<PAGE>
[LOGO OF SMITH BARNEY]
-----------------------------------
Congratulations
Hersh Cohen on Your
20th Anniversary
of Managing the Appreciation Fund!
-----------------------------------
SMITH BARNEY
APPRECIATION
FUND INC.
Classic Investor Series
Annual Report
December 31, 1999
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
Smith Barney Appreciation Fund Inc.
The Smith Barney Appreciation Fund seeks long-term capital appreciation
primarily through investment in equity securities.
Smith Barney Appreciation Fund Inc.
Average Annual Total Returns
December 31, 1999
Without Sales Charges(1)
-----------------------------------------
Class A Class B Class L
================================================================================
One-Year 15.08% 14.19% 14.12%
- --------------------------------------------------------------------------------
Five-Year 21.96 21.01 21.01
- --------------------------------------------------------------------------------
Ten-Year 14.57 N/A N/A
- --------------------------------------------------------------------------------
Since Inception+ 12.90 15.68 15.23
================================================================================
With Sales Charges(2)
-----------------------------------------
Class A Class B Class L
================================================================================
One-Year 9.29% 9.19% 12.01%
- --------------------------------------------------------------------------------
Five-Year 20.72 20.92 20.77
- --------------------------------------------------------------------------------
Ten-Year 13.98 N/A N/A
- --------------------------------------------------------------------------------
Since Inception+ 12.71 15.68 15.07
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect deduction of the applicable
sales charges with respect to Class A and L shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and L
shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum sales charge of 5.00% and 1.00%, respectively; and
Class B shares reflect the deduction of a 5.00% CDSC, which applies if
shares are redeemed within one year from initial purchase. Thereafter, this
CDSC declines by 1.00% per year until no CDSC is incurred. Class L shares
also reflect the deduction of a 1.00% CDSC, which applies if shares are
redeemed within the first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+ Inception dates for Class A, B and L shares are March 10, 1970, November 6,
1992 and February 4, 1993, respectively.
- --------------------------------------------------------------------------------
FUND HIGHLIGHT
- --------------------------------------------------------------------------------
Managed by veteran Portfolio Manager Hersh Cohen, this portfolio has delivered
consistent long-term growth for more than 20 years by seeking to own quality
companies that have undervalued assets with the belief that some catalyst will
occur to unlock these values. Mr. Cohen seeks to take advantage of the
prevailing market environment by honing in on timely investment themes. A key
aspect to the Fund's investment philosophy is that consistency of results is
paramount to minimizing volatility.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A SHAPX
Class B SAPBX
Class L SAPCX
- --------------------------------------------------------------------------------
WHAT'S INSIDE
- --------------------------------------------------------------------------------
Shareholder Letter .................................................1
Portfolio Manager Harry "Hersh"
Cohen-- In His Own Words ...........................................4
Historical Performance .............................................5
Schedule of Investments ...........................................10
Statement of Assets and Liabilities ...............................14
Statement of Operations ...........................................15
Statements of Changes in Net Assets ...............................16
Notes to Financial Statements .....................................17
Financial Highlights ..............................................22
Tax Information ...................................................24
Independent Auditors' Report ......................................25
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Letter
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
HEATH B. MCLENDON HARRY "HERSH" D. COHEN
Chairman Vice President and Investment Officer
Dear Shareholder:
We are pleased to present the annual report for the Smith Barney Appreciation
Fund ("Fund") for the year ended December 31, 1999. We hope you find this report
to be useful and informative. For your convenience, we have summarized the
Fund's investment strategy during this time and discussed some of the Fund's
holdings in greater detail. Any discussion of the Fund's holdings are as of
December 31, 1999. Please refer to pages 10 through 13 for the Fund's holdings.
Celebrating 20 Years of the Fund's Strong Track Record in Volatile Markets
In January 1999, Portfolio Manager Hersh Cohen celebrated his 20th anniversary
managing the Appreciation Fund. In fact, the Fund has only been down twice in
the last ten years - in 1990 by 0.27% and in 1994 by 0.77%. Over the years the
Appreciation Fund has grown to serve more than 312,010 shareholders and has over
$5.6 billion in net assets under management as of December 31, 1999.
Please note that investing in equities may also involve additional risks.
Investors could lose money 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 stocks; or the manager's judgement
about attractiveness, value or potential appreciation of a particular stock or
about the amount to hold in cash reserves proves incorrect.
Performance Update
For the year ended December 31, 1999, the Fund returned 15.08% without the
effects of sales charges for Class A shares. In comparison, the Standard &
Poor's 500 Index ("S&P 500")1 posted a total return of 21.03% for the same
period. The Fund's investment objective is to provide investors with long-term
appreciation of capital. (Past performance is not indicative of future results.)
By historical standards, the Fund's return was more than satisfactory. By last
year's standards, however, when some initial public offerings of stocks went up
several hundred percent in one day, and Internet stocks took flight, in our
opinion, the Fund's returns seem tame.
For the year ended December 31, 1999, the S&P 500, top-heavy with expensive
technology stocks, rose 21.03%. Although the Fund has owned and benefited from,
for some time, important positions in such first rate technology companies such
as Intel, Microsoft, Cisco Systems, Lucent and America Online, we are reluctant
to accept the risks that come with buying stocks selling for extraordinarily
high price-to-earnings ("P/E")2 ratios. That definitely restrained Fund results
in the fourth quarter, when virtually all of the action was in such stocks.
- ----------
1 The S&P 500 Index is a broad-based measurement of changes in stock market
conditions based on the average performance of 500 widely held common
stocks that includes reinvestment of dividends and capital gains.
2 P/E ratio is the price of a stock divided by its earnings per share.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 1
<PAGE>
For U.S. stock market investors, there was much to celebrate in the decade of
the 1990s, topped off by an explosion of investor interest in the stock market
in 1999. According to the Securities Industry Association,3 nearly half of all
households now own stocks, just about double the number at the start of the
decade. This stands in pleasant contrast to the 1970s and 1980s, when we had to
constantly remind clients, or potential clients, of the wisdom of owning stocks.
In the 1970s, even with terrible inflation, the malaise in the markets and with
retail investors exiting the market in droves, rising dividends on blue chip
stocks provided evidence of the worth of equity ownership. People who stuck with
stocks were often rewarded in the 1980s, as the latent value in so many
neglected securities came to the surface through mergers or takeovers. Great
growth companies became recognized for the worth of their dominant worldwide
franchises. But at the start of the 1990s, it was still difficult to convince
more people that stocks were the preferred vehicles with which individuals could
accumulate wealth with their after-tax savings. But all of that changed
significantly over the past decade, culminating in a widespread belief among
many people that stocks, particularly technology stocks, are the only place to
be.
It is no accident that the economy and stock market of the United States have
become the envy of the rest of the world. For the last few years, we have been
discussing or writing about the reasons for the major turnaround from the 1970s
when the U.S. was thought to be the world's doormat.
In our view, several factors have combined to bring us to this exciting point in
history. They include the deregulation of energy prices that helped supplies to
increase, kick-starting the reduction in inflation. Big tax cuts of the early
1980s also made it more attractive for people to work and investing by sharply
lowering the onerous and punitive marginal tax rates on personal income. The
lower tax rates encouraged more investment by venture capitalists to finance the
grand ideas of many bright people. Both venture capitalists and forward-thinking
businesses could benefit from the ability to offer their companies to the public
and monetize their success. We believe that this could only happen in a country
like ours with a great history of free and democratic markets, socioeconomic
mobility and freedom to express and create new and radical products and
concepts. Painful corporate restructuring, forced on managements by the threat
of takeovers, restored competitive cost structures to major U.S. industrial
companies. All of these factors coalesced in the blossoming and convergence of
new technologies such as wireless communications, fiberoptics, integrated
circuits, personal computers and most recently, the Internet.
While 1999 set many records, there are also some major issues that we believe
should be considered as we begin a new century:
. More than 60% of the stocks on the New York Stock Exchange ("NYSE")
declined in 1999, despite new record highs for the popular averages.
. The S&P 500 has the highest P/E ratio on record, higher by far than
ratios seen at major market peaks in 1929 or 1972.
. The number of stocks making new lows each day has far exceeded those
stocks making new highs.
. Yields on bonds have been rising, normally a negative factor for P/E
ratios, but currently being, for the most part, ignored.
To sum up, the U.S. stock market has amply reflected the incredible turnaround,
growth and leadership position of our economy. And as it has picked up
adherents, the stock market has taken on a more speculative and narrow focus.
- ----------
3 The Security Industry Association is a trade group that represents
broker-dealers that lobbies for legislation affecting the brokerage
industry.
- --------------------------------------------------------------------------------
2 1999 Annual Report to Shareholders
<PAGE>
In order for the bull market to continue, we believe that buying interest needs
to broaden out to those areas of the market that contain good companies, but
which are regarded disdainfully as part of the "old economy." Technology stocks
as a category have taken on valuations that can best be described as extreme. It
is worth keeping in mind that the major expansion in money supply that occurred
in the second half of last year is likely to be reined in now that Y2K fears
have subsided. That could mean upward pressure on interest rates, which normally
spells contraction for valuations.
Perhaps most troubling is the fact that thousands of people are putting their
lifetime savings in stocks with triple-digit P/E ratios. It would be great if
some of the money that has gone into chasing price momentum got recycled into
the laggards, where values have been created through neglect. That, in our
opinion, will determine the outcome of the market for the first half of the
year. If that does not occur, it is hard to imagine another record-breaking
market. At the end of the third quarter of 1999, we would have bet that would
happen, but in fact, the disparities between tech stocks and "everything else"
grew even wider.
In recent months, we have added a group of utility stocks to the Fund,
reflecting our belief that some conservative sectors of the market are simply
too cheap. We are sticking to our expectations that insurance stocks, including
Berkshire Hathaway, represent solid values. In our opinion, 2000 promises to be
the most interesting year ever for the stock market.
Lastly, we were saddened by the loss of an outstanding business leader and
Director of the Appreciation Fund: Issac B. "Ike" Grainger. His wisdom and
influence will be missed.
Thank you for investing in the Smith Barney Appreciation Fund. We look forward
to continuing to help you pursue your financial goals in the new century.
Sincerely,
/s/ Heath B. McLendon /s/ Harry D. Cohen
Heath B. McLendon Harry "Hersh" D. Cohen
Chairman Vice President and
Investment Officer
January 20, 2000
- --------------------------------------------------------------------------------
Top Ten Holdings* As of December 31, 1999
- --------------------------------------------------------------------------------
1. Berkshire Hathaway Inc. Class A shares 4.4%
- --------------------------------------------------------------------------------
2. Microsoft Corp. 3.5
- --------------------------------------------------------------------------------
3. Exxon Mobil Corp. 3.5
- --------------------------------------------------------------------------------
4. General Electric Co. 3.1
- --------------------------------------------------------------------------------
5. CISCO Systems, Inc. 2.1
- --------------------------------------------------------------------------------
6. CBS Corp. 2.1
- --------------------------------------------------------------------------------
7. Dow Chemical Corp. 2.0
- --------------------------------------------------------------------------------
8. The Home Depot, Inc. 2.0
- --------------------------------------------------------------------------------
9. GTE Corp. 2.0
- --------------------------------------------------------------------------------
10. Lucent Technologies Inc. 1.9
- --------------------------------------------------------------------------------
* As a percentage of total common stock.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 3
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Manager Harry "Hersh" Cohen -- In His Own Words
- --------------------------------------------------------------------------------
On His Investment Strategy
"The core of the stock positions of the Appreciation Fund consists of
high-quality growth stocks with dominant market portions, global franchises,
seasoned and respected management terms and excellent balance sheets. Around
this core, we continue to look for special situations such as a restructuring
candidate or undervalued company that is more dependent on economic cycles."
"We believe that the stock market reacts to three factors: earnings, interest
rates and psychology."
On Market Volatility
"I don't like huge volatility. I've always tried to minimize it. But it is
inherent in this business that there will always be some volatility."
"We will continue to try and provide reasonable returns by owning the best
companies we can find, while building a cushion against the market volatility
that has lately become so prevalent."
On How He Buys Stocks
"When you buy stocks properly, it really makes your life easier. If you don't
pay too much for a stock, it is less vulnerable to negative news."
"We're very careful about how we buy stocks. We prefer solid companies on sound
financial footing but with an interesting story and unrecognized value in its
share price."
On Successful Stock Investing
"While we strongly believe that Wall Street is a great place to be, as veteran
market observers we like to remind investors that there will be potholes along
the way. In our view, the keys to successful stock investing is to own quality
companies, stay diversified, remain patient and maintain a long-term
perspective."
- --------------------------------------------------------------------------------
4 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
============================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/99 $15.31 $15.73 $0.14 $1.67 15.08%
- ------------------------------------------------------------------------------------------------------------
12/31/98 13.92 15.31 0.18 1.23 20.45
- ------------------------------------------------------------------------------------------------------------
12/31/97 12.85 13.92 0.20 2.09 26.29
- ------------------------------------------------------------------------------------------------------------
12/31/96 11.90 12.85 0.19 1.14 19.25
- ------------------------------------------------------------------------------------------------------------
12/31/95 10.15 11.90 0.20 1.00 29.26
- ------------------------------------------------------------------------------------------------------------
12/31/94 11.01 10.15 0.18 0.60 (0.77)
- ------------------------------------------------------------------------------------------------------------
12/31/93 10.66 11.01 0.16 0.36 8.13
- ------------------------------------------------------------------------------------------------------------
12/31/92 10.26 10.66 0.15 0.09 6.29
- ------------------------------------------------------------------------------------------------------------
12/31/91 8.30 10.26 0.20 0.07 26.94
- ------------------------------------------------------------------------------------------------------------
12/31/90 8.66 8.30 0.25 0.08 (0.27)
============================================================================================================
Total $1.85 $8.33
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
============================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/99 $15.26 $15.66 $0.02 $1.67 14.19%
- ------------------------------------------------------------------------------------------------------------
12/31/98 13.88 15.26 0.06 1.23 19.52
- ------------------------------------------------------------------------------------------------------------
12/31/97 12.81 13.88 0.06 2.09 25.31
- ------------------------------------------------------------------------------------------------------------
12/31/96 11.88 12.81 0.09 1.14 18.29
- ------------------------------------------------------------------------------------------------------------
12/31/95 10.14 11.88 0.11 1.00 28.29
- ------------------------------------------------------------------------------------------------------------
12/31/94 11.00 10.14 0.10 0.60 (1.53)
- ------------------------------------------------------------------------------------------------------------
12/31/93 10.65 11.00 0.08 0.36 7.38
- ------------------------------------------------------------------------------------------------------------
Inception*-- 12/31/92 10.55 10.65 0.16 0.09 3.28+
============================================================================================================
Total $0.68 $8.18
============================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Historical Performance -- Class L Shares
- ----------------------------------------------------------------------------------------------------------
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
==========================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/99 $15.26 $15.65 $0.02 $1.67 14.12%
- ----------------------------------------------------------------------------------------------------------
12/31/98 13.88 15.26 0.06 1.23 19.52
- ----------------------------------------------------------------------------------------------------------
12/31/97 12.81 13.88 0.06 2.09 25.31
- ----------------------------------------------------------------------------------------------------------
12/31/96 11.88 12.81 0.10 1.14 18.34
- ----------------------------------------------------------------------------------------------------------
12/31/95 10.14 11.88 0.11 1.00 28.29
- ----------------------------------------------------------------------------------------------------------
12/31/94 11.00 10.14 0.11 0.60 (1.41)
- ----------------------------------------------------------------------------------------------------------
Inception*-- 12/31/93 10.99 11.00 0.08 0.36 4.09+
==========================================================================================================
Total $0.54 $8.09
==========================================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- ----------------------------------------------------------------------------------------------------------
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
==========================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/99 $15.28 $15.69 $0.20 $1.67 15.40%
- ----------------------------------------------------------------------------------------------------------
12/31/98 13.93 15.28 0.29 1.23 20.93
- ----------------------------------------------------------------------------------------------------------
12/31/97 12.86 13.93 0.25 2.09 26.70
- ----------------------------------------------------------------------------------------------------------
Inception*--12/31/96 12.10 12.86 0.22 1.14 17.65+
==========================================================================================================
Total $0.96 $6.13
==========================================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Historical Performance -- Class Z Shares
- ----------------------------------------------------------------------------------------------------------
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
==========================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/99 $15.29 $15.71 $0.20 $1.67 15.46%
- ----------------------------------------------------------------------------------------------------------
12/31/98 13.94 15.29 0.29 1.23 20.91
- ----------------------------------------------------------------------------------------------------------
12/31/97 12.87 13.94 0.26 2.09 26.72
- ----------------------------------------------------------------------------------------------------------
12/31/96 11.91 12.87 0.23 1.14 19.66
- ----------------------------------------------------------------------------------------------------------
12/31/95 10.16 11.91 0.23 1.00 29.52
- ----------------------------------------------------------------------------------------------------------
12/31/94 11.02 10.16 0.22 0.60 (0.41)
- ----------------------------------------------------------------------------------------------------------
12/31/93 10.66 11.02 0.18 0.36 8.47
- ----------------------------------------------------------------------------------------------------------
Inception*-- 12/31/92 10.55 10.66 0.16 0.09 3.38+
==========================================================================================================
Total $1.77 $8.18
==========================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
- --------------------------------------------------------------------------------
6 1999 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------------------------------
Without Sales Charges(1)
------------------------------------------------------------------
Class A Class B Class L Class Y Class Z
========================================================================================================
<S> <C> <C> <C> <C> <C>
Year Ended 12/31/99 15.08% 14.19% 14.12% 15.40% 15.46%
- --------------------------------------------------------------------------------------------------------
Five Years Ended 12/31/99 21.96 21.01 21.01 N/A 22.35
- --------------------------------------------------------------------------------------------------------
Ten Years Ended 12/31/99 14.57 N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
Inception* through 12/31/99 12.90 15.68 15.23 20.54 16.93
========================================================================================================
<CAPTION>
With Sales Charges(2)
------------------------------------------------------------------
Class A Class B Class L Class Y Class Z
========================================================================================================
<S> <C> <C> <C> <C> <C>
Year Ended 12/31/99 9.29% 9.19% 12.01% 15.40% 15.46%
- --------------------------------------------------------------------------------------------------------
Five Years Ended 12/31/99 20.72 20.92 20.77 N/A 22.35
- --------------------------------------------------------------------------------------------------------
Ten Years Ended 12/31/99 13.98 N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
Inception* through 12/31/99 12.71 15.68 15.07 20.54 16.93
========================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Cumulative Total Returns
- --------------------------------------------------------------------------------------------------------
Without Sales Charges(1)
========================================================================================================
<S> <C>
Class A (12/31/89 through 12/31/99) 289.58%
- --------------------------------------------------------------------------------------------------------
Class A (Inception* through 12/31/99) 3,632.26
- --------------------------------------------------------------------------------------------------------
Class B (Inception* through 12/31/99) 183.41
- --------------------------------------------------------------------------------------------------------
Class L (Inception* through 12/31/99) 166.27
- --------------------------------------------------------------------------------------------------------
Class Y (Inception* through 12/31/99) 108.02
- --------------------------------------------------------------------------------------------------------
Class Z (Inception* through 12/31/99) 206.21
========================================================================================================
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and Class L shares reflect
the deduction of the maximum initial sales charge of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase and declines
thereafter by 1.00% per year until no CDSC is incurred. Class L shares also
reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed
within the first year of purchase.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* The inception dates for Class A, B, L, Y and Z shares are March 10, 1970,
November 6, 1992, February 4, 1993, January 30, 1996 and November 6, 1992,
respectively.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 7
<PAGE>
Smith Barney Appreciation Fund Inc.
Growth of $10,000 invested in Class A Shares of the
Smith Barney Appreciation Fund Inc. vs. the
Standard & Poor's 500 Stock Index (unaudited)*
March 10, 1970 - December 31, 1999
[PHOTO]
January 1979: Hersh Cohen becomes the Portfolio Manager of the Smith Barney
Appreciation Fund Inc.
[GRAPH]
Smith Barney
Appreciation S&P 500
Date Fund Inc. Index
---- --------- -----
3/10/70 9,503 10,000
War in Cambodia escalates 12/70 10,995 10,629
Freeze on wages and prices 12/71 12,840 12,148
NASDAQ introduced
Watergate break-in 12/72 12,722 14,457
Nixon visits China
OPEC oil embargo 12/73 9,164 12,333
Nixon resigns as President 12/74 6,902 9,069
U.S. involvement in Vietnam 12/75 8,196 12,445
ends
Bicentennial celebration 12/76 9,875 15,423
U.S. energy crisis 12/77 9,519 14,320
Genocide in Cambodia 12/78 11,577 15,261
Camp David accords
Three Mile Island disaster 12/79 16,786 18,098
Iran hostage crisis begins
Reagan elected President 12/80 22,781 23,980
in landslide
Assassination attempts on 12/81 23,207 22,800
Reagan and Pope. First space
shuttle launch
Worst U.S. recession in 12/82 28,710 27,712
40 years
Beirut bombing 12/83 35,309 33,964
* Hypothetical illustration of $10,000 invested in Class A shares on March
10, 1970, assuming deduction of the maximum 5.00% sales charge at the time
of investment and reinvestment of dividends and capital gains, if any, at
net asset value through December 31, 1999. The Standard & Poor's 500 Stock
Index ("S&P 500") is an index composed of widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange and
over-the-counter market. Figures for the index include reinvestment of
dividends. The index is unmanaged and is not subject to the same management
and trading expenses as a mutual fund. An investor may not invest directly
in an index. The performance of the Portfolio's other classes may be
greater or less than the Class A
- --------------------------------------------------------------------------------
8 1999 Annual Report to Shareholders
<PAGE>
For more than twenty-five years and through all market cycles, the Smith Barney
Appreciation Fund has delivered consistent long-term growth.
[GRAPH]
Smith Barney
Appreciation S&P 500
Date Fund Inc. Index
---- --------- -----
Iran/Iraq conflict 12/84 35,957 36,095
U.S. becomes debtor nation 12/85 48,332 47,544
Gramm-Rudman Act
Tax reform 12/86 57,915 56,420
Bombing of Libya
Market correction 12/87 61,986 59,383
RJR Nabisco buyout 12/88 70,270 69,220
Collapse of high-yield bond 12/89 91,035 91,117
market
Berlin Wall falls
Iraq invasion of Kuwait 12/90 90,792 88,288
U.S. recession 12/91 115,250 115,131
Riots in Los Angeles 12/92 122,499 116,376
World Trade Center 12/93 132,462 128,073
terrorist bombing
Passage of NAFTA
Orange County bankruptcy 12/94 131,442 129,758
Dow rises above 4000, 12/95 169,895 178,460
then 5000
Dow rises above 6500 12/96 202,602 219,414
Dow rises above 7000 12/97 255,872 292,610
44% of all U.S. households 12/98 308,191 376,702
have invested in mutual
funds
Hersh Cohen celebrates 12/31/99 354,657 455,935
20 years as the Portfolio
Manager of the Appreciation
Fund
shares' performance indicated on this chart, depending on whether greater
or lesser sales charges and fees were incurred by shareholders investing in
other classes. All figures represent past performance and are not a
guarantee of future results. Investment returns and principal value will
fluctuate, and redemption value may be more or less than the original cost.
No adjustment has been made for shareholder tax liability on dividends or
capital gains.
** Please note that this figure assumes reinvestment of all dividends and
capital gains distributions at net asset value and does not reflect
deduction of the applicable sales charge with respect to Class A shares,
which would have reduced the Fund's performance.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
===============================================================================================
<S> <C> <C>
COMMON STOCK -- 83.2%
Airlines -- 0.3%
500,000 Alaska Air Group, Inc. (a) $ 17,562,500
- -----------------------------------------------------------------------------------------------
Auto: Parts & Accessories -- 0.1%
489,251 Delphi Automotive Systems Corp. 7,705,703
- -----------------------------------------------------------------------------------------------
Automobile -- 1.1%
500,000 Ford Motor Co. 26,718,750
500,000 General Motors Corp. 36,343,750
- -----------------------------------------------------------------------------------------------
63,062,500
- -----------------------------------------------------------------------------------------------
Banking -- 1.3%
200,000 First Virginia Banks, Inc. (b) 8,600,000
1,000,000 National City Corp. 23,687,500
1,000,000 Wells Fargo & Co. (b) 40,437,500
- -----------------------------------------------------------------------------------------------
72,725,000
- -----------------------------------------------------------------------------------------------
Basic Materials -- 0.5%
350,000 Alcoa Inc. (b) 29,050,000
- -----------------------------------------------------------------------------------------------
Beverage, Food & Tobacco -- 4.1%
400,000 BestFoods 21,025,000
800,000 H.J. Heinz Co. 31,850,000
1,900,000 McDonald's Corp. 76,593,750
1,200,000 PepsiCo Inc. 42,300,000
900,000 Ralston-Purina Group 25,087,500
400,000 Wm. Wrigley Jr., Co. (b) 33,175,000
- -----------------------------------------------------------------------------------------------
230,031,250
- -----------------------------------------------------------------------------------------------
Broadcasting, Entertainment & Leisure -- 5.8%
1,500,000 CBS Corp. (a)(b) 95,906,250
110,250 Dick Clark Productions, Inc. (a) 1,639,969
895,000 Scandinavian Broadcasting Systems SA (a)(b) 43,575,312
650,000 Time-Warner, Inc. (b) 47,084,375
700,000 USA Networks Inc. (a) 38,675,000
500,000 Viacom Inc., Class B Shares (a)(b) 30,218,750
2,300,000 Walt Disney Co. 67,275,000
- -----------------------------------------------------------------------------------------------
324,374,656
- -----------------------------------------------------------------------------------------------
Chemicals -- 3.8%
700,000 Dow Chemical Corp. (b) 93,537,500
600,000 E.I. du Pont de Nemours & Co. (b) 39,525,000
600,000 Great Lakes Chemical Corp. 22,912,500
950,000 PPG Industries, Inc. 59,434,375
- -----------------------------------------------------------------------------------------------
215,409,375
- -----------------------------------------------------------------------------------------------
Consumer Products -- 3.7%
600,000 Eastman Kodak Co. 39,750,000
600,000 Gillette Co. 24,712,500
800,000 International Flavors & Fragrances Inc. (b) 30,200,000
1,139,000 Kimberly-Clark Corp. 74,319,750
200,000 Newell Co. (b) 5,800,000
275,000 Procter & Gamble Co. 30,129,688
- -----------------------------------------------------------------------------------------------
204,911,938
- -----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
===============================================================================================
<S> <C> <C>
Diversified/Conglomerate -- 10.1%
3,650 Berkshire Hathaway Inc., Class A Shares (a) $204,765,000
15 Berkshire Hathaway Inc., Class B Shares (a) 27,450
1,400,000 Canadian Pacific Ltd. (b) 30,187,500
950,000 General Electric Co. 147,012,500
1,000,000 Honeywell International Inc. (b) 57,687,500
350,000 Johnson Controls, Inc. 19,906,250
600,000 Minnesota Mining & Manufacturing Co. 58,725,000
1,200,000 Tyco International Ltd. 46,650,000
- -----------------------------------------------------------------------------------------------
564,961,200
- -----------------------------------------------------------------------------------------------
Electrical Equipment -- 1.3%
1,100,000 Belden Inc. 23,100,000
800,000 Emerson Electric Co. 45,900,000
450,000 SLI, Inc. (a)(b) 6,103,125
- -----------------------------------------------------------------------------------------------
75,103,125
- -----------------------------------------------------------------------------------------------
Financial Services -- 2.8%
100,000 Chapman Holdings Inc. (a)(b) 1,425,000
1,000,000 Fannie Mae 62,437,500
800,000 Household International Inc. 29,800,000
600,000 Merrill Lynch & Co. 50,100,000
600,000 Washington Mutual, Inc. 15,600,000
- -----------------------------------------------------------------------------------------------
159,362,500
- -----------------------------------------------------------------------------------------------
Health Care/Drugs/Hospital Supplies -- 9.4%
500,000 Alza Corp. (a)(b) 17,312,500
850,000 American Home Products Corp. 33,521,875
1,200,000 Amgen Inc. (a) 72,075,000
1,100,000 Bristol-Myers & Squibb Co. 70,606,250
800,000 Chiron Corp (a)(b) 33,900,000
600,000 Eli Lilly & Co. 39,900,000
550,000 Johnson & Johnson 51,218,750
1,100,000 Merck and Co., Inc. 73,768,750
1,900,000 Pfizer, Inc. 61,631,250
900,000 Warner-Lambert Co. 73,743,750
- -----------------------------------------------------------------------------------------------
527,678,125
- -----------------------------------------------------------------------------------------------
Insurance -- 3.5%
1,700,000 Allstate Corp. (b) 40,800,000
780,000 American International Group, Inc. 84,337,500
700,000 Chubb Corp. (b) 39,418,750
600,000 Horace Mann Educators Corp. 11,775,000
600,000 UnumProvident Corp. 19,237,500
- -----------------------------------------------------------------------------------------------
195,568,750
- -----------------------------------------------------------------------------------------------
Manufacturing/Building Materials -- 0.9%
979,000 Dal-Tile International Inc. (a) 9,912,375
950,000 Masco Corp. 24,106,250
300,000 Parker-Hannifin Corp. (b) 15,393,750
- -----------------------------------------------------------------------------------------------
49,412,375
- -----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 11
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
===============================================================================================
<S> <C> <C>
Office Equipment & Supplies -- 0.1%
300,000 Xerox Corp. $ 6,806,250
- -----------------------------------------------------------------------------------------------
Oil & Gas/Service/Drilling -- 2.2%
200,000 Chevron Corp. 17,325,000
1,000,000 Conoco Inc. (b) 24,750,000
250,000 Nabors Industries, Inc. (a) 7,734,375
900,000 Schlumberger Ltd. 50,625,000
500,000 Tidewater Inc. 18,000,000
174,240 Transocean Sedco Forex Inc. 5,869,710
- -----------------------------------------------------------------------------------------------
124,304,085
- -----------------------------------------------------------------------------------------------
Oil - International -- 4.7%
400,000 British Petroleum Amoco PLC (b) 23,725,000
2,000,000 Exxon Mobil Corp. 161,125,000
900,000 Royal Dutch Petroleum Co., ADR 54,393,750
400,000 Texaco Inc. 21,725,000
- -----------------------------------------------------------------------------------------------
260,968,750
- -----------------------------------------------------------------------------------------------
Publishing -- 2.7%
700,000 Dow Jones & Co., Inc. 47,600,000
675,000 Gannett Co. 55,054,687
1,200,000 Meredith Corp. 50,025,000
- -----------------------------------------------------------------------------------------------
152,679,687
- -----------------------------------------------------------------------------------------------
Real Estate -- 0.6%
400,000 Forest City Enterprises, Inc. 11,200,000
530,976 HomeFed Corp. (a) 464,604
950,000 The St. Joe Corp. 23,096,875
- -----------------------------------------------------------------------------------------------
34,761,479
- -----------------------------------------------------------------------------------------------
Retail -- 3.4%
100,000 Amazon.com, Inc. (a)(b) 7,612,500
400,000 The Gap, Inc. (b) 18,400,000
1,350,000 The Home Depot, Inc. 92,559,375
1,000,000 Wal-Mart Stores, Inc. 69,125,000
- -----------------------------------------------------------------------------------------------
187,696,875
- -----------------------------------------------------------------------------------------------
Technology -- 14.1%
100,000 Agilent Technologies, Inc. (a)(b) 7,731,250
750,000 America Online, Inc. (a) 56,578,125
5,000 C-bridge Internet Solutions, Inc. (a)(b) 243,125
900,000 CISCO Systems Inc. (a) 96,412,500
1,450,000 First Data Corp. (b) 71,503,125
300,000 Hewlett-Packard Co. (b) 34,181,250
900,000 Intel Corp. 74,081,250
250,000 International Business Machines Corp. 27,000,000
1,200,000 Lucent Technologies Inc. (b) 89,775,000
750,000 Mettler-Toledo International Inc. (a) 28,640,625
1,400,000 Microsoft Corp. (a) 163,450,000
325,000 Motorola, Inc. (b) 47,856,250
800,000 Novell, Inc. (a) 31,950,000
10,600 Sycamore Networks, Inc. (a)(b) 3,264,800
600,000 Texas Instruments, Inc. 58,125,000
- -----------------------------------------------------------------------------------------------
790,792,300
- -----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
============================================================================================================
<S> <C> <C>
Telephone/Communications -- 5.0%
800,000 American Telephone & Telegraph Corp. (b) $ 40,600,000
950,000 Bell Atlantic Corp. 58,484,375
400,000 BellSouth Corp. 18,725,000
1,300,000 GTE Corp. 91,731,250
1,400,000 SBC Communications Inc. 68,250,000
- ------------------------------------------------------------------------------------------------------------
277,790,625
- ------------------------------------------------------------------------------------------------------------
Transportation -- 1.0%
300,000 FDX Corp. (a) 12,281,250
500,000 Florida East Coast Industries, Inc. 20,875,000
300,000 United Parcel Service, Inc. (b) 20,700,000
- ------------------------------------------------------------------------------------------------------------
53,856,250
- ------------------------------------------------------------------------------------------------------------
Utilities -- 0.7%
183,500 CH Energy Group, Inc. 6,055,500
200,000 Public Service Enterprise Group Inc. 6,962,500
300,000 Reliant Energy, Inc. 6,862,500
300,000 The Southern Co. (b) 7,050,000
400,000 Texas Utilities Co. 14,225,000
- ------------------------------------------------------------------------------------------------------------
41,155,500
- ------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $2,907,327,517) 4,667,730,798
============================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 16.8%
$ 300,000,000 Chase Manhattan Inc., 3.000% due 1/3/00;
Proceeds at maturity -- $300,074,934; (Fully collateralized
by U.S. Treasury Notes, 4.750% due 2/15/04;
Market value -- $306,002,813) 300,000,000
265,187,000 J.P. Morgan Securities Inc., 3.000% due 1/3/00;
Proceeds at maturity -- $265,253,297; (Fully collateralized
by U.S. Treasury Notes and Bills, 0.000% to 6.625% due 3/30/00
to 1/15/08; Market value-- $270,491,312) 265,187,000
375,915,000 Warburg Dillon Read LLC, 3.000% due 1/3/00;
Proceeds at maturity -- $376,008,911; (Fully collateralized
by U.S. Treasury Notes, 6.000% due 8/15/00;
Market value -- $383,437,500) 375,915,000
- ------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $941,102,000) 941,102,000
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS AT VALUE -- 100%
(Cost -- $3,848,429,517*) $5,608,832,798
============================================================================================================
</TABLE>
(a) Non-income producing security
(b) A portion of the security is on loan (see Note 7).
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 13
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost-- $2,907,327,517) $4,667,730,798
Repurchase agreements (Cost-- $941,102,000) 941,102,000
Cash 721
Collateral for securities on loan (Note 7) 577,575,806
Receivable for securities sold 20,524,332
Dividends and interest receivable 5,495,713
Receivable for Fund shares sold 5,082,670
- ----------------------------------------------------------------------------------------------------------------
Total Assets 6,217,512,040
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 7) 577,575,806
Payable for securities purchased 20,898,204
Payable for Fund shares purchased 5,870,964
Investment advisory fees payable 1,931,993
Administration fees payable 710,732
Distribution fees payable 642,314
Accrued expenses 885,674
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities 608,515,687
- ----------------------------------------------------------------------------------------------------------------
Total Net Assets $5,608,996,353
================================================================================================================
NET ASSETS:
Par value of capital shares $ 357,211
Capital paid in excess of par value 3,659,240,640
Undistributed net investment income 675,106
Accumulated net realized gain on security transactions and futures contracts 188,320,115
Net unrealized appreciation of investments 1,760,403,281
- ----------------------------------------------------------------------------------------------------------------
Total Net Assets $5,608,996,353
================================================================================================================
Shares Outstanding:
Class A 211,428,104
------------------------------------------------------------------------------------------------------------
Class B 112,123,341
------------------------------------------------------------------------------------------------------------
Class L 10,316,576
------------------------------------------------------------------------------------------------------------
Class Y 6,304,262
------------------------------------------------------------------------------------------------------------
Class Z 17,038,424
------------------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $15.73
------------------------------------------------------------------------------------------------------------
Class B* $15.66
------------------------------------------------------------------------------------------------------------
Class L** $15.65
------------------------------------------------------------------------------------------------------------
Class Y (and redemption price) $15.69
------------------------------------------------------------------------------------------------------------
Class Z (and redemption price) $15.71
------------------------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $16.56
------------------------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $15.81
================================================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 53,621,723
Interest 46,144,932
Less: Foreign withholding tax (647,193)
- ---------------------------------------------------------------------------------------------------
Total Investment Income 99,119,462
- ---------------------------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 25,841,335
Investment advisory fees (Note 2) 21,761,582
Administration fees (Note 2) 8,002,567
Shareholder and system servicing fees 4,880,615
Shareholder communications 390,734
Registration fees 198,961
Custody 163,442
Directors' fees 66,539
Audit and legal fees 63,954
Other 50,743
- ---------------------------------------------------------------------------------------------------
Total Expenses 61,420,472
- ---------------------------------------------------------------------------------------------------
Net Investment Income 37,698,990
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 3 AND 6):
Realized Gain From:
Security transactions (excluding short-term securities) 574,621,956
Futures contracts 23,326,980
- ---------------------------------------------------------------------------------------------------
Net Realized Gain 597,948,936
- ---------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 1,670,560,703
End of year 1,760,403,281
- ---------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 89,842,578
- ---------------------------------------------------------------------------------------------------
Net Gain on Investments and Futures Contracts 687,791,514
- ---------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 725,490,504
===================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 15
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
==================================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 37,698,990 $ 44,614,086
Net realized gain 597,948,936 437,867,108
Increase in net unrealized appreciation 89,842,578 354,145,227
- ------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 725,490,504 836,626,421
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income (37,014,230) (46,469,945)
Net realized gains (551,110,949) (370,466,221)
- ------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (588,125,179) (416,936,166)
- ------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sales 1,002,205,348 817,670,978
Net asset value of shares issued for reinvestment of dividends 553,845,742 390,809,346
Cost of shares reacquired (1,010,384,825) (936,984,556)
- ------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Fund Share Transactions 545,666,265 271,495,768
- ------------------------------------------------------------------------------------------------------------------
Increase in Net Assets 683,031,590 691,186,023
NET ASSETS:
Beginning of year 4,925,964,763 4,234,778,740
- ------------------------------------------------------------------------------------------------------------------
End of year* $5,608,996,353 $4,925,964,763
==================================================================================================================
* Includes undistributed (overdistributed) net investment income of: $675,106 $(9,654)
==================================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Appreciation Fund Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing prices on such markets;
securities for which no sales price was reported are valued at bid price, or in
the absence of a recent bid price, at the bid equivalent obtained from one or
more of the major market makers in the securities; U.S. government and agency
obligations are valued at the mean between the closing bid and asked prices on
each day; (c) securities for which market quotations are not available will be
valued in good faith at fair value by or under the direction of the Board of
Directors; (d) securities maturing within 60 days are valued at cost plus
accreted discount, or minus amortized premium, which approximates value; (e)
dividend income is recorded on the ex-dividend date; foreign dividends are
recorded on the earlier of the ex-dividend date or as soon as practical after
the Fund determines the existence of a dividend declaration after exercising
reasonable due diligence; (f) interest income is recorded on the accrual basis;
(g) dividends and distributions to shareholders are recorded on the ex-dividend
date; (h) gains or losses on the sale of securities are calculated by using the
specific identification method; (i) direct expenses are charged to each class;
management fees and general fund expenses are allocated on the basis of relative
net assets; (j) the accounting records are maintained in U.S. dollars. All
assets and liabilities denominated in foreign currencies are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, and income
and expenses are translated at the rate of exchange quoted on the respective
date that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank; (k) the Fund intends to comply with the applicable provisions of
the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes; (l) the
character of income and gains distributed are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles; and (m) estimates and assumptions are required to be made regarding
assets, liabilities and changes in net assets resulting from operations when
financial statements are prepared. Changes in the economic environment,
financial markets and any other parameters used in determining these estimates
could cause actual results to differ.
2. Management Agreementand Other Transactions
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH") which, in
turn, is a subsidiary of Citigroup Inc. ("Citigroup") acts as investment adviser
of the Fund. The Fund pays SSBC an investment advisory fee calculated at the
annual rate of 0.55% on the Fund's average daily net assets up to $250 million;
0.513% on the next $250 million; 0.476% on the next $500 million; 0.439% on the
next $1 billion; 0.402% on the next $1 billion; and 0.365% on average daily net
assets in excess of $3 billion. This fee is calculated daily and paid monthly.
SSBC also serves as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% on the Fund's average daily net assets up
to $250 million; 0.187% on the next $250 million; 0.174% on the next $500
million; 0.161% on the next $1 billion; 0.148% on the next $1 billion and 0.135%
on the average daily net assets in excess of $3 billion. This fee is calculated
daily and paid monthly.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Fund's transfer agent and PFPC
Global Fund Services ("PFPC") became the Fund's sub-transfer agent. Private
Trust receives account fees and asset-based fees that vary according to account
size and type of account. PFPC is responsible for shareholder recordkeeping and
financial processing for all shareholder accounts. During the period October 1,
1999 through December 31, 1999, the Fund paid transfer agent fees of $891,604 to
Private Trust.
CFBDS, Inc., ("CFBDS") acts as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
For the year ended December 31, 1999, SSB and its affiliates received brokerage
commissions of $289,442.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B shares,
which applies if redemption occurs within one year from purchase. This CDSC
declines by 1.00% the first year after purchase and thereafter by 1.00% per year
until no CDSC is incurred. Class L shares are being sold at net asset value plus
a maximum sales charge of 1.00%. Class L shares also have a 1.00% CDSC, which
applies if redemption occurs within the first year of purchase. In certain
cases, Class A shares also have a 1.00% CDSC, which applies if redemption occurs
within the first year of purchase. This CDSC only applies to those purchases of
Class A shares, which when combined with current holdings of Class A shares,
equal or exceed $500,000 in the aggregate. These purchases do not incur an
initial sales charge.
For the year ended December 31, 1999, CFBDS and SSB received sales charges of
approximately $2,256,000, $23,000 and $641,000 on sales of the Portfolio's Class
A, Class B and Class L shares, respectively. In addition, CDSCs paid to CFBDS
were approximately:
Class A Class B Class L
================================================================================
CDSCs $6,000 $1,155,000 $44,000
================================================================================
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to its
Class A, B and L shares calculated at the annual rate of 0.25% of the average
daily net assets of each respective class. In addition, the Fund also pays a
distribution fee with respect to Class B and L shares calculated at the annual
rate of 0.75% of the average daily net assets for each class. For the year ended
December 31, 1999, total Distribution Plan fees were as follows:
Class A Class B Class L
================================================================================
Distribution Plan Fees $7,794,943 $16,816,917 $1,229,475
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the year ended December 31, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $3,069,192,071
- --------------------------------------------------------------------------------
Sales 3,081,082,760
================================================================================
At December 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $1,798,256,123
Gross unrealized depreciation (37,852,842)
- --------------------------------------------------------------------------------
Net unrealized appreciation $1,760,403,281
================================================================================
4. Repurchase Agreements
The Fund purchases (and its custodian take possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
- --------------------------------------------------------------------------------
18 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
5. Option Contracts
Premiums paid when put or call options are purchased by the Fund represent
investments, which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are greater
or less than the premium paid for the option. When the Fund exercises a put
option, it will realize a gain or loss from the sale of the underlying security
and the proceeds from such sale will be decreased by the amount of the premium
originally paid. When the Fund exercises a call option, the cost of the security
that the Fund purchases upon exercise will be increased by the premium
originally paid.
At December 31, 1999, the Fund had no open purchased call or put options.
When a Fund writes a call or put option, an amount equal to the premium received
by the Fund is recorded as a liability, the value of which is marked-to-market
daily. When a written option expires, the Fund realizes a gain equal to the
amount of the premium received. When the Fund enters into a closing purchase
transaction, the Fund realizes a gain or loss depending upon whether the cost of
the closing transaction is greater or less than the premium originally received
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is eliminated. When a call option is
exercised the proceeds of the security sold will be increased by the premium
originally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security that the Fund
purchased upon exercise. When written index options are exercised, settlement is
made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Fund enters into options for hedging purposes. The risk in writing a
call option is that the Fund gives up the opportunity to participate in any
increase in the price of the underlying security beyond the exercise price. The
risk in writing a put option is that the Fund is exposed to the risk of a loss
if the market price of the underlying security declines.
During the year ended December 31, 1999, the Fund did not write any call or put
options.
6. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. Securities equal to the initial margin amount are segregated by the
custodian in the name of the broker. Additional securities are also segregated
up to the current market value of the futures contract. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking-to-market" on a daily basis to reflect
the market value of the contract at the end of each day's trading. Variation
margin payments are received or made and recognized as assets due from or
liabilities due to broker, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transactions and the Fund's basis in the contract. The Fund enters into such
contracts to hedge a portion of its portfolio. The Fund bears the market risk
that arises from changes in the value of the financial instruments and
securities indices (futures contracts).
At December 31, 1999, the Fund had no open futures contracts.
7. Lending of Portfolio Securities
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations. Fees earned by the Fund on securities lending are recorded in
interest income. Loans of
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 19
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
securities by the Fund are collateralized by cash, U.S. government securities or
high quality money market instruments that are maintained at all times in an
amount at least equal to the current market value of the loaned securities, plus
a margin which may vary depending on the type of securities loaned. The
custodian establishes and maintains the collateral in a segregated account. The
Fund maintains exposure for the risk of any losses in the investment of amounts
received as collateral.
At December 31, 1999, the Fund loaned common stocks having a value of
approximately $566,112,129 and holds the following collateral for loaned
securities:
Security Description Value
- --------------------------------------------------------------------------------
Certificates of Deposit:
Australia New Zealand, 6.2900% due 1/14/00 $ 5,567,774
Deutsche Bank, 6.0400% due 1/3/00 13,990,297
Toronto Dominion, 6.7400% due 1/14/00 50,018,406
Commercial Paper:
American Home, 5.8971% due 3/3/00 27,578,130
Asset Securitiz, 5.9434% due 2/28/00 10,821,067
Atlantis One, 5.9921% due 1/25/00 3,611,231
Atlantis One, 5.9192% due 2/22/00 4,551,823
Atlantis One, 5.9202% due 2/23/00 2,970,293
Atlantis One, 5.9732% due 3/20/00 7,489,624
Atlantis One, 5.9752% due 3/23/00 4,260,015
CC USA Disc, 5.9038% due 2/14/00 20,629,960
CC USA Disc, 5.9367% due 2/22/00 17,426,249
CC USA Disc, 5.9473% due 2/29/00 8,520,254
CC USA Disc, 6.0024% due 3/20/00 16,818,924
Corp. Asset Fund, 6.1923% due 1/21/00 6,268,429
Corp. Receivable, 5.9966% due 1/26/00 10,468,936
Corp. Receivable, 6.1813% due 1/27/00 1,709,298
Corp. Receivable, 6.1258% due 2/2/00 8,277,376
CXC INC, 6.1678% due 1/24/00 11,373,350
Morgan Stanley, 6.1336% due 1/28/00 11,438,416
Moriarity Disc, 6.2579% due 1/10/00 27,079,805
Moriarity Disc, 5.9123% due 2/1/00 2,591,769
Moriarity Disc, 5.9797% due 2/14/00 2,642,724
Moriarity Disc, 5.9412% due 2/23/00 1,052,397
Sigma Finance, 5.9931% due 1/26/00 1,676,974
Sigma Finance, 6.0036% due 2/3/00 4,237,554
Sigma Finance, 5.9251% due 3/6/00 16,259,453
Sigma Finance, 5.9666% due 3/10/00 1,283,522
Floating Rate Notes:
Goldman Sachs, 5.9100% due 8/23/00 6,741,016
Keybank, 5.9000% due 4/20/00 17,043,387
Morgan Stanley, 5.8500% due 1/18/00 12,166,584
Sigma Finance, 5.8200% due 2/3/00 1,439,535
Sigma Finance, 6.2538% due 4/4/00 43,506
Institutional Money Market:
Institutional Money Market, 5.7123% due 1/3/00 425,395
Interest Bearing Note:
Bank of Montreal, 6.6800% due 1/14/00 72,210,117
Time Deposits:
CAISSE, 12.0000% due 1/3/00 13,403,823
Chase Bank, 4.5000% due 1/3/00 22,004,221
Deutsche Bank, 11.0000% due 1/3/00 89,555,744
Marshal & Isley, 2.0000% due 1/3/00 2,195,596
Suntrust Bank, 4.5000% due 1/3/00 23,168,299
Suntrust Bank, 13.0000% due 1/3/00 16,564,533
- --------------------------------------------------------------------------------
Total $577,575,806
================================================================================
For the year ended December 31, 1999, income earned by the Portfolio from
securities lending was $534,203.
- --------------------------------------------------------------------------------
20 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
8. Capital Shares
At December 31, 1999, the Fund had one billion shares of capital stock
authorized with a par value of $0.001 per share. The Fund has the ability to
issue multiple classes of shares. Each share of a class represents an identical
interest and has the same rights except that each class bears expenses
specifically related to the distribution of its shares. Effective June 12, 1998,
the Fund adopted the renaming of existing Class C shares as Class L shares.
At December 31, 1999, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class L Class Y Class Z
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Total Paid-in Capital $2,028,247,589 $1,199,833,059 $151,106,852 $77,011,117 $203,399,234
================================================================================================================================
Transactions in shares of each class were as follows:
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
------------------------------------- -------------------------------------
Shares Amount Shares Amount
==============================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 32,259,798 $ 515,792,047 31,944,426 $ 478,164,660
Shares issued on reinvestment 21,772,653 338,497,503 16,242,300 246,245,285
Shares reacquired (35,857,091) (573,026,713) (36,385,814) (541,889,271)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase 18,175,360 $ 281,262,837 11,800,912 $ 182,520,674
==============================================================================================================================
Class B
Shares sold 23,143,005 $ 369,108,213 14,958,279 $ 221,404,435
Shares issued on reinvestment 11,127,812 171,184,647 7,850,793 117,753,029
Shares reacquired (23,923,636) (378,905,553) (22,640,705) (335,884,537)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase 10,347,181 $ 161,387,307 168,367 $ 3,272,927
==============================================================================================================================
Class L+
Shares sold 5,379,277 $ 85,714,397 2,887,128 $ 42,349,991
Shares issued on reinvestment 936,337 14,384,326 393,767 5,900,714
Shares reacquired (1,452,941) (22,982,120) (1,276,184) (18,734,090)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase 4,862,673 $ 77,116,603 2,004,711 $ 29,516,615
==============================================================================================================================
Class Y
Shares sold 877,462 $ 13,711,023 2,956,701 $ 44,326,404
Shares issued on reinvestment -- -- -- --
Shares reacquired (271,207) (4,498,182) (1,299,545) (19,155,296)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase 606,255 $ 9,212,841 1,657,156 $ 25,171,108
==============================================================================================================================
Class Z
Shares sold 1,127,436 $ 17,879,668 2,085,157 $ 31,425,488
Shares issued on reinvestment 1,913,573 29,779,266 1,376,363 20,910,318
Shares reacquired (1,934,377) (30,972,257) (1,447,123) (21,321,362)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase 1,106,632 $ 16,686,677 2,014,397 $ 31,014,444
==============================================================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 21
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
Class A Shares 1999(1) 1998(1) 1997 1996 1995(1)
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $15.31 $13.92 $12.85 $11.90 $10.15
- -----------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.15 0.18 0.19 0.19 0.20
Net realized and unrealized gain 2.08 2.62 3.17 2.09 2.75
- -----------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 2.23 2.80 3.36 2.28 2.95
- -----------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.14) (0.18) (0.20) (0.19) (0.20)
Net realized gains (1.67) (1.23) (2.09) (1.14) (1.00)
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.81) (1.41) (2.29) (1.33) (1.20)
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.73 $15.31 $13.92 $12.85 $11.90
- -----------------------------------------------------------------------------------------------------------------------------
Total Return 15.08% 20.45% 26.29% 19.25% 29.26%
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $3,326 $2,959 $2,526 $2,100 $1,933
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.92% 0.95% 0.95% 1.00% 1.02%
Net investment income 0.96 1.23 1.47 1.52 1.71
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 71% 63% 57% 62% 57%
=============================================================================================================================
<CAPTION>
Class B Shares 1999(1) 1998(1) 1997 1996 1995(1)
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $15.26 $13.88 $12.81 $11.88 $10.14
- -----------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.03 0.06 0.07 0.08 0.11
Net realized and unrealized gain 2.06 2.61 3.15 2.08 2.74
- -----------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 2.09 2.67 3.22 2.16 2.85
- -----------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.02) (0.06) (0.06) (0.09) (0.11)
Net realized gains (1.67) (1.23) (2.09) (1.14) (1.00)
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.69) (1.29) (2.15) (1.23) (1.11)
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.66 $15.26 $13.88 $12.81 $11.88
- -----------------------------------------------------------------------------------------------------------------------------
Total Return 14.19% 19.52% 25.31% 18.29% 28.29%
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $1,755 $1,553 $1,410 $1,134 $988
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.70% 1.73% 1.73% 1.78% 1.77%
Net investment income 0.17 0.44 0.68 0.74 0.96
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 71% 63% 57% 62% 57%
=============================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
- --------------------------------------------------------------------------------
22 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
Class L Shares 1999(1) 1998(1)(2) 1997 1996 1995(1)
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $15.26 $13.88 $12.81 $11.88 $10.14
- -----------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.03 0.06 0.09 0.09 0.11
Net realized and unrealized gain 2.05 2.61 3.13 2.08 2.74
- -----------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 2.08 2.67 3.22 2.17 2.85
- -----------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.02) (0.06) (0.06) (0.10) (0.11)
Net realized gains (1.67) (1.23) (2.09) (1.14) (1.00)
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.69) (1.29) (2.15) (1.24) (1.11)
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.65 $15.26 $13.88 $12.81 $11.88
- -----------------------------------------------------------------------------------------------------------------------------
Total Return 14.12% 19.52% 25.31% 18.34% 28.29%
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $161,491 $83,215 $47,872 $25,505 $14,653
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.71% 1.73% 1.73% 1.77% 1.77%
Net investment income 0.18 0.44 0.68 0.75 0.96
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 71% 63% 57% 62% 57%
=============================================================================================================================
<CAPTION>
Class Y Shares 1999(1) 1998(1) 1997(1) 1996(3)
=============================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $15.28 $13.93 $12.86 $12.10
- -----------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.21 0.24 0.27 0.23
Net realized and unrealized gain 2.07 2.63 3.14 1.89
- -----------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 2.28 2.87 3.41 2.12
- -----------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.20) (0.29) (0.25) (0.22)
Net realized gains (1.67) (1.23) (2.09) (1.14)
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.87) (1.52) (2.34) (1.36)
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.69 $15.28 $13.93 $12.86
- -----------------------------------------------------------------------------------------------------------------------------
Total Return 15.40% 20.93% 26.70% 17.65%++
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $98,920 $87,041 $56,302 $73,196
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.57% 0.59% 0.59% 0.66%+
Net investment income 1.30 1.59 1.79 2.06+
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 71% 63% 57% 24%
=============================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) On June 12, 1998 Class C shares were renamed Class L shares.
(3) For the period from January 30, 1996 (inception date) to December 31, 1996.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 23
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
Class Z Shares 1999(1) 1998(1) 1997 1996 1995(1)
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $15.29 $13.94 $12.87 $11.91 $10.16
- -------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.21 0.24 0.24 0.24 0.23
Net realized and unrealized gain 2.08 2.63 3.18 2.09 2.75
- -------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 2.29 2.87 3.42 2.33 2.98
- -------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.20) (0.29) (0.26) (0.23) (0.23)
Net realized gains (1.67) (1.23) (2.09) (1.14) (1.00)
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.87) (1.52) (2.35) (1.37) (1.23)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.71 $15.29 $13.94 $12.87 $11.91
- -------------------------------------------------------------------------------------------------------------------------------
Total Return 15.46% 20.91% 26.72% 19.66% 29.52%
- -------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $267,640 $243,609 $194,070 $153,034 $131,357
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.58% 0.59% 0.59% 0.64% 0.77%
Net investment income 1.30 1.59 1.82 1.88 1.96
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 71% 63% 57% 62% 57%
===============================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
For Federal tax purposes the Fund hereby designates for the fiscal year ended
December 31, 1999:
. A corporate dividends received deduction of 37.05%.
. Total long-term capital gains distributions paid of $424,072,947.
- --------------------------------------------------------------------------------
24 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of Smith Barney Appreciation Fund Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of The Smith Barney Appreciation Fund Inc. as of
December 31, 1999, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
five-year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Smith Barney Appreciation Fund Inc. as of December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
Smith Barney Appreciation Fund Inc. 25
<PAGE>
Smith Barney
Appreciation Fund Inc.
Directors
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon, Chairman
Cornelius C. Rose, Jr.
James J. Crisona, Emeritus
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
Harry D. Cohen
Vice President and Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser
SSB Citi Fund Management LLC
Distributors
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Transfer Agent
Smith Barney Private Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
Sub-Transfer Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of the shareholders of
Smith Barney Appreciation Fund Inc., but it may also be used as sales literature
when preceded or accompanied by the current Prospectus, which gives details
about charges, expenses, investment objectives and operating policies of the
Fund. If used as sales material after March 31, 2000, this report must be
accompanied by performance information for the most recently completed calendar
quarter.
[LOGO SALOMON SMITH BARNEY]
Salomon Smith Barney Is A Service Mark Of Salomon Smith Barney Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
FD0312 2/00
