<PAGE>
A N N U A L R E P O R T
1995
1995
1995
1995
1995
[PHOTO APPEARS HERE]
Smith Barney
Appreciation
Fund Inc.
- ---------------------------------
December 31, 1995
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to provide the annual report for the period ended December
3l, l995 for Smith Barney Appreciation Fund Inc. In this report, we summarize
the period's prevailing economic and market conditions and outline our
portfolio strategy. A more detailed summary of performance and current holdings
can be found in the appropriate sections that follow in the annual report.
The superlatives have been exhausted when it comes to discussing the
performance of the U.S. stock and bond markets in l995. The major driving
factors behind the great stock market rally were falling interest rates,
better-than-expected profits (fueled in part by corporate restructurings) and
unprecedented inflows of money into domestic equity mutual funds. Set against a
backdrop of pessimism which we outlined in last year's letter, these and other
factors converged, ignited and fed the bull market. During the period covered
by this report, the Smith Barney Appreciation Fund had a total return of 29.26%
for Class A shares.
After our strong optimism about the financial markets at the end of 1994, and
even after the first quarter's powerful upward surge, by the middle of the
summer we saw signs of overspeculation and stretched valuation. In our view,
technology stocks became much too popular and moved to levels that imply
normally cyclical industries would never experience a drop. In addition,
dividend yields on stocks declined to unprecedented levels. At the same time,
the value of all stocks in relation to Gross Domestic Product (GDP) reached the
highest level in this century. Yet, investors remained undaunted. Despite sharp
declines in the technology sector, the overall market continued to new highs
throughout the second half of the year. We raised cash reserve levels in the
Fund around mid-year and that defensive move hindered the Fund's relative
performance during the second half.
Our outlook a year ago was fairly simple. We believed the market had shaken
out earlier excesses, and interest rates had gone up much more than any
inflation scenario would dictate. Valuations, while not inexpensive, were
decent. Hints of corporate restructurings were being dropped, giving the
earnings outlook a big boost. We were very optimistic, and while we didn't know
then that the year would be so tremendous, we did write that any surprises were
likely to be on the upside.
1
<PAGE>
This coming year is trickier by far because interest rates are low enough to
keep the market afloat. There are not enough signs of economic deterioration to
predict a big stock market fall. However, we believe 1996 will be a year when a
fund's performance will depend on its focus on relative rather than absolute
values in stock selection.
The successful major corporate restructuring stories that we had anticipated
earlier have been generally recognized in the marketplace. During 1995, the
Smith Barney Appreciation Fund has had excellent successes with stocks such as:
- - Eastman Kodak
- - Xerox Corporation
- - Allied Signal
- - Dupont
- - Minnesota Mining & Manufacturing (3M)
- - AT&T
Great growth companies such as Johnson and Johnson, Proctor and Gamble,
Merck & Co., Inc., Coca Cola and Gillette have experienced significant
advances. However, these companies may have difficulty posting gains equal to
their earnings growth rates as any capital gains cut would leave them
vulnerable to selling pressures. Unless the economy goes into a tailspin (which
we do not believe is likely), cyclical stocks look reasonably valued at this
time. Technology stocks--which we remained underweighted in throughout 1995--
have had steep corrections recently, yet they may still offer some relative
attractive values and present us with occasional trading opportunities. Lastly,
energy stocks, which have already had a good run, continue to offer better than
average dividends. In addition, they should benefit from any potential upside
surprises on oil prices.
1995 was the year that the U.S. population collectively woke up and realized
they were not saving enough for retirement. As the year progressed, the stock
market became the vehicle of choice for newly-converted savers. Combined with
low interest rates, this enormous inflow of investment dollars propelled stock
prices. However, as can be seen with the pronounced rise and subsequent fall in
technology stocks, the popularity of a specific industry sector can greatly
increase its investment risk. For this reason, we are trying to maintain a
longer-term perspective. And, though the stock market remains a great
investment vehicle, our job is to occasionally lean against prevailing
sentiment. Our strategy in the first part of 1996 will be to look for areas
where the fundamentals are good, but where stock prices have lagged. In
addition, we intend to maintain a modest amount of buying reserves.
2
<PAGE>
As you no doubt know, 1995 was a very good year. Our focus now is making
1996 a profitable year for our shareholders.
Lastly, in closing, it is with deep sadness that we inform you of the
passing of Harold Williamson, Jr., our long-time colleague and co-portfolio
manager of Smith Barney Appreciation Fund for many years. Harold's wisdom
contributed greatly to the success of the Fund over the past 25 years. Although
Harold had reduced his day-to-day responsibilities over the past two years, his
insights and judgement were welcomed and appreciated until his death in
September. He will be sorely missed.
At this time, we would like to thank you for your investment in Smith Barney
Appreciation Fund.
Sincerely,
/s/ Heath B. McLendon /s/ Harry D. Cohen
Heath B. McLendon Harry D. Cohen
Chairman and Vice President and
Chief Executive Officer Investment Officer
January 16. 1996
3
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
Net Asset Value
---------------
Beginning Ended Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Return/1/
================================================================================
12/31/95 $10.15 $11.90 $0.20 $1.00 29.26%
12/31/94 11.01 10.15 0.18 0.60 (0.77)
12/31/93 10.66 11.01 0.16 0.36 8.13
12/31/92 10.26 10.66 0.15 0.09 6.29
12/31/91 8.30 10.26 0.20 0.07 26.94
12/31/90 8.66 8.30 0.25 0.08 (0.27)
12/31/89 7.04 8.66 0.24 0.22 29.55
12/31/88 6.49 7.04 0.19 0.13 13.45
12/31/87 6.54 6.49 0.26 0.25 6.95
12/31/86 5.82 6.54 0.00 0.41 19.93
- -------------------------------------------------------------------------------
Total $1.83 $3.21
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- -------------------------------------------------------------------------------
Net Asset Value
---------------
Beginning Ended Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Return/1/
==============================================================================
12/31/95 $10.14 $11.88 $0.11 $1.00 28.29%
12/31/94 11.00 10.14 0.10 0.60 (1.53)
12/31/93 10.65 11.00 0.08 0.36 7.38
Inception*- 10.55 10.65 0.16 0.09 3.28+
12/31/92
- -------------------------------------------------------------------------------
Total $0.45 $2.05
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Historical Performance -- Class C Shares
- -------------------------------------------------------------------------------
Net Asset Value
---------------
Beginning Ended Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Return/1/
==============================================================================
12/31/95 $10.14 $11.88 $0.11 $1.00 28.29%
12/31/94 11.00 10.14 0.11 0.60 (1.41)
Inception*- 10.99 11.00 0.08 0.36 4.09+
12/31/93
- -------------------------------------------------------------------------------
Total $0.30 $1.96
- -------------------------------------------------------------------------------
4
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Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Historical Performance -- Class Z Shares
- --------------------------------------------------------------------------------
Net Asset Value
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Return/1/
================================================================================
12/31/95 $10.16 $11.91 $0.23 $1.00 29.52%
12/31/94 11.02 10.16 0.22 0.60 (0.41)
12/31/93 10.66 11.02 0.18 0.36 8.47
Inception*-
12/31/92 10.55 10.66 0.16 0.09 3.38+
- --------------------------------------------------------------------------------
Total $0.79 $2.05
- --------------------------------------------------------------------------------
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
Without Sales Charge/1/
----------------------
Class A Class B Class C Class Z
================================================================================
Year Ended 12/31/95 29.26% 28.29% 28.29% 28.29%
Five Years Ended 12/31/95 13.35 N/A N/A N/A
Ten Years Ended 12/31/95 13.40 N/A N/A N/A
Inception*through 21/31/95 11.81 11.30 9.93 12.43
- --------------------------------------------------------------------------------
With Sales Charge/2/
--------------------
Class A Class B Class C Class Z
================================================================================
Year Ended 12/31/95 22.84% 23.29% 27.29% 29.52%
Five Years Ended 12/31/95 12.19 N/A N/A N/A
Ten Years Ended 12/31/95 12.82 N/A N/A N/A
Inception*through 21/31/95 11.59 10.79 9.93 12.43
- --------------------------------------------------------------------------------
5
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge/1/
===============================================================================
Class A (12/31/85 through 12/31/95) 251.52%
Class B (Inception* through 12/31/95) 40.10
Class C (Inception* through 12/31/95) 31.65
Class Z (Inception* through 12/31/95) 44.65
- --------------------------------------------------------------------------------
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect deduction of the applicable
sales charge with respect to Class A shares or the applicable contingent
deferred sales charges ("CDSC") with respect to Class B and C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 5.00% and Class B shares reflect the
deduction of a 5.00% CDSC, which applies if shares are redeemed less than
one year from initial purchase and declines thereafter by 1.00% per year
until no CDSC is incurred. Class C shares reflect the deduction of a 1.00%
CDSC, which applies if shares are redeemed within the first year of
purchase.
* The inception dates for Class A, B, C and Z shares are March 10, 1970,
November 6, 1992, February 4, 1993 and November 6, 1992, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
6
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Historical Performance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of
the Smith Barney Appreciation Fund Inc.
vs. Standard & Poor's 500 Index+
- --------------------------------------------------------------------------------
December 1985 - December 1995
[CHART APPEARS HERE]
+ Hypothetical illustration of $10,000 invested in Class A shares on December
31, 1985, assuming deduction of the maximum 5.00% sales charge at the time of
investment and reinvestment of dividends and capital gains, if any, at net
asset value through December 31, 1995. The Standard & Poor's 500 Index is an
index composed of widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. Figures for the
index include reinvestment of dividends. The index is unmanaged and it is not
subject to the same management and trading expenses as a mutual fund. The
performance of the Fund's other classes may be greater or less than the Class
A shares' performance indicated on this chart, depending on whether greater or
lesser sales charges and fees were incurred by shareholders investing in other
classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
value may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.
7
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Portfolio Highlights (unaudited) December 31, 1995
- --------------------------------------------------------------------------------
Industry Breakdown
[PIE GRAPH APPEARS HERE]
Automobiles 3.1%
Healthcare 8.9%
Diversified/Conglomerates 7.7%
Oil 8.9%
Telephone/Communications 5.4%
Publishing 4.9%
Consumer Products 4.7%
Banking 4.5%
Office Equipment & Supplies 4.5%
Chemicals 3.8%
Financial Services 3.8%
Convertible Preferred and Other Common Stocks 19.3%
Repurchase Agreement 13.6%
Electrical Equipment 3.5%
Insurance 3.4%
Top Ten Holdings
Percentage of
Company Total Investments
===========================================================
Eastman Kodak Co. 3.9%
Xerox Corp. 3.4
American Telephone & Telegraph Corp. 3.0
Minnesota Mining and Manufacturing Co. 2.8
Mobil Corp. 2.4
Amoco Corp. 2.1
E.I. du Pont de Nemours & Co. 1.8
AMP Inc. 1.8
American Home Products Corp. 1.7
Merck Co., Inc. 1.7
===========================================================
8
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments December 31, 1995
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCKS -- 86.2%
Aerospace -- 2.5%
650,000 Allied Signal Inc. $ 30,875,000
300,000 Boeing Co. 23,512,500
300,000 Lockheed Martin Corp. 23,700,000
- --------------------------------------------------------------------------------
78,087,500
- --------------------------------------------------------------------------------
Airlines -- 0.5%
200,000 AMR Corp.* 14,850,000
- --------------------------------------------------------------------------------
Auto-Parts & Accessories -- 0.9%
600,000 Goodyear Tire & Rubber Co. 27,225,000
- --------------------------------------------------------------------------------
Automobiles -- 3.1%
600,000 Chrysler Corp. 33,225,000
1,300,000 Ford Motor Co. 37,700,000
450,000 General Motors Corp. 23,793,750
- --------------------------------------------------------------------------------
94,718,750
- --------------------------------------------------------------------------------
Banking -- 4.5%
300,000 Chase Manhattan Corp. 18,187,500
300,000 Chemical Banking Corp. 17,625,000
200,000 Crestar Financial Corp. 11,825,000
50,000 First of America Bank Corp. 2,218,750
400,000 First Virginia Banks, Inc. 16,700,000
250,000 National City Corp. 8,281,250
330,000 Republic New York Corp. 20,501,250
200,000 Union Planters Corp. 6,375,000
175,000 Wells Fargo & Co. 37,800,000
- --------------------------------------------------------------------------------
139,513,750
- --------------------------------------------------------------------------------
Beverages, Food and Tobacco -- 2.8%
210,000 Coca-Cola Co. 15,592,500
400,000 CPC International, Inc. 27,450,000
650,000 McDonalds Corp. 29,331,250
250,000 W.M. Wrigley Jr. Corp. 13,125,000
- --------------------------------------------------------------------------------
85,498,750
- --------------------------------------------------------------------------------
Broadcasting -- 1.0%
375,000 Scandinavian Broadcasting Systems* 8,203,125
450,000 Viacom Inc., Non-Voting Shares* 21,318,750
- --------------------------------------------------------------------------------
29,572,875
- --------------------------------------------------------------------------------
See Notes to Financial Statements
9
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (Continued) December 31, 1995
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Chemicals -- 3.8%
800,000 E.I. du Pont de Nemours & Co. $ 55,900,000
560,000 Hercules Inc. 31,570,000
390,800 Olin Corp. 29,016,900
- --------------------------------------------------------------------------------
116,486,900
- --------------------------------------------------------------------------------
Computer Software & Services - 0.1%
50,000 Microsoft Corp.* 4,387,500
- --------------------------------------------------------------------------------
Consumer Products - 4.7%
400,000 Corning Inc. 12,800,000
455,000 Gillette Co. 23,716,875
347,000 International Flavors & Fragrances Inc. 16,656,000
850,000 Newell Co. 21,993,750
250,000 Perrigo Co.* 2,968,750
475,000 Procter & Gamble Co. 39,425,000
400,000 Scotts Co., Class A Shares* 7,950,000
550,000 Tyco International Ltd. 19,593,750
- --------------------------------------------------------------------------------
145,104,125
- --------------------------------------------------------------------------------
Diversified/Conglomerates - 7.7%
1,775,000 Eastman Kodak Co. 118,925,000
525,000 Honeywell Inc. 25,528,125
500,000 Horsham Corp. 6,750,000
1,275,000 Minnesota Mining & Manufacturing Co. 84,468,750
- --------------------------------------------------------------------------------
235,671,875
- --------------------------------------------------------------------------------
Electrical Equipment - 3.5%
1,400,000 AMP Inc. 53,725,000
200,000 Emerson Electric Co. 16,350,000
500,000 General Electric Co. 36,000,000
- --------------------------------------------------------------------------------
106,075,000
- --------------------------------------------------------------------------------
Entertainment & Leisure - 1.9%
100,000 Dick Clark Productions Inc.* 925,000
475,000 Walt Disney Co. 28,025,000
700,000 Savoy Pictures Entertainment Inc.* 4,418,750
650,000 Time Warner Inc. 24,618,750
- --------------------------------------------------------------------------------
57,987,500
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
10
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (Continued) December 31, 1995
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Financial Services - 3.8%
1,200,000 American Express Co. $ 49,650,000
200,000 Charles Schwab Corp. 4,025,000
125,000 Federal National Mortgage Association 15,515,625
450,000 Fiserv Inc.* 13,500,000
550,000 Household International, Inc. 32,518,750
- --------------------------------------------------------------------------------
115,209,375
- --------------------------------------------------------------------------------
Healthcare - 8.9%
700,000 Abbott Laboratories Inc. 29,225,000
550,000 American Home Products Corp. 53,350,000
590,000 Bristol-Myers Squibb Co. 50,666,250
250,000 Forest Laboratories Inc., Class A Shares* 11,312,500
540,000 Johnson & Johnson 46,237,500
800,000 Merck & Co., Inc. 52,600,000
300,000 Warner Lambert Co. 29,137,500
- --------------------------------------------------------------------------------
272,528,750
- --------------------------------------------------------------------------------
Insurance - 3.4%
1,000,000 Allstate Insurance Corp. 41,125,000
300,000 American International Group Inc. 27,750,000
150,000 CNA Financial Corp.* 17,025,000
800,000 Leucadia National Corp. 20,000,000
- --------------------------------------------------------------------------------
105,900,000
- --------------------------------------------------------------------------------
Machinery - 0.6%
150,000 Caterpillar Inc. 8,812,500
300,000 Ingersoll-Rand Co. 10,537,500
- --------------------------------------------------------------------------------
19,350,000
- --------------------------------------------------------------------------------
Metals - 0.7%
200,000 Aluminum Co. of America 10,575,000
300,000 Cyprus Amax Minerals Co. 7,837,500
300,000 Santa Fe Pacific Gold Corp. 3,637,500
- --------------------------------------------------------------------------------
22,050,000
- --------------------------------------------------------------------------------
Office Equipment & Supplies - 4.5%
400,000 International Business Machines Corp. 36,700,000
750,000 Xerox Corp. 102,750,000
- --------------------------------------------------------------------------------
139,450,000
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (Continued) December 31, 1995
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Oil-Domestic & Crude - 2.6%
200,000 Atlantic Richfield Co. $ 22,150,000
300,000 Baker Hughes Inc. 7,312,500
600,000 Burlington Resources Inc. 23,550,000
700,000 Global Marine Inc.* 6,125,000
500,000 Union Pacific Resources Group Inc. 12,687,500
250,000 Unocal Corp. 7,281,250
- --------------------------------------------------------------------------------
79,106,250
- --------------------------------------------------------------------------------
Oil-International - 6.3%
875,000 Amoco Corp. 62,890,625
450,000 Chevron Corp. 23,625,000
650,000 Mobil Corp. 72,800,000
240,000 Royal Dutch Petroleum Co. ADR 33,870,000
- --------------------------------------------------------------------------------
193,185,625
- --------------------------------------------------------------------------------
Paper & Paper Products - 1.7%
250,000 International Paper Co. 9,468,750
300,000 Louisiana Pacific Corp. 7,275,000
350,000 Mead Corp. 18,287,500
310,000 St. Joe Paper Co. 17,050,000
- --------------------------------------------------------------------------------
52,081,250
- --------------------------------------------------------------------------------
Publishing - 4.9%
450,000 Gannett Co. 27,618,750
389,500 Meredith Corp. 16,310,313
720,000 New York Times Co., Class A Shares 21,330,000
1,300,000 R.R. Donnelley & Sons Co. 51,187,500
550,000 Tribune Co. 33,618,750
- --------------------------------------------------------------------------------
150,065,313
- --------------------------------------------------------------------------------
Railroads - 1.1%
100,000 Conrail Inc. 7,000,000
400,000 Union Pacific Corp. 26,400,000
- --------------------------------------------------------------------------------
33,400,000
- --------------------------------------------------------------------------------
Real Estate - 0.2%
100,000 General Growth Properties 2,075,000
150,000 Spieker Properties Inc. 3,768,750
- --------------------------------------------------------------------------------
5,843,750
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
12
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1995
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Retail -- 2.5%
300,000 Home Depot Inc. $ 14,362,500
550,000 J.C. Penney Co. 26,193,750
1,600,000 Wal-Mart Stores Inc. 35,800,000
- --------------------------------------------------------------------------------
76,356,250
- --------------------------------------------------------------------------------
Technology - 2.6%
400,000 ACX Technologies, Inc.* 6,050,000
150,000 Compaq Computer Corp.* 7,200,000
225,000 Hewlett-Packard Co. 18,843,750
350,000 Intel Corp. 19,862,500
175,000 Motorola Inc. 9,975,000
150,000 Silicon Graphics Co.* 4,125,000
250,000 Texas Instruments Inc. 12,937,500
- --------------------------------------------------------------------------------
78,993,750
- --------------------------------------------------------------------------------
Telephone/Communications -- 5.4%
1,400,000 American Telephone & Telegraph Corp. 90,650,000
700,000 Comcast Corp., Class A Shares 12,731,250
250,000 Mobil Telecommunications Technologies Corp.* 5,343,750
550,000 Nynex Corp. 29,700,000
1,300,000 Tele-Communications Inc., Class A Shares* 25,837,500
- --------------------------------------------------------------------------------
164,262,500
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $1,888,750,223) 2,642,911,338
================================================================================
CONVERTIBLE PREFERRED STOCK -- 0.2%
Entertainment & Leisure -- 0.2%
200,000 Time Warner Financing Trust
(Cost -- $6,200,000) 6,250,000
================================================================================
TOTAL COMMON AND CONVERTIBLE
PREFERRED STOCKS (Cost - $1,894,950,223) 2,649,161,338
================================================================================
See Notes to Financial Statements.
13
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1995
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENTS - 13.6%
$372,309,000 Goldman Sachs & Co., 5.650% due 1/2/96;
Proceeds at maturity - $372,542,680; (Fully
collateralized by U.S. Treasury Notes, 5.375%
due 11/30/97; Market value - $379,928,909) $ 372,309,000
45,026,000 Morgan Stanley Group, Inc., 5.850% due 1/2/96;
Proceeds at maturity - $45,055,239; (Fully
collateralized by U.S. Treasury Notes, 5.125%
due 4/30/98; Market value - $45,939,498) 45,026,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost - $417,335,000) 417,335,000
================================================================================
TOTAL INVESTMENTS AND
REPURCHASE AGREEMENTS -- 100%
(Cost - $2,312,285,223)++ $ 3,066,496,338
================================================================================
* Non-income producing security.
++ Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
14
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost - $1,894,950,223) $2,649,161,338
Repurchase agreements (Cost - $417,335,000) 417,335,000
Cash 360
Receivable for securities sold 2,514,497
Receivable for Fund shares sold 3,322,722
Dividends and interest receivable 4,334,449
- --------------------------------------------------------------------------------
Total Assets 3,076,668,366
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 4,134,963
Dividends payable 1,541,214
Payable for Fund shares purchased 1,395,223
Distribution fees payable 1,258,116
Investment advisory fees payable 1,161,250
Administration fees payable 425,853
Accrued expenses 99,980
- --------------------------------------------------------------------------------
Total Liabilities 10,016,599
- --------------------------------------------------------------------------------
Total Net Assets $3,066,651,767
================================================================================
NET ASSETS:
Par value of capital shares $ 257,842
Capital paid in excess of par value 2,217,941,506
Undistributed net investment income 467,289
Accumulated net realized gain on security transactions 93,774,015
Net unrealized appreciation of investments 754,211,115
- --------------------------------------------------------------------------------
Total Net Assets $3,066,651,767
================================================================================
Shares Outstanding:
Class A 162,380,390
Class B 83,198,378
Class C 1,233,676
Class Z 11,029,303
Net Asset Value:
Class A (and redemption price) $11.90
Class B* $11.88
Class C** $11.88
Class Z (and redemption price) $11.91
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per
share) $12.53
================================================================================
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed less than one year from initial purchase (See Note 2).
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
15
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 56,754,649
Interest 20,385,339
Less: Foreign withholding tax (287,762)
- --------------------------------------------------------------------------------
Total Investment Income 76,852,226
- --------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 13,409,794
Investment advisory fees (Note 2) 12,764,132
Administration fees (Note 2) 4,675,818
Shareholder and system servicing fees 3,275,000
Shareholder communications 520,755
Custody 175,000
Registration fees 146,000
Audit and legal 73,000
Directors' fees 50,000
- --------------------------------------------------------------------------------
Total Expenses 35,089,499
- --------------------------------------------------------------------------------
Net Investment Income 41,762,727
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 1,688,907,227
Cost of securities sold 1,412,008,505
- --------------------------------------------------------------------------------
Net Realized Gain 276,898,722
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 365,357,847
End of year 754,211,115
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 388,853,268
- --------------------------------------------------------------------------------
Net Gain on Investments 665,751,990
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 707,514,717
================================================================================
See Notes to Financial Statements.
16
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended December 31,
- --------------------------------------------------------------------------------
1995 1994
================================================================================
OPERATIONS:
Net investment income $ 41,762,727 $ 36,423,127
Net realized gain 276,898,722 173,322,683
Increase in net unrealized
appreciation (depreciation) 388,853,268 (239,245,191)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations 707,514,717 (29,499,381)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (43,641,495) (36,643,881)
Net realized gains (235,509,609) (140,417,671)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (279,151,104) (177,061,552)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (Note 5):
Net proceeds from sale of shares 306,829,899 669,137,931
Net asset value of shares issued
for reinvestment of dividends 269,686,363 171,376,919
Cost of shares reacquired (495,067,915) (1,102,418,686)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions 81,448,347 (261,903,836)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 509,811,960 (468,464,769)
NET ASSETS:
Beginning of year 2,556,839,807 3,025,304,576
End of year* $ 3,066,651,767 $ 2,556,839,807
================================================================================
*Includes undistributed
net investment income of: $ 467,289 $ 1,640,913
================================================================================
See Notes to Financial Statements.
17
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Appreciation Fund Inc. ("Fund"), a Maryland Corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) securities transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices on such
markets; securities traded in the over-the-counter market and listed securities
for which no sales price was reported and U.S. Government and Agency Obligations
are valued at bid price, or in the absence of a recent bid price, at the bid
equivalent obtained from one or more of the major market makers in the
securities; (c) short-term investments and securities maturing within 60 days or
less are valued at cost plus accreted discount, or minus amortized premium,
which approximates market value; (d) dividend income is recorded on the ex-
dividend date and interest income is recorded on the accrual basis; (e) gains or
losses on the sale of securities are calculated by using the specific
identification method; (f) direct expenses are charged to each class; management
fees and general fund expenses are allocated on the basis of relative net
assets; (g) the accounting records are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars based on the rate of exchange of such currencies against U.S. dollars on
the date of valuation. Purchases and sales of securities, and income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank; (h) the Fund intends to comply with the applicable provisions of
the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes; (i) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. At December 31, 1995, reclassifications are made to the Fund's
capital accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Net investment income,
net realized gains and net assets were not affected by this change; and (j)
18
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ from these amounts.
2. Management Agreement and Transactions with Affiliated Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment adviser of the Fund. The Fund
pays SBMFM an investment advisory fee calculated at the annual rate of 0.55% on
the Fund"s average daily net assets up to $250 million; 0.513% on the next $250
million; 0.476% on the next $500 million; 0.439% on the next $1 billion; 0.402%
on the next $1 billion; and 0.365% on average daily net assets in excess of $3
billion. This fee is calculated daily and paid monthly.
SBMFM also serves as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% on the Fund's average daily net assets up
to $250 million; 0.187% on the next $250 million; 0.174% on the next $500
million; 0.161% on the next $1 billion; 0.148% on the next $1 billion and 0.135%
on the average daily net assets in excess of $3 billion. This fee is calculated
daily and paid monthly.
In addition, The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank Corporation, acted as sub-
administrator to the Fund. The Fund paid Boston Advisors a portion of its
administration fee at a rate agreed upon from time to time between SBMFM and
Boston Advisors. As of May 15, 1995 this relationship was terminated.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares and primary broker for its portfolio agency transactions. For the
year ended December 31, 1995, SB received brokerage commissions of $637,506 and
sales charges of approximately $1.7 million on sales of the FundOs Class A
shares.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B
shares, which applies if redemption occurs less than one year from initial
purchase and declines thereafter by 1.00% until no CDSC is incurred. Class C
shares have a 1.00% CDSC, which applies if
19
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
redemption occurs within the first year of purchase. For the year ended December
31, 1995, CDSCs paid to SB were approximately:
Class B Class C
===================================================
CDSCs $1,912,000 $4,000
===================================================
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
its Class A, B and C shares calculated at the annual rate of 0.25% of the
average daily net assets of each respective class. In addition, the Fund also
pays a distribution fee with respect to Class B and C shares calculated at the
annual rate of 0.75% of the average daily net assets for each class. For the
year ended December 31, 1995, total Distribution Plan fees were as follows:
Class A Class B Class C
=========================================================
Distribution Plan Fees $4,551,117 $8,770,866 $87,811
=========================================================
All officers and one Director of the Fund are employees of SB.
3. INVESTMENTS
During the year ended December 31, 1995, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
=========================================================
Purchases $1,405,137,848
- ---------------------------------------------------------
Sales 1,688,907,227
=========================================================
At December 31, 1995, the aggregate unrealized appreciation and depreciation
of investments for Federal income tax purposes were approximately as follows:
=========================================================
Gross unrealized appreciation $766,758,033
Gross unrealized depreciation (12,546,918)
- ---------------------------------------------------------
Net unrealized appreciation $754,211,115
=========================================================
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian take possession of) U.S. Government
Securities from banks and securities dealers subject to
20
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
agreements to resell the securities to the sellers at a future date (generally,
the next business day) at an agreed-upon higher repurchase price. The Fund
requires continual maintenance of the market value of the collateral in amounts
at least equal to the repurchase price.
5. Capital Shares
At December 31, 1995, the Fund had two billion shares of capital stock
authorized with a par value of $0.001 per share. The Fund has the ability to
issue multiple classes of shares. Each share of a class represents an identical
interest and has the same rights except that each class bears expenses
specifically related to the distribution of its shares. At December 31, 1995,
total paid-in capital amounted to the following for each class:
<TABLE>
<CAPTION>
Class A Class B Class C Class Z
==================================================================================
<S> <C> <C> <C> <C>
Total Paid-in Capital $1,300,565,336 $ 786,795,528 $ 14,119,864 $ 116,718,620
==================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
------------------------------- --------------------------
Shares Amount Shares Amount
===========================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 7,620,507 $ 89,452,092 44,094,284 $ 488,137,245
Shares issued on
reinvestment 14,668,264 174,069,009 11,449,490 116,212,319
Shares redeemed (26,276,992) (300,583,374) (32,594,240) (358,392,877)
- -------------------------------------------------------------------------------------------
Net Increase (Decrease) (3,988,221) $ (37,062,273) 22,949,534 $ 245,956,687
===========================================================================================
Class B
Shares sold 14,923,988 $ 177,804,234 13,930,876 $ 152,849,192
Shares issued on
reinvestment 6,941,401 81,718,744 4,660,147 47,253,894
Shares redeemed (13,719,120) (161,328,324) (60,436,380) (664,262,057)
- -------------------------------------------------------------------------------------------
Net Increase (Decrease) 8,146,269 $ 98,194,654 (41,845,357) $(464,158,971)
===========================================================================================
Class C
Shares sold 1,074,749 $ 12,534,789 327,092 $ 3,573,460
Shares issued on
reinvestment 94,795 1,116,130 32,039 324,876
Shares redeemed (432,791) (4,957,997) (63,463) (694,090)
- -------------------------------------------------------------------------------------------
Net Increase 736,753 $ 8,692,922 295,668 $ 3,204,246
===========================================================================================
</TABLE>
21
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
------------------------------- --------------------------
Shares Amount Shares Amount
===========================================================================================
<S> <C> <C> <C> <C>
Class Y*
Shares sold 973,805 $ 12,162,013 -- --
Shares issued on
reinvestment 13,581 161,209 -- --
Shares redeemed (987,386) (12,189,962) -- --
- -------------------------------------------------------------------------------------------
Net Increase -- $ 133,260 -- --
===========================================================================================
Class Z
Shares sold 1,316,558 $ 14,876,771 2,221,990 $ 24,578,034
Shares issued on
reinvestment 1,060,434 12,621,271 746,636 7,585,830
Shares redeemed (1,345,826) (16,008,258) (7,290,364) (79,069,662)
- -------------------------------------------------------------------------------------------
Net Increase (Decrease) 1,031,166 $ 11,489,784 (4,321,738) $(46,905,798)
===========================================================================================
</TABLE>
*For the period from October 13, 1995 to November 27, 1995.
22
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Shares 1995(1) 1994 1993(1) 1992 1991
================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.15 $11.01 $10.66 $10.26 $8.30
- ----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.20 0.16 0.15 0.18 0.18
Net realized and unrealized gain (loss) 2.75 (0.24) 0.72 0.46 2.05
- ----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.95 (0.08) 0.87 0.64 2.23
- ----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.20) (0.18) (0.16) (0.15) (0.20)
Net realized gains (1.00) (0.60) (0.36) (0.09) (0.07)
- ----------------------------------------------------------------------------------------------------------------
Total Distributions (1.20) (0.78) (0.52) (0.24) (0.27)
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.90 $10.15 $11.01 $10.66 $10.26
- ----------------------------------------------------------------------------------------------------------------
Total Return 29.26% (0.77)% 8.13% 6.29% 26.94%
- ----------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $1,932,573 $1,689,268 $1,579,248 $1,712,411 $1,752,884
- ----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.02% 1.02% 1.03% 0.88% 0.80%
Net investment income 1.71 1.61 1.35 1.58 2.20
- ----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 57% 52% 52% 21% 19%
================================================================================================================
Average commissions paid on
equity security transactions(2) $0.06 -- -- -- --
================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year since
the use of the undistributed income method did not accord with results of
operations.
(2) New SEC disclosure guidelines require that the average commission per
share be calculated for the current year only.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
23
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class B Shares 1995(1) 1994 1993(1) 1992(1)(2)
=================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.14 $11.00 $10.65 $10.55
- -------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.11 0.13 0.06 0.01
Net realized and unrealized gain (loss) 2.74 (0.29) 0.73 0.34
- -------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.85 (0.16) 0.79 0.35
- -------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.11) (0.10) (0.08) (0.16)
Net realized gains (1.00) (0.60) (0.36) (0.09)
- -------------------------------------------------------------------------------------------------
Total Distributions (1.11) (0.70) (0.44) (0.25)
- -------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.88 $10.14 $11.00 $10.65
- -------------------------------------------------------------------------------------------------
Total Return 28.29% (1.53)% 7.38% 3.28%++
- -------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $988,069 $761,000 $1,285,966 $1,122,249
- -------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.77% 1.80% 1.83% 1.82%
Net investment income 0.96 0.83 0.56 0.64
- -------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 57% 52% 52% 21%
=================================================================================================
Average commissions paid on
equity security transactions(3) $0.06 -- -- --
=================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year since
the use of the undistributed income method did not accord with results of
operations.
(2) For the period from November 6, 1992 (inception date) to December 31,
1992.
(3) New SEC disclosure guidelines require that the average commissions per
share be calculated for the current year only.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
24
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class C Shares 1995(1) 1994 1993(1)(2)
==============================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $ 10.14 $ 11.00 $ 10.99
- ------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.11 0.10 0.07
Net realized and unrealized gain (loss) 2.74 (0.25) 0.38
- ------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.85 (0.15) 0.45
- ------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.11) (0.11) (0.08)
Net realized gains (1.00) (0.60) (0.36)
- ------------------------------------------------------------------------------
Total Distributions (1.11) (0.71) (0.44)
- ------------------------------------------------------------------------------
Net Asset Value, End of Year $ 11.88 $ 10.14 $ 11.00
- ------------------------------------------------------------------------------
Total Return 28.29% (1.41)% 4.09%++
- ------------------------------------------------------------------------------
Net Asset, End of Year (000s) $14,653 $ 5,040 $ 2,214
- ------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.77% 1.66% 1.68%+
Net investment income 0.96 0.98 0.71+
- ------------------------------------------------------------------------------
Portfolio Turnover Rate 57% 52% 52%
==============================================================================
Average commissions paid on
equity security transactions(3) $ 0.06 -- --
==============================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year since
the use of the undistributed income method did not accord with results of
operations.
(2) For the period from February 4, 1993 (inception date) to December 31, 1993.
(3) New SEC disclosure guidelines require that average commissions per share
be calculated for current year only.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
25
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class Z Shares 1995(1) 1994 1993(1) 1992(2)
============================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.16 $11.02 $10.66 $10.55
- --------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.23 0.20 0.19 0.03
Net realized and unrealized gain (loss) 2.75 (0.24) 0.71 0.33
- --------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.98 (0.04) 0.90 0.36
- --------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.23) (0.22) (0.18) (0.16)
Net realized gains (1.00) (0.60) (0.36) (0.09)
- --------------------------------------------------------------------------------------------
Total Distributions (1.23) (0.82) (0.54) (0.25)
- --------------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.91 $10.16 $11.02 $10.66
- --------------------------------------------------------------------------------------------
Total Return 29.52% (0.41)% 8.47% 3.38%++
- --------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $131,357 $101,532 $157,876 $151,427
- --------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.77% 0.64% 0.66% 0.80%
Net investment income 1.96 1.99 1.73 1.66
- --------------------------------------------------------------------------------------------
Portfolio Turnover Rate 57% 52% 52% 21%
============================================================================================
Average commissions paid on
equity security transactions(3) $0.06 -- -- --
============================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year
since the use of the undistributed income method did not accord with
results of operations.
(2) For the period from November 6, 1992 (inception date) to December 31, 1992.
(3) New SEC disclosure guidelines require that the average commissions per
share be calculated for current year only.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
The amount of long-term capital gains paid by the Fund to its shareholders
for the fiscal year ended December 31, 1995, was $235,509,609.
26
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
To Shareholders and Board of Directors of
Smith Barney Appreciation Fund Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Smith Barney Appreciation Fund Inc. as of
December 31, 1995, and the related statements of operations, changes in net
assets, and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of changes
in net assets for the year ended December 31, 1994 and the financial highlights
for each of the years in the four-year period then ended were audited by other
auditors whose report thereon, dated February 8, 1995, expressed an unqualified
opinion on that statement of changes in net assets and those financial
highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1995, by
correspondence with the custodian. As to securities purchased and sold but not
received or delivered, we performed other appropriate auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Smith Barney Appreciation Fund
Inc. as of December 31, 1995, and the results of its operations, changes in its
net assets and financial highlights for the year then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
February 9, 1996
27
<PAGE>
Smith Barney Appreciation Fund Inc.
- --------------------------------------------------------------------------------
Shareholder Information (unaudited)
- --------------------------------------------------------------------------------
On April 17, 1995 a Special Meeting of Shareholders of the Fund was held for
the purpose of voting on the following matters:
1. To elect ten Directors of the Fund; and
2. To ratify the selection of KPMG Peat Marwick LLP as the independent
auditors for the fiscal year ending December 31, 1995.
The results of Proposal 1 were as follows:
% of % of
Outstanding Outstanding
Directors Votes For Shares Voted Votes Against Shares Voted
================================================================================
[S] [C] [C] [C] [C]
Herbert Barg 123,428,349.837 94.696% 7,037,087.165 5.304%
Alfred Bianchetti 123,435,019.626 94.611 7,030,417.376 5.389
Martin Brody 123,426,392.411 94.605 7,039,044.591 5.393
Dwight Crane 123,679,671.353 94.799 6,785,765.649 5.201
Burt Dorsett 123,624,836.151 94.757 6,840,600.851 5.243
Elliot Jaffe 123,543,276.229 94.694 6,922,160.773 5.306
Stephen Kaufman 123,660,206.426 94.784 6,805,230.576 5.216
Joseph McCann 123,705,872.586 94.819 6,759,564.416 5.181
Heath McLendon 123,886,476.509 94.957 6,578,960.493 5.043
Cornelius Rose 123,866,829.801 94.942 6,598,607.201 5.058
The results of Proposal 2 were as follows:
% of % of
Outstanding Outstanding
Votes For Shares Voted Votes Against Shares Voted
===============================================================================
119,371,209.563 91.946% 11,094,227.439 8.054%
- --------------------------------------------------------------------------------
Additional Information
- --------------------------------------------------------------------------------
Change in Independent Auditor: On October 19, 1994, based upon the
recommendation of the Audit Committee of the Fund, the Board of Directors
determined not to retain Coopers & Lybrand L.L.P ("Coopers & Lybrand") as the
Fund's independent auditor and voted to appoint KPMG Peat Marwick LLP. During
the Fund's two most recent fiscal years, Coopers & Lybrand's audit reports
contained no adverse opinion or disclaimer of opinion; nor were the reports
qualified or modified as to uncertainty, audit scope, or accounting principles.
Further, during this same period there were no disagreements with Coopers &
Lybrand on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have caused it to make
references to the subject matter of such disagreements in connection with its
audit reports. The Fund has requested Coopers & Lybrand to provide a letter to
the Securities and Exchange Commission stating whether Coopers & Lybrand agrees
with the foregoing statements, and to provide the Fund with a copy of such
letter. A copy of this letter is available upon request by calling the Fund at
(212) 723-9218.
28
<PAGE>
Smith Barney
Appreciation
Fund Inc.
Directors
Herbert Barg
Alfred Bianchetti
Martin Brody
Dwight Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen Kaufman
Joseph McCann
Heath B. McLendon, Chairman
Cornelius C. Rose, Jr.
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Harry D. Cohen
Vice President and
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- ------------
A Member of TravelersGroup [LOGO]
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the shareholders of
Smith Barney Appreciation Fund Inc. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective Prospectus
for the Fund, which contains information concerning the Fund's investment
policies and expenses as well as other pertinent information.
Smith Barney
Appreciation Fund Inc.
388 Greenwich Street
New York, New York 10013
FD0312 2/96
