<PAGE>
[PHOTO]
[PHOTO] Smith Barney
Appreciation
Fund Inc.
--------------------
SEMI-ANNUAL REPORT
--------------------
June 30, 1997
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(sm)
<PAGE>
Smith Barney
Appreciation Fund Inc.
================================================================================
The Smith Barney Appreciation Fund ("Fund") is for investors who want long-term
appreciation of capital through investments primarily in equity securities. It
invests primarily in blue chip companies dominant in their industries that offer
possible appreciation opportunities. The Fund may hold issues traded
over-the-counter as well as those listed on one or more national exchanges and
may make investments in foreign securities, though management intends to limit
such investments to 10% of the Fund's assets. The Fund may also hold securities
of companies with prospects of sustained earnings growth and/or companies with a
cyclical earnings record if deemed attractive.
Smith Barney Appreciation Fund's
Average Annual Total Returns Ended
June 30, 1997
<TABLE>
<CAPTION>
Without Sales Charge*
----------------------------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Six Months+ 16.73% 16.24% 16.24%
- --------------------------------------------------------------------------------
One-Year 28.81 27.71 27.77
- --------------------------------------------------------------------------------
Five-Year 15.94 N/A N/A
- --------------------------------------------------------------------------------
Ten-Year 12.66 N/A N/A
- --------------------------------------------------------------------------------
Since Inception++ 12.48 15.14 14.44
================================================================================
<CAPTION>
With Sales Charge**
----------------------------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Six Months+ 10.86% 11.24% 15.24%
- --------------------------------------------------------------------------------
One-Year 22.34 22.71 26.77
- --------------------------------------------------------------------------------
Five-Year 14.75 N/A N/A
- --------------------------------------------------------------------------------
Ten-Year 12.08 N/A N/A
- --------------------------------------------------------------------------------
Since Inception++ 12.27 15.02 14.44
================================================================================
</TABLE>
* Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect deduction of the applicable
sales charges with respect to Class A shares or the applicable contingent
deferred sales charges ("CDSC") with respect to Class B and Class C shares.
** 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 sales charge of 5.00%; and Class B shares reflect the
deduction of a 5.00% CDSC, which applies if shares are redeemed within one
year from initial purchase. Thereafter, this CDSC declines 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. 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.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
++ Inception dates for Class A, B and C shares are March 10, 1970, November 6,
1992 and February 4, 1993, respectively.
================================================================================
OUR INVESTMENT PHILOSOPHY
===============================================================================
At Smith Barney Mutual Funds, your investment needs come first. Our goal is to
deliver consistent and competitive returns over time using a wide range of
investment strategies.
================================================================================
NASDAQ SYMBOL
================================================================================
Class A SHAPX
Class B SAPBX
Class C SAPCX
================================================================================
WHAT'S INSIDE
================================================================================
Shareholder Letter ....................................................... 1
Historical Performance ................................................... 3
Schedule of Investments .................................................. 8
Statement of Assets and Liabilities ...................................... 12
Statement of Operations .................................................. 13
Statements of Changes in Net Assets ...................................... 14
Notes to Financial Statements ............................................ 15
Financial Highlights ..................................................... 18
<PAGE>
================================================================================
Shareholder Letter
================================================================================
[PHOTO] [PHOTO]
HEATH B. HARRY D.
MCLENDON COHEN
Chairman Vice President and
Investment Officer
Fellow Shareholder:
It is a pleasure to provide you with the semi-annual report for the Smith Barney
Appreciation Fund Inc. ("Fund") for the six months ended June 30, 1997. For your
convenience, we have summarized the Fund's investment strategy and discussed
some of the Fund's holdings in greater detail.
Performance Update
For the six-months ended June 30, 1997, the Fund posted a total return of
16.73%, due to an outstanding first quarter relative to the S&P 500 and a strong
absolute return in the second quarter. However, the Fund's return trailed the
S&P 500, which gained 20.60% during the period. While our caution, expressed in
the form of cash reserves and the sale of certain seemingly "overvalued" stocks,
restrained returns in the short run, we continue to view these actions as
appropriate in the current market environment.
The extraordinary returns of the stock market during the last six months, coming
on the heels of two years of dramatic increases, have exceeded the expectations
of virtually all veteran market observers. While accompanied by rising corporate
profits and low inflation, a great deal of good news has become built into stock
prices. In an economy characterized by some as a "perfect world" or "sweet
spot," we are trying to live up to our long-standing philosophy of providing a
combination of upside potential coupled with some downside protection. To us,
that means going somewhat against the prevailing overwhelming bullish sentiment
and behaving more cautiously.
Investment Strategy
The core of the Fund's portfolio consists of high-quality growth stocks of
companies we believe should provide stable, predictable earnings and dividends
over the long term. However, due to a paucity of sectors or groups of stocks
that offer a combination of attractive valuations together with solid
fundamentals, we have employed a more diversified portfolio strategy. This mix
includes cyclical stocks such as the basic material companies (e.g. papers,
chemicals, aluminum) and automobile manufacturers, as well as companies that are
restructuring and have managements dedicated to enhancing shareholder values.
Since our last letter, the Fund's top-ten holdings have changed slightly.
Allstate, a leading provider of auto and home insurance, is now the Fund's top
holding. This company has reduced its exposure to "single event" catastrophes,
boosted its growth prospects in the auto and property businesses, and returned
excess capital to shareholders through share repurchases. Xerox, a long-time
top-ten holding, has provided exceptional returns over the last six months as
new digital products and an intensified focus on cost control have restored the
investor perception of this firm as a growth company. Traditionally, the Fund
has held a sizable position in pharmaceuticals, and Merck, Johnson & Johnson and
American Home Products remain important contributors. Another industry about
which we have been bullish for some time is energy, where greater than expected
global demand for oil and gas, as well as continued restructurings, have
increased returns. Mobil and Amoco also remain top-ten holdings. Finally,
General Electric, Minnesota Mining and Manufacturing and Chase Manhattan Bank
have all been solid performers during the last six months.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 1
<PAGE>
The only major change during the period was a significant reduction in our
position in Eastman Kodak, a company whose restructuring we have championed
during the last few years. Our current less aggressive investment posture with
respect to Eastman Kodak results from a more competitive film pricing
environment, a slowly developing product transition and some high level insider
stock sales. While we continue to hold a sizable position, we feel that Kodak's
return to strong revenue growth could take longer than anticipated.
Market Outlook
The stock market's momentum continues to be strong. The economy is terrific, and
corporate profits continue to meet and, in many cases, exceed expectations.
Inflation is almost nonexistent, due to worker insecurities about their jobs,
global competition and productivity gains from technology investments. This is
why stocks have been going up for the last several years. But valuations matter
and, based on traditional measures, valuations are very high and leave little
room for error. However, it is impossible for anyone to forecast when valuations
will peak. Money continues to pour into stocks, and the bull market will
continue to run until buyers are satiated or until something dramatic changes
the underlying fundamentals. There is no sign of that yet, but caution flags are
waving.
Thank you for investing in the Smith Barney Appreciation Fund Inc. We look
forward to continuing to help you achieve your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Harry D. Cohen
Heath B. McLendon Harry D. Cohen
Chairman Vice President and
Investment Officer
July 29, 1997
<TABLE>
<CAPTION>
================================================================================
Top Ten Holdings* As of June 30, 1997
================================================================================
<S> <C>
1. Allstate Corp. 3.5%
- --------------------------------------------------------------------------------
2. Xerox Corp. 2.5
- --------------------------------------------------------------------------------
3. Merck & Co., Inc. 2.3
- --------------------------------------------------------------------------------
4. Johnson & Johnson 2.2
- --------------------------------------------------------------------------------
5. Mobil Corp. 2.2
- --------------------------------------------------------------------------------
6. General Electric Co. 2.1
- --------------------------------------------------------------------------------
7. Minnesota Mining &Manufacturing Inc. 1.8
- --------------------------------------------------------------------------------
8. Amoco Corp. 1.7
- --------------------------------------------------------------------------------
9. Chase Manhattan Bank Corp. 1.7
- --------------------------------------------------------------------------------
10. American Home Products Inc. 1.6
- --------------------------------------------------------------------------------
</TABLE>
* As a percentage of total investments.
- --------------------------------------------------------------------------------
2 1997 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Historical Performance -- Class A Shares
================================================================================
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
<S> <C> <C> <C> <C> <C>
6/30/97 $12.85 $15.00 $0.00 $0.00 16.73%+
- --------------------------------------------------------------------------------
12/31/96 11.90 12.85 0.19 1.14 19.25
- --------------------------------------------------------------------------------
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
================================================================================
Total $2.02 $3.94
================================================================================
<CAPTION>
================================================================================
Historical Performance -- Class B Shares
================================================================================
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
<S> <C> <C> <C> <C> <C>
6/30/97 $12.81 $14.89 $0.00 $0.00 16.24%+
- --------------------------------------------------------------------------------
12/31/96 11.88 12.81 0.09 1.14 18.29
- --------------------------------------------------------------------------------
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*--12/31/92 10.55 10.65 0.16 0.09 3.28+
================================================================================
Total $0.54 $3.19
================================================================================
<CAPTION>
================================================================================
Historical Performance -- Class C Shares
================================================================================
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
<S> <C> <C> <C> <C> <C>
6/30/97 $12.81 $14.89 $0.00 $0.00 16.24%+
- --------------------------------------------------------------------------------
12/31/96 11.88 12.81 0.10 1.14 18.34
- --------------------------------------------------------------------------------
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*-- 12/31/93 10.99 11.00 0.08 0.36 4.09+
================================================================================
Total $0.40 $3.10
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 3
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Historical Performance -- Class Y Shares
================================================================================
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
<S> <C> <C> <C> <C> <C>
6/30/97 $12.86 $15.04 $0.00 $0.00 16.95%+
- --------------------------------------------------------------------------------
Inception*--12/31/96 12.10 12.86 0.22 1.14 17.65+
================================================================================
Total $0.22 $1.14
================================================================================
<CAPTION>
================================================================================
Historical Performance -- Class Z Shares
================================================================================
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
<S> <C> <C> <C> <C> <C>
6/30/97 $12.87 $15.05 $0.00 $0.00 16.94%+
- --------------------------------------------------------------------------------
12/31/96 11.91 12.87 0.23 1.14 19.66
- --------------------------------------------------------------------------------
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 $1.02 $3.19
================================================================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS AND CAPITAL GAINS, IF ANY,
ANNUALLY.
<TABLE>
<CAPTION>
================================================================================
Average Annual Total Return
================================================================================
Without Sales Charge(1)
-----------------------------------------------
Class A Class B Class C Class Y Class Z
================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 6/30/97+ 16.73% 16.24% 16.24% 16.95% 16.94%
- --------------------------------------------------------------------------------
Year Ended 6/30/97 28.81 27.71 27.77 29.26 29.29
- --------------------------------------------------------------------------------
Five Years Ended 6/30/97 15.94 N/A N/A N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/97 12.66 N/A N/A N/A N/A
- --------------------------------------------------------------------------------
Inception* through 6/30/97 12.48 15.14 14.44 25.27 16.38
================================================================================
<CAPTION>
With Sales Charge(2)
-----------------------------------------------
Class A Class B Class C Class Y Class Z
================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 6/30/97+ 10.86% 11.24% 15.24% 16.95% 16.94%
- --------------------------------------------------------------------------------
Year Ended 6/30/97 22.34 22.71 26.77 29.26 29.29
- --------------------------------------------------------------------------------
Five Years Ended 6/30/97 14.75 N/A N/A N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/97 12.08 N/A N/A N/A N/A
- --------------------------------------------------------------------------------
Inception* through 6/30/97 12.27 15.02 14.44 25.27 16.38
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
4 1997 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Cumulative Total Return
================================================================================
Without Sales Charge(1)
================================================================================
<S> <C>
Class A (6/30/87 through 6/30/97) 229.37%
- --------------------------------------------------------------------------------
Class A (Inception* through 6/30/97) 2,388.83
- --------------------------------------------------------------------------------
Class B (Inception* through 6/30/97) 92.63
- --------------------------------------------------------------------------------
Class C (Inception* through 6/30/97) 81.10
- --------------------------------------------------------------------------------
Class Y (Inception* through 6/30/97) 37.59
- --------------------------------------------------------------------------------
Class Z (Inception* through 6/30/97) 102.41
================================================================================
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges 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%; Class B shares reflect the
deduction of a 5.00% CDSC, which applies if shares are redeemed within 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.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* The inception dates for Class A, B, C, Y and Z shares are March 10, 1970,
November 6, 1992, February 4, 1993, January 30, 1996 and November 6, 1992,
respectively.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 5
<PAGE>
Smith Barney
Appreciation Fund Inc.
Growth of $10,000 invested in Class A Shares
of the Smith Barney Appreciation Fund Inc.
vs. the Standard & Poor's 500 Stock Index*
March 10, 1970 - June 30, 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
[PHOTO]
January 1979:
Hersh Cohen becomes the
Portfolio Manager of the
Smith Barney
Appreciation Fund Inc.
<TABLE>
<CAPTION>
Smith Barney
Appreciation Fund Inc. S&P 500 Index
- --------------------------------------------------------------------------------
<S> <C> <C>
3/10/70 $ 9,503 $10,000
1970 10,995 10,629
War in Cambodia escalates
1971 12,840 12,148
Freeze on wages and prices
NASDAQ introduced
1972 12,722 14,457
Watergate break-in
Nixon visits China
1973 9,164 12,333
OPEC oil embargo
1974 6,902 9,069
Nixon resigns as President
1975 8,196 12,445
U.S. involvement in Vietnam ends
1976 9,875 15,423
Bicentennial celebration
1977 9,519 14,320
U.S. energy crisis
1978 11,577 15,261
Genocide in Cambodia
Camp David accords
1979 16,786 18,098
Three Mile Island disaster
Iran hostage crisis begins
1980 22,781 23,980
Reagan elected President in landslide
1981 23,207 22,800
Assassination attempts on Reagan
and Pope. First space shuttle launch
1982 28,710 27,712
Worst U.S. recession in 40 years
</TABLE>
* Hypothetical illustration of $10,000 invested in Class A shares on March
10, 1970, 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 June 30, 1997. The Standard & Poor's 500 Stock
Index ("S&P 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 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
- --------------------------------------------------------------------------------
6 1997 Semi-Annual Report to Shareholders
<PAGE>
For more than twenty-five years and through all market cycles,
the Smith Barney Appreciation Fund has delivered consistent long-term growth.
--------------------------------------------------
Average Annual Total Return of
the Smith Barney Appreciation Fund vs.
the S&P 500 Index Since Cohen Became Manager
(Since January 31, 1979)
SB Appreciation Fund
(Class A Shares) S&P 500
17.55%** 16.88%
--------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
[PLOT POINTS TO COME]
<TABLE>
<CAPTION>
Smith Barney
Appreciation Fund
(Class A Shares) S&P 500 Index
- --------------------------------------------------------------------------------
<S> <C> <C>
1983 $ 35,309 $ 33,964
Beirut bombing
1984 35,957 36,095
Iran/Iraq conflict
1985 48,332 47,544
U.S. becomes debtor nation
Gramm-Rudman Act
1986 57,915 56,420
Tax reform
Bombing of Libya
1987 61,986 59,383
Market correction
1988 70,270 69,220
RJR Nabisco buyout
1989 91,035 91,117
Collapse of high-yield bond market
Berlin Wall falls
1990 90,792 88,288
Iraq invasion of Kuwait
1991 115,250 115,131
U.S. recession
1992 122,499 116,376
Riots in Los Angeles
1993 132,462 128,073
World Trade Center terrorist bombing
Passage of NAFTA
1994 131,442 129,758
Orange County bankruptcy
1995 169,895 178,460
Dow rises above 4000, then 5000
1996 202,803 219,414
Dow rises above 6500
1997 236,501 264,614
Dow rises above 7000
</TABLE>
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.
** Please note that this figure assumes reinvestment of all dividends and
capital gains distributions at net asset value and does not reflect
deduction of the applicable sales charge with respect to Class A shares,
which would have reduced the Fund's performance.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 7
<PAGE>
================================================================================
Schedule of Investments (unaudited) June 30, 1997
================================================================================
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
COMMON STOCKS -- 83.8%
AEROSPACE -- 1.0%
421,000 Boeing Co. $22,339,313
175,000 Lockheed Martin Corp. 18,123,438
- --------------------------------------------------------------------------------
40,462,751
- --------------------------------------------------------------------------------
Airlines -- 0.0%
66,100 Midwest Express, Inc. 1,809,487
- --------------------------------------------------------------------------------
Auto Parts and Accessories -- 0.7%
425,000 Goodyear Tire & Rubber Co. 26,907,813
- --------------------------------------------------------------------------------
Automobile -- 1.7%
500,000 Chrysler Corp. 16,406,250
900,000 General Motors Corp. 50,118,750
- --------------------------------------------------------------------------------
66,525,000
- --------------------------------------------------------------------------------
Banking -- 3.7%
100,000 Barnett Banks, Inc. 5,250,000
700,000 Chase Manhattan Bank Corp. 67,943,750
250,000 First Virginia Banks, Inc. 15,078,125
350,000 National City Corp. 18,375,000
155,000 Wells Fargo & Co. 41,772,500
- --------------------------------------------------------------------------------
148,419,375
- --------------------------------------------------------------------------------
Beverage, Food and Tobacco -- 1.9%
300,000 Conagra, Inc. 19,237,500
350,000 CPC International, Inc. 32,309,375
500,000 McDonald's Corp. 24,156,250
- --------------------------------------------------------------------------------
75,703,125
- --------------------------------------------------------------------------------
Broadcasting -- 0.2%
375,000 Scandinavian Broadcasting Systems+ 8,343,750
- --------------------------------------------------------------------------------
Chemicals -- 4.1%
350,000 Cabot Corp.++ 9,931,250
800,000 E.I. du Pont de Nemours & Co. 50,300,000
400,000 Hercules, Inc. 19,150,000
800,000 IMC Global, Inc.++ 28,000,000
1,075,000 Olin Corp. 41,992,188
200,000 Raychem Corp. 14,875,000
- --------------------------------------------------------------------------------
164,248,438
- --------------------------------------------------------------------------------
Consumer Products -- 5.8%
275,000 American Greeting Co., Class A Shares 10,209,375
515,000 Dal-Tile International, Inc. 9,559,686
650,000 Eastman Kodak Co. 49,887,500
150,000 Gillette Co. 14,212,500
800,000 Kimberly-Clark Corp. 39,800,000
700,000 Newell Co. 27,737,500
175,000 Procter & Gamble Co.++ 24,718,750
200,000 Stanley Works 8,000,000
230,000 Unilever NV 50,140,000
- --------------------------------------------------------------------------------
234,265,311
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1997-Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited) June 30, 1997
================================================================================
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
DIVERSIFIED - CONGLOMERATE -- 6.6%
600,000 Allied Signal, Inc. $50,400,000
1,300,000 General Electric Co.++ 84,987,500
400,000 Host Marriott Services Corp.+ 4,700,000
700,000 Minnesota Mining & Manufacturing Co. 71,400,000
400,000 Rockwell International Corp 23,600,000
500,000 Tyco International Ltd.++ 34,781,250
- --------------------------------------------------------------------------------
269,868,750
- --------------------------------------------------------------------------------
Electrical Equipment -- 1.9%
109,300 Elsag Bailey Process Co.++ 2,008,388
450,000 Emerson Electric Co. 24,778,125
400,000 Honeywell, Inc. 30,350,000
500,000 Johnson Controls, Inc. 20,531,250
- --------------------------------------------------------------------------------
77,667,763
- --------------------------------------------------------------------------------
Entertainment and Leisure -- 2.1%
100,000 Dick Clark Productions, Inc.+ 1,325,000
600,000 Walt Disney Co. 48,150,000
500,000 Time-Warner, Inc. 24,125,000
400,000 Viacom, Inc. 12,000,000
- --------------------------------------------------------------------------------
85,600,000
- --------------------------------------------------------------------------------
Environmental Control -- 1.0%
1,200,000 Waste Management, Inc. 38,550,000
- --------------------------------------------------------------------------------
Financial Services -- 5.4%
800,000 American Express Co.++ 59,600,000
600,000 Associated First Capital 33,300,000
1,350,000 Fannie Mae 58,893,750
550,000 Household International 64,590,625
- --------------------------------------------------------------------------------
216,384,375
- --------------------------------------------------------------------------------
Healthcare - Drugs & Hospital Supplies -- 10.8%
700,000 Abbott Laboratories, Inc. 46,725,000
850,000 American Home Products Corp. 65,025,000
125,000 Amgen, Inc.+ 7,265,625
775,000 Bristol-Myers Squibb & Co. 62,775,000
125,000 Eli Lily & Co. 13,664,062
1,400,000 Johnson & Johnson 90,125,000
900,000 Merck and Co., Inc. 93,150,000
350,000 Novartis Inc., ADR 28,076,562
325,000 Smithkline Beecham 29,778,125
- --------------------------------------------------------------------------------
436,584,374
- --------------------------------------------------------------------------------
Insurance -- 7.9%
1,950,000 Allstate Corp. 142,350,000
250,000 American International Group, Inc. 37,343,750
700,000 Chubb Corp. 46,812,500
175,000 CNA Financial Corp.+ 18,451,563
160,000 General RE Corp. 29,120,000
300,000 Leucadia National Corp.++ 9,281,250
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 9
<PAGE>
================================================================================
Schedule of Investments (unaudited) June 30, 1997
================================================================================
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
Insurance -- 7.9% (continued)
475,000 St. Paul Cos. Inc. $36,218,750
- --------------------------------------------------------------------------------
319,577,813
- --------------------------------------------------------------------------------
Metals -- 0.6%
200,000 Alumax Inc. 7,587,500
200,000 Aluminum Company of America, Inc. 15,075,000
- --------------------------------------------------------------------------------
22,662,500
- --------------------------------------------------------------------------------
Office Equipment & Supplies -- 2.5%
1,300,000 Xerox Corp. 102,537,500
- --------------------------------------------------------------------------------
Oil & Gas - Service & Drilling -- 2.5%
275,000 Barrett Resources Corp. 8,232,813
300,000 Enron Corp.++ 12,243,750
275,000 Halliburton Co.++ 21,793,750
300,000 Nobel Affiliates, Inc. 11,606,250
250,000 Sonat, Inc. 12,812,500
900,000 Union Pacific Resources Group, Inc. 22,387,500
250,000 Williams Co. 10,937,500
- --------------------------------------------------------------------------------
100,014,063
- --------------------------------------------------------------------------------
Oil - Domestic -- 1.3%
500,000 Amerada Hess Corp. 27,781,250
550,000 Ashland, Inc. 25,506,250
- --------------------------------------------------------------------------------
53,287,500
- --------------------------------------------------------------------------------
Oil - International -- 5.7%
800,000 Amoco Corp. 69,550,000
550,000 Exxon Corp. 33,825,000
1,250,000 Mobil Corp. 87,343,750
760,000 Royal Dutch Petroleum Co., ADR++ 41,325,000
- --------------------------------------------------------------------------------
232,043,750
- --------------------------------------------------------------------------------
Paper and Paper Products -- 0.8%
100,000 Champion International Co. 5,525,000
425,000 Mead Corp. 26,456,250
- --------------------------------------------------------------------------------
31,981,250
- -------------------------------------------------------------------------------
Publishing -- 2.5%
400,000 Dow Jones & Co.++ 16,075,000
500,000 Gannett Co. 49,375,000
950,000 Meredith Corp.++ 27,550,000
200,000 New York Times Co., Class A Shares 9,900,000
- --------------------------------------------------------------------------------
102,900,000
- --------------------------------------------------------------------------------
Real Estate -- 0.7%
39,800 Forest City Enterprises, Inc. 1,900,450
310,000 St. Joe Corp. 25,962,500
- --------------------------------------------------------------------------------
27,862,950
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1997-Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited) June 30, 1997
================================================================================
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
Retail -- 2.4%
300,000 Gap, Inc.++ $11,662,500
750,000 J.C. Penney, Inc.++ 39,140,625
1,400,000 Wal-Mart Stores, Inc. 47,337,500
- --------------------------------------------------------------------------------
98,140,625
- --------------------------------------------------------------------------------
Technology -- 6.2%
150,000 First Data, Inc.++ 6,590,625
750,000 Hewlett-Packard Co. 42,000,000
655,000 Imation Corp. 17,275,625
400,000 Intel Corp. 56,725,000
600,000 International Business Machines Corp.++ 54,112,500
150,000 Microsoft Corp.+ 18,956,250
350,000 Texas Instruments, Inc. 29,421,875
700,000 Thermo Electron Corp. 23,800,000
- --------------------------------------------------------------------------------
248,881,875
- --------------------------------------------------------------------------------
Telephone - Communications -- 3.5%
600,000 Ameritech Corp. 40,762,500
600,000 Bell Atlantic++ 45,525,000
1,300,000 GTE Corp. 57,037,500
- --------------------------------------------------------------------------------
143,325,000
- --------------------------------------------------------------------------------
Transportation -- 0.3%
300,000 Wisconsin Central Transmission, Inc. 11,175,000
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost-- $2,230,856,335) 3,385,730,138
================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
==========================================================================================================
REPURCHASE AGREEMENTS -- 16.2%
<S> <C> <C>
$307,156,000 Chase Securities Corp., 5.745% due 7/1/97;
Proceeds at maturity -- $307,205,017; (Fully
collateralized by U.S. Treasury Notes, 6.250% due 6/30/02;
Market value-- $313,299,441) 307,156,000
349,543,000 Goldman Sachs, 5.790% due 7/1/97;
Proceeds at maturity -- $349,599,218; (Fully
collateralized by U.S. Treasury Notes, 6.125% due 12/31/01;
Market value-- $356,749,512) 349,543,000
- ----------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $656,699,000) 656,699,000
==========================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $2,887,555,335*) $4,042,429,138
==========================================================================================================
</TABLE>
+ Non-income producing security.
++ A portion of the security is on loan (See Note 5).
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 11
<PAGE>
================================================================================
Statement of Assets and Liabilities (unaudited) June 30, 1997
================================================================================
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $2,230,856,335) $3,385,730,138
Repurchase agreements, at value (Cost $656,699,000) 656,699,000
Cash and cash equivalents (Note 5) 188,993,145
Receivable for Fund shares sold 2,488,444
Receivable for securities sold 2,738,115
Dividends and interest receivable 4,268,134
- --------------------------------------------------------------------------------
Total Assets 4,240,916,976
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities loaned (Note 5) 188,992,800
Payable for securities purchased 7,196,144
Investment advisory fees payable 1,412,232
Distribution fees payable 514,924
Administration fees payable 508,440
Accrued expenses 414,049
- --------------------------------------------------------------------------------
Total Liabilities 199,038,589
- --------------------------------------------------------------------------------
Total Net Assets $4,041,878,387
================================================================================
NET ASSETS:
Par value of capital shares $ 270,067
Capital paid in excess of par value 2,376,279,883
Undistributed net investment income 24,813,039
Accumulated net realized gain from security transactions 485,641,595
Net unrealized appreciation of investments 1,154,873,803
- --------------------------------------------------------------------------------
Total Net Assets $4,041,878,387
================================================================================
Shares Outstanding:
Class A 159,183,918
---------------------------------------------------------------------------
Class B 88,855,060
---------------------------------------------------------------------------
Class C 2,439,066
---------------------------------------------------------------------------
Class Y 7,443,534
---------------------------------------------------------------------------
Class Z 12,145,009
---------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $15.00
---------------------------------------------------------------------------
Class B* $14.89
---------------------------------------------------------------------------
Class C** $14.89
---------------------------------------------------------------------------
Class Y (and redemption price) $15.04
---------------------------------------------------------------------------
Class Z (and redemption price) $15.05
---------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per share) $15.79
================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within 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.
- --------------------------------------------------------------------------------
12 1997 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Statement of Operations (unaudited) For the Six Months Ended June 30, 1997
================================================================================
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 32,271,278
Interest 14,969,579
Less: Foreign withholding tax (288,883)
- --------------------------------------------------------------------------------
Total Investment Income 46,951,974
- --------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 8,944,994
Investment advisory fees (Note 2) 8,005,927
Administration fees (Note 2) 2,938,175
Shareholder and system servicing fees 1,862,865
Shareholder communications 205,781
Custody 66,945
Registration fees 66,943
Audit and legal 24,795
Directors' fees 12,397
Other 3,620
- --------------------------------------------------------------------------------
Total Expenses 22,132,442
- --------------------------------------------------------------------------------
Net Investment Income 24,819,532
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 1,170,910,696
Cost of securities sold 766,996,378
- --------------------------------------------------------------------------------
Net Realized Gain 403,914,318
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 1,008,760,123
End of period 1,154,873,803
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 146,113,680
- --------------------------------------------------------------------------------
Net Gain on Investments 550,027,998
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $574,847,530
================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 13
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended June 30, 1997 (unaudited)
and the Year Ended December 31, 1996
<TABLE>
<CAPTION>
1997 1996
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 24,819,532 $ 41,854,488
Net realized gain 403,914,318 272,194,030
Increase in net unrealized appreciation 146,113,680 254,549,008
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 574,847,530 568,597,526
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (42,986,059)
Net realized gains -- (283,582,979)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders -- (326,569,038)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 257,969,768 394,471,394
Net asset value of shares issued for
reinvestment of dividends -- 308,650,791
Cost of shares reacquired (277,367,445) (525,373,906)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions (19,397,677) 177,748,279
- --------------------------------------------------------------------------------
Increase in Net Assets 555,449,853 419,776,767
NET ASSETS:
Beginning of period 3,486,428,534 3,066,651,767
- --------------------------------------------------------------------------------
End of period* $4,041,878,387 $3,486,428,534
================================================================================
* Includes undistributed (overdistributed)
net investment income of: $24,813,039 $(6,493)
================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1997 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
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)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing prices on such markets;
securities for which no sales price was reported 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; U.S. government and agency
obligations are valued at the mean between the closing bid and asked prices on
each day; (c) securities maturing within 60 days 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; foreign dividends are
recorded on the earlier of the ex-dividend date or as soon as practical after
the Fund determines the existence of a dividend declaration after exercising
reasonable due diligence; (e) interest income is recorded on the accrual basis;
(f) dividends and distributions to shareholders are recorded on the ex-dividend
date; (g) gains or losses on the sale of securities are calculated by using the
specific identification method; (h) direct expenses are charged to each class;
management fees and general fund expenses are allocated on the basis of relative
net assets; (i) 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; (j) 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; (k) the
character of income and gains distributed are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. At December 31, 1996, reclassifications were made to the Fund's
capital accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Net investment income,
net realized gains and net assets were not affected by this change; and (l)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ.
2. Management Agreement
and Other Transactions
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.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 15
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of Fund
shares and primary broker for its portfolio agency transactions. For the six
months ended June 30, 1997, SB received brokerage commissions of $260,952 and
sales charges of approximately $1.1 million on sales of the Fund's Class A
shares.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B shares,
which applies if redemption occurs within one year from initial purchase and
declines thereafter by 1.00% per year until no CDSC is incurred. Class C shares
have a 1.00% CDSC, which applies if redemption occurs within the first year of
purchase. For the six months ended June 30, 1997, CDSCs paid to SB were
approximately:
<TABLE>
<CAPTION>
Class B Class C
================================================================================
<S> <C> <C>
CDSCs $660,000 $5,000
================================================================================
</TABLE>
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 six months
ended June 30, 1997, total Distribution Plan fees were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Distribution Plan Fees $2,755,619 $6,038,020 $151,355
================================================================================
</TABLE>
All officers and one Director of the Fund are employees of SB.
3. Investments
During the six months ended June 30, 1997, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $ 964,389,179
- --------------------------------------------------------------------------------
Sales 1,170,910,696
================================================================================
</TABLE>
At June 30, 1997, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
================================================================================
<S> <C>
Gross unrealized appreciation $1,165,054,077
Gross unrealized depreciation (10,180,274)
- --------------------------------------------------------------------------------
Net unrealized appreciation $1,154,873,803
================================================================================
</TABLE>
4. Repurchase Agreements
The Fund purchases (and its custodian take possession of) U.S. government
securities from banks and securities dealers subject to 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. Lending of Portfolio Securities
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations. Fees earned by the Fund on securities lending are recorded in
interest income. Loans of securities by the Fund are collateralized by cash,
U.S. government securities or high quality money market instruments that are
maintained at all times in an amount at least equal to the current market value
of the loaned securities, plus a margin which may vary between 2% and 5%
depending on the type of securities loaned. The custodian establishes and
maintains the collateral in a segregated account.
At June 30, 1997, the Fund loaned common stocks having a value of approximately
$184,539,116 and received cash collateral of $188,992,800 for the loan.
- --------------------------------------------------------------------------------
16 1997 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
6. Capital Shares
At June 30, 1997, the Fund had one 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 June 30, 1997, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Amount
================================================================================
<S> <C>
Class A $1,258,391,084
- --------------------------------------------------------------------------------
Class B 860,103,132
- --------------------------------------------------------------------------------
Class C 29,970,002
- --------------------------------------------------------------------------------
Class Y 96,937,598
- --------------------------------------------------------------------------------
Class Z 131,148,134
================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996*
-------------------------------- ----------------------------------
Shares Amount Shares Amount
====================================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 6,515,410 $ 89,946,114 9,260,907 $ 117,695,953
Shares issued on reinvestment -- -- 15,028,456 194,134,793
Shares redeemed (10,723,958) (147,802,266) (23,277,287) (296,148,846)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (4,208,548) $ (57,856,152) 1,012,076 $ 15,681,900
====================================================================================================================================
Class B
Shares sold 8,936,348 $ 123,215,354 14,063,585 $ 177,522,362
Shares issued on reinvestment -- -- 7,590,786 97,239,506
Shares redeemed (8,625,204) (118,611,590) (16,308,833) (206,058,028)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 311,144 $ 4,603,764 5,345,538 $ 68,703,840
====================================================================================================================================
Class C
Shares sold 846,182 $ 11,665,419 1,107,577 $ 14,081,521
Shares issued on reinvestment -- -- 170,128 2,180,889
Shares redeemed (398,074) (5,429,826) (520,423) (6,647,865)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 448,108 $ 6,235,593 757,282 $ 9,614,545
====================================================================================================================================
Class Y
Shares sold 1,753,082 $ 24,042,118 5,690,452 $ 72,895,480
Shares issued on reinvestment -- -- -- --
Shares redeemed -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 1,753,082 $ 24,042,118 5,690,452 $ 72,895,480
====================================================================================================================================
Class Z
Shares sold 658,842 $ 9,100,763 982,703 $ 12,276,078
Shares issued on reinvestment -- -- 1,164,767 15,095,603
Shares redeemed (401,160) (5,523,763) (1,289,446) (16,519,167)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 257,682 $ 3,577,000 858,024 $ 10,852,514
====================================================================================================================================
</TABLE>
* For Class Y shares, transactions are for the period from January 30, 1996
(inception date) to December 31, 1996.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 17
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class A Shares 1997(1) 1996 1995(2) 1994 1993(2) 1992
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.85 $11.90 $10.15 $11.01 $10.66 $10.26
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.11 0.19 0.20 0.16 1.15 0.18
Net realized and unrealized gain (loss) 2.04 2.09 2.75 (0.24) 0.72 0.46
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.15 2.28 2.95 (0.08) 0.87 0.64
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.19) (0.20) (0.18) (0.16) (0.15)
Net realized gains -- (1.14) (1.00) (0.60) (0.36) (0.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (1.33) (1.20) (0.78) (0.52) (0.24)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.00 $12.85 $11.90 $10.15 $11.01 $10.66
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 16.73%++ 19.25% 29.26% (0.77)% 8.13% 6.29%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $2,388 $2,100 $1,933 $1,690 $1,579 $1,712
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.95%+ 1.00% 1.02% 1.02% 1.03% 0.88%
Net investment income 1.58+ 1.52 1.71 1.61 1.35 1.58
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 62% 57% 52% 52% 21%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions (3) $0.06 $0.06 $0.06 -- -- --
====================================================================================================================================
<CAPTION>
Class B Shares 1997(1) 1996 1995(2) 1994 1993(2) 1992(2)(4)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Beginning of Period $12.81 $11.88 $10.14 $11.00 $10.65 $10.55
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.05 0.08 0.11 0.13 0.06 0.01
Net realized and unrealized gain (loss) 2.03 2.08 2.74 (0.29) 0.73 0.34
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.08 2.16 2.85 (0.16) 0.79 0.35
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.09) (0.11) (0.10) (0.08) (0.16)
Net realized gains -- (1.14) (1.00) (0.60) (0.36) (0.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (1.23) (1.11) (0.70) (0.44) (0.25)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.89 $12.81 $11.88 $10.14 $11.00 $10.65
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 16.24%++ 18.29% 28.29% (1.53)% 7.38% 3.28%++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $1,323 $1,134 $988 $761 $1,286 $1,122
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.74%+ 1.78% 1.77% 1.80% 1.83% 1.82%+
Net investment income 0.79+ 0.74 0.96 0.83 0.56 0.64+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 62% 57% 52% 52% 21%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions (3) $0.06 $0.06 $0.06 -- -- --
====================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) As of September 1995, the SECinstituted new guidelines requiring the
disclosure of average commissions per share.
(4) For the period from November 6, 1992 (inception date) to December 31, 1992.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
18 1997 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class C Shares 1997(1) 1996 1995(2) 1994 1993(2)(3)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.81 $11.88 $10.14 $11.00 $10.99
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.05 0.09 0.11 0.10 0.07
Net realized and unrealized gain (loss) 2.03 2.08 2.74 (0.25) 0.38
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.08 2.17 2.85 (0.15) 0.45
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.10) (0.11) (0.11) (0.08)
Net realized gains -- (1.14) (1.00) (0.60) (0.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (1.24) (1.11) (0.71) (0.44)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.89 $12.81 $11.88 $10.14 $11.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 16.24%++ 18.34% 28.29% (1.41)% 4.09%++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $36,319 $25,505 $14,653 $5,040 $2,214
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.73%+ 1.77% 1.77% 1.66% 1.68%+
Net investment income 0.80+ 0.75 0.96 0.98 0.71+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 62% 57% 52% 52%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4) $0.06 $0.06 $0.06 -- --
====================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from February 4, 1993 (inception date) to December 31, 1993.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 19
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class Y Shares 1997(1) 1996(2)
================================================================================
<S> <C> <C>
Net Asset Value, Beginning of Period $12.86 $12.10
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.12 0.23
Net realized and unrealized gain 2.06 1.89
- --------------------------------------------------------------------------------
Total Income From Operations 2.18 2.12
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.22)
Net realized gains -- (1.14)
- --------------------------------------------------------------------------------
Total Distributions -- (1.34)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $15.04 $12.86
- --------------------------------------------------------------------------------
Total Return++ 16.95% 17.65%
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $111,921 $73,196
- --------------------------------------------------------------------------------
Ratios to Average Net Assets+:
Expenses 0.60% 0.66%
Net investment income 1.93 2.06
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 24%
- --------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.06 $0.06
================================================================================
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) For the period from January 30, 1996 (inception date) to December 31, 1996.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
20 1997 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class Z Shares 1997(1) 1996 1995(2) 1994 1993(2) 1992(3)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.87 $11.91 $10.16 $11.02 $10.66 $10.55
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.13 0.24 0.23 0.20 0.19 0.03
Net realized and unrealized gain (loss) 2.05 2.09 2.75 (0.24) 0.71 0.33
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.18 2.33 2.98 (0.04) 0.90 0.36
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.23) (0.23) (0.22) (0.18) (0.16)
Net realized gains -- (1.14) (1.00) (0.60) (0.36) (0.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (1.37) (1.23) (0.82) (0.54) (0.25)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.05 $12.87 $11.91 $10.16 $11.02 $10.66
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 16.94%++ 19.66% 29.52% (0.41)% 8.47% 3.38%++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $182,764 $153,034 $131,357 $101,532 $157,876 $151,427
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.60%+ 0.64% 0.77% 0.64% 0.66% 0.80%+
Net investment income 1.93+ 1.88 1.96 1.99 1.73 1.66+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 62% 57% 52% 52% 21%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4) $0.06 $0.06 $0.06 -- -- --
====================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from November 6, 1992 (inception date) to December 31, 1992.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 21
<PAGE>
Smith Barney
Appreciation Fund Inc.
Directors Investment Adviser
Herbert Barg Smith Barney Mutual Funds Management Inc.
Alfred Bianchetti
Martin Brody Distributors
Dwight Crane Smith Barney Inc.
Burt N. Dorsett PFS Distributors, Inc.
Elliot S. Jaffe
Stephen Kaufman Custodian
Joseph McCann PNC Bank, N.A.
Heath B. McLendon, Chairman
Cornelius C. Rose, Jr.
James C. Crisona, Emeritus Shareholder Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
Officers
Heath B. McLendon
Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer This report is for the information of
shareholders of Smith Barney
Harry D. Cohen Appreciation Fund Inc., but it may also
Vice President and Investment Officer be used as sales literature when
preceded or accompanied by the current
Thomas M. Reynolds prospectus, which gives details about
Controller charges, expenses, investment objectives
and operating policies of the Fund. If
Christina T. Sydor used as sales material after September
Secretary 30, 1997, this report must be
accompanied by performance information
for the most recently completed calendar
quarter.
SMITH BARNEY
-----------------------------------------
A Member of TravelersGroup [LOGO]
Smith Barney Appreciation Fund Inc.
Smith Barney Mutual Funds
388 Greenwich Street
New York, New York 10013
FD0404 8/97
