1994 ANNUAL REPORT
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a monument in lower left hand corner
with a calculator tape with figures on it and a clock shadowed over the
paper with stock listings.
Smith Barney
FUNDAMENTAL VALUE FUND INC.
SEPTEMBER 30, 1994
DEAR SHAREHOLDER:
The 1994 stock market has satisfied neither the bulls nor the bears and
confounded those who believe some causal relationship exists between stock
market valuation and the trend of interest rates. At the beginning of the
year if we had been told that interest rates would rise by more than 200
basis points at both the short and long end of the maturity spectrum, most
of the lending indexes would have predicted substantial declines for the
Dow Jones Industrials, the S&P 500, and other leading indexes. Surpris-
ingly, most are very close to where they began the year. Money flows into
mutual funds have remained high and strong earnings gains for many compa-
nies have provided support for the market.
Interest rates have reached a critical point. In our opinion, the key to
the stock market's trend over the next few months will be defined by
trends within the bond market. Currently, long term Treasuries yield about
2.9 multiplied by the yield for the S&P 500. Historically, this relation-
ship has limited the upside for stocks and suggested that bonds represent
compelling value. Currently, zero coupon bonds provide investors with ex-
cellent capital gains potential and they represent strong competition for
the average stock. About 8% of the Fundamental Value Fund's assets are in
20-year Treasury zeros with a yield-to-maturity of 8.4%. A 50 basis im-
provement (lower) in interest rates would provide a gain of about 12% for
this segment of the portion.
Earlier this year, this portfolio manager traveled to Asia to see, first-
hand, the developments taking place there. Clearly this part of the world,
as well as many others, will be growing faster than the U.S. in the coming
years. I came away with several conclusions. First, the risk associated
with this growth will be high and the local markets will be very volatile.
Second, pollution will soon be a major problem. Third, I expect that most
currencies for the rapidly developing parts of the world will be unstable,
meaning that part of the wealth created will be looking for effective ways
to hedge (gold). Finally, it became very clear that energy and energy in-
frastructure were in short supply in places like China and India, which
have 40% of the world's consumers.
We believe that the energy service companies will be growth stocks in the
coming 5 years. One could read a Wall Street Journal at the beginning of
the decade and find that the leading energy service stock prices were
about the same as they are today. To us this spells opportunity because
these stocks have underperformed the market dramatically in the last 5
years. Although near term earnings trends are not robust, we feel energy
service companies, and energy stocks in general, deserve to be over-
weighted in portfolios.
The worst performing group (-50%) this year has been home-building, fol-
lowed closely by building materials. Many of these companies sell at or
below book value and very modest price/earnings based on conservative 1995
earnings estimates. It may seem counter-intuitive to be looking at home
builders and related companies; however, it is our belief these companies
already have experienced their own personal bear markets. We have been es-
tablishing a meaningful position in this segment of the market.
We continue to believe in a California recovery and our financial service
company commitment which would benefit from this. However, our patience
has been sorely tested because most issues have reacted to rising interest
rates and, so far, the recovery in the State has been sluggish at best. At
current prices the total return potential of these companies remains supe-
rior to that of the market as a whole.
One of the very best relative values in the market is the real estate in-
vestment trust (REIT) industry. Most of these stocks are down 15-20% from
their highs and many provide yields of 8% or more. There are a number of
REIT's which should be able to grow their dividends by 6-7% or more in the
next few years, providing a total return of about 15%. With prices down
for all issues, we are considering substituting growth REITs for some cur-
rent holdings. That is, we may elect to add issues with 5 1/2 -7% yields,
which may be able to grow their distributions at a 9-11% rate in the next
few years.
Biotechnology appears very cheap, in a relative sense, at this point in
time. The stocks are down dramatically and major magazines have issued the
equivalent of "Death of Biotechnology" articles in recent weeks. Seasonal
factors such as tax loss selling, late in the year, have further depressed
the shares of these companies. Because of the risks associated with this
area, we have adopted a "basket approach" and we may have an eventual 3-5%
commitment to this area.
In choosing biotechnology companies, we are focusing on those with market
capitalizations of $50-$250 million, which have sufficient cash for at
least two years of operation. We look for one or more products to be well
along in clinical trials and for there to be an agreement with a major
corporate partner. The latter generally validates the technology, brings
up-front dollars to the biotechnology company, and provides a continuing
"deep pocket" and marketing expertise.
Although we see opportunities in the current market, we also see substan-
tial continuing risks. As a result we continue to maintain a substantial
cash position at this time.
In mid-November of this year, the way Smith Barney mutual funds are listed
in the newspaper was changed to reflect our consolidated mutual fund fam-
ily. Before the consolidation, Smith Barney and Smith Barney Shearson mu-
tual funds were listed in the press under separate headings. Now, all
funds appear under the heading "Smith Barney." Your Smith Barney Financial
Consultant will be able to help you locate funds in your newspaper.
We appreciate your continued confidence and patience during this difficult
investment period. We look forward to reporting to you again in the Fund's
next Semi-Annual Report.
Sincerely,
Heath B. McLendon
Chairman of the Board
John G. Goode
Portfolio Manager
November 15, 1994
HISTORICAL PERFORMANCE -- CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
YEAR ENDED CAPITAL GAINS DIVIDENDS TOTAL
SEPTEMBER 30 BEGINNING ENDING DISTRIBUTED PAID RETURN*
<S> <C> <C> <C> <C> <C>
1985 $6.65 $6.91 $0.30 $0.22 12.67%
1986 6.91 7.24 0.34 0.19 12.94%
1987 7.24 8.36 0.74 0.32 34.39%
1988 8.36 6.23 1.03 0.26 (6.92)%
1989 6.23 7.15 0.33 0.10 23.26%
1990 7.15 5.34 0.57 0.18 (16.25)%
1991 5.34 6.47 0.29 0.23 33.47%
1992 6.47 7.22 -- 0.14 14.01%
1993 7.22 8.42 0.46 0.06 25.23%
1994 8.42 8.20 0.53 0.08 4.92%
Total $4.59 $1.78
Cumulative Total Return -- (11/12/81 through 9/30/94) 396.16%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the front-end
sales charge (maximum 5%).
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS AND CAPITAL GAINS, IF ANY,
ANNUALLY.
AVERAGE ANNUAL TOTAL RETURN** -- CLASS A SHARES
<TABLE>
<CAPTION>
WITHOUT WITH
SALES CHARGE SALES CHARGE***
<S> <C> <C>
Year Ended 9/30/94 4.92% (0.33)%
Five Years Ended 9/30/94 10.86% 9.73%
Ten Years Ended 9/30/94 12.63% 12.05%
<FN>
** All average annual total return figures shown reflect the reinvest-
ment of dividends and capital gains distributions at net asset
value.
*** Average annual total return figures shown assume the deduction of
the maximum 5% front-end sales charge.
NOTE: The Fund commenced operations on November 12, 1981 and on No-
vember 6, 1992 its existing shares were designated Class A shares.
Class A shares are subject to a maximum 5% front-end sales charge
and an annual service fee of 0.25% of the value of the average daily
net assets attributable to that class.
</TABLE>
GROWTH OF $10,000 INVESTED IN
CLASS A SHARES OF SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
VS. STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX+
October 1, 1984 - September 30, 1994
DESCRIPTION OF MOUNTAIN CHART IN
SHEARSON COVERS (CLASS A)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Funda-
mental Value Fund's Class A shares on October 1, 1984 through September
30, 1994 as compared with the growth of a $10,000 investment in Standard &
Poor's 500 Composite Stock Price Index. The plot points used to draw the
line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000
INVESTMENT IN THE
GROWTH OF $10,000 STANDARD & POOR'S 500
MONTH INVESTED IN CLASS A COMPOSITE STOCK
ENDED SHARES OF THE FUND PRICE INDEX
<S> <C> <C>
09/94 - $10,000
10/84 $10,000 $10,039
12/84 $10,194 $9,965
03/85 $11,113 $11,160
06/85 $11,532 $11,801
09/85 $11,145 $11,854
12/85 $12,205 $12,852
03/86 $12,796 $14,561
06/86 $12,952 $16,010
09/86 $12,587 $16,510
12/86 $12,768 $16,408
03/87 $15,378 $18,860
06/87 $16,107 $19,397
09/87 $16,916 $22,208
12/87 $13,092 $15,641
03/88 $14,204 $18,352
06/88 $15,467 $18,137
09/88 $15,745 $18,257
12/88 $15,852 $19,284
03/89 $16,612 $20,531
06/89 $18,132 $22,990
09/89 $19,407 $25,410
12/89 $18,780 $25,220
03/90 $18,415 $24,404
06/90 $20,089 $26,803
09/90 $16,254 $24,142
12/90 $17,201 $24,348
03/91 $20,118 $27,975
06/91 $20,118 $29,995
09/91 $21,694 $30,621
12/91 $22,609 $29,287
03/92 $23,499 $32,438
06/92 $24,047 $32,901
09/92 $24,732 $33,045
12/92 $25,969 $34,689
03/93 $28,213 $35,892
06/93 $29,316 $36,718
09/93 $30,971 $38,067
12/93 $31,099 $38,189
03/94 $30,869 $38,882
06/94 $31,582 $38,281
09/94 $32,494 $40,146
<FN>
+ Hypothetical illustration of $10,000 invested in Class A shares on Octo-
ber 1, 1984, assuming deduction of the maximum 5% sales charge at the
time of investment and reinvestment of dividends and capital gains at
net asset value through September 30, 1994, compared to the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500").
</TABLE>
The S&P 500 is an index composed of 500 widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange and over-the-
counter market.
This period was one in which common stock prices fluctuated and the re-
sults should not be considered as a representation of the dividend in-
come or capital gain or loss which may be realized from an investment in
the Fund today. No adjustment has been made for shareholder tax liabil-
ity on dividends or capital gains.
NOTE: All figures cited here and on the following pages represent past
performance and do not guarantee future results. Investment return and
principal value of an investment will fluctuate so that an investor's
shares upon redemption may be worth more or less than original cost.
HISTORICAL PERFORMANCE -- CLASS B SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
CAPITAL GAINS DIVIDENDS TOTAL
YEAR ENDED SEPTEMBER 30, BEGINNING ENDING DISTRIBUTED PAID RETURN*
<S> <C> <C> <C> <C> <C>
11/6/92 - 9/30/93 $7.31 $8.37 $0.46 $0.05 22.82%
1994 8.37 8.16 0.53 0.02 4.21%
Total $0.99 $0.07
Cumulative Total Return -- (11/6/92 through 9/30/94) 27.99%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the contin-
gent deferred sales charge ("CDSC").
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** -- CLASS B SHARES
<TABLE>
<CAPTION>
WITHOUT CDSC WITH CDSC***
<S> <C> <C>
Year Ended 9/30/94 4.21% (0.67)%
Inception (11/6/92) through 9/30/94 13.87% 11.98%
<FN>
** All average annual total return figures shown reflect the reinvest-
ment of dividends and capital gains distributions at net asset
value.
*** Average annual total return figures assume the deduction of the max-
imum applicable CDSC which is described in the prospectus.
</TABLE>
NOTE: The Fund began offering Class B shares on November 6, 1992.
Class B shares are subject to a maximum 5% CDSC and annual service
and distribution fees of 0.25% and 0.75%, respectively, of the value
of the average daily net assets attributable to that class.
GROWTH OF $10,000 INVESTED IN
CLASS B SHARES OF SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
VS. STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX+
November 6, 1992 -- September 30, 1994
DESCRIPTION OF MOUNTAIN CHART IN
SHEARSON COVERS (CLASS B)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Funda-
mental Value Fund's Class B shares on November 6, 1992 through September
30, 1994 as compared with the growth of a $10,000 investment in Standard &
Poor's 500 Composite Stock Price Index. The plot points used to draw the
line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000
INVESTMENT IN THE
GROWTH OF $10,000 STANDARD & POOR'S 500
MONTH INVESTED IN CLASS B COMPOSITE STOCK
ENDED SHARES OF THE FUND PRICE INDEX
<S> <C> <C>
11/06/92 $10,000 $10,000
12/92 $10,360 $10,467
03/93 $11,240 $10,924
06/93 $11,651 $10,976
09/93 $12,282 $11,259
12/93 $12,309 $11,521
03/94 $12,203 $11,086
06/94 $12,469 $11,131
09/94 $12,799 $11,674
+ Hypothetical illustration of $10,000 invested in Class B shares on No-
vember 6, 1992 assuming reinvestment of dividends and capital gains at
net asset value through September 30, 1994, compared to the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500").
</TABLE>
The S&P 500 is an index composed of 500 widely held common stocks
listed on the New York Stock Exchange, American Stock Exchange and
over-the-counter market.
This period was one in which common stock prices fluctuated and the re-
sults should not be considered as a representation of the dividend in-
come or capital gain or loss which may be realized from an investment
in the Fund today. No adjustment has been made for shareholder tax lia-
bility on dividends or capital gains.
NOTE: All figures cited here and on the following pages represent past
performance and do not guarantee future results. Investment return and
principal value of an investment will fluctuate so that an investor's
shares upon redemption may be worth more or less than original cost.
HISTORICAL PERFORMANCE -- CLASS D SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
CAPITAL GAINS DIVIDENDS TOTAL
YEAR ENDED BEGINNING ENDING DISTRIBUTED PAID RETURN*
<S> <C> <C> <C> <C> <C>
8/10/93 - 9/30/93 $8.15 $8.37 $ -- $ -- 2.70%
1994 8.37 8.16 0.53 0.02 4.24%
Total $0.53 $0.02
Cumulative Total Return -- (8/10/93 through 9/30/94) 7.05%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value.
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** -- CLASS D SHARES
<TABLE>
<S> <C>
Year Ended 9/30/94 4.24%
Inception (8/10/93) through 9/30/94 6.16%
<FN>
** All average annual total return figures shown reflect the reinvest-
ment of dividends and capital gains distributions at net asset
value.
</TABLE>
NOTE: The Fund began offering Class D shares on August 10, 1993.
Class D shares are not subject to a sales charge. Class D shares are
subject to annual service and distribution fees of 0.25% and 0.75%,
respectively, of the value of the average daily net assets attribut-
able to that class.
GROWTH OF $10,000 INVESTED IN
CLASS D SHARES OF SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
VS. STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX+
August 10, 1993 -- September 30, 1994
DESCRIPTION OF MOUNTAIN CHART IN
SHEARSON COVERS (CLASS D)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Funda-
mental Value Fund's Class D shares on August 10, 1993 through September
30, 1994 as compared with the growth of a $10,000 investment in Standard &
Poor's 500 Composite Price Index. The plot points used to draw the line
graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000
INVESTMENT IN THE
GROWTH OF $10,000 STANDARD & POOR'S 500
MONTH INVESTED IN CLASS D COMPOSITE STOCK
ENDED SHARES OF THE FUND PRICE INDEX
<S> <C> <C>
08/10/93 $10,000 $10,000
09/93 $10,270 $10,772
12/93 $10,296 $10,807
03/94 $10,207 $11,003
06/94 $10,430 $10,833
09/94 $10,705 $11,361
<FN>
+Hypothetical illustration of $10,000 invested in Class D shares on August
10, 1993, assuming reinvestment of dividends and capital gains at net
asset value through September 30, 1993, compared to the Standard & Poor's
500 Composite Stock Price Index ("S&P 500").
</TABLE>
The S&P 500 is an index composed of 500 widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange and over-the-
counter market.
This period was one in which common stock prices fluctuated and the re-
sults should not be considered as a representation of the dividend income
or capital gain or loss which may be realized from an investment in the
Fund today. No adjustment has been made for shareholder tax liability on
dividends or capital gains.
NOTE: All figures cited here and on the following pages represent past
performance and do not guarantee future results. Investment return and
principal value of an investment will fluctuate so that an investor's
shares upon redemption may be worth more or less than original cost.
PORTFOLIO HIGHLIGHTS
SEPTEMBER 30, 1994
PORTFOLIO BREAKDOWN
DESCRIPTION OF PIE CHARTS IN SHAREHOLDER REPORT
Pie chart depicting the allocation of the Fundamental Value Fund's invest-
ment securities held at September 30, 1994 by industry classification. The
pie is broken in pieces representing industries in the following percent-
ages:
<TABLE>
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Energy and Energy Services 9.0%
Convertible Preferred Stocks and Bonds 9.8%
Banking and Finance 13.2%
Commercial Paper, Repurchase Agreements and Net Other
Assets and Liabilities 28.1%
Other Common Stocks, Warrants, Units and Purchased
Options 8.7%
Chemicals 2.8%
Natural Resources 2.9%
Paper and Forest Products 3.7%
U.S. Treasury Obligations 4.1%
Technology 5.2%
Capital Goods 6.2%
Real Estate 6.3%
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
GREAT WESTERN FINANCIAL CORPORATION 2.8%
GENERAL MOTORS CORPORATION 2.6
AMERICAN EXPRESS COMPANY 2.5
BANKAMERICA CORPORATION 2.5
DUPONT (EI) DENEMOURS & COMPANY 2.3
TELE-COMMUNICATIONS INC. 2.3
DELTA AIRLINES INC., CONVERTIBLE PFD., SERIES C 2.2
INTERNATIONAL BUSINESS MACHINES 2.2
ALCAN ALUMINIUM LTD. 2.1
SEARS ROEBUCK & COMPANY 2.1
</TABLE>
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
<S> <C> <C>
COMMON STOCKS -- 57.3%
BANKING AND FINANCE -- 13.2%
510,000 American Express Company $ 15,491,250
350,000 BankAmerica Corporation 15,443,750
60,000 Benson Financial Corporation+ 742,500
300,000 Citicorp+ 12,750,000
300,000 Coast Savings Financial Inc.+ 5,325,000
150,000 First Interstate Bancorp 12,168,750
900,000 Great Western Financial Corporation 17,325,000
140,000 SFFed Corporation 2,835,000
1,142,857 UnionFed Financial Corporation+ 714,286
82,795,536
ENERGY AND ENERGY SERVICES -- 9.0%
1,500,000 American Exploration Company+ 2,062,500
200,000 Amoco Corporation 11,850,000
525,000 Dresser Industries Inc. 10,631,250
24,000 Fina Inc., Class A Shares 1,830,000
1,000,000 Forest Oil Corporation+ 3,500,000
500,000 Global Marine Inc.+ 2,125,000
95,000 Mitchell Energy & Development Corporation,
Class A Shares 1,674,375
700,000 Oryx Energy Company 9,712,500
310,000 Pride Petroleum Services Inc.+ 1,569,375
110,000 Royal Dutch Petroleum Company 11,811,250
56,766,250
REAL ESTATE -- 6.3%
125,000 Cousins Properities, Inc. 2,093,750
500,000 Irvine Apartment Communities Inc. 8,937,500
410,000 Kaufman & Broad Home Corporation 5,586,250
600,000 Spieker Properties Inc. 12,150,000
415,000 TriNet Corporate, Realty Trust 10,997,500
39,765,000
CAPITAL GOODS -- 6.2%
500,000 Alcan Aluminium Ltd. 13,187,500
350,000 General Motors Corporation 16,406,250
1,400,000 Interlake Corporation+ 2,800,000
4,000,000 Teledyne Inc. 6,350,000
38,743,750
TECHNOLOGY -- 5.2%
125,000 Apple Computer Inc. 4,210,938
1,300,000 IMP, Inc.+ 2,640,690
200,000 International Business Machines 13,900,000
175,000 Texas Instruments Inc. 11,965,625
32,717,253
PAPER & FOREST PRODUCTS -- 3.7%
150,000 Georgia Pacific Corporation 11,475,000
590,000 Stone Container Corporation+ 11,505,000
22,980,000
NATURAL RESOURCES -- 2.9%
725,000 Amax Gold Inc. 5,528,125
624,600 Nord Resources Corporation+ 4,137,975
500,000 Santa Fe Pacific Gold Corporation+ 8,687,500
18,353,600
CHEMICALS -- 2.8%
250,000 duPont (EI) deNemours & Company 14,500,000
260,000 NL Industries, Inc.+ 2,860,000
17,360,000
CONSUMER SERVICES -- 2.3%
650,000 Tele-Communications Inc., Class A+ 14,421,875
RETAIL -- 2.1%
275,000 Sears, Roebuck & Company 13,200,000
HEALTH CARE -- 2.0%
325,000 Advanced Polymer Systems Inc.+ 1,909,375
150,000 ALZA Corporation+ 3,093,750
150,000 Aphton Corporation+ 1,275,000
150,000 Merck & Company Inc. 5,325,000
555,556 Pharmos Corporation** 500,000
40,000 Scios Nova Inc.+ 270,000
12,373,125
TRANSPORTATION -- 1.6%
200,000 AMR Corporation+ 10,300,000
TOTAL COMMON STOCKS (Cost $339,352,002) 359,776,389
CONVERTIBLE PREFERRED STOCKS -- 9.7%
50,000 Amax Gold Inc., Conv. Pfd. Series B 2,781,250
128,000 American Exploration Company Depositary
Shares, Represents 1/200 Conv. Pfd., Se-
ries C 3,392,000
280,000 Boise Cascade Corporation, Depositary
Shares, Represents 1/10 Conv. Pfd., Se-
ries G 7,385,000
300,000 Delta Airlines Inc., Depositary Shares,
Represents 1/1000 Conv. Pfd., Series C 13,500,000
355,000 James River Corporation of Virginia, Depos-
itary Shares,
Represents 1/100 Conv. Pfd. share 8,475,625
250,000 Rouse Company Conv. Pfd., Series A, 6.500% 12,781,250
488,100 UAL Corporation, Depositary Shares, Repre-
sents 1/1000 Conv. Pfd.,
Series B, 12.25% 12,629,587
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $58,658,430) 60,944,712
WARRANTS -- 0.2%
10,000 Bema Gold, Warrants, expire 1995+*** 1,000,000
571,429 UnionFed Financial Corporation, Warrants,
expire 1998+** 142,857
TOTAL WARRANTS (Cost $1,399,600) 1,142,857
UNITS -- 0.1% (Cost $230,150)
100,000 Texas Biotechnology Corporation, Unit, (1
common & 1 warrant) expires 1998+ 243,750
FACE VALUE
CONVERTIBLE BONDS -- 0.1% (Cost $797,500)
$ 1,000,000 PIV-Invest Finance, (Cayman), 4.500% due
1/12/00 820,000
U.S. TREASURY STRIP -- 4.1% (Cost $27,098,993)
125,000,000 U.S.Treasury Strip, Generic TINT, 8.372%
due 5/15/14 25,498,737
COMMERCIAL PAPER -- 10.0%
31,526,000 Ford Motor Credit Corporation, 5.000%, due
10/03/94 31,526,000
31,526,000 General Electric Capital Corporation,
4.950% due 10/03/94 31,526,000
TOTAL COMMERCIAL PAPER (Cost $63,052,000) 63,052,000
REPURCHASE AGREEMENTS -- 17.8%
24,379,000 Agreement with Morgan Stanley, dated
9/30/94 bearing 4.700% to be repurchased
at $24,388,548 on 10/03/94, collateral-
ized by $25,535,000 U.S Treasury Bond,
7.500% due 11/15/16 24,379,000
31,526,000 Agreement with Salomon Brothers, dated
9/30/94 bearing 4.700% to be repurchased
at $31,538,348 on 10/03/94, collateral-
ized by $26,668,000 U.S Treasury Bond,
10.750% due 2/15/03 31,526,000
55,905,000 Agreement with Union Bank of Switzerland
Securities Inc., dated 9/30/94 bearing
4.750% to be repurchased at $55,927,129
on 10/03/94, collateralized by
$24,430,000 U.S Treasury Bond, 11.625%
due 11/15/04 and $24,650,000 U.S.Treasury
Bond, 5.500% due 4/30/96 55,905,000
TOTAL REPURCHASE AGREEMENTS (Cost
$111,810,000) 111,810,000
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
EXPIRATION STRIKE
CONTRACTS DATE PRICE
PUT OPTION PURCHASED -- 0.4% (Cost $3,038,750)
2,500 S&P 500 Index Put March 1995 $450 2,562,500
TOTAL INVESTMENTS (Cost $605,437,425*) 99.7% 625,850,945
OTHER ASSETS AND LIABILITIES (NET) 0.3 1,820,205
NET ASSETS 100.0% $627,671,150
<FN>
* Aggregate cost for Federal tax purposes.
** Restricted security (See Note 8).
*** Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
+ Non-income producing security.
</TABLE>
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $605,437,425) (Note 1)
See accompanying schedule
Securities $514,040,945
Repurchase Agreements 111,810,000 $625,850,945
Cash 721,127
Receivable for Fund shares sold 3,925,666
Dividends and interest receivable 1,259,235
Receivable for investment securities sold 77,818
TOTAL ASSETS 631,834,791
LIABILITIES:
Payable for investment securities purchased 2,924,205
Investment advisory fee payable (Note 2) 285,309
Distribution fee payable (Note 3) 284,487
Payable for Fund shares redeemed 149,552
Service fee payable (Note 3) 129,686
Administration fee payable (Note 2) 103,749
Transfer agent fees payable (Note 2) 87,348
Custodian fees payable (Note 2) 17,400
Accrued expenses and other payables 181,905
TOTAL LIABILITIES 4,163,641
NET ASSETS $627,671,150
NET ASSETS CONSIST OF:
Undistributed net investment income $5,795,416
Accumulated net realized gain on investments 62,617,181
Unrealized appreciation of investments 20,413,520
Paid-in capital 538,845,033
TOTAL NET ASSETS $627,671,150
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($264,764,872 / 32,284,892 shares of common stock
outstanding) $8.20
Maximum offering price per share ($8.20 / .95)
(based on sales charge of 5% of the offering price
on September 30, 1994) $8.63
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($361,254,458 / 44,263,976 shares of common stock
outstanding) $8.16
CLASS D SHARES:
NET ASSET VALUE, offering and redemption price per
share ($1,651,820 / 202,305 shares of common stock
outstanding) $8.16
<FN>
+ Redemption price per share is equal to Net Asset Value less any applica-
ble contingent deferred sales charge.
</TABLE>
See Notes to Financial Statements
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$139,865) $9,451,321
Interest 5,429,847
TOTAL INVESTMENT INCOME 14,881,168
EXPENSES:
Investment advisory fee (Note 2) $2,559,267
Distribution fee (Note 3) 2,381,040
Service fee (Note 3) 1,163,303
Administration fee (Note 2) 930,642
Transfer agent fees (Notes 2 and 4) 759,238
Legal and audit fees 155,811
Custodian fees (Note 2) 93,373
Directors' fees and expenses (Note 2) 37,029
Other 394,205
TOTAL EXPENSES 8,473,908
NET INVESTMENT INCOME 6,407,260
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(NOTES 1 AND 5):
Net realized gain/(loss) on:
Securities 67,447,196
Written options (563,880)
Net realized gain on investments and written op-
tions during the year 66,883,316
Net change in unrealized depreciation of:
Securities (56,604,888)
Written options (4,245)
Net unrealized depreciation of investments and
written options during the year (56,609,133)
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 10,274,183
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $16,681,443
</TABLE>
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
9/30/94 9/30/93
<S> <C> <C>
Net investment income $ 6,407,260 $ 1,044,125
Net realized gain on investments and written op-
tions during
the year 66,883,316 16,338,329
Net unrealized appreciation/(depreciation) of
investments and written options during the year (56,609,133) 13,273,569
Net increase in net assets resulting from opera-
tions 16,681,443 30,656,023
Distributions to shareholders from net invest-
ment income:
Class A (1,282,229) (654,186)
Class B (302,434) (45,593)
Class D (862) --
Distributions to shareholders from net realized
gain on investments:
Class A (8,796,422) (5,026,441)
Class B (11,718,570) (403,270)
Class D (26,708) --
Net increase in net assets from share transac-
tions (Note 6):
Class A 144,653,242 29,251,169
Class B 249,476,885 105,722,124
Class D 1,344,286 301,147
Net increase in net assets 390,028,631 159,800,973
NET ASSETS:
Beginning of year 237,642,519 77,841,546
End of year (including undistributed net invest-
ment income of $5,795,416 and $973,681, respec-
tively) $627,671,150 $237,642,519
</TABLE>
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR*.
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
9/30/94 9/30/93 9/30/92
<S> <C> <C> <C>
Net Asset Value, beginning of year $8.42 $7.22 $6.47
Income from investment operations:
Net investment income 0.09 0.07 0.11
Net realized and unrealized gain/(loss) on in-
vestments and written options 0.30 1.65 0.78
Total from investment operations 0.39 1.72 0.89
Less distributions:
Distributions from net investment income (0.08) (0.06) (0.14)
Distributions from net realized capital gains (0.53) (0.46) --
Total distributions (0.61) (0.52) (0.14)
Net Asset Value, end of year $ 8.20 $ 8.42 $ 7.22
Total return+ 4.92% 25.23% 14.01%
Ratios to average net assets/supplemental
data:
Net assets, end of year (in 000's) $264,765 $123,188 $77,842
Ratio of operating expenses to average net as-
sets 1.30% 1.45% 1.28%
Ratio of net investment income to average net
assets 1.90% 1.00% 1.57%
Portfolio turnover rate 108% 111% 142%
<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.
+ Total return represents aggregate total return for the period indicated
including reinvestment of any dividends and distributions and does not
reflect any applicable sales charges.
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
9/30/91 9/30/90 9/30/89 9/30/88 9/30/87 9/30/86 9/30/85
<S> <C> <C> <C> <C> <C> <C>
$5.34 $7.15 $6.23 $8.36 $7.24 $6.91 $6.65
0.15 0.16 0.17 0.15 0.18 0.31 0.19
1.50 (1.22) 1.18 (0.99) 2.00 0.55 0.59
1.65 (1.06) 1.35 (0.84) 2.18 0.86 0.78
(0.23) (0.18) (0.10) (0.26) (0.32) (0.19) (0.22)
(0.29) (0.57) (0.33) (1.03) (0.74) (0.34) (0.30)
(0.52) (0.75) (0.43) (1.29) (1.06) (0.53) (0.52)
$6.47 $5.34 $7.15 $6.23 $8.36 $7.24 $6.91
33.47% (16.25)% 23.26% (6.92)% 34.39% 12.94% 12.67%
$59,358 $63,519 $89,048 $84,670 $111,693 $101,563 $114,529
1.30% 1.20% 1.10% 1.20% 1.00% 1.10% 1.20%
2.24% 2.40% 2.50% 2.10% 2.10% 3.70% 4.00%
116% 94% 62% 120% 66% 91% 64%
</TABLE>
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
9/30/94 9/30/93*
<S> <C> <C>
Net Asset Value, beginning of period $8.37 $7.31
Income from investment operations:
Net investment income 0.09 0.05
Net realized and unrealized gain on investments 0.25 1.52
Total from investment operations 0.34 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 $8.16 $8.37
Total return+ 4.21% 22.82%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $361,254 $114,146
Ratio of operating expenses to average net assets 2.06% 2.26%**
Ratio of net investment income to average net
assets 1.13% 0.19%**
Portfolio turnover rate 108% 111%
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
** Annualized.
+ Total return represents aggregate total return for the period indicated
including reinvestment of any dividends and distributions and does not
reflect any applicable sales charges.
</TABLE>
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
9/30/94 9/30/93*
<S> <C> <C>
Net Asset Value, beginning of period $8.37 $8.15
Income from investment operations:
Net investment income 0.05 0.00#
Net realized and unrealized gain on investments 0.29 0.22
Total from investment operations 0.34 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 $8.16 $8.37
Total return+ 4.24% 2.70%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,652 $308
Ratio of operating expenses to average net assets 2.23% 2.25%**
Ratio of net investment income to average net
assets 0.96% 0.20%**
Portfolio turnover rate 108% 111%
<FN>
* The Fund commenced selling Class D shares on August 10, 1993.
** Annualized.
+ Total return represents aggregate total return for the period indicated
including reinvestment of any dividends and distributions.
# Amount represents less than $0.01 per share.
</TABLE>
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Fundamental Value Fund Inc. (the "Fund") (formerly Smith Bar-
ney Shearson Fundamental Value Fund Inc.) is registered under the Invest-
ment 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 Inc.
("Smith Barney") 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 na-
tional securities exchange are valued at the last reported sales price;
securities traded in the over-the-counter market and for which the princi-
pal 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 premium originally paid. When the Fund exercises a call option, the
cost of the security which the Fund purchases upon exercise will be in-
creased 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 op-
tion 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 exer-
cise.
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 se-
curity 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 ad-
dition, 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 trans-
actions. 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 pe-
riod. 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 collat-
eral 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 dis-
pose of the collateral securities, including the risk of a possible de-
cline in the value of the underlying securities during the period while
the Fund seeks to assert its rights. The Fund's investment adviser or ad-
ministrator, acting under the supervision of the Board of Directors, re-
views the value of the collateral and the creditworthiness of those banks
and dealers with which the Fund enters into repurchase agreements to eval-
uate 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 re-
corded 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.
Federal income taxes: It is the policy of the Fund to qualify as a regu-
lated investment company, if such qualification is in the best interest of
its shareholders, by complying with the requirements of the Internal Reve-
nue Code of 1986, as amended, applicable to regulated investment companies
and by distributing substantially all of its taxable income to its share-
holders. Therefore, no Federal income tax provision is required.
Dividends and distributions to shareholders: Dividends from net invest-
ment 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 invest-
ment 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 ad-
ditional distributions as may be necessary to avoid the application of
this tax.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND
OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Smith Barney Mutual Fund Management Inc., (formerly
Smith, Barney Advisers, Inc.) ("SBMFM"), which is controlled by Smith Bar-
ney Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of
The Travelers Inc. Under the investment advisory agreement, the Fund pays
a monthly fee at the annual rate of 0.55% of the value of its average
daily net assets.
Prior to April 20, 1994, the Fund was party to an administration agreement
(the "Administration Agreement") with The Boston Advisors, Inc. ("Boston
Advisors"), an indirect wholly owned subsidiary of Mellon Bank Corporation
("Mellon"). Under the Administration Agreement, the Fund paid a monthly
fee at the annual rate of 0.20% of the value of its average daily net as-
sets. As of the close of business on April 20, 1994, SBMFM succeeded Bos-
ton Advisors as the Fund's administrator. The new agreement contains sub-
stantially the same terms and conditions, including the level of fees, as
the predecessor agreement.
As of the close of business on April 20, 1994, the Fund and SBMFM entered
into a sub-administration agreement (the "Sub-Administration Agreement")
with Boston Advisors. Under the Sub-Administration Agreement, SBMFM pays
Boston Advisors a portion of its fee at a rate agreed upon from time to
time between SBMFM and Boston Advisors.
For the year ended September 30, 1994, the Fund incurred total brokerage
commissions of $1,334,383, of which $3,000 was paid to Smith Barney.
For the year ended September 30, 1994, Smith Barney received from share-
holders $793,438 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 circum-
stances in which the CDSC is imposed, the amount of the charge ranges be-
tween 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 year ended September 30, 1994, Smith
Barney received from investors $656,110 representing CDSCs on the redemp-
tion of Class B shares.
No officer, director or employee of Smith Barney or any of its affiliates
receives any compensation from the Fund for serving as a Trustee or
officer of the Fund. The Fund pays each Trustee who is not an officer,
director or employee of Smith Barney, or any of its affiliates $3,000 per
annum plus $500 per meeting attended and reimburses each such Trustee 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 trans-
fer agent.
3. DISTRIBUTION PLAN
Smith Barney acts as distributor of the Fund's shares pursuant to a dis-
tribution agreement with the Fund and sells shares of the Fund through
Smith Barney or its affiliates.
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 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 is paid an annual service fee with re-
spect 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 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 year ended September 30, 1994, the Fund incurred $369,623,
$791,709 and $1,971 in service fees for Class A, Class B and Class D
shares, respectively. For the year ended September 30, 1994, the Fund
incurred $2,375,126 and $5,914 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 year ended September 30, 1994, trans-
fer agent fees for Class A, Class B and Class D shares were $223,390,
$533,180 and $2,668, respectively.
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-
term investments and U.S. Government obligations, for the year ended Sep-
tember 30, 1994 were $489,337,511 and $348,858,922, respectively.
Written option activity for the year ended September 30, 1994 was as fol-
lows:
<TABLE>
<CAPTION>
# OF
PREMIUMS CONTRACTS
<S> <C> <C>
Options outstanding at September 30, 1993 $138,620 500
Options closed (138,620) (500)
Options outstanding at September 30, 1994 $0 0
</TABLE>
At September 30, 1994, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost amounted to
$36,845,047, and aggregate gross unrealized depreciation for all securi-
ties in which there was an excess of tax cost over value amounted to
$16,431,527.
6. COMMON STOCK
At September 30, 1994, the Fund had authorized 150,000,000 shares of com-
mon stock with no par value which were divided into four classes, three of
which had shares outstanding. Changes in the common stock outstanding were
as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
9/30/94 9/30/93*
CLASS A SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 6,922,804 $57,649,631 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 in exchange for Class
B Shares** 11,753,821 96,381,333 -- --
Issued as reinvestment of
dividends and distributions 1,213,194 9,825,937 801,516 5,602,599
Redeemed (2,632,527) (22,334,987) (2,243,603) (17,221,054)
Net increase 17,645,794 $144,653,242 3,857,506 $29,251,169
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
9/30/94 9/30/93*
CLASS B SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 33,915,967 $277,710,935 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 -- --
Exchanged for Class A
Shares** (11,811,438) (96,381,333) -- --
Issued as reinvestment of
dividends and distributions 1,433,071 11,598,008 62,099 434,077
Redeemed (8,591,811) (69,813,565) (775,349) (6,015,550)
Net increase 30,623,561 $249,476,885 13,640,415 $105,722,124
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
9/30/94 9/30/93*
CLASS D SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 178,677 $1,449,990 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 (16,624) (133,295) (361) (3,000)
Net increase 165,462 $1,344,286 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.
** These figures represent conversion of Class B shares into Class A
shares in the eighth year after the date of purchase.
</TABLE>
7. REORGANIZATION
On January 21, 1994, the Fund acquired the assets and certain liabilities
of Smith Barney Shearson Growth and Opportunity Fund ("Acquired Fund"), in
exchange for shares of the Fund, pursuant to a plan of reorganization ap-
proved 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 ap-
preciation included in the Acquired Fund's total net assets are as fol-
lows:
<TABLE>
<CAPTION>
TOTAL NET
SHARES ASSETS OF TOTAL NET
THE ACQUIRED ISSUED BY ACQUIRED ASSETS OF
FUND FUND THE FUND FUND THE FUND
<S> <C> <C> <C> <C>
The Fund Smith Barney Shearson
Growth 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.
8. RESTRICTED SECURITIES
The following securities held by the Fund are restricted securities under
the Federal securities laws and are valued at fair value in good faith by
or under the direction of the Fund's Board of Directors taking into con-
sideration such factors as the Board deems appropriate.
The table, in addition to showing the security's fair value, shows the
percentage of the Fund's total net assets that the security comprises as
well as the aggregate cost and the unit value at September 30, 1994.
<TABLE>
<CAPTION>
PERCENTAGE
VALUE FAIR OF TOTAL ACQUISITION
SECURITY SHARES PER UNIT VALUE NET ASSETS COST DATE
<S> <C> <C> <C> <C> <C> <C>
Stocks:
Pharmos Corporation 555,556 $0.90 $500,000 0.08% $500,000 9/30/1994
Warrants:
UnionFed Financial Cor-
poration, warrants ex-
pire 1998 571,429 $0.25 $142,857 0.02% $399,600 10/13/1993
</TABLE>
The Fund may purchase securities which are subject to legal or contractual
restrictions on resale if not more than 5% of the value of the Fund's
total assets would be invested in such securities or in securities for
which there is no readily available market. In purchasing securities which
could not be sold by the Fund without registration under the Securities
Act of 1933, as amended, the Fund will endeavor to obtain the right to
registration at the expense of the issuer. There generally will be a lapse
of time between the decision by the Fund to sell any such security and the
registration of the security permitting sale. During any such period, the
security will be subject to market fluctuations.
9. CAPITAL STRUCTURE
On September 13, 1994, the board of Directors of the Fund approved several
changes to the class and pricing structure of Smith Barney Shearson mutual
funds, to facilitate consolidation of that fund complex with the Smith
Barney mutual fund complex (the "Uniform Structure"). Under the Uniform
Structure, effective November 7, 1994, shares previously designated as
Class A or Class B shares will retain those designations. However, shares
previously designated as Class D shares will be redesignated as Class C
shares. In addition, the Fund will offer newly designated Class Y shares,
without imposition of a sales charge, to investors making an initial in-
vestment of at least $5 million. Adoption of the Uniform Structure will
have no effect on the rights and privileges of the Fund's current share-
holders.
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.:
We have audited the accompanying statement of assets and liabilities, in-
cluding the portfolio of investments, of Smith Barney Fundamental Value
Fund Inc. (formerly Smith Barney Shearson Fundamental Value Fund Inc.) as
of September 30, 1994, the related statement of operations for the year
then ended, the statement of changes in net assets for the years ended
September 30, 1994 and 1993, and the financial highlights for each of the
years in the ten year period ended September 30, 1994. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and fi-
nancial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclo-
sures in the financial statements. Our procedures included confirmation of
securities owned at September 30, 1994 by correspondance with the custo-
dian and brokers. An audit also includes assessing the accounting princi-
ples used and significant estimates made by management, as well as evalu-
ating 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 present
fairly, in all material respects, the financial position of Smith Barney
Fundamental Value Fund Inc. as of September 30, 1994, the results of its
operations, the changes in its net assets, and its financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
October 28, 1994
TAX INFORMATION (UNAUDITED)
FISCAL YEAR ENDED SEPTEMBER 30, 1994
The following information represents fiscal year end disclosures of vari-
ous tax benefits passed through to shareholders at calendar year end.
For the fiscal year ended September 30, 1994 the Fund distributed long-
term capital gains of $4,146,146.
Of the distributions made by the Fund during the fiscal year ended Septem-
ber 30, 1994, 54.38% qualify for the dividends received deduction avail-
able to corporate shareholders.
The above figures may differ from those cited elsewhere in this report due
to differences in the calculations of income and capital gains for Securi-
ties and Exchange Commission (book) purposes and Internal Revenue Service
(tax) purposes.
FUNDAMENTAL VALUE FUND INC.
DIRECTORS
Lloyd J. Andrews
Robert M. Frayn, Jr.
Leon P. Gardner
Howard J. Johnson
David E. Maryatt
Heath B. McLendon
Frederick O. Paulsell
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
Lewis E. Daidone
Treasurer
Christina T. Sydor
Secretary
This report is submitted for the general information of the shareholders
of Smith Barney Fundamental Value Fund Inc. It is not authorized for dis-
tribution 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 in-
formation.
[Logo]
SMITH BARNEY
MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
Fund 10,199,215,447
FD0283 K4
