[GRAPHIC]
SMITH BARNEY
FUNDAMENTAL
VALUE FUND INC.
------------------
SEMI-ANNUAL REPORT
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[GRAPHIC]
March 31, 1997
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.(SM)
<PAGE>
Smith Barney Fundamental
Value Fund Inc.
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The Smith Barney Fundamental Value Fund Inc. seeks long-term growth of capital,
with current income as a secondary objective. The Fund invests primarily in the
stocks of companies believed to be attractively priced relative to the true
value of their assets or business prospects.
<TABLE>
<CAPTION>
NASDAQ SYMBOLS
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<S> <C>
Class A SHFVX
Class B SFVBX
Class C SFVCX
</TABLE>
Smith Barney Fundamental Value Fund Inc.
Average Annual Total Returns Ended
March 31, 1997
<TABLE>
<CAPTION>
Without Sales Charges*
----------------------------------------------------
Class A Class B Class C
===========================================================================
<S> <C> <C> <C>
Six Months 10.87% 10.45% 10.46%
- ---------------------------------------------------------------------------
One-Year 14.95 14.03 14.04
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Five-Year 16.10 N/A N/A
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Ten-Year 12.42 N/A N/A
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Since Inception+ 14.05 15.95 13.90
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<CAPTION>
With Sales Charges**
----------------------------------------------------
Class A Class B Class C
===========================================================================
<S> <C> <C> <C>
Six Months 5.33% 5.45% 9.46%
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One-Year 9.23 9.03 13.04
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Five-Year 14.92 N/A N/A
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Ten-Year 11.84 N/A N/A
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Since Inception+ 13.68 15.81 13.90
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</TABLE>
* Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charge with respect to Class A shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and C
shares.
** Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 5.00% and Class B shares reflect the
deduction of a 5.00% CDSC, which applies if shares are redeemed within one
year from initial purchase. Thereafter, the CDSC 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.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+ Inception dates for Class A, B and C shares are November 12, 1981, November
6, 1992 and August 10, 1993, respectively.
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[GRAPHIC]
" At Smith Barney Mutual Funds, your investment needs come first. Our goal is to
deliver consistent and competitive returns over time using a wide range of
investment strategies."
JESSICA M. BIBLIOWICZ
President,
Smith Barney Fundamental Value Fund Inc.
<TABLE>
<CAPTION>
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WHAT'S INSIDE
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<S> <C>
Shareholder Letter ........................................................ 1
An Interview with Portfolio Manager
John G. Goode ............................................................. 4
Historical Performance .................................................... 6
Smith Barney Fundamental Value Fund Inc.
at a Glance ............................................................... 8
Schedule of Investments ................................................... 9
Statement of Assets and Liabilities ....................................... 13
Statement of Operations ................................................... 14
Statements of Changes in Net Assets ....................................... 15
Notes to Financial Statements ............................................. 16
Financial Highlights ...................................................... 21
</TABLE>
<PAGE>
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Shareholder Letter
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[PHOTO] [PHOTO]
Heath B. McLendon John G. Goode
Chairman and Vice President and
Chief Executive Officer Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney
Fundamental Value Fund Inc. for the period ended March 31, 1997. In this report
we have summarized the period's prevailing economic and market conditions and
outlined our portfolio strategy. A detailed summary of the Fund's performance
can be found in the appropriate sections that follow.
Performance Update
For the six months ended March 31, 1997, the Class A shares of the Fundamental
Value Fund generated a total return of 10.87%. In comparison, the Standard &
Poor's 500 Composite Stock Index ("S&P 500") had a total return of 11.95% over
the same period. (The S&P 500 is a capitalization-weighted measure of 500 widely
held common stocks listed on the New York Stock Exchange, American Stock
Exchange and over-the-counter market.) At the end of January, the Fund lagged
the S&P 500 by a substantial margin as the top 25 to 50 names in the S&P 500
were bid up by index funds and other investors concentrating their buying in the
largest issues. The extreme two-tier market that developed suggested that the
risks were high for the market. As a result, we took several actions that
benefited shareholders during the significant correction that took place during
February and March.
Investment Strategy
The Fundamental Value Fund continued to maintain a defensive posture during this
period. In February we determined that many of the Fund's positions that we like
long term, had reached prices that looked fully valued near term. Our response
was to utilize "collars," a combination of call and put options* that provide
upside potential and yet limit the downside risk in many issues. We believed
that the technology and financial services stocks we held would be particularly
vulnerable should a correction occur and many protective collars were put in
place in these sectors of the Fund's portfolio.
What follows is a description of a collar and its application in the Fund's
portfolio. One of the Fund's holdings had risen to $162 per share earlier in the
quarter and we elected to sell (write) a call for which we received about $10
per share. The call would allow the buyer to purchase this holding from the Fund
at a price of $205 per share at any time up to January 1998. We then used the
$10 (premium) we received for the call to purchase a price per share put option,
which would allow the Fund to sell the holding at a price of $150 per share at
any time up to January 1998. With this approach we maintained substantial upside
potential and limited our downside exposure.
In the correction that occurred late in the first quarter of 1997, the put
options increased substantially in value and the call options declined in price,
which helped offset the market action. As a result, during the last two months
of the quarter, the Fundamental Value Fund's NAV per share declined only 1.22%
versus the 3.36% decline for the stock market as measured by the S&P 500.
Approximately 23% of the Fund's assets were subject to "collars" at the end of
the first quarter.
- ----------
* A call option is a contract that gives you (the buyer) the right, but not
the obligation, to buy a specific quantity of an underlying asset for a
fixed price over a specified period. A put option gives you (the seller)
the right, but again not the obligation, to sell a specific quantity of an
underlying asset for a fixed price over a specified period.
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Smith Barney Fundamental Value Fund Inc. 1
<PAGE>
================================================================================
"The Goldilocks stock market environment (where inflation, economic growth and
interest rates are "just right") probably will give way to a situation where the
economic porridge is either a little too hot or too cold."
================================================================================
In addition, during the first quarter, we substantially increased our Toys "R"
Us and Wal-Mart holdings, because we believed that their share prices
represented outstanding value. In technology, we increased our holdings in Adobe
Systems, whose share price had been depressed because of the Apple-Windows
platform transition. In our view, this company is one of the best long-term
Internet plays. During the quarter, positions in energy were reduced because of
their appreciation and the fact that oil and gas prices are expected to decline
in 1997.
We recently initiated a position in 20-year zero-coupon bonds, believing these
bonds were an equity equivalent with better risk/reward characteristics than
most stocks. As a relative value manager (please see interview on page four), we
monitor the prices and values of one set of assets as compared to another. The
ratio of long-term bond yields to stock yields reached 3.5:1 recently. This
figure is rarely reached, the last time being in September 1987. If rates
continue to increase, zero coupon bond losses would be less, in our estimation,
than for stocks. In addition, lower interest rates could produce substantial
capital gains that might be well above the long-term return from stocks.
Market Commentary
The Goldilocks stock market environment (where inflation, economic growth and
interest rates are "just right") probably will give way to a situation where the
economic porridge is either a little too hot or too cold. In our opinion, rising
interest rates will probably affect the economy much faster than in the past,
because the economic advance over the last few years has been very uneven. Much
of the gain has gone to upper-income individuals; in many cases, the middle
class has only begun to benefit.
Federal Reserve Board Chairman Alan Greenspan's interest rate increase probably
will cause some weakness in the economy to develop in the next few quarters. The
U.S. government, which has important agenda items -- a balanced budget, reform
of Medicare and Medicaid (which are in a near-term crisis) and Social Security
reform -- could see its tax revenues flatten and possibly decline in a weakening
economy. There is very little tolerance for any economic pain and we believe the
federal government will quickly become a cheerleader for renewed growth. This
may be six to twelve months down the road, but when it occurs the stocks and
sectors to be in will be those which are economically sensitive and cyclical in
nature. In our view, the small- and mid-cap companies, which have been major
underperformers in recent years, will again become part of the market's
leadership.
Finally, we believe that inflation will make a moderate comeback, reaching
3 1/2% to 4%. The emphasis on getting the economy growing again will mean
somewhat less concern about inflation and its effects. Sometime in the coming
months it will become important to tilt asset allocations toward natural
resources and so-called hard assets.
We maintain an indicator showing the relationship of financial assets to real
estate and natural resources starting 107 years ago in 1890. In 1996 the
indicator gave the fourth "buy" signal for natural resources versus financial
assets in more than a century. This is not a precise timing tool; however, we
are confident that our indicator is correctly predicting that natural resources
will provide excellent investment opportunities over the next three to five
years.
In light of the current market environment, we will look to make investments
that have favorable
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2 1997 Semi-Annual Report to Shareholders
<PAGE>
risk/reward characteristics while being mindful of heightened risks and the need
to protect principal. We believe this period will give way in the next year or
so to one in which portfolio managers will need to go on the offensive again
with the new market leadership that eventually emerges.
In closing, thank you for investing in the Smith Barney Fundamental Value Fund.
We look forward to continuing to help you achieve your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ John G. Goode
Heath B. McLendon John G. Goode
Chairman Vice President and
Investment Officer
April 21, 1997
<TABLE>
<CAPTION>
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Top Ten Holdings* As of March 31, 1997
================================================================================
<S> <C>
1. Wal-Mart Corp. 3.5%
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2. Adobe Systems Inc. 3.4
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3. Toys "R" Us Inc. 3.4
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4. American International Group Inc. 3.1
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5. Amoco Corp. 3.1
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6. PG & E Corp. 3.0
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7. American Express Co. 2.9
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8. Spieker Properties Inc. 2.9
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9. Citicorp 2.8
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10. AMR Corp. 2.6
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</TABLE>
* As a percentage of total common stocks.
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Smith Barney Fundamental Value Fund Inc. 3
<PAGE>
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A Conversation with Portfolio Manager
John G. Goode
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John G. Goode, Portfolio Manager of the Smith Barney Fundamental Value Fund,
Inc. recently discussed his relative value approach to investing and how it can
help protect assets during rough markets. Mr. Goode is a Managing Director of
Smith Barney and has more than 28 years of investment management experience,
covering both research and portfolio management. He assumed management of the
Fundamental Value Fund in November 1990.
John, how does your value investing approach differ from that of other value
managers?
John: I think many managers view value as an absolute term. They look for stocks
with either low P/E's or dividend yields above a certain threshold. This
strategy works fairly well when values are generally low. But when valuations
for most stocks are high -- as they were in 1995 and 1996 -- you can run out
of investment candidates.
We concentrate instead on what we call relative value and ask: Are stocks
currently more attractive than bonds? Do technology stocks have more appeal than
financial stocks? And within a particular sector, which stocks look most
promising relative to others? When you look at the investment universe from this
point of view, you're always in the game; you're never at a loss when it comes
to uncovering new investment opportunities.
So you try to identify stocks that are inexpensive relative to other stocks?
John: That's true. But we are not looking for inexpensive stocks simply because
we love a bargain. Our real goal is to limit risk without sacrificing upside
potential. That means we will often buy a stock that may have a wart or blemish
- -- something that makes the stock appear undesirable to most investors. Our job
is to look beyond the blemishes and identify companies that have the potential
to succeed going forward, as opposed to companies that have very limited
prospects. So you can call us contrarians or describe us as being opportunistic.
But what we are trying to do as relative value managers is to buy merchandise
intelligently.
John, what about the various sectors of the stock market? Does your investment
management approach sometimes lead you into areas that other value managers may
avoid?
John: Absolutely. For example, we will buy select biotechnology stocks if we
believe they look attractive on a relative basis. The biotechnology industry is
usually considered far beyond the scope of a typical value manager. In many
cases these companies have no earnings to speak of and the potential payoff can
be way out in the future. But we will buy select biotechnology issues on
occasion if they make sense to us.
Could you give us some other examples of your nontraditional sector allocations?
John: One very good example would be our zero-coupon bonds. Not long ago our
relative value research indicated that zeroes had the single best risk/reward
ratio in the financial markets. We established a 2 percent position in the
Fundamental Value Fund in 20-year zero-coupon bonds and we may add to our
holdings in that area.
John, that is a very interesting investment decision. The conventional wisdom
right now is that the Federal Reserve Board will likely raise short-term rates a
notch or two in the near term, which would obviously have a negative impact on
the prices of zero-coupon bonds. How would you address these concerns?
John: My answer is that short-term rates do not necessarily translate into
long-term trends.
During 1996, you owned Real Estate Investment Trusts (REITs). Was this done to
add more diversification to the Fund?
John: Yes. However, we also believed that REITs represented an outstanding
opportunity. At the beginning of 1996, the commercial real estate market was
look-
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4 1997 Semi-Annual Report to Shareholders
<PAGE>
ing bleak (and had been for years). As a result, most growth managers were
keeping their distance. But when an asset category is down and nobody's talking
about it, we usually are poking around near it. We gradually built up our REIT
holdings and now are happy to report that sector outperformed the S&P 500 by a
considerable margin last year.
Since sector selection is an integral aspect of your investment approach, does
that mean you rely on fundamental economic research in your overall strategy?
John: Sure. But we also place a great deal of emphasis on choosing individual
stocks, and our approach combines the top-down and bottom-up disciplines. Once
we focus on a sector that looks promising from a given economic perspective, we
will crunch the numbers very carefully on individual stocks within that sector.
We also visit a large number of companies every year to get a first-hand
perspective on their managements.
John, right now small-cap stocks look very attractive relative to the bigger,
well-established companies. Is your relative value approach signaling that
small-cap stocks are due for a rebound?
John: While it is true that there are some terrific values in select small-cap
stocks, you cannot ignore market sentiment and dynamics. In other words, are
small-cap stock prices so compelling that investors would be willing to sell
their "nifty fifty" holdings and buy small caps aggressively? We don't think so.
While that may change within the next twelve months, we believe it's too early
to make an all-out push for small-cap stocks.
The Fundamental Value Fund typically holds fewer stocks than the average growth
fund. Why is that?
John: We like to avoid what we call "closet indexation." In many cases, as fund
assets grow, many managers buy more and more issues and their portfolios
gradually begin to resemble the overall market. Instead, we would rather have
concentrated positions in companies we really like as opposed to diluting the
Fund to the point where it resembles a market index.
John, how did you become interested in the financial markets? Is there anything
particular in your background that helped you become a portfolio manager?
John: I grew up on a small farm in central California and learned a lot about
farm prices and agricultural economics just sitting at the dinner table. But the
biggest lesson I learned then was to never take anything for granted. Maybe
there is a bumper crop ready to be harvested; but then all of a sudden it rains
for days, or a severe hail storm develops and all bets are off. I believe my
conservative approach as a portfolio manager stems directly from those kinds of
formative experiences.
Fundamental Value Fund shareholders should understand that we have done a
reasonably good job of helping preserve their assets during some rough markets.
However, during times of turmoil it often becomes easier to identify promising
ideas that could pay off handsomely a year or two down the road. So in one sense
we actually enjoy periods like the months leading up to the end of the reporting
period more than less volatile periods. A challenging stock market causes our
adrenaline to flow faster and we generally become more excited about our future
prospects when the markets become more turbulent.
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Smith Barney Fundamental Value Fund Inc. 5
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
Historical Performance -- Class A Shares
================================================================================================================================
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
3/31/97 $9.31 $9.73 $0.13 $0.44 10.87%+
- --------------------------------------------------------------------------------------------------------------------------------
9/30/96 8.66 9.31 0.19 0.37 14.73
- --------------------------------------------------------------------------------------------------------------------------------
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
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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
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Total $1.82 $5.57
================================================================================================================================
<CAPTION>
================================================================================================================================
Historical Performance -- Class B Shares
================================================================================================================================
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
3/31/97 $9.26 $9.71 $0.06 $0.44 10.45%+
- --------------------------------------------------------------------------------------------------------------------------------
9/30/96 8.62 9.26 0.13 0.37 13.82
- --------------------------------------------------------------------------------------------------------------------------------
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 $0.34 $2.61
================================================================================================================================
<CAPTION>
================================================================================================================================
Historical Performance -- Class C Shares
================================================================================================================================
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
3/31/97 $9.26 $9.71 $0.06 $0.44 10.46%+
- --------------------------------------------------------------------------------------------------------------------------------
9/30/96 8.62 9.26 0.13 0.37 13.82
- --------------------------------------------------------------------------------------------------------------------------------
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+
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Total $0.30 $2.15
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</TABLE>
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6 1997 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
Historical Performance -- Class Y Shares
================================================================================================================================
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns+(1)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
3/31/97 $9.32 $9.73 $0.16 $0.44 11.04%
- --------------------------------------------------------------------------------------------------------------------------------
Inception* -- 9/30/96 8.78 9.32 0.00 0.00 6.15++
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Total $0.16 $0.44
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</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
<TABLE>
<CAPTION>
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Average Annual Total Return
====================================================================================================================================
Without Sales Charge(1)
---------------------------------------------------------------
Class A Class B Class C Class Y
====================================================================================================================================
<S> <C> <C> <C> <C>
Six Months Ended 3/31/97+ 10.87% 10.45% 10.46% 11.04%
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended 3/31/97 14.95 14.03 14.04 15.24
- ------------------------------------------------------------------------------------------------------------------------------------
Five Years Ended 3/31/97 16.10 N/A N/A N/A
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Ten Years Ended 3/31/97 12.42 N/A N/A N/A
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Inception* through 3/31/97 14.05 15.95 13.90 15.01++
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
With Sales Charge(2)
---------------------------------------------------------------
Class A Class B Class C Class Y
====================================================================================================================================
<S> <C> <C> <C> <C>
Six Months Ended 3/31/97+ 5.33% 5.45% 9.46% 11.04%
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended 3/31/97 9.23 9.03 13.04 15.24
- ------------------------------------------------------------------------------------------------------------------------------------
Five Years Ended 3/31/97 14.92 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 3/31/97 11.84 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* through 3/31/97 13.68 15.81 13.90 15.01++
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Cumulative Total Return
================================================================================
Without Sales Charge(1)
================================================================================
<S> <C>
Class A (3/31/87 through 3/31/97) 222.37%
- --------------------------------------------------------------------------------
Class B (Inception* through 3/31/97) 91.79
- --------------------------------------------------------------------------------
Class C (Inception* through 3/31/97) 60.62
- --------------------------------------------------------------------------------
Class Y (Inception* through 3/31/97) 17.87++
================================================================================
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A 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, if
any, 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 within one
year from initial purchase. Thereafter, the CDSC 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, C and Y shares are November 12, 1981,
November 6, 1992, August 10, 1993 and October 13, 1995, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
++ During November 1995 Class Y shares were fully redeemed, therefore
performance for Class Y shares represents performance for the period
beginning January 31, 1996, which represents the date new share purchases
were made into this class.
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Smith Barney Fundamental Value Fund Inc. 7
<PAGE>
================================================================================
Smith Barney Fundamental Value Fund Inc. at a Glance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A Shares of the
Smith Barney Fundamental Value Fund Inc. vs. Standard & Poor's 500 Index*
- --------------------------------------------------------------------------------
March 1987 -- March 1997
[GRAPHIC]
<TABLE>
<CAPTION>
Smith Barney Standard & Poor's
Fundamental Value Fund Inc. 500 Index
--------------------------- ---------
<S> <C> <C>
Mar--1987 $ 9,500 $10,000
Sep--1987 10,450 11,195
Sep--1988 9,727 9,808
Sep--1989 11,989 13,041
Sep--1990 12,269 11,835
Sep--1991 13,401 15,515
Sep--1992 15,279 17,227
Sep--1993 19,133 19,462
Sep--1994 20,073 20,178
Sep--1995 24,076 26,173
Sep--1996 27,622 31,489
Mar--1987 30,626 35,028
</TABLE>
* Hypothetical illustration of $10,000 invested in Class A shares on March
31, 1987, assuming deduction of the maximum 5.00% sales charge at the time
of investment and reinvestment of dividends and capital gains, if any, at
net asset value through March 31, 1997, compared to the Standard & Poor's
500 Index. The index is 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 as 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 values may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
Industry Diversification of Common Stocks*
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[GRAPHIC]
<TABLE>
<S> <C>
Banking and Finance 9.9%
Energy and Energy Services 12.4%
Entertainment 4.2%
Health Care 8.9%
Insurance 7.6%
Real Estate 9.6%
Retail 6.9%
Technology-Computers 13.1%
Telecommunications 8.1%
Transportation 5.5%
Other 13.8%
</TABLE>
* As a percentage of total common stocks.
Investment Breakdown
- --------------------------------------------------------------------------------
[GRAPHIC]
<TABLE>
<S> <C>
Common Stocks 80.1%
Convertible Preferred Stock,
Foreign Common Stock and Warrant 1.1%
U.S. Government Obligation 2.0%
Options Purchased 2.2%
Repurchase Agreements 14.6%
</TABLE>
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8 1997 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited) March 31, 1997
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
COMMON STOCKS 80.1%
Banking and Finance -- 7.9%
575,000 American Express Co.+ $34,428,125
300,000 BankAmerica Corp.+ 30,225,000
300,000 Citicorp+ 32,475,000
656,100 H & R Block, Inc. 19,272,938
- ------------------------------------------------------------------------------------------------------------------------------------
116,401,063
- ------------------------------------------------------------------------------------------------------------------------------------
Beverages -- 2.2%
286,800 Anheuser-Busch Cos. Inc. 12,081,450
600,000 PepsiCo., Inc. 19,575,000
- ------------------------------------------------------------------------------------------------------------------------------------
31,656,450
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals -- 1.8%
250,000 E.I. du Pont de Nemours & Co. 26,500,000
- ------------------------------------------------------------------------------------------------------------------------------------
Energy and Energy Services -- 9.9%
250,000 Amerada Hess Corp. 13,250,000
425,000 Amoco Corp. 36,815,625
900,000 Dresser Industries Inc. 27,225,000
484,400 Mitchell Energy & Development Corp., Class A Shares 9,809,100
642,000 Mitchell Energy & Development Corp., Class B Shares 13,161,000
800,000 Oryx Energy Co.++ 15,400,000
175,000 Royal Dutch Petroleum Co. 30,625,000
- ------------------------------------------------------------------------------------------------------------------------------------
146,285,725
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment -- 3.3%
525,000 Time Warner Inc. 22,706,250
800,000 Viacom Inc., Class B Shares++ 26,500,000
- ------------------------------------------------------------------------------------------------------------------------------------
49,206,250
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care -- 7.1%
710,000 Advanced Polymer Systems Inc.++ 5,502,500
200,000 ALZA Corp.++ 5,500,000
260,000 Aphton Corp.++ 3,640,000
500,000 Johnson & Johnson+ 26,437,500
150,000 Merck & Co. Inc. 12,637,500
266 Molecular Biosystems Inc.++ 2,426
750,000 Pharmacia & Upjohn Inc. 27,468,750
500,000 United Healthcare Corp. 23,812,500
- ------------------------------------------------------------------------------------------------------------------------------------
105,001,176
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance -- 6.1%
275,800 Aetna Inc. 23,684,325
312,500 American International Group Inc. 36,679,688
200,000 Cigna Corp. 29,225,000
- ------------------------------------------------------------------------------------------------------------------------------------
89,589,013
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturing -- 2.2%
357,000 Minnesota Mining and Manufacturing+ 30,166,500
235,693 Optical Coating Laboratory, Inc. 2,327,468
- ------------------------------------------------------------------------------------------------------------------------------------
32,493,968
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 9
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited) (continued) March 31, 1997
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
Natural Resources -- 2.5%
650,900 American Exploration Co.++ $ 7,322,625
1,780,500 Asia Pacific Resource International, Class A Shares++ 8,568,656
300,000 Cyprus Amax Minerals Co. 7,125,000
829,400 Santa Fe Pacific Gold Corp. 13,685,100
- ------------------------------------------------------------------------------------------------------------------------------------
36,701,381
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate -- 7.7%
915,000 Del Webb Corp. 14,182,500
703,200 Irvine Apartment Communities Inc. 19,953,300
588,235 Rouse Co. 17,205,874
875,200 Spieker Properties Inc. 34,132,800
875,000 TriNet Corporate Realty Trust Inc. 27,671,875
- ------------------------------------------------------------------------------------------------------------------------------------
113,146,349
- ------------------------------------------------------------------------------------------------------------------------------------
Retail -- 5.6%
1,450,000 Toys "R" Us Inc.++ 40,600,000
1,475,000 Wal-Mart Corp. 41,115,625
- ------------------------------------------------------------------------------------------------------------------------------------
81,715,625
- ------------------------------------------------------------------------------------------------------------------------------------
Technology - Computers -- 10.5%
1,000,000 Adobe Systems Inc.+ 40,125,000
200,000 Intel Corp.+ 27,825,000
200,000 International Business Machines Corp.+ 27,475,000
600,000 Mentor Graphics Corp.++ 5,025,000
200,000 Motorola, Inc. 12,075,000
445,000 NCR Corp.++ 15,686,250
350,000 Texas Instruments, Inc.+ 26,206,250
- ------------------------------------------------------------------------------------------------------------------------------------
154,417,500
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications -- 6.5%
800,000 American Telephone & Telegraph Corp. 27,800,000
664,900 Comsat Corp. 16,206,938
800,000 Cox Communications Inc.++ 16,500,000
213,600 General DataComm Industries, Inc.++ 1,415,100
200,000 Nextel Communications, Inc.++ 2,675,000
360,000 Scientific-Atlanta Corp. 5,490,000
2,100,000 Tele-Communications, Inc., Class A Shares++ 25,200,000
- ------------------------------------------------------------------------------------------------------------------------------------
95,287,038
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation -- 4.4%
375,000 AMR Corp.+++ 30,937,500
1,000,000 Fritz Cos., Inc.++ 9,687,500
2,000,000 Fruehauf Trailer Corp.++ 120,000
425,000 General Motors Corp.+ 23,534,375
- ------------------------------------------------------------------------------------------------------------------------------------
64,279,375
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities -- 2.4%
1,500,000 PG & E Corp. 35,250,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost-- $923,537,089) 1,177,930,913
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1997 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited) (continued) March 31, 1997
====================================================================================================================================
SHARES SECURITY VALUE
<S> <C> <C> <C>
CONVERTIBLE PREFERRED STOCK -- 0.2%
Natural Resources -- 0.2%
128,000 American Exploration Co., Series C, Exchange 9.00%
(Cost-- $3,200,000) $ 3,744,000
====================================================================================================================================
FOREIGN COMMON STOCK -- 0.9%
10,147,928 Normandy Mining Limited ADR
(Cost-- $15,553,999) 13,770,069
====================================================================================================================================
WARRANT -- 0.0%
571,429 UnionFed Financial Corp., Expire 12/29/98 #
(Cost-- $0) 0
====================================================================================================================================
OPTIONS PURCHASED -- 2.2%
1,000,000 Adobe Systems Co. Put @ 35, Expire 1/17/98 3,500,000
175,000 American Express Co. Put @ 60, Expire 1/17/98 1,432,813
400,000 American Express Co. Put @ 65, Expire 1/17/98 2,100,000
375,000 AMR Corp. Put @ 75, Expire 1/17/98 1,617,188
300,000 BankAmerica Corp. Put @ 110, Expire 1/17/98 4,387,500
300,000 Citicorp Put @ 110, Expire 1/17/98 2,925,000
425,000 General Motors Corp. Put @ 55, Expire 1/17/98 1,885,938
150,000 Intel Corp. Put @ 140, Expire 1/17/98 2,400,000
50,000 Intel Corp. Put @ 150, Expire 1/17/98 1,062,500
200,000 International Business Machines Corp. Put @ 140, Expire 1/17/98 2,700,000
500,000 Johnson & Johnson Put @ 55, Expire 1/17/98 2,750,000
357,000 Minnesota Mining & Maunfacturing Put @ 85, Expire 10/18/97 2,075,063
100,000 Texas Instruments, Inc. Put @ 70, Expire 1/17/97 662,500
250,000 Texas Instruments, Inc. Put @ 75, Expire 1/17/97 2,218,750
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED
(Cost-- $23,030,065) 31,717,250
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
====================================================================================================================================
U.S. GOVERNMENT OBLIGATION -- 2.0%
<S> <C> <C>
$ 130,000,000 U.S. Treasury Strip, zero coupon due 5/15/17
(Cost-- $30,998,103) 30,240,600
====================================================================================================================================
SUB-TOTAL INVESTMENTS
(Cost-- $996,319,256) 1,257,402,832
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 11
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited) (continued) March 31, 1997
====================================================================================================================================
FACE
AMOUNT SECURITY VALUE
====================================================================================================================================
REPURCHASE AGREEMENTS -- 14.6%
<S> <C> <C>
$ 179,102,000 Union Bank of Switzerland, 6.363% due 4/1/97; Proceeds at
maturity -- $179,133,656; ( Fully collateralized by U.S. Treasury
Notes, 6.375% due 3/31/01; Market value-- $182,687,500) $ 179,102,000
20,898,000 Union Bank of Switzerland, 6.363% due 4/1/97; Proceeds at
maturity -- $20,901,694; (Fully collateralized by U.S. Treasury
Bills due 9/25/97; Market value-- $21,316,068) 20,898,000
14,234,000 Goldman Sachs & Co., 6.444% due 4/1/97; Proceeds at
maturity -- $14,236,548; (Fully collateralized by U.S. Treasury
Notes, 4.750% due 10/31/98; Market value-- $14,525,865) 14,234,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost $214,234,000) 214,234,000
====================================================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $1,210,553,256*) $1,471,636,832
====================================================================================================================================
</TABLE>
+ Security segregated by Custodian to cover written call options.
++ Non-income producing security.
# Restricted security (See Note 7).
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1997 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================
Statement of Assets and Liabilities (unaudited) March 31, 1997
==========================================================================================
<S> <C>
ASSETS:
Investments, at value (Cost -- $996,319,256) $1,257,402,832
Repurchase agreements (Cost -- $214,234,000) 214,234,000
Receivable for Fund shares sold 2,028,846
Dividends and interest receivable 2,453,097
- ------------------------------------------------------------------------------------------
Total Assets 1,476,118,775
- ------------------------------------------------------------------------------------------
LIABILITIES:
Options written (Note 5) 13,091,156
Payable for securities purchased 1,130,804
Investment advisory fees payable 669,612
Distribution fees payable 291,920
Administration fees payable 276,571
Payable for Fund shares purchased 28,381
Accrued expenses 358,228
- ------------------------------------------------------------------------------------------
Total Liabilities 15,846,672
- ------------------------------------------------------------------------------------------
Total Net Assets $1,460,272,103
==========================================================================================
NET ASSETS:
Par value of capital shares $ 150,308
Capital paid in excess of par value 1,151,690,430
Undistributed net investment income 6,582,962
Accumulated net realized gain from security transactions and options 33,089,968
Net unrealized appreciation of investments and options 268,758,435
- ------------------------------------------------------------------------------------------
Total Net Assets $1,460,272,103
==========================================================================================
Shares Outstanding:
Class A 53,302,485
-------------------------------------------------------------------------------------
Class B 83,750,368
-------------------------------------------------------------------------------------
Class C 5,938,819
-------------------------------------------------------------------------------------
Class Y 7,316,433
-------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 9.73
- ------------------------------------------------------------------------------------------
Class B* $ 9.71
-------------------------------------------------------------------------------------
Class C** $ 9.71
-------------------------------------------------------------------------------------
Class Y (and redemption price) $ 9.73
-------------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per share) $10.24
==========================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within 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.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 13
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================
Statement of Operations (unaudited) For the Six Months Ended March 31, 1997
===========================================================================================
<S> <C>
INVESTMENT INCOME:
Dividends $ 10,273,775
Interest 7,132,004
Less: Foreign withholding tax (90,173)
- -------------------------------------------------------------------------------------------
Total Investment Income 17,315,606
- -------------------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 3) 4,751,934
Investment advisory fees (Note 3) 3,806,897
Administration fees (Note 3) 1,384,326
Shareholder and system servicing fees 599,227
Shareholder communications 174,043
Registration fees 88,512
Audit and legal 46,244
Custody 43,261
Directors' fees 22,377
Other 17,902
- -------------------------------------------------------------------------------------------
Total Expenses 10,934,723
- -------------------------------------------------------------------------------------------
Net Investment Income 6,380,883
- -------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS, OPTIONS AND FOREIGN CURRENCIES
(NOTES 4 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) 37,689,453
Options purchased (2,451,458)
Options written 1,190,475
Foreign currency transactions (2,646)
- -------------------------------------------------------------------------------------------
Net Realized Gain 36,425,824
- -------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments
and Options:
Beginning of period 176,655,866
End of period 268,758,435
- -------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 92,102,569
- -------------------------------------------------------------------------------------------
Net Gain on Investments, Options and Foreign Currencies 128,528,393
- -------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 134,909,276
===========================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1997 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
For the Six Months Ended March 31, 1997 (unaudited)
and the Year Ended September 30, 1996
1997 1996
===========================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 6,380,883 $ 14,687,764
Net realized gain 36,425,824 74,028,199
Increase in net unrealized appreciation 92,102,569 52,597,728
- -------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 134,909,276 141,313,691
- -------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM :
Net investment income (13,542,816) (18,028,339)
Net realized gains (59,901,402) (41,415,528)
- -------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (73,444,218) (59,443,867)
- -------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 192,746,635 360,705,847
Net asset value of shares issued for reinvestment
of dividends 67,806,116 57,520,992
Cost of shares reacquired (112,685,411) (196,026,058)
- -------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 147,867,340 222,200,781
- -------------------------------------------------------------------------------------------
Increase in Net Assets 209,332,398 304,070,605
NET ASSETS:
Beginning of period 1,250,939,705 946,869,100
- -------------------------------------------------------------------------------------------
End of period* $ 1,460,272,103 $ 1,250,939,705
===========================================================================================
* Includes undistributed net investment income of: $ 6,582,962 $ 13,747,541
===========================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 15
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
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)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing prices on such markets;
securities for which no sales price was reported and U.S. Government and Agency
obligations are valued at the mean between bid and ask price; (c) securities
maturing within 60 days are valued at cost plus accreted discount, or minus
amortized premium, which approximates value; (d) dividend income is recorded on
the ex-dividend date; foreign dividends are recorded on the earlier of the
ex-dividend date or as soon as practical after the Fund determines the existence
of a dividend declaration after exercising reasonable due diligence; interest
income is recorded on the accrual basis; (e) realized gains or losses on the
sale of securities are calculated based on the specific identification method;
(f) direct expenses are charged to each class; management fees and general fund
expenses are allocated on the basis of relative net assets; (g) dividends and
distributions to shareholders are recorded by the Fund on the ex-dividend date;
(h) 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; (i) the Fund intends to comply with the applicable provisions of
the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes; and (j)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ.
In addition, the Fund may enter into forward foreign currency 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.
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. Investment Advisory Agreement and Other Transactions
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment adviser of the Fund. Effective
March 25, 1997, the Fund pays SBMFM an advisory fee calculated at an annual rate
of 0.55% of the average daily net assets up to $1.5 billion and
- --------------------------------------------------------------------------------
16 1997 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
0.50% of the average daily net assets in excess of $1.5 billion. 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.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of Fund
shares. For the six months ended March 31, 1997, SB received brokerage
commissions of $27,396 and sales charges of approximately $487,000 on sales of
the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B shares,
which applies if redemption occurs within one year from initial purchase and
declines thereafter by 1.00% per year until no CDSC is incurred. Class C shares
have a 1.00% CDSC, which applies if redemption occurs within the first year of
purchase. For the six months ended March 31, 1997, CDSCs paid to SB were:
<TABLE>
<CAPTION>
Class B Class C
================================================================================
<S> <C> <C>
CDSCs $533,000 $7,000
================================================================================
</TABLE>
Pursuant to a Distribution Plan, the Fund 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 respective class. The Fund also 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 of each class, respectively. For the six
months ended March 31, 1997, total Distribution Plan fees incurred were:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Distribution Plan Fees $622,754 $3,870,800 $258,380
================================================================================
</TABLE>
All officers and one Director of the Fund are employees of SB.
4. Investments
During the six months ended March 31, 1997, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities), which is substantially the same for Federal income tax
purposes were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $351,456,600
- --------------------------------------------------------------------------------
Sales 218,434,084
================================================================================
</TABLE>
At March 31, 1997, the gross unrealized appreciation and depreciation of
investments for Federal income tax purposes was substantially as follows:
<TABLE>
================================================================================
<S> <C>
Gross unrealized appreciation $295,990,413
Gross unrealized depreciation (34,906,837)
- --------------------------------------------------------------------------------
Net unrealized appreciation $261,083,576
================================================================================
</TABLE>
5. Option Contracts
Premiums paid when put or call options are purchased by the Fund represent
investments which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are greater
or less than the premium paid for the option. When the Fund exercises a put
option, it will realize a gain or loss from the sale of the underlying security
and the proceeds from such sale will be decreased by the 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.
As of March 31, 1997, the Fund held fourteen purchase put options with a total
cost of $23,030,065.
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
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 17
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
received when the option was written) without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
eliminated. When a call option is exercised the proceeds 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. When written index options are
exercised, settlement is made in cash. The risk associated with purchasing
options is limited to the premium originally paid. The Fund enters into options
for hedging purposes. The risk in writing a call option is that the Fund gives
up the opportunity to participate in any increase in the price of the underlying
security beyond the exercise price. The risk in writing a put option is that the
Fund is exposed to the risk of loss if the market price of the underlying
security declines.
The following covered call option transactions occurred during the six months
ended March 31, 1997:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
=========================================================================================
<S> <C> <C>
Options written, outstanding at September 30, 1996 16,150 $ 2,117,533
Options written during the six months ended March 31, 1997 68,550 23,467,681
Options cancelled in closing purchase transactions (7,650) (1,692,423)
Options expired (23,127) (2,459,809)
Options exercised (8,103) (666,967)
- -----------------------------------------------------------------------------------------
Options written, outstanding at March 31, 1997 45,820 $ 20,766,015
=========================================================================================
</TABLE>
The following represents the covered call option written contracts open as of
March 31, 1997:
<TABLE>
<CAPTION>
Number of Strike
Contracts Expiration Price Value
==============================================================================================
<C> <S> <C> <C> <C>
10,000 Adobe Systems Inc. 1/17/98 $ 55 $(3,125,000)
1,750 American Express Co. 1/17/98 75 (377,344)
4,000 American Express Co. 1/17/98 80 (462,500)
3,750 AMR Corp. 1/17/97 95 (2,109,374)
3,000 BankAmerica Co. 1/17/98 140 (581,250)
3,000 Citicorp 1/17/98 140 (843,750)
4,250 General Motors Corp. 1/17/98 70 (504,688)
2,000 Intel Corp. 1/17/98 205 (762,500)
2,000 International Business Machines Corp. 1/17/98 180 (812,500)
5,000 Johnson & Johnson 1/17/98 65 (1,093,750)
3,570 Minnesota Mining & Manufacturing 10/18/97 100 (624,750)
3,500 Texas Instruments, Inc. 1/17/97 95 (1,793,750)
- ----------------------------------------------------------------------------------------------
Total Covered Call Options Written
(Premiums received-- $20,766,015) $(13,091,156)
==============================================================================================
</TABLE>
6. Capital Shares
At March 31, 1997, the Fund had one billion shares of capital stock authorized
with a par value of $0.001 per share. The Fund has the ability to issue multiple
classes of shares. Each share of a class represents an identical interest in the
Fund and has the same rights, except that each class bears certain expenses
specifically related to the distribution of its shares.
At March 31, 1997, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Amount
================================================================================
<S> <C>
Class A $404,495,903
- --------------------------------------------------------------------------------
Class B 629,065,283
- --------------------------------------------------------------------------------
Class C 50,465,538
- --------------------------------------------------------------------------------
Class Y 67,814,014
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
18 1997 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1997 September 30, 1996*
--------------------------- ----------------------------
Shares Amount Shares Amount
================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 5,325,564 $ 51,459,958 10,423,305 $ 93,133,169
Shares issued on reinvestment 2,932,597 27,939,714 2,934,418 24,876,739
Shares redeemed (4,191,374) (40,500,447) (8,696,068) (75,368,489)
- ------------------------------------------------------------------------------------------------
Net Increase 4,066,787 $ 38,899,225 4,661,655 $ 42,641,419
================================================================================================
Class B
Shares sold 10,688,329 $ 102,916,030 21,765,620 $ 192,072,988
Shares issued on reinvestment 3,953,347 37,410,822 3,695,941 31,218,519
Shares redeemed (6,900,512) (66,481,711) (11,904,915) (107,172,303)
- ------------------------------------------------------------------------------------------------
Net Increase 7,741,164 $ 73,845,141 13,556,646 $ 116,119,204
================================================================================================
Class C
Shares sold 1,461,049 $ 14,082,750 2,925,320 $ 25,823,035
Shares issued on reinvestment 259,478 2,455,580 168,804 1,425,734
Shares redeemed (593,367) (5,703,253) (811,710) (7,334,728)
- ------------------------------------------------------------------------------------------------
Net Increase 1,127,160 $ 10,835,077 2,282,414 $ 19,914,041
================================================================================================
Class Y
Shares sold 2,527,548 $ 24,287,897 5,505,522 $ 49,676,655
Shares issued on reinvestment -- -- -- --
Shares redeemed -- -- (716,637) (6,150,538)
- ------------------------------------------------------------------------------------------------
Net Increase 2,527,548 $ 24,287,897 4,788,885 $ 43,526,117
================================================================================================
</TABLE>
* For Class Y shares, transactions are for the period from October 13, 1995
(inception date) to September 30, 1996.
7. Restricted Security
The following security held by the Fund on March 31, 1997, is a restricted
security under the Federal securities laws and is valued at fair value in good
faith by, or under the direction of, the Fund's Board of Directors taking into
consideration the appropriate economic, financial and other pertinent available
information pertaining to this security.
<TABLE>
<CAPTION>
Value Percentage
Acquisition Per Fair of Total
Security Date Shares Unit Value Net Assets Cost
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
UnionFed Financial Corp., Warrants,
Expire 12/29/98 10/13/93 571,429 $0.00 $0 0.00% $0
=====================================================================================================================
</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.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 19
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
8. Lending of Portfolio Securities
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations, and receives a lenders fee, which is shared 60% by the Fund and
40% by the custodian. Fees earned by the Fund on securities lending are recorded
in interest income. Loans of securities by the Fund are collateralized by cash,
U.S. Government securities or high quality money market instruments that are
maintained at all times in an amount at least equal to the current market value
of the loaned securities, plus a margin which may vary between 2% and 5%
depending on the type of securities loaned. The custodian establishes and
maintains the collateral in a segregated account. The Fund has market risk on
the collateral received.
At March 31, 1997, the Fund had no securities on loan.
- --------------------------------------------------------------------------------
20 1997 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class A Shares(1) 1997(2) 1996 1995 1994 1993
====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.31 $8.66 $8.20 $8.42 $7.22
- --------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.06 0.20 0.17 0.09 0.07
Net realized and unrealized gain 0.93 1.01 1.23 0.30 1.65
- --------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.99 1.21 1.40 0.39 1.72
- --------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.13) (0.19) (0.13) (0.08) (0.06)
Net realized gains (0.44) (0.37) (0.81) (0.53) (0.46)
- --------------------------------------------------------------------------------------------------------------------
Total Distributions (0.57) (0.56) (0.94) (0.61) (0.52)
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.73 $9.31 $8.66 $8.20 $8.42
- --------------------------------------------------------------------------------------------------------------------
Total Return 10.87%++ 14.73% 19.94% 4.92% 25.23%
- --------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $518,483 $458,208 $386,297 $264,765 $123,118
- --------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.14%+ 1.22% 1.34% 1.30% 1.45%
Net investment income 1.36+ 2.32 2.19 1.90 1.00
- --------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 20% 57% 45% 108% 111%
- --------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(3) $0.05 $0.05 $0.05 -- --
====================================================================================================================
</TABLE>
(1) Certain prior year numbers have been restated to reflect current years
presentation. Net investment income, net realized gains and net assets were
not affected.
(2) For the six months ended March 31, 1997 (unaudited).
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 21
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class B Shares(1) 1997(2) 1996 1995 1994 1993(3)
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.26 $8.62 $8.16 $8.37 $7.31
- -----------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.02 0.13 0.12 0.09 0.05
Net realized and unrealized gain 0.93 1.01 1.23 0.25 1.52
- -----------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.95 1.14 1.35 0.34 1.57
- -----------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.06) (0.13) (0.08) (0.02) (0.05)
Net realized gains (0.44) (0.37) (0.81) (0.53) (0.46)
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.50) (0.89) (0.55) (0.51)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.71 $9.26 $8.62 $8.16 $8.37
- ----------------------------------------------------------------------------------------------------------------------
Total Return 10.45%++ 13.82% 19.19% 4.21% 22.82%++
- -----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $812,923 $703,552 $538,759 $361,254 $114,146
- -----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.90%+ 1.97% 2.09% 2.06% 2.26%+
Net investment income 0.60+ 1.56 1.44 1.13 0.19+
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 20% 57% 45% 108% 111%
- -----------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4) $0.05 $0.05 $0.05 -- --
=======================================================================================================================
</TABLE>
(1) Certain prior year numbers have been restated to reflect current years
presentation. Net investment income, net realized gains and net assets were
not affected.
(2) For the six months ended March 31, 1997 (unaudited).
(3) For the period from November 6, 1992 (inception date) to September 30,
1993.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
22 1997 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class C Shares(1) 1997(2) 1996 1995 1994 1993(3)
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.26 $8.62 $8.16 $8.37 $8.15
- -----------------------------------------------------------------------------------------------------------------
Income From Operations
Net investment income 0.02 0.14 0.12 0.05 0.00
Net realized and unrealized gain 0.93 1.00 1.24 0.29 0.22
- -----------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.95 1.14 1.36 0.34 0.22
- -----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.06) (0.13) (0.09) (0.02) --
Net realized gains (0.44) (0.37) (0.81) (0.53) --
- -----------------------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.50) (0.90) (0.55) --
Net Asset Value, End of Period $9.71 $9.26 $8.62 $8.16 $8.37
- -----------------------------------------------------------------------------------------------------------------
Total Return 10.46%++ 13.82% 19.33% 4.24% 2.70%++
- -----------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $57,647 $44,539 $21,812 $1,652 $308
- -----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.89%+ 1.96% 2.09% 2.23% 2.25%+
Net investment income 0.62+ 1.52 1.44 0.96 0.20+
- -----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 20% 57% 45% 108% 111%
- -----------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4) $0.05 $0.05 $0.05 -- --
=================================================================================================================
</TABLE>
(1) Certain prior year numbers have been restated to reflect current years
presentation. Net investment income, net realized gains and net assets were
not affected.
(2) For the six months ended March 31, 1997 (unaudited).
(3) For the period from August 10, 1993 (inception date) to September 30, 1993.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 23
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class Y Shares 1997(1) 1996(2)
================================================================================
<S> <C> <C>
Net Asset Value, Beginning of Period $9.32 $8.78
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.07 0.23
Net realized and unrealized gain 0.94 0.31
- --------------------------------------------------------------------------------
Total Income From Operations 1.01 0.54
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.16) --
Net realized gains (0.44) --
- --------------------------------------------------------------------------------
Total Distributions (0.60) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $9.73 $9.32
- --------------------------------------------------------------------------------
Total Return++ 11.04% 6.15%*
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $71,219 $44,641
- --------------------------------------------------------------------------------
Ratios to Average Net Assets+:
Expenses 0.80% 0.75%
Net investment income 1.71 2.58
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 20% 57%
- --------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(3) $0.05 $0.05
================================================================================
</TABLE>
(1) For the six months ended March 31, 1997 (unaudited).
(2) For the period from October 31, 1995 (inception date) to September 30,
1996.
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
* During November 1995 Class Y shares were fully redeemed, therefore
performance for Class Y shares represents performance for the period
beginning January 31, 1996, which represents the date new share purchases
were made into this class.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
24 1997 Semi-Annual Report to Shareholders
<PAGE>
SMITH BARNEY
FUNDAMENTAL VALUE
FUND INC.
DIRECTORS INVESTMENT ADVISER AND ADMINISTRATOR
Lloyd J. Andrews Smith Barney Mutual Funds Management Inc.
Robert M. Frayn, Jr.
Leon P. Gardner
Howard J. Johnson DISTRIBUTOR
David E. Maryatt Smith Barney Inc.
Heath B. McLendon, Chairman
Frederick O. Paulsell
Jerry A. Viscione CUSTODIAN
Julie W. Weston PNC Bank, N.A.
OFFICERS SHAREHOLDER
Heath B. McLendon SERVICING AGENT
Chief Executive Officer First Data Investor Services Group, Inc.
P.O. Box 9134
Jessica M. Bibliowicz Boston, MA 02205-9134
President
Lewis E. Daidone
Senior Vice President
and Treasurer This report is submitted for the general
information of the shareholders of Smith
John G. Goode Barney Fundamental Value Fund Inc. It is
Vice President and not authorized for distribution to
Investment Officer prospective investors unless accompanied
or preceded by a current Prospectus for
Peter Hable the Fund, which contains information
Investment Officer concerning the Fund's investment
policies and expenses as well as other
Thomas M. Reynolds pertinent information.
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
----------------------------------------
A Member of TravelersGroup[LOGO]
SMITH BARNEY FUNDAMENTAL
VALUE FUND INC.
Smith Barney Mutual Funds
388 Greenwich Street
New York, New York 10013
FD01118 5/97
