<PAGE>
[GRAPHIC]
Small box above fund name showing the
White House and a clock with Roman
numerals.
SEMI- Smith Barney Shearson
ANNUAL Fundamental
REPORT Value
Fund Inc.
.......................................
MARCH 31, 1994
[LOGO]
<PAGE>
Fundamental Value Fund Inc.
DEAR SHAREHOLDER:
We are pleased to present you with the semi-annual report for
the six-month period ended March 31, 1994, for Smith Barney
Shearson Fundamental Value Fund Inc. (the "Fund").
Recent shareholder letters have focused on the risks, as well as
rewards, in investing in the stock market. Over the course of market
cycles going back 25 years, this portfolio manager has become very
sensitive to substantial corrections in the Dow Jones Utility Average.
Often times, this average leads increases in interest rates and more
general stock market corrections. The Dow Jones Utility Average peaked
at about 256 in September of last year and has fallen to about 187
currently. This is one of the sharpest corrections in the history of
this average. Utilities, which have declined more than 25%, have been
much weaker than almost all market indexes.
In late 1993, we believed the market was beginning to look like a similar period
10 years earlier, when the stock market rallied sharply beginning in August 1982
and in late 1983-early 1984 the real economy began to rally strongly. We have
found that periods such as this, when the real economy starts to compete for
funds (receivables, inventories etc.) with the stock market, usually cause
market turbulence. A decade ago, long term interest rates rose 3% and the stock
market suffered a 12-15% decline. The parallels between the current market and
that of 1983-1984 are easily seen and, with the economy looking much stronger in
early 1994, it was not surprising that another period of turbulence in the debt
and equity markets has been occurring.
Our approach is to manage assets over the course of the complete market cycle
and occasionally we must take a more defensive posture in order to preserve
gains made in more favorable times. Over the last 6 months, the Class A shares
and Class B shares of the Fund declined -0.33% and -0.65%, respectively, versus
a decline of -1.59% for the Standard & Poor's 500 Composite Stock Price Index
("S&P 500"), with dividends reinvested. Since the end of 1993, Class A shares
and Class B shares of the Fund were down -0.74% and -0.87%, respectively, versus
a return of -3.83% for the S&P 500.
1
<PAGE>
The following are the principal strategies and approaches we are using for
investing your assets at this time.
- - - At the end of the first calendar quarter, the Fund maintained cash balances of
about 31%.
- - - As of March 31, 1994, a significant percentage of Fund assets was invested in
areas which we believe have less downside potential than the overall market.
Energy and related industries account for about 16% of assets and real estate
investment trusts comprise about 6% of assets. Both of these sectors of the
market have done well, in a relative sense, in recent months.
- - - For a period during the year another 10% of the portfolio was hedged using S&P
500 put options.
- - - We believe the California market is depressed and many financial institutions
in that state are poised to do much better as the California market recovers.
The Fund's holdings include large capitalization issues as well as selected
smaller savings and loans which we believe may be attractive to an acquirer.
- - - Higher interest rate environments suggest that price/earnings ("P/E") ratios
will be under pressure. We continue to look for companies whose earnings, we
believe, may increase at a high rate, thereby offsetting the effects of higher
interest rates and P/E contraction.
- - - It is our belief that producer prices and commodities prices will rise faster
than consumer prices for the remainder of this decade. If this happens, it
would reverse the pattern of the 1980s when consumer prices moved up faster.
We believe raw materials suppliers and commodity producers will benefit from
some shortages and the moderately higher inflation rates we expect through the
year 2000. We are seeking to invest Fund assets in shares of companies which
we believe will benefit from these trends.
- - - The U.S. economy is relatively mature and other parts of the world will grow
at substantially faster rates. Recently this portfolio manager visited Hong
Kong and Shanghai, China and witnessed, firsthand, the rapid growth occurring
in some parts of the world. However, the risks or volatility associated with
this growth often is substantial as well. In an attempt to benefit from such
rapid growth taking place beyond our borders, while at the same time
potentially limiting the risks inherent in such investments, it will be our
policy to identify and invest in U.S. based companies, which derive a
significant percentage of their earnings from foreign sources, including high
growth emerging markets.
2
<PAGE>
We are well aware, to use baseball terminology, that we are being paid to swing
our investment bats on your behalf. However, there are times when one has to lay
off of a few pitches and wait for a better offering. We anticipate adding new
investments to the Fund as company shares become available at attractive prices.
As always, we appreciate the opportunity to help you meet your investment goals
and thank you for your continued patronage.
Sincerely,
John G. Goode
MAY 9, 1994
3
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - ---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) MARCH 31, 1994
INDUSTRY BREAKDOWN
INDUSTRY PERCENTAGE
Consumer Services 2.3%
Real Estate 6.2%
Capital Goods 8.4%
Computer Related 8.5%
Banking and Finance 12.0%
Energy and Energy Services 15.7%
Commercial Paper, Repurchase
Agreements and Net Other
Assets and Liabilities 31.2%
Convertible Preferred Stocks
and Warrants 5.7%
Other Common Stocks 5.8%
Communications 2.1%
Natural Resources 2.1%
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
- - ------------------------------------------------------------------
BANKAMERICA CORPORATION 2.8%
TEXAS INSTRUMENTS INC. 2.7
GENERAL MOTORS CORPORATION 2.7
DUPONT (EI) DENEMOURS & COMPANY 2.7
DELTA AIRLINES INC. 2.6
GREAT WESTERN FINANCIAL CORPORATION 2.6
SPIEKER PORPERTIES INC. 2.5
TRINET CORPORATE, REALTY TRUST 2.5
AMERICAN EXPRESS COMPANY 2.5
SEARS, ROEBUCK & COMPANY 2.4
</TABLE>
4
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - ------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) MARCH 31, 1994
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
<C> <S> <C>
--------------------------------------------------------------------------------
COMMON STOCKS -- 63.1%
ENERGY AND ENERGY SERVICES -- 15.7%
1,500,000 American Exploration Company+ $ 2,250,000
200,000 Amoco Corporation 10,625,000
200,000 Coastal Corporation 6,100,000
500,000 Dresser Industries Inc. 10,625,000
250,000 duPont (EI) deNemours & Company 13,250,000
1,000,000 Forest Oil Corporation+ 3,437,500
500,000 Global Marine Inc.+ 1,937,500
200,000 Imperial Oil Ltd. 6,475,000
650,000 Oryx Energy Company 10,481,250
400,000 Parker Drilling Company+ 2,150,000
110,000 Royal Dutch Petroleum Company 10,931,250
--------------------------------------------------------------------------------
78,262,500
--------------------------------------------------------------------------------
BANKING AND FINANCE -- 12.0%
450,000 American Express Company 12,431,250
350,000 BankAmerica Corporation 13,781,250
100,000 Citicorp+ 3,750,000
100,000 Coast Savings Financial Inc.+ 1,387,500
150,000 First Interstate Bancorp 10,987,500
800,000 Great Western Financial Corporation 12,800,000
140,000 SFFed Corporation 2,415,000
1,142,857 UnionFed Financial Corporation+ 2,142,857
--------------------------------------------------------------------------------
59,695,357
--------------------------------------------------------------------------------
COMPUTER-RELATED -- 8.5%
125,000 Apple Computer Inc. 4,156,250
1,300,000 IMP, Inc.+ 2,275,000
200,000 International Business Machines 10,900,000
381,500 National Semiconductor Corporation+ 8,011,500
250,000 Tandem Computers Inc.+ 3,531,250
175,000 Texas Instruments Inc. 13,518,750
--------------------------------------------------------------------------------
42,392,750
--------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) MARCH 31, 1994
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
--------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
CAPITAL GOODS -- 8.4%
300,000 Alcan Aluminium Ltd. $ 6,600,000
250,000 General Motors Corporation 13,500,000
1,400,000 Interlake Corporation+ 4,550,000
350,000 Philips NV + 9,450,000
590,000 Stone Container Corporation 7,817,500
--------------------------------------------------------------------------------
41,917,500
--------------------------------------------------------------------------------
REAL ESTATE -- 6.2%
296,600 Irvine Apartment Communities Inc. 5,894,925
600,000 Spieker Properties Inc. 12,525,000
415,000 TriNet Corporate, Realty Trust 12,501,875
--------------------------------------------------------------------------------
30,921,800
--------------------------------------------------------------------------------
CONSUMER SERVICES -- 2.3%
275,000 Sears, Roebuck & Company 11,825,000
--------------------------------------------------------------------------------
NATURAL RESOURCES -- 2.1%
725,000 Amax Gold Inc. 5,800,000
50,000 Cyprus Amax Minerals Company 1,443,750
569,600 Nord Resources Corporation+ 3,275,200
--------------------------------------------------------------------------------
10,518,950
--------------------------------------------------------------------------------
COMMUNICATIONS -- 2.1%
500,000 Tele-Communications Inc., Class A+ 10,375,000
--------------------------------------------------------------------------------
HEALTH CARE -- 1.5%
100,000 American Home Products Corporation 5,800,000
85,000 Aphton Corporation+ 1,530,000
--------------------------------------------------------------------------------
7,330,000
--------------------------------------------------------------------------------
INSURANCE -- 1.5%
100,000 Chubb Corporation 7,312,500
--------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) MARCH 31, 1994
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
--------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
TRANSPORTATION -- 1.4%
600,000 Northwest Airlines Corporation, Class A $ 7,125,000
--------------------------------------------------------------------------------
CHEMICALS -- 1.2%
220,000 Advanced Polymer Systems Inc.+ 1,347,500
100,000 Merck & Company Inc. 2,975,000
300,000 NL Industries, Inc. 1,950,000
--------------------------------------------------------------------------------
6,272,500
--------------------------------------------------------------------------------
CONSUMER GOODS -- 0.2%
68,400 Tejon Ranch Company 957,600
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $303,467,289) 314,906,457
--------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 5.7%
128,000 American Exploration Company Depository
Shares, Represents 1/200 Pfd., Series C++ 3,200,000
320,000 Boise Cascade Corporation, Depository
Shares, Represents 1/10 Conv. Pfd.,
Series G 7,280,000
40,000 Cyprus Amax Minerals Company, Conv. Pfd.,
Series A 2,730,000
275,000 Delta Airlines Inc., Depository Shares,
Represents 1/1000 Conv. Pfd., Series C 13,028,125
40,000 Rouse Company Conv. Pfd., Series A,
6.500% 2,130,000
--------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $28,845,011) 28,368,125
--------------------------------------------------------------------------------
WARRANT -- 0.0% (Cost $125,000)
571,429 UnionFed Financial Corporation, Warrants,
expires 1998+ 142,857
--------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) MARCH 31, 1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
--------------------------------------------------------------------------------
<C> <S> <C>
COMMERCIAL PAPER -- 10.1%
$ 24,992,000 Ford Motor Credit Corporation, 3.550%,
due 4/4/94 $ 24,992,000
24,992,000 General Electric Capital Corporation,
3.550% due 4/4/94 24,992,000
--------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost $49,984,000) 49,984,000
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 19.0%
24,992,000 Agreement with Goldman Sachs, dated
3/31/94 bearing 3.300% to be
repurchased at $25,001,164 on 4/4/94,
collateralized by $21,400,000 U.S.
Treasury Bond, 8.750% due 5/15/17 24,992,000
24,992,000 Agreement with Morgan Stanley, dated
3/31/94 bearing 3.450% to be
repurchased at $25,001,580 on 4/4/94,
collateralized by $25,620,000 U.S.
Treasury Bond, 4.625% due 2/15/96 24,992,000
22,479,000 Agreement with Salomon Brothers, dated
3/31/94 bearing 3.500% to be
repurchased at $22,487,742 on 4/4/94,
collateralized by $20,855,000 U.S.
Treasury Bond, 8.125% due 8/15/19 22,479,000
22,479,000 Agreement with Union Bank of Switzerland
Securities Inc., dated 3/31/94 bearing
3.500% to be repurchased at $22,487,742
on 4/4/94, collateralized by
$22,875,000 U.S. Treasury Bond, 4.625%
due 8/15/95 22,479,000
--------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (Cost $94,942,000) 94,942,000
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $477,363,300*) 97.9% 488,343,439
OTHER ASSETS AND LIABILITIES (NET) 2.1 10,576,968
--------------------------------------------------------------------------------
NET ASSETS 100.0% $498,920,407
--------------------------------------------------------------------------------
<FN>
*Aggregate cost for Federal tax purposes.
+Non-income producing security.
++Security exempt from registration under Rule 144A of the Securities Act of
1993. These securities may be resold in transactions exempt from registration
to qualified institutional buyers.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) MARCH 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$477,363,300) (Note 1)
See accompanying portfolio:
Securities $393,401,439
Repurchase agreements 94,942,000 $488,343,439
-----------
Receivable for investment securities
sold 29,586,197
Receivable for Fund shares sold 3,852,574
Dividends and interest receivable 1,210,483
- - ----------------------------------------------------------------------------
TOTAL ASSETS 522,992,693
- - ----------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities
purchased 21,768,913
Payable for Fund shares redeemed 1,480,508
Investment advisory fee payable (Note
2) 236,473
Distribution fee payable (Note 3) 228,185
Service fee payable (Note 3) 108,009
Administration fee payable (Note 2) 85,990
Transfer agent fees payable (Note 2) 78,060
Due to custodian 17,439
Custodian fees payable (Note 2) 16,000
Accrued expenses and other payables 52,709
- - ----------------------------------------------------------------------------
TOTAL LIABILITIES 24,072,286
- - ----------------------------------------------------------------------------
NET ASSETS $498,920,407
- - ----------------------------------------------------------------------------
NET ASSETS consist of:
Undistributed net investment income $ 1,708,739
Accumulated net realized gain on
investments 50,725,224
Unrealized appreciation of investments 10,980,139
Paid-in capital 435,506,305
- - ----------------------------------------------------------------------------
TOTAL NET ASSETS $498,920,407
- - ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - -------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED)
- - ------------------------------------------------------------- MARCH 31, 1994
<TABLE>
<S> <C> <C>
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($145,667,485 DIVIDED BY 18,699,292 shares of common
stock outstanding) $7.79
- - -------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE ($7.79 DIVIDED BY .95)
(based on sales charge of 5% of the offering price on
March 31, 1994) $8.20
- - -------------------------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($352,479,987 DIVIDED BY 45,310,969 shares of common
stock outstanding) $7.78
- - -------------------------------------------------------------------------------
CLASS D SHARES:
NET ASSET VALUE, offering and redemption price per share
($772,935 DIVIDED BY 99,349 shares of common stock
outstanding) $7.78
- - -------------------------------------------------------------------------------
+Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- - -------------------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of
$11,981) $ 3,783,628
Interest 1,701,042
- - ----------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 5,484,670
- - ----------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $988,608
Distribution fee (Note 3) 835,890
Service fee (Note 3) 449,367
Administration fee (Note 2) 359,494
Transfer agent fees (Notes 2 and 4) 317,784
Legal and audit fees 62,701
Custodian fees (Note 2) 41,191
Directors' fees and expenses (Note 2) 13,460
Other 95,909
- - ----------------------------------------------------------------------------
TOTAL EXPENSES 3,164,404
- - ----------------------------------------------------------------------------
NET INVESTMENT INCOME 2,320,266
- - ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain/(loss) on:
Securities transactions 55,367,231
Written options (563,880)
- - ----------------------------------------------------------------------------
Net realized gain on investments sold during the
period 54,803,351
- - ----------------------------------------------------------------------------
Net change in unrealized
appreciation/(depreciation) of:
Securities (11,194,829)
Written options (4,245)
- - ----------------------------------------------------------------------------
Net unrealized depreciation of
investments during the period (11,199,074)
- - ----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 43,604,277
- - ----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 45,924,543
- - ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
3/31/94 ENDED
(UNAUDITED) 9/30/93
<S> <C> <C>
Net investment income $ 2,320,266 $ 1,044,125
Net realized gain on investments sold during
the period 54,803,351 16,338,329
Net unrealized appreciation/(depreciation) of
investments and written options during the
period (11,199,074) 13,273,569
- - ----------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 45,924,543 30,656,023
Distributions to shareholders (Note 1):
Distributions from net investment income:
Class A (1,282,266) (654,186)
Class B (302,080) (45,593)
Class D (862) --
Distributions from net realized gain on
investments:
Class A (8,766,822) (5,026,441)
Class B (11,560,162) (403,270)
Class D (26,708) --
Net increase in net assets from share
transactions (Note 6):
Class A 31,985,151 29,251,169
Class B 204,933,747 105,722,124
Class D 373,347 301,147
- - ----------------------------------------------------------------------------------
Net increase in net assets 261,277,888 159,800,973
NET ASSETS:
Beginning of period 237,642,519 77,841,546
- - ----------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $1,708,739 and
$973,681, respectively) $498,920,407 $237,642,519
- - ----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.*
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
3/31/94 ENDED ENDED ENDED ENDED
(UNAUDITED) 9/30/93 9/30/92 9/30/91 9/30/90
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 8.42 $ 7.22 $ 6.47 $ 5.34 $ 7.15
- - -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06 0.07 0.11 0.15 0.16
Net realized and unrealized gain/(loss) on
investments and written options (0.08) 1.65 0.78 1.50 (1.22)
- - -------------------------------------------------------------------------------------
Total from investment operations (0.02) 1.72 0.89 1.65 (1.06)
Less distributions:
Distributions from net investment income (0.08) (0.06) (0.14) (0.23) (0.18)
Distributions from net realized capital
gains (0.53) (0.46) -- (0.29) (0.57)
- - -------------------------------------------------------------------------------------
Total distributions (0.61) (0.52) (0.14) (0.52) (0.75)
- - -------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.79 $ 8.42 $ 7.22 $ 6.47 $ 5.34
- - -------------------------------------------------------------------------------------
Total return++ (0.33)% 25.23% 14.01% 33.47% (16.25)%
- - -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $145,667 $123,188 $77,842 $59,358 $63,159
Ratio of expenses to average net assets 1.29%+ 1.45% 1.28% 1.30% 1.20%
Ratio of net investment income to average
net assets 1.76%+ 1.00% 1.57% 2.24% 2.40%
Portfolio turnover rate 100% 111% 142% 116% 94%
- - -------------------------------------------------------------------------------------
<FN>
*On November 6, 1992, the Fund commenced selling Class B shares. Those shares
in existence prior to November 6, 1992 were designated Class A shares. On
August 10, 1993, the Fund commenced selling Class D shares.
+Annualized.
++Total return represents aggregate total return for the periods indicated
including reinvestment of any dividends and distributions and does not
reflect any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.*
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
9/30/89 9/30/88 9/30/87 9/30/86 9/30/85 9/30/84**
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 6.23 $ 8.36 $ 7.24 $ 6.91 $ 6.65 $ 6.78
- - -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17 0.15 0.18 0.31 0.19 0.20
Net realized and unrealized gain/(loss) on
investments and written options 1.18 (0.99) 2.00 0.55 0.59 0.32
- - -------------------------------------------------------------------------------------
Total from investment operations 1.35 (0.84) 2.18 0.86 0.78 0.52
Less distributions:
Distributions from net investment income (0.10) (0.26) (0.32) (0.19) (0.22) (0.11)
Distributions from net realized capital
gains (0.33) (1.03) (0.74) (0.34) (0.30) (0.54)
- - -------------------------------------------------------------------------------------
Total distributions (0.43) (1.29) (1.06) (0.53) (0.52) (0.65)
- - -------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.15 $ 6.23 $ 8.36 $ 7.24 $ 6.91 $ 6.65
- - -------------------------------------------------------------------------------------
Total return++ 23.26% (6.92)% 34.39% 12.94% 12.67% 8.42%
- - -------------------------------------------------------------------------------------
Ratios to average net assets/ supplemental
data:
Net assets, end of period (in 000's) $ 89,048 $ 84,670 $111,693 $101,563 $114,529 $42,386
Ratio of expenses to average net assets 1.10% 1.20% 1.00% 1.10% 1.20% 1.50%
Ratio of net investment income to average
net assets 2.50% 2.10% 2.10% 3.70% 4.00% 4.60%
Portfolio turnover rate 62% 120% 66% 91% 64% 45%
- - -------------------------------------------------------------------------------------
<FN>
*On November 6, 1992, the Fund commenced selling Class B shares. Those shares
in existence prior to November 6, 1992 were designated Class A shares. On
August 10, 1993, the Fund commenced selling Class D shares.
**As of May 1, 1984, the Fund changed its investment adviser from Foster &
Marshall Management Inc. to Shearson Asset Management. Subsequent to July 30,
1993, Shearson Asset Management changed its name to Smith Barney Shearson
Asset Management.
++Total return represents aggregate total return for the periods indicated
including reinvestment of any dividends and distributions and does not
reflect any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
3/31/94 ENDED
(UNAUDITED) 9/30/93*
<S> <C> <C>
Net Asset Value, beginning of period $ 8.37 $ 7.31
- - ------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.05
Net realized and unrealized gain/(loss) on
investments and
written options (0.07) 1.52
- - ------------------------------------------------------------------------------------
Total from investment operations (0.04) 1.57
Less distributions:
Distributions from net investment income (0.02) (0.05)
Distributions from net realized capital gains (0.53) (0.46)
- - ------------------------------------------------------------------------------------
Total distributions (0.55) (0.51)
- - ------------------------------------------------------------------------------------
Net Asset Value, end of period $ 7.78 $ 8.37
- - ------------------------------------------------------------------------------------
Total return++ (0.65)% 22.82%
- - ------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $352,480 $114,146
Ratio of expenses to average net assets 2.05%+ 2.26%+
Ratio of net investment income to average net assets 1.00%+ 0.19%+
Portfolio turnover rate 100% 111%
- - ------------------------------------------------------------------------------------
<FN>
*The Fund commenced selling Class B shares on November 6, 1992.
+Annualized.
++Total return represents aggregate total return for the periods indicated
including reinvestment of any dividends and distributions and does not reflect
any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED PERIOD
3/31/94 ENDED
(UNAUDITED) 9/30/93*
<S> <C> <C>
Net Asset Value, beginning of period $8.37 $8.15
- - ------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.00#
Net realized and unrealized gain/(loss) on
investments
and written options (0.07) 0.22
- - ------------------------------------------------------------------------------
Total from investment operations (0.04) 0.22
Less distributions:
Distributions from net investment income (0.02) --
Distributions from net realized capital gains (0.53) --
- - ------------------------------------------------------------------------------
Total distributions (0.55) --
- - ------------------------------------------------------------------------------
Net Asset Value, end of period $7.78 $8.37
- - ------------------------------------------------------------------------------
Total return++ (0.62)% 2.70%
- - ------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 773 $ 308
Ratio of expenses to average net assets 1.92%+ 2.25%+
Ratio of net investment income to average net assets 1.13%+ 0.20%+
Portfolio turnover rate 100% 111%
- - ------------------------------------------------------------------------------
<FN>
*The Fund commenced selling Class D shares on August 10, 1993.
+Annualized.
++Total return represents aggregate total return for the periods indicated
including reinvestment of any dividends and distributions and does not reflect
any applicable sales charges.
#Amount represents less than $0.01 per Fund share.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Fundamental Value Fund Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as a
diversified, open-end management investment company. The Fund was incorporated
on March 17, 1981 and commenced operations on November 12, 1981. As of November
6, 1992 the Fund offered two classes of shares to the general public: Class A
and Class B shares. Class A shares are sold with a front-end sales charge. Class
B shares may be subject to a contingent deferred sales charge ("CDSC") upon
redemption. Class B shares will convert automatically to Class A shares
approximately eight years after the date of purchase. As of January 29, 1993,
the Fund offered a third class of shares, Class D shares, to investors eligible
to participate in the Smith Barney Shearson Inc. ("Smith Barney Shearson")
401(k) program. Class D shares are offered without a front-end sales load or
CDSC. All classes of shares have identical rights and privileges except with
respect to the effect of the respective sales charges to each class, if any, the
distribution and/or service fees borne by each class, expenses allocable
exclusively to each class, voting rights on matters affecting a single class,
the exchange privilege of each class and the conversion feature of Class B
shares. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
PORTFOLIO VALUATION: Securities for which the principal market is a national
securities exchange are valued at the last reported sales price; securities
traded in the over-the-counter market and for which the principal market is a
national securities exchange, but for which no sale was reported, are valued at
the last reported bid price. Short-term securities with maturities of 60 days or
less are valued at amortized cost, which constitutes fair value as determined by
the Fund's Board of Directors.
OPTION ACCOUNTING PRINCIPLES: Upon the purchase of a put option or a call option
by the Fund, the premium paid is recorded as an investment, the value of which
is marked-to-market daily. When a purchased option expires, the Fund will
realize a loss in the amount of the cost of the option. When the Fund enters
into a closing sale transaction, the Fund will realize a gain or loss depending
on whether the sales proceeds from the closing sale transaction are greater or
less than the cost of 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
17
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
premium originally paid. When the Fund exercises a call option, the cost of the
security which the Fund purchases upon exercise will be increased by the premium
originally paid.
When the Fund writes a call option or a 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 if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) 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 Fund realizes a gain or loss from the sale of the underlying
security and the proceeds from such sale are increased by the premium originally
received. When a put option is exercised, the amount of the premium originally
received will reduce the cost of the security that the Fund purchased upon
exercise.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market price of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market price of the underlying security or
index decreases and the option is exercised. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
REPURCHASE AGREEMENTS: The Fund may engage in repurchase agreement transactions.
Under the terms of a typical repurchase agreement, the Fund takes possession of
an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the right
to use the collateral to offset losses incurred. There is potential loss to the
Fund in the event the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities, including the risk of a possible decline
in the value of the underlying securities during the period while the Fund seeks
to assert its rights. The Fund's investment adviser or administrator, acting
under the supervision of the Board of
18
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Directors, reviews the value of the collateral and the creditworthiness of those
banks and dealers with which the Fund enters into repurchase agreements to
evaluate potential risks.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Realized
gains and losses from investments sold are recorded on the identified cost
basis. Investment income and realized and unrealized gains and losses are
allocated based upon the relative net assets of each class of shares.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income are determined on a class level. Distributions from net realized capital
gains are determined on a fund level. The Fund intends to declare and distribute
annually dividends equal to its net dividend and interest income and its net
short-term capital gains, if any, in excess of its net long-term capital losses.
Additional distributions of net investment income and capital gains may be made
at the discretion of the Fund's Board of Directors in order to avoid the 4%
nondeductible excise tax to which the Fund is subject with respect to certain
undistributed amounts of net investment income and capital gains. The Fund
expects to make such additional distributions as may be necessary to avoid the
application of this tax.
FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a regulated
investment company, if such qualification is in the best interest of its
shareholders, by complying with the requirements of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION
FEE AND OTHER RELATED PARTY TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Smith Barney Shearson Asset Management, a division of Smith,
Barney Advisers, Inc., which is controlled by Smith Barney Shearson Holdings
Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The Travelers Inc.
Under the Advisory Agreement, the Fund pays a monthly fee at the annual rate of
0.55% of the value of its average daily net assets.
19
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The Fund also has entered into an administration agreement (the "Administration
Agreement") with The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Under
the Administration Agreement, the Fund pays a monthly fee at the annual rate of
0.20% of the value of its average daily net assets.
For the six months ended March 31, 1994, the Fund incurred total brokerage
commissions of $895,313 of which $3,000 was paid to Smith Barney Shearson.
For the six months ended March 31, 1994, Smith Barney Shearson received from
shareholders $353,263 representing commissions (sales charges) on sales of Class
A shares.
A CDSC is generally payable by a shareholder in connection with the redemption
of Class B shares within five years (eight years in the case of purchases by
certain 401(k) plans) after the date of purchase. In circumstances in which the
CDSC is imposed, the amount of the charge ranges between 5% and 1% of net asset
value, depending on the number of years since the date of purchase (except in
the case of purchases by certain 401(k) plans, in which case a 3% CDSC is
imposed for the eight year period after the date of the purchase). For the six
months ended March 31, 1994, Smith Barney Shearson received from shareholders
$297,774 representing CDSCs on the redemption of Class B shares.
No officer, director or employee of Smith Barney Shearson, Boston Advisors or of
any parent, subsidiary or affiliate of those corporations receives any
compensation from the Fund for serving as a Director or officer of the Fund. The
Fund pays each Director who is not an officer, director or employee of Smith
Barney Shearson, Boston Advisors or any of their affiliates $3,000 per annum
plus $500 per meeting attended and reimburses each such Director for travel and
out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Fund's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, serves as the Fund's transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Fund's shares pursuant to a
distribution agreement with the Fund and sells shares of the Fund through Smith
Barney Shearson or its affiliates.
20
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a Services and
Distribution Plan (the "Plan"). Under this Plan, the Fund compensates Smith
Barney Shearson for servicing shareholder accounts for Class A, Class B and
Class D shareholders, and covers expenses incurred in distributing Class B and
Class D shares. Smith Barney Shearson is paid an annual service fee with respect
to Class A, Class B and Class D shares of the Fund at the rate of 0.25% of the
value of the average daily net assets of each respective class of shares. Smith
Barney Shearson is also paid an annual distribution fee with respect to Class B
and Class D shares at the rate of 0.75% of the value of the average daily net
assets attributable to each respective class of shares. For the six months ended
March 31, 1994, the Fund incurred $170,737, $278,080 and $550 in service fees
for Class A, Class B and Class D shares, respectively. For the six months ended
March 31, 1994, the Fund incurred $834,240 and $1,650 in distribution fees for
Class B and Class D shares, respectively.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any class of
shares are prorated among the classes based upon the relative net assets of each
class of shares. Operating expenses directly attributable to a class of shares
are charged to that class' operations. In addition to the above service and
distribution fees, class specific operating expenses include transfer agent
fees. For the six months ended March 31, 1994, transfer agent fees for Class A,
Class B and Class D shares were $119,494, $198,177 and $113, respectively.
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
investments and U.S. government securities, for the six months ended March 31,
1994 were $299,568,086 and $246,192,894, respectively.
Written option activity for the six months ended March 31, 1994 was as follows:
<TABLE>
<CAPTION>
Number of
Premiums Contracts
<S> <C> <C>
- - --------------------------------------------------------------------------------
Options outstanding at September 30, 1993 $ 138,620 500
Options closed during period (138,620) (500 )
- - --------------------------------------------------------------------------------
Options outstanding at March 31, 1994 $ 0 0
- - --------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At March 31, 1994, aggregate gross unrealized appreciation for all securities in
which there was an excess of value over tax cost amounted to $27,260,568, and
aggregate gross unrealized depreciation for all securities in which there was an
excess of tax cost over value amounted to $16,280,429.
6. COMMON STOCK
At March 31, 1994, the Fund had authorized 150,000,000 shares of common stock
with no stated par value, which are divided into four classes of shares, Class
A, Class B, Class C and Class D. The Fund has not yet commenced offering Class C
shares. Changes in the common stock outstanding were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
3/31/94 9/30/93*
CLASS A SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------
Sold 3,693,165 $ 29,136,106 5,299,593 $ 40,869,624
Issued in exchange for shares of Smith
Barney Shearson Growth and Opportunity
Fund (Note 7) 388,502 3,131,328 -- --
Issued as reinvestment of dividends and
distributions 1,213,194 9,825,937 801,516 5,602,599
Redeemed (1,234,667) (10,108,220) (2,243,603) (17,221,054)
- - -------------------------------------------------------------------------------------
Net increase 4,060,194 $ 31,985,151 3,857,506 $ 29,251,169
- - -------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
3/31/94 9/30/93*
CLASS B SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------
Sold 18,643,874 $100,327,882 14,353,665 $111,303,597
Issued in exchange for shares of Smith
Barney Shearson Growth and Opportunity
Fund (Note 7) 15,677,772 126,362,840 -- --
Issued as reinvestment of dividends and
distributions 1,433,071 11,598,008 62,099 434,077
Redeemed (4,084,163) (33,354,983) (775,349) (6,015,550)
- - -------------------------------------------------------------------------------------
Net increase 31,670,554 $204,933,747 13,640,415 $105,722,124
- - -------------------------------------------------------------------------------------
<FN>
*The Fund commenced selling Class B shares on November 6, 1992. Any shares
outstanding prior to November 6, 1992 were designated as Class A shares. The
Fund commenced selling Class D shares on August 10, 1993.
</TABLE>
22
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
3/31/94 9/30/93*
CLASS D SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------
Sold 66,276 $ 402,700 37,204 $ 304,147
Issued in exchange for shares of Smith
Barney Shearson Growth and
Opportunity Fund (Note 7) 3 22 -- --
Issued as reinvestment of dividends and
distributions 3,406 27,569 -- --
Redeemed (7,179) (56,944) (361) (3,000)
- - -------------------------------------------------------------------------------------
Net increase 62,506 $ 373,347 36,843 $ 301,147
- - -------------------------------------------------------------------------------------
<FN>
*The Fund commenced selling Class B shares on November 6, 1992. Any shares
outstanding prior to November 6, 1992 were designated as Class A shares. The
Fund commenced selling Class D shares on August 10, 1993.
</TABLE>
7. REORGANIZATION
On January 21, 1994, the Fund acquired the assets and certain liabilities of
Smith Barney Shearson Growth and Opportunity Fund (the "Acquired Fund"), in
exchange for shares of the Fund, pursuant to a plan of reorganization approved
by the Acquired Fund's shareholders on January 20, 1994. Total shares issued by
the Fund, the value of the shares issued by the Fund, the total net assets of
the Acquired Fund and the Fund and any unrealized appreciation included in the
Acquired Fund's total assets are as follows:
<TABLE>
<CAPTION>
TOTAL NET TOTAL NET
SHARES ASSETS OF ASSETS OF
ACQUIRED ISSUED BY ACQUIRED THE
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------
Smith Barney Shearson
Growth
The Fund and Opportunity Fund 16,066,277 $129,494,190 $323,293,621
- - --------------------------------------------------------------------------------
</TABLE>
The total net assets of the Acquired Fund before acquisition included unrealized
appreciation of $54,843,440. The total net assets of the Fund immediately after
the acquisition were $452,787,811.
23
<PAGE>
Smith Barney Shearson
Fundamental Value Fund Inc.
- - -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. SUBSEQUENT EVENT
On April 20, 1994, the Fund's Board of Directors approved a new Administration
Agreement with Smith, Barney Advisers, Inc. ("Smith Barney Advisers") containing
substantially the same terms and conditions, including the level of fees, as the
current agreement. The Board also approved a sub-administration agreement with
Boston Advisors. Under the proposed arrangements, Boston Advisors would be paid
a portion of the amount paid by the Fund to Smith Barney Advisers at a rate
agreed upon from time to time between Smith Barney Advisers and Boston Advisors.
24
<PAGE>
Fundamental
Value
Fund Inc.
DIRECTORS
Lloyd J. Andrews
Robert M. Frayn, Jr.
Leon P. Gardner
Howard J. Johnson
David E. Maryatt
Heath B. McLendon
Jerry A. Viscione
Julie W. Weston
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT
John G. Goode
VICE PRESIDENT AND
INVESTMENT OFFICER
Peter Hable
INVESTMENT OFFICER
Vincent Nave
TREASURER
Francis J. McNamara, III
SECRETARY
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC. IT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY AN
EFFECTIVE PROSPECTUS FOR THE FUND, WHICH CONTAINS INFORMATION CONCERNING THE
FUND'S INVESTMENT POLICIES AND EXPENSES AS WELL AS OTHER PERTINENT INFORMATION.
[LOGO]
SMITH BARNEY SHEARSON
MUTUAL FUNDS
Two World Trade Center
New York, New York 10048
Fund 10,199,215
FD0367 E4
