Registration Nos. 2-34576
811-1940
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 45 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 32 X
SMITH BARNEY APPRECIATION FUND INC.
(Exact name of Registrant as specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices) (Zip Code)
(212) 816-6474
(Registrant's telephone number, including Area Code)
Christina T. Sydor
Secretary
Smith Barney Appreciation Fund Inc.
388 Greenwich Street
New York, New York 10013
(22nd Floor)
(Name and address of agent for service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
XXX immediately upon filing pursuant to paragraph (b) of Rule 485
on (date) pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(i) of Rule 485
on April 30, 1998 pursuant to paragraph (a)(i) of Rule 485
75 days after filing pursuant to paragraph (a)(ii) of Rule 485
on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(R)
PROSPECTUS
APPRECIATION
FUND
Class A, B, L and Y Shares
--------------------------------------------------------------
April 30, 1999
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
<PAGE>
Appreciation Fund
Contents
<TABLE>
<S> <C>
Fund goal and main strategies............................................... 2
Risks, performance and expenses............................................. 4
More on the fund's investments.............................................. 7
Management.................................................................. 8
Choosing a class of shares to buy........................................... 9
Comparing the fund's classes................................................ 10
Sales charges............................................................... 11
More about deferred sales charges........................................... 13
Buying shares............................................................... 14
Exchanging shares........................................................... 16
Redeeming shares............................................................ 18
Other things to know
about share transactions.................................................... 20
Smith Barney 401(k) and
ExecChoice(TM) programs..................................................... 22
Dividends, distributions and taxes.......................................... 23
Share price................................................................. 24
Financial highlights........................................................ 25
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Fund goal and main strategies
Investment objective
The fund seeks long-term appreciation of shareholders' capital.
Key investments
The fund invests primarily in equity securities of U.S. companies. The fund
typically invests in medium and large capitalization companies but may also
invest in small capitalization companies. Equity securities include exchange
traded and over-the-counter common stocks and preferred stocks, debt securities
convertible into equity securities, and warrants and rights relating to equity
securities.
Selection process
The manager's investment strategy consists of individual company selection and
management of cash reserves. The manager looks for investments among a strong
core of growth stocks, consisting primarily of blue chip companies dominant in
their industries. The fund may also invest in companies with prospects for sus-
tained earnings growth and/or a cyclical earnings record.
In selecting individual companies for the fund's portfolio, the manager looks
for the following:
. Strong or rapidly improving balance sheets
. Recognized industry leadership
. Effective management teams that exhibit a desire to earn consistent returns
for shareholders
In addition, the manager considers the following characteristics:
. Past growth records
. Future earnings prospects
. Technological innovation
. General market and economic factors
. Current yield or potential for dividend growth
Appreciation Fund
2
<PAGE>
Generally, companies in the fund's portfolio fall into one of the following
categories:
. Undervalued companies: companies with assets or earning power that are either
unrecognized or undervalued. The manager generally looks for a catalyst that
will unlock these values. The manager also looks for companies that are
expected to have unusual earnings growth or whose stocks appear likely to go
up in value because of marked changes in the way they do business (for exam-
ple, a corporate restructuring).
. Growth at a reasonable price: companies with superior demonstrated and
expected growth characteristics whose stocks are available at a reasonable
price. Typically, there is strong recurring demand for these companies' prod-
ucts.
The manager adjusts the amount held in cash reserves depending on the manag-
er's outlook for the stock market. The manager will increase the fund's allo-
cation to cash when, in the manager's opinion, market valuation levels become
excessive. The manager may sometimes hold a significant portion of the fund's
assets in cash while waiting for buying opportunities or to provide a hedge
against stock market declines.
Smith Barney Mutual Funds
3
<PAGE>
Risks, performance and expenses
Principal risks of investing in the fund
Investing in equity securities can bring added benefits, but it may also
involve additional risks. Investors could lose money on their investment in the
fund, or the fund may not perform as well as other investments, if:
. The U.S. stock market declines
. Large and medium capitalization stocks or growth stocks are temporarily out
of favor
. An adverse event depresses the value of a company's stock
. The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock or about the amount to hold in cash reserves
proves to be incorrect
Who may want to invest
The fund may be an appropriate investment if you:
. Are seeking to participate in the long term capital appreciation potential of
the stock market
. Are willing to accept the risks of investing in the stock market
. Are planning for a long term goal and can tolerate periods of market volatil-
ity
Appreciation Fund
4
<PAGE>
Total return
The bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not neces-
sarily indicate how the fund will perform in the future.
Total Return for Class A Shares
Calendar years ended December 31
89 90 91 92 93 94 95 96 97 98
- ------ ------ ------ ----- ----- ------ ------ ------ ------ ------
29.55% -0.27% 26.94% 6.29% 8.13% -0.77% 29.26% 19.25% 26.29% 20.45%
The bar chart shows the performance of the fund's Class A shares for each of
the past 10 calendar years. Class B, L and Y shares would have different per-
formance because of their different expenses. The performance information in
the chart does not reflect sales charges, which would reduce your return.
Quarterly returns:
Highest: 17.89% in 4th quarter 1998; Lowest: -10.90% in 3rd quarter 1990
Comparative performance
The table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Stan-
dard & Poor's 500 Index (S&P 500 Index), a broad-based unmanaged index of
widely held stocks traded on the New York Stock Exchange. This table assumes
imposition of the maximum sales charge applicable to the class, redemption of
shares at the end of the period, and reinvestment of distributions and divi-
dends.
Average Annual Total Returns
Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
A 14.45% 17.19% 15.34% 12.63% 03/10/70
B 14.52% 17.38% n/a 15.92% 11/06/92
L 17.32% 17.29% n/a 15.23% 02/04/93
Y 20.93% n/a n/a 22.35% 01/30/96
S&P 500 28.60% 24.05% 19.19% 13.68%* n/a
</TABLE>
*Index comparison begins on 03/30/70.
Smith Barney Mutual Funds
5
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed
on purchases
(as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load) on
redemptions (as a % of the lower of net asset
value at purchase or redemption) None* 5.00% 1.00% None
</TABLE>
Annual fund operating expenses
<TABLE>
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fees 0.57% 0.57% 0.57% 0.57%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses 0.13% 0.16% 0.16% 0.02%
----- ----- ----- -----
Total annual fund operating expenses 0.95% 1.73% 1.73% 0.59%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $592 $788 $ 999 $1,608
Class B (redemption at end of period) $676 $845 $1,039 $1,834
Class B (no redemption) $176 $545 $ 939 $1,834
Class L (redemption at end of period) $374 $639 $1,029 $2,121
Class L (no redemption) $274 $639 $1,029 $2,121
Class Y (with or without redemption) $ 60 $189 $ 329 $ 738
</TABLE>
Appreciation Fund
6
<PAGE>
More on the fund's investments
Derivatives and hedging techniques The fund may, but need not, use derivative
contracts, such as futures and options on securities and securities indices and
options on these futures for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market value
of its securities, because of changes in stock market prices
. As a substitute for buying or selling securities
A derivative contract will obligate or entitle the fund to deliver or receive
an asset or cash payment based on the change in value of one or more securities
or indices. Even a small investment in derivative contracts can have a big
impact on the fund's stock market exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
stock prices are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
Foreign securities The fund may invest up to 10% of its assets (at the time of
investment) in foreign securities. The fund may invest directly in foreign
issuers or invest in depositary receipts. The value of the fund's foreign secu-
rities may go down because of unfavorable government actions, political insta-
bility or the more limited availability of accurate information about foreign
issuers.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Smith Barney Mutual Funds
7
<PAGE>
Management
Manager The fund's investment adviser and administrator is SSBC Fund Management
Inc., an affiliate of Salomon Smith Barney Inc. The manager's address is 388
Greenwich Street, New York, New York 10013. The manager selects the fund's
investments and oversees its operations. The manager and Salomon Smith Barney
are subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range
of financial services--asset management, banking and consumer finance, credit
and charge cards, insurance, investments, investment banking and trading--and
use diverse channels to make them available to consumer and corporate customers
around the world.
Harry D. Cohen, investment officer of the manager and managing director of Sal-
omon Smith Barney, has been responsible for the day-to-day management of the
fund's portfolio since 1979.
Management fees For its services, the manager received an advisory fee and an
administration fee during the fund's last fiscal year equal to 0.42% and 0.15%,
respectively, of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and serv-
ice fees. These fees are an ongoing expense and, over time, may cost you more
than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by the funds. The manager and Salomon Smith Barney are addressing the
Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guaran-
tee that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers or the efforts of its service providers to
correct the problem will be successful.
Appreciation Fund
8
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney--a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
* Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Smith Barney Mutual Funds
9
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No ini- .The ini- .No ini-
sales tial sales tial sales tial or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than expenses annual classes
Class B than expenses
and Class A than
Class L Class A
- -----------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- -----------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- -----------------------------------------------------------------------
Annual distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
- -----------------------------------------------------------------------
Exchange Privilege* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
- -----------------------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or dealer representative
or visit the web site for the Smith Barney funds available for exchange.
Appreciation Fund
10
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more 0.00 0.00
</TABLE>
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
. Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
. Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may
Smith Barney Mutual Funds
11
<PAGE>
include purchases on which you paid a sales charge within 90 days before you
sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD
. 403(b) or 401(k) retirement plans, if certain conditions are met
. Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional or waivers of Class A initial
sales charges, contact your Salomon Smith Barney Financial Consultant or
dealer representative or consult the Statement of Additional
Information ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
6th
through
Year after purchase 1st 2nd 3rd 4th 5th 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued: Shares issued:
At initial purchase On reinvestment of Upon exchange from
dividends and another Smith Barney
distributions fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
</TABLE>
Appreciation Fund
12
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998,
you will not pay an initial sales charge on Class L shares you buy before June
22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Salomon Smith Barney Financial Consultant or dealer representative.
Smith Barney Mutual Funds
13
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or
dealer If you do not provide the following information, your order
representative will be rejected:
. Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund's are clients of the selling group are eligible to buy shares
transfer directly from the fund.
agent
. Write the transfer agent at the following address:
Smith Barney Appreciation Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial pur-
chases, complete and send an account application.
. For more information, call the transfer agent at 1-800-451-
2010.
Appreciation Fund
14
<PAGE>
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith
plan Barney brokerage account or Smith Barney money market fund to
buy shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Smith Barney Mutual Funds
15
<PAGE>
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the . You may exchange shares only for shares of the same class
varying needs of another Smith Barney fund. Not all Smith Barney funds
of both large offer all classes.
and small
investors. . Not all Smith Barney funds may be offered in your state of
residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent.
. You must meet the minimum investment amount for each fund
. If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
. The fund may suspend or terminate your exchange privilege
if you engage in an excessive pattern of exchanges.
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
Appreciation Fund
16
<PAGE>
By telephone
If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete an authorization form to authorize telephone transfers.
If eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
You can make telephone exchanges only between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.
Smith Barney Mutual Funds
17
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the transfer agent at the following address:
Smith Barney Appreciation Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is regis-
tered
Appreciation Fund
18
<PAGE>
By telephone
If you do not have a brokerage account, you may be eligible
to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by tel-
ephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests received after the close
of regular trading on the exchange are priced at the net
asset value next determined.
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You must submit a new authorization
form to change the bank account designated to receive wire
transfers and you may be asked to provide certain other
documents.
- --------------------------------------------------------------------------------
Automatic
cash You can arrange for the automatic redemption of a portion of
withdrawal your shares on a monthly or quarterly basis. To qualify you
plans must own shares of the fund with a value of at least $10,000
($5,000 for retirement plans) and each automatic redemption
must be at least $50. If your shares are subject to a
deferred sales charge, the sales charge will be waived if
your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Smith Barney Mutual Funds
19
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or redeemed
. Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for the account, sending you a written confirmation
or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different reg-
istration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
Appreciation Fund
20
<PAGE>
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
21
<PAGE>
Smith Barney 401(k) and ExecChoiceTM programs
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoiceTM program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's invest-
ments in any of the Smith Barney funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of the same class.
. Class A shares may be purchased by plans investing at least $1 million.
. Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible for exchange into Class A shares not later than 8
years after the plan joined the program. They are eligible for exchange
sooner in the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 mil-
lion is invested in Smith Barney Funds, and Class L shares (other than
money market funds), all Class L shares are eligible for exchange after
the plan is in the program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds, and Class L shares (other than money mar-
ket funds) on December 31 in any year, all Class L shares are eligible for
exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Appreciation Fund
22
<PAGE>
Dividends, distributions and taxes
Dividends The fund generally makes capital gain distributions and pays divi-
dends, if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in addi-
tional fund shares of the same class you hold. The fund expects distributions
to be primarily from capital gains. You do not pay a sales charge on reinvested
distributions or dividends. Alternatively, you can instruct your Salomon Smith
Barney Financial Consultant, dealer representative or the transfer agent to
have your distributions and/or dividends paid in cash. You can change your
choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or
loss; long-term only if
shares owned more than
one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain dis-
tribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Smith Barney Mutual Funds
23
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. The
fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. When reliable market prices or quotations are not readily available, or
when the value of a security has been materially affected by events occurring
after a foreign exchange closes, the fund may price those securities at fair
value. Fair value is determined in accordance with procedures approved by the
fund's board.
A fund that uses fair value to price securities may value those securities
higher or lower than another fund using market quotations to price the same
securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the Exchange closes
early, you must place your order prior to the actual closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Appreciation Fund
24
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class for the past 5 years (or since inception if less than 5
years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request). The information for the
fiscal year ended December 31, 1994 has been audited by other auditors.
For a Class A share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997 1996 1995(/1/) 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $13.92 $12.85 $11.90 $10.15 $11.01
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.18 0.19 0.19 0.20 0.16
Net realized and unrealized gain
(loss) 2.62 3.17 2.09 2.75 (0.24)
- --------------------------------------------------------------------------------
Total income (loss) from
operations 2.80 3.36 2.28 2.95 (0.08)
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.18) (0.20) (0.19) (0.20) (0.18)
Net realized gains (1.23) (2.09) (1.14) (1.00) (0.60)
- --------------------------------------------------------------------------------
Total distributions (1.41) (2.29) (1.33) (1.20) (0.78)
- --------------------------------------------------------------------------------
Net asset value, end of year $15.31 $13.92 $12.85 $11.90 $10.15
- --------------------------------------------------------------------------------
Total return(/2/) 20.45% 26.29% 19.25% 29.26% (0.77)%
- --------------------------------------------------------------------------------
Net assets, end of year
(millions) $2,959 $2,526 $2,100 $1,933 $1,690
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.95% 0.95% 1.00% 1.02% 1.02%
Net investment income 1.23 1.47 1.52 1.71 1.61
- --------------------------------------------------------------------------------
Portfolio turnover rate 63% 57% 62% 57% 52%
- --------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts calculated using the monthly average shares method.
(/2/) Total return does not take into account any applicable sales charges.
Smith Barney Mutual Funds
25
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997 1996 1995(/1/) 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $13.88 $12.81 $11.88 $10.14 $11.00
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.06 0.07 0.08 0.11 0.13
Net realized and unrealized gain
(loss) 2.61 3.15 2.08 2.74 (0.29)
- --------------------------------------------------------------------------------
Total income (loss) from
operations 2.67 3.22 2.16 2.85 (0.16)
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.06) (0.06) (0.09) (0.11) (0.10)
Net realized gains (1.23) (2.09) (1.14) (1.00) (0.60)
- --------------------------------------------------------------------------------
Total distributions (1.29) (2.15) (1.23) (1.11) (0.70)
- --------------------------------------------------------------------------------
Net asset value, end of year $15.26 $13.88 $12.81 $11.88 $10.14
- --------------------------------------------------------------------------------
Total return(/2/) 19.52% 25.31% 18.29% 28.29% (1.53)%
- --------------------------------------------------------------------------------
Net assets, end of year
(millions) $1,553 $1,410 $1,134 $988 $761
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.73% 1.73% 1.78% 1.77% 1.80%
Net investment income 0.44 0.68 0.74 0.96 0.83
- --------------------------------------------------------------------------------
Portfolio turnover rate 63% 57% 62% 57% 52%
- --------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts calculated using the monthly average shares method.
(/2/) Total return does not take into account any applicable sales charges.
Appreciation Fund
26
<PAGE>
For a Class L(/1/) share of capital stock outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
1998(/2/) 1997 1996 1995(/2/) 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $13.88 $12.81 $11.88 $10.14 $11.00
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.06 0.09 0.09 0.11 0.10
Net realized and unrealized
gain (loss) 2.61 3.13 2.08 2.74 (0.25)
- -------------------------------------------------------------------------------
Total income (loss) from
operations 2.67 3.22 2.17 2.85 (0.15)
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.06) (0.06) (0.10) (0.11) (0.11)
Net realized gains (1.23) (2.09) (1.14) (1.00) (0.60)
- -------------------------------------------------------------------------------
Total distributions (1.29) (2.15) (1.24) (1.11) (0.71)
- -------------------------------------------------------------------------------
Net asset value, end of year $15.26 $13.88 $12.81 $11.88 $10.14
- -------------------------------------------------------------------------------
Total return(/3/) 19.52% 25.31% 18.34% 28.29% (1.41)%
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $83,215 $47,872 $25,505 $14,653 $5,040
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.73% 1.73% 1.77% 1.77% 1.66%
Net investment income 0.44 0.68 0.75 0.96 0.98
- -------------------------------------------------------------------------------
Portfolio turnover rate 63% 57% 62% 57% 52%
- -------------------------------------------------------------------------------
</TABLE>
(/1/) On June 12, 1998, Class C shares were renamed Class L shares.
(/2/) Per share amounts calculated using the monthly average shares method.
(/3/) Total return does not take into account any applicable sales charges.
Smith Barney Mutual Funds
27
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997(/1/) 1996(/1/)(/2/)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $13.93 $12.86 $12.10
- -------------------------------------------------------------------------
Income from operations:
Net investment income 0.24 0.27 0.23
Net realized and unrealized gain 2.63 3.14 1.89
- -------------------------------------------------------------------------
Total income from operations 2.87 3.41 2.12
- -------------------------------------------------------------------------
Less distributions from:
Net investment income (0.29) (0.25) (0.22)
Net realized gains (1.23) (2.09) (1.14)
- -------------------------------------------------------------------------
Total distributions (1.52) (2.34) (1.36)
- -------------------------------------------------------------------------
Net asset value, end of year $15.28 $13.93 $12.86
- -------------------------------------------------------------------------
Total return(/5/) 20.93% 26.70% 17.65%(/3/)
- -------------------------------------------------------------------------
Net assets, end of year (000)'s $87,041 $56,302 $73,196
- -------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.59% 0.59% 0.66%(/4/)
Net investment income 1.59 1.79 2.06(/4/)
- -------------------------------------------------------------------------
Portfolio turnover rate 63% 57% 24%
- -------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts calculated using the monthly average shares method.
(/2/) For the period from January 31, 1996 (inception date) to December 31,
1996.
(/3/) Not annualized.
(/4/) Annualized.
(/5/) Total return does not take into account any applicable sales charges.
Appreciation Fund
28
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Appreciation Fund
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the Commis-
sion, Washington, D.C. 20549-6009. Information about the public reference room
may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SM Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-01940)
FD0202 4/99
<PAGE>
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.(R)
PROSPECTUS
APPRECIATION
FUND
Class Z Shares
------------------------------------------------------------
April 30, 1999
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
<PAGE>
Appreciation Fund
Contents
<TABLE>
<S> <C>
Fund goal and main strategies............................................... 2
Risks, performance and expenses............................................. 4
More on the fund's investments.............................................. 7
Management.................................................................. 8
Buying, redeeming and
exchanging Class Z shares.................................................. 9
Share price................................................................. 10
Dividends, distributions and taxes.......................................... 11
Financial highlights........................................................ 12
</TABLE>
The Class Z shares described in this prospectus are offered exclusively for
sale to tax-exempt employee benefit and retirement plans of Salomon Smith Bar-
ney Inc. or any of its affiliates.
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Fund goal and main strategies
Investment objective
The fund seeks long-term appreciation for shareholders' capital.
Key investments
The fund invests primarily in equity securities of U.S. companies. The fund
typically invests in medium and large capitalization companies but may also
invest in small capitalization companies. Equity securities include exchange
traded and over-the-counter common stocks and preferred stocks, debt securities
convertible into equity securities, and warrants and rights relating to equity
securities.
Selection process
The manager's investment strategy consists of individual company selection and
management of cash reserves. The manager looks for investments among a strong
core of growth stocks, consisting primarily of blue chip companies dominant in
their industries. The fund may also invest in companies with prospects for sus-
tained earnings growth and/or a cyclical earnings record.
In selecting individual companies for the fund's portfolio, the manager looks
for the following:
.Strong or rapidly improving balance sheets
.Recognized industry leadership
.Effective management teams that exhibit a desire to earn consistent returns
for shareholders
In addition, the manager considers the following characteristics:
.Past growth records
.Future earnings prospects
.Technological innovation
.General market and economic factors
.Current yield or potential for dividend growth
Appreciation Fund--Class Z Shares
2
<PAGE>
Generally, companies in the fund's portfolio fall into one of the following
categories:
.Undervalued companies: companies with assets or earning power that are either
unrecognized or undervalued. The manager generally looks for a catalyst that
will unlock these values. The manager also looks for companies that are
expected to have unusual earnings growth or whose stocks appear likely to go
up in value because of marked changes in the way they do business (for exam-
ple, a corporate restructuring).
.Growth at a reasonable price: companies with superior demonstrated and
expected growth characteristics whose stocks are available at a reasonable
price. Typically, there is strong recurring demand for these companies' prod-
ucts.
The manager adjusts the amount held in cash reserves depending on the manager's
outlook for the stock market. The manager will increase the fund's allocation
to cash when, in the manager's opinion, market valuation levels become exces-
sive. The manager may sometimes hold a significant portion of the fund's
assets in cash while waiting for buying opportunities or to provide a hedge
against stock market declines.
Smith Barney Mutual Funds
3
<PAGE>
Risks, performance and expenses
Principal risks of investing in the fund
Investing in equity securities can bring added benefits, but it may also
involve additional risks. Investors could lose money on their investment in the
fund, or the fund may not perform as well as other investments, if:
.The U.S. stock market declines
.Large and medium capitalization stocks or growth stocks are temporarily out of
favor
.An adverse event depresses the value of a company's stock
.The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock or about the amount to hold in cash reserves
proves to be incorrect
Who may want to invest
The fund may be an appropriate investment if you:
.Are seeking to participate in the long term capital appreciation potential of
the stock market
.Are willing to accept the risks of investing in the stock market
.Are planning for a long term goal and can tolerate periods of market volatil-
ity
Appreciation Fund--Class Z Shares
4
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not neces-
sarily indicate how the fund will perform in the future.
Total Return for Class Z Shares
[BAR GRAPH APPEARS HERE]
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
8.47% -41% 29.52% 19.66% 26.72% 20.91%
Calendar years ended December 31
The bar chart shows the performance of the fund's Class Z shares since incep-
tion on November 6, 1992.
Quarterly returns:
Highest: 18.05% in 4th quarter 1998; Lowest: -9.44% in 3rd quarter 1998
Comparative performance
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of Class Z shares for the periods shown with that of
the Standard & Poor's 500 Index (S&P 500 Index), a broad-based unmanaged index
of widely held stocks traded on the New York Stock Exchange. This table assumes
the reinvestment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
Class Z 20.91% 18.79% n/a 17.18% 11/06/92
S&P 500 28.60% 24.05% 19.19% 21.52%* 11/30/92
</TABLE>
* Index comparison begins on 11/30/92
Smith Barney Mutual Funds
5
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Annual fund operating expenses
<TABLE>
<CAPTION>
(expenses deducted from fund assets)
<S> <C>
Management fee 0.57%
Other expenses 0.02%
-----
Total annual fund operating expenses 0.59%
</TABLE>
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class Z (with or without redemption) $60 $189 $329 $738
</TABLE>
Appreciation Fund--Class Z Shares
6
<PAGE>
More on the fund's investments
Derivatives and hedging techniques The fund may, but need not, use derivative
contracts, such as futures and options on securities and securities indices and
options on these futures for any of the following purposes:
.To hedge against the economic impact of adverse changes in the market value of
its securities, because of changes in stock market prices
.As a substitute for buying or selling securities
A derivative contract will obligate or entitle the fund to deliver or receive
an asset or cash payment based on the change in value of one or more securities
or indices. Even a small investment in derivative contracts can have a big
impact on the fund's stock market exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
stock prices are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make the fund less liquid and harder to
value, especially in declining markets.
Foreign securities The fund may invest up to 10% of its assets (at the time of
investment) in foreign securities. The fund may invest directly in foreign
issuers or invest in depositary receipts. The value of the fund's foreign secu-
rities may go down because of unfavorable government actions, political insta-
bility or the more limited availability of accurate information about foreign
issuers.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Smith Barney Mutual Funds
7
<PAGE>
Management
Manager The fund's investment adviser and administrator is SSBC Fund Management
Inc., an affiliate of Salomon Smith Barney Inc. The manager's address is 388
Greenwich Street, New York, New York 10013. The manager selects the fund's
investments and oversees its operations. The manager and Salomon Smith Barney
are subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range
of financial services--asset management, banking and consumer finance, credit
and charge cards, insurance, investments, investment banking and trading--and
use diverse channels to make them available to consumer and corporate customers
around the world.
Harry D. Cohen, investment officer of the manager and managing director of Sal-
omon Smith Barney, has been responsible for the day to day management of the
fund's portfolio since 1979.
Management fee For its services, the manager received an advisory fee and an
administration fee during the fund's last fiscal year equal to 0.42% and 0.15%,
respectively, of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by the fund. The manager and Salomon Smith Barney are addressing the
Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guaran-
tee that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers or the efforts of its service providers to
correct the problem will be successful.
Appreciation Fund--Class Z Shares
8
<PAGE>
Buying, redeeming and exchanging Class Z shares
Through a You may buy, sell or exchange Class Z shares only through a
qualified "qualified plan." A qualified plan is a tax-exempt employee
plan benefit or retirement plan of Salomon Smith Barney, Inc. or
one of its affiliates.
There are no minimum investment requirements for Class Z
shares. However, the fund reserves the right to change this
policy at any time.
- --------------------------------------------------------------------------------
Buying Orders to buy Class Z shares must be made in accordance with
the terms of a qualified plan. If you are a participant in a
qualified plan, you may place an order with your plan to buy
Class Z shares at net asset value, without any sales charge.
Payment is due to Salomon Smith Barney on settlement date,
which is the third business day after your order is accepted.
If you make payment prior to this date, you may designate a
temporary investment (such as a money market fund of the
Smith Barney funds) for payment until settlement date. The
fund reserves the right to reject any order to buy shares and
to suspend the offering of shares for a period of time.
- --------------------------------------------------------------------------------
Qualified plans may redeem their shares on any day on which
Redeeming the fund calculates its net asset value. You should consult
the terms of your qualified plan for special redemption pro-
visions.
- --------------------------------------------------------------------------------
Exchanging You should consult your qualified plan for information about
available exchange options.
Smith Barney Mutual Funds
9
<PAGE>
Share price
Qualified plans may buy, exchange or redeem Class Z shares of the fund at the
net asset value next determined after receipt of your request in good order.
The fund's net asset value is the value of its assets minus its liabilities.
Net asset value is calculated separately for each class of shares. The fund
calculates its net asset value every day the New York Stock Exchange is open.
The Exchange is closed on certain holidays listed in the SAI. This calculation
is done when regular trading closes on the Exchange (normally 4:00 p.m., East-
ern time).
The fund generally values its fund securities based on market prices or quota-
tions. When reliable market prices or quotations are not readily available, or
when the value of a security has been materially affected by events occurring
after a foreign exchange closes, the fund may price those securities at fair
value. Fair value is determined in accordance with procedures approved by the
fund's board.
A fund that uses fair value to price securities may value those securities
higher or lower than another fund using market quotations to price the same
securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your qualified plan before the New York Stock Exchange closes.
If the Exchange closes early, you must place your order prior to the actual
closing time. Otherwise, you will receive the next business day's price.
Your qualified plan must transmit all orders to buy, exchange or redeem shares
to the fund's agent before the agent's close of business.
Appreciation Fund--Class Z Shares
10
<PAGE>
Dividends, distributions and taxes
An investment in the fund will have the following consequences for a qualified
plan as the owner of shares in the fund. Qualified plan participants should
consult their plan document or tax advisors about the tax consequences of par-
ticipating in a qualified plan.
Dividends The fund generally makes capital gain distributions and pays divi-
dends, if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in addi-
tional Class Z shares. The fund expects distributions to be primarily from cap-
ital gains. No sales charge is imposed on reinvested distributions or
dividends. Alternatively, a qualified plan can instruct its Salomon Smith Bar-
ney Financial Consultant, dealer representative or the transfer agent to have
distributions and/or dividends paid in cash. It can change that choice at any
time to be effective as of the next distribution or dividend, except that any
change given to the transfer agent less than five days before the payment date
will not be effective until the next distribution or dividend is paid.
Taxes Provided that a qualified plan has not borrowed to finance its investment
in the fund, it will not be taxable on the receipt of dividends and distribu-
tions from the fund.
Dividends and interest received by the fund from investing in foreign securi-
ties may give rise to withholding and other taxes imposed by foreign countries.
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes. The fund's foreign tax payments will reduce the amount of
its dividends and distributions.
Smith Barney Mutual Funds
11
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of Class Z shares for the past 5 years. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment
of all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent accountants, whose report, along with the
fund's financial statements, are included in the annual report (available upon
request). The information for the fiscal year ended December 31, 1994 has
been audited by other auditors.
For a Class Z share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1998(/1/) 1997 1996 1995(/1/) 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 13.94 $ 12.87 $ 11.91 $ 10.16 $ 11.02
- -------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.24 0.24 0.24 0.23 0.20
Net realized and
unrealized gain (loss) 2.63 3.18 2.09 2.75 (0.24)
- -------------------------------------------------------------------------------
Total income (loss) from
operations 2.87 3.42 2.33 2.98 (0.04)
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.29) (0.26) (0.23) (0.23) (0.22)
Net realized gains (1.23) (2.09) (1.14) (1.00) (0.60)
- -------------------------------------------------------------------------------
Total distributions (1.52) (2.35) (1.37) (1.23) (0.82)
- -------------------------------------------------------------------------------
Net asset value, end of
year $ 15.29 $ 13.94 $ 12.87 $ 11.91 $ 10.16
- -------------------------------------------------------------------------------
Total return 20.91% 26.72% 19.66% 29.52% (0.41)%
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $243,609 $194,070 $153,034 $131,357 $101,532
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 0.59% 0.59% 0.64% 0.77% 0.64%
Net investment income 1.59% 1.82 1.88 1.96 1.99
- -------------------------------------------------------------------------------
Portfolio turnover rate 63% 57% 62% 57% 52%
- -------------------------------------------------------------------------------
</TABLE>
(/1/Per)share amounts calculated using the monthly average shares method.
Appreciation Fund--Class Z Shares
12
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Appreciation Fund
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your qualified plan or the transfer agent if you do not
want this policy to apply to you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your quali-
fied plan, [by calling the fund at 1-800-451-2010, or by writing to the fund at
Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New York
10013].
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the Commis-
sion, Washington, D.C. 20549-6009. Information about the public reference room
may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-01940)
FD0794 4/99
PART B
April 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY APPRECIATION FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is meant to be
read in conjunction with the prospectus of the Smith Barney
Appreciation Fund Inc. (the "fund") dated April 30, 1999, as
amended or supplemented from time to time (the "prospectus"),
and is incorporated by reference in its entirety into the
prospectus. Additional information about the fund's investments is
available in the fund's annual and semi-annual reports to
shareholders which are incorporated herein by reference. The
prospectus and copies of the reports may be obtained free of
charge by contacting a Salomon Smith Barney Financial Consultant,
or by writing or calling Salomon Smith Barney Inc. at the address
or telephone number above.
CONTENTS
Directors and Executive Officers of The Fund 2
Investment Objectives and Management Policies 5
Risk Factors 10
Investment Restrictions 13
Portfolio Turnover 14
Portfolio Transactions 15
Purchase of Shares 16
IRA and Other Prototype Retirement Plans 24
Redemption of Shares 25
Exchange Privilege 27
Taxes 28
Performance Data 32
Valuation of Shares 35
Investment Management and Other Services 36
Additional Information About The Fund 39
Financial Statements 40
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
Overall responsibility for management and supervision of the fund
rests with the fund's Board of Directors. The directors approve
all significant agreements between the fund and the companies that
furnish services to the fund, including agreements with the fund's
distributor, investment adviser, custodian and transfer agent. The
day-to-day operations of the fund are delegated to the fund's
manager, SSBC Fund Management Inc. ("SSBC" or the "Manager"). .
The directors and executive officers of the fund, together with
information as to their principal business occupations during the
past five years, are shown below. The executive officers of the
fund are employees of organizations that provide services to the
fund. Each director who is an "interested person" of the fund, as
defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), is indicated by an asterisk. The address of the
"non-interested" directors and executive officers of the fund is
388 Greenwich Street, New York, New York 10013.
HERBERT BARG (Age 75). Private Investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania, 19004.
*ALFRED J. BIANCHETTI (Age 76). Retired; formerly Senior
Consultant to Dean Witter Reynolds Inc. His address is 19 Circle
End Drive, Ramsey, New Jersey 07466.
MARTIN BRODY (Age 77). Consultant, HMK Associates. Retired Vice
Chairman of the Board of Restaurant Associates Corp. His address
is c/o HMK Associates, 30 Columbia Turnpike, Florham Park, New
Jersey 07932.
DWIGHT B. CRANE (Age 61). Professor, Harvard Business School.
His address is c/o Harvard Business School, Soldiers Field Road,
Boston, Massachusetts 02163.
BURT N. DORSETT (Age 68). Managing Partner of the investment
counseling firm Dorsett McCabe Management, Inc. Director of
Research Corporation Technologies, Inc., a nonprofit patent
clearing and licensing firm. His address is 201 East 62nd Street,
New York, New York 10021.
ELLIOT S. JAFFE (Age 72). Chairman of the Board and President of
The Dress Barn, Inc. His address is 30 Dunnigan Drive, Suffern,
New York 10021.
STEPHEN E. KAUFMAN (Age 67). Attorney. His address is 277 Park
Avenue, New York, New York 10172.
JOSEPH J. McCANN (Age 68). Financial Consultant. Retired
Financial Executive, Ryan Homes, Inc. His address is 200 Oak Park
Place, Pittsburgh, Pennsylvania 15243.
*HEATH B. McLENDON, Chairman of the Board and Investment Officer
(Age 65). Managing Director of Salomon Smith Barney Inc.
("Salomon Smith Barney"), Chairman of the Board of Smith Barney
Strategy Advisers Inc. and President of SSBC. and Travelers
Investment Adviser, Inc. ("TIA"); Chairman or Co-Chairman of the
Board and Director of 59 investment companies associated with
Salomon Smith Barney.
CORNELIUS C. ROSE, JR. (Age 65). President, Cornelius C. Rose
Associates, Inc., financial consultants, and Chairman and Director
of Performance Learning Systems, an educational consultant. His
address is Meadowbrook Village, Building 4, Apt. 6, West Lebanon,
New Hampshire 03784.
LEWIS E. DAIDONE, Senior Vice President and Treasurer (Age 41).
Managing Director of Salomon Smith Barney, Chief Financial Officer
of the Smith Barney Mutual Funds; Director and Senior Vice
President of SSBC and TIA.
HARRY D. COHEN, Vice President and Investment Officer (Age 56).
Managing Director of Salomon Smith Barney; Executive Vice
President of Salomon Smith Barney;
Investment Officer of SSBC.
SCOTT GLASSER, Vice President and Investment Officer (Age 32).
Director of Salomon Smith Barney; Investment Officer of SSBC.
PAUL BROOK, Controller (Age 45)
Director, Salomon Smith Barney; Managing Director of AMT Capital
Services Inc. from 1997-1998; Prior to 1997, Partner, Ernst &
Young LLP.
CHRISTINA T. SYDOR, Secretary (Age 48). Managing Director of
Salomon Smith Barney; General Counsel and Secretary of SSBC and
TIA.
As of March , 1999, the directors and officers of the fund,
as a group, owned less than 1% of the outstanding shares of
beneficial interest of the fund.
To the best knowledge of the directors, as of March , 1999,
the following shareholders or "groups" (as such term is defined in
Section 13(d) of the Securities Exchange Act of 1934, as amended)
owned beneficially or of record more than 5% of the shares of the
following classes:
Shareholder
Class
Percent Ownership
Citibank NA Cust. Smith Barney
Shearson 401K Savings Plan
Smith Barney Account
111 Wall Street
New York, New York 10043
Class Z
Smith Barney Concert Allocation Series
Inc.
Balanced Portfolio
PNC Bank NA
200 Stevens Drive
Lester, PA 19113-1522
Class Y
Smith Barney Concert Allocation Series
Inc.
Conservative Portfolio
PNC Bank NA
200 Stevens Drive
Lester, PA 19113-1522
Class Y
Smith Barney Concert Allocation Series
Inc.
Select Balanced Portfolio
PNC Bank NA
200 Stevens Drive
Lester, PA 19113-1522
Class Y
Smith Barney Concert Allocation Series
Inc.
Income Portfolio
PNC Bank NA
200 Stevens Drive
Lester, PA 19113-1522
Class Y
The following table shows the compensation paid by the fund and
other Smith Barney Mutual Funds to each director during the fund's
last fiscal year. None of the officers of the fund received any
compensation from the fund for such period. The fund does not pay
retirement benefits to its directors and officers. Officers and
interested directors of the fund are compensated by Salomon Smith
Barney
For the calendar year ended December 31, 1998, the directors of
the fund were paid the following compensation.
Name of Person
Aggregate
Compensat
ion
from Fund
Total
Pension or
Retirement
Benefits
Accrued
as part of
Fund
Expenses
Compensation
from Fund
and Fund
Complex
Paid to
Directors
Number of
Funds for Which DirecD
Director Serves Within
Fund Complex
Herbert Barg**
Alfred
Bianchetti* **
Martin Brody**
Dwight B.
Crane**
Burt N.
Dorsett**
Elliot S.
Jaffe**
Stephen E.
Kaufman**
Joseph J.
McCann**
Heath B.
McLendon*
Cornelius C.
Rose, Jr.**
$
$0
0
0
0
0
0
0
0
0
0
$
18
13
21
24
13
13
15
13
59
13
* Designates an "interested" Director.
** Designates member of Audit Committee.
Upon attainment of age 80, fund Directors are required to change
to emeritus status. Directors Emeritus are entitled to serve in
emeritus status for a maximum of 10 years, during which time they
are paid 50% of the annual retainer fee and meeting fees otherwise
applicable to fund Directors, together with reasonable out-of-
pocket expenses for each meeting attended. Directors Emeritus may
attend meetings but have no voting rights. During the fund's last
fiscal year, aggregate compensation paid by the fund to Directors
Emeritus was $1,500.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The fund is an open-end, diversified, management investment
company. The prospectus discusses the fund's investment objective
and the policies it employs to achieve its objective. This
section contains supplemental information concerning the types of
securities and other instruments in which the fund may invest, the
investment policies and portfolio strategies the fund may utilize
and certain risks attendant to such investments, policies and
strategies.
Common Stock. The fund may invest in common stocks. Common
stocks are shares of a corporation or other entity entitling the
holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of
shareholders, including holders of the entity's preferred stock
and other senior equity. Common stock usually carries with it the
right to vote and frequently an exclusive right to do so.
Preferred Stock. Preferred stocks, like debt obligations, are
generally fixed-income securities. Shareholders of preferred
stocks normally have the right to receive dividends at a fixed
rate when and as declared by the issuer's board of directors, but
do not participate in other amounts available for distribution by
the issuing corporation. Dividends on preferred stock may be
cumulative, and all cumulative dividends usually must be paid
prior to common shareholders receiving any dividends. Preferred
stock dividends must be paid before common stock dividends and,
for that reason, preferred stocks generally entail less risk than
common stocks. Upon liquidation, preferred stocks are entitled to
a specified liquidation preference, which is generally the same as
the par or stated value, and are senior in right of payment to
common stock. Preferred stocks are, however, equity securities in
the sense they do not represent a liability of the issuer and,
therefore, do not offer as great a degree of protection of capital
or assurance of continued income as investments in corporate debt
securities. In addition, preferred stocks are subordinated in
right of payment to all debt obligations and creditors of the
issuer, and convertible preferred stocks may be subordinated to
other preferred stock of the same issuer.
Warrants. The fund may invest up to 5% of its assets in warrants.
Warrants acquired entitle the fund to buy common stock from the
issuer at a specified price and time. Warrants are subject to the
same market risks as stocks, but may be more volatile in price.
The fund's investment in warrants will not entitle it to receive
dividends or exercise voting rights and will become worthless if
the warrants cannot be profitably exercised before the expiration
dates.
Convertible Securities. Convertible securities in which the fund
may invest, including both convertible debt and convertible
preferred stock, may be converted at either a stated price or
stated rate into underlying shares of common stock. Because of
this feature, convertible securities enable an investor to benefit
from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying
equity securities, but generally offer lower yields than
non-convertible securities of similar quality. Like bonds, the
value of convertible securities fluctuates in relation to changes
in interest rates and, in addition, also fluctuates in relation to
the underlying common stock.
Foreign Securities. The fund may invest in securities of foreign
issuers in the form of American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") or similar securities
representing interests in the common stock for foreign issuers.
The manager intends to limit the fund's investment in these types
of securities to 10% of the fund's net assets. ADRs are receipts,
typically issued by a U.S. bank or trust company, which evidence
ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a
similar ownership arrangement. Generally, ADRs, in registered
form, are designed for use in the U.S. securities markets and EDRs
are designed for use in European securities markets. The
underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of
ADRs or EDRs facilitates trading in foreign securities, it does
not mitigate the risks associated with investing in foreign
securities.
Investments in foreign securities incur higher costs than
investments in U.S. securities, including higher costs in making
securities transactions as well as foreign government taxes which
may reduce the investment return of the fund. In addition,
foreign investments may include additional risks associated with
currency exchange rates, less complete financial information about
individual companies, less market liquidity and political
instability.
Money Market Instruments. The fund may invest for temporary
defensive purposes in corporate and government bonds and notes and
money market instruments. Money market instruments include:
obligations issued or guaranteed by the United States government,
its agencies or instrumentalities ("U.S. government securities");
certificates of deposit, time deposits and bankers' acceptances
issued by domestic banks (including their branches located outside
the United States and subsidiaries located in Canada), domestic
branches of foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and repurchase
agreements with respect to the foregoing types of instruments.
Certificates of deposit ("CDs") are short-term, negotiable
obligations of commercial banks. Time deposits ("TDs") are non-
negotiable deposits maintained in banking institutions for
specified periods of time at stated interest rates. Bankers'
acceptances are time drafts drawn on commercial banks by
borrowers, usually in connection with international transactions.
The fund may invest in cash and in short-term instruments, and it
may hold cash and short-term instruments without limitation when
the manager determines that it is appropriate to maintain a
temporary defensive posture. Short-term instruments in which the
fund may invest include: (a) obligations issued or guaranteed as
to principal and interest by the United States government, its
agencies or instrumentalities (including repurchase agreements
with respect to such securities); (b) bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loan associations
and similar institutions); (c) floating rate securities and other
instruments denominated in U.S. dollars issued by international
development agencies, banks and other financial institutions,
governments and their agencies or instrumentalities and
corporations located in countries that are members of the
Organization for Foreign Cooperation and Development; and (d)
commercial paper rated no lower than A-2 by Standard & Poor's
Ratings Group ("S&P") or Prime-2 by Moody's Investors Service,
Inc. ("Moody's") or the equivalent from another major rating
service or, if unrated, of an issuer having an outstanding,
unsecured debt issue then rated within the three highest rating
categories.
INVESTMENT PRACTICES
In attempting to achieve its investment objective, the fund may
employ, among others, the following portfolio strategies.
Repurchase Agreements. The fund may agree to purchase securities
from a bank or recognized securities dealer and simultaneously
commit to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest
unrelated to the coupon rate or maturity of the purchased
securities ("repurchase agreements"). The fund would maintain
custody of the underlying securities prior to their repurchase;
thus, the obligation of the bank or dealer to pay the repurchase
price on the date agreed to would be, in effect, secured by such
securities. If the value of such securities were less than the
repurchase price, plus interest, the other party to the agreement
would be required to provide additional collateral so at all times
the collateral is at least 102% of the repurchase price plus
accrued interest. Default by or bankruptcy of a seller would
expose the fund to possible loss because of adverse market action,
expenses and/or delays in connection with the disposition of the
underlying obligations. The financial institutions with which the
fund may enter into repurchase agreements will be banks and non-
bank dealers of U.S. Government securities on the Federal Reserve
Bank of New York's list of reporting dealers, if such banks and
non-bank dealers are deemed creditworthy by the fund's manager.
The manager will continue to monitor creditworthiness of the
seller under a repurchase agreement, and will require the seller
to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least 102% of the
repurchase price (including accrued interest). In addition, the
manager will require the value of this collateral, after
transaction costs (including loss of interest) reasonably expected
to be incurred on a default, be equal to 102% or greater than the
repurchase price (including accrued premium) provided in the
repurchase agreement or the daily amortization of the difference
between the purchase price and the repurchase price specified in
the repurchase agreement. The manager will mark-to-market daily
the value of the securities. Repurchase agreements are considered
to be loans by the fund under the 1940 Act.
Lending of Portfolio Securities. Consistent with applicable
regulatory requirements, the fund may lend portfolio securities to
brokers, dealers and other financial organizations meeting capital
and other credit requirements or other criteria established by the
Board. The fund will not lend portfolio securities to affiliates
of the manager unless they have applied for and received specific
authority to do so from the Securities Exchange Commission. Loans
of portfolio securities will be collateralized by cash, letters of
credit or U.S. Government Securities, which are maintained at all
times in an amount equal to at least 102% of the current market
value of the loaned securities. Any gain or loss in the market
price of the securities loaned occurring during the term of the
loan would be for the account of the fund. From time to time, the
fund may return a part of the interest earned from the investment
of collateral received for securities loaned to the borrower
and/or a third party unaffiliated with the fund and acting as a
"finder."
By lending its securities, the fund can increase its income by
continuing to receive interest and any dividends on the loaned
securities as well as by either investing the collateral received
for securities loaned in short-term instruments or obtaining yield
in the form of interest paid by the borrower when U.S. Government
Securities are used as collateral. Although the generation of
income is not the primary investment goal of the fund, income
received could be used to pay the fund's expenses and would
increase an investor's total return. The fund will adhere to the
following conditions whenever its portfolio securities are loaned:
(i) the fund must receive at least 102% cash collateral or
equivalent securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must increase such
collateral whenever the market value of the securities rises above
the level of such collateral; (iii) the fund must be able to
terminate the loan at any time; (iv) the fund must receive
reasonable interest on the loan, as well as any dividends,
interest or other distributions on the loaned securities and any
increase in market value; (v) the fund may pay only reasonable
custodian fees in connection with the loan; and (vi) voting rights
on the loaned securities may pass to the borrower, provided,
however, that if a material event adversely affecting the
investment occurs, the Board must terminate the loan and regain
the right to vote the securities. Loan agreements involve certain
risks in the event of default or insolvency of the other party
including possible delays or restrictions upon a fund's ability to
recover the loaned securities or dispose of the collateral for the
loan.
DERIVATIVES TRANSACTIONS
Options on Securities. The fund may write (sell) covered put and
call options on securities ("options") and purchase put and call
options traded on foreign or U.S. securities exchanges and over
the counter. The fund will write such options for the purpose of
increasing its return and/or protecting the value of its
portfolio. In particular, where the fund writes an option expiring
unexercised or is closed out by the fund at a profit, it will
retain the premium paid for the option, which will increase its
gross income and will offset in part the reduced value of a
portfolio security in connection with which the option may have
been written or the increased cost of portfolio securities to be
acquired. However, the writing of options constitutes only a
partial hedge, up to the amount of the premium, less any
transaction costs. In contrast, if the price of the security
underlying the option moves adversely to the fund's position, the
option may be exercised and the fund will be required to purchase
or sell the security at a disadvantageous price, resulting in
losses that may only be partially offset by the amount of the
premium. The fund may also write combinations of put and call
options on the same security, known as "straddles." Such
transactions generate additional premium income but also present
increased risk.
The fund may purchase put and call options in anticipation of
declines in the value of portfolio securities or increases in the
value of securities to be acquired. In the event the expected
changes occur, the fund may be able to offset the resulting
adverse effect on its portfolio, in whole or in part, through the
options purchased. The risk assumed by the fund in connection
with such transactions is limited to the amount of the premium and
related transaction costs associated with the option, although the
fund may be required to forfeit such amounts in the event the
prices of securities underlying the options do not move in the
direction or to the extent anticipated. The fund can invest up to
5% of its total assets in put and call options on securities.
Stock Index Options. The fund may purchase and write
exchange-listed and OTC put and call options on stock indexes. A
stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the
index, fluctuating with changes in the market values of the stocks
included in the index. Some stock index options are based on a
broad market index, such as the NYSE Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indexes
may also be based on a particular industry or market segment.
Options on stock indexes are similar to options on stock except
that (i) the expiration cycles of stock index options are monthly,
while those of stock options are currently quarterly, and (ii) the
delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option
on a stock index gives the holder the right to receive a cash
"exercise settlement amount" equal to (a) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case
of a put) or is less than (in the case of a call) the closing
value of the underlying index on the date of exercise, multiplied
by (b) a fixed "index multiplier." Receipt of this cash amount
will depend upon the closing level of the stock index upon which
the option is based being greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the index
and the exercise price of the option times a specified multiple.
The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Stock index options
may be offset by entering into closing transactions as described
above for securities options.
The fund will engage in stock index options transactions only when
determined by SSBC to be consistent with the fund's efforts to
control risk. There can be no assurance that such judgment will
be accurate or that the use of these portfolio strategies will be
successful. The fund can invest up to 5% of its total assets in
put and call options on domestic and foreign stock indexes.
Options, Futures and Currency Strategies. The fund may use
forward currency contracts and certain options and futures
strategies to attempt to hedge its portfolio, i.e., reduce the
overall level of investment risk normally associated with the
fund. There can be no assurance that such efforts will succeed.
In order to assure that the fund will not be deemed to be a
"commodity pool" for purposes of the Commodity Exchange Act,
regulations of the Commodity Futures Trading Commission ("CFTC")
require that the fund enter into transactions in futures contracts
and options on futures only (i) for bona fide hedging purposes (as
defined in CFTC regulations), or (ii) for non-hedging purposes,
provided that the aggregate initial margin and premiums on such
non-hedging positions do not exceed 5% of the liquidation value of
the fund's assets. To attempt to hedge against adverse movements
in exchange rates between currencies, the fund may enter into
forward currency contracts for the purchase or sale of a specified
currency at a specified future date. Such contracts may involve
the purchase or sale of a foreign currency against the U.S. dollar
or may involve two foreign currencies. The fund may enter into
forward currency contracts either with respect to specific
transactions or with respect to its portfolio positions. For
example, when the manager anticipates making a purchase or sale of
a security, it may enter into a forward currency contract in order
to set the rate (either relative to the U.S. dollar or another
currency) at which the currency exchange transaction related to
the purchase or sale will be made ("transaction hedging").
Further, when the manager believes that a particular currency may
decline compared to the U.S. dollar or another currency, the fund
may enter into a forward contract to sell the currency the manager
expects to decline in an amount approximating the value of some or
all of the fund's securities denominated in that currency, or when
the manager believes that one currency may decline against a
currency in which some or all of the portfolio securities held by
the fund are denominated, it may enter into a forward contract to
buy the currency expected to decline for a fixed amount ("position
hedging"). In this situation, the fund may, in the alternative,
enter into a forward contract to sell a different currency for a
fixed amount of the currency expected to decline where the
investment manager believes that the value of the currency to be
sold pursuant to the forward contract will fall whenever there is
a decline in the value of the currency in which portfolio
securities of the fund are denominated ("cross hedging"). The
fund will maintain on it's books (i) cash, (ii) U.S. Government
securities or (iii) equity securities or debt securities (of any
grade) in certain currencies provided such assets are liquid,
unencumbered and marked to market daily, or other high-quality
debt securities denominated in certain currencies in a separate
account of the fund having a value equal to the aggregate account
of the fund's commitments under forward contracts entered into
with respect to position hedges and cross-hedges. If the value of
the securities placed in a separate account declines, additional
cash or securities are placed in the account on a daily basis so
that the value of the amount will equal the amount of the fund's
commitments with respect to such contracts.
For hedging purposes, the fund may write covered call options and
purchase put and call options on currencies to hedge against
movements in exchange rates and on debt securities to hedge
against the risk of fluctuations in the prices of securities held
by the fund or which the manager intends to include in its
portfolio. The fund also may use interest rates futures contracts
and options thereon to hedge against changes in the general level
in interest rates.
The fund may write call options on securities and currencies only
if they are covered, and such options must remain covered so long
as the fund is obligated as a writer. A call option written by
the fund is "covered" if the fund owns the securities or currency
underlying the option or has an absolute and immediate right to
acquire that security or currency without additional cash
consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange
of other securities or currencies held in its portfolio. A call
option is also covered if the fund holds on a share-for-share
basis a call on the same security or holds a call on the same
currency as the call written where the exercise price of the call
held is equal to less than the exercise price of the call written
or greater than the exercise price of the call written if the
difference is maintained by the fund in cash, Treasury bills or
other high-grade, short-term obligations in a segregated account
on the fund's books.
The fund may purchase put and call options in anticipation of
declines in the value of portfolio securities or increases in the
value of securities to be acquired. In the event the expected
changes occur, the fund may be able to offset the resulting
adverse effect on its portfolio, in whole or in part, through the
options purchased. The risk assumed by the fund in connection
with such transactions is limited to the amount of the premium and
related transaction costs associated with the option, although the
fund may be required to forfeit such amounts in the event the
prices of securities underlying the options do not move in the
direction or to the extent anticipated.
Although the portfolio might not employ the use of forward
currency contracts, options and futures, the use of any of these
strategies would involve certain investment risks and transaction
costs to which it might not otherwise be subject. These risks
include: dependence on the manager's ability to predict movements
in the prices of individual debt securities, fluctuations in the
general fixed-income markets and movements in interest rates and
currency markets, imperfect correlation between movements in the
price of currency, options, futures contracts or options thereon
and movements in the price of the currency or security hedged or
used for cover; the fact that skills and techniques needed to
trade options, futures contracts and options thereon or to use
forward currency contracts are different from those needed to
select the securities in which the fund invests; lack of assurance
that a liquid market will exist for any particular option, futures
contract or options thereon at any particular time and possible
need to defer or accelerate closing out certain options, futures
contracts and options thereon in order to continue to qualify for
the beneficial tax treatment afforded "regulated investment
companies" under the Internal Revenue Code of 1986, as amended
(the "Code").
Over-the-counter options in which the fund may invest differ from
exchange traded options in that they are two-party contracts, with
price and other terms negotiated between buyer and seller, and
generally do not have as much market liquidity as exchange-traded
options. The fund may be required to treat as illiquid over-the-
counter options purchased and securities being used to cover
certain written over-the-counter options.
Options on Securities. As discussed more generally above, the
fund may engage in the writing of covered call options. The fund
may also purchase put options and enter into closing transactions.
The principal reason for writing covered call options on
securities is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the
securities alone. In return for a premium, the writer of a covered
call option forfeits the right to any appreciation in the value of
the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline in the
price of the underlying security. Similarly, the principal reason
for writing covered put options is to realize income in the form
of premiums. The writer of a covered put option accepts the risk
of a decline in the price of the underlying security. The size of
the premiums the fund may receive may be adversely affected as new
or existing institutions, including other investment companies,
engage in or increase their option-writing activities.
Options written by the fund will normally have expiration dates
between one and six months from the date written. The exercise
price of the options may be below, equal to or above the current
market values of the underlying securities at the times the
options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-
of-the-money," respectively.
The fund may write (a) in-the-money call options when the manager
expects the price of the underlying security to remain flat or
decline moderately during the option period, (b) at-the-money call
options when the manager expects the price of the underlying
security to remain flat or advance moderately during the option
period and (c) out-of-the-money call options when the manager
expects that the price of the security may increase but not above
a price equal to the sum of the exercise price plus the premiums
received from writing the call option. In any of the preceding
situations, if the market price of the underlying security
declines and the security is sold at this lower price, the amount
of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money
put options (the reverse of call options as to the relation of
exercise price to market price) may be utilized in the same market
environments as such call options are used in equivalent
transactions.
So long as the obligation of the fund as the writer of an option
continues, the fund may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring it to
deliver, in the case of a call, or take delivery of, in the case
of a put, the underlying security against payment of the exercise
price. This obligation terminates when the option expires or the
fund effects a closing purchase transaction. The fund can no
longer effect a closing purchase transaction with respect to an
option once it has been assigned an exercise notice. To secure its
obligation to deliver the underlying security when it writes a
call option, or to pay for the underlying security when it writes
a put option, the fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules
of the Options Clearing Corporation ("Clearing Corporation") or
similar clearing corporation and the securities exchange on which
the option is written.
An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized
securities exchange or in the over-the-counter market. The fund
expects to write options only on national securities exchanges or
in the over-the-counter market. The fund may purchase put options
issued by the Clearing Corporation or in the over-the-counter
market.
The fund may realize a profit or loss upon entering into a closing
transaction. In cases in which the fund has written an option, it
will realize a profit if the cost of the closing purchase
transaction is less than the premium received upon writing the
original option and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon writing the
original option. Similarly, when the fund has purchased an option
and engages in a closing sale transaction, whether it recognizes a
profit or loss will depend upon whether the amount received in the
closing sale transaction is more or less than the premium the fund
initially paid for the original option plus the related
transaction costs.
Although the fund generally will purchase or write only those
options for which the manager believes there is an active
secondary market so as to facilitate closing transactions, there
is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for
any particular option or at any particular time, and for some
options no such secondary market may exist. A liquid secondary
market in an option may cease to exist for a variety of reasons.
In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, have at times rendered
certain of the facilities of the Clearing Corporation and national
securities exchanges inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on
certain types of orders or trading halts or suspensions in one or
more options. There can be no assurance that similar events, or
events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be
possible to effect closing transactions in particular options. If,
as a covered call option writer, the fund is unable to effect a
closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which
may be held or written, or exercised within certain periods, by an
investor or group of investors acting in concert (regardless of
whether the options are written on the same or different
securities exchanges or are held, written or exercised in one or
more accounts or through one or more brokers). It is possible
that the fund and other clients of the manager and certain of
their affiliates may be considered to be such a group. A
securities exchange may order the liquidation of positions found
to be in violation of these limits, and it may impose certain
other sanctions.
In the case of options written by the fund that are deemed covered
by virtue of the fund's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert
or exchange and obtain physical delivery of the underlying common
stocks with respect to which the fund has written options may
exceed the time within which the fund must make delivery in
accordance with an exercise notice. In these instances, the fund
may purchase or temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the fund will not bear
any market risk because the fund will have the absolute right to
receive from the issuer of the underlying security an equal number
of shares to replace the borrowed stock, but the fund may incur
additional transaction costs or interest expenses in connection
with any such purchase or borrowing.
Although the manager will attempt to take appropriate measures to
minimize the risks relating to the fund's writing of call options
and purchasing of put and call options, there can be no assurance
the fund will succeed in its option-writing program.
Futures Contracts and Options on Futures Contracts. As described
generally above, the fund may invest in stock index futures
contracts and options on futures contracts traded on a domestic
exchange or board of trade. Futures contracts provide for the
future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time
and at a specified price. The primary purpose of entering into a
futures contract by the fund is to protect the fund from
fluctuations in the value of securities without actually buying or
selling the securities. The fund may enter into futures contracts
and options on futures to seek higher investment returns when a
futures contract is priced more attractively than stocks
comprising a benchmark index, to facilitate trading or to reduce
transaction costs. The fund will only enter into futures
contracts and options on futures contracts that are traded on a
domestic exchange and board of trade. Assets committed to futures
contracts will be segregated on the fund's books to the extent
required by law.
The purpose of entering into a futures contract by the fund is to
protect the fund from fluctuations in the value of securities
without actually buying or selling the securities. For example, in
the case of stock index futures contracts, if the fund anticipates
an increase in the price of stocks it intends to purchase at a
later time, the fund could enter into contracts to purchase the
stock index (known as taking a "long" position) as a temporary
substitute for the purchase of stocks. If an increase in the
market occurs influences the stock index as anticipated, the value
of the futures contracts increases and thereby serves as a hedge
against the fund's not participating in a market advance. The fund
then may close out the futures contracts by entering into
offsetting futures contracts to sell the stock index (known as
taking a "short" position) as it purchases individual stocks. The
fund can accomplish similar results by buying securities with long
maturities and selling securities with short maturities. But by
using futures contracts as an investment tool to reduce risk,
given the greater liquidity in the futures market, it may be
possible to accomplish the same result more easily and more
quickly.
No consideration will be paid or received by the fund upon the
purchase or sale of a futures contract. Initially, the fund will
be required to deposit with the broker an amount of cash or cash
equivalents equal to approximately 1% to 10% of the contract
amount (this amount is subject to change by the exchange or board
of trade on which the contract is traded and brokers or members of
such board of trade may charge a higher amount). This amount is
known as "initial margin" and is in the nature of a performance
bond or good faith deposit on the contract which is returned to
the fund, upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Subsequent payments,
known as "variation margin," to and from the broker, will be made
daily as the price of the index or securities underlying the
futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market." In addition, when the fund enters into a long
position in a futures contract or an option on a futures contract,
it must deposit into a segregated account with the fund's
custodian an amount of cash or cash equivalents equal to the total
market value of the underlying futures contract, less amounts held
in the fund's commodity brokerage account at its broker. At any
time prior to the expiration of a futures contract, the fund may
elect to close the position by taking an opposite position, which
will operate to terminate the fund's existing position in the
contract.
RISK FACTORS
General. There can be no assurance that the fund's investment
objective will be achieved. The value of the fund's investments
will fluctuate in response to changes in market and economic
conditions, as well as the financial condition and prospects of
issuers in which the fund invests.
Foreign Investments. Investments in foreign securities incur
higher costs than investments in U.S. securities, including higher
costs in making securities transactions as well as foreign
government taxes which may reduce the investment return of the
fund. In addition, foreign investments may include additional
risks associated with currency exchange rates, less complete
financial information about individual companies, less market
liquidity and political instability.
Futures Contracts and Related Options. There are several risks in
connection with the use of futures contracts as a hedging device.
Successful use of futures contracts by the fund is subject to the
ability of the manager to predict correctly movements in the stock
market or in the direction of interest rates. These predictions
involve skills and techniques that may be different from those
involved in the management of investments in securities. In
addition, there can be no assurance that there will be a perfect
correlation between movements in the price of the securities
underlying the futures contract and movements in the price of the
securities that are the subject of the hedge. A decision of
whether, when and how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to
some degree because of market behavior or unexpected trends in
market behavior or interest rates.
Positions in futures contracts may be closed out only on the
exchange on which they were entered into (or through a linked
exchange) and no secondary market exists for those contracts. In
addition, although the fund intends to enter into futures
contracts only if there is an active market for the contracts,
there is no assurance that an active market will exist for the
contracts at any particular time. Most futures exchanges and
boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades
may be made that day at a price beyond that limit. It is possible
that futures contract prices could move to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses. In such
event, and in the event of adverse price movements, the fund would
be required to make daily cash payments of variation margin; in
such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may partially or completely offset
losses on the futures contract. As described above, however, no
assurance can be given that the price of the securities being
hedged will correlate with the price movements in a futures
contract and thus provide an offset to losses on the futures
contract.
Stock Index Options. As described generally above, the fund may
purchase put and call options and write call options on domestic
stock indexes listed on domestic exchanges in order to realize its
investment objective of capital appreciation or for the purpose of
hedging its portfolio.
The effectiveness of purchasing or writing stock index options as
a hedging technique will depend upon the extent to which price
movements in the portion of the securities portfolio of the fund
correlate with price movements of the stock index selected.
Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock,
whether the fund will realize a gain or loss from the purchase or
writing of options on an index depends upon movements in the level
of stock prices in the stock market generally or, in the case of
certain indexes, in an industry or market segment, rather than
movements in the price of a particular stock. Accordingly,
successful use by the fund of options on stock indexes will be
subject to the manager's ability to predict correctly movements in
the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
INVESTMENT RESTRICTIONS
The fund has adopted the following fundamental investment
restrictions for the protection of shareholders. These
restrictions cannot be changed without approval by the holders of
a majority of the outstanding shares of the fund, defined as the
lesser of (a) 67% or more of the fund's shares present at a
meeting, if the holders of more than 50% of the outstanding shares
are present in person or by proxy or (b) more than 50% of the
fund's outstanding shares. In accordance with these restrictions,
the fund will not:
1. Invest in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the rules,
regulations and orders thereunder.
2. Issue "senior securities" as defined in the 1940 Act and the
rules, regulations and orders thereunder, except as
permitted under the 1940 Act and the rules, regulations and
orders thereunder.
3. Invest more than 25% of its total assets in securities, the
issuers of which are in the same industry. For purposes of
this limitation, U.S. government securities and securities
of state or municipal governments and their political
subdivisions are not considered to be issued by members of
any industry.
4. Borrow money, except that (a) the fund may borrow from banks
for temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests which might
otherwise require the untimely disposition of securities,
and (b) the fund may, to the extent consistent with its
investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar investment
strategies and techniques. To the extent that it engages in
transactions described in (a) and (b), the fund will be
limited so that no more than 33 1/3% of the value of its
total assets (including the amount borrowed), valued at the
lesser of cost or market, less liabilities (not including
the amount borrowed) valued at the time the borrowing is
made, is derived from such transactions.
5. Make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the fund may invest
consistent with its investment objectives and policies; (b)
repurchase agreements; and (c) loans of its portfolio
securities, to the fullest extent permitted under the 1940
Act.
6. Engage in the business of underwriting securities issued by
other persons, except to the extent that the fund may
technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, in disposing of
portfolio securities.
7. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction
shall not prevent the fund from (a) investing in securities
of issuers engaged in the real estate business or the
business of investing in real estate (including interests in
limited partnerships owning or otherwise engaging in the
real estate business or the business of investing in real
estate) and securities which are secured by real estate or
interests therein; (b) holding or selling real estate
received in connection with securities it holds or held; (c)
trading in futures contracts and options on futures
contracts (including options on currencies to the extent
consistent with the fund's investment objective and
policies); or (d) investing in real estate investment trust
securities.
While the fund is authorized to borrow money from banks for
purposes of investment (leveraging) and to invest in securities of
foreign issuers, it has no current intention of engaging in these
investment activities and will do so only when the fund's Board of
Directors determines that either or both of these activities are
in the best interests of shareholders.
The fund has also adopted certain nonfundamental investment
restrictions that may be changed by the fund's Board of Directors
at any time. Accordingly, the fund may not:
1. Purchase any securities on margin (except for such
short-term credits as are necessary for the clearance of
purchases and sales of portfolio securities) or sell any
securities short (except "against the box"). For purposes
of this restriction, the deposit or payment by the fund of
underlying securities and other assets in escrow and
collateral agreements with respect to initial or maintenance
margin in connection with futures contracts and related
options and options on securities, indexes or similar items
is not considered to be the purchase of a security on
margin.
2. Invest more than 5% of the value of its net assets in
warrants, included within that amount, but not to exceed 2%
of the value of the fund's net assets, may be warrants that
are not listed on the New York Stock Exchange, Inc. (the
"NYSE") or the American Stock Exchange. Warrants acquired
by the fund in units or attached to securities may be deemed
to be without value.
3. Invest in mineral-type programs or leases.
4. Purchase or otherwise acquire any security if' as a result,
more than 15% of its net assets would be invested in
securities that are illiquid.
5. Invest for the purpose of exercising control of management.
6. Purchase securities of any company with a record of less
than three years' continuous operation if such purchase
would cause its investments in such companies to exceed 5%
of the value of its total assets. (For purposes of this
limitation, issuers include predecessors, sponsors,
controlling persons, general partners, guarantors and
originators of underlying assets.)
If any percentage restriction described above is complied with at
the time of an investment, a later increase or decrease in
percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
Investment Adviser and Administrator - SSBC
SSBC (formerly Mutual Management Corp.) serves as investment
adviser to the Fund pursuant to a written agreement (the "Advisory
Agreement"), which was approved by the Fund's Board of directors,
including a majority of the directors who are not interested
persons of the Fund or Smith Barney (the "independent directors").
Subject to the supervision and direction of the fund's board of
directors, the manager manages the fund's portfolio in accordance
with the fund's stated investment objective and policies, makes
investment decisions for the fund, places orders to purchase and
sell securities, and employs professional portfolio managers and
securities analysts who provide research services to the fund.
The manager pays the salary of any officer and employee who is
employed by both it and the trust. The manager bears all expenses
in connection with the performance of its services. SSBC is a
wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"), which in turn is a wholly owned subsidiary of
Citigroup Inc. ("Citigroup"). SSBC (through predecessor entities)
has been in the investment counseling business since 1968 and
renders investment advice to a wide variety of individual,
institutional and investment company clients that had aggregate
assets under management as of March 31, 1999 in excess of $
.
As compensation for SSBC's investment advisory services rendered
to the Fund, the Fund pays a fee computed daily and paid monthly
at the following annual rates of the Fund's average daily net
assets: 0.55%, up to $250 million; 0.513% of the next $250
million; 0.476% of the next $500 million; 0.439% of the next $1
billion, 0.402% of the next $l billion; and 0.365% of the net
assets in excess of $3 billion. For the fiscal years ended
December 31, 1998, 1997 and 1996, the Fund paid $ ,
$16,921,518 and 14,352,911, respectively, in investment advisory
fees.
SSBC also serves as administrator to the Fund pursuant to a
written (the "Administration Agreement"), which was most recently
approved by the Fund's Board of Directors, including a majority of
the independent directors of the Fund. SSBC pays the salary of any
officer and employee who is employed by both it and the Fund and
bears all expenses in connection with the performance of its
services.
As compensation for administrative services rendered to the Fund,
SSBC receives a fee computed daily and paid monthly at the
following annual rates: 0.20%, of the value of the Fund's average
daily net assets up to $250 million; 0.187% of the next $250
million; 0.174% of the next $500 million; 0.161% of the next $1
billion; 0.148% of the next $1 billion and 0.135% of the net
assets in excess of $3 billion. For the fiscal years ended
December 31, 1998, 1997 and 1996, the Fund paid $
,$6,212,415, and $5,262,374 in administration fees.
The Fund bears expenses incurred in its operation including:
taxes, interest, brokerage fees and commissions, if any; fees of
Directors who are not officers, directors, shareholders or
employees of Salomon Smith Barney or SSBC; Securities and Exchange
Commission ("SEC") fees and state Blue Sky qualification fees;
charges of custodians; transfer and dividend disbursing agent's
fees; certain insurance premiums; outside auditing and legal
expenses; costs of maintaining corporate existence; investor
services (including allocated telephone and personnel expenses);
costs of preparation and printing of prospectuses and statements
of additional information for regulatory purposs and for
distribution to existing shareholders; costs of shareholders'
reports and shareholder meetings; and meetings of the officers or
Board of Directors of the Fund.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Fund. The
independent directors of the Fund have selected Stroock & Stroock
& Lavan, LLP to serve as their legal counsel.
KPMG LLP, 345 Park Avenue, New York, New York 10154, has been
selected as the Fund's independent auditor to examine and report
on the Fund's financial statements and highlights for the fiscal
year ending December 31, 1999.
Custodian and Transfer Agent.
PNC Bank, National Association ("PNC" or "custodian"), located
at 17th and Chestnut Streets, Philadelphia, Pennsylvania, 19103,
serves as the custodian of the fund. Under its custody agreement
with the fund, PNC holds the fund's securities and keeps all
necessary accounts and records. For its services, PNC receives a
monthly fee based upon the month-end market value of securities
held in custody and also receives securities transactions charges.
The assets of the fund are held under bank custodianship in
compliance with the 1940 Act.
First Data Investors Services Group, Inc. ("First Data" or
"transfer agent"), located at Exchange Place, Boston,
Massachusetts 02109, serves as the fund's transfer agent. Under
the transfer agency agreement, the transfer agent maintains the
shareholder account records for the trust, handles certain
communications between shareholders and the trust and distributes
dividends and distributions payable by the trust. For these
services, the transfer agent receives a monthly fee computed on
the basis of the number of shareholder accounts it maintains for
the trust during the month, and is reimbursed for out-of-pocket
expenses.
Portfolio Transactions
Decisions to buy and sell securities for the fund are made by the
manager, subject to the overall review of the fund's Board of
Directors. Although investment decisions for the fund are made
independently from those of the other accounts managed by the
manager, investments of the type that the fund may make also may
be made by those other accounts. When the fund and one or more
other accounts managed by the manager are prepared to invest in,
or desire to dispose of, the same security, available investments
or opportunities for sales will be allocated in a manner believed
by the manager to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the
fund or the size of the position obtained or disposed of by the
fund.
Allocation of transactions on behalf of the fund, including their
frequency, to various dealers is determined by the manager in its
best judgment and in a manner deemed fair and reasonable to the
fund's shareholders. The primary considerations of the manager in
allocating transactions are availability of the desired security
and the prompt execution of orders in an effective manner at the
most favorable prices. Subject to these considerations, dealers
that provide supplemental investment research and statistical or
other services to the manager may receive orders for portfolio
transactions by the fund. Information so received is in addition
to, and not in lieu of, services required to be performed by the
manager, and the fees of the manager are not reduced as a
consequence of their receipt of the supplemental information. The
information may be useful to the manager in serving both the fund
and other clients, and conversely, supplemental information
obtained by the placement of business of other clients may be
useful to the manager in carrying out its obligations to the fund.
The fund will not purchase securities during the existence of any
underwriting or selling group relating to the securities, of which
the manager is a member, except to the extent permitted by the
SEC. Under certain circumstances, the fund may be at a
disadvantage because of this limitation in comparison with other
funds that have similar investment objectives but that are not
subject to a similar limitation.
The fund has paid the following in brokerage commissions for
portfolio transactions since its commencement of operations:
$______ in 1997 and $______ in 1998. Portfolio securities
transactions on behalf of the fund are placed by the manager with
a number of brokers and dealers, including Salomon Smith Barney.
Salomon Smith Barney has advised the fund that in transactions
with the fund, Salomon Smith Barney charges a commission rate at
least as favorable as the rate that Salomon Smith Barney charges
its comparable unaffiliated customers in similar transactions.
Portfolio Turnover
The fund generally does not engage in short-term trading but
intends to purchase securities for long-term capital appreciation.
The fund's annual portfolio turnover rate is not expected to
exceed 100%. A portfolio turnover rate of 100% would occur if all
of the securities in the fund's portfolio were replaced once
during a period of one year. The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of
portfolio securities for the year by the monthly average value of
portfolio securities. Securities with remaining maturities of one
year or less at the date of acquisition are excluded from the
calculation. For the fiscal years ended December 31, 1998 and
1997, the fund's portfolio turnover rate was xx% and 62%,
respectively.
Future portfolio turnover rates may vary greatly from year to year
as well as within a particular year and may be affected by cash
requirements for redemptions of the fund's shares. Portfolio
turnover rates will largely depend on the level of purchases and
redemptions of fund shares. Higher portfolio turnover rates can
result in corresponding increases in brokerage commissions. In
addition, to the extent that the fund realizes net short-term
capital gains as the result of more portfolio transactions,
distributions of such gains would be taxable to shareholders as
ordinary income.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase. See
the Prospectus for a discussion of factors to consider in
selecting which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the
public offering price, which is the net asset value plus an
initial sales charge as follows:
Amount of
Investment
Sales Charge as a
%
of Transaction
Sales Charge as a
%
of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
5.00
5.26
4.50
$ 25,000 - 49,999
4.00
4.17
3.60
50,000 - 99,999
3.50
3.63
3.15
100,000 - 249,999
3.00
3.09
2.70
250,000 - 499,999
2.00
2.04
1.80
500,000 and over
*
*
*
* Purchases of Class A shares of $500,000 or more will be made
at net asset value without any initial sales charge, but
will be subject to a DEFERRED SALES CHARGE of 1.00% on
redemptions made within 12 months of purchase. The DEFERRED
SALES CHARGE on Class A shares is payable to Salomon Smith
Barney, which compensates Salomon Smith Barney Financial
Consultants and other dealers whose clients make purchases
of $500,000 or more. The DEFERRED SALES CHARGE is waived in
the same circumstances in which the DEFERRED SALES CHARGE
applicable to Class B and Class L shares is waived. See
"Deferred Sales Charge Alternatives" and "Waivers of
DEFERRED SALES CHARGE."
Members of the selling group may receive up to 90% of the sales
charge and may be deemed to be underwriters of the fund as defined
in the 1933 Act. The reduced sales charges shown above apply to
the aggregate of purchases of Class A shares of the fund made at
one time by "any person," which includes an individual and his or
her immediate family, or a trustee or other fiduciary of a single
trust estate or single fiduciary account.
Class B Shares. Class B shares are sold without an initial sales
charge but are subject to a Deferred Sales Charge payable upon
certain redemptions. See "Deferred Sales Charge Provisions"
below.
Class L Shares. Class L shares are sold with an initial sales
charge of 1.00% (which is equal to 1.01% of the amount invested)
and are subject to a deferred sales charge payable upon certain
redemptions. See "Deferred Sales Charge Provisions" below. Until
June 22, 2001 purchases of Class L shares by investors who were
holders of Class C shares of the fund on June 12, 1998 will not be
subject to the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an initial sales
charge or deferred sales charge and are available only to
investors investing a minimum of $15,000,000 (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for
which there is no minimum purchase amount).
Class Z Shares. Class Z Shares are sold without an initial sales
charge or deferred sales charge and are currently offered
exclusively for sale to tax-exempt employee benefit and retirement
plans of Salomon Smith Barney or any of its affiliates ("Qualified
Plans") and to certain unit investment trusts ("UIT) sponsored by
Salomon Smith Barney or any of its affiliates.
General
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a broker that clears through Salomon Smith
Barney ("Dealer Representative"). In addition, certain
investors, including qualified retirement plans purchasing through
certain Dealer Representatives, may purchase shares directly from
the fund. When purchasing shares of the fund, investors must
specify whether the purchase is for Class A, Class B, Class L or
Class Y shares. Salomon Smith Barney and Dealer Representatives
may charge their customers an annual account maintenance fee in
connection with a brokerage account through which an investor
purchases or holds shares. Accounts held directly at First Data
are not subject to a maintenance fee.
Purchases of the Fund's Class Z shares must be made in accordance
with the terms of a Qualified Plan or a Salomon Smith Barney UIT.
There are no minimum investment requirements for Class Z shares;
however the Fund reserves the right to vary this policy at any
time. Shareholders acquiring Class Z shares through a Qualified
Plan or a Salomon Smith Barney UIT should consult the terms of
their respective plans for redemption provisions.
Investors in Class A, Class B and Class L shares may open an
account in the fund by making an initial investment of at least
$1,000 for each account, or $250 for an IRA or a Self-Employed
Retirement Plan, in the fund. Investors in Class Y shares may open
an account by making an initial investment of $15,000,000.
Subsequent investments of at least $50 may be made for all
Classes. For participants in retirement plans qualified under
Section 403(b)(7) or Section 401(c) of the Code, the minimum
initial investment required for Class A, Class B and Class L
shares and the subsequent investment requirement for all Classes
in the fund is $25. For shareholders purchasing shares of the
fund through the Systematic Investment Plan on a monthly basis,
the minimum initial investment requirement for Class A, Class B
and Class L shares and subsequent investment requirement for all
Classes is $25. For shareholders purchasing shares of the fund
through the Systematic Investment Plan on a quarterly basis, the
minimum initial investment required for Class A, Class B and Class
L shares and the subsequent investment requirement for all Classes
is $50. There are no minimum investment requirements for Class A
shares for employees of Citigroup and its subsidiaries, including
Salomon Smith Barney, unitholders who invest distributions from a
UIT sponsored by Salomon Smith Barney, and Directors/Directors of
any of the Smith Barney Mutual Funds, and their spouses and
children. The fund reserves the right to waive or change minimums,
to decline any order to purchase its shares and to suspend the
offering of shares from time to time. Shares purchased will be
held in the shareholder's account by First Data. Share
certificates are issued only upon a shareholder's written request
to First Data.
Purchase orders received by the fund or a Salomon Smith Barney
Financial Consultant prior to the close of regular trading on the
NYSE, on any day the fund calculates its net asset value, are
priced according to the net asset value determined on that day
(the ''trade date''). Orders received by a Dealer Representative
prior to the close of regular trading on the NYSE on any day the
fund calculates its net asset value, are priced according to the
net asset value determined on that day, provided the order is
received by the fund or the fund's agent prior to its close of
business. For shares purchased through Salomon Smith Barney or a
Dealer Representative purchasing through Salomon Smith Barney,
payment for shares of the fund is due on the third business day
after the trade date. In all other cases, payment must be made
with the purchase order.
Systematic Investment Plan. Shareholders may make additions to
their accounts at any time by purchasing shares through a service
known as the Systematic Investment Plan. Under the Systematic
Investment Plan, Salomon Smith Barney or First Data is authorized
through preauthorized transfers of at least $25 on a monthly basis
or at least $50 on a quarterly basis to charge the shareholder's
account held with a bank or other financial institution on a
monthly or quarterly basis as indicated by the shareholder, to
provide for systematic additions to the shareholder's fund
account. A shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Salomon Smith
Barney or First Data. The Systematic Investment Plan also
authorizes Salomon Smith Barney to apply cash held in the
shareholder's Salomon Smith Barney brokerage account or redeem the
shareholder's shares of a Smith Barney money market fund to make
additions to the account. Additional information is available from
the fund or a Salomon Smith Barney Financial Consultant or a
Dealer Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares may be
made at net asset value without a sales charge in the following
circumstances: (a) sales to (i) Board Members and employees of
Citigroup and its subsidiaries and any Citigroup affiliated funds
including the Smith Barney Mutual Funds (including retired Board
Members and employees); the immediate families of such persons
(including the surviving spouse of a deceased Board Member or
employee); and to a pension, profit-sharing or other benefit plan
for such persons and (ii) employees of members of the National
Association of Securities Dealers, Inc., provided such sales are
made upon the assurance of the purchaser that the purchase is made
for investment purposes and that the securities will not be resold
except through redemption or repurchase; (b) offers of Class A
shares to any other investment company to effect the combination
of such company with the fund by merger, acquisition of assets or
otherwise; (c) purchases of Class A shares by any client of a
newly employed Salomon Smith Barney Financial Consultant (for a
period up to 90 days from the commencement of the Financial
Consultant's employment with Salomon Smith Barney), on the
condition the purchase of Class A shares is made with the proceeds
of the redemption of shares of a mutual fund which (i) was
sponsored by the Financial Consultant's prior employer, (ii) was
sold to the client by the Financial Consultant and (iii) was
subject to a sales charge; (d) purchases by shareholders who have
redeemed Class A shares in the fund (or Class A shares of another
Smith Barney Mutual Fund that is offered with a sales charge) and
who wish to reinvest their redemption proceeds in the fund,
provided the reinvestment is made within 60 calendar days of the
redemption; (e) purchases by accounts managed by registered
investment advisory subsidiaries of Citigroup; (f) direct
rollovers by plan participants of distributions from a 401(k) plan
offered to employees of Citigroup or its subsidiaries or a 401(k)
plan enrolled in the Smith Barney 401(k) Program (Note: subsequent
investments will be subject to the applicable sales charge); (g)
purchases by a separate account used to fund certain unregistered
variable annuity contracts; (h) investments of distributions from
a UIT sponsored by Salomon Smith Barney; (i) purchases by
investors participating in a Salomon Smith Barney fee-based
arrangement; and (j) purchases of Class A shares by Section
403(b) or Section 401(a) or (k) accounts associated with Copeland
Retirement Programs. In order to obtain such discounts, the
purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase would qualify
for the elimination of the sales charge.
Right of Accumulation. Class A shares of the fund may be
purchased by ''any person'' (as defined above) at a reduced sales
charge or at net asset value determined by aggregating the dollar
amount of the new purchase and the total net asset value of all
Class A shares of the fund and of other Smith Barney Mutual Funds
that are offered with a sales charge as currently listed under
''Exchange Privilege'' then held by such person and applying the
sales charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient information
at the time of purchase to permit verification that the purchase
qualifies for the reduced sales charge. The right of accumulation
is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for an
amount of $50,000 or more provides an opportunity for an investor
to obtain a reduced sales charge by aggregating investments over a
13 month period, provided that the investor refers to such Letter
when placing orders. For purposes of a Letter of Intent, the
''Amount of Investment'' as referred to in the preceding sales
charge table includes (i) all Class A shares of the fund and other
Smith Barney Mutual Funds offered with a sales charge acquired
during the term of the letter plus (ii) the value of all Class A
shares previously purchased and still owned. Each investment made
during the period receives the reduced sales charge applicable to
the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference
between the sales charges applicable to the purchases made and the
charges previously paid, or an appropriate number of escrowed
shares will be redeemed. The term of the Letter will commence
upon the date the Letter is signed, or at the options of the
investor, up to 90 days before such date. Please contact a
Salomon Smith Barney Financial Consultant or First Data to obtain
a Letter of Intent application.
Letter of Intent - Class Y Shares. A Letter of Intent may also be
used as a way for investors to meet the minimum investment
requirement for Class Y shares (except purchases of Class Y shares
by Smith Barney Concert Allocation Series Inc., for which there is
no minimum purchase amount). Such investors must make an initial
minimum purchase of $5,000,000 in Class Y shares of the fund and
agree to purchase a total of $15,000,000 of Class Y shares of the
fund within 13 months from the date of the Letter. If a total
investment of $15,000,000 is not made within the 13-month period,
all Class Y shares purchased to date will be transferred to Class
A shares, where they will be subject to all fees (including a
service fee of 0.25%) and expenses applicable to the fund's Class
A shares, which may include a Deferred Sales Charge of 1.00%.
Please contact a Salomon Smith Barney Financial Consultant or
First Data for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares; (b)
Class L shares; and (c) Class A shares that were purchased without
an initial sales charge but are subject to a Deferred Sales
Charge. A Deferred Sales Charge may be imposed on certain
redemptions of these shares.
Any applicable Deferred Sales Charge will be assessed on an amount
equal to the lesser of the original cost of the shares being
redeemed or their net asset value at the time of redemption.
Deferred Sales Charge Shares that are redeemed will not be subject
to a Deferred Sales Charge to the extent that the value of such
shares represents: (a) capital appreciation of fund assets; (b)
reinvestment of dividends or capital gain distributions; (c) with
respect to Class B shares, shares redeemed more than five years
after their purchase; or (d) with respect to Class L shares and
Class A shares that are Deferred Sales Charge Shares, shares
redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are Deferred Sales Charge
Shares are subject to a 1.00% Deferred Sales Charge if redeemed
within 12 months of purchase. In circumstances in which the
Deferred Sales Charge is imposed on Class B shares, the amount of
the charge will depend on the number of years since the
shareholder made the purchase payment from which the amount is
being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during
a month will be aggregated and deemed to have been made on the
last day of the preceding Salomon Smith Barney statement month.
The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders, except in the case
of Class B shares held under the Smith Barney 401(k) Program, as
described below. See ''Smith Barney 401(k) and ExecChoiceTM
Programs.''
Year Since Purchase Payment Was
Made
Deferred Sales Charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares eight
years after the date on which they were purchased and thereafter
will no longer be subject to any distribution fees. There will
also be converted at that time such proportion of Class B Dividend
Shares owned by the shareholders as the total number of his or her
Class B shares converting at the time bears to the total number of
outstanding Class B shares (other than Class B Dividend Shares)
owned by the shareholder.
The length of time that Deferred Sales Charge Shares acquired
through an exchange have been held will be calculated from the
date that the shares exchanged were initially acquired in one of
the other Smith Barney Mutual Funds, and fund shares being
redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gain distribution
reinvestments in such other funds. For Federal income tax
purposes, the amount of the Deferred Sales Charge will reduce the
gain or increase the loss, as the case may be, on the amount
realized on redemption. The amount of any Deferred Sales Charge
will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100 Class B
shares of the fund at $10 per share for a cost of $1,000.
Subsequently, the investor acquired 5 additional shares of the
fund through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or
her investment. Assuming at the time of the redemption the net
asset value had appreciated to $12 per share, the value of the
investor's shares would be $1,260 (105 shares at $12 per share).
The Deferred Sales Charge would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested
dividend shares ($60). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be charged at a rate of 4.00%
(the applicable rate for Class B shares) for a total Deferred
Sales Charge of $9.60.
Waivers of Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a) exchanges (see
''Exchange Privilege''); (b) automatic cash withdrawals in amounts
equal to or less than 1.00% per month of the value of the
shareholder's shares at the time the withdrawal plan commences
(see ''Automatic Cash Withdrawal Plan'') (provided, however, that
automatic cash withdrawals in amounts equal to or less than 2.00%
per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to
November 7, 1994); (c) redemptions of shares within 12 months
following the death or disability of the shareholder; (d)
redemptions of shares made in connection with qualified
distributions from retirement plans or IRAs upon the attainment of
age 591/2; (e) involuntary redemptions; and (f) redemptions of
shares to effect a combination of the fund with any investment
company by merger, acquisition of assets or otherwise. In
addition, a shareholder who has redeemed shares from other Smith
Barney Mutual Funds may, under certain circumstances, reinvest all
or part of the redemption proceeds within 60 days and receive pro
rata credit for any Deferred Sales Charge imposed on the prior
redemption.
Deferred Sales Charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of shareholders
who are also Salomon Smith Barney clients or by First Data in the
case of all other shareholders) of the shareholder's status or
holdings, as the case may be.
Smith Barney 401(k) and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith Barney
401(k) Program or the Smith Barney ExecChoiceTM Program. To the
extent applicable, the same terms and conditions, which are
outlined below, are offered to all plans participating
(''Participating Plans'') in these programs.
The fund offers to Participating Plans Class A and Class L shares
as investment alternatives under the Smith Barney 401(k) and
ExecChoiceTM Programs. Class A and Class L shares acquired through
the Participating Plans are subject to the same service and/or
distribution fees as the Class A and Class L shares acquired by
other investors; however, they are not subject to any initial
sales charge or Deferred Sales Charge. Once a Participating Plan
has made an initial investment in the fund, all of its subsequent
investments in the fund must be in the same Class of shares,
except as otherwise described below.
Class A Shares. Class A shares of the fund are offered without
any sales charge or Deferred Sales Charge to any Participating
Plan that purchases $1,000,000 or more of Class A shares of one or
more funds of the Smith Barney Mutual Funds.
Class L Shares. Class L shares of the fund are offered without
any sales charge or Deferred Sales Charge to any Participating
Plan that purchases less than $1,000,000 of Class L shares of one
or more funds of the Smith Barney Mutual Funds.
401(k) and ExecChoiceTM Plans Opened On or After June 21, 1996.
If, at the end of the fifth year after the date the Participating
Plan enrolled in the Smith Barney 401(k) Program or the Smith
Barney ExecChoiceTM Program, a Participating Plan's total Class L
holdings in all non-money market Smith Barney Mutual Funds equal
at least $1,000,000, the Participating Plan will be offered the
opportunity to exchange all of its Class L shares for Class A
shares of the fund. For Participating Plans that were originally
established through a Salomon Smith Barney retail brokerage
account, the five-year period will be calculated from the date the
retail brokerage account was opened. Such Participating Plans will
be notified of the pending exchange in writing within 30 days
after the fifth anniversary of the enrollment date and, unless the
exchange offer has been rejected in writing, the exchange will
occur on or about the 90th day after the fifth anniversary date.
If the Participating Plan does not qualify for the five-year
exchange to Class A shares, a review of the Participating Plan's
holdings will be performed each quarter until either the
Participating Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the
date a Participating Plan enrolled in the Smith Barney 401(k)
Program, if a Participating Plan's total Class L holdings in all
non-money market Smith Barney Mutual Funds equal at least $500,000
as of the calendar year-end, the Participating Plan will be
offered the opportunity to exchange all of its Class L shares for
Class A shares of the fund. Such Plans will be notified in writing
within 30 days after the last business day of the calendar year
and, unless the exchange offer has been rejected in writing, the
exchange will occur on or about the last business day of the
following March.
Any Participating Plan in the Smith Barney 401(k) or the Smith
Barney ExecChoiceTM Programs, whether opened before or after June
21, 1996, that has not previously qualified for an exchange into
Class A shares will be offered the opportunity to exchange all of
its Class L shares for Class A shares of the fund, regardless of
asset size, at the end of the eighth year after the date the
Participating Plan enrolled in the Smith Barney 401(k) Program.
Such Plans will be notified of the pending exchange in writing
approximately 60 days before the eighth anniversary of the
enrollment date and, unless the exchange has been rejected in
writing, the exchange will occur on or about the eighth
anniversary date. Once an exchange has occurred, a Participating
Plan will not be eligible to acquire additional Class L shares of
the fund, but instead may acquire Class A shares of the fund. Any
Class L shares not converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the fund through
the Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program must purchase such shares directly from the transfer
agent. For further information regarding these Programs, investors
should contact a Salomon Smith Barney Financial Consultant.
Determination of Public Offering Price
The fund offers its shares to the public on a continuous basis.
The public offering price for a Class A and Class Y share of the
fund is equal to the net asset value per share at the time of
purchase, plus for Class A shares an initial sales charge based on
the aggregate amount of the investment. The public offering price
for a Class L share (and Class A share purchases, including
applicable rights of accumulation, equaling or exceeding $500,000)
is equal to the net asset value per share at the time of purchase
and no sales charge is imposed at the time of purchase. A
Deferred Sales Charge, however, is imposed on certain redemptions
of Class L shares, and Class A shares when purchased in amounts
exceeding $500,000. The method of computation of the public
offering price is shown in each fund's financial statements,
incorporated by reference in their entirety into this SAI.
REDEMPTION OF SHARES
The right of redemption of shares of the fund may be suspended or
the date of payment postponed (a) for any periods during which the
NYSE is closed (other than for customary weekend and holiday
closings), (b) when trading in the markets the fund normally
utilizes is restricted, or an emergency exists, as determined by
the SEC, so that disposal of the fund's investments or
determination of its net asset value is not reasonably practicable
or (c) for any other periods as the SEC by order may permit for
the protection of the fund's shareholders.
If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by
an endorsed stock power) and must be submitted to First Data
together with the redemption request. Any signature appearing on
a share certificate, stock power or written redemption request in
excess of $10,000 must be guaranteed by an eligible guarantor
institution such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal Reserve System
or member firm of a national securities exchange. Written
redemption requests of $10,000 or less do not require a signature
guarantee unless more than one such redemption request is made in
any 10-day period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise
directed, redemption proceeds will be mailed to an investor's
address of record. First Data may require additional supporting
documents for redemptions made by corporations, executors,
administrators, directors or guardians. A redemption request will
not be deemed properly received until First Data receives all
required documents in proper form.
If a shareholder holds shares in more than one Class, any request
for redemption must specify the Class being redeemed. In the
event of a failure to specify which Class, or if the investor owns
fewer shares of the Class than specified, the redemption request
will be delayed until the Transfer Agent receives further
instructions from Salomon Smith Barney, or if the shareholder's
account is not with Salomon Smith Barney, from the shareholder
directly. The redemption proceeds will be remitted on or before
the third business day following receipt of proper tender, except
on any days on which the NYSE is closed or as permitted under the
1940 Act, in extraordinary circumstances. Generally, if the
redemption proceeds are remitted to a Salomon Smith Barney
brokerage account, these funds will not be invested for the
shareholder's benefit without specific instruction and Salomon
Smith Barney will benefit from the use of temporarily uninvested
funds. Redemption proceeds for shares purchased by check, other
than a certified or official bank check, will be remitted upon
clearance of the check, which may take up to ten days or more.
Qualified Plans may redeem Class Z shares on any day the Fund
calculates its net asset value.
Distribution in Kind
If the board of directors of the trust determines that it would be
detrimental to the best interests of the remaining shareholders to
make a redemption payment wholly in cash, the fund may pay, in
accordance with SEC rules, any portion of a redemption in excess
of the lesser of $250,000 or 1.00% of the fund's net assets by a
distribution in kind of portfolio securities in lieu of cash.
Shareholders may incur brokerage commissions when they
subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is
available to shareholders of the fund who own shares of the fund
with a value of at least $10,000 and who wish to receive specific
amounts of cash monthly or quarterly. Withdrawals of at least $50
may be made under the Withdrawal Plan by redeeming as many shares
of the fund as may be necessary to cover the stipulated withdrawal
payment. Any applicable Deferred Sales Charge will not be waived
on amounts withdrawn by shareholders that exceed 1.00% per month
of the value of a shareholder's shares at the time the Withdrawal
Plan commences. (With respect to Withdrawal Plans in effect prior
to November 7, 1994, any applicable Deferred Sales Charge will be
waived on amounts withdrawn that do not exceed 2.00% per month of
the value of a shareholder's shares at the time the Withdrawal
Plan commences). To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a
fund, continued withdrawal payments will reduce the shareholder's
investment, and may ultimately exhaust it. Withdrawal payments
should not be considered as income from investment in a fund.
Furthermore, as it generally would not be advantageous to a
shareholder to make additional investments in the fund at the same
time he or she is participating in the Withdrawal Plan, purchases
by such shareholders in amounts of less than $5,000 ordinarily
will not be permitted.
Shareholders of a fund who wish to participate in the Withdrawal
Plan and who hold their shares of the fund in certificate form
must deposit their share certificates with the transfer agent as
agent for Withdrawal Plan members. All dividends and
distributions on shares in the Withdrawal Plan are reinvested
automatically at net asset value in additional shares of the fund
involved. A shareholder who purchases shares directly through the
transfer agent may continue to do so and applications for
participation in the Withdrawal Plan must be received by the
transfer agent no later than the eighth day of the month to be
eligible for participation beginning with that month's withdrawal.
For additional information, shareholders should contact a Salomon
Smith Barney Financial Consultant.
Waivers of Deferred Sales Charge
The Deferred Sales Charge will be waived on: (a) exchanges (see
"Exchange Privilege" in the prospectus); (b) automatic cash
withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal
plan commences (see "Automatic Cash Withdrawal Plan in the
prospectus") (provided, however, that automatic cash withdrawals
in amounts equal to or less than 2.00% per month of the value of
the shareholder's shares will be permitted for withdrawal plans
that were established prior to November 7, 1994); (c) redemptions
of shares within 12 months following the death or disability of
the shareholder; (d) redemptions of shares made in connection with
qualified distributions from retirement plans or IRAs upon the
attainment of age 591/2 ; (e) involuntary redemptions; and (f)
redemptions of shares to effect a combination of the fund with any
investment company by merger, acquisition of assets or otherwise.
In addition, a shareholder who has redeemed shares from other
Smith Barney Mutual funds may, under certain circumstances,
reinvest all or part of the redemption proceeds within 60 days and
receive pro rata credit for any Deferred Sales Charge imposed on
the prior redemption. Deferred Sales Charge waivers will be
granted subject to confirmation (by Salomon Smith Barney in the
case of shareholders who are also Salomon Smith Barney clients or
by the transfer agent in the case of all other shareholders) of
the shareholder's status or holdings, as the case may be.
Additional Information Regarding Telephone Redemption And Exchange
Program
Neither the fund nor its agents will be liable for following
instructions communicated by telephone that are reasonably
believed to be genuine. The fund and its agents will employ
procedures designed to verify the identity of the caller and
legitimacy of instructions (for example, a shareholder's name and
account number will be required and phone calls may be recorded).
The fund reserves the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose a charge
for this service at any time following at least seven (7) days'
prior notice to shareholders.
DISTRIBUTOR
CFBDS, Inc. serves as the fund's distributor pursuant to a written
agreement dated October 8, 1998 (the "Distribution Agreement")
which was approved by the fund's Board of Directors, including a
majority of the independent directors on July 15, 1998. Prior to
the merger of Travelers Group, Inc. and Citicorp Inc. on October
8, 1998, Salomon Smith Barney served as the fund's distributor.
For the 1996, 1997 and 1998 fiscal years, Salomon Smith Barney,
received $500,000, $115,000 and __________, respectively, in sales
charges from the sale of Class A shares, and did not reallow any
portion thereof to dealers. For the fiscal years ended October
31, 1996, 1997 and 1998, Salomon Smith Barney or its predecessor
received from shareholders $119,000, $201,000 and $_________,
respectively, in Deferred Sales Charge on the redemption of Class
B and Class L shares.
PFS Distributors, located at 3100 Breckinridge Blvd., Building 200,
Duluth, Georgia 30199-0062, also, serves as one of the Fund's
distributors on a best efforts basis requiring PFS Distributors to
take and pay for only such securities as may be sold to the public
pursuant to a Distribution Agreement. The only classes of shares
being offered for sale through PFS Distributors are Class A shares
and Class B shares.
When payment is made by the investor before the settlement date,
unless otherwise noted by the investor, the funds will be held as
a free credit balance in the investor's brokerage account and
Salomon Smith Barney may benefit from the temporary use of the
funds. The fund's Board of Directors has been advised of the
benefits to Salomon Smith Barney resulting from these settlement
procedures and will take such benefits into consideration when
reviewing the Investment Advisory and Distribution Agreements for
continuance.
Distribution Arrangements. To compensate Salomon Smith Barney for
the services it provides and for the expense it bears under the
Distribution Agreement, the fund has adopted a services and
distribution plan (the "Plan") pursuant to Rule 12b-1 under the
1940 Act. Under the Plan, the fund pays Salomon Smith Barney a
service fee, accrued daily and paid monthly, calculated at the
annual rate of 0.25% of the value of the fund's average daily net
assets attributable to the Class A, Class B and Class L shares.
In addition, the fund pays Salomon Smith Barney a distribution fee
with respect to the Class B and Class L shares primarily intended
to compensate Salomon Smith Barney for its initial expense of
paying financial consultants a commission upon sales of those
shares. The Class B and Class L distribution fee is calculated at
the annual rate of 0.75% of the value of the fund's average daily
net assets attributable to the shares of the respective class.
The only classes of shares being offered for sale through PFS
Distributors are Class A shares and Class B shares. Pursuant to
the Plan (described above), PFS Distributors is paid an annual
service fee with respect to Class A and Class B shares of the fund
sold through PFS Distributors at the annual rate of 0.25% of the
average daily net assets of the respective class. PFS
Distributors is also paid an annual distribution fee with respect
to Class B shares at the annual rate of 0.75% of the average daily
net assets attributable to that Class. Class B shares that
automatically convert to Class A shares eight years after the date
of original purchase will no longer be subject to a distribution
fee. The fees are paid to PFS Distributors, which in turn, pays
PFS Investments Inc. ("PFS Investments") to pay its Investment
Registered Representatives for servicing shareholder accounts and,
in the case of Class B shares, to cover expenses primarily
intended to result in the sale of those shares. These expenses
include: advertising expenses; the cost of printing and mailing
prospectuses to potential investors; payments to and expenses of
Investments Registered Representatives and other persons who
provide support services in connection with the distribution of
shares; interest and/or carrying charges; and indirect and
overhead costs of PFS Investments associated with the sale of fund
shares, including lease, utility, communications and sales
promotion expenses.
The payments to PFS Investments Registered Representatives for
selling shares of a class include a commission or fee paid by the
investor or PFS at the time of sale and, with respect to Class A
and Class B shares, a continuing fee for servicing shareholder
accounts for as long as a shareholder remains a holder of that
class. PFS Investments Registered Representatives may receive
different levels of compensation for selling different classes of
shares.
PFS Investments may be deemed to be an underwriter for purposes of
the Securities Act of 1933. From time to time, PFS or its
affiliates may also pay for certain non-cash sales incentives
provided to PFS Investments Registered Representatives. Such
incentives do not have any effect on the net amount invested. In
addition to the reallowances from the applicable public offering
price described above, PFS may from time to time, pay or allow
additional reallowances or promotional incentives, in the form of
cash or other compensation to PFS Investments Registered
Representatives that sell shares of the fund.
The following service and distribution fees were incurred during
the periods indicated:
DISTRIBUTION PLAN FEES
Fiscal Year
Ended 12/31/98
Fiscal Year
Ended 12/31/97
Fiscal Year
Ended 12/31/96
Class A
$ 5,849,540
$ 5,002,144
Class B
12,927,331
10,505,436
Class L
360,602
203,764
For the fiscal year ended December 31, 1998, Salomon Smith Barney
and/or PFS Distributors incurred distribution expenses totaling
approximately $ for advertising, printing and mailing of
Prospectuses, support services, to Salomon Smith Barney Financial
Consultants, and in accruals for interest on the excess of Salomon
Smith Barney expenses incurred in distribution of the Fund's
shares over the sum of the distribution fees and deferred sales
charges received by Salomon Smith Barney and/or PFS Distributors
from the Fund.
Under its terms, the Plan continues from year to year, provided
such continuance is approved annually by vote of the fund's Board
of Directors, including a majority of the independent directors.
The Plan may not be amended to increase the amount of the service
and distribution fees without shareholder approval, and all
amendments of the Plan also must be approved by the directors and
independent directors in the manner described above. The Plan may
be terminated with respect to a class of the fund at any time,
without penalty, by vote of a majority of the independent
directors or by vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of the class. Pursuant to the
Plan, Salomon Smith Barney and PFS Distributors will provide the
fund's Board of Directors with periodic reports of amounts
expended under the Plan and the purpose for which such
expenditures were made.
VALUATION OF SHARES
The net asset value per share of the fund's Classes is calculated
on each day, Monday through Friday, except days on which the NYSE
is closed. The NYSE currently is scheduled to be closed on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
and Christmas, and on the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday,
respectively. Because of the differences in distribution fees and
Class-specific expenses, the per share net asset value of each
Class may differ. The following is a description of the
procedures used by the trust in valuing its assets.
Securities listed on a national securities exchange will be valued
on the basis of the last sale on the date on which the valuation
is made or, in the absence of sales, at the mean between the
closing bid and asked prices. Over-the-counter securities will be
valued at the mean between the closing bid and asked prices on
each day, or, if market quotations for those securities are not
readily available, at fair value, as determined in good faith by
the fund's board of directors. Short-term obligations with
maturities of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the fund's board of
directors. Amortized cost involves valuing an instrument at its
original cost to the fund and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of
the effect of fluctuating interest rates on the market value of
the instrument. All other securities and other assets of the fund
will be valued at fair value as determined in good faith by the
fund's board of directors.
EXCHANGE PRIVILEGE
Shareholders of any of the Smith Barney Mutual funds may exchange
all or part of their shares for shares of the same Class of other
Smith Barney Mutual funds, on the basis of relative net asset
value per share at the time of exchange as follows:
A. Class A and Class Y shares of the fund may be exchanged
without a sales charge for the respective shares of any of
the Smith Barney Mutual funds.
B. Class B shares of any fund may be exchanged without a
sales charge. Class B shares of the Fund exchanged for
Class B shares of another Smith Barney Mutual Fund will be
subject to the higher applicable Deferred Sales Charge of
the two funds and, for purposes of calculating Deferred
Sales Charge rates and conversion periods, will be deemed to
have been held since the date the shares being exchanged
were deemed to be purchased.
C. Class L shares of any fund may be exchanged without a
sales charge. For purposes of Deferred Sales Charge
applicability, Class L shares of the fund exchanged for
Class C shares of another Smith Barney Mutual fund will be
deemed to have been owned since the date the shares being
exchanged were deemed to be purchased.
D. Holders of Class Z shares should consult their Qualified
Plans for information about available exchange options.
The exchange privilege enables shareholders in any Smith Barney
Mutual fund to acquire shares of the same Class in a fund with
different investment objectives when they believe a shift between
funds is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the fund
shares being acquired may legally be sold. Prior to any exchange,
the shareholder should obtain and review a copy of the current
prospectus of each fund into which an exchange is being
considered. Prospectuses may be obtained from a Salomon Smith
Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-
current net asset value and, subject to any applicable Deferred
Sales Charge, the proceeds are immediately invested, at a price as
described above, in shares of the fund being acquired. Salomon
Smith Barney reserves the right to reject any exchange request.
The exchange privilege may be modified or terminated at any time
after written notice to shareholders.
Additional Information Regarding the Exchange Privilege. Although
the exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the fund's performance and its
shareholders. The manager may determine that a pattern of
frequent exchanges is excessive and contrary to the best interests
of the fund's other shareholders. In this event, the fund may, at
its discretion, decide to limit additional purchases and/or
exchanges by a shareholder. Upon such a determination, the fund
will provide notice in writing or by telephone to the shareholder
at least 15 days prior to suspending the exchange privilege and
during the 15 day period the shareholder will be required to
(a) redeem his or her shares in the fund or (b) remain invested in
the fund or exchange into any of the funds of the Smith Barney
Mutual funds ordinarily available, which position the shareholder
would be expected to maintain for a significant period of time.
All relevant factors will be considered in determining what
constitutes an abusive pattern of exchanges.
PERFORMANCE DATA
From time to time the fund may advertise its total return and
average annual total return in advertisements and/or other types
of sales literature. These figures are computed separately for
Class A, Class B, Class L, Class Y and Class Z shares of the fund.
These figures are based on historical earnings and are not
intended to indicate future performance. Total return is computed
for a specified period of time assuming deduction of the maximum
sales charge, if any, from the initial amount invested and
reinvestment of all income dividends and capital gain
distributions on the reinvestment dates at prices calculated as
stated in this prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial
amount invested and subtracting 100%. The standard average annual
total return, as prescribed by the SEC is derived from this total
return, which provides the ending redeemable value. Such standard
total return information may also be accompanied with nonstandard
total return information for differing periods computed in the
same manner but without annualizing the total return or taking
sales charges into account. The fund may also include comparative
performance information in advertising or marketing its shares.
Such performance information may include data from Lipper
Analytical Services, Inc. and other financial publications.
From time to time, the trust may quote a fund's yield or total
return in advertisements or in reports and other communications to
shareholders. The trust may include comparative performance
information in advertising or marketing the fund's shares. Such
performance information may include the following industry and
financial publications- Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money, Morningstar Mutual Fund Values,
The New York Times, USA Today and The Wall Street Journal. To the
extent any advertisement or sales literature of the fund describes
the expenses or performance of any Class it will also disclose
such information for the other Classes.
Average Annual Total Return
A fund's "average annual total return," as described below, is
computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial
payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a
hypothetical $1,000 investment
made at the beginning of a 1-,
5- or 10-year period at the
end of a 1-, 5- or 10-year
period (or fractional portion
thereof), assuming
reinvestment of all dividends
and distributions.
The ERV assumes complete redemption of the hypothetical investment
at the end of the measuring period. A fund's net investment
income changes in response to fluctuations in interest rates and
the expenses of the fund.
Class A's average annual total return was as follows for the
periods indicated:
__.__% for the one-year period ended December 31, 1998
__.__% per annum during the five-year period ended December 31,
1998
__.__% per annum during the ten-year period ended December 31,
1998
The average annual total return figures assume that the maximum
5.00% sales charge has been deducted from the investment at the
time of purchase. If the maximum sales charge had not been
deducted, Class A's average annual total return for those same
periods would have been __.__%, __.__% and __.__%, respectively.
Class B's average annual total return was as follows for the
periods indicated:
__.__% for the one-year period ended December 31, 1998
__.__% per annum during the five-year period ended December 31,
1998
__.__% for the period from inception (November 6, 1992) through
December 31, 1998
The average annual total return figures assume that the maximum
applicable deferred sales charge has been deducted from the
investment at the time of redemption. If the maximum deferred
sales charge had not been deducted, Class B's average annual total
return for those same periods would have been __.__%, __.__% and
____%, respectively.
Class L's average annual total return was as follows for the
periods indicated:
__.__% for the one-year period ended December 31, 1998
__.__% per annum during the five-year period ended December 31,
1998
__.__% for the period from inception (February 4, 1993) through
December 31, 1998
The average annual total return figures assume that the maximum
applicable deferred sales charge has been deducted from the
investment at the time of redemption. If the maximum deferred
sales charge had not been deducted, Class L's average annual total
return for those same periods would have been __.__%, __.__% and
__.__%, respectively.
Class Y's average annual total return was as follows for the
period indicated:
__.__% for the one-year period ended December 31,1998
__.__% for the period from inception (January 30, 1996) through
December 31,1998
Class Y shares do not incur sales charges nor deferred sales
charges.
Class Z's average annual total return was as follows for the
periods indicated:
__.__% for the one-year period ended December 31,1998
__.__% per annum during the five-year period ended December 31,
1998
__.__% for the period from inception (November 6, 1992) through
December 31, 1998
Class Z shares do not incur sales charges or deferred sales
charges.
Aggregate Total Return
The fund's "aggregate total return," as described below,
represents the cumulative change in the value of an investment in
the fund for the specified period and is computed by the following
formula:
ERV - P
P
Where: P = a hypothetical initial payment
of $10,000.
ERV = Ending Redeemable Value of a
hypothetical $10,000 investment made
at the beginning of the 1-, 5- or
10-year period at the end of the 1-,
5- or 10-year period (or fractional
portion thereof), assuming
reinvestment of all dividends and
distributions.
The ERV assumes complete redemption of the hypothetical investment
at the end of the measuring period.
Class A's aggregate total return was as follows for the periods
indicated:
__.__% for the one-year period ended December 31, 1998
__.__% for the five-year period ended December 31, 1998
__.__% for the ten-year period ended December 31, 1998
These aggregate total return figures assume the maximum 5.00%
sales charge has been deducted from the investment at the time of
purchase. If the maximum sales charge had not been deducted,
Class A's aggregate total return for those same periods would have
been __.__%, __.__% and ___.__% respectively.
Class B's aggregate total return was as follows for the periods
indicated:
__.__% for the one-year period ended December 31, 1998
__.__% for the five-year period ended December 31, 1998
__.__% for the period from inception (November 6, 1992) through
December 31, 1998.
These aggregate total return figures assume that the maximum
applicable deferred sales charge has been deducted from the
investment at the time of redemption. If the maximum applicable
deferred sales charge had not been deducted, Class B's aggregate
total return for those same periods would have been __.__%, __.__%
and ___.__%, respectively.
Class L's aggregate total return was as follows for the periods
indicated:
__.__% for the one-year period ended December 31, 1998
__.__% for the five-year period ended December 31, 1998
__.__% for the period from inception (February 4, 1993) through
December 31, 1998
These aggregate total return figures assume that the maximum
applicable deferred sales charge has been deducted from the
investment at the time of redemption If the maximum applicable
deferrec sales charge had not been deducted, Class L's aggregate
total return for those same periods would have been __.__%, __.__%
and __.__%, respectively.
Class Y's average annual total return was as follows for the
period indicated:
__.__% for the one-year period ended December 31, 1998
__.__% for the period from inception (January 30, 1996) through
December 31,1998
Class Y shares do not incur sales charges or deferred sales
charges.
Class Z's average annual total return was as follows for the
periods indicated:
__.__% for the one-year period ended December 31, 1998
___.__% for the five-year period ended December 31, 1998
___.__% for the period from inception (November 6, 1992) through
December 31, 1997
Class Z shares do not incur sales charges or deferred sales
charges.
Performance will vary from time to time depending upon market
conditions, the composition of the fund's portfolio and operating
expenses and the expenses exclusively attributable to the Class.
Consequently, any given performance quotation should not be
considered representative of the Class's performance for any
specified period in the future. Because performance will vary, it
may not provide a basis for comparing an investment in the Class
with certain bank deposits or other investments that pay a fixed
yield for a stated period of time. Investors comparing a Class's
performance with that of other mutual funds should give
consideration to the quality and maturity of the respective
investment companies' portfolio securities.
TAXES
The following is a summary of the material United States federal
income tax considerations regarding the purchase, ownership and
disposition of shares of a fund. Each prospective shareholder is
urged to consult his own tax adviser with respect to the specific
federal, state, local and foreign tax consequences of investing in
a fund. The summary is based on the laws in effect on the date of
this SAI, which are subject to change.
The Fund and Its Investments
The fund intends to continue to qualify to be treated as a
regulated investment company each taxable year under the Internal
Revenue Code of 1986, as amended (the "Code"). To so qualify, the
fund must, among other things: (a) derive at least 90% of its
gross income in each taxable year from dividends, interest,
payments with respect to securities, loans and gains from the sale
or other disposition of stock or securities or foreign currencies,
or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; and
(b) diversify its holdings so that, at the end of each quarter of
the fund's taxable year, (i) at least 50% of the market value of
the fund's assets is represented by cash, securities of other
regulated investment companies, United States government
securities and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater
than 5% of the fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii) not more
than 25% of the value of its assets is invested in the securities
(other than United States government securities or securities of
other regulated investment companies) of any one issuer or any two
or more issuers that the fund controls and are determined to be
engaged in the same or similar trades or businesses or related
trades or businesses. The fund expects that all of its foreign
currency gains will be directly related to its principal business
of investing in stocks and securities.
As a regulated investment company, the fund will not be subject to
United States federal income tax on its net investment income
(i.e., income other than its net realized long- and short-term
capital gains) and its net realized long- and short-term capital
gains, if any, that it distributes to its shareholders, provided
that an amount equal to at least 90% of the sum of its investment
company taxable income (i.e., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over
its net realized short-term capital losses (including any capital
loss carryovers), plus or minus certain other adjustments as
specified in the Code) and its net tax-exempt income for the
taxable year is distributed in compliance with the Code's timing
and other requirements but will be subject to tax at regular
corporate rates on any taxable income or gains that it does not
distribute. Furthermore, the fund will be subject to a United
States corporate income tax with respect to such distributed
amounts in any year that it fails to qualify as a regulated
investment company or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on the fund to the
extent it does not distribute by the end of any calendar year at
least 98% of its net investment income for that year and 98% of
the net amount of its capital gains (both long-and short-term) for
the one-year period ending, as a general rule, on October 31 of
that year. For this purpose, however, any income or gain retained
by the fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the
minimum amounts that must be distributed in any year to avoid the
excise tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be, from
the previous year. The fund anticipates that it will pay such
dividends and will make such distributions as are necessary in
order to avoid the application of this tax.
If, in any taxable year, the fund fails to qualify as a regulated
investment company under the Code or fails to meet the
distribution requirement, it would be taxed in the same manner as
an ordinary corporation and distributions to its shareholders
would not be deductible by the fund in computing its taxable
income. In addition, in the event of a failure to qualify, the
fund's distributions, to the extent derived from the fund's
current or accumulated earnings and profits would constitute
dividends (eligible for the corporate dividends-received
deduction) which are taxable to shareholders as ordinary income,
even though those distributions might otherwise (at least in part)
have been treated in the shareholders' hands as long-term capital
gains. If the fund fails to qualify as a regulated investment
company in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a regulated
investment company. In addition, if the fund failed to qualify as
a regulated investment company for a period greater than one
taxable year, the fund may be required to recognize any net built-
in gains (the excess of the aggregate gains, including items of
income, over aggregate losses that would have been realized if it
had been liquidated) in order to qualify as a regulated investment
company in a subsequent year.
The fund's transactions in foreign currencies, forward contracts,
options and futures contracts (including options and futures
contracts on foreign currencies) will be subject to special
provisions of the Code (including provisions relating to "hedging
transactions" and "straddles") that, among other things, may
affect the character of gains and losses realized by the fund
(i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the fund and defer
fund losses. These rules could therefore affect the character,
amount and timing of distributions to shareholders. These
provisions also (a) will require the fund to mark-to-market
certain types of the positions in its portfolio (i.e., treat them
as if they were closed out) and (b) may cause the fund to
recognize income without receiving cash with which to pay
dividends or make distributions in amounts necessary to satisfy
the distribution requirements for avoiding income and excise
taxes. The fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in
its books and records when it acquires any foreign currency,
forward contract, option, futures contract or hedged investment in
order to mitigate the effect of these rules and prevent
disqualification of the fund as a regulated investment company.
The fund's investment in Section 1256 contracts, such as regulated
futures contracts, most forward currency forward contracts traded
in the interbank market and options on most stock indices, are
subject to special tax rules. All section 1256 contracts held by
the fund at the end of its taxable year are required to be marked
to their market value, and any unrealized gain or loss on those
positions will be included in the fund's income as if each
position had been sold for its fair market value at the end of the
taxable year. The resulting gain or loss will be combined with any
gain or loss realized by the fund from positions in section 1256
contracts closed during the taxable year. Provided such positions
were held as capital assets and were not part of a "hedging
transaction" nor part of a "straddle," 60% of the resulting net
gain or loss will be treated as long-term capital gain or loss,
and 40% of such net gain or loss will be treated as short-term
capital gain or loss, regardless of the period of time the
positions were actually held by the fund.
Foreign Investments. Dividends or other income (including, in
some cases, capital gains) received by the fund from investments
in foreign securities may be subject to withholding and other
taxes imposed by foreign countries. Tax conventions between
certain countries and the United States may reduce or eliminate
such taxes in some cases. The fund will not be eligible to elect
to treat any foreign taxes paid by it as paid by its shareholders,
who therefore will not be entitled to credits for such taxes on
their own tax returns. Foreign taxes paid by the fund will reduce
the return from the fund's investments.
Passive Foreign Investment Companies. If the fund purchases
shares in certain foreign investment entities, called "passive
foreign investment companies" (a "PFIC"), it may be subject to
United States federal income tax on a portion of any "excess
distribution" or gain from the disposition of such shares even if
such income is distributed as a taxable dividend by the fund to
its shareholders. Additional charges in the nature of interest may
be imposed on the fund in respect of deferred taxes arising from
such distributions or gains. If the fund were to invest in a PFIC
and elected to treat the PFIC as a "qualified electing fund" under
the Code, in lieu of the foregoing requirements, the fund might be
required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund,
even if not distributed to the fund, and such amounts would be
subject to the 90% and excise tax distribution requirements
described above. In order to make this election, the fund would
be required to obtain certain annual information from the passive
foreign investment companies in which it invests, which may be
difficult or not possible to obtain.
Recently, legislation was enacted that provides a mark-to-market
election for regulated investment companies effective for taxable
years beginning after December 31, 1997. This election would
result in the fund being treated as if it had sold and repurchased
all of the PFIC stock at the end of each year. In this case, the
fund would report gains as ordinary income and would deduct losses
as ordinary losses to the extent of previously recognized gains.
The election, once made, would be effective for all subsequent
taxable years of the fund, unless revoked with the consent of the
IRS. By making the election, the fund could potentially ameliorate
the adverse tax consequences with respect to its ownership of
shares in a PFIC, but in any particular year may be required to
recognize income in excess of the distributions it receives from
PFICs and its proceeds from dispositions of PFIC company stock.
The fund may have to distribute this "phantom" income and gain to
satisfy its distribution requirement and to avoid imposition of
the 4% excise tax. The fund will make the appropriate tax
elections, if possible, and take any additional steps that are
necessary to mitigate the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the fund in
October, November or December of any calendar year and payable to
shareholders of record on a specified date in such a month shall
be deemed to have been received by each shareholder on December 31
of such calendar year and to have been paid by the fund not later
than such December 31, provided that such dividend is actually
paid by the fund during January of the following calendar year.
The fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income, and
any net realized long-term capital gains in excess of net realized
short-term capital losses (including any capital loss carryovers).
The fund currently expects to distribute any excess annually to
its shareholders. However, if the fund retains for investment an
amount equal to all or a portion of its net long-term capital
gains in excess of its net short-term capital losses and capital
loss carryovers, it will be subject to a corporate tax (currently
at a rate of 35%) on the amount retained. In that event, the fund
will designate such retained amounts as undistributed capital
gains in a notice to its shareholders who (a) will be required to
include in income for United Stares federal income tax purposes,
as long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the fund on the
undistributed amount against their United States federal income
tax liabilities, if any, and to claim refunds to the extent their
credits exceed their liabilities, if any, and (c) will be entitled
to increase their tax basis, for United States federal income tax
purposes, in their shares by an amount equal to 65% of the amount
of undistributed capital gains included in the shareholder's
income. Organizations or persons not subject to federal income
tax on such capital gains will be entitled to a refund of their
pro rata share of such taxes paid by the fund upon filing
appropriate returns or claims for refund with the Internal Revenue
Service (the "IRS").
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United States
shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if any, that the
fund designates as capital gains dividends are taxable as long-
term capital gains, whether paid in cash or in shares and
regardless of how long a shareholder has held shares of the fund.
Dividends and distributions paid by the fund attributable to
dividends on stock of U.S. corporations received by the fund, with
respect to which the fund meets certain holding period
requirements, will be eligible for the deduction for dividends
received by corporations. Distributions in excess of the fund's
current and accumulated earnings and profits will, as to each
shareholder, be treated as a tax-free return of capital to the
extent of a shareholder's basis in his shares of the fund, and as
a capital gain thereafter (if the shareholder holds his shares of
the fund as capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal
income tax purposes as receiving a distribution in the amount
equal to the amount of money that the shareholders receiving cash
dividends or distributions will receive, and should have a cost
basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price
of shares just purchased at that time may reflect the amount of
the forthcoming distribution, such dividend or distribution may
nevertheless be taxable to them.
If the fund is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such
dividends are included in the fund's gross income not as of the
date received but as of the later of (a) the date such stock
became ex-dividend with respect to such dividends (i.e., the date
on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the fund acquired
such stock. Accordingly, in order to satisfy its income
distribution requirements, the fund may be required to pay
dividends based on anticipated earnings, and shareholders may
receive dividends in an earlier year than would otherwise be the
case.
Sales of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the
difference between the amount realized and his basis in his
shares. Such gain or loss will be treated as capital gain or
loss, if the shares are capital assets in the shareholder's hands,
and will be long-term capital gain or loss if the shares are held
for more than one year and short-term capital gain or loss if the
shares are held for one year or less. Any loss realized on a sale
or exchange will be disallowed to the extent the shares disposed
of are replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the fund, within a
61-day period beginning 30 days before and ending 30 days after
the disposition of the shares. In such a case, the basis of the
shares acquired will be increased to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of a fund share
held by the shareholder for six months or less will be treated for
United States federal income tax purposes as a long-term capital
loss to the extent of any distributions or deemed distributions of
long-term capital gains received by the shareholder with respect
to such share.
If a shareholder incurs a sales charge in acquiring shares of the
fund, disposes of those shares within 90 days and then acquires
shares in a mutual fund for which the otherwise applicable sales
charge is reduced by reason of a reinvestment right (e.g., an
exchange privilege), the original sales charge will not be taken
into account in computing gain/loss on the original shares to the
extent the subsequent sales charge is reduced. Instead, the
disregarded portion of the original sales charge will be added to
the tax basis in the newly acquired shares. Furthermore, the same
rule also applies to a disposition of the newly acquired shares
made within 90 days of the second acquisition. This provision
prevents a shareholder from immediately deducting the sales charge
by shifting his or her investment in a family of mutual funds.
Backup Withholding. The fund may be required to withhold, for
United States federal income tax purposes, 31% of the dividends,
distributions and redemption proceeds payable to shareholders who
fail to provide the fund with their correct taxpayer
identification number or to make required certifications, or who
have been notified by the IRS that they are subject to backup
withholding. Certain shareholders are exempt from backup
withholding. Backup withholding is not an additional tax and any
amount withheld may be credited against a shareholder's United
States federal income tax liabilities.
Notices. Shareholders will be notified annually by the fund as to
the United States federal income tax status of the dividends,
distributions and deemed distributions attributable to
undistributed capital gains (discussed above in "Dividends and
Distributions") made by the fund to its shareholders.
Furthermore, shareholders will also receive, if appropriate,
various written notices after the close of the fund's taxable year
regarding the United States federal income tax status of certain
dividends, distributions and deemed distributions that were paid
(or that are treated as having been paid) by the fund to its
shareholders during the preceding taxable year.
Class Z
Qualified plan participants should consult their plan document or
tax advisors about the tax consequences of participating in a
Qualified Plan. In addition to the considerations described below,
there may be other federal, state, local, and/or foreign tax
applications to consider. Provided that a Qualified Plan has not
borrowed to finance its investment in the Fund, it will not be
taxable on the receipt of dividends and distributions from the
Fund. Qualified plan participants should consult their plan
document or tax advisors about the tax consequences of
participating in a Qualified Plan.
Other Taxation
Distributions also may be subject to additional state, local and
foreign taxes depending on each shareholder's particular
situation.
The foregoing is only a summary of certain material tax
consequences affecting the fund and its shareholders.
Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an
investment in the fund.
ADDITIONAL INFORMATION
Fund History. The fund was incorporated on September 2, 1969
under the name The Shearson Appreciation Fund, Inc. On November
5, 1995, July 30, 1993 and October 14, 1994, the fund changed its
name to Shearson Lehman Brothers Appreciation Fund Inc., Smith
Barney Shearson Appreciation Fund Inc. and Smith Barney
Appreciation Fund Inc., respectively.
Minimum Account Size. The fund reserves the right to
involuntarily liquidate any shareholder's account in the fund if
the aggregate net asset value of the shares held in the fund
account is less than $500. (If a shareholder has more than one
account in the fund, each account must satisfy the minimum account
size.) The fund, however, will not redeem shares based solely on
market reductions in net asset value. Before the fund exercises
such right, shareholders will receive written notice and will be
permitted 60 days to bring accounts up to the minimum to avoid
involuntary liquidation.
Voting rights. The fund does not hold annual shareholder
meetings. There normally will be no meeting of shareholders for
the purpose of electing directors unless and until such time as
less than a majority of the directors holding office have been
elected by shareholders. The directors will call a meeting for any
purpose upon written request of shareholders holding at least 10%
of the fund's outstanding shares and the fund will assist
shareholders in calling such a meeting as required by the 1940
Act. When matters are submitted for shareholder vote, shareholders
of each class will have one vote for each full share owned and a
proportionate fractional vote for any fractional share held of
that class. Generally, shares of the fund will be voted on a fund-
wide basis on all matters except matters affecting only the
interests of one or more of the classes.
Annual and semi-annual reports. The fund sends its shareholders a
semi-annual report and an audited annual report, which include
listings of the investment securities held by the fund at the end
of the period covered. In an effort to reduce the fund's printing
and mailing costs, the fund plans to consolidate the mailing of
its semi-annual and annual reports by household. This
consolidation means that a household having multiple accounts with
the identical address of record will receive a single copy of each
report. Shareholders who do not want this consolidation to apply
to their accounts should contact their Salomon Smith Barney
Financial Consultant or the transfer agent.
FINANCIAL STATEMENTS
The fund's annual report for the fiscal year ended December 31,
1998 is incorporated herein by reference in its entirety. The
annual report was filed on 30, 1999, Accession Number .
Statement of Additional
Information
SMITH BARNEY
APPRECIATION FUND INC.
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup [Symbol]
- -57-
Included in Part C:
Exhibits
Exhibit No. Description of Exhibits
All references are to the Registrant's
Registration Statement on Form N-8B-1 (the
"Registration Statement") as filed with the SEC on
September 9, 1969 and Form N-1A File No. 2-34576
and 811-1940.
(a)(1) Registrant's Articles of Incorporation,
Articles of Amendment and Articles Supplementary
dated August 25, 1969, May 9, 1983, August 26,
1987, July 20, 1989, November 2, 1992, and July
30, 1993, respectively, s incorporated by
reference to Post-Effective Amendment No. 34 filed
on December 29, 1993 ("Post-Effective Amendment
No. 34").
(2) Registrant's Articles of Amendment dated
October 14, 1994, Form of Articles Supplementary
dated November 7, 1994 and Form of Articles of
Amendment dated November 7, 1993 s incorporated
by reference to Post-Effective Amendment No. 37
filed on November 7, 1994 ("Post-Effective
Amendment No. 37").
(3) Registrant's Articles of Amendment dated
June 1, 1998 is incorporated by reference to Post-Effective
Amendment No. 44 on February 24, 1999 ("Post-Effective
Amendment No. 44").
(b)(1) Registrant's By-Laws are incorporated by
reference to the Registration Statement.
(2) Amendment to Registrant's By-Laws is
incorporated by reference to Post-Effective
Amendment No. 24 filed on February 29, 1988.
(3) Amendment to Registrant's By-Laws dated
January 24, 1987 and October 21, 1987 s
incorporated by reference to Post-Effective
Amendment No. 26.
(4) Amendment to Registrant's By-Laws dated July 20,
1994 is incorporated by reference to Post-Effective
Amendment No. 41 filed on March 1, 1996.
(c)(1) Registrant's form of stock certificate is
incorporated by reference to Post-Effective
Amendment No. 31 filed on November 6, 1992 ("Post-
Effective Amendment No. 31").
(d) Investment Advisory Agreement between the
Registrant and Smith Barney Shearson Asset
Management, dated July 30, 1993, is incorporated
by reference to Post-Effective Amendment No. 34.
(e)(1) Distribution Agreement between the Registrant
and Smith Barney Shearson Inc., dated July 30,
1993, is incorporated by reference to Post-
Effective Amendment No. 34.
(2) Form of Distribution Agreement between the
Registrant and PFS Distributors is incorporated by
reference to Post-Effective Amendment No. 39 filed
on July 3, 1995 ("Post-Effective Amendment No.
39").
(3) Distribution Agreement between the Registrant and CFBDS,
Inc. s incorporated by reference to Post-Effective
Amendment No. 44.
(f) Not Applicable.
(g) Form of Custodian Agreement between the
Registrant and PNC Bank, National Association is
incorporated by reference to Post-Effective
Amendment No. 39.
(h)(1) Administration Agreement between the
Registrant and Smith, Barney Advisers, Inc. dated
April 20, 1994, is incorporated by reference to
Post-Effective Amendment No. 35 filed on July 1,
1994 ("Post-Effective Amendment No. 35").
(2) Transfer Agency Agreement between the
Registrant and The Shareholder Services Group,
Inc., dated April 20, 1993, is incorporated by
reference to Post-Effective Amendment No. 35.
(3) Form of Sub-Transfer Agency Agreement between
the Registrant and PFS Shareholder Services is
incorporated by reference to Post-Effective
Amendment No. 39.
(i) Opinion of Counsel regarding legality of
shares being registered is incorporated by
reference to Post-Effective Amendment No. 38 filed
on February 28, 1995 ("Post-Effective Amendment
No. 38").
(j) Auditor's Consent is filed herein.
(k) Not Applicable.
(l) Not Applicable.
(m) Form of Amended and Restated Services and Distribution
Plan pursuant to Rule 12b-1 between the Registrant and
Salomon Smith Barney Inc., is incorporated by reference
to Post-Effective Amendment No. 44.
(n) A Financial Data Schedule is filed herein.
(o)(1) Form of Rule 18f-3(d) Multiple Class Plan of
the Registrant is incorporated by reference to
Post-Effective Amendment No. 40 filed on December
22, 1995.
(2) Rule 18F-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to Post-Effective
Amendment No. 44.
Item 24. Persons Controlled by or under Common Control with
Registrant
None
Item 25. Indemnification
Response to this item is incorporated by reference
to Post-Effective Amendment No. 38.
Item 26(a). Business and Other Connections of Investment
Adviser
Investment Adviser - - SSBC Fund Management Inc.("SSBC")
SSBC, (formerly known as Mutual Management Corp.)
through its predecessors, has been in the investment
counseling business since 1968 and was incorporated in
December 1968 under the laws of the State of Delaware. SSBC
is a wholly owned subsidiary of Salomon Smith Barney Holdings Inc.,
which in turn is a wholly owned subsidiary of Citigroup
Group Inc.("Citigroup"). SSBC is registered as an
investment adviserunder the Investment Advisers Act of 1940
(the "Advisers Act").
The list required by this Item 26 of the officer and
directors of SSBC together with information as to any other
business, profession, vocation or employment of a
substantial nature engaged in by such officer and directors
during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by SSBC
pursuant to the Advisers Act (SEC File No. 801-8314).
Item 27. Principal Underwriters
(a) CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is
also
the distributor for the following Smith Barney funds: Concert
Investment Series, Consulting Group Capital Markets Funds, Greenwich
Street Series Fund, Smith Barney Adjustable Rate Government Income
Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney Arizona
Municipals Fund Inc., Smith Barney California Municipals Fund Inc.,
Smith Barney Concert Allocation Series Inc., Smith Barney Equity
Funds, Smith Barney Fundamental Value Fund Inc., Smith Barney Funds,
Inc., Smith Barney Income Funds, Smith Barney Institutional Cash
Management Fund, Inc., Smith Barney Investment Funds Inc., Smith
Barney Investment Trust,
Smith Barney Managed Governments Fund Inc., Smith Barney Managed
Municipals Fund Inc., Smith Barney Massachusetts Municipals Fund,
Smith Barney Money Funds, Inc., Smith Barney Muni Funds, Smith Barney
Municipal Money Market Fund, Inc., Smith Barney
Natural Resources Fund Inc., Smith Barney New Jersey Municipals
Fund Inc., Smith Barney Oregon Municipals Fund Inc., Smith Barney
Principal Return Fund, Smith Barney Small Cap Blend Fund, Inc., Smith
Barney Telecommunications Trust, Smith Barney World Funds, Inc.,
Travelers Series Fund Inc., and various series of unit investment
trusts.
CFBDS also serves as the distributor for the following funds: The
Travelers Fund UL for Variable Annuities, The Travelers Fund VA for
Variable Annuities, The Travelers Fund BD for Variable Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers Fund BD
III for Variable Annuities, The Travelers Fund BD IV for Variable
Annuities, The Travelers Fund ABD for Variable Annuities, The
Travelers Fund ABD II for Variable Annuities, The Travelers Separate
Account PF for Variable Annuities, The Travelers Separate Account PF
II for Variable Annuities, The Travelers Separate Account QP for
Variable Annuities, The Travelers Separate Account TM for Variable
Annuities, The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for Variable
Annuities, The Travelers Separate Account Six for Variable Annuities,
The Travelers Separate Account Seven for Variable Annuities, The
Travelers Separate Account Eight for Variable Annuities, The
Travelers Fund UL for Variable Annuities, The Travelers Fund UL II
for Variable Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life Insurance Separate
Account Two, The Travelers Variable Life Insurance Separate Account
Three, The Travelers Variable Life Insurance Separate Account Four,
The Travelers Separate Account MGA, The Travelers Separate Account
MGA II, The Travelers Growth and Income Stock Account for Variable
Annuities, The Travelers Quality Bond Account for Variable Annuities,
The Travelers Money Market Account for Variable Annuities, The
Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable
Annuities, The Travelers Timed Aggressive Stock Account for Variable
Annuities, The Travelers Timed Bond Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the
distributor for CitiFunds Multi-State Tax Free Trust, CitiFunds
Premium Trust, CitiFunds Institutional Trust, CitiFunds Tax Free
Reserves, CitiFunds Trust I, CitiFunds Trust II, CitiFunds Trust III,
CitiFunds International Trust, CitiFunds Fixed Income Trust,
CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP
Folio 400, CitiSelect VIP Folio 500, CitiFunds Small Cap Growth VIP
Portfolio. CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio,
Foreign Bond Portfolio, Intermediate Income Portfolio, Short-Term
Portfolio, Growth & Income Portfolio, U.S. Fixed Income Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio, International
Equity Portfolio, Balanced Portfolio, Government Income Portfolio,
Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following Salomon
Brothers funds: Salomon Brothers Opportunity Fund Inc., Salomon
Brothers Investors Fund Inc., Salomon Brothers Capital Fund Inc.,
Salomon Brothers Series Funds Inc., Salomon Brothers Institutional
Series Funds Inc., Salomon Brothers Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the Centurion Funds,
Inc.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to
Schedule A of Form BD filed by CFBDS pursuant to the Securities and
Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records
(1) Smith Barney Appreciation Fund Inc.
388 Greenwich Street
New York, New York 10013
(2) SSBC Fund Management Inc.
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th & Chestnut Streets
Philadelphia, PA 19103
(4) First Data Investor Services Group, Inc.
One Boston Place
Boston, Massachusetts 02109
(5) CFBDS
21 Milk Street
Boston, Massachusetts 02109
(6) PFS Shareholder Services
3100 Breckinridge Blvd.
Bldg. 200
Duluth, Georgia 30099-0062
Item 29. Management Services
None
Item 30. Undertakings
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it
meets all of the requirements for effectiveness of this Post-Effective
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and
has duly caused this Post-Effective Amendment to its
Registration Statement to be signed on its behalf by the undersigned,
and where
applicable, the true and lawful attorney-in-fact, thereto duly
authorized,
in the City of New York and State of New York on the 30th day of
April,
1999.
SMITH BARNEY APPRECIATION FUND
INC.
By: /s/ Heath B. McLendon
Heath B. McLendon,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of
1933, as amended, this Amendment to the Registration
Statement has been signed
below by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ Heath B. McLendon Director, Chairman of the Board
4/30/99
Heath B. McLendon
/s/ Lewis E. Daidone Senior Vice President and
4/30/99
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)
/s/ Alfred J. Bianchetti* Director
4/30/99
Alfred J. Bianchetti
/s/ Herbert Barg* Director
4/30/99
Herbert Barg
/s/ Martin Brody * Director
4/30/99
Martin Brody
Signature Title Date
/s/ Burt N. Dorsett* Director
4/30/99
Burt N. Dorsett
/s/ Dwight B. Crane* Director
4/30/99
Dwight B. Crane
/s/ Elliott S. Jaffe* Director
4/30/99
Elliott S. Jaffe
/s/ Stephen E. Kaufman* Director
4/30/99
Stephen E. Kaufman
/s/ Joseph J. McCann* Director
4/30/99
Joseph J. McCann
/s/ Cornelius C. Rose, Jr.* Director
4/30/99
Cornelius C. Rose
* Signed by Heath B. McLendon, their duly authorized attorney-in-fact,
pursuant to power of attorney dated February 20, 1996.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBIT INDEX
(j) Auditor's Consent
(n) Financial Data Schedule
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Appreciation Fund:
We consent to the use of our report dated February 8, 1999,
with respect to Smith Barney Appreciation Fund, incorporated
herein by reference and to the references to our Firm under the
headings "Financial Highlights" in the Prospectus and
"Auditors" in the Statement of Additional Information.
KPMG LLP
New York, New York
April 27, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> SMITH BARNEY APPRECIATION FUND INC. CLASS A
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<NET-INVESTMENT-INCOME> 44,614,086
<REALIZED-GAINS-CURRENT> 437,867,108
<APPREC-INCREASE-CURRENT> 354,145,227
<NET-CHANGE-FROM-OPS> 836,626,421
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 34,728,302
<DISTRIBUTIONS-OF-GAINS> 223,131,512
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<NUMBER-OF-SHARES-SOLD> 31,944,426
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<GROSS-ADVISORY-FEES> 25,853,265
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<GROSS-EXPENSE> 53,612,746
<AVERAGE-NET-ASSETS> 4,498,586,616
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<NAME> SMITH BARNEY APPRECIATION FUND INC. CLASS B
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