Registration No. 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. 38
X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 25
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 Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 723-9218
Christina T. Sydor
Secretary
Smith Barney Appreciation Fund Inc.
388 Greenwich Street
New York, NY 10013
(Name and Address of Agent of 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 March 1, 1995 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
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 .
CALCULATION OF REGISTRATION FEE UNDER
THE SECURITIES ACT OF 1933 (1)
Title of
Securities
Being
Registered
Amount
Being
Registered
Propose
d
Maximum
Offerin
g Price
Per
Unit
(2)
Proposed
Maximum
Aggregate
Offering
Price (3)
Amount of
Registratio
n Fee
Shares of
Common Stock,
par value
$.001 per
share of:
Smith Barney
Appreciation
Fund Inc.
39,836,237
.13
$11.14
$289,998
$100
1) The shares being registered as set forth in this table are in
addition to the indefinite number of shares
of common stock which the Registrant has registered under the
Securities Act of 1933, as amended
(the "1933 Act"), pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended
(the "1940 Act"). The Registrant's Rule 24f-2 Notice for its fiscal
year ended December 31, 1994
was filed on February 23, 1995.
(2) Based on the Registrant's closing price of $11.14 on February 7, 1995
pursuant to Rule 457 (d)
under the 1933 Act and Rule 24e-2(a) under the 1940 Act.
(3) In response to Rule 24e-2 (b) under the 1940 Act: (1) the
calculation of the maximum aggregate
offering price is made pursuant to Rule 24e-2; (2) 100,384,447
shares of common stock were
redeemed by the Registrant during the fiscal year ended December
31, 1994; (3) 60,574,242 of such
shares are being used for reductions pursuant to Rule 24f-2 during
the current fiscal year; and (4)
39,810,205 shares are being used for reduction in this amendment
pursuant to Rule 24e-2(a).
SMITH BARNEY APPRECIATION FUND INC.
FORM N-IA
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(b)
Part A.
Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Prospectus Summary (Not
applicable for Class Z
Prospectus)
3. Condensed Financial
Information
Financial Highlights
4. General Description of
Registrant
Cover Page; Prospectus Summary
(Not applicable for Class Z
Prospectus) ;
Investment Objective and
Management Policies; Additional
Information
5. Management of the Fund
Management of the Fund;
Distributor (Not applicable for
Class Z Prospectus) ;
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 (With respect to Class Z
shares, see "Purchase and
Redemption of Shares" in the Class
Z Prospectus) ; Exchange
Privilege; Redemption of
Shares (With respect to Class Z
shares, see "Purchase and
Redemption of Shares" in the Class
Z Prospectus) ; Minimum Account
Size (Not applicable for Class
Z Prospectus) ; Distributor
(Not applicable for Class Z
Prospectus)
8. Redemption or Repurchase
Purchase of Shares (With
respect to Class Z shares, see
"Purchase and Redemption of
Shares" in the Class Z
Prospectus) ; Redemption of
Shares (With respect to Class Z
shares, see "Purchase and
Redemption of Shares" in the Class
Z Prospectus) ; Exchange
Privilege
9. Legal Proceedings
Not Applicable
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover Page
11. Table of Contents
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
Holders of Securities
Management of the Fund
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
Securities Being Offered
Valuation of Shares; Purchase of
Shares; Exchange Privilege;
Redemption of Shares; Distributor
20. Tax Status
Taxes
21. Underwriters
Distributor
22. Calculation of Performance
Data
Performance Data (With respect to
Class Z shares, see "Performance"
in the
Class Z Prospectus)
23. Financial Statements
Financial Statements
PROSPECTUS
SMITH BARNEY
Appreciation
Fund
Inc.
MARCH 1, 1995
Prospectus begins on page one
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
1
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Prospectus March 1, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
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
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated March 1, 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 a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
Smith Barney Inc.
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.
1
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Prospectus Summary 3
Financial Highlights 11
Investment Objective and Management Policies 15
Valuation of Shares 18
Dividends, Distributions and Taxes 18
Purchase of Shares 20
Exchange Privilege 30
Redemption of Shares 34
Minimum Account Size 36
Performance 37
Management of the Fund 37
Distributor 39
Additional Information 40
</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 Fund
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
Prospectus. 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 several classes of shares ("Classes") to investors designed
to provide them with the flexibility of selecting an investment best suited
to their needs. The general public is offered three classes of shares: Class
A shares, Class B shares and Class C shares, which differ principally in
terms of sales charges and rates of expenses to which they are subject. A
fourth Class of shares, Class Y shares, is offered only to investors meeting
an initial investment minimum of $5,000,000. In addition, a fifth Class,
Class Z shares, which is offered pursuant to a separate prospectus, is
offered exclusively to (a) tax-exempt employee benefit and retirement plans
of Smith Barney Inc. ("Smith Barney") and its affiliates and (b) unit
investment trusts ("UITs") sponsored by Smith Barney and its affiliates. See
"Purchase of Shares" and "Redemption of Shares."
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 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 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
redemptions. Class B shares are subject to an annual service fee of 0.25% and
an annual distribution 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 distributions ("Class B Dividend Shares") will be converted at that time.
See "Purchase of Shares--Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the average daily net assets of the
Class, and investors pay a CDSC of 1.00% if they redeem Class C shares within
12 months of purchase. The CDSC may be waived for certain redemptions. The
Class C shares' distribution fee may cause that Class to have higher expenses
and pay lower dividends than Class A shares. Purchases of Class C shares,
which when combined with current holdings of Class C shares of the Fund equal
or exceed $500,000 in the aggregate, should be made in Class A shares at net
asset value with no sales charge, and will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net
asset value with no initial sales charge or CDSC. They are not subject to any
service or distribution fees.
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 and Class C shares are sold without any initial
sales charge so the entire purchase price is immediately invested in the
Fund. Any investment return on these additional invested amounts may
partially or
4
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Prospectus Summary (continued)
wholly offset the higher annual expenses of these Classes. Because the Fund's
future return cannot be predicted, however, there can be no assurance that
this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than
Class B shares, they do not have a conversion feature and therefore are
subject to an ongoing distribution fee. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or
distribution fee. The maximum purchase amount for Class A shares is
$4,999,999, Class B shares is $249,999 and Class C shares is $499,999. There
is no maximum purchase amount for Class Y shares.
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
purchases, 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 initial 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 offered with a sales charge held in funds
sponsored by Smith Barney listed under "Exchange Privilege." Class A share
purchases 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 and Class C shares, purchasers eligible to
purchase Class A shares at net asset value or at a reduced sales charge
should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C 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
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and
Taxes" and "Exchange Privilege" for other differences between the Classes of
shares.
5
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Prospectus Summary (continued)
Smith Barney 401(k) Program
Investors may be eligible to participate in the Smith Barney 401(k) Program,
which is generally designed to assist plan sponsors in the creation and
operation of retirement plans under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), as well as other types of participant
directed, tax-qualified employee benefit plans (collectively, "Participating
Plans"). Class A, Class B, Class C and Class Y shares are available as
investment alternatives for Participating Plans. See "Purchase of
Shares--Smith Barney 401(k) Program."
Purchase of Shares
Shares may be purchased through the Fund's distributor, Smith Barney, a
broker that clears securities transactions through Smith Barney on a fully
disclosed basis (an "Introducing Broker") or an investment dealer in the
selling group. Direct purchases by certain retirement plans may be made
through the Fund's transfer agent, The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data Corporation. See "Purchase of Shares."
Investment Minimums
Investors in Class A, Class B and Class C 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.
Investors in Class Y shares may open an account for an initial investment of
$5,000,000. Subsequent investments of at least $50 may be made for all
Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes is $25. The minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes through the Systematic Investment Plan
described below is $50. There is no minimum investment requirement in Class A
shares for unitholders who invest distributions from a UIT sponsored by Smith
Barney. 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 "Purchase 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 "Redemption of Shares."
6
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Prospectus Summary (continued)
Management of the Fund
Smith Barney Mutual Funds Management Inc. ("SBMFM") serves as the Fund's
investment adviser. SBMFM (formerly known as Smith, Barney Advisers, Inc.) is
a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. ("Travelers"), a
diversified financial services holding company engaged, through its
subsidiaries, principally in four business segments: Investment Services,
Consumer Finance Services, Life Insurance Services and Property & Casualty
Insurance Services.
SBMFM also serves as the Fund's administrator. The Boston Company Advisors,
Inc. ("Boston Advisors") serves as the Fund's sub-administrator. Boston
Advisors is a wholly owned subsidiary of The Boston Company, Inc. ("TBC"),
which in turn is an indirect, wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"). 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 differential. 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 Smith
Barney Financial Consultants. 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
7
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Prospectus Summary (continued)
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."
The Fund's Expenses
The following expense table lists the costs and expenses 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 and, unless otherwise noted, the Fund's operating
expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C>
<C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None None
None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever is
lower) None* 5.00% 1.00% None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.62% 0.62% 0.62%
0.62%
12b-1 fees** 0.25% 1.00% 1.00% None
Other expenses*** 0.15% 0.18% 0.04%
0.15%
TOTAL FUND OPERATING EXPENSES 1.02% 1.80%
1.66% 0.77%
</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. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class C shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
***For Class Y shares, "Other expenses" have been estimated based on expenses
incurred by the Class A shares because no Class Y shares had been sold as
of December 31, 1994.
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
8
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Prospectus Summary (continued)
may actually pay lower or no charges, depending on the amount purchased and,
in the case of Class B, Class C and certain Class A shares, the length of
time the shares are held and whether the shares are held through the Smith
Barney 401(k) Program. See "Purchase of Shares" and "Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of 0.25% of the value of
average daily net assets of Class A shares. Smith Barney also receives, with
respect to Class B and Class C shares, an annual 12b-1 fee of 1.00% of the
value of average daily net assets of each respective Class, consisting of a
0.75% distribution fee and a 0.25% service fee. "Other expenses" in the above
table include fees for shareholder services, custodial fees, legal and
accounting fees, printing costs and registration fees.
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
Class C 27 52 90 197
Class Y 8 25 43 95
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
Class C 17 52 90 197
Class Y 8 25 43 95
</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.
9
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Prospectus Summary (continued)
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
representation of past or future expenses and actual expenses may be greater
or less than those shown.
10
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Financial Highlights
The following information has been audited by Coopers & Lybrand L.L.P.,
independent 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.
Financial HighlightsFor a Class A share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended 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, beginning 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 capital
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 operations.
11
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Financial Highlights (continued)
For a Class A share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended 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, beginning 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 capital
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.
12
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Financial Highlights (continued)
For a Class B share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Year Period
Ended Ended 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 operations.
13
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Financial Highlights (continued)
For a Class C share outstanding throughout each period:
<TABLE>
<CAPTION>
Year Period
Ended Ended
12/31/94 12/31/93*#
<S> <C> <C>
Net asset value, beginning of period $11.00 $10.99
Income from investment operations:
Net investment income 0.10 0.07
Net realized and unrealized gain/(loss) on investments (0.25) 0.38
Total from investment operations (0.15) 0.45
Less distributions:
Distributions from net investment income (0.11) (0.08)
Distributions from capital gains (0.60) (0.36)
Total distributions (0.71) (0.44)
Net Asset Value, end of period $10.14 $11.00
Total return(++) (1.41)% 4.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $5,040 $2,214
Ratio of expenses to average net assets 1.66% 1.68%(+)
Ratio of net income to average net assets 0.98% 0.71%(+)
Portfolio turnover rate 52% 52%
</TABLE>
* The Fund commenced selling Class C shares (formerly Class D shares) on
February 4, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period 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 operations.
As of December 31, 1994, no Class Y shares had been sold and, accordingly, no
comparable financial information is available at this time for that Class.
14
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Investment Objective and Management Policies
The Fund's sole investment objective is long-term appreciation of
shareholders' capital through investments primarily in equity securities.
This investment 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 sustained 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 justified in relation to their underlying
assets or earning power, or companies in which changes are anticipated that
would result in improved operations or profitability. 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 different 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 investments in foreign
securities though management intends to limit such investments to 10% of the
Fund's assets. In analyzing securities for investment, SBMFM considers many
different factors, including past growth records, management capability,
future earnings prospects and technological innovation, as well as general
market and economic factors which can influence the price of securities.
While SBMFM considers dividend potential in selecting investments, 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
15
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Investment Objective and Management Policies (continued)
management purposes. When SBMFM believes that market conditions warrant, 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).
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.
Investment 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 331/3% of the Fund's total assets taken at value.
Loans of portfolio securities by the Fund will be collateralized by cash,
letters 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 securities 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
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.
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
(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 such instruments.
Repurchase Agreements. The Fund will enter into repurchase agreements with
banks which are the issuers of instruments acceptable for purchase by
16
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Investment Objective and Management Policies (continued)
the 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 arrangement results in a fixed rate of return that is not subject to
market fluctuations during the Fund's holding period. Further information on
repurchase agreements and the risks associated with such investments appears
in the Statement of Additional Information.
Portfolio Transactions and Turnover. Portfolio securities transactions on
behalf of the Fund are placed by SBMFM with a number of brokers and dealers,
including Smith Barney. Smith Barney has advised the Fund that in
transactions with the Fund, Smith Barney charges a commission rate at least
as favorable 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
purchase 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 similar ownership arrangement. Generally,
ADRs, in registered form, are designed for use in the U.S. securities markets
and EDRs are designed for use in European 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.
17
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Investment Objective and Management Policies (continued)
Investments in foreign securities incur higher costs than investments in U.S.
securities, including higher costs in making securities transactions as well
as foreign government taxes which may reduce the investment return of the
Fund. In addition, foreign investments may include additional risks
associated with currency exchange rates, less complete financial information
about individual companies, 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
valuation policies is contained in the Statement of Additional Information.
Dividends, Distributions and Taxes
Dividends and Distributions
The Fund's policy is to distribute 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.
18
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Dividends, Distributions and Taxes (continued)
The per share dividends on Class B and Class C shares of the Fund may be
lower than the per share dividends on Class A and Class Y shares principally
as a result of the distribution fee applicable with respect to Class B and
Class C shares. The per share dividends on Class A shares of the Fund may be
lower than the per share dividends on Class Y shares principally as a result
of the service fee applicable to Class A shares. Distributions of capital
gains, if any, will be in the same amount for Class A, Class B, Class C and
Class Y shares.
Taxes
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. 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 additional 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
shareholder 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
distributions 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.
19
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Purchase of Shares
General
The Fund offers five Classes of shares. Class A shares are sold to investors
with an initial sales charge and Class B and Class C shares are sold without
an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without an initial sales charge or a
CDSC and are available only to investors investing a minimum of $5,000,000.
Class Z shares are offered without a sales charge, CDSC, or service or
distribution fee, exclusively to: (a) tax-exempt employee benefit and
retirement plans of Smith Barney and its affiliates and (b) certain UITs
sponsored by Smith Barney and its affiliates. Investors meeting either of
these criteria who are interested in acquiring Class Z shares should contact
a Smith Barney Financial Consultant for a Class Z Shares Prospectus. See
"Prospectus Summary--Alternative Purchase Arrangements" for a discussion of
factors to consider in selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney, an Introducing Broker or an investment dealer in the
selling group, except for investors purchasing shares of the Fund through a
qualified retirement plan who may do so directly through TSSG. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A, Class B, Class C or Class Y shares. No maintenance fee will be
charged by the Fund in connection with a brokerage account through which an
investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account, or $250 for
an IRA or a Self-Employed Retirement Plan in the Fund. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000.
Subsequent investments of at least $50 may be made for all Classes. For
participants in retirement plans qualified under Section 403(b)(7) or Section
401(a) of the Code, the minimum initial investment requirement for Class A,
Class B and Class C shares and the subsequent investment requirement for all
Classes in the Fund is $25. For the Fund's Systematic Investment Plan, the
minimum initial investment requirement for Class A, Class B and Class C
shares and the subsequent investment requirement for all 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 and unitholders who invest distributions
from a UIT sponsored by Smith Barney. The Fund reserves the right
20
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Purchase of Shares (continued)
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 Fund's transfer agent, TSSG. Share
certificates are issued only upon a shareholder's written request to
TSSG.Purchase of Shares (continued)
Purchase orders received by Smith Barney prior to the close of regular
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. Orders
received by dealers or Introducing Brokers prior to the close of regular
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, provided the
order is received by Smith Barney prior to Smith Barney's close of business
(the "trade date"). Currently, payment for Fund shares is due on the fifth
business day (the "settlement date") after the trade date. The Fund
anticipates that, in accordance with regulatory changes, beginning on or
about June 1, 1995, the settlement date will be the third business day after
the trade date.
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, Smith Barney or TSSG is authorized, through
preauthorized 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 Smith Barney or TSSG. The Systematic
Investment Plan also authorizes Smith Barney to apply cash held in the
shareholder's Smith Barney brokerage account or redeem the shareholder's
shares of a Smith Barney money market fund to make additions to the account.
Additional information is available from the Fund or a Smith Barney Financial
Consultant.
21
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Purchase of Shares (continued)
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>
Dealers
Sales Charge as Sales Charge as Reallowance as
% of % of Amount % of Offering
Amount of Investment Offering Price Invested 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 Smith Barney, which
compensates Smith Barney Financial Consultants and other dealers 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 and Class C shares is
waived. See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act
of 1933, as amended.
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 purchases with the
net asset value of all Class A shares held in funds sponsored by Smith Barney
that are offered with a sales charge listed under "Exchange Privilege."
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, pension, profit-sharing or other benefit plan for such persons
22
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Purchase of Shares (continued)
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
re-sold 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)
purchases of Class A shares by any client of a newly employed Smith Barney
Financial Consultant (for a period up to 90 days from the commencement of the
Financial Consultant's employment with Smith Barney), on the condition the
purchase of Class A shares is made with the proceeds of the redemption of
shares of a mutual fund which (i) was sponsored by the Financial Consultant's
prior employer, (ii) was sold to the client by the Financial Consultant and
(iii) was subject to a sales charge; (d) shareholders who have redeemed Class
A shares in the Fund (or Class A shares of another fund of the Smith Barney
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; (e) accounts managed by registered
investment advisory subsidiaries of Travelers; and (f) investments of
distributions from a UIT sponsored by Smith Barney. 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.
Right of Accumulation
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by
aggregating the dollar amount of the new purchase and the total net asset
value of all Class A shares of the Fund and of funds sponsored by Smith
Barney which are offered with a sales charge listed under "Exchange
Privilege" then held by such person and applying the sales charge applicable
to such aggregate. In order to obtain such discount, the purchaser must
provide sufficient information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales charge. The right of
accumulation is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
23
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Purchase of Shares (continued)
Group Purchases
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and
partners) of the same employer purchasing as a group, provided each
participant makes the minimum initial investment required. The sales charge
applicable to purchases by each member of such a group will be determined by
the table set forth above under "Initial Sales Charge Alternative--Class A
Shares," and will be based upon the aggregate sales of Class A shares of the
Smith Barney Mutual Funds offered with a sales charge to, and share holdings
of, all members of the group. To be eligible for such reduced sales charges
or to purchase at net asset value, all purchases must be pursuant to an
employer- or partnership-sanctioned plan meeting certain requirements. One
such requirement is that the plan must be open to specified partners or
employees of the employer and its subsidiaries, if any. Such plan may, but is
not required to, provide for payroll deductions, IRAs or investments pursuant
to retirement plans under Sections 401 or 408 of the Code. Smith Barney may
also offer a reduced sales charge or net asset value purchase for aggregating
related fiduciary accounts under such conditions that Smith Barney will
realize economies of sales efforts and sales related expenses. An individual
who is a member of a qualified group may also purchase Class A shares at the
reduced sales charge applicable to the group as a whole. The sales charge is
based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith Barney to realize economies of scale in its costs of
distributing shares. A qualified group must have more than 10 members, must
be available to arrange for group meetings between representatives of the
Fund and the members, and must agree to include sales and other materials
related to the Fund in its publications and mailings to members at no cost to
Smith Barney. In order to obtain such reduced sales charge or to purchase at
net asset value, the purchaser must provide sufficient information at the
time of purchase to permit verification that the purchase qualifies for the
reduced sales charge. Approval of group purchase reduced sales charge plans
is subject to the discretion of Smith Barney.
24
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Purchase of Shares (continued)
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 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 offered with a sales charge over the 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 execution 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 difference
between the sales charges applicable to the purchases made and the charges
previously paid, or an appropriate number of escrowed shares will be
redeemed. Please contact a Smith Barney Financial Consultant or TSSG to
obtain a Letter of Intent application.
Deferred Sales Charge Alternatives
"CDSC Shares" are sold at the 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; (b) Class C shares; and (c) 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
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 CDSC to
the extent that the value of such shares represents: (a) capital appreciation
of Fund assets; (b) reinvestment of dividends or capital gain distributions;
(c) with respect to Class B shares, shares redeemed more than five years
after their purchase; or (d) with respect to Class C shares and Class A
shares that are CDSC Shares, shares redeemed more than 12 months after their
purchase.
25
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Class C shares and 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 purchase 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 statement month. The following table sets forth the
rates of the charge for redemptions of Class B shares by shareholders, except
in the case of purchases by Participating Plans, as described below. See
"Purchase of Shares--Smith Barney 401(k) Program."
Year Since Purchase
Payment was Made CDSC
First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
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 fees. There also will be converted at that time
such proportion 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. Shareholders who held Class B shares of
Smith Barney Shearson Short-Term World Income Fund (the "Short-Term World
Income Fund") on July 15, 1994 and who subsequently exchange those shares for
Class B shares of the Fund will be offered the opportunity to exchange all
such Class B shares for Class A shares of the Fund four years after the date
on which those shares were deemed to have been purchased. Holders of such
Class B shares will be notified of the pending exchange in writing
approximately 30 days before the fourth anniversary of the purchase date and,
unless the exchange has been rejected in writing, the exchange will occur on
or about the fourth anniversary date. See "Prospectus Summary-- Alternative
Purchase Arrangements--Class B Shares Conversion Feature."
26
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Purchase of Shares (continued)
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 acquired in one of the other applicable 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 Smith Barney.
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 purchase, 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 appreciation ($200) and the value of the reinvested
dividend shares ($60). Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be charged at a rate of 4.00% (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 below) (provided, however, that automatic cash withdrawals in
amounts equal to or less than 2.00% per month of the value of the
shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the shareholder; (d) redemptions
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) redemptions of shares in connection with a combination of the Fund
with any investment company by merger, acquisition of assets or otherwise. 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.
27
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Purchase of Shares (continued)
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by TSSG in the case
of all other shareholders) of the shareholder's status or holdings, as the
case may be.
Smith Barney 401(k) Program
Investors may be eligible to participate in the Smith Barney 401(k) Program,
which is generally designed to assist plan sponsors in the creation and
operation of retirement plans under Section 401(a) of the Code. To the extent
applicable, the same terms and conditions are offered to all Participating
Plans in the Smith Barney 401(k) Program.
The Fund offers to Participating Plans Class A, Class B, Class C and Class Y
shares as investment alternatives under the Smith Barney 401(k) Program.
Class A, Class B and Class C shares acquired through the Smith Barney 401(k)
Program are subject to the same service and/or distribution fees as, but
different sales charge and CDSC schedules than, the Class A, Class B and
Class C shares acquired by other investors. Similar to those available to
other investors, Class Y shares acquired through the Smith Barney 401(k)
Program are not subject to any initial sales charge, CDSC or service or
distribution fee. Once a Participating Plan has made an initial investment in
the Fund, all of its subsequent investments in the Fund must be in the same
Class of shares, except as otherwise described below.
Class A Shares. Class A shares of the Fund are offered without any initial
sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds if the
Participating Plan terminates within four years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.
Class B Shares. Class B shares of the Fund are offered to any Participating
Plan that purchases less than $250,000 of one or more funds of the Smith
Barney Mutual Funds. Class B shares acquired through the Smith Barney 401(k)
Program are subject to a CDSC of 3.00% of redemption proceeds if the
Participating Plan terminates within eight years of the date the
Participating Plan first enrolled in the Smith Barney 401(k) Program.
28
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Purchase of Shares (continued)
Eight years after the date the Participating Plan enrolled in the Smith
Barney 401(k) Program, it will be offered the opportunity to exchange all of
its Class B shares for Class A shares of the Fund. Such Plans will be
notified of the pending exchange in writing approximately 60 days before the
eighth anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth
anniversary date. Once the exchange has occurred, a Participating Plan will
not be eligible to acquire additional Class B shares of the Fund but instead
may acquire Class A shares of the Fund. If the Participating Plan elects not
to exchange all of its Class B shares at that time, each Class B share held
by the Participating Plan will have the same conversion feature as Class B
shares held by other investors. See "Purchase of Shares--Deferred Sales
Charge Alternatives."
Class C Shares. Class C shares of the Fund are offered to any Participating
Plan that purchases from $250,000 to $499,999 of one or more funds of the
Smith Barney Mutual Funds. Class C shares acquired through the Smith Barney
401(k) Program after November 7, 1994 are subject to a CDSC of 1.00% of
redemption proceeds if the Participating Plan terminates within four years of
the date the Participating Plan first enrolled in the Smith Barney 401(k)
Program. In any year after the date a Participating Plan enrolled in the
Smith Barney 401(k) Program, if its total Class C holdings equal at least
$500,000 as of the calendar year-end, the Participating Plan will be offered
the opportunity to exchange all of its Class C shares for Class A shares of
the Fund. Such Plans will be notified in writing within 30 days after the
last business day of the calendar year, and unless the exchange offer has
been rejected in writing, the exchange will occur on or about the last
business day of the following March. Once the exchange has occurred, a
Participating Plan will not be eligible to acquire Class C shares of the Fund
but instead may acquire Class A shares of the Fund. Class C shares not
converted will continue to be subject to the distribution fee.
Class Y Shares. Class Y shares of the Fund are offered without any service or
distribution fees, sales charge or CDSC to any Participating Plan that
purchases $5,000,000 or more of Class Y shares of one or more funds of the
Smith Barney Mutual Funds.
No CDSC is imposed on redemptions of CDSC Shares to the extent that the net
asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital
gain distributions, plus (a) with respect to Class A and Class C
29
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Purchase of Shares (continued)
shares, the current net asset value of such shares purchased more than one
year prior to redemption and, with respect to Class B shares, the current net
asset value of Class B shares purchased more than eight years prior to the
redemption, plus (b) with respect to Class A and Class C shares, increases in
the net asset value of the shareholder's Class A or Class C shares above the
purchase payments made during the preceding year and, with respect to Class B
shares, increases in the net asset value of the shareholder's Class B shares
above the purchase payments made during the preceding eight years. Whether or
not the CDSC applies to a Participating Plan depends on the number of years
since the Participating Plan first became enrolled in the Smith Barney 401(k)
Program, unlike the applicability of the CDSC to other shareholders, which
depends on the number of years since those shareholders made the purchase
payment from which the amount is being redeemed.
The CDSC will be waived on redemptions of CDSC Shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the
termination of employment of an employee in the Participating Plan; (c) the
death or disability of an employee in the Participating Plan; (d) the
attainment of age 59-1/2 by an employee in the Participating Plan; (e)
hardship of an employee in the Participating Plan to the extent permitted
under Section 401(k) of the Code; or (f) redemptions of shares in connection
with a loan made by the Participating Plan to an employee.
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program must purchase such shares directly from TSSG. For
further information regarding the Smith Barney 401(k) Program, investors
should contact a Smith Barney Financial Consultant.
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 Class A, Class B
and Class C 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 differential may apply.
30
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Exchange Privilege (continued)
Fund Name
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth Portfolio
Smith Barney Funds, Inc. -- Utilities Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
*Smith Barney Funds, Inc. -- Income Return Account Portfolio
Smith Barney Funds, Inc. -- Monthly Payment Government Portfolio
+++Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
31
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Exchange Privilege (continued)
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
*Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds -- California Portfolio
*Smith Barney Muni Funds -- Florida Limited Term Portfolio
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
*Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New Jersey Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc. -- Cash Portfolio
++Smith Barney Money Funds, Inc. -- Government Portfolio
***Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++Smith Barney Muni Funds -- California Money Market Portfolio
+++Smith Barney Muni Funds -- New York Money Market Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
32
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Exchange Privilege (continued)
* Available for exchange with Class A, Class C and Class Y shares of the
Fund.
** Available for exchange with Class A, Class B and Class Y shares of the
Fund. In addition, shareholders who own Class C shares of the Fund
through the Smith Barney 401(k) Program may exchange those shares for
Class C shares of this Fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the
Smith Barney 401(k) Program may exchange those shares for Class C shares
of this fund.
+++ Available for exchange with Class A and Class Y shares of the Fund.
Class A Exchanges. Class A shares of the 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 such shares for
Class A shares of a fund sold with a higher sales charge. The "sales charge
differential" is limited 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 purposes of the exchange privilege, shares obtained through
automatic reinvestment of dividends and capital gain distributions are
treated as having paid the same sales charges applicable to the shares on
which the dividends or distributions were paid; however, except in the case
of the Smith Barney 401(k) Program, if no sales charge was imposed upon the
initial purchase 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 (unless such
shareholder was a Class B shareholder of the Short-Term World Income Fund on
July 15, 1994) 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.
Class C Exchanges. Upon an exchange, the new Class C shares will be deemed to
have been purchased on the same date as the Class C shares of the fund that
have been exchanged.
33
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Exchange Privilege (continued)
Class Y Exchanges. Class Y shareholders of the Fund who wish to exchange all
or a portion of their Class Y shares for Class Y shares in any of the funds
identified above may do so without imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions
can be detrimental to the Fund's performance and its shareholders. SBMFM 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, SBMFM
will notify Smith Barney and Smith Barney may, at its discretion, decide to
limit additional purchases and/or exchanges by a shareholder. Upon such a
determination, Smith Barney 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 funds of the Smith Barney Mutual Funds ordinarily available,
which position the shareholder would be expected to maintain for a
significant period of time. All relevant 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 privileges upon 60 days' prior notice to shareholders.
Redemption of Shares
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per
share next determined after receipt of a written request in proper form at no
34
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Redemption of Shares (continued)
charge other than any applicable CDSC. Redemption requests received after the
close of regular trading on the NYSE are priced at the net asset value next
determined.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure
to specify which Class, or if the investor owns fewer shares of the Class
than specified, the redemption request will be delayed until the Fund's
transfer agent receives further instructions from Smith Barney, or if the
shareholder's account is not with Smith Barney, from the shareholder
directly. The redemption proceeds will be remitted on or before the seventh
day following receipt of proper tender, except on any days on which the NYSE
is closed or as permitted under the Investment Company Act of 1940, as
amended (the "1940 Act"), in extraordinary circumstances. The Fund
anticipates that, in accordance with regulatory changes, beginning on or
about June 1, 1995, payment will be made on the third business day after
receipt of proper tender. Generally, if the redemption proceeds are remitted
to a Smith Barney brokerage account, these funds will not be invested for the
shareholder's benefit without specific instruction, and Smith Barney will
benefit from the use of temporarily uninvested funds. Redemption proceeds for
shares purchased by check, other than a certified or official bank check,
will be remitted upon clearance of the check, which may take up to ten days
or more.
Redemption of Shares (continued)Shares held by Smith Barney as custodian must
be redeemed by submitting a written request to a Smith Barney Financial
Consultant. Shares other than those held by Smith Barney as custodian may be
redeemed through an investor's Financial Consultant, Introducing Broker or
dealer in the selling group or by submitting a written request for redemption
to:
Smith Barney Appreciation Fund Inc.
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account
number and (c) be signed by each registered owner exactly as the shares are
registered. If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by an endorsed
35
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Redemption of Shares (continued)
stock power) and must be submitted to TSSG together with the redemption
request. Any signature appearing on a redemption request, share certificate
or stock power must be guaranteed by an eligible guarantor institution such
as a domestic bank, savings and loan institution, domestic credit union,
member bank of the Federal Reserve System or member firm of a national
securities exchange. TSSG may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly received until
TSSG receives all required documents in proper form.
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 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. (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 shareholder's shares subject to the
CDSC.) For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
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, however, will not redeem shares based solely on market reductions
in net asset value. Before the Fund exercises such right, shareholders will
receive written notice and will be permitted 60 days to bring accounts up to
the minimum to avoid automatic redemption.
36
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
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, Class
B, Class C and Class Y 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 specified 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 composition 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 performance data for Class A,
Class B, Class C and Class Y 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 between the Fund and the companies that furnish services to the
Fund, including agreements with the Fund's distributor, investment adviser,
37
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Management of the Fund (continued)
administrator, sub-administrator, custodian and transfer agent. The day-to-
day operations of the Fund are delegated to the Fund's investment adviser,
administrator and sub-administrator. The Statement of Additional Information
contains background information regarding each Director and executive officer
of the Fund.
Investment Adviser--SBMFM
The Fund's investment adviser, SBMFM, is a registered investment adviser
whose principal executive offices are located at 388 Greenwich Street, New
York, New York 10013. SBMFM (through its predecessor entities) has been in
the investment counseling business since 1940 and renders investment advice
to a wide variety of individual, institutional and investment company clients
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,
SBMFM 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
portfolio 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
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
the average daily net assets of the Fund.
Portfolio Management
Harry D. Cohen, Vice President and Investment Officer of the Fund, is
primarily 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 is included
in the Annual Report dated December 31, 1994. A copy of the Annual Report may
be obtained upon request and without charge from a
38
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Management of the Fund (continued)
Smith Barney Financial Consultant or by writing or calling the Fund at the
address or phone number listed on page one of this Prospectus.
Administrator
SBMFM 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
$1 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.
Sub-Administrator--Boston Advisors
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's sub-administrator. Boston Advisors provides investment
management, investment advisory and/or administrative services to investment
companies that had aggregate assets under management as of January 31, 1995,
in excess of $69.7 billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists SBMFM in all aspects of the Fund's administration and
operation. Under a sub-administration agreement dated April 20, 1994, Boston
Advisors is paid a portion of the administration fee paid by the Fund to
SBMFM at a rate agreed upon from time to time between Boston Advisors and
SBMFM. Prior to April 20, 1994, Boston Advisors served as the Fund's
administrator.
Distributor
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be
sold to the public. Pursuant to a plan of distribution adopted by the Fund
under Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid an
annual service fee with respect to Class A, Class B and Class C
39
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Distributor (continued)
shares of the Fund at the annual rate of 0.25% of the average daily net
assets of the respective Class. Smith Barney is also paid an annual
distribution fee with respect to Class B and Class C shares at the annual
rate of 0.75% of the average daily net assets attributable to those Classes.
Class B shares which automatically convert to Class A shares eight years
after the date of original purchase will no longer be subject to distribution
fees. The fees are used by Smith Barney to pay its Financial Consultants for
servicing shareholder accounts and, in the case of Class B and Class C
shares, to cover expenses primarily intended to result in the sale of those
shares. These expenses include: advertising; the cost of printing and mailing
prospectuses to potential investors; payments to and expenses of Smith Barney
Financial Consultants 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 Smith Barney associated with the sale of
Fund shares, including lease, utility, communications and sales promotion
expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a
shareholder remains a holder of that Class. Smith Barney Financial
Consultants may receive different levels of compensation for selling
different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney 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 continuing basis and in so doing will consider all relevant
factors, including expenses borne by Smith Barney, amounts received under the
Plan and proceeds of the CDSC.
Additional Information
The Fund was incorporated under the laws of the State of Maryland on
September 2, 1969, and is registered with the SEC as a diversified, open-end
management investment company.
The Fund offers shares of common stock currently classified into five
Classes--A, B, C, Y and Z. Each Class represents an identical interest in the
40
<PAGE>
SMITH BARNEY
Appreciation Fund Inc.
Additional Information (continued)
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, if any, borne by each Class; (d)
the expenses allocable exclusively to each Class; (e) voting rights on
matters exclusively affecting a single Class; (f) the exchange privilege of
each Class; and (g) the conversion feature of 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 different Classes. The Directors, on an
ongoing basis, will consider whether any such conflict exists and, if so,
take appropriate action.
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 or
more of the Classes.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, is located at One Boston Place, Boston, Massachusetts 02108, and
serves as custodian of the Fund's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves as
the Fund's transfer agent.
The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund
at the end of the period covered. 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. Shareholders who do not want this
consolidation to apply to their accounts should contact their Smith Barney
Financial Consultants or TSSG.
41
<PAGE>
SMITH BARNEY
A Member of Travelers Group [umbrella logo]
Smith Barney
Appreciation
Fund
Inc.
388 Greenwich Street
New York, New York 10013
Fund 6, 171, 248
FD 0202 C5
[recycle logo]
Recycled
Recyclable
42
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- ---------------------------------------------------------------------------
PROSPECTUS
MARCH 1, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
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 expenses, that prospective investors will find helpful in making an
investment decision. Investors are encouraged to read this Prospectus carefully
and retain it for future reference.
The Class Z shares described in this Prospectus (previously designated as
"Class C" shares) are currently offered exclusively for sale to tax-exempt
employee benefit and retirement plans of Smith Barney Inc. ("Smith Barney") or
any of its affiliates ("Qualified Plans") and to certain unit investment trusts
sponsored by Smith Barney or any of its affiliates ("Smith Barney UITs").
Additional information about the Fund is contained in a Statement of
Additional Information dated March 1, 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 a
Smith Barney Financial Consultant. The Statement of Additional Information has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
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.
1
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE FUND'S EXPENSES 3
----------------------------------------------------------------
FINANCIAL HIGHLIGHTS 4
----------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 5
----------------------------------------------------------------
VALUATION OF SHARES 8
----------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 8
----------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES 10
----------------------------------------------------------------
EXCHANGE PRIVILEGE 10
----------------------------------------------------------------
PERFORMANCE 12
----------------------------------------------------------------
MANAGEMENT OF THE FUND 13
----------------------------------------------------------------
ADDITIONAL INFORMATION 15
----------------------------------------------------------------
</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 FUND 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 AN
OFFER OR SOLICITATION IN SUCH JURISDICTION.
2
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- ---------------------------------------------------------------------------
THE FUND'S EXPENSES
THE FOLLOWING EXPENSE TABLE LISTS THE COSTS AND EXPENSES AN
INVESTOR WILL INCUR
EITHER DIRECTLY OR INDIRECTLY AS A SHAREHOLDER OF CLASS Z SHARES
OF THE FUND,
BASED ON THE FUND'S OPERATING EXPENSES FOR ITS MOST RECENT FISCAL
YEAR:
<TABLE>
<CAPTION>
AS A %
OF
AVERAGE
NET
ASSETS
<S> <C>
------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management fees 0.62%
Other expenses 0.02%
------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.64%
------------------------------------------------------------------
</TABLE>
The nature of the services for which the Fund pays management fees is
described under "Management of the Fund." Other expenses in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
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 AND 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 in
Class Z shares of the Fund, assuming
(1) 5.00% annual return and (2)
redemption at the end of each time
period: $ 7 $ 20 $ 36 $ 80
--------------------------------------------------------------------------------
</TABLE>
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
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR
LESS THAN THOSE SHOWN.
3
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING INFORMATION HAS BEEN AUDITED BY COOPERS &
LYBRAND L.L.P.,
INDEPENDENT ACCOUNTANTS, WHOSE REPORT THEREON APPEARS IN THE
FUND'S ANNUAL
REPORT DATED DECEMBER 31, 1994. 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, WHICH IS INCORPORATED BY REFERENCE
INTO THE STATEMENT
OF ADDITIONAL INFORMATION.
FOR A CLASS Z SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/94 12/31/93# 12/31/92*
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.02 $ 10.66 $ 10.55
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.20 0.19 0.03
Net realized and unrealized gain/(loss) on
investments (0.24) 0.71 0.33
- -------------------------------------------------------------------------------------
Total from investment operations (0.04) 0.90 0.36
- -------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.22) (0.18) (0.16)
Distributions from capital gains (0.60) (0.36) (0.09)
- -------------------------------------------------------------------------------------
Total distributions (0.82) (0.54) (0.25)
- -------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.16 $ 11.02 $ 10.66
- -------------------------------------------------------------------------------------
Total return++ (0.41)% 8.47% 3.38%
- -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $101,532 $157,876 $151,427
Ratio of expenses to average net assets 0.64% 0.66% 0.80%+
Ratio of net income to average net assets 1.99% 1.73% 1.66%+
Portfolio turnover rate 52% 52% 21%
- -------------------------------------------------------------------------------------
<FN>
* The Fund commenced offering Class Z shares (formerly Class C shares) on
November 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period 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
operations.
</TABLE>
4
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's sole investment objective is long-term appreciation of
shareholders' capital through investments primarily in equity securities. This
investment 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
sustained 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
justified in relation to their underlying assets or earning power, or companies
in which changes are anticipated that would result in improved operations or
profitability. 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 different 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
investments in foreign securities though management intends to limit such
investments to 10% of the Fund's assets. In analyzing securities for
investment,
Smith Barney Mutual Funds Management Inc. ("SBMFM") considers many different
factors, including past growth records, management capability, future earnings
prospects and technological innovation, as well as general market and economic
factors which can influence the price of securities. While SBMFM considers
dividend potential in selecting investments, 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
5
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
management purposes. When SBMFM believes that market conditions warrant, 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).
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.
INVESTMENT POLICIES 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,
letters of credit or obligations of the United States government and its
agencies or 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 securities 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 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.
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
(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 such instruments.
6
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
REPURCHASE AGREEMENTS. The Fund will enter into repurchase agreements with
banks which are issuers of instruments acceptable for purchase by the 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 debt 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 arrangement
results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period.
PORTFOLIO TRANSACTIONS AND TURNOVER. Portfolio securities transactions on
behalf of the Fund are placed by SBMFM with a number of brokers and dealers,
including Smith Barney. Smith Barney has advised the Fund that in transactions
with the Fund, Smith Barney charges a commission rate at least as favorable 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
purchase 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
similar
ownership arrangement. Generally, ADRs, in registered form, are designed for
use
in the U.S. securities markets and EDRs are designed for use in European
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
7
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
well as foreign government taxes which may reduce the investment return of the
Fund. In addition, foreign investments may include additional risks associated
with currency exchange rates, less complete financial information about
individual companies, less market liquidity and political instability.
- --------------------------------------------------------------------
VALUATION OF SHARES
The net asset value per share of Class Z shares is determined as of the close
of regular trading on the New York Stock Exchange, Inc. (the "NYSE"), on each
day that the NYSE is open by dividing the value of the Fund's net assets
attributable to Class Z by the number of shares of the Class outstanding. The
per share net asset value of the Class Z shares may be higher than those of
other Classes because of the lower expenses attributable to Class Z shares.
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
reflects fair value of those instruments. Further information regarding the
Fund's valuation policies is contained in the Statement of Additional
Information.
- --------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute 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.
Unless a shareholder is eligible for qualified distributions and instructs
that dividends and capital gains distributions on shares be paid in cash and
credited to the shareholder's account, dividends and capital gains
distributions
will be reinvested automatically in additional shares of the Class at net
8
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
asset value, subject to no sales charge or CDSC. In addition, in order to avoid
the application of a 4% 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.
TAXES
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended.
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 additional
Fund shares. Distributions of net realized long-term capital gains are 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 shareholder
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
distributions 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 plan document or tax advisors about the
tax consequences associated with participating in a Qualified Plan or Smith
Barney UIT.
9
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- --------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
Purchases of the Fund's Class Z shares must be made in accordance with the
terms of a Qualified Plan or Smith Barney UIT. Purchases are effected at the
net
asset value next determined after a purchase order is received by Smith Barney
(the "trade date"). Currently, payment is due to Smith Barney on the fifth
business day (the "settlement date") after the trade date. The Fund anticipates
that, in accordance with regulatory changes, beginning on or about June 1,
1995,
the settlement date will be the third business day after the trade date.
Investors who make payment prior to the settlement date may designate a
temporary investment (such as a money market fund of the Smith Barney Mutual
Funds) for such payment until settlement date. The Fund reserves the right to
reject any purchase order and to suspend the offering of shares for a period of
time. There are no minimum investment requirements for Class Z shares; however,
the Fund reserves the right to vary this policy at any time.
Purchase orders received by Smith Barney prior to the close of regular
trading
on the NYSE, currently 4:00 p.m., New York time, on any day that the Fund
calculates its net asset value, are priced according to the net asset value
determined on that day. See "Valuation of Shares." Certificates for Fund shares
are issued upon request to the Fund's transfer agent.
Shareholders may redeem their shares on any day on which the Fund calculates
its net asset value. See "Valuation of Shares." Redemption requests received in
proper form prior to the close of regular trading on the NYSE are priced at the
net asset value per share determined on that day. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value
as next determined. Shareholders acquiring Class Z shares through a Qualified
Plan or a Smith Barney UIT should consult the terms of their respective plans
for redemption provisions.
- --------------------------------------------------------------------
EXCHANGE PRIVILEGE
Holders of Class Z shares in the Fund may exchange their shares 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 may be made at any
time without payment of any exchange fee.
10
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Diversified Strategic Income Fund
Smith Barney Funds, Inc. -- Income and Growth Portfolio
Smith Barney Funds, Inc. -- Income Return Account Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Global Opportunities Fund
Smith Barney High Income Fund
Smith Barney Money Funds, Inc. -- Cash Portfolio
Smith Barney Money Funds, Inc. -- Government Portfolio
Smith Barney Utilities Fund
Smith Barney World Funds, Inc. -- International Equity Portfolio
</TABLE>
The exchange of shares of one fund for shares of another fund is generally
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize a
taxable gain or loss in connection with the exchange. Shareholders should
consult their plan prospectus and/or other governing documents regarding
exchanges. Generally, exchanges within such a plan are not treated as a taxable
event.
Shareholders exercising the exchange privilege with any of the other funds of
the Smith Barney Mutual Funds should review the prospectus of that fund
carefully prior to making an exchange. Smith Barney reserves the right to
reject
any exchange request.
Although the exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the Fund's performance and its shareholders.
SBMFM 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,
SBMFM will notify Smith Barney, and Smith Barney may, at its discretion, decide
to limit additional purchases and/or exchanges by the shareholder. Upon such a
determination, Smith Barney 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 funds of the Smith Barney Mutual Funds listed above, which position the
shareholder would be expected to maintain for a significant period of time. All
relevant
11
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
factors will be considered in determining what constitutes an abusive pattern
of
exchanges. The Fund reserves the right to modify or discontinue exchange
privileges upon 60 days' prior notice to shareholders.
- --------------------------------------------------------------------
PERFORMANCE
TOTAL RETURN
From time to time, the Fund may include its total return, average annual
total
return and current dividend return for Class Z shares in advertisements. THESE
FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE
PERFORMANCE. Total return is computed for a specified 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 Class Z shares by annualizing the most recent monthly distribution and
dividing by the net asset value on the last day of the period for which the
current dividend return is presented. The current dividend return may vary from
time to time depending on market conditions, the composition 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 the Fund's 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 the Class Z shares. Such
performance information may include data from Lipper Analytical Services, Inc.
and other financial publications.
Class Z's average annual total return was as follows for the periods
indicated:
12
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- -------------------------------------------------------------
PERFORMANCE (CONTINUED)
(0.41)% for the one-year period beginning January 1, 1994 through December
31, 1994.
5.27% for the period from commencement of operations (November 6, 1992)
through December 31, 1994.
Class Z's aggregate total return was as follows for the periods indicated:
(0.41)% for the one-year period beginning on January 1, 1994 through
December 31, 1994.
11.68% for the period from commencement of operations (November 6, 1992)
through December 31, 1994.
- --------------------------------------------------------------------
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
between the Fund and the persons or companies that furnish services to the
Fund,
including agreements with the Fund's distributor, investment adviser,
administrator, sub-administrator, custodian and transfer agent. The day-to-day
operations of the Fund are delegated to the Fund's investment adviser,
administrator and sub-administrator. The Statement of Additional Information
contains background information regarding each Director and executive officer
of
the Fund.
INVESTMENT ADVISER--SBMFM
SBMFM (formerly known as Smith, Barney Advisers, Inc.) is a registered
investment adviser whose principal executive offices are located at 388
Greenwich Street, New York, New York 10013, and serves as the Fund's investment
adviser. SBMFM is a wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of The Travelers Inc.
("Travelers"), a diversified financial services holding company engaged,
through
its subsidiaries, principally in four business segments: Investment Services,
Consumer Financial Services, Life Insurance Services and Property & Casualty
Insurance Services. SBMFM has been in the
13
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
investment counseling business (through its predecessors) since 1940 and
renders
investment advice to a wide variety of individual, institutional and investment
company clients 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,
SBMFM 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
portfolio 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 value 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 the
average daily net assets of the Fund.
PORTFOLIO MANAGEMENT
Harry D. Cohen, Vice President and Investment Officer of the Fund, is
primarily responsible for management of the Fund's assets. Mr. Cohen has served
in this capacity since January of 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 is included
in
the Annual Report dated December 31, 1994. A copy of the Annual Report may be
obtained upon request and without charge from a Smith Barney Financial
Consultant or by writing or calling the Fund at the address or phone number
listed on page one of this Prospectus.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and oversees all aspects of the
Fund's administration. Administration fees are computed daily and paid monthly
at the following annual rates of the value 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
14
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
$1 billion; 0.148% of the next $1 billion; and 0.135% of the 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.
SUB-ADMINISTRATOR--BOSTON ADVISORS
The Boston Company Advisors, Inc. ("Boston Advisors"), located at One Boston
Place, Boston, Massachusetts 02108, serves as the Fund's sub-administrator.
Boston Advisors is a wholly owned subsidiary of The Boston Company, Inc., which
in turn is an indirect wholly owned subsidiary of Mellon Bank Corporation
("Mellon"). Boston Advisors provides investment management, investment advisory
and/or administrative services to investment companies that had aggregate
assets
under management as of January 31, 1995, in excess of $69.7 billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists SBMFM in all aspects of the Fund's administration and
operation. Under a sub-administration agreement dated April 20, 1994, Boston
Advisors is paid a portion of the administration fee paid by the Fund to SBMFM
at a rate agreed upon from time to time between Boston Advisors and SBMFM.
Prior
to April 20, 1994, Boston Advisors served as the Fund's administrator.
DISTRIBUTOR--SMITH BARNEY
Smith Barney is located at 388 Greenwich Street, New York, New York 10013,
and
serves as the Fund's distributor. Smith Barney is a wholly owned subsidiary of
Travelers.
- --------------------------------------------------------------------
ADDITIONAL INFORMATION
The Fund was incorporated in the state of Maryland on September 2, 1969 and
is
registered with the SEC as a diversified, open-end management investment
company.
The Fund offers shares of common stock currently classified into five Classes
- -- A, B, C , Y and Z. Each Class represents an identical pro rata interest in
the Fund's investment portfolio. As a result, the Classes have the
15
<PAGE>
SMITH BARNEY
APPRECIATION FUND INC.--CLASS Z SHARES
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
same rights, privileges and preferences, except with respect to: (a) the
designation of each Class; (b) the effect of the respective sales charges, if
any, for each Class; (c) the distribution and/or service fees, if any, borne by
each Class pursuant to a plan adopted by the Fund pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"); (d) the
expenses allocable to each Class; (e) voting rights on matters exclusively
affecting a single Class; (f) the exchange privilege of each Class; and (g) the
conversion feature of 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 different Classes. The Directors, on an ongoing basis, will consider
whether any such conflict exists and, if so, take appropriate action.
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
the 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 or more of the Classes.
The Fund sends its shareholders a semi-annual report and an audited annual
report, which include a listing of the investment securities held by the Fund
at
the end of the period covered.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, is located at One Boston Place, Boston, Massachusetts 02108, and serves
as custodian of the Fund's investments.
The Shareholder Services Group, Inc., a subsidiary of First Data Corporation,
is located at Exchange Place, Boston, Massachusetts 02109, and serves as the
Fund's transfer agent.
Shareholders may seek information regarding the Fund from their Smith Barney
Financial Consultants.
16
<PAGE>
Smith Barney
APPRECIATION FUND INC.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION
</TABLE>
MARCH 1,
1995
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 March 1, 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 any Smith Barney Financial
Consultant, 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:
<TABLE>
<S>
<C>
Management of the
Fund................................................................
1
Investment Objective and Management
Policies.......................................... 5
Purchase of
Shares....................................................................
12
Redemption of
Shares..................................................................
13
Distributor................................................................
........... 14
Valuation of
Shares...................................................................
15
Exchange
Privilege..................................................................
.. 16
Performance Data (See in the Prospectus
"Performance")................................ 17
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes").................... 19
Additional
Information................................................................
21
Financial
Statements.................................................................
. 21
</TABLE>
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:
<TABLE>
<CAPTION>
NAME SERVICE
<S> <C>
Smith Barney Inc.
("Smith Barney")...............................................
Distributor
Smith Barney Mutual Funds Management Inc.
("SBMFM")......................................................
Investment Adviser and Administrator
The Boston Company Advisors, Inc.
("Boston Advisors")............................................ Sub-
Administrator
Boston Safe Deposit and Trust Company
("Boston Safe")................................................
Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data Corporation......................... Transfer
Agent
</TABLE>
These organizations and the functions they perform for the Fund are
discussed
in the Prospectus and in this Statement of Additional Information.
<PAGE>
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.
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.
*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
2
<PAGE>
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 any parent or
subsidiary
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 any of its 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 totalled $21,895.
For the calendar year ended December 31, 1994, the Directors of the Fund
were
paid the following compensation:
<TABLE>
<CAPTION>
AGGREGATE
AGGREGATE
COMPENSATION
COMPENSATION
FROM THE SMITH BARNEY
DIRECTOR* FROM THE FUND
MUTUAL FUNDS
- ----------------------------------------------- --------------------- ---
- ------------------
<S> <C> <C>
Burt N. Dorsett (11)........................... $ 5,500
$ 32,300
Elliot S. Jaffe (11)........................... 5,500
32,300
Heath B. McLendon (29)......................... N/A
N/A
Cornelius C. Rose, Jr. (11).................... 5,500
32,300
Isaac B. Grainger** (1)........................ 3,000
7,000
</TABLE>
*Number of directorships/trusteeships held with other mutual funds
in the
Smith Barney Mutual Funds 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
3
<PAGE>
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.
SUB-ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors serves as sub-administrator to the Fund pursuant to a
written
agreement (the "Sub-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 Boston Advisors, on July 20, 1994.
Under
the Sub-Administration Agreement, Boston Advisors is paid a portion of
the
administration fee paid by the Fund to SBMFM at a rate agreed upon from
time to
time between Boston Advisors and SBMFM. Boston Advisors is a wholly
owned
subsidiary of The Boston Company, Inc. ("TBC"), a financial services
holding
company, which in turn is a wholly owned subsidiary of Mellon Bank
Corporation
("Mellon").
Prior to April 20, 1994, Boston Advisors served as the Fund's
administrator
and prior to May 21, 1993, also served as the Fund's sub-investment
adviser. For
the fiscal period from January 1, 1994 through April 19, 1994, the Fund
paid
$1,374,456 in administration fees. For the fiscal years ended December 31,
1993
and 1992, the Fund paid sub-investment advisory and/or administration
fees of
$4,977,511 and $3,295,537, respectively.
Certain services provided to the Fund by Boston Advisors are described
in the
Prospectus under "Management of the Fund." In addition to those services,
Boston
Advisors pays the salaries of all officers and employees who are employed
by it
and the Fund, maintains office facilities for the Fund, furnishes the Fund
with
statistical and research data, clerical help and accounting, data
processing,
bookkeeping, internal auditing and legal services and certain other
services
required by the Fund, prepares reports to the Fund's shareholders and
prepares
tax returns, reports to and filings with the Securities and Exchange
Commission
(the "SEC") and state Blue Sky authorities. Boston Advisors bears all
expenses
in connection with the performance of its services.
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, SBMFM or
Boston
Advisors; 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
4
<PAGE>
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 and Boston Advisors have agreed that if in any fiscal
year the
aggregate expenses of the Fund (including fees paid pursuant to the
Advisory,
Administration and Sub-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 and Boston Advisors will, to the
extent
required by state law, reduce their management 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
and Boston Advisors to reduce their 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.
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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
9
<PAGE>
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 and
Directors of the Fund or SBMFM owning individually more than 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.
10
<PAGE>
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
11
<PAGE>
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.
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
12
<PAGE>
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.
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
13
<PAGE>
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.
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.
14
<PAGE>
DISTRIBUTIONS ARRANGEMENTS
To compensate Smith Barney for the services it provides and for the
expense it
bears under the Distribution Agreement, 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 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 Smith Barney a distribution fee with
respect
to the Class B and Class C shares primarily intended to compensate Smith
Barney
for its initial expense of paying Financial Consultants 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:
<TABLE>
<CAPTION>
SERVICE FEES
FOR PERIOD FOR PERIOD
FISCAL YEAR FISCAL
YEAR FROM 2/4/93 FROM 11/6/92
ENDED ENDED
THROUGH THROUGH
12/31/94 12/31/93
12/31/93 12/31/92
------------- ----------
- --- --------------- ---------------
<S> <C> <C>
<C> <C>
Class A......................................... $ 3,818,714 $
4,143,053 -- $ 622,309
Class B......................................... 2,832,127
3,054,126 -- 309,736
Class C......................................... 9,200 --
$ 1,600 --
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION FEES
FOR PERIOD FOR PERIOD
FISCAL YEAR FISCAL
YEAR FROM 2/4/93 FROM 11/6/92
ENDED ENDED
THROUGH THROUGH
12/31/94 12/31/93
12/31/93 12/31/92
------------- ----------
- --- --------------- ---------------
<S> <C> <C>
<C> <C>
Class B......................................... $ 8,496,382 $
9,162,378 -- $ 929,208
Class C......................................... 27,602 --
$ 4,800 --
</TABLE>
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 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,
15
<PAGE>
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.
16
<PAGE>
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
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:
<TABLE>
<S> <C>
P(1 + T)n = ERV
</TABLE>
<TABLE>
<C> <S> <C> <C>
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.
</TABLE>
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
17
<PAGE>
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:
<TABLE>
<C> <S>
ERV - P
P
</TABLE>
<TABLE>
<C> <S> <C> <C>
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.
</TABLE>
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
18
<PAGE>
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
19
<PAGE>
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.
20
<PAGE>
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.
Boston Safe, an indirect, wholly owned subsidiary of Mellon, is
located at
One Boston Place, Boston, Massachusetts 02108, and serves as the
custodian of
the Fund. Under its agreement with the Fund, Boston Safe holds the
Fund's
portfolio securities and keeps all necessary accounts and records.
For its
services, Boston Safe 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.
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.
21
<PAGE>
Smith Barney
APPRECIATION
FUND INC.
<TABLE>
<S> <C>
STATEMENT OF
ADDITIONAL INFORMATION
MARCH 1, 1995
</TABLE>
SMITH BARNEY
APPRECIATION FUND INC.
388 Greenwich Street
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 fiscal year ended December 31,
1994 and the Report of Independent Accountants is incorporated by reference
to the definitive 30b2-1 filed on February 27,1995 as Accession #
0000053798-95-000097.
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
Exhibit No. Description of Exhibit
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 Nos. 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, 1994 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) Amendments 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 are incorporated by reference to Post-Effective Amendment No. 31
filed on 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) Distribution Agreement between the Registrant and Smith Barney
Shearson Inc., dated July 30, 1993, is incorporated by reference to Post-
Effective Amendment No. 34.
(7) Not Applicable.
(8) Custody Agreement between the Registrant and Boston Safe Deposit and
Trust Company is incorporated by reference to Post-Effective Amendment No.
18 filed on December 30, 1983.
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) Sub-Administration Agreement between the Registrant and The Boston
Company Advisors, Inc., dated April 20, 1994, is incorporated by reference
to Post-Effective Amendment No. 35.
(c) Transfer Agency Agreement between the Registrant and The Shareholder
Services Group, Inc., dated August 2, 1993, is incorporated by reference to
Post-Effective Amendment No. 34.
(10) Opinion of Counsel regarding shares registered pursuant to Rule
24e-2 is filed herein.
(11) Consent of Independent Accountants 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 by Class
Title of 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
Under the Registrant's corporate charter and Maryland law, directors
and officers of the Registrant are not liable to the Registrant or its
stockholders except for receipt of an improper personal benefit or active
and deliberate dishonesty. The Registrant's corporate charter requires
that it indemnify its directors and officers against liabilities unless it
is proved that a director or officer acted in bad faith or with active and
deliberate dishonesty or received an improper personal benefit. These
indemnification provisions are subject to the limitation under the
Investment Company Act of 1940, as amended, that no director or officer may
be protected against liability for willful misfeasance, bad faith, gross
negligence or reckless disregard for the duties of his office.
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 was incorporated in 1968 under the laws of the State of Delaware.
SBMFM is a wholly owned subsidiary of Smith Barney Holdings Inc., which in
turn is a wholly owned subsidiary of The Travelers Inc. (formerly know as
Primerica Corporation) ("Travelers").
The list required by this Item 28 of officers and directors of SBMFM,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past 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).
Prior to the close of business on July 30, 1993 (the "Closing"), Smith
Barney Asset Management ("Asset Management") was a member of the Asset
Management Division of Shearson Lehman Brothers Inc. ("Shearson Lehman
Brothers"), and served as the Registrant's investment adviser. On the
Closing, Travelers and Smith Barney Shearson Inc. (now known as Smith
Barney Inc.) acquired the domestic retail brokerage and asset management
business of Shearson Lehman Brothers, which included the business of the
Registrant's prior investment adviser. Shearson Lehman Brothers was a
wholly owned subsidiary of Shearson Lehman Brothers Holdings Inc.
("Shearson Holdings"). All of the issued and outstanding common stock of
Shearson Holdings (representing 92% of the voting stock) was held by
American Express Company. Information as to any past business vocation or
employment of a substantial nature engaged in by officers and directors of
Asset Management can be located in Schedules A and D of FORM ADV filed by
Shearson Lehman Brothers on behalf of the Asset Management Division prior
to July 30, 1993 (SEC FILE NO. 801-3701).
01/01/95
Item 29. Principal Underwriters
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., which in turn is a wholly owned subsidiary of The Travelers Inc.
(formerly known as Primerica Corporation). 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).
01/01/95
Item 30. Location of Accounts and Records
(1) Smith Barney Appreciation Fund Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, NY 10013
(3) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(4) Boston Safe Deposit and Trust Company
One Cabot Road
Medford, Massachusetts 02155
(5) The Shareholders Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
None.
485(b) Certification
The Registrant hereby certifies that it meets all requirements for
effectiveness pursuant to Rule 485(b) under the Securities Act of 1933, as
amended.
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 25th day of February, 1995 .
SMITH BARNEY
APPRECIATION FUND INC.
By: /s/Heath B. McLendon
Heath B. McLendon
Chief Executive Officer
We, the undersigned, hereby severally constitute and appoint Heath
B. McLendon, Christina T. Sydor and Caren A. Cunningham, and each of them
singly, our true and lawful attorneys, with full power to them, to sign for
us, and in our hands and in the capacities indicated below, any and all
Post-Effective Amendments to this Registration Statement and to file the
same, with all exhibits thereto, and other documents therewith, with the
Securities and Exchange Commission, granting unto said attorneys, and each
of them, acting alone, full power to do and perform each and every act and
thing requisite or necessary to be done in the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys or any of them may lawfully do or
cause to be done by virtue thereof.
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Heath B. McLendon Director
Heath B. McLendon Chairman of the Board 02/25/95
Senior Vice President
/s/ Lewis Daidone and Treasurer (Chief Financial
Lewis Daidone and Accounting Officer)
02/25/95
/s/ Burt N. Dorsett
Burt N. Dorsett Director
02/25/95
/s/ Elliot S. Jaffe
Elliot S. Jaffe Director
02/25/95
/s/ Cornelius C. Rose, Jr.
Cornelius C. Rose, Jr. Director
02/25/95
g:\shared\domestic\client\shearson\funds/appr/pea38
EXHIBIT 10
February 28, 1995
Smith Barney Appreciation Fund Inc.
388 Greenwich Street
New York, New York 10013
Re: Post-Effective Amendment No. 38 to the Registration
Statement on Form N-1A
for shares registered for Smith Barney Appreciation Fund
Inc.
File Nos. 2-34576 & 811-
1940
Gentlemen:
In connection with the registration of 39,836,237.13 shares of common
stock, $.001 par value (the "Shares"), by Smith Barney Appreciation Fund
Inc., a Maryland Corporation (the "Fund"), pursuant to Post-Effective
Amendment No. 38 to the Registration Statement under the Securities Act of
1933, as amended (the "1933 Act"), and in reliance upon Rule 24e-2 under
the Investment Company Act of 1940, as amended (the "1940 Act"), you have
requested that the undersigned provide the required legal opinion.
The undersigned is First Vice President and Associate General Counsel
of Smith Barney Mutual Funds Management Inc., the Fund's investment adviser
and administrator, and in such capacity, from time to time and for certain
purposes, acts as counsel to the Fund. I have examined copies of the
Fund's Articles of Incorporation, its By-Laws, resolutions adopted by its
Board of Directors, and such other records and documents as I have deemed
necessary for purposes of this opinion.
On the basis of the foregoing, I am of the opinion that the Shares
when sold in accordance with the terms of the Fund's current Prospectus and
Statement of Additional Information will, at the time of sale, be validly
issued, fully paid and non-assessable. This opinion is for the limited
purposes expressed above and should not be deemed to be an expression of
opinion as to compliance with the 1933 Act, the 1940 Act or applicable
State "blue sky" laws in connection with the sales of the Shares.
Very truly yours,
/s/ Lee D. Augsburger
Lee D. Augsburger
First Vice President and
Associate General Counsel
s:\domestic\clients\shearson\funds\appr\24e2op.doc
EXHIBIT 11
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. 38 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. (formerly
Smith Barney Shearson Appreciation Fund Inc.):
1. The incorporation by reference of our report dated February
8, 1995 accompanying the Annual Report for the fiscal year ended
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.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 24, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NUMBER>01
<NAME> Smith Barney Appreciation Fund Inc. - Class A
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<PERIOD-TYPE> 12-MOS
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<SERIES>
[NUMBER]02
<NAME> Smith Barney Appreciation Fund Inc. - Class B
<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
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[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
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[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
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[GROSS-ADVISORY-FEES] 12,564,785
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[AVERAGE-NET-ASSETS] 2,780,637,409
[PER-SHARE-NAV-BEGIN] 11.00
[PER-SHARE-NII] 0.13
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[PER-SHARE-NAV-END] 10.14
[EXPENSE-RATIO] 1.80
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER]03
<NAME> Smith Barney Appreciation Fund Inc. - Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
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[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
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[EXPENSES-NET] 36,892,859
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[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
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[PER-SHARE-NAV-BEGIN] 11.00
[PER-SHARE-NII] 0.10
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
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[NUMBER]04
<NAME> Smith Barney Appreciation Fund Inc. - Class Z
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
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[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
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[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
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[SHARES-REINVESTED] 746,636
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s:\domestic\clients\shearson\funds\appr\findata.doc
</TABLE>
