UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-1940
Smith Barney Appreciation Fund Inc.
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: December 31
Date of reporting period: December 31, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
SMITH BARNEY
APPRECIATION FUND INC.
CLASSIC SERIES | ANNUAL REPORT | DECEMBER 31, 2003
[LOGO] Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed.(R)
Your Serious Money. Professionally Managed.(R) is a registered service mark of
Citigroup Global Markets Inc.
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
[PHOTO]
HERSH COHEN
PORTFOLIO MANAGER
[PHOTO]
SCOTT K. GLASSER
PORTFOLIO MANAGER
[GRAPHIC]
Classic Series
Annual Report . December 31, 2003
SMITH BARNEY
APPRECIATION FUND INC.
HERSH COHEN
Hersh Cohen has more than 34 years of securities business experience.
Education: BA from Case Western Reserve University; Ph.D. in Psychology
from Tufts University
SCOTT K. GLASSER
Scott Glasser has more than 11 years of securities business experience
and has been working with the Fund since 1995.
Education: BA from Middlebury College; MBA in Finance from Pennsylvania
State University
FUND OBJECTIVE
The fund seeks long-term appreciation of shareholders' capital by
investing primarily in equity securities of U.S. companies. The fund
typically invests in medium and large capitalization companies but may
also invest in small capitalization companies.
FUND FACTS
FUND INCEPTION
---------------------
March 10, 1970
MANAGER INVESTMENT
INDUSTRY EXPERIENCE
---------------------
34 Years (Hersh Cohen)
11 Years (Scott K. Glasser)
What's Inside
Letter from the Chairman.............................................. 1
Fund Performance...................................................... 4
Historical Performance................................................ 5
Schedule of Investments............................................... 6
Statement of Assets and Liabilities................................... 11
Statement of Operations............................................... 12
Statements of Changes in Net Assets................................... 13
Notes to Financial Statements......................................... 14
Financial Highlights.................................................. 20
Independent Auditors' Report.......................................... 22
Additional Information................................................ 23
Tax Information....................................................... 26
LETTER FROM THE CHAIRMAN
[PHOTO]
R. Jay Gerken
R. JAY GERKEN, CFA
Chairman, President and
Chief Executive Officer
Dear Shareholder,
This year marks Hersh Cohen's 25th anniversary at the helm of the Smith Barney
Appreciation Fund Inc. And while the stock market has indeed fluctuated over
the last quarter century, sometimes violently so, Hersh's steady hand has
steered the fund to a long-term record of distinction. As Morningstar said last
year, "Conservative investors will appreciate this long-term winner."/i/
There are not many mutual fund managers who can boast this longevity. In fact,
the average tenure of large-cap fund managers is about five years, according to
Morningstar. I have worked alongside Hersh for some 15 years and I have always
marveled at his steadfast investment principles and consistent investment
approach. As he put it recently, "I came to Wall Street in 1969 with a
philosophy that I wanted to own great companies bought at a fair price. Over
the course of my career, there has been nothing to deter me from that
philosophy." I can think of no better or more succinct summary of the
philosophy of the Appreciation Fund.
Under Hersh's leadership, the fund has garnered many honors over the years,
including being named eight times to the Forbes Honor Roll. Just last year, the
fund was named to the "Money 100" list in 2003 by Money magazine./ii/ But I
suspect that Hersh's proudest achievement is that he has always done what is
right for clients, striving to make money for them in good markets and protect
their assets in down markets. I'm sure he's looking forward to another 25 years
at the helm with his younger co-manager Scott Glasser.
PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2003
(excluding sales charges)
6 Months 12 Months
Class A Shares 13.39% 24.70%
S&P 500 Index 15.14% 28.67%
Lipper Large-Cap Core Funds Category Average 13.73% 25.59%
All figures represent past performance and are not a guarantee of future
results. Principal value and investment returns will fluctuate and investors'
shares, when redeemed may be worth more or less than their original cost.
Class A share returns assume the reinvestment of income dividends and capital
gains distributions at net asset value and the deduction of all fund
expenses. Returns have not been adjusted to include sales charges that may
apply when shares are purchased or the deduction of taxes that a shareholder
would pay on fund distributions. Excluding sales charges, Class B shares
returned 12.93%, Class L shares returned 12.92% and Class Y shares returned
13.60% over the six months ended December 31, 2003. Excluding sales charges,
Class B shares returned 23.65%, Class L shares returned 23.63% and Class Y
shares returned 25.11% over the 12 months ended December 31, 2003.
All index performance reflects no deduction for fees, expenses or taxes. The
S&P 500 Index is a market capitalization-weighted index of 500 widely held
common stocks. Please note that an investor cannot invest directly in an
index.
Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended December 31, 2003, calculated among the
1,062 funds for the six-month period and among the 1,034 funds for the
12-month period, in the fund's Lipper category including the reinvestment of
dividends and capital gains, if any, and excluding sales charges.
1 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
Performance Update
Despite positive performance, Class A shares of the Smith Barney Appreciation
Fund Inc. underperformed both the fund's benchmark, the unmanaged S&P 500 Index
("S&P 500")/iii/, and the fund's Lipper large-cap core funds category average
during the year ended December 31, 2003. Over this period, Class A shares
returned 24.70%, whereas the S&P 500 returned 28.67% and the fund's Lipper
category average was 25.59%./1/
Market Overview
At the start of the fund's fiscal year in January 2003, the domestic economy
and stock market were dominated by uncertainty stemming from growing
geopolitical tensions, especially the run-up to the war in Iraq. By March of
2003, business and economic fundamentals began to show signs that the bear
market for stocks that had dominated the previous three years was finally
nearing an end. As the year progressed, new federal tax legislation provided a
significant near-term tax cut for consumers, businesses and investors while key
interest rates continued to hover near record lows. These factors, among
others, contributed to a broad stock market rally that produced significant
gains for many sectors of the economy.
Portfolio Update
The largest single contributor to the fund's positive performance for the
period, on an absolute basis, was the fund's financial sector holding in
Berkshire Hathaway Inc., the operating company of famed investor Warren
Buffett. While the fund's largest positive contributors to performance spanned
several sectors, a number of the stocks that performed best in the second half
of 2003 benefited from their leverage to the ongoing economic rebound. One such
holding, 3M Co., a diversified producer of industrial and health care products
and one of the fund's largest holdings, continued to post strong results as
innovative new products, a strong presence in many Asian markets, and leverage
to the improving U.S. economy, combined to drive strong volume gains. Leading
semiconductor producer Intel Corp. was another top contributor to fund
performance.
The primary reason that the fund lagged its benchmark was its underweight
position in the technology sector. Detractors from fund performance for the
period were led by holdings of Standard & Poor's Depositary Receipts ("SPDRs"),
exchange-traded securities designed to track the fluctuations of the S&P 500.
Other major detractors from fund performance during the period include shares
of SBC Communications Inc., a provider of local, long-distance and Internet
access telecommunications services, and shares of Lockheed Martin Corp., a
leading defense contractor and producer of the Joint Strike Fighter.
Special Shareholder Notice
It is with great sadness that we bring to your attention the passing of Alfred
J. Bianchetti, Director Emeritus, and James J. Crisona, Director Emeritus, of
the fund. Messrs. Bianchetti and Crisona, who both passed away on September
4th, 2003, lived accomplished lives to the ages of 80 and 97, respectively. We
will sorely miss their presence and will remember the dedicated service they
provided to the fund's shareholders through their outstanding contributions as
long-term members of the Board.
/1/Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended December 31, 2003, calculated
among the 1,034 funds in the fund's Lipper category including the
reinvestment of dividends and capital gains, if any, and excluding sales
charges.
2 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
Information About Your Fund
In recent months several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. The fund's Adviser and some of its
affiliates have received requests for information from various government
regulators regarding market timing, late trading, fees and other mutual fund
issues in connection with various investigations. The regulators appear to be
examining, among other things, the fund's response to market timing and
shareholder exchange activity, including compliance with prospectus disclosure
related to these subjects. The fund has been informed that the Adviser and its
affiliates are responding to those information requests, but are not in a
position to predict the outcome of these requests and investigations.
As always, thank you for your confidence in our stewardship of your assets. We
look forward to helping you continue to meet your financial goals.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
January 13, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2003 and are subject
to change and may not be representative of the portfolio manager's current or
future investments. The fund's top ten holdings as of this date were: Berkshire
Hathaway Inc., Class A Shares (6.85%); Microsoft Corp. (3.12%); Pfizer Inc.
(2.67%); General Electric Co. (2.52%); The St. Paul Cos., Inc. (2.25%); EnCana
Corp. (2.13%); 3M Co. (2.09%); Exxon Mobil Corp. (1.94%); Time Warner Inc.
(1.70%); American International Group, Inc. (1.63%). Please refer to pages 6
through 10 for a list and percentage breakdown of the fund's holdings.
All index performance reflects no deduction for fees, expenses or taxes.
RISK: The fund may invest in small- and mid-cap companies that may involve a
higher degree of risk and volatility than investments in large-cap companies.
The fund may invest in derivatives, such as options and futures, which can be
illiquid and harder to value, especially in declining markets. A small
investment in certain derivatives may have a potentially large impact on the
fund's performance. Derivatives can disproportionately increase losses as
stated in the prospectus.
/i/ Source: Morningstar June 6, 2003.
/ii/ Money is an independent publication. In creating the "Money 100" list,
Money began with an entire universe of approximately 6,000 funds. They
then divided the fund universe into five basic types: "core" large-cap
U.S. equity funds; "secondary" mid-cap and small-cap funds; specialty
offerings, such as sector funds; international funds; and bonds. Smith
Barney Appreciation Fund was one of the approximately 1,000 funds to be
categorized as "core" funds. The core equity fund universe was then
divided into conservative, moderate and aggressive camps using standard
deviation (standard deviation measures how much the fund's returns have
fluctuated over time) as a rough guide. Money also considered such risk
factors as how many stocks the fund tends to own. Once all the funds were
categorized, their performance was tested against one another. For
conservative funds, capital preservation was rewarded first, giving top
scores to funds that outperformed their peers in down markets like 2001
and 2002. For moderate and aggressive funds, on the other hand, Money
assumed negative performance during bear markets, so greater weight was
given to three- and five-year performance in these groups. These
quantitative tests were not the only tests employed. Manager expertise,
expense ratios and issues such as a fund's company's record of responsible
financial stewardship were considered. Fund companies with a history of
closing funds before assets become unwieldy also won extra points, as did
those that communicate better with shareholders. Finally managers who have
been around for a few market cycles were preferred, as well as those with
big ownership in their funds. In all, there were 35 core fund picks --
nine conservative, 14 moderate and 12 aggressive -- which in the opinion
of Money should appear on the Money 100 list.
/iii/ The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks. Please note that an investor cannot invest directly in
an index.
3 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
AVERAGE ANNUAL TOTAL RETURNS+ (UNAUDITED)
Without Sales Charges/(1)/
------------------------------
Class A Class B Class L Class Y
- ------------------------------------------------------------
Twelve Months Ended 12/31/03 24.70% 23.65% 23.63% 25.11%
- ------------------------------------------------------------
Five Years Ended 12/31/03 2.99 2.14 2.16 3.33
- ------------------------------------------------------------
Ten Years Ended 12/31/03 10.42 9.54 9.57 N/A
- ------------------------------------------------------------
Inception* through 12/31/03 11.32 9.53 9.14 9.98
- ------------------------------------------------------------
With Sales Charges/(2)/
------------------------------
Class A Class B Class L Class Y
- ------------------------------------------------------------
Twelve Months Ended 12/31/03 18.42% 18.65% 21.41% 25.11%
- ------------------------------------------------------------
Five Years Ended 12/31/03 1.93 1.98 1.96 3.33
- ------------------------------------------------------------
Ten Years Ended 12/31/03 9.86 9.54 9.46 N/A
- ------------------------------------------------------------
Inception* through 12/31/03 11.15 9.53 9.04 9.98
- ------------------------------------------------------------
CUMULATIVE TOTAL RETURNS+ (UNAUDITED)
Without Sales Charges/(1)/
- -------------------------------------------------------------------
Class A (12/31/93 through 12/31/03) 169.56%
- -----------------------------------------------------------------
Class B (12/31/93 through 12/31/03) 148.84
- -----------------------------------------------------------------
Class L (12/31/93 through 12/31/03) 149.42
- -----------------------------------------------------------------
Class Y (Inception* through 12/31/03) 112.36
- -----------------------------------------------------------------
+ The returns shown do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
(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 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 payment.
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 one year from purchase payment.
* The inception dates for Class A, B, L and Y shares are March 10, 1970,
November 6, 1992, February 4, 1993 and January 30, 1996, respectively.
4 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
HISTORICAL PERFORMANCE (UNAUDITED)
Value of $10,000 Invested in Class A Shares of the
Smith Barney Appreciation Fund Inc. vs. the S&P 500 Index+
- --------------------------------------------------------------------------------
December 1993 -- December 2003
[CHART]
Smith Barney
Appreciation Fund Inc.
- Class A Shares S & P 500 Index
---------------------- -----------------
12/93 $ 9,500 $10,000
12/94 9,426 10,132
12/95 12,184 13,934
12/96 14,530 17,132
12/97 18,350 22,847
12/98 22,102 29,413
12/99 25,434 35,600
12/00 25,620 32,359
12/01 24,740 28,516
12/02 21,616 22,215
12/03 25,607 28,584
+ Hypothetical illustration of $10,000 invested in Class A shares on December
31, 1993, assuming deduction of the maximum 5.00% sales charge and
reinvestment of dividends and capital gains, if any, at net asset value
through December 31, 2003. The S&P 500 Index is composed of 500 widely held
common stocks listed on the New York Stock Exchange, American Stock Exchange
and over-the-counter markets. 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. Please note that an investor cannot
invest directly in an index. The performance of the Fund's other classes may
be greater or less than the Class A shares' performance indicated on this
chart, depending on whether greater or lesser sales charges and fees were
incurred by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. The performance data represents past performance including the
investment return and principal value of an investment, which will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. The returns shown do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares.
5 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
SCHEDULE OF INVESTMENTS DECEMBER 31, 2003
SHARES SECURITY VALUE
- -------------------------------------------------------
COMMON STOCK -- 92.4%
Aerospace & Defense -- 1.3%
300,000 The Boeing Co. $ 12,642,000
500,000 Lockheed Martin Corp. 25,700,000
1,000,000 Raytheon Co. 30,040,000
- -------------------------------------------------------
68,382,000
- -------------------------------------------------------
Banks -- 5.2%
1,200,000 Bank One Corp. 54,708,000
500,000 Comerica Inc. 28,030,000
700,000 Fifth Third Bancorp 41,370,000
300,000 M&T Bank Corp. 29,490,000
1,000,000 U.S. Bancorp 29,780,000
800,000 Washington Mutual, Inc. 32,096,000
1,000,000 Wells Fargo & Co. 58,890,000
- -------------------------------------------------------
274,364,000
- -------------------------------------------------------
Beverages -- 2.1%
600,000 The Coca-Cola Co. 30,450,000
1,700,000 PepsiCo, Inc. 79,254,000
- -------------------------------------------------------
109,704,000
- -------------------------------------------------------
Biotechnology -- 1.7%
700,000 Amgen Inc.+ 43,260,000
100,000 AtheroGenics, Inc.+ 1,495,000
1,175,000 Biogen Idec Inc.+ 43,216,500
100,000 Encysive Pharmaceuticals Inc.+ 895,000
200,000 Vicuron Pharmaceuticals, Inc.+ 3,730,000
- -------------------------------------------------------
92,596,500
- -------------------------------------------------------
Building Products -- 0.7%
1,300,000 Masco Corp. 35,633,000
- -------------------------------------------------------
Chemicals -- 3.4%
1,100,000 The Dow Chemical Co. 45,727,000
1,500,000 E.I. du Pont de Nemours & Co. 68,835,000
1,000,000 PPG Industries, Inc. 64,020,000
- -------------------------------------------------------
178,582,000
- -------------------------------------------------------
Commercial Services & Supplies -- 2.2%
600,000 Automatic Data Processing Inc. 23,766,000
300,000 Avery Dennison Corp. 16,806,000
300,000 First Data Corp. 12,327,000
300,000 Hudson Highland Group, Inc.+ 7,155,000
2,000,000 Waste Management, Inc. 59,200,000
- -------------------------------------------------------
119,254,000
- -------------------------------------------------------
Commingled Fund -- 0.9%
5,000,000 iShares MSCI Japan Index Fund 48,200,000
- -------------------------------------------------------
See Notes to Financial Statements.
6 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
SHARES SECURITY VALUE
- -------------------------------------------------------------------
Communications Equipment -- 1.5%
1,300,000 Cisco Systems, Inc.+ $ 31,577,000
6,000,000 Lucent Technologies Inc.+ 17,040,000
2,000,000 Motorola, Inc. 28,140,000
500,000 MRV Communications, Inc.+ 1,880,000
- --------------------------------------------------------------
78,637,000
- --------------------------------------------------------------
Computers & Peripherals -- 1.4%
700,000 International Business Machines Corp. 64,876,000
800,000 Maxtor Corp.+ 8,880,000
- --------------------------------------------------------------
73,756,000
- --------------------------------------------------------------
Diversified Telecommunication Services -- 1.0%
1,000,000 SBC Communications Inc. 26,070,000
800,000 Verizon Communications Inc. 28,064,000
- --------------------------------------------------------------
54,134,000
- --------------------------------------------------------------
Electric Utilities -- 1.4%
1,000,000 Cinergy Corp. 38,810,000
400,000 Public Service Enterprise Group Inc. 17,520,000
500,000 The Southern Co. 15,125,000
- --------------------------------------------------------------
71,455,000
- --------------------------------------------------------------
Electrical Equipment -- 1.1%
1,500,000 American Power Conversion Corp.+ 36,675,000
750,000 Molex Inc., Class A Shares 22,020,000
- --------------------------------------------------------------
58,695,000
- --------------------------------------------------------------
Electronic Equipment & Instruments -- 1.4%
800,000 AVX Corp. 13,296,000
640,000 Mettler-Toledo International Inc.+ 27,014,400
3,000,000 Solectron Corp.+ 17,730,000
800,000 Vishay Intertechnology, Inc.+ 18,320,000
- --------------------------------------------------------------
76,360,400
- --------------------------------------------------------------
Energy Equipment & Services -- 1.3%
600,000 GlobalSantaFe Corp. 14,898,000
1,000,000 Schlumberger Ltd. 54,720,000
- --------------------------------------------------------------
69,618,000
- --------------------------------------------------------------
Food & Drug Retailing -- 0.8%
1,200,000 Walgreen Co. 43,656,000
- --------------------------------------------------------------
Food Products -- 3.4%
750,000 General Mills, Inc. 33,975,000
1,100,000 H.J. Heinz Co. 40,073,000
450,000 Hershey Foods Corp. 34,645,500
800,000 Kraft Foods, Inc. 25,776,000
800,000 Wm. Wrigley Jr. Co. 44,968,000
- --------------------------------------------------------------
179,437,500
- --------------------------------------------------------------
Gas Utilities -- 0.6%
800,000 KeySpan Corp. 29,440,000
- --------------------------------------------------------------
See Notes to Financial Statements.
7 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
SHARES SECURITY VALUE
- -----------------------------------------------------------------------
Healthcare Equipment & Supplies -- 0.5%
200,000 Advanced Medical Optics, Inc.+ $ 3,930,000
300,000 C.R. Bard, Inc. 24,375,000
- -----------------------------------------------------------------------
28,305,000
- -----------------------------------------------------------------------
Hotels, Restaurants & Leisure -- 0.6%
1,208,700 Fairmont Hotels & Resorts Inc. 32,804,118
- -----------------------------------------------------------------------
Household Products -- 2.3%
900,000 Kimberly-Clark Corp. 53,181,000
700,000 The Procter & Gamble Co. 69,916,000
- -----------------------------------------------------------------------
123,097,000
- -----------------------------------------------------------------------
Industrial Conglomerates -- 6.1%
1,300,000 3M Co. 110,539,000
4,300,000 General Electric Co. 133,214,000
316,700 Honeywell International Inc. 10,587,281
1,100,000 Tyco International Ltd. 29,150,000
400,000 United Technologies Corp. 37,908,000
- -----------------------------------------------------------------------
321,398,281
- -----------------------------------------------------------------------
Insurance -- 11.9%
1,300,000 American International Group, Inc. 86,164,000
4,300 Berkshire Hathaway Inc., Class A Shares+ 362,275,000
63,700 China Life Insurance Co., Ltd., Sponsored ADR+ 2,100,189
400,000 The Chubb Corp. 27,240,000
1,200,000 Old Republic International Corp. 30,432,000
3,000,000 The St. Paul Cos., Inc. 118,950,000
- -----------------------------------------------------------------------
627,161,189
- -----------------------------------------------------------------------
Internet & Catalog Retail -- 0.7%
1,150,000 InterActiveCorp+ 39,019,500
- -----------------------------------------------------------------------
Machinery -- 0.5%
400,000 Deere & Co. 26,020,000
- -----------------------------------------------------------------------
Media -- 10.3%
2,300,000 Comcast Corp., Special Class A Shares+ 71,944,000
800,000 Gannett Co., Inc. 71,328,000
500,000 The Interpublic Group Cos., Inc. 7,800,000
3,000,000 Liberty Media Corp., Class A Shares+ 35,670,000
800,000 Meredith Corp. 39,048,000
1,250,000 SBS Broadcasting SA+ 40,750,000
1,200,000 Shaw Communications Inc., Class B Shares 18,624,000
5,000,000 Time Warner Inc.+ 89,950,000
700,000 Tribune Co. 36,120,000
1,200,000 Viacom Inc., Class B Shares 53,256,000
3,500,000 The Walt Disney Co. 81,655,000
- -----------------------------------------------------------------------
546,145,000
- -----------------------------------------------------------------------
Metals & Mining -- 2.0%
700,000 Alcoa Inc. 26,600,000
300,000 Freeport-McMoRan Copper & Gold, Inc. 12,639,000
164,800 International Steel Group, Inc.+ 6,418,960
400,000 Newmont Mining Corp. 19,444,000
See Notes to Financial Statements.
8 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
SHARES SECURITY VALUE
- ------------------------------------------------------------
Metals & Mining -- 2.0% (continued)
219,300 Nucor Corp. $ 12,280,800
250,000 Rio Tinto plc, Sponsored ADR 27,827,500
- ------------------------------------------------------------
105,210,260
- ------------------------------------------------------------
Multi-Line Retail -- 2.6%
1,500,000 Costco Wholesale Corp.+ 55,770,000
1,500,000 Wal-Mart Stores, Inc. 79,575,000
- ------------------------------------------------------------
135,345,000
- ------------------------------------------------------------
Oil & Gas -- 5.7%
1,300,000 BP plc, Sponsored ADR 64,155,000
300,000 Canadian Natural Resources Ltd. 15,132,000
2,850,000 EnCana Corp. 112,404,000
2,500,000 Exxon Mobil Corp. 102,500,000
400,000 Suncor Energy, Inc. 10,024,000
- ------------------------------------------------------------
304,215,000
- ------------------------------------------------------------
Paper & Forest Products -- 1.0%
300,000 International Paper Co. 12,933,000
600,000 Weyerhaeuser Co. 38,400,000
- ------------------------------------------------------------
51,333,000
- ------------------------------------------------------------
Personal Products -- 1.6%
2,300,000 The Gillette Co. 84,479,000
- ------------------------------------------------------------
Pharmaceuticals -- 5.8%
250,000 AstraZeneca plc, Sponsored ADR 12,095,000
400,000 Eli Lilly & Co. 28,132,000
1,600,000 Johnson & Johnson 82,656,000
950,000 Merck & Co. Inc. 43,890,000
4,000,000 Pfizer Inc. 141,320,000
- ------------------------------------------------------------
308,093,000
- ------------------------------------------------------------
Real Estate -- 2.1%
1,300,000 Forest City Enterprises, Inc. 61,763,000
1,100,000 The St. Joe Co. 41,019,000
200,000 Tejon Ranch Co.+ 8,202,000
- ------------------------------------------------------------
110,984,000
- ------------------------------------------------------------
Road & Rail -- 1.7%
1,150,000 Burlington Northern Santa Fe Corp. 37,202,500
400,000 CP Railway Ltd. 11,260,000
1,231,033 Florida East Coast Industries, Inc. 40,747,192
- ------------------------------------------------------------
89,209,692
- ------------------------------------------------------------
Semiconductor Equipment & Products -- 1.9%
6,000,000 Agere Systems Inc., Class A Shares+ 18,300,000
1,500,000 Cirrus Logic, Inc.+ 11,505,000
1,700,000 Intel Corp. 54,740,000
600,000 Texas Instruments Inc. 17,628,000
- ------------------------------------------------------------
102,173,000
- ------------------------------------------------------------
See Notes to Financial Statements.
9 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
SCHEDULE OF INVESTMENTS (CONTINUED) DECEMBER 31, 2003
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
Software -- 3.7%
6,000,000 Microsoft Corp. $ 165,240,000
700,000 ScanSoft, Inc.+ 3,724,000
1,200,000 Sybase, Inc.+ 24,696,000
- --------------------------------------------------------------------------------------------------------------
193,660,000
- --------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $3,589,627,518) 4,890,556,440
- --------------------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 7.6%
$401,846,000 Morgan Stanley, 0.820% due 1/2/03; Proceeds at maturity -- $401,864,306;
(Fully collateralized by U.S. Treasury Inflation Indexed Notes, 3.500% to 3.875%
due 1/15/08 to 1/15/11; Market value -- $409,883,347) (Cost -- $401,846,000) 401,846,000
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $3,991,473,518*) $5,292,402,440
- --------------------------------------------------------------------------------------------------------------
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is $3,996,379,393.
Abbreviaiton used in this schedule:
ADR -- American Depositary Receipt
See Notes to Financial Statements.
10 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2003
ASSETS:
Investments, at value (Cost -- $3,991,473,518) $5,292,402,440
Cash 592
Receivable for Fund shares sold 11,343,888
Dividends and interest receivable 7,115,779
Receivable for securities sold 4,527,403
- ---------------------------------------------------------------------------
Total Assets 5,315,390,102
- ---------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 18,563,420
Payable for Fund shares reacquired 2,439,179
Investment advisory fee payable 1,806,735
Distribution plan fees payable 845,311
Administration fee payable 664,318
Accrued expenses 1,607,569
- ---------------------------------------------------------------------------
Total Liabilities 25,926,532
- ---------------------------------------------------------------------------
Total Net Assets $5,289,463,570
- ---------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 385,727
Capital paid in excess of par value 4,008,952,286
Undistributed net investment income 2,101,767
Accumulated net realized loss on investment transactions
and futures contracts (22,908,641)
Net unrealized appreciation of investments and foreign
currencies 1,300,932,431
- ---------------------------------------------------------------------------
Total Net Assets $5,289,463,570
- ---------------------------------------------------------------------------
Shares Outstanding:
Class A 232,751,416
- ----------------------------------------------------------------------------
Class B 79,375,186
- ----------------------------------------------------------------------------
Class L 39,160,295
- ----------------------------------------------------------------------------
Class Y 34,439,673
- ----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $13.79
- ----------------------------------------------------------------------------
Class B * $13.54
- ----------------------------------------------------------------------------
Class L * $13.55
- ----------------------------------------------------------------------------
Class Y (and redemption price) $13.76
- ----------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value
per share) $14.52
- ----------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value
per share) $13.69
- ---------------------------------------------------------------------------
* Redemption price is NAV of Class B and L shares reduced by a 5.00% and 1.00%
CDSC, respectively, if shares are redeemed within one year from purchase
payment (See Note 2).
See Notes to Financial Statements.
11 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
INVESTMENT INCOME:
Dividends $ 63,870,171
Interest 4,355,383
Less: Foreign withholding tax (486,252)
- ---------------------------------------------------------------------------
Total Investment Income 67,739,302
- ---------------------------------------------------------------------------
EXPENSES:
Distribution plan fees (Note 7) 20,333,663
Investment advisory fee (Note 2) 18,911,513
Administration fee (Note 2) 6,948,436
Shareholder servicing fees (Note 7) 5,697,091
Custody 187,853
Shareholder communications (Note 7) 177,096
Registration fees 149,526
Audit and legal fees 82,800
Directors' fees 57,214
Other 73,246
- ---------------------------------------------------------------------------
Total Expenses 52,618,438
- ---------------------------------------------------------------------------
Net Investment Income 15,120,864
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCIES (NOTES 3 AND 5):
Realized Gain (Loss) From:
Investment transactions 81,934,114
Futures contracts (4,856,196)
Foreign currency transactions (2,269)
- ---------------------------------------------------------------------------
Net Realized Gain 77,075,649
- ---------------------------------------------------------------------------
Change in Net Unrealized Appreciation From:
Investments 918,999,369
Foreign currencies 8,361
- ---------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 919,007,730
- ---------------------------------------------------------------------------
Net Gain on Investments, Futures Contracts and Foreign
Currencies 996,083,379
- ---------------------------------------------------------------------------
Increase in Assets From Operations $1,011,204,243
- ---------------------------------------------------------------------------
See Notes to Financial Statements.
12 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31,
2003 2002
- ----------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 15,120,864 $ 12,443,816
Net realized gain (loss) 77,075,649 (83,390,774)
Increase (decrease) in net unrealized
appreciation 919,007,730 (784,394,229)
- ----------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Operations 1,011,204,243 (855,341,187)
- ----------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM (NOTE 8):
Net investment income (25,412,632) (1,600,870)
Net realized gains -- (78,435,627)
- ----------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to
Shareholders (25,412,632) (80,036,497)
- ----------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sales of shares 1,176,362,357 740,110,388
Net asset value of shares issued for
reinvestment of dividends 23,023,182 74,953,797
Cost of shares reacquired (936,585,023) (787,285,503)
- ----------------------------------------------------------------------------------
Increase in Net Assets From Fund Share
Transactions 262,800,516 27,778,682
- ----------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 1,248,592,127 (907,599,002)
NET ASSETS:
Beginning of year 4,040,871,443 4,948,470,445
- ----------------------------------------------------------------------------------
End of year* $5,289,463,570 $4,040,871,443
- ----------------------------------------------------------------------------------
* Includes undistributed net investment income of: $2,101,767 $12,395,804
- ----------------------------------------------------------------------------------
See Notes to Financial Statements.
13 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
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 listed on
a national securities exchange will be valued on the basis of the last sale on
the date on which the valuation is made or, in the absence of sales, at the
mean between the closing bid and asked prices; securities listed on the NASDAQ
National Market System for which market quotations are available are valued at
the official closing price or, if there is no official closing price on that
day, at the last sale price; Over-the-counter securities will be 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 dividend income is recorded on 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 an accrual basis; (g) dividends and distributions to
shareholders are recorded on the ex-dividend date; the Fund distributes
dividends and capital gains, if any, at least annually; (h) gains or losses on
the sale of securities are calculated by using the specific identification
method; (i) class specific expenses are charged to each class; management fees
and general fund expenses are allocated on the basis of relative net assets of
each class or on another reasonable basis; (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; (k) the character of income and
gains distributed is determined in accordance with income tax regulations which
may differ from accounting principles generally accepted in the United States
of America; (l) 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; 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. Investment Advisory Agreement and Other Transactions
Smith Barney Fund Management LLC ("SBFM"), an indirect wholly-owned subsidiary
of Citigroup Inc. ("Citigroup"), acts as investment adviser of the Fund. The
Fund pays SBFM 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 the Fund's average daily
net assets in excess of $3 billion. This fee is calculated daily and paid
monthly.
SBFM 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 the Fund's average daily net assets in excess of $3 billion. This
fee is calculated daily and paid monthly.
14 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the
Fund's transfer agent. PFPC Inc. ("PFPC") and Primerica Shareholder Services
("PSS"), another subsidiary of Citigroup, act as the Fund's sub-transfer
agents. CTB receives account fees and asset-based fees that vary according to
size and type of account. PFPC and PSS are responsible for shareholder
recordkeeping and financial processing for all shareholder accounts and are
paid by CTB. For the year ended December 31, 2003, the Fund paid transfer agent
fees of $3,586,426 to CTB.
Citigroup Global Markets Inc. ("CGM") (formerly known as Salomon Smith Barney
Inc.) and PFS Distributors, Inc., both of which are subsidiaries of Citigroup,
act as the Fund's distributors.
There are maximum initial sales charges of 5.00% and 1.00% for Class A and L
shares, respectively. 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 payment and declines thereafter by 1.00% per year until no CDSC
is incurred. Class L shares also have a 1.00% CDSC, which applies if redemption
occurs within one year from purchase payment. In certain cases, Class A shares
also have a 1.00% CDSC, which applies if redemption occurs within one year from
purchase payment. This CDSC only applies to those purchases of Class A shares,
which when combined with current holdings of Class A shares, equal or exceed
$1,000,000 in the aggregate. These purchases do not incur an initial sales
charge.
For the year ended December 31, 2003, CGM and its affiliates received sales
charges of approximately $6,602,000 and $1,286,000 on sales of the Fund's Class
A and L shares, respectively. In addition, for the year ended December 31,
2003, CDSCs paid to CGM and its affiliates were approximately:
Class A Class B Class L
- --------------------------------------------------------------
CDSCs $6,000 $1,451,000 $65,000
- --------------------------------------------------------------
For the year ended December 31, 2003, CGM and its affiliates received brokerage
commissions of $242,331.
All officers and one Director of the Fund are employees of Citigroup or its
affiliates.
3. Investments
During the year ended December 31, 2003, the aggregate cost of purchases and
proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments) were as follows:
- --------------------------------------------------
Purchases $1,967,682,214
- --------------------------------------------------
Sales 1,722,379,329
- --------------------------------------------------
At December 31, 2003, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
- --------------------------------------------------
Gross unrealized appreciation $1,311,938,512
Gross unrealized depreciation (15,915,465)
- --------------------------------------------------
Net unrealized appreciation $1,296,023,047
- --------------------------------------------------
15 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Repurchase Agreements
The Fund purchases (and the custodian takes possession of ) U.S. government
securities from 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 (plus accrued interest) of the collateral in
amounts at least equal to the repurchase price.
5. Futures Contracts
Securities or cash equal to the initial margin amount are either deposited with
the broker or segregated by the custodian upon entering into the futures
contract. 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 typically
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.
At December 31, 2003, the Fund did not hold any futures contracts.
6. Lending of Portfolio Securities
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations. Fees earned by the Fund on securities lending are recorded in
interest income. Loans of securities by the Fund are collateralized by cash,
U.S. government securities or high quality money market instruments that are
maintained at all times in an amount at least equal to the current market value
of the loaned securities, plus a margin which may vary 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.
Income earned by the Fund from securities lending for the year ended December
31, 2003 was $130,918.
At December 31, 2003, the Fund did not have any securities on loan.
16 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Class Specific Expenses
Pursuant to a Rule 12b-1 Distribution Plan, the Fund pays a service fee with
respect to its Class A, B and L shares calculated at an annual rate of 0.25% of
the average daily net assets of each class, respectively. The Fund also pays a
distribution fee with respect to Class B and L shares calculated at an annual
rate of 0.75% of the average daily net assets of each class, respectively. For
the year ended December 31, 2003, total Rule 12b-1 Distribution Plan fees
incurred, which are accrued daily and paid monthly, were as follows:
Class A Class B Class L
- --------------------------------------------------------------------
Rule 12b-1 Distribution Plan Fees $6,831,064 $9,460,509 $4,042,090
- -------------------------------------------------------------------
For the year ended December 31, 2003, total Shareholder Servicing fees were as
follows:
Class A Class B Class L Class Y Class Z
- ----------------------------------------------------------------------------------
Shareholder Servicing Fees $3,275,318 $1,598,289 $822,411 $1,040 $33
- ---------------------------------------------------------------------------------
For the year ended December 31, 2003, total Shareholder Communication expenses
were as follows:
Class A Class B Class L Class Y Class Z
- ---------------------------------------------------------------------------
Shareholder Communication Expenses $88,468 $65,728 $21,100 $150 $1,650
- --------------------------------------------------------------------------
8. Distributions Paid to Shareholders by Class
Year Ended Year Ended
December 31, 2003 December 31, 2002
- --------------------------------------------------------
Class A
Net investment
income $19,269,683 $ 1,316,593
Net realized gains -- 48,907,997
- -------------------------------------------------------
Total $19,269,683 $50,224,590
- -------------------------------------------------------
Class B
Net realized gains -- $17,023,453
- -------------------------------------------------------
Total -- $17,023,453
- -------------------------------------------------------
Class L
Net investment
income -- $ 8,843
Net realized gains -- 5,209,103
- -------------------------------------------------------
Total -- $ 5,217,946
- -------------------------------------------------------
Class Y
Net investment
income $ 6,142,949 $ 53,585
Net realized gains -- 1,418,794
- -------------------------------------------------------
Total $ 6,142,949 $ 1,472,379
- -------------------------------------------------------
Class Z
Net investment
income -- $ 221,849
Net realized gains -- 5,876,280
- -------------------------------------------------------
Total -- $ 6,098,129
- -------------------------------------------------------
*As of April 21, 2003, Class Z shares were fully exchanged into Class Y shares.
17 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. Capital Shares
At December 31, 2003, 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.
Transactions in shares of each class were as follows:
Year Ended Year Ended
December 31, 2003 December 31, 2002
-------------------------- --------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------
Class A
Shares sold 35,326,517 $ 433,034,096 23,322,712 $ 288,859,068
Shares issued on
reinvestment 1,384,598 18,071,724 4,425,878 47,578,185
Shares reacquired (26,353,600) (317,863,939) (34,691,639) (420,120,972)
- ---------------------------------------------------------------------------
Net Increase
(Decrease) 10,357,515 $ 133,241,881 (6,943,049) $ (83,683,719)
- ---------------------------------------------------------------------------
Class B
Shares sold 18,265,663 $ 216,093,603 18,924,345 $ 229,607,053
Shares issued on
reinvestment -- -- 1,536,921 16,306,724
Shares reacquired (18,386,441) (217,188,666) (20,591,363) (248,581,737)
- ---------------------------------------------------------------------------
Net Decrease (120,778) $ (1,095,063) (130,097) $ (2,667,960)
- ---------------------------------------------------------------------------
Class L
Shares sold 15,867,917 $ 189,244,812 13,584,475 $ 163,337,685
Shares issued on
reinvestment -- -- 468,056 4,970,758
Shares reacquired (5,716,208) (66,867,882) (4,658,899) (54,604,420)
- ---------------------------------------------------------------------------
Net Increase 10,151,709 $ 122,376,930 9,393,632 $ 113,704,023
- ---------------------------------------------------------------------------
Class Y
Shares sold 28,255,831 $ 326,434,172 1,554,484 $ 18,265,106
Shares issued on
reinvestment 379,634 4,951,458 -- --
Shares reacquired (1,811,607) (22,659,694) (292,227) (3,482,676)
- ---------------------------------------------------------------------------
Net Increase 26,823,858 $ 308,725,936 1,262,257 $ 14,782,430
- ---------------------------------------------------------------------------
Class Z*
Shares sold 1,047,437 $ 11,555,674 3,219,131 $ 40,041,476
Shares issued on
reinvestment -- -- 566,741 6,098,130
Shares reacquired (27,146,580) (312,004,842) (5,041,538) (60,495,698)
- ---------------------------------------------------------------------------
Net Decrease (26,099,143) $(300,449,168) (1,255,666) $ (14,356,092)
- ---------------------------------------------------------------------------
*As of April 21, 2003, Class Z shares were fully exchanged into Class Y shares.
10.Capital Loss Carryforward
At December 31, 2003, the Fund had, for Federal income tax purposes,
approximately $18,003,000 of unused capital loss carryforwards available to
offset future capital gains, expiring on December 31, 2010. To the extent that
these capital carryforward losses are used to offset capital gains, it is
probable that the gains so offset will not be distributed.
18 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11.Income Tax Information and Distributions to Shareholders
The tax basis components of distributable earnings at December 31 were:
2003 2002
- -----------------------------------------------------------------
Undistributed ordinary income $ 2,110,417 $ 12,406,599
- ----------------------------------------------------------------
Accumulated capital losses (18,002,765) (67,380,606)
- ----------------------------------------------------------------
Unrealized appreciation 1,296,026,556 358,263,845
- ----------------------------------------------------------------
At December 31, 2003 and 2002, the difference between book basis and tax basis
unrealized appreciation is attributable primarily to wash sale loss deferrals.
The tax character of distributions paid during the year ended December 31 was:
2003 2002
- -----------------------------------------------------------
Ordinary income $25,412,632 $ 1,600,870
Capital -- 78,435,627
- ----------------------------------------------------------
Total $25,412,632 $80,036,497
- ----------------------------------------------------------
12.Additional Information
The Fund has received the following information from Citigroup Asset Management
("CAM"), the Citigroup business unit which includes the Fund's Investment
Manager and other investment advisory companies, all of which are indirect,
wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an
affiliate, into the transfer agent business in the period 1997-1999. As CAM
currently understands the facts, at the time CAM decided to enter the transfer
agent business, CAM sub-contracted for a period of five years certain of the
transfer agency services to a third party and also concluded a revenue
guarantee agreement with this sub-contractor providing that the sub-contractor
would guarantee certain benefits to CAM or its affiliates (the "Revenue
Guarantee Agreement"). In connection with the subsequent purchase of the
sub-contractor's business by an affiliate of the current sub-transfer agent
(PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee
Agreement was amended eliminating those benefits in exchange for arrangements
that included a one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue
Guarantee Agreement with the sub-contractor at the time the Boards considered
and approved the transfer agent arrangements. Nor were the Boards informed of
the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds
approximately $17 million (plus interest) that CAM and its affiliates received
from the Revenue Guarantee Agreement and its amendment. CAM also plans an
independent review to verify that the transfer agency fees charged by CAM were
fairly priced as compared to competitive alternatives. CAM is instituting new
procedures and making changes designed to ensure no similar arrangements are
entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
13.Subsequent Event
Effective February 2, 2004, the 1.00% initial sales charge on Class L shares
will no longer be imposed.
19 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
FINANCIAL HIGHLIGHTS
For a share of each class of capital stock outstanding throughout each year
ended December 31, unless otherwise noted:
Class A Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/ 1999/(1)/
- -------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.13 $13.69 $14.55 $15.73 $15.31
- -------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.07 0.06 0.10 0.16 0.15
Net realized and unrealized gain (loss) 2.67 (2.39) (0.59) (0.04) 2.08
- -------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.74 (2.33) (0.49) 0.12 2.23
- -------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.08) (0.01) (0.08) (0.15) (0.14)
Net realized gains -- (0.22) (0.29) (1.15) (1.67)
- -------------------------------------------------------------------------------------------------
Total Distributions (0.08) (0.23) (0.37) (1.30) (1.81)
- -------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.79 $11.13 $13.69 $14.55 $15.73
- -------------------------------------------------------------------------------------------------
Total Return 24.70% (17.00)% (3.44)% 0.73% 15.08%
- -------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $3,210 $2,476 $3,140 $3,212 $3,326
- -------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.96% 0.95% 0.92% 0.90% 0.92%
Net investment income 0.55 0.48 0.68 1.02 0.96
- -------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 42% 74% 62% 61% 71%
- -------------------------------------------------------------------------------------------------
Class B Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/ 1999/(1)/
- ------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $10.95 $13.58 $14.47 $15.66 $15.26
- ------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.03) (0.05) (0.02) 0.03 0.03
Net realized and unrealized gain (loss) 2.62 (2.36) (0.58) (0.04) 2.06
- ------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.59 (2.41) (0.60) (0.01) 2.09
- ------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.03) (0.02)
Net realized gains -- (0.22) (0.29) (1.15) (1.67)
- ------------------------------------------------------------------------------------------------------
Total Distributions -- (0.22) (0.29) (1.18) (1.69)
- ------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.54 $10.95 $13.58 $14.47 $15.66
- ------------------------------------------------------------------------------------------------------
Total Return 23.65% (17.70)% (4.20)% (0.12)% 14.19%
- ------------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $1,075 $871 $1,081 $1,305 $1,755
- ------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.76% 1.82% 1.76% 1.69% 1.70%
Net investment income (loss) (0.26) (0.38) (0.17) 0.23 0.17
- ------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 42% 74% 62% 61% 71%
- ------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
20 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of capital stock outstanding throughout each year
ended December 31, unless otherwise noted:
Class L Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/ 1999/(1)/
- ------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $10.96 $ 13.58 $14.47 $15.65 $15.26
- ----------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.03) (0.04) (0.02) 0.03 0.03
Net realized and unrealized gain (loss) 2.62 (2.36) (0.58) (0.03) 2.05
- ----------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.59 (2.40) (0.60) -- 2.08
- ----------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.00)* -- (0.03) (0.02)
Net realized gains -- (0.22) (0.29) (1.15) (1.67)
- ----------------------------------------------------------------------------------------
Total Distributions -- (0.22) (0.29) (1.18) (1.69)
- ----------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.55 $ 10.96 $13.58 $14.47 $15.65
- ----------------------------------------------------------------------------------------
Total Return 23.63% (17.62)% (4.20)% (0.07)% 14.12%
- ----------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $531 $318 $266 $190 $161
- ----------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.80% 1.75% 1.72% 1.72% 1.71%
Net investment income (loss) (0.28) (0.30) (0.13) 0.20 0.18
- ----------------------------------------------------------------------------------------
Portfolio Turnover Rate 42% 74% 62% 61% 71%
- ----------------------------------------------------------------------------------------
Class Y Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/ 1999/(1)/
- ------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.15 $ 13.67 $14.52 $ 15.69 $ 15.28
- -----------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.12 0.10 0.14 0.20 0.21
Net realized and unrealized gain (loss) 2.67 (2.39) (0.58) (0.02) 2.07
- -----------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.79 (2.29) (0.44) 0.18 2.28
- -----------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.18) (0.01) (0.12) (0.20) (0.20)
Net realized gains -- (0.22) (0.29) (1.15) (1.67)
- -----------------------------------------------------------------------------------------
Total Distributions (0.18) (0.23) (0.41) (1.35) (1.87)
- -----------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.76 $ 11.15 $13.67 $ 14.52 $ 15.69
- -----------------------------------------------------------------------------------------
Total Return 25.11% (16.71)% (3.07)% 1.07% 15.40%
- -----------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $474 $85 $87 $89 $99
- -----------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.59% 0.59% 0.58% 0.58% 0.57%
Net investment income 0.96 0.85 1.02 1.34 1.30
- -----------------------------------------------------------------------------------------
Portfolio Turnover Rate 42% 74% 62% 61% 71%
- -----------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
* Amount represents less than $0.01 per share.
21 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of
the 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.
("Fund") as of December 31, 2003, and 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 auditing standards generally
accepted in the United States of America. 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, 2003, by
correspondence with the custodian and broker. 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
Fund as of December 31, 2003, and 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 accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
New York, New York
February 13, 2004
22 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED)
Information about Directors and Officers
The business and affairs of the Smith Barney Appreciation Fund Inc. ("Fund")
are managed under the direction of the Board of Directors. Information
pertaining to the Directors and Officers of the Fund is set forth below. The
Statement of Additional Information includes additional information about the
Fund's and is available, without charge, upon request by calling the Fund's
transfer agent (Citicorp Trust Bank, fsb. at 1-800-451-2010) or the Fund's
sub-transfer agent (Primerica Shareholder Services at 1-800-544-5445).
Number of
Term of Portfolios in
Office* and Fund Complex Other Board
Position(s) Held Length of Principal Occupation(s) Overseen by Memberships Held
Name, Address, and Age with Fund Time Served During Past 5 Years Director by Director
- --------------------------------------------------------------------------------------------------------------------------------
Non-Interested Directors:
Herbert Barg** Director Since Retired 42 None
1460 Drayton Lane 1995
Wynnewood, PA 19096
Age 80
Dwight B. Crane Director Since Professor, Harvard Business School 49 None
Harvard Business School 1995
Soldiers Field
Morgan Hall #375
Boston, MA 02163
Age 66
Burt N. Dorsett Director Since President of Dorsett McCabe 27 None
201 East 62nd Street 1991 Capital Management Inc.;
New York, NY 10021 Chief Investment Officer of Leeb
Age 73 Capital Management, Inc.
(since 1999)
Elliot S. Jaffe Director Since Chairman of the Board 27 The Dress Barn Inc.;
The Dress Barn Inc. 1991 of The Dress Barn Inc. Zweig Total Return
Executive Office Fund; Zweig Fund, Inc.
30 Dunnigan Drive
Suffern, NY 10901
Age 77
Stephen E. Kaufman Director Since Attorney 55 None
Stephen E. Kaufman PC 1995
277 Park Avenue, 47th Floor
New York, NY 10172
Age 71
Joseph J. McCann Director Since Retired 27 None
200 Oak Park Place 1995
Suite One
Pittsburgh, PA 15243
Age 74
Cornelius C. Rose, Jr. Director Since Chief Executive Officer -- 27 None
P.O. Box 5388 1991 Performance Learning Systems
West Lebanon, NH 03784
Age 71
23 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of
Term of Portfolios in
Office* and Fund Complex Other Board
Position(s) Held Length of Principal Occupation(s) Overseen by Memberships Held
Name, Address, and Age with Fund Time Served During Past 5 Years Director by Director
- ------------------------------------------------------------------------------------------------------------------------------
Interested Director:
R. Jay Gerken, CFA*** Chairman, Since Managing Director of Citigroup 221 None
Citigroup Asset Management President 2002 Global Markets Inc. ("CGM");
("CAM") and Chief Chairman, President and Chief
399 Park Avenue, 4th Floor Executive Officer Executive Officer of Smith Barney
New York, NY 10022 Fund Management LLC ("SBFM"),
Age 52 Travelers Investment Adviser, Inc.
("TIA") and Citi Fund Management
Inc. ("CFM"); President and Chief
Executive Officer of certain mutual
funds associated with Citigroup
Inc. ("Citigroup"); Formerly
Portfolio Manager of Smith Barney
Allocation Series Inc. (from 1996 to
2001) and Smith Barney Growth
and Income Fund (from 1996 to
2000)
Officers:
Andrew B. Shoup Senior Vice Since Director of CAM; Senior Vice N/A N/A
CAM President and 2003 President and Chief Administrative
125 Broad Street, 10th Floor Chief Officer of mutual funds associated
New York, NY 10004 Administrative with Citigroup; Treasurer of certain
Age 47 Officer mutual funds associated with
Citigroup; Head of International
Funds Administration of CAM
(from 2001 to 2003); Director of
Global Funds Administration of
CAM (from 2000 to 2001); Head
of U.S. Citibank Funds
Administration of CAM (from 1998
to 2000)
Richard L. Peteka Chief Financial Since Director of CGM; Chief Financial N/A N/A
CAM Officer and 2002 Officer and Treasurer of certain
125 Broad Street, 11th Floor Treasurer mutual funds affiliated with
New York, NY 10004 Citigroup; Director and Head of
Age 42 Internal Control for CAM U.S.
Mutual Fund Administration (from
1999 to 2002); Vice President,
Head of Mutual Fund
Administration and Treasurer at
Oppenheimer Capital (from 1996
to 1999)
Harry D. Cohen Vice President Since Managing Director of CGM; N/A N/A
CAM and Investment 1980 Investment Officer of SBFM
399 Park Avenue Officer
New York, NY 10022
Age 63
Scott K. Glasser Vice President Since Managing Director of CGM; N/A N/A
CAM and Investment 1996 Investment Officer of SBFM
399 Park Avenue Officer
New York, NY 10022
Age 38
24 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of
Term of Portfolios in
Office* and Fund Complex Other Board
Position(s) Held Length of Principal Occupation(s) Overseen by Memberships Held
Name, Address, and Age with Fund Time Served During Past 5 Years Director by Director
- ----------------------------------------------------------------------------------------------------------------------------
Andrew Beagley Chief Anti-Money Since Director of CGM (since 2000); N/A N/A
CAM Laundering 2002 Director of Compliance, North
399 Park Avenue, 4th Floor Compliance America, CAM (since 2000); Chief
New York, NY 10022 Officer Anti-Money Laundering
Age 40 Compliance Officer and Vice
President of certain mutual funds
associated with Citigroup; Director
of Compliance, Europe, the Middle
East and Africa, Citigroup Asset
Management (from 1999 to 2000);
Compliance Officer, Salomon
Brothers Asset Management
Limited, Smith Barney Global
Capital Management Inc., Salomon
Brothers Asset Management Asia
Pacific Limited (from 1997 to
1999)
Kaprel Ozsolak Controller Since Vice President of CGM; Controller N/A N/A
CAM 2002 of certain mutual funds associated
125 Broad Street, 11th Floor with Citigroup
New York, NY 10004
Age 38
Robert I. Frenkel Secretary and Since Managing Director and General N/A N/A
CAM Chief Legal 2003 Counsel of Global Mutual Funds
300 First Stamford Place Officer for CAM and its predecessor (since
4th Floor 1994); Secretary of CFM; Secretary
Stamford, CT 06902 and Chief Legal Officer of mutual
Age 48 funds associated with Citigroup
- --------
* Each Director and Officer serves until his or her successor has been duly
elected and qualified.
** Mr. Barg became Director Emeritus on December 31, 2003.
***Mr. Gerken is an "interested person" of the Fund as defined in the
Investment Company Act of 1940, as amended, because Mr. Gerken is an officer
of SBFM and certain of its affiliates.
25 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
TAX INFORMATION (UNAUDITED)
For Federal tax purposes, the Fund hereby designates for the fiscal year ended
December 31, 2003:
. For corporate shareholders, the percentage of ordinary dividends that
qualify for the dividends received deduction is 100.00%.
. For individual shareholders, the maximum amount allowable of qualifying
dividends for the reduced tax rate under The Jobs and Growth Tax Relief
Reconciliation Act of 2003.
26 Smith Barney Appreciation Fund Inc. | 2003 Annual Report
(This page intentionally left blank.)
SMITH BARNEY
APPRECIATION FUND INC.
DIRECTORS OFFICERS (continued)
Herbert Barg* Kaprel Ozsolak
Dwight B. Crane Controller
Burt N. Dorsett
R. Jay Gerken, CFA Robert I. Frenkel
Chairman Secretary and
Elliot S. Jaffe Chief Legal Officer
Stephen E. Kaufman
Joseph J. McCann INVESTMENT ADVISER
Cornelius C. Rose, Jr. AND ADMINISTRATOR
Smith Barney Fund
OFFICERS Management LLC
R. Jay Gerken, CFA
President and Chief DISTRIBUTORS
Executive Officer Citigroup Global Markets Inc.
PFS Distributors, Inc.
Andrew B. Shoup
Senior Vice President and CUSTODIAN
Chief Administrative Officer State Street Bank and
Trust Company
Richard L. Peteka
Chief Financial Officer TRANSFER AGENT
and Treasurer Citicorp Trust Bank, fsb.
125 Broad Street, 11th Floor
Harry D. Cohen New York, New York 10004
Vice President and
Investment Officer SUB-TRANSFER AGENTS
PFPC Inc.
Scott K. Glasser P.O. Box 9699
Vice President and Providence, Rhode Island
Investment Officer 02940-9699
Andrew Beagley Primerica Shareholder Services
Chief Anti-Money P.O. Box 9662
Laundering Compliance Officer Providence, Rhode Island
02940-9662
* Mr. Barg became Director Emeritus on December 31, 2003.
Smith Barney Appreciation Fund Inc.
This report is submitted for the general information of the shareholders of
Smith Barney Appreciation Fund Inc., but it also may 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, 2004 this report must
be accompanied by performance information for the most recently completed
calendar quarter.
SMITH BARNEY APPRECIATION FUND INC.
Smith Barney Mutual Funds
125 Broad Street
10th Floor, MF-2
New York, New York 10004
For complete information on any Smith Barney Mutual Funds, including
management fees and expenses, call or write your financial professional for a
free prospectus. Read it carefully before you invest or send money.
www.smithbarneymutualfunds.com
(C)2003 Citigroup Global Markets Inc. Member NASD, SIPC
FD0312 2/04 04-6109
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Directors of the registrant has determined that Dwight B.
Crane, the Chairman of the Board's Audit Committee, possesses the
technical attributes identified in Instruction 2(b) of Item 3 to Form
N-CSR to qualify as an "audit committee financial expert," and has
designated Mr. Crane as the Audit Committee's financial expert. Mr.
Crane is an "independent" Director pursuant to paragraph (a)(2) of Item
3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees for Smith Barney Appreciation Fund Inc. of $36,500 and
$33,000 for the years ended 12/31/03 and 12/31/02.
(b) Audit-Related Fees for Smith Barney Appreciation Fund Inc. of $0
and $0 for the years ended 12/31/03 and 12/31/02.
(c) Tax Fees for Smith Barney Appreciation Fund Inc. of $3,400 and
$3,400 for the years ended 12/31/03 and 12/31/02. These amounts
represent aggregate fees paid for tax compliance, tax advice and
tax planning services, which include (the filing and amendment of
federal, state and local income tax returns, timely RIC
qualification review and tax distribution and analysis planning)
rendered by the Accountant to Smith Barney Appreciation Fund Inc.
(d) There were no all other fees for Smith Barney Appreciation Fund
Inc. for the years ended 12/31/03 and 12/31/02.
(e) (1) Audit Committee's pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
The Charter for the Audit Committee (the "Committee") of the Board
of each registered investment company (the "Fund") advised by
Smith Barney Fund Management LLC or Salomon Brothers Asset
Management Inc. or one of their affiliates (each, an "Adviser")
requires that the Committee shall approve (a) all audit and
permissible non-audit services to be provided to the Fund and (b)
all permissible non-audit services to be provided by the Fund's
independent auditors to the Adviser and any Covered Service
Providers if the engagement relates directly to the operations and
financial reporting of the Fund. The Committee may implement
policies and procedures by which such services are approved other
than by the full Committee.
The Committee shall not approve non-audit services that the
Committee believes may impair the independence of the auditors. As
of the date of the approval of this Audit Committee Charter,
permissible non-audit services include any professional services
(including tax services), that are not prohibited services as
described below, provided to the Fund by the independent auditors,
other than those provided to the Fund in connection with an audit
or a review of the financial statements of the Fund. Permissible
non-audit services may not include: (i) bookkeeping or other
services related to the accounting records or financial statements
of the Fund; (ii) financial information systems design and
implementation; (iii) appraisal or valuation services, fairness
opinions or contribution-in-kind reports; (iv) actuarial services;
(v) internal audit outsourcing services; (vi) management functions
or human resources; (vii) broker or dealer, investment adviser or
investment banking services; (viii) legal services and expert
services unrelated to the audit; and (ix) any other service the
Public Company Accounting Oversight Board determines, by
regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit
services is not required so long as: (i) the aggregate amount of
all such permissible non-audit services provided to the Fund, the
Adviser and any service providers controlling, controlled by or
under common control with the Adviser that provide ongoing
services to the Fund ("Covered Service Providers") constitutes not
more than 5% of the total amount of revenues paid to the
independent auditors during the fiscal year in which the
permissible non-audit services are provided to (a) the Fund, (b)
the Adviser and (c) any entity controlling, controlled by or under
common control with the Adviser that provides ongoing services to
the Fund during the fiscal year in which the services are provided
that would have to be approved by the Committee; (ii) the
permissible non-audit services were not recognized by the Fund at
the time of the engagement to be non-audit services; and (iii)
such services are promptly brought to the attention of the
Committee and approved by the Committee (or its delegate(s)) prior
to the completion of the audit.
(2)
(f) N/A
(g) Non-audit fees billed - $100,000 and $1.2 million for the years
ended 12/31/2003 and 12/31/2002.
(h) Yes. The Smith Barney Appreciation Fund Inc.'s Audit Committee has
considered whether the provision of non-audit services that were
rendered to Service Affiliates which were not pre-approved (not
requiring pre-approval) is compatible with maintaining the
Accountant's independence. All services provided by the Accountant
to the Smith Barney Appreciation Fund Inc. or to Service
Affiliates which were required to be pre-approved were pre-
approved as required.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal
financial officer have concluded that the registrant's disclosure
controls and procedures (as defined in Rule 30a- 3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act")) are
effective as of a date within 90 days of the filing date of this
report that includes the disclosure required by this paragraph,
based on their evaluation of the disclosure controls and
procedures required by Rule 30a-3(b) under the 1940 Act and
15d-15(b) under the Securities Exchange Act of 1934.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940
Act) that occurred during the registrant's last fiscal half-year
(the registrant's second fiscal half-year in the case of an annual
report) that have materially affected, or are likely to materially
affect the registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of
the Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, there unto duly authorized.
Smith Barney Appreciation Fund Inc.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Smith Barney Appreciation Fund Inc.
Date: March 5, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Smith Barney Appreciation Fund Inc.
Date: March 5, 2004
By: /s/ Richard L. Peteka
Richard L. Peteka
Chief Financial Officer of
Smith Barney Appreciation Fund Inc.
Date: March 5, 2004