agreement between the
parties with regard to the matters described herein, and may
not be modified or amended except by written instrument
executed by all parties. This Agreement may not be assigned
by any party hereto without the prior written consent of the
other parties. This Agreement is made and shall be construed
under the laws of the State of New York. This Agreement
supersedes all previous agreements and understandings
between the parties with respect to its subject matter. If
any provision of the Agreement shall be held or made invalid
by a statute, rule, regulation, decision of a tribunal or
otherwise, the remainder of the Agreement shall not be
affected thereby. No Fund shall be responsible for the
liabilities of any other Fund hereunder.
IN WITNESS HEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
SMITH BARNEY APPRECIATION PFS SHAREHOLDER SERVICES
FUND INC.
By: By:
Title: Title:
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Smith Barney Appreciation Fund Inc.:
We hereby consent to the following with respect to
Post-Effective Amendment No. 39 to the Registration
Statement on
Form N-1A (File No. 2-34576) under the Securities Act of
1933,
as amended, of Smith Barney Appreciation Fund Inc.:
1. The incorporation by reference of our reports dated
February
8, 1995 accompanying the Annual Reports dated December 31,
1994 of Smith Barney Appreciation Fund, Inc., in the
Statement of Additional Information.
2. The reference to our firm under the heading
"Financial
Highlights" in the Prospectus.
3. The reference to our firm under the heading "Counsel
and
Auditors" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 30, 1995
[DESCRIPTION] CONSENT OF KPMG PEAT MARWICK LLP
Independent Auditors' Consent
To the Shareholders and Directors of the
Smith Barney Appreciation Fund Inc.:
We consent to the reference to our Firm under the heading
"Counsel and Auditors" in the Statement of Additional
Information.
KPMG Peat Marwick LLP
New York, New York
June 30, 1995
[ARTICLE] 6
[SERIES]
[NUMBER]
[NAME] Smith Barney Appreciation Fund Inc. -
Class A
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] Dec-31-1994
[PERIOD-END] Dec-31-1994
[INVESTMENTS-AT-COST]
2,189,342,266
[INVESTMENTS-AT-VALUE]
2,554,700,113
[RECEIVABLES]
20,413,769
[ASSETS-OTHER]
0
[OTHER-ITEMS-ASSETS]
450
[TOTAL-ASSETS]
2,575,114,332
[PAYABLE-FOR-SECURITIES]
8,744,290
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
9,530,235
[TOTAL-LIABILITIES]
18,274,525
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
2,136,751,001
[SHARES-COMMON-STOCK]
166,368,611
[SHARES-COMMON-PRIOR]
143,419,077
[ACCUMULATED-NII-CURRENT]
1,640,913
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
53,090,046
[OVERDISTRIBUTION-GAINS]
0
[ACCUM-APPREC-OR-DEPREC]
365,357,847
[NET-ASSETS]
2,556,839,807
[DIVIDEND-INCOME]
56,210,598
[INTEREST-INCOME]
17,105,388
[OTHER-INCOME]
0
[EXPENSES-NET]
36,892,859
[NET-INVESTMENT-INCOME]
36,423,127
[REALIZED-GAINS-CURRENT]
173,322,683
[APPREC-INCREASE-CURRENT]
(239,245,191)
[NET-CHANGE-FROM-OPS]
(29,499,381)
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
27,831,343
[DISTRIBUTIONS-OF-GAINS]
92,601,153
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
44,094,284
[NUMBER-OF-SHARES-REDEEMED]
32,594,240
[SHARES-REINVESTED]
11,449,490
[NET-CHANGE-IN-ASSETS]
(468,464,769)
[ACCUMULATED-NII-PRIOR]
1,861,667
[ACCUMULATED-GAINS-PRIOR]
20,185,034
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
0
[GROSS-ADVISORY-FEES]
12,564,785
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
36,892,859
[AVERAGE-NET-ASSETS]
2,780,637,409
[PER-SHARE-NAV-BEGIN]
11.01
[PER-SHARE-NII]
0.16
[PER-SHARE-GAIN-APPREC]
(0.24)
[PER-SHARE-DIVIDEND]
0.18
[PER-SHARE-DISTRIBUTIONS]
0.60
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
10.15
[EXPENSE-RATIO]
1.02
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0
[ARTICLE] 6
[SERIES]
[NUMBER]
[NAME] Smith Barney Appreciation Fund Inc. -
Class B
</TABLE>
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] Dec-31-1994
[PERIOD-END] Dec-31-1994
[INVESTMENTS-AT-COST]
2,189,342,266
[INVESTMENTS-AT-VALUE]
2,554,700,113
[RECEIVABLES]
20,413,769
[ASSETS-OTHER]
0
[OTHER-ITEMS-ASSETS]
450
[TOTAL-ASSETS]
2,575,114,332
[PAYABLE-FOR-SECURITIES]
8,744,290
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
9,530,235
[TOTAL-LIABILITIES]
18,274,525
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
2,136,751,001
[SHARES-COMMON-STOCK]
75,052,109
[SHARES-COMMON-PRIOR]
116,897,466
[ACCUMULATED-NII-CURRENT]
1,640,913
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
53,090,046
[OVERDISTRIBUTION-GAINS]
0
[ACCUM-APPREC-OR-DEPREC]
365,357,847
[NET-ASSETS]
2,556,839,807
[DIVIDEND-INCOME]
56,210,598
[INTEREST-INCOME]
17,105,388
[OTHER-INCOME]
0
[EXPENSES-NET]
36,892,859
[NET-INVESTMENT-INCOME]
36,423,127
[REALIZED-GAINS-CURRENT]
173,322,683
[APPREC-INCREASE-CURRENT]
(239,245,191)
[NET-CHANGE-FROM-OPS]
(29,499,381)
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
6,728,136
[DISTRIBUTIONS-OF-GAINS]
41,989,861
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
13,930,876
[NUMBER-OF-SHARES-REDEEMED]
60,436,380
[SHARES-REINVESTED]
4,660,147
[NET-CHANGE-IN-ASSETS]
(486,464,769)
[ACCUMULATED-NII-PRIOR]
1,861,667
[ACCUMULATED-GAINS-PRIOR]
20,185,034
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
0
[GROSS-ADVISORY-FEES]
12,564,785
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
36,892,859
[AVERAGE-NET-ASSETS]
2,780,637,409
[PER-SHARE-NAV-BEGIN]
11.00
[PER-SHARE-NII]
0.13
[PER-SHARE-GAIN-APPREC]
(0.29)
[PER-SHARE-DIVIDEND]
0.10
[PER-SHARE-DISTRIBUTIONS]
0.60
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
10.14
[EXPENSE-RATIO]
1.80
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0
[ARTICLE] 6
[SERIES]
[NUMBER]
[NAME] Smith Barney Appreciation Fund Inc. -
Class C
</TABLE>
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] Dec-31-1994
[PERIOD-END] Dec-31-1994
[INVESTMENTS-AT-COST]
2,189,342,266
[INVESTMENTS-AT-VALUE]
2,554,700,113
[RECEIVABLES]
20,413,769
[ASSETS-OTHER]
0
[OTHER-ITEMS-ASSETS]
450
[TOTAL-ASSETS]
2,575,114,332
[PAYABLE-FOR-SECURITIES]
8,744,290
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
9,530,235
[TOTAL-LIABILITIES]
18,274,525
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
2,136,751,001
[SHARES-COMMON-STOCK]
496,923
[SHARES-COMMON-PRIOR]
201,255
[ACCUMULATED-NII-CURRENT]
1,640,913
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
53,090,046
[OVERDISTRIBUTION-GAINS]
0
[ACCUM-APPREC-OR-DEPREC]
365,357,847
[NET-ASSETS]
2,556,839,807
[DIVIDEND-INCOME]
56,210,598
[INTEREST-INCOME]
17,105,388
[OTHER-INCOME]
0
[EXPENSES-NET]
36,892,859
[NET-INVESTMENT-INCOME]
36,423,127
[REALIZED-GAINS-CURRENT]
173,322,683
[APPREC-INCREASE-CURRENT]
(239,245,191)
[NET-CHANGE-FROM-OPS]
(29,499,381)
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
50,088
[DISTRIBUTIONS-OF-GAINS]
275,140
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
327,092
[NUMBER-OF-SHARES-REDEEMED]
63,463
[SHARES-REINVESTED]
32,039
[NET-CHANGE-IN-ASSETS]
(468,464,769)
[ACCUMULATED-NII-PRIOR]
1,861,667
[ACCUMULATED-GAINS-PRIOR]
20,185,034
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
0
[GROSS-ADVISORY-FEES]
12,564,785
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
36,892,859
[AVERAGE-NET-ASSETS]
2,780,637,409
[PER-SHARE-NAV-BEGIN]
11.00
[PER-SHARE-NII]
0.10
[PER-SHARE-GAIN-APPREC]
(0.25)
[PER-SHARE-DIVIDEND]
0.11
[PER-SHARE-DISTRIBUTIONS]
0.60
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
10.14
[EXPENSE-RATIO]
1.66
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0
[ARTICLE] 6
[SERIES]
[NUMBER]
[NAME] Smith Barney Appreciation Fund Inc. -
Class Z
</TABLE>
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] Dec-31-1994
[PERIOD-END] Dec-31-1994
[INVESTMENTS-AT-COST]
2,189,342,266
[INVESTMENTS-AT-VALUE]
2,554,700,113
[RECEIVABLES]
20,413,769
[ASSETS-OTHER]
0
[OTHER-ITEMS-ASSETS]
450
[TOTAL-ASSETS]
2,575,114,332
[PAYABLE-FOR-SECURITIES]
8,744,290
[SENIOR-LONG-TERM-DEBT]
0
[OTHER-ITEMS-LIABILITIES]
9,530,235
[TOTAL-LIABILITIES]
18,274,525
[SENIOR-EQUITY]
0
[PAID-IN-CAPITAL-COMMON]
2,136,751,001
[SHARES-COMMON-STOCK]
9,998,137
[SHARES-COMMON-PRIOR]
14,319,875
[ACCUMULATED-NII-CURRENT]
1,640,913
[OVERDISTRIBUTION-NII]
0
[ACCUMULATED-NET-GAINS]
53,090,046
[OVERDISTRIBUTION-GAINS]
0
[ACCUM-APPREC-OR-DEPREC]
365,357,847
[NET-ASSETS]
2,556,839,807
[DIVIDEND-INCOME]
56,210,598
[INTEREST-INCOME]
17,105,388
[OTHER-INCOME]
0
[EXPENSES-NET]
36,892,859
[NET-INVESTMENT-INCOME]
36,423,127
[REALIZED-GAINS-CURRENT]
173,322,683
[APPREC-INCREASE-CURRENT]
(239,245,191)
[NET-CHANGE-FROM-OPS]
(29,499,381)
[EQUALIZATION]
0
[DISTRIBUTIONS-OF-INCOME]
2,034,314
[DISTRIBUTIONS-OF-GAINS]
5,551,517
[DISTRIBUTIONS-OTHER]
0
[NUMBER-OF-SHARES-SOLD]
2,221,990
[NUMBER-OF-SHARES-REDEEMED]
7,290,364
[SHARES-REINVESTED]
746,636
[NET-CHANGE-IN-ASSETS]
(468,464,769)
[ACCUMULATED-NII-PRIOR]
1,861,667
[ACCUMULATED-GAINS-PRIOR]
20,185,034
[OVERDISTRIB-NII-PRIOR]
0
[OVERDIST-NET-GAINS-PRIOR]
0
[GROSS-ADVISORY-FEES]
12,564,785
[INTEREST-EXPENSE]
0
[GROSS-EXPENSE]
36,892,859
[AVERAGE-NET-ASSETS]
2,780,637,409
[PER-SHARE-NAV-BEGIN]
11.02
[PER-SHARE-NII]
0.20
[PER-SHARE-GAIN-APPREC]
(0.24)
[PER-SHARE-DIVIDEND]
0.22
[PER-SHARE-DISTRIBUTIONS]
0.60
[RETURNS-OF-CAPITAL]
0.00
[PER-SHARE-NAV-END]
10.16
[EXPENSE-RATIO]
0.64
[AVG-DEBT-OUTSTANDING]
0
[AVG-DEBT-PER-SHARE]
0
</TABLE>