[PHOTOGRAPH]
[PHOTOGRAPH] Smith Barney
Fundamental
Value Fund Inc.
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ANNUAL REPORT
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September 30, 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. ("Fund") 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.
Smith Barney Fundamental Value Fund Inc.'s
Average Annual Total Returns Ended
September 30, 1997
<TABLE>
<CAPTION>
Without Sales Charges*
--------------------------------------
Class A Class B Class C
===============================================================
<S> <C> <C> <C>
One-Year 29.53% 28.62% 28.52%
- ---------------------------------------------------------------
Five-Year 18.55 N/A N/A
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Ten-Year 13.10 N/A N/A
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Since Inception+ 14.70 17.81 16.29
===============================================================
</TABLE>
<TABLE>
<CAPTION>
With Sales Charges**
--------------------------------------
Class A Class B Class C
===============================================================
<S> <C> <C> <C>
One-Year 23.05% 23.62% 27.52%
- ---------------------------------------------------------------
Five-Year 17.34 N/A N/A
- ---------------------------------------------------------------
Ten-Year 12.52 N/A N/A
- ---------------------------------------------------------------
Since Inception+ 14.33 17.71 16.29
===============================================================
</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 charges 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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FUND HIGHLIGHT
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In managing the Fund, we try to provide investors with performance that compares
favorably with that of the S&P 500, over the course of the full market cycle,
but with less risk. During periods when we feel market risks are high, we will
adopt strategies designed to preserve capital as well as build it.
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NASDAQ SYMBOL
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Class A SHFVX
Class B SFVBX
Class C SFVCX
<TABLE>
<CAPTION>
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WHAT'S INSIDE
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<S> <C>
Shareholder Letter ........................................................ 1
Historical Performance .................................................... 4
Smith Barney Fundamental Value Fund Inc.
at a Glance ............................................................... 6
Schedule of Investments ................................................... 7
Statement of Assets and Liabilities ....................................... 10
Statement of Operations ................................................... 11
Statements of Changes in Net Assets ....................................... 12
Notes to Financial Statements ............................................. 13
Financial Highlights ...................................................... 17
Tax Information ........................................................... 20
Independent Auditors' Report .............................................. 21
</TABLE>
<PAGE>
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Shareholder Letter
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[PHOTO] [PHOTO]
HEATH B. JOHN G.
MCLENDON GOODE
Chairman Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide the annual report for the Smith Barney Fundamental
Value Fund Inc. ("Fund") for the year ended September 30, 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 year ended September 30, 1997, the Class A, B and C shares of the Fund
generated a total return without sales charges of 29.53%, 28.62% and 28.52%,
respectively. In comparison, the Standard & Poor's 500 Composite Index ("S&P
500") had a total return of 40.43% 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.)
We remain committed to our value investing style. As a result, a relatively
large cash position was maintained during the year in order to provide us some
downside protection in the event of a market downturn. This defensive investment
strategy penalized performance relative to the major stock market averages
during the reporting period.
Market Overview
In the last year, the stock market was dominated for the most part by the
performance of the largest 10% of the stocks in the S&P 500 and the Nasdaq (over
the counter) averages. In both instances, a limited number of companies
contributed more than 50% of the appreciation in the indices during the last
twelve months. Interest rates moved lower and inflation was at the lowest level
in forty years. New money flows into mutual funds were at historic highs and
much of this investment capital found its way into the largest capitalization
issues that dominate the S&P 500 and Nasdaq.
The Fund seeks to invest in companies that are trading at prices that represent
"value" when compared with underlying asset values, earnings and cash flow
trends. In the last year, a substantially larger percentage of the Fund's assets
were invested in companies that did not rank as the largest companies in either
the S&P 500 or Nasdaq. This caused us to underperform during the year relative
to the major indices.
In addition, many of the best known companies, especially those noted for the
exposure to foreign markets and economies, reached P/E (price-to-earnings)
ratios of 30-40 times earnings. We believed these ratios were excessive and in
combination with the narrowness of the market, indicated that market risks were
high. During the year, we maintained substantial cash positions, which reflects
this concern. Our effective cash position during the year, including some
hedges, averaged about 20%. This cash position in an improving market also
caused the Fund to underperform the leading market averages.
Historically, it has been our goal to perform well compared to the market (i.e.,
S&P 500) over the course of a full market cycle, and to accomplish this with
less risk than presented in the market. We believe our investment style does
well during most of the cycle, outperforms in turbulent times, and underperforms
as the market nears a significant top. It is too early to determine how
significant any correction may be in the U.S. market in the months ahead.
Nevertheless, we maintain our conviction that the risk/reward ratio for the
market and many stocks now is low relative to the last five to seven years.
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Smith Barney Fundamental Value Fund Inc. 1
<PAGE>
Portfolio Changes
We are always looking for outstanding business franchises that are available at
attractive prices. Often these companies may have current problems or they are
in a business transition of one form or another. Contrary opinion plays an
important role in our investment approach. The following are substantial
holdings within your Fund. Although some of the companies are now "popular," all
were purchased when they were out-of-favor and considered unattractive by many
investors. These include AMR (American Airlines), Texas Instruments, American
Express, BankAmerica, Wal-Mart, Toys "R" Us, IBM, Amoco, Dresser Industries,
Intel, The Rouse Co., Tele-Communications Inc., General Motors, Amerada Hess,
Time Warner, Pepsico, Cox Communications and Archer-Daniels-Midland.
The largest purchase by the Fund during the past year, and its single largest
position, is Adobe Systems. Adobe is a leading company in graphic arts software
and desktop publishing. The company has been in a transition phase in which it
was introducing products that were compatible with Microsoft Windows rather than
its historic reliance on the Apple Macintosh platform. Although this transition
caused revenues and earnings to flatten, we believe that renewed growth would
occur once it neared completion. Adobe's shares were available at prices far
below highs reached several years ago and the company has a pristine balance
sheet and a large cash position. It is our belief that some of this cash will be
used to repurchase Adobe shares. In the long term, we see Adobe's products as
being beneficiaries of the Internet and the growing need to develop commerce on
it.
Another major investment was in the shares of Aluminum Company of America
(Alcoa). We like the growth prospects for aluminum, both domestically and
worldwide. Automobiles, for example, are expected to use more aluminum in each
car over the next decade. In addition, aluminum capacity is not expected to
increase as much as that for other commodities.
The third area of interest to us in the last year was the cable television
(CATV) industry. At one point earlier in the year, many of these stocks were off
their highs by 40% - 50%. We believed that the bandwidth characteristics of
coaxial cable made many larger cable companies attractive players in delivering
services to the home and business. We increased our positions in
Tele-Communications Inc. and added Cox Cable to the Fund's portfolio as well. In
our judgment, Cox is one of the best cable companies with regard to the quality
of its plant and its ability to deliver new and profitable entertainment and
other services to its companies.
During the year, financial services companies performed very well and we reduced
our holdings moderately in this area, moving from an overweight to an
underweight position. Reductions were made in American Express, Great Western
Financial (Washington Mutual) and BankAmerica. Many financial services companies
have done better than the S&P 500 in the last one, three and five year periods.
In our view, these stocks are no longer cheap, although most continue to perform
well. We continue to believe additional consolidation activity will occur in
financial services, including some of the largest companies in the industry.
Market Outlook
The major new development in the market outlook is the recent turbulence in
Asian currencies and associated stock markets. Near term, events in Asia will
reduce growth prospects around the world and lead to fierce price competition as
many countries attempt to export their way out of crisis. At the margin, the
U.S. will be affected because many of our largest companies do more than 50% of
their business abroad and a strong U.S. dollar will translate into
lower-than-expected profits. Nevertheless, some of our companies, particularly
retailers, may be able to source cheaper goods and pass some of the benefits on
to U.S. consumers. We suspect that some capital goods producers, especially for
technology-based products, may be affected significantly.
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2 1997 Annual Report to Shareholders
<PAGE>
Uncertainty and volatility means that the appropriate P/E ratio to be applied to
the U.S. stock market is now less than a few months ago, but lower interest
rates will provide some cushion. Until very recently, the U.S. stock market was
priced for an almost perfect relationship between earnings, interest rates,
growth and inflation. We suspect that investors are being sobered by the events
in Asia and our own market and that the overall stock market will be more
volatile in the months ahead. Frankly these are the types of periods that we
find to be "fertile ground." Often interesting values develop when investor
uncertainties are higher.
What surprises lie ahead? The real questions center on the next three to five
years not the next six months. Although it is currently popular to speak of
deflation and the extended bull market in U.S. bonds, we believe the secular
decline in inflation and interest rates will reach their lows in the coming
quarters for the next ten years. Many of the affected countries in Asia have
very high savings rates and we expect them to resume above-average growth rates
sooner than some are predicting.
In our view, one of the biggest changes will occur in the way capital is
allocated in many countries, including those in Asia. In the last five years,
many investments were made for reasons other than the fact that they promised a
high return on capital or a short payback period. In the future, capital in some
areas should be scarce and the rationale for using it will emphasize return and
efficiency rather than promoting national identity or building market share. It
may be early, but may we suggest a few natural resource stocks in your Christmas
stocking? Straw hats in winter anyone?
Sincerely,
/s/ Heath B. McLendon /s/ John G. Goode
Heath B. McLendon John G. Goode
Chairman Vice President and
Investment Officer
November 7, 1997
<TABLE>
<CAPTION>
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Top Ten Holdings* As of September 30, 1997
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<S> <C> <C>
1. Adobe Systems, Inc. 4.0%
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2. Newmont Mining Corp. 3.6
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3. Aluminum Co. of America 3.3
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4. Wal-Mart Stores, Inc. 3.2
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5. American Express Co. 3.1
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6. American International Group, Inc. 3.1
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7. AMR Corp. 3.1
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8. Texas Instruments, Inc. 3.1
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9. Toys "R" Us, Inc. 3.1
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10. BankAmerica Corp. 2.9
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</TABLE>
* As a percentage of total common stocks.
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Smith Barney Fundamental Value Fund Inc. 3
<PAGE>
<TABLE>
<CAPTION>
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Historical Performance -- Class A Shares
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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>
9/30/97 $9.31 $11.37 $0.13 $0.44 29.53%
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9/30/96 8.66 9.31 0.19 0.37 14.73
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9/30/95 8.20 8.66 0.13 0.81 19.94
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9/30/94 8.42 8.20 0.08 0.53 4.92
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9/30/93 7.22 8.42 0.06 0.46 25.23
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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
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9/30/90 7.15 5.34 0.18 0.57 (16.25)
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9/30/89 6.23 7.15 0.10 0.33 23.26
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9/30/88 8.36 6.23 0.26 1.03 (6.92)
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Total $1.50 $4.83
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<CAPTION>
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Historical Performance -- Class B Shares
================================================================================
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
================================================================================
<C> <C> <C> <C> <C> <C>
9/30/97 $9.26 $11.31 $0.06 $0.44 28.62%
- --------------------------------------------------------------------------------
9/30/96 8.62 9.26 0.13 0.37 13.82
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9/30/95 8.16 8.62 0.08 0.81 19.19
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9/30/94 8.37 8.16 0.02 0.53 4.21
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Inception* - 9/30/93 7.31 8.37 0.05 0.46 22.82+
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Total $0.34 $2.61
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<CAPTION>
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Historical Performance -- Class C Shares
================================================================================
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
================================================================================
<C> <C> <C> <C> <C> <C>
9/30/97 $9.26 $11.30 $0.06 $0.44 28.52%
- --------------------------------------------------------------------------------
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
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9/30/94 8.37 8.16 0.02 0.53 4.24
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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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4 1997 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
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Historical Performance -- Class Y Shares
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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>
9/30/97 $9.32 $11.40 $0.16 $0.44 30.06%
- --------------------------------------------------------------------------------
Inception* - 9/30/96 8.54 9.32 0.00 0.00 9.13+(++)
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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
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Without Sales Charge(1)
----------------------------------------
Class A Class B Class C Class Y
================================================================================
<S> <C> <C> <C> <C>
Year Ended 9/30/97 29.53% 28.62% 28.52% 30.06%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/97 18.55 N/A N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/97 13.10 N/A N/A N/A
- --------------------------------------------------------------------------------
Inception* through 9/30/97 14.70 17.81 16.29 23.36(++)
================================================================================
<CAPTION>
With Sales Charge(2)
----------------------------------------
Class A Class B Class C Class Y
================================================================================
<S> <C> <C> <C> <C>
Year Ended 9/30/97 23.05% 23.62% 27.52% 30.06%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/97 17.34 N/A N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/97 12.52 N/A N/A N/A
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Inception* through 9/30/97 14.33 17.71 16.29 23.36(++)
================================================================================
</TABLE>
<TABLE>
<CAPTION>
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Cumulative Total Return
================================================================================
Without Sales Charge(1)
================================================================================
<S> <C>
Class A (9/30/87 through 9/30/97) 242.37%
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Class B (Inception* through 9/30/97) 123.34
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Class C (Inception* through 9/30/97) 86.87
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Class Y (Inception* through 9/30/97) 41.94(++)
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</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%; 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.
* Inception dates for Class A, B, C and Y shares are November 12, 1981,
November 6, 1992, August 10, 1993 and January 31, 1996, 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. 5
<PAGE>
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Smith Barney Fundamental Value Fund Inc. at a Glance (unaudited)
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Growth of $10,000 Invested in Class A Shares of the
Smith Barney Fundamental Value Fund Inc. vs. Standard & Poor's 500 Index+
- --------------------------------------------------------------------------------
September 1987--September 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Smith Barney Standard & Poor's
Fundamental Value Fund Inc. 500 Index
--------------------------- -----------------
<S> <C> <C>
Sept/87 $ 9,500 $10,000
Sept/88 8,843 8,761
Sept/89 10,899 11,649
Sept/90 9,128 10,572
Sept/91 12,183 13,858
Sept/92 13,890 15,388
Sept/93 17,393 17,385
Sept/94 18,248 18,024
Sept/95 21,887 23,379
Sept/96 25,111 28,128
Sept/97 32,525 39,500
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A shares on
September 30, 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 September 30, 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.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Industry Diversification of Common Stocks*
- --------------------------------------------------------------------------------
<S> <C>
Banking and Finance 8.7%
Energy and Energy Services 12.2%
Health Care 6.3%
Insurance 4.5%
Metals - Mining 5.2%
Real Estate 9.1%
Retail 6.2%
Technology - Computers 13.7%
Telecommunications 8.4%
Transportation 5.5%
Other 20.2%
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Investment Breakdown
- --------------------------------------------------------------------------------
<S> <C>
Convertible Preferred Stock
and Foreign Common Stocks 3.2%
Options Purchased 0.7%
Repurchase Agreements 8.9%
Common Stocks 87.2%
</TABLE>
* As a percentage of total common stocks.
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6 1997 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments September 30, 1997
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
COMMON STOCKS -- 87.2%
Banking and Finance -- 7.6%
575,000 American Express Co. $ 47,078,125
600,000 BankAmerica Corp.@ 43,987,500
300,000 Citicorp 40,181,250
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131,246,875
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Chemicals -- 1.8%
500,000 E.I. du Pont de Nemours & Co. 30,781,250
- ------------------------------------------------------------------------------------------------------------------------------------
Energy and Energy Services -- 10.7%
480,200 Amerada Hess Corp.+ 29,622,338
835,500 American Exploration Co.(++) 15,874,500
425,000 Amoco Corp. 40,959,375
900,000 Dresser Industries, Inc. 38,700,000
800,000 Oryx Energy Co.(++) 20,350,000
700,000 Royal Dutch Petroleum Co. 38,850,000
- ------------------------------------------------------------------------------------------------------------------------------------
184,356,213
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment -- 3.5%
525,000 Time Warner Inc. 28,448,438
1,000,000 Viacom, Inc., Class B Shares(++) 31,625,000
- ------------------------------------------------------------------------------------------------------------------------------------
60,073,438
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Food and Beverages -- 2.5%
787,500 Archer-Daniels-Midland Co. 18,850,781
600,000 PepsiCo, Inc. 24,337,500
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43,188,281
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care -- 5.5%
880,500 Advanced Polymer Systems, Inc.(++) 6,768,844
1,200,000 Aphton Corp.*(++)# 16,500,000
500,000 Johnson & Johnson 28,812,500
150,000 Merck & Co., Inc. 14,990,625
266 Molecular Biosystems, Inc.(++) 3,092
750,000 Pharmacia & Upjohn, Inc. 27,375,000
- ------------------------------------------------------------------------------------------------------------------------------------
94,450,061
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance -- 3.9%
450,000 American International Group, Inc. 46,434,375
115,000 CIGNA Corp. 21,418,750
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67,853,125
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Manufacturing -- 2.9%
357,000 Minnesota Mining and Manufacturing Co.@ 33,022,500
21,900 Power-One, Inc.(++) 306,600
679,000 RMI Titanium Co.+(++) 16,975,000
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50,304,100
- ------------------------------------------------------------------------------------------------------------------------------------
Metals - Aluminum -- 3.3%
207,200 Alumax Inc.(++) 8,508,150
600,000 Aluminum Co. of America+ 49,200,000
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57,708,150
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</TABLE>
See Notes to Financial Statements.
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Smith Barney Fundamental Value Fund Inc. 7
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (continued) September 30, 1997
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
Metals - Mining -- 4.6%
633,900 Cyprus Amax Minerals Co. $ 15,213,600
1,500,000 Golden Star Resources Ltd.(++) 9,656,250
1,200,000 Newmont Mining Corp. 53,925,000
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78,794,850
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Paper Products -- 2.5%
2,005,500 Asia Pacific Resource International Holding Ltd., Class A Shares(++) 9,902,156
853,400 Willamette Industries, Inc. 32,642,550
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42,544,706
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Photo Equipment and Imaging -- 0.9%
250,000 Eastman Kodak Co. 16,234,375
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Real Estate -- 7.9%
1,599,210 Del Webb Corp. 34,183,114
703,200 Irvine Apartment Communities, Inc. 23,469,300
1,188,235 The Rouse Co. 36,835,285
875,200 Spieker Properties, Inc. 35,500,300
179,800 TriNet Corporate Realty Trust, Inc. 6,315,475
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136,303,474
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Restaurants -- 0.2%
125,000 Lonestar Steakhouse & Saloon, Inc.(++) 2,609,375
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Retail -- 5.4%
1,300,000 Toys "R" Us, Inc.(++) 46,150,000
1,300,000 Wal-Mart Stores, Inc.+ 47,612,500
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93,762,500
- ------------------------------------------------------------------------------------------------------------------------------------
Technology and Computers -- 11.9%
1,200,000 Adobe Systems, Inc.+ 60,450,000
3,100 Best Software, Inc.(++) 45,337
1,000,000 FOCUS Enhancements, Inc.(++) ++ 4,550,000
400,000 Intel Corp. 36,925,000
400,000 International Business Machines Corp. 42,375,000
200,000 Motorola, Inc. 14,375,000
350,000 Texas Instruments, Inc. 47,293,750
- ------------------------------------------------------------------------------------------------------------------------------------
206,014,087
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications -- 7.4%
800,000 American Telephone & Telegraph Corp.+ 35,450,000
750,000 COMSAT Corp. 17,859,375
813,000 Cox Communications, Inc.(++) 22,408,313
360,000 Scientific-Atlanta, Inc. 8,145,000
1,336,022 Tele-Communications, Inc., Class A Shares(++) 27,388,466
763,977 Tele-Communications TCI Ventures Group, Class A Shares(++) 15,757,031
- ------------------------------------------------------------------------------------------------------------------------------------
127,008,185
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation -- 4.7%
425,000 AMR Corp.(++) 47,042,188
438,000 Fritz Cos., Inc.(++)@ 6,460,500
</TABLE>
See Notes to Financial Statements.
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8 1997 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (continued) September 30, 1997
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
Transportation -- 4.7% (continued)
2,000,000 Fruehauf Trailer Corp.(++) $ 30,000
425,000 General Motors Corp. 28,448,438
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81,981,126
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $1,000,901,494) 1,505,214,171
====================================================================================================================================
CONVERTIBLE PREFERRED STOCK -- 0.2%
Energy -- 0.2%
128,000 American Exploration Co., Series C, Exchange 9.00%
(Cost -- $3,200,000) 3,968,000
====================================================================================================================================
FOREIGN COMMON STOCKS -- 3.0%
1,350,000 Bank of Tokyo-Mitsubishi, Ltd. 25,718,546
2,000,000 Nomura Securities Co., Ltd. 26,008,448
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN COMMON STOCKS
(Cost -- $51,854,209) 51,726,994
====================================================================================================================================
OPTIONS PURCHASED -- 0.7%
375,000 AMR Corp. Put @ 100, Expire 1/17/98 914,063
600,000 BankAmerica Corp. Put @ 70, Expire 1/17/98 1,650,000
300,000 Citicorp Put @ 130, Expire 1/17/98 1,537,500
425,000 General Motors Corp. Put @ 55, Expire 1/17/98 239,063
400,000 Intel Corp. Put @ 90, Expire 1/17/98 2,500,000
400,000 International Business Machines Corp. Put @ 100, Expire 1/17/98 1,800,000
357,000 Minnesota Mining & Manufacturing Co. Put @ 95, Expire 1/17/98 2,275,875
350,000 Texas Instruments, Inc. Put @ 115, Expire 1/17/98 1,618,750
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED
(Cost -- $17,298,690) 12,535,251
====================================================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 8.9%
$ 109,670,000 CS First Boston Corp., 5.991% due 10/1/97;
Proceeds at maturity --- $109,688,251; (Fully collateralized by U.S.
Treasury Notes, 6.625% due 3/31/02; Market value --- $111,914,173) 109,670,000
43,946,000 Goldman, Sachs & Co., 6.096% due 10/1/97;
Proceeds at maturity --- $43,953,442; (Fully collateralized by U.S.
Treasury Notes, 5.875% due 9/30/02; Market value --- $44,842,930) 43,946,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $153,616,000) 153,616,000
====================================================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $1,226,870,393**) $1,727,060,416
====================================================================================================================================
</TABLE>
@ Security segregated by Custodian to cover written call options.
+ A portion of the security is on loan.
(++) Non-income producing security.
* Security issued with attached warrants.
# A portion of this issue is exempt from registration under Rule 144A of the
Securities Act of 1933. This security may be resold in transactions that
are exempt from registration, normally to qualified institutional buyers.
++ Restricted security (See Note 6).
** Aggregate cost for Federal income tax purposes is $1,247,161,127 (See Note
4).
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 9
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Statement of Assets and Liabilities September 30, 1997
================================================================================
<S> <C>
ASSETS:
Investments, at value (Cost -- $1,226,870,393) $1,727,060,416
Cash (Note 7) 57,492,200
Receivable for securities sold 35,970,541
Receivable for Fund shares sold 1,525,300
Dividends and interest receivable 1,471,516
- --------------------------------------------------------------------------------
Total Assets 1,823,519,973
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities loaned (Note 7) 57,492,200
Payable for securities purchased 43,354,706
Options written (Note 5) 2,723,062
Payable for Fund shares purchased 1,273,529
Investment advisory fees payable 724,119
Distribution fees payable 356,526
Administration fees payable 302,538
Accrued expenses 351,544
- --------------------------------------------------------------------------------
Total Liabilities 106,578,224
- --------------------------------------------------------------------------------
Total Net Assets $1,716,941,749
================================================================================
NET ASSETS:
Par value of capital shares $ 151,469
Capital paid in excess of par value 1,162,562,234
Undistributed net investment income 9,200,627
Accumulated net realized gain on security
transactions, options and foreign currencies 43,810,999
Net unrealized appreciation of investments,
options and foreign currencies 501,216,420
- --------------------------------------------------------------------------------
Total Net Assets $1,716,941,749
================================================================================
Shares Outstanding:
Class A 53,288,452
---------------------------------------------------------------------------
Class B 82,300,343
---------------------------------------------------------------------------
Class C 6,358,562
---------------------------------------------------------------------------
Class Y 9,521,959
---------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $11.37
---------------------------------------------------------------------------
Class B * $11.31
---------------------------------------------------------------------------
Class C ** $11.30
---------------------------------------------------------------------------
Class Y (and redemption price) $11.40
---------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per share) $11.97
================================================================================
</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.
- --------------------------------------------------------------------------------
10 1997 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Statement of Operations For the Year Ended September 30, 1997
================================================================================
<S> <C>
INVESTMENT INCOME:
Dividends $ 20,572,442
Interest 13,530,579
Less: Foreign withholding tax (179,842)
- -------------------------------------------------------------------------------
Total Investment Income 33,923,179
- -------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 3) 10,134,449
Investment advisory fees (Note 3) 8,151,351
Administration fees (Note 3) 2,972,630
Shareholder and system servicing fees 1,521,246
Registration fees 177,785
Shareholder communications 155,232
Directors' fees 90,809
Audit and legal 76,480
Custody 62,400
Other 49,958
- -------------------------------------------------------------------------------
Total Expenses 23,392,340
- -------------------------------------------------------------------------------
Net Investment Income 10,530,839
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
OPTIONS AND FOREIGN CURRENCIES (NOTES 4 AND 5):
Realized Gain (Loss) From:
Security Transactions (excluding short-term securities) 91,456,366
Options purchased (26,208,553)
Options written (19,630,603)
Foreign currency transactions (2,646)
- -------------------------------------------------------------------------------
Net Realized Gain 45,614,564
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments,
Options and Foreign Currencies:
Beginning of year 176,655,866
End of year 501,216,420
- -------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 324,560,554
- -------------------------------------------------------------------------------
Net Gain on Investments, Options and Foreign Currencies 370,175,118
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations $380,705,957
===============================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 11
<PAGE>
================================================================================
Statements of Changes in Net Assets For the Years Ended September 30,
================================================================================
<TABLE>
<CAPTION>
1997 1996
===========================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 10,530,839 $ 14,687,764
Net realized gain 45,614,564 74,028,199
Increase in net unrealized appreciation 324,560,554 52,597,728
- -------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 380,705,957 141,313,691
- -------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (13,542,817) (18,028,339)
Net realized gains (59,901,401) (41,415,528)
- -------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (73,444,218) (59,443,867)
- -------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 344,615,197 360,705,847
Net asset value of shares issued for reinvestment
of dividends 67,806,116 57,520,992
Cost of shares reacquired (253,681,008) (196,026,058)
- -------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 158,740,305 222,200,781
- -------------------------------------------------------------------------------------------
Increase in Net Assets 466,002,044 304,070,605
NET ASSETS:
Beginning of year 1,250,939,705 946,869,100
- -------------------------------------------------------------------------------------------
End of year* $1,716,941,749 $1,250,939,705
===========================================================================================
* Includes undistributed net investment income of: $9,200,627 $13,747,541
===========================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1997 Annual Report to Shareholders
<PAGE>
================================================================================
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)
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 by class; (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; (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 0.50% of the
average daily net assets in excess of $1.5 billion. Prior to March 25, 1997, the
Fund paid an advisory fee of 0.55% on average daily net assets. This fee is
calculated daily and paid monthly.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 13
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
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 year ended September 30, 1997, SB received brokerage commissions
of $27,396 and sales charges of approximately $817,000 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 year ended September 30, 1997, CDSCs paid to SB were:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
CDSCs $4,000 $1,133,000 $11,000
================================================================================
</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 year
ended September 30, 1997, total Distribution Plan fees incurred were:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Distribution Plan Fees $1,324,748 $8,229,206 $580,495
================================================================================
</TABLE>
All officers and one Director of the Fund are employees of SB.
4. Investments
During the year ended September 30, 1997, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $732,773,249
- --------------------------------------------------------------------------------
Sales 570,973,076
================================================================================
</TABLE>
At September 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
<TABLE>
===============================================================================
<S> <C>
Gross unrealized appreciation $499,667,196
Gross unrealized depreciation (19,767,907)
- -------------------------------------------------------------------------------
Net unrealized appreciation $479,899,289
===============================================================================
</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.
At September 30, 1997 the Fund held eight purchased put options with a total
cost of $17,298,690.
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 depending upon whether the cost of
the closing transaction is greater or less than the premium originally received
without
- --------------------------------------------------------------------------------
14 1997 Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
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 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. 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 year ended
September 30, 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 year ended September 30, 1997 115,250 40,741,696
Options cancelled in closing purchase transactions (86,220) (35,908,242)
Options expired (23,127) (2,459,809)
Options exercised (8,103) (666,967)
- -----------------------------------------------------------------------------------
Options written, outstanding at September 30, 1997 13,950 $ 3,824,211
===================================================================================
</TABLE>
The following represents the covered call option written contracts open as of
September 30, 1997:
<TABLE>
<CAPTION>
Number of Strike
Contracts Expiration Price Value
=====================================================================================================
<S> <C> <C> <C> <C>
6,000 BankAmerica Corp. 1/17/98 $ 80.0 $(2,175,000)
4,380 Fritz Cos. 2/21/98 17.5 (369,562)
3,570 Minnesota Mining & Manufacturing 1/17/98 115.0 (178,500)
- -----------------------------------------------------------------------------------------------------
Total Covered Call Options Written
(Premiums received-- $3,824,211) $(2,723,062)
=====================================================================================================
</TABLE>
6. Restricted Security
The following security held by the Fund on September 30, 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>
FOCUS Enhancements, Inc. 9/10/97 1,000,000 $4.55 $4,550,000 0.27% $3,810,000
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 15
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
7. Lending of Portfolio Securities
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations. Fees earned by the Fund on securities lending are recorded in
interest income. Loans of securities by the Fund are collateralized by cash,
U.S. government securities or high quality money market instruments that are
maintained at all times in an amount at least equal to the current market value
of the loaned securities, plus a margin which may vary between 2% and 5%
depending on the type of securities loaned. The custodian establishes and
maintains the collateral in a segregated account.
At September 30, 1997, the Fund loaned stocks having a value of approximately
$54,866,868 and received cash collateral of $57,492,200 for the loan.
8. Capital Shares
At September 30, 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
September 30, 1997, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
===============================================================================================================================
<S> <C> <C> <C> <C>
Total Paid-in Capital $404,055,648 $613,217,597 $54,842,852 $90,597,606
===============================================================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1997 September 30, 1996*
----------------------------------- -----------------------------------
Shares Amount Shares Amount
==================================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 9,972,656 $ 99,959,293 10,423,305 $ 93,133,169
Shares issued on reinvestment 2,932,597 27,939,714 2,934,418 24,876,739
Shares redeemed (8,852,499) (89,440,037) (8,696,068) (75,368,489)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase 4,052,754 $ 38,458,970 4,661,655 $ 42,641,419
==================================================================================================================================
Class B
Shares sold 17,327,879 $ 171,344,809 21,765,620 $ 192,072,988
Shares issued on reinvestment 3,953,348 37,410,822 3,695,941 31,218,519
Shares redeemed (14,990,088) (150,758,176) (11,904,915) (107,172,303)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase 6,291,139 $ 57,997,455 13,556,646 $ 116,119,204
==================================================================================================================================
Class C
Shares sold 2,633,362 $ 26,239,606 2,925,320 $ 25,823,035
Shares issued on reinvestment 259,478 2,455,580 168,804 1,425,734
Shares redeemed (1,345,937) (13,482,795) (811,710) (7,334,728)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase 1,546,903 $ 15,212,391 2,282,414 $ 19,914,041
==================================================================================================================================
Class Y
Shares sold 4,733,074 $ 47,071,489 5,505,522 $ 49,676,655
Shares issued on reinvestment -- -- -- --
Shares redeemed -- -- (716,637) (6,150,538)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase 4,733,074 $ 47,071,489 4,788,885 $ 43,526,117
==================================================================================================================================
</TABLE>
* For Class Y shares, transactions are for the period from January 31, 1996
(inception date) to September 30, 1996.
- --------------------------------------------------------------------------------
16 1997 Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Shares 1997 1996 1995 1994 1993
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.31 $8.66 $8.20 $8.42 $7.22
- ----------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.11 0.20 0.17 0.09 0.07
Net realized and unrealized gain 2.52 1.01 1.23 0.30 1.65
- ----------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 2.63 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 Year $11.37 $9.31 $8.66 $8.20 $8.42
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return 29.53% 14.73% 19.94% 4.92% 25.23%
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $606,054 $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 1.14 2.32 2.19 1.90 1.00
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 46% 57% 45% 108% 111%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(1) $0.04 $0.05 $0.05 -- --
==================================================================================================================================
</TABLE>
(1) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 17
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class B Shares 1997 1996 1995 1994 1993(1)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.26 $8.62 $8.16 $8.37 $7.31
- -----------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.03 0.13 0.12 0.09 0.05
Net realized and unrealized gain 2.52 1.01 1.23 0.25 1.52
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 2.55 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 Year $11.31 $9.26 $8.62 $8.16 $8.37
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return 28.62% 13.82% 19.19% 4.21% 22.82%++
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $930,436 $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 0.38 1.56 1.44 1.13 0.19+
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 46% 57% 45% 108% 111%
- -----------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(2) $0.04 $0.05 $0.05 -- --
===================================================================================================================================
</TABLE>
(1) For the period from November 6, 1992 (inception date) to September 30,
1993.
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
18 1997 Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class C Shares 1997 1996 1995 1994 1993(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.26 $8.62 $8.16 $8.37 $8.15
- ------------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.03 0.14 0.12 0.05 0.00
Net realized and unrealized gain 2.51 1.00 1.24 0.29 0.22
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 2.54 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 Year $11.30 $9.26 $8.62 $8.16 $8.37
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 28.52% 13.82% 19.33% 4.24% 2.70%++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $71,874 $44,539 $21,812 $1,652 $308
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.92% 1.96% 2.09% 2.23% 2.25%+
Net investment income 0.36 1.52 1.44 0.96 0.20+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 46% 57% 45% 108% 111%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(2) $0.04 $0.05 $0.05 -- --
====================================================================================================================================
</TABLE>
(1) For the period from August 10, 1993 (inception date) to September 30, 1993.
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 19
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class Y Shares 1997 1996(1)
================================================================================
<S> <C> <C>
Net Asset Value, Beginning of Year $9.32 $8.54
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.14 0.23
Net realized and unrealized gain 2.54 0.55
- --------------------------------------------------------------------------------
Total Income From Operations 2.68 0.78
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.16) --
Net realized gains (0.44) --
- --------------------------------------------------------------------------------
Total Distributions (0.60) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $11.40 $9.32
- --------------------------------------------------------------------------------
Total Return 30.06% 9.13%*++
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $108,578 $44,641
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.78% 0.75%+
Net investment income 1.48 2.58+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 46% 57%
- --------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(2) $0.04 $0.05
================================================================================
</TABLE>
(1) For the period from January 31, 1996 (inception date) to September 30,
1996.
(2) 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 it may not be representative of the
total return for the year.
+ Annualized.
================================================================================
Tax Information (unaudited)
================================================================================
The amount of long-term capital gains paid by the Fund for the fiscal year
ended September 30, 1997 was $32,867,618.
36.70% of ordinary income distribution is designated as qualifying for the
dividends received deduction available to corporate shareholders.
- --------------------------------------------------------------------------------
20 1997 Annual Report to Shareholders
<PAGE>
================================================================================
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 schedule of investments, of Smith Barney Fundamental Value Fund Inc. as of
September 30, 1997, the related statement of operations for the year then ended
and statements of changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for the periods presented. 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 securities owned at
September 30, 1997 by correspondence with the Fund's custodian and brokers:
where replies were not received from brokers we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, 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, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
November 3, 1997
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 21
<PAGE>
Smith Barney Investment Adviser and Administrator
Fundamental Value Smith Barney Mutual Funds Management Inc.
Fund Inc.
Directors Distributor
Lloyd J. Andrews Smith Barney Inc.
Robert M. Frayn, Jr.
Leon P. Gardner
Howard J. Johnson Custodian
David E. Maryatt PNC Bank, N.A.
Heath B. McLendon, Chairman
Frederick O. Paulsell
Jerry A. Viscione Shareholder Servicing Agent
Julie W. Weston First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
Officers
Heath B. McLendon
Chief Executive Officer This report is for the information of
shareholders of Smith Barney Fundamental
Lewis E. Daidone Value Fund Inc., but it may also be used
Senior Vice President as sales literature when preceded or
and Treasurer accompanied by the current prospectus,
which gives details about charges,
John G. Goode expenses, investment objectives and
Vice President and operating policies of the Fund. If used as
Investment Officer sales material after December 31, 1997,
this report must be accompanied by
Peter Hable performance for the most recently
Investment Officer completed calendar quarter.
Thomas M. Reynolds
Controller
SMITH BARNEY
Christina T. Sydor ------------
Secretary
A Member of Travelers Group[LOGO]
Smith Barney Fundamental
Value Fund Inc.
Smith Barney Mutual Funds
388 Greenwich Street
New York, New York 10013
FD0283 11/97
