<PAGE>
SMITH BARNEY
FUNDAMENTAL
VALUE
FUND INC.
DIRECTORS
Lloyd J. Andrews
Robert M. Frayn, Jr.
Leon P. Gardner
Howard J. Johnson
David E. Maryatt
Heath B. McLendon, Chairman
Frederick O. Paulsell
Jerry A. Viscione
Julie W. Weston
OFFICERS
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President & Treasurer
John G. Goode
Vice President and
Investment Officer
Peter Hable
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Smith Barney
------------
A Member of TravelersGroup [LOGO APPEARS HERE]
INVESTMENT ADVISER AND
ADMINISTRATOR
Smith Barney Mutual
Funds Management Inc.
DISTRIBUTOR
Smith Barney Inc
CUSTODIAN
PNC Bank
SHAREHOLDER
SERVICING AGENT
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the shareholders of
Smith Barney 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.
SMITH BARNEY
FUNDAMENTAL
VALUE FUND INC.
388 Greenwich Street
New York, New York 10013
FD0283 11/95
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
1995
1995
1995 [ARTWORK APPEARS HERE]
1995
1995
Smith Barney
Fundamental
Value
Fund Inc.
--------------------------------------------------------
September 30, 1995
[LOGO APPEARS HERE] Smith Barney Mutual Funds
Investing for your future.
Everyday.
<PAGE>
- ----------------------------------------
Smith Barney Fundamental Value Fund Inc.
- ----------------------------------------
Dear Shareholder:
The stock market has been driven higher in the last year by two principal
factors: Interest rates peaked in late 1994; and then interest rates began a
sharp decline falling nearly 200 basis points (2%) for longer maturities. It is
our belief that 80% of the market advance in 1995 can be attributed to declining
interest rates. A second important reason for the broad based advance in
equities has been the continuing record inflows into mutual funds. In the three-
month period through September 30, 1995, nearly $35 billion found its way into
the mutual fund industry.
Risks Are Higher Now
It is unlikely that interest rates will be the same major catalyst for higher
equity prices, in the months ahead, as they have been year-to-date. Total funds
raised in recent public offerings have exceeded the amount of new money coming
into mutual funds. With overall mutual funds cash positions at a low 7%, it
seems that there is less "fuel" now than earlier in the year to ignite a
significant move in stock prices.
The stock market in 1995 has had substantial speculation concentrated in
technology issues. The publicity surrounding the introduction of Windows-95 and
the unusual level of interest in new issues such as Netscape have been part of
the "mania" for technology issues. In stock markets such as these, we often
underperform and we have done so in 1995. For the twelve months ended September
30, 1995, the total return for the Fundamental Value Fund was 19.94% versus
29.71% for the Standard & Poor's 500-Stock Index over the same period. Over the
long term, we believe we will do well in good markets and difficult markets,
more than offsetting any shortfall during more speculative advances. Now we must
ask: What are the prospects for the market in the next 3-6 months and how should
fund assets be positioned given the trends we see over the next three to five
years?
Cash Is King?
Our belief is that stock market risks are higher now and when fund managers have
their lowest cash positions in years, we would like to have a little more of
this asset class. Our current cash position is about 20% of assets. Other assets
which incorporate offensive/defensive characteristics include our 7% position in
real estate investments trusts, possibly the best relative value in the market
today, and our 15% commitment to energy stocks. We also have about a 2 1/2%
position in selected gold shares. Should the market enter "choppy waters," we
believe these positions would do substantially better than stocks in general. We
1
<PAGE>
also point out that these holdings, with the exception of cash, reflect some of
our most important beliefs where the market is concerned for the next three to
five years.
Financial Assets vs. "Hard Assets"
Generally speaking, the best performance during the last decade were financial
assets on a global basis. For example, emerging market stocks have appreciated
at an annual rate in excess of 18% in the last ten years. During the same period
of time, other notable performers include the S&P 500, +14%, and U.S. long
treasury bonds, +12%. During this time, 3-month Treasury bills (riskless) have
provided a 5.8% annual return.
"Hard asset" categories, such as commercial real estate, +3.2%, gold, +2.2%, and
commodities (i.e., energy, forest products, metals) in general have
underperformed Treasury bills. If one believes in regression-to-the mean, it is
probable that hard assets will do much better than financial assets in the next
three to five years. Naturally it is possible to find "financial assets," common
stocks, which represent so-called hard assets or benefit from trends within this
area of the market. In addition, there are many companies involved in one or
more areas of technology that are deeply involved in natural resources. The
energy service companies come to mind. One theme we intend to pursue are those
technology-based companies that are closely involved with capital goods,
infrastructure and natural resource production.
We believe we are at a major inflection point where supply and demand for energy
and many natural resources are concerned. With more than 4 billion consumers now
part of economies following capitalist philosophies, it is clear that the demand
for natural resources will grow faster in the next five to ten years than during
the last decade. The critical resource area will be energy and this is one
reason why we are overweighted in this sector of the market. Energy stocks now
make up 15% of our portfolio versus 9% for the S&P 500.
Current Thoughts on the Portfolio
We currently are underweighted in technology, 9%, versus 16% for the S&P 500,
but this clearly will be an area of market leadership over the next three to
five years. In the short run, investors' "animal spirits" have run wild and many
stocks have reached prices that incorporate expectations that may be difficult
to meet in the short run. Technology issues are not true growth stocks, but are
cyclical growth stocks because of the nature of their capital expenditure cycle
and pricing fluctuations which affect most companies' operations. Therefore, it
is often best to augment core positions during periods when pricing and other
pressures provide buying opportunities.
Currently our weighting in financial services is 13% of assets, in line with the
S&P 500. However, for most of 1995, we have been overweighted. We
2
<PAGE>
reduced our holdings somewhat in recent months given the strong relative
performance of this sector. This was done by selling several issues which are in
the process of being taken over and, in our opinion, have limited remaining
upside potential. We continue to believe that consolidation within financial
services is a trend that will endure for many years. We also feel that selected
financial services companies with an international charter are growth stocks
which continue to be available at single digit P/E ratios. Although values in
financial services may not be as compelling as they were earlier in the year,
they are still quite good which is why we retain our market weighting.
The Fundamental Value Fund has roughly a 5% weighting in several major Japanese
stocks. Japan seems to be in the early stages of re-inflating its economy and
reducing the value of the yen compared to the U.S. dollar. Japanese stocks have
declined by more than 50% in the last five years. We think selected financial
services companies and exporters should do very well in an environment where the
U.S. dollar is appreciating vs. the yen.
Although excess capacity and pricing pressure characterizes the retailing
environment, we are finding selected values in this area of the market. Some
leading stocks are down nearly 50% from their 1992-1993 highs. In recent weeks,
we have found some very interesting values in health care and entertainment as
well. When depressed prices reflect a lack of enthusiasm for a particular stock
or sector, we often find that these are the best hunting grounds to find great
long-term values.
In summary, we believe we are well positioned for whatever circumstances develop
in the stock market in the time period ahead. We thank you for your continued
support and your confidence in our long-term investment management approach.
Sincerely,
/s/ Heath B. McLendon /s/ John G. Goode
Heath B. McLendon John G. Goode
Chairman of the Board Portfolio Manager
October 30, 1995
3
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns/(1)/
=================================================================================================================
<S> <C> <C> <C> <C> <C>
9/30/95 $8.20 $8.66 $0.13 $0.81 19.94%
- -----------------------------------------------------------------------------------------------------------------
9/30/94 8.42 8.20 0.08 0.53 4.92
- -----------------------------------------------------------------------------------------------------------------
9/30/93 7.22 8.42 0.06 0.46 25.23
- -----------------------------------------------------------------------------------------------------------------
9/30/92 6.47 7.22 0.14 0.00 14.01
- -----------------------------------------------------------------------------------------------------------------
9/30/91 5.34 6.47 0.23 0.29 33.47
- -----------------------------------------------------------------------------------------------------------------
9/30/90 7.15 5.34 0.18 0.57 (16.25)
- -----------------------------------------------------------------------------------------------------------------
9/30/89 6.23 7.15 0.10 0.33 23.26
- -----------------------------------------------------------------------------------------------------------------
9/30/88 8.36 6.23 0.26 1.03 (6.92)
- -----------------------------------------------------------------------------------------------------------------
9/30/87 7.24 8.36 0.32 0.74 34.39
- -----------------------------------------------------------------------------------------------------------------
9/30/86 6.91 7.24 0.19 0.34 12.94
=================================================================================================================
Total $1.69 $5.10
=================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns/(1)/
=================================================================================================================
<S> <C> <C> <C> <C> <C>
9/30/95 $8.16 $8.62 $0.08 $0.81 19.19%
- -----------------------------------------------------------------------------------------------------------------
9/30/94 8.37 8.16 0.02 0.53 4.21
- -----------------------------------------------------------------------------------------------------------------
Inception*- 9/30/93 7.31 8.37 0.05 0.46 22.82+
=================================================================================================================
Total $0.15 $1.80
=================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class C Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns/(1)/
=================================================================================================================
<S> <C> <C> <C> <C> <C>
9/30/95 $8.16 $8.62 $0.09 $0.81 19.33%
- -----------------------------------------------------------------------------------------------------------------
9/30/94 8.37 8.16 0.02 0.53 4.24
- -----------------------------------------------------------------------------------------------------------------
Inception*- 9/30/93 8.15 8.37 0.00 0.00 2.70+
=================================================================================================================
Total $0.11 $1.34
=================================================================================================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS AND CAPITAL GAINS, IF ANY,
ANNUALLY.
4
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge/(1)/
---------------------------------------------
Class A Class B Class C
===================================================================================================
<S> <C> <C> <C>
Year Ended 9/30/95 19.94% 19.19% 19.33%
- ---------------------------------------------------------------------------------------------------
Five Years Ended 9/30/95 19.11 N/A N/A
- ---------------------------------------------------------------------------------------------------
Ten Years Ended 9/30/95 13.34 N/A N/A
- ---------------------------------------------------------------------------------------------------
Inception* through 9/30/95+ 13.70 15.68 12.12
- ---------------------------------------------------------------------------------------------------
<CAPTION>
With Sales Charge/(2)/
---------------------------------------------
Class A Class B Class C
===================================================================================================
<S> <C> <C> <C>
Year Ended 9/30/95 13.94% 14.19% 18.33%
- ---------------------------------------------------------------------------------------------------
Five Years Ended 9/30/95 17.90 N/A N/A
- ---------------------------------------------------------------------------------------------------
Ten Years Ended 9/30/95 12.76 N/A N/A
- ---------------------------------------------------------------------------------------------------
Inception* through 9/30/95+ 13.28 14.89 12.12
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge/(1)/
-------------------------
<S> <C>
Class A (9/30/85 through 9/30/95) 249.69%
- -----------------------------------------------------------------------------------------
Class B (Inception* through 9/30/95) 52.55
- -----------------------------------------------------------------------------------------
Class C (Inception* through 9/30/95) 27.74
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions at net
asset value and does not reflect deduction of the applicable sales charge
with respect to Class A shares or the applicable contingent deferred sales
charges ("CDSC") with respect to Class B and C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions at net
asset value. In addition, Class A shares reflect the deduction of the
maximum initial sales charge of 5.00%; Class B shares reflect the deduction
of a 5.00% CDSC, which applies if shares are redeemed less than one year
from initial purchase and thereafter declines by 1.00% per year until no
CDSC is incurred. Class C shares reflect the deduction of a 1.00% CDSC which
applies if shares are redeemed within the first year of purchase.
* Inception dates for Class A, B and C shares are November 12, 1981,
November 6, 1992 and August 10, 1993, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
5
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of the
Smith Barney Fundamental Value Fund Inc. vs. S&P 500 Index+
(unaudited)
- --------------------------------------------------------------------------------
September 1985 - September 1995
[GRAPH APPEARS HERE]
+ Hypothetical illustration of $10,000 invested in Class A shares on September
30, 1985, assuming deduction of the maximum 5.00% sales charge at the time of
investment and reinvestment of dividends and capital gains at net asset value
through September 30, 1995, compared to the Standard & Poor's 500 Composite
Stock Price Index. The index composed of 500 widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange and over-the-counter
market. The index is unmanaged and is not subject to the same management and
trading expenses of a mutual fund. The performance of the Fund's other classes
may be greater or less than the Class A shares' performance indicated on this
chart, depending on whether greater or lesser sales charges and fees were
incurred by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
value may be more or less than original cost. No adjustment has been made for
shareholder tax liability on dividends or capital gains.
6
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Portfolio Highlights September 30, 1995
- --------------------------------------------------------------------------------
Portfolio Breakdown (% of Total Investments)
[PIE CHART APPEARS HERE]
Top Ten Holdings
<TABLE>
<CAPTION>
Percentage of
Company Total Investments
================================================================================
<S> <C>
American Express Co. 2.8%
BankAmerica Corp. 2.5
Delta Airlines Inc., Convertible Preferred, Series C 2.4
Amoco Corp. 2.4
AMR Corp. 2.3
Citicorp 2.2
Tele-Communications Inc. Class A Shares 2.2
First Interstate Bankcorp. 2.1
General Motors Corp. 2.1
Spieker Properties Inc. 2.1
</TABLE>
7
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==================================================================================================================
<C> <S> <C>
COMMON STOCKS -- 71.8%
Banking and Finance -- 12.4%
600,000 American Express Co. $ 26,625,000
400,000 BankAmerica Corp. 23,950,000
300,000 Citicorp+ 21,225,000
218,400 Downey Financial Corp. 4,368,000
200,000 First Interstate Bancorp 20,150,000
800,000 Great Western Financial Corp. 19,000,000
630,700 PLM International Inc.+ 2,168,031
- ------------------------------------------------------------------------------------------------------------------
117,486,031
- ------------------------------------------------------------------------------------------------------------------
Beverages -- 0.9%
143,400 Anheuser-Busch Cos. Inc. 8,944,575
- ------------------------------------------------------------------------------------------------------------------
Chemicals -- 1.8%
250,000 E. I. duPont de Nemours & Co. 17,187,500
- ------------------------------------------------------------------------------------------------------------------
Energy and Energy Services -- 15.0%
150,000 Amerada Hess Corp. 7,293,750
53,780 American Exploration Co.+ 625,193
350,000 Amoco Corp. 22,443,750
324,000 Apache Corp. 8,505,000
175,000 Baker Hughes Inc. 3,565,625
500,000 Diamond Shamrock Inc. 12,312,500
725,000 Dresser Industries Inc. 17,309,375
1,000,000 Enserch Exploration Inc. 10,500,000
169,600 Fina Inc., Class A Shares+ 8,204,400
1,117,000 Forest Oil Corp.+ 2,792,500
500,000 Global Marine Inc.+ 3,562,500
126,000 Mitchell Energy & Development Corp., Class A Shares 2,268,000
47,900 Mitchell Energy & Development Corp., Class B Shares 844,238
1,424,500 Oryx Energy Co.+ 18,518,500
110,000 Royal Dutch Petroleum Co. 13,502,500
90,000 Schlumberger Ltd. 5,872,500
200,000 Teekay Shipping Corp. 4,800,000
- ------------------------------------------------------------------------------------------------------------------
142,920,331
- ------------------------------------------------------------------------------------------------------------------
Entertainment -- 1.2%
300,000 Time Warner Inc. 11,925,000
- ------------------------------------------------------------------------------------------------------------------
Health Care -- 4.0%
658,000 Advanced Polymer Systems Inc.+ 4,729,375
200,000 ALZA Corp.+ 4,600,000
210,000 Aphton Corp.+ 2,100,000
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==================================================================================================================
<C> <S> <C>
Health Care -- 4.0% (continued)
500,000 Calgene Inc.+ $ 3,375,000
130,000 Centocor Inc.+ 1,413,750
150,000 Merck & Co. Inc. 8,400,000
266 Molecular Biosystems Inc. 2,361
100,000 SciClone Pharmaceuticals Inc.+ 850,000
160,000 Scios Nova Inc.+ 660,000
263,900 Texas Biotechnology Corp.+ 725,725
225,000 United Healthcare Corp. 10,996,875
- ------------------------------------------------------------------------------------------------------------------
37,853,086
- ------------------------------------------------------------------------------------------------------------------
Insurance -- 3.7%
370,814 Allstate Corp. 13,117,545
112,500 American International Group Inc. 9,562,500
50,000 General Re Corp. 7,550,000
200,000 TIG Holdings Inc. 5,375,000
- ------------------------------------------------------------------------------------------------------------------
35,605,045
- ------------------------------------------------------------------------------------------------------------------
Manufacturing -- 1.1%
1,400,000 Interlake Corp.+ 3,325,000
450,000 Westinghouse Electric Corp. 6,750,000
- ------------------------------------------------------------------------------------------------------------------
10,075,000
- ------------------------------------------------------------------------------------------------------------------
Natural Resources -- 3.8%
1,000,000 Amax Gold Inc.+ 6,125,000
700,000 Asia Pacific Resource International, Class A Shares 5,600,000
100,000 Cyprus Amax Minerals Co. 2,812,500
54,000 Golden Star Resources Ltd. 330,750
300,000 Homestake Mining Co. 5,100,000
650,700 Nord Resources Corp.+ 1,545,413
100,000 Nucor Corp. 4,475,000
800,000 Santa Fe Pacific Gold Corp.+ 10,100,000
- ------------------------------------------------------------------------------------------------------------------
36,088,663
- ------------------------------------------------------------------------------------------------------------------
Real Estate -- 7.0%
125,000 Cousins Properties Inc. 2,281,250
850,000 Del Webb Corporation 16,043,748
650,000 Irvine Apartment Communities Inc. 11,456,250
829,200 Spieker Properties Inc. 19,900,800
590,000 TriNet Corporate Realty Trust Inc. 16,372,500
- ------------------------------------------------------------------------------------------------------------------
66,054,548
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==================================================================================================================
<C> <S> <C>
Retail -- 3.3%
400,000 Sears Roebuck & Co. $ 14,750,000
602,000 Toys `R' Us Inc. 16,254,000
- ------------------------------------------------------------------------------------------------------------------
31,004,000
- ------------------------------------------------------------------------------------------------------------------
Technology - Computers -- 4.5%
300,000 Apple Computer Inc. 11,175,000
300,000 Cray Research Inc.+ 6,637,500
200,000 International Business Machines Corp. 18,875,000
201,000 Landmark Graphics Corp. 5,665,688
- ------------------------------------------------------------------------------------------------------------------
42,353,188
- ------------------------------------------------------------------------------------------------------------------
Technology - Semiconductors -- 3.5%
1,550,000 IMP Inc.+ 11,043,750
100,000 Intel Corp. 6,012,500
200,000 Texas Instruments Inc. 15,975,000
- ------------------------------------------------------------------------------------------------------------------
33,031,250
- ------------------------------------------------------------------------------------------------------------------
Telecommunications -- 4.8%
474,900 Comsat Corp. 10,685,250
1,200,000 Tele-Communications Inc., Class A Shares+ 21,000,000
300,000 US West Inc. 14,137,500
- ------------------------------------------------------------------------------------------------------------------
45,822,750
- ------------------------------------------------------------------------------------------------------------------
Transportation -- 4.8%
300,000 AMR Corp.+ 21,637,500
2,000,000 Fruehauf Trailer Corp. 4,000,000
425,000 General Motors Corp. 19,921,875
- ------------------------------------------------------------------------------------------------------------------
45,559,375
- ------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $566,686,441) 681,910,342
==================================================================================================================
CONVERTIBLE PREFERRED STOCKS -- 4.9%
Manufacturing -- 0.4%
4,000 Optical Coating Laboratory, Inc., Exchange 8.00% 4,000,000
- ------------------------------------------------------------------------------------------------------------------
Natural Resources -- 0.6%
50,000 Amax Gold Inc., Series B, Exchange 3.75% 2,475,000
128,000 American Exploration Co., Series C, Exchange 9.00% 3,472,000
- ------------------------------------------------------------------------------------------------------------------
5,947,000
- ------------------------------------------------------------------------------------------------------------------
Real Estate -- 1.4%
250,000 Rouse Co., Series A, Exchange 6.50% 13,718,750
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==================================================================================================================
<C> <S> <C>
Transportation -- 2.4%
400,000 Delta Airlines Inc., Series C, Exchange 3.50% $ 22,700,000
- ------------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost -- $42,273,292) 46,365,750
==================================================================================================================
FOREIGN COMMON STOCKS -- 4.5%
100,000 Grupo Iusacell S.A. ADR, Series L 1,300,000
1,140,000 Hitachi Ltd. 12,480,487
1,320,000 Komatsu Ltd. 10,650,988
705,000 Mitsubishi Estate 7,932,590
535,000 Nomura Securities Co. 10,521,034
- ------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN COMMON STOCKS
(Cost -- $42,887,792) 42,885,099
==================================================================================================================
WARRANTS -- 1.0%
1,300,000 Morgan Stanley Nikkei $225, Expire 8/15/97 9,100,000
200,000 Texas BioTechnology Corp. 50,000
571,429 UnionFed Financial Corp., Expire 12/29/98++ 0
146 York Research Corp., Class A Shares, Expire 11/01/95 237
44 York Research Corp., Class B Shares, Expire 11/01/95 99
- ------------------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $7,377,040) 9,150,336
==================================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
==================================================================================================================
<C> <S> <C>
CONVERTIBLE CORPORATE BOND -- 1.1%
$ 10,000,000 Mitsubishi Bank International Finance, (Bermuda),
Trust Exchange 3.00% (Cost -- $10,000,000) 10,512,500
==================================================================================================================
FOREIGN BOND -- 0.3%
Banking and Finance -- 0.3%
4,000,000[++] Peregrine PIV - Invest Finance, (Cayman),
4.50% due 12/01/00 (Cost -- $3,031,958) 3,230,000
==================================================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
==================================================================================================================
<C> <S> <C>
REPURCHASE AGREEMENTS -- 16.4%
$126,224,000 Goldman Sachs, 6.32% due 10/02/95;
Proceeds at maturity -- $126,290,459; (Fully
collaterized by U.S. Treasury Notes, 5.875% due 7/31/97;
Market value -- $128,804,099) $126,224,000
29,035,000 Morgan Stanley, 6.15% due 10/02/95;
Proceeds at maturity -- $29,049,874; (Fully
collaterized by U.S. Treasury Notes, 7.25% due 2/15/98;
Market value -- $29,603,229) 29,035,000
- ------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $155,259,000) 155,259,000
==================================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $827,515,523*) $949,313,027
==================================================================================================================
</TABLE>
+ Non-income producing security.
++ Restricted security (See Note 9).
[++] Represents local currency.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
12
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost--$672,256,523) $794,054,027
Repurchase agreements (Cost--$155,259,000) 155,259,000
Cash 873
Receivable for securities sold 4,443,128
Receivable for Fund shares sold 3,716,798
Receivable for open forward foreign currency contract 2,260,634
Dividend and interest receivable 1,446,389
- -------------------------------------------------------------------------------------------------------
Total Assets 961,180,849
- -------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 10,000,000
Distribution costs payable 1,715,265
Investment advisory fees payable 763,421
Payable for Fund shares purchased 359,003
Administration fees payable 282,361
Accrued expenses and other liabilities 1,191,699
- -------------------------------------------------------------------------------------------------------
Total Liabilities 14,311,749
- -------------------------------------------------------------------------------------------------------
Total Net Assets $946,869,100
=======================================================================================================
NET ASSETS:
Par value of capital shares $ 109,556
Capital paid in excess of par value 781,663,061
Undistributed net investment income 11,394,177
Accumulated net realized gain on security transactions,
options and foreign currencies 29,644,168
Net unrealized appreciation of investments and foreign currencies 124,058,138
- -------------------------------------------------------------------------------------------------------
Total Net Assets $946,869,100
=======================================================================================================
Shares Outstanding:
Class A 44,574,043
----------------------------------------------------------------------------------------------------
Class B 62,452,558
----------------------------------------------------------------------------------------------------
Class C 2,529,245
----------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $8.66
----------------------------------------------------------------------------------------------------
Class B * $8.62
----------------------------------------------------------------------------------------------------
Class C ** $8.62
----------------------------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per share) $9.12
=======================================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed less than one year from initial purchase (See Note 3).
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
13
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 15,217,964
Interest 11,421,946
- -------------------------------------------------------------------------------------------------------
Total Investment Income 26,639,910
- -------------------------------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 3) 5,145,795
Investment advisory fees (Note 3) 4,135,113
Administration fees (Note 3) 1,529,425
Shareholder and system servicing fees 1,100,000
Shareholder communications 700,000
Audit and legal 160,000
Registration fees 140,000
Custody 70,000
Trustees' fees 35,000
Other 374,505
- -------------------------------------------------------------------------------------------------------
Total Expenses 13,389,838
- -------------------------------------------------------------------------------------------------------
Net Investment Income 13,250,072
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
OPTIONS AND FOREIGN CURRENCIES (NOTES 5 AND 6):
Realized Gain (Loss) From:
Security transactions 35,115,531
Options written (4,320,656)
Foreign currency transactions 10,492
- -------------------------------------------------------------------------------------------------------
Net Realized Gain 30,805,367
- -------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments
and Foreign Currencies:
Beginning of year 20,413,520
End of year 124,058,138
- -------------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 103,644,618
- -------------------------------------------------------------------------------------------------------
Net Gain on Investments, Options and Foreign Currencies 134,449,985
- -------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $147,700,057
=======================================================================================================
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended September 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
========================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 13,250,072 $ 6,407,260
Net realized gain 30,805,367 66,883,316
Increase (decrease) in net unrealized appreciation 103,644,618 (56,609,133)
- --------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 147,700,057 16,681,443
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (7,661,803) (1,585,525)
Net realized gains (30,805,367) (20,541,700)
Overdistribution of net realized gains (32,962,521) --
- --------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions To Shareholders (71,429,691) (22,127,225)
- --------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sales 275,253,479 336,810,556
Net asset value of shares issued in connection with
the transfer of The Advisors Fund L.P. and of
The Smith Barney Shearson Growth and
Opportunity Fund net assets (Note 8) 46,719,996 129,494,190
Net asset value of shares issued for
reinvestment of dividends 69,267,663 21,451,514
Cost of shares reacquired (148,313,554) (92,281,847)
- --------------------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 242,927,584 395,474,413
- --------------------------------------------------------------------------------------------------------
Increase In Net Assets 319,197,950 390,028,631
NET ASSETS:
Beginning of year 627,671,150 237,642,519
- --------------------------------------------------------------------------------------------------------
End of year* $ 946,869,100 $627,671,150
========================================================================================================
* Includes undistributed net investment income of: $11,394,177 $5,795,416
========================================================================================================
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Smith Barney Fundamental Value Fund Inc. ("Fund"), a Maryland corporation,
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) securities transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices on such
markets; securities for which no sales price was reported and U.S. Government
and Government Agency Obligations are valued at the mean between bid and asked
price; (c) short-term investments that have a maturity of more than 60 days are
valued at prices based on market quotations for securities of similar type,
yield and maturity; (d) short-term investments that have a maturity of 60 days
or less are valued at cost plus accreted discount, or minus amortized premium,
as applicable; (e) dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis; (f) realized gains or losses
on the sale of securities are calculated based on the specific identification
method; (g) direct expenses are charged to each class; management fees and
general fund expenses are allocated on the basis of relative net assets; (h)
dividends and distributions to shareholders are recorded by the Fund on the ex-
dividend date; (i) the accounting records of the Fund are maintained in U.S.
dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars based on the rate of exchange of such currencies
against U.S. dollars on the date of valuation. Purchases and sales of
securities, and income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank; and (j) the Fund intends to comply with the
applicable provisions of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes.
In addition, the Fund may enter into forward contracts in order to hedge
against foreign currency risk. These contracts are marked-to-market daily, by
recognizing the difference between the contract exchange rate and the current
market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
16
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
2. Repurchase Agreements
The Fund purchases, and its custodian takes possession of, U.S. Government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date, (generally, the next business day)
at an agreed-upon higher repurchase price. The Fund requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
3. Management Agreement and Transactions with Affiliated Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment adviser of the Fund. The Fund
pays SBMFM an advisory fee calculated at annual rate of 0.55% of the average
daily net assets. This fee is calculated daily and paid monthly.
SBMFM also serves as administrator for the Fund and is paid a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly.
In addition, The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank Corporation, acted as sub-
administrator to the Fund. SBMFM paid Boston Advisors a portion of its
administration fee at a rate agreed upon from time to time between SBMFM and
Boston Advisors. As of February 13, 1995 this relationship was terminated.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. For the year ended September 30, 1995, SB received brokerage
commissions of $12,132 and sales charges of approximately $808,600 on sales of
the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B
shares if redemption occurs less than one year from initial purchase and
thereafter declines by 1.00% per year until no CDSC is incurred. Class C shares
have a 1.00% CDSC if redemption occurs within the first year from the date such
investment was made. For the year ended September 30, 1995, CDSCs of
approximately $820,900 were paid to SB.
17
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Pursuant to a Distribution Plan, the Fund pays a distribution fee with
respect to its Class B and C shares calculated at an annual rate of 0.75% of the
average daily net assets for each class. The Fund also pays a service fee with
respect to its Class A, B and C shares calculated at an annual rate of 0.25% of
the average daily net assets for each class. For the year ended September 30,
1995, total 12b-1 fees for Class A, B and C shares are $802,308, $4,242,319 and
$101,168, respectively.
All officers and one Director of the Fund are employees of SB.
4. Investments
During the year ended September 30, 1995, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) was $465,070,551 and $265,033,390, respectively.
At September 30, 1995, net unrealized appreciation of investments for
Federal income tax purposes consisted of the following:
<TABLE>
<S> <C>
===============================================================================
Gross unrealized appreciation $140,416,187
Gross unrealized depreciation (18,618,683)
- -------------------------------------------------------------------------------
Net unrealized appreciation $121,797,504
===============================================================================
</TABLE>
5. Forward Foreign Currency Contract
As of September 30, 1995, the Fund had 16 open forward foreign currency
contracts as described below. The Fund bears the market risk that arise from
changes in foreign currency exchange rates. The unrealized gain (loss) on the
contracts reflected in the accompanying financial statement are as follows:
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Currency Value Date Gain
==================================================================================================
<S> <C> <C> <C> <C>
To Sell:
Japanese Yen 210,784,480 $40,097,181 10/27 - 12/22/95 $2,260,634
==================================================================================================
</TABLE>
6. Option Contracts
Premiums paid when put or call options are purchased by the Fund, represent
investments, which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds
18
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
from the closing sales transaction are greater or less than the premium paid for
the option. When the Fund exercises a put option, it will realize a gain or loss
from the sale of the underlying security and the proceeds from such sale will be
decreased by the 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 a Fund writes a call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is marked-
to-market daily. When a written option expires, the Fund realizes a gain equal
to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss 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 cost of the security sold will be 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 which the Fund
purchased upon exercise.
The following option transactions occurred during the fiscal year ended
September 30, 1995:
<TABLE>
<CAPTION>
Number of
Premiums Contracts
=========================================================================================
<S> <C> <C>
Options written, outstanding at September 30, 1994 $ 0 0
Options written during the fiscal year 4,134,601 9,555
Options cancelled in closing purchase transactions (4,134,601) (9,555)
- -----------------------------------------------------------------------------------------
Options written, outstanding at September 30, 1995 $ 0 0
=========================================================================================
</TABLE>
7. Capital Shares
At September 30, 1995, there were 1,000,000,000 shares of common stock, par
value $0.001, authorized. The Fund has the ability to issue multiple classes of
shares. Each share of a class represents an identical interest in the Fund and
has the same rights, except that each class bears certain expenses specifically
related to the distribution of its shares. At September 30, 1995, total paid-in
capital amounted to the following for each class:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Total Paid-in Capital $322,955,259 $439,100,938 $19,716,420
================================================================================
</TABLE>
19
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1995 September 30, 1994
-------------------------------- -------------------------------
Shares Amount Shares Amount
========================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 8,923,632 $69,815,825 18,676,625 $154,030,964
Net asset value of shares
issued in connection with
the transfer of Advisors
Fund and Growth and
Opportunity Fund (Note 8) 6,431,222 44,760,999 388,502 3,131,328
Shares issued on reinvestment 4,305,816 29,667,069 1,213,194 9,825,937
Shares redeemed (7,371,519) (57,261,926) (2,632,527) (22,334,987)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase 12,289,151 $86,981,967 17,645,794 $144,653,242
========================================================================================================================
Class B
Shares sold 23,751,080 $185,650,163 22,104,529 $181,329,602
Net asset value of shares
issued in connection with
the transfer of Advisors
Fund and Growth and
Opportunity Fund (Note 8) 281,465 1,958,997 15,677,772 126,362,840
Shares issued on reinvestment 5,698,862 39,265,165 1,433,071 11,598,008
Shares redeemed (11,543,825) (88,999,697) (8,591,811) (69,813,565)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase 18,187,582 $137,874,628 30,623,561 $249,476,885
========================================================================================================================
Class C
Shares sold 2,540,546 $ 19,787,491 178,677 $ 1,449,990
Net asset value of shares
issued in connection with
the transfer of Growth and
Opportunity Fund (Note 8) -- -- 3 22
Shares issued on reinvestment 48,683 335,429 3,406 27,569
Shares redeemed (262,289) (2,051,931) (16,624) (133,295)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase 2,326,940 $ 18,070,989 165,462 $ 1,344,286
========================================================================================================================
</TABLE>
20
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
8. Transfer of Net Assets
On January 21, 1994, the Fund acquired the assets and certain liabilities
of the Smith Barney Shearson Growth and Opportunity Fund ("Growth and
Opportunity Fund"), pursuant to a plan of reorganization approved by the Growth
and Opportunity Fund shareholders on January 20, 1994. On December 16, 1994, the
Fund acquired the assets and certain liabilities of The Advisors Fund, L.P.
("Advisors Fund"), pursuant to a taxable Plan of Sale and Liquidation approved
by the Advisors Fund shareholders on November 29, 1994. Total shares issued by
the Fund and the total net assets of the Growth and Opportunity Fund and
Advisors Fund as of the respective merger dates are as follows:
<TABLE>
<CAPTION>
Total Net
Shares Assets of Total Net
Issued by Acquired Assets of
Acquired Funds the Fund Funds the Fund
===============================================================================================
<S> <C> <C> <C>
Growth and Opportunity Fund 16,066,277 $129,494,190 $323,293,621
- -----------------------------------------------------------------------------------------------
Advisors Fund 6,712,687 46,719,996 622,030,355
===============================================================================================
</TABLE>
The total net assets of the Growth and Opportunity Fund before acquisition
included unrealized appreciation of $54,843,440. The total net assets of the
Fund immediately after the acquisition of the Growth and Opportunity Fund and
Advisors Fund were $452,787,811 and $668,750,351, respectively.
9. 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 consideration
such factors as the Board deems appropriate.
As of September 30, 1995, the Fund had the following restricted securities:
21
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value Percentage
Per Fair of Total Acquisition
Security Shares Unit Value Net Assets Cost Date
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Warrants:
UnionFed Financial
Corporation,
Warrant expires 1998 571,429 $0.00 $0 0.00% $399,600 10/13/93
=============================================================================================================
</TABLE>
The Fund may purchase securities which are subject to legal or contractual
restrictions on resale if not more than 15% 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.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Shares 1995 1994 1993 1992 1991
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $8.20 $8.42 $7.22 $6.47 $5.34
- --------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.17 0.09 0.07 0.11 0.15
Net realized and unrealized gain
on investments 1.23 0.30 1.65 0.78 1.50
- --------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.40 0.39 1.72 0.89 1.65
- --------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.13) (0.08) (0.06) (0.14) (0.23)
Net realized gains (0.39) (0.53) (0.46) -- (0.29)
Overdistribution of net realized gains (0.42) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.94) (0.61) (0.52) (0.14) (0.52)
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $8.66 $8.20 $8.42 $7.22 $6.47
- --------------------------------------------------------------------------------------------------------------------------
Total Return 19.94% 4.92% 25.23% 14.01% 33.47%
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $386,297 $264,765 $123,118 $77,842 $59,358
- --------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.34% 1.30% 1.45% 1.28% 1.30%
Net investment income 2.19 1.90 1.00 1.57 2.24
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 45% 108% 111% 142% 116%
==========================================================================================================================
Average Commissions $0.05 -- -- -- --
==========================================================================================================================
</TABLE>
22
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class B Shares 1995 1994 1993(a)
==========================================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $8.16 $8.37 $7.31
- ----------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.12 0.09 0.05
Net realized and unrealized gain on investments 1.23 0.25 1.52
- ----------------------------------------------------------------------------------------------------------
Total Income From Operations 1.35 0.34 1.57
- ----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.08) (0.02) (0.05)
Net realized gains (0.39) (0.53) (0.46)
Overdistribution of net realized gains (0.42) -- --
- ----------------------------------------------------------------------------------------------------------
Total Distributions (0.89) (0.55) (0.51)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $8.62 $8.16 $8.37
- ----------------------------------------------------------------------------------------------------------
Total Return 19.19% 4.21% 22.82%++
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $538,759 $361,254 $114,146
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.09% 2.06% 2.26%+
Net investment income 1.44 1.13 0.19+
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 45% 108% 111%
==========================================================================================================
Average Commissions $0.05 -- --
==========================================================================================================
Class C Shares 1995 1994 1993(b)
==========================================================================================================
Net Asset Value, Beginning of Year $8.16 $8.37 $8.15
- ----------------------------------------------------------------------------------------------------------
Income From Operations
Net investment income 0.12 0.05 0.00
Net realized and unrealized gain on investments 1.24 0.29 0.22
- ----------------------------------------------------------------------------------------------------------
Total Income From Operations 1.36 0.34 0.22
- ----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.09) (0.02) --
Net realized gains (0.39) (0.53) --
Overdistribution of net realized gains (0.42) -- --
- ----------------------------------------------------------------------------------------------------------
Total Distributions (0.90) (0.55) --
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $8.62 $8.16 $8.37
- ----------------------------------------------------------------------------------------------------------
Total Return 19.33% 4.24% 2.70%++
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $21,812 $1,652 $308
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.09% 2.23% 2.25%+
Net investment income 1.44 0.96 0.20+
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 45% 108% 111%
==========================================================================================================
Average Commissions $0.05 -- --
==========================================================================================================
</TABLE>
(a) For the period from November 6, 1992 (inception date) to September 30, 1993.
(b) For the period from August 10, 1993 (inception date) to September 30, 1993.
++ Total return is not annualized, as the result may not be representative
of the total return for the year.
+ Annualized.
23
<PAGE>
Smith Barney
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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, including
the portfolio of investments, of Smith Barney Fundamental Value Fund Inc. as of
September 30, 1995, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended September 30, 1995
and 1994, and the financial highlights for each of the years in the five-year
period ended September 30, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
September 30, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such 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, 1995, 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 26, 1995
24
