<PAGE>
[ARTWORK]
Smith Barney
Fundamental
Value Fund Inc.
ANNUAL REPORT
September 30, 1999
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
NOT FDIC INSURED.NOT BANK GUARANTEED.MAY LOSE VALUE
<PAGE>
Smith Barney Fundamental
Value Fund Inc.
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.
Average Annual Total Returns
September 30, 1999
Without Sales Charges(1)
----------------------------
Class A Class B Class L
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One-Year 37.17% 36.00% 36.00%
- -----------------------------------------------------------------------------
Five-Year 18.10 17.21 17.24
- -----------------------------------------------------------------------------
Ten-Year 14.42 N/A N/A
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Since Inception++ 14.57 16.28 15.09
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With Sales Charges(2)
----------------------------
Class A Class B Class L
- -----------------------------------------------------------------------------
One-Year 30.31% 31.00% 33.66%
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Five-Year 16.90 17.10 17.01
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Ten-Year 13.83 N/A N/A
- -----------------------------------------------------------------------------
Since Inception++ 14.24 16.28 14.91
- -----------------------------------------------------------------------------
(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 and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively. Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase. Thereafter,
the CDSC declines by 1.00% per year until no CDSC is incurred. Class L
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 L shares are November 12, 1981, November
6, 1992 and August 10, 1993, respectively.
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FUND HIGHLIGHT
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One of the distinguishing characteristics of the Fund is seeking out leading
companies whose share prices may be depressed for reasons considered to be
temporary. This process, we believe, allows the Fund to buy company shares at
prices that already incorporate lowered expectations and limited near term
belief in a business's upside potential. This approach allows us to develop, in
many cases, outstanding risk-reward ratios because much of the downside risk may
already be in share prices. Even a small positive change in Wall Street's
thinking about such a stock can produce rather substantial results.
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NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A SHFVX
Class B SFVBX
Class L SFVCX
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WHAT'S INSIDE
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Shareholder Letter...........................................................1
Historical Performance.......................................................5
Smith Barney Fundamental Value Fund Inc.
at a Glance..................................................................7
Schedule of Investments......................................................8
Statement of Assets and Liabilities.........................................12
Statement of Operations.....................................................13
Statements of Changes in Net Assets.........................................14
Notes to Financial Statements...............................................15
Financial Highlights........................................................20
Independent Auditors' Report................................................22
Tax Information.............................................................23
<PAGE>
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Shareholder Letter
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[PHOTO] [PHOTO]
Heath B. McLendon John G. 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, 1999. We hope you find
this report to be useful and informative. 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, 1999, the Fund's Class A, B and L shares
returned 37.17%, 36.00%, and 36.00%, without sales charges, respectively. In
comparison, the return for the Standard & Poor's 500 Index ("S&P 500") for the
same period was 27.79%. (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. Investors cannot invest directly in an
index.) The positive relative and absolute returns were based, in our opinion,
on the changing character of the U.S. stock market as well as several decisions
made in the Fund in late 1998 and early 1999.
Portfolio Strategy & Recent Results*
The Fund has maintained overweight positions in basic materials and energy,
relative to the S&P 500. At the beginning of the decade, companies within the
energy and basic materials sectors accounted for roughly 22% of the S&P 500 and
in the first quarter of this year, the figure had fallen to just about 8%.
In the last six months, these sectors have experienced spirited rallies. And
while no guarantees can be given, we believe these sectors should continue to
perform well in the next few years based on the changing nature of market
leadership, trends favoring companies in these sectors of the market and a high
level of merger and acquisition activity.
Technology has been a strong sector this year and the Fund has kept its sector
weighting in line with that of the S&P 500. The Fund also benefited from stock
selections made in 1998 and so far in 1999 in several companies Wall Street was
overlooking. Shares of Adobe Systems, Inc. were languishing when the Fund made a
substantial commitment to the stock. Since March of this year, the shares have
moved from the $40 range to more than $110. Other technology "wallflowers" that
came to life in the portfolio also include Motorola, Inc. and Cypress
Semiconductor Corp. These decisions, made with regard to Adobe Systems, Inc. and
Cypress Semiconductor Corp., illustrate one of the aspects of the Fund's
investment approach which is to purchase shares in small and mid-cap companies
when the manager believes the potential justifies the risks.
We remained underweighted in healthcare during the last few quarters and this
position benefited the Fund as many drug companies and other healthcare
providers underperformed the leading indexes. Financial services stocks also
performed poorly in recent quarters; however, the Fund's largest position
- --------------
* Please note that these portfolio holdings are as of 9/30/99 and are subject
to change.
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Smith Barney Fundamental Value Fund Inc. 1
<PAGE>
in the sector, American Express Co., moved counter to many financial services
stocks.
Finding Leading Franchises at Depressed Prices
One of the distinguishing characteristics of the Fund is seeking out leading
companies whose share prices may be depressed for reasons considered to be
temporary. This process, we believe, allows the Fund to buy company shares at
prices that already incorporate lowered expectations and limited near-term
belief in a business's upside potential. This approach also allows us to
develop, in many cases, outstanding risk-reward ratios because much of the
downside risk may already be in share prices. Even a small positive change in
Wall Street's thinking about such a stock can produce rather substantial
results.
One of the reasons this technique makes sense is the "group think" approach of
many mutual funds. As many investors may be aware, mutual funds have become
larger and investment management decisions tend to fluctuate from one extreme to
another. Sometimes a majority of managers are bullish on a company or industry
and the share prices rise, at times, to unrealistic heights. Conversely, when
many funds give up on a company or industry, heavy selling pressure may cause
share prices to overshoot on the downside. In our opinion, there are many
characteristics of the market that can be called efficient, but this is not one
of them. Near-term price dislocations caused by the herd instincts of large
mutual funds can and do produce opportunities for value investors like us.
Many market commentators point to the elevated levels of the Dow Jones
Industrial Average (i.e., a price-weighted average of 30 actively traded blue
chip stocks) and the S&P 500 as evidence of lofty price levels for stocks in
general. The leading stock market indexes are strongly influenced by the price
action of a limited number of stocks. However, many other companies are trading
at prices that are suggestive of equity valuations far lower than the popular
averages would have us believe. Where do we see the new crop of industry leaders
selling at bargain basement prices?
We think that the following industries or sectors of the market appear to have
companies that are industry leaders selling at very depressed prices:
.Aerospace .Mobile Homes
.Agriculture .Pharmaceuticals
.Drug Distribution .Retail
.Financial Services .Software
.HMO/Hospitals .Waste Management
.Hotels
These are sectors that the Fund will be researching in depth in the months
ahead.
1999 -- A Transition Year to a Different Future?
We believe that the economic and investment landscape is changing in important
ways. These changes should affect the asset allocations necessary to produce
competitive investment returns. Although the "rear view mirror" may contain some
useful insights, the experience of the last few years may not be the best guide
for the next 3-5 years. Included below, we list some of our observations and the
potential surprises that may characterize the coming years.
. The bull markets for interest rates and inflation may be over after they
have been in place for nearly two decades. And while no guarantees can be
made, large increases in world money supply, higher stock prices,
especially in the U.S. and Europe, and a determination on the part of
monetary authorities, in general, to prevent deflation all suggest to us
that inflation rates are about as low as they may go. Elevated stock prices
in the U.S. clearly are influencing real estate markets and the buying
decisions of many
- --------------------------------------------------------------------------------
2 1999 Annual Report to Shareholders
<PAGE>
consumers. The Commodities Research Bureau (CRB) Index appears to have made
a bottom and reversed to the upside. This suggests to us that commodity and
natural resource prices are strengthening. In addition, labor markets in
the U.S., in particular, are tight. Labor makes up approximately 70% of
cost-of-goods sold.
. We look for interest rates to be in a trading range between 5.75% and 6.50%
in the next few years. Inflation is expected to return to 3.0% to 3.5%,
which is not alarming. However, at the margin, this may be enough to cause
meaningful changes in stock market leadership. As a consequence, P/E ratios
for growth stocks may decline somewhat. Between 1994 and 1998, the S&P 500
appreciated 15% per year from P/E expansion alone. This is unlikely to be
repeated in the next five years. With a moderate rise in inflation, "hard
assets" such as basic materials should be more favorably regarded and the
concept of inflation protection again should have merit in the investment
decision-making process.
. Small and mid-cap stocks now sell at the largest valuation discount to
larger companies since 1960. Some people feel this "spread" reflects the
new realities of investing. Many believe large-sized mutual funds are
unwilling and unable to consider smaller companies for their portfolios and
this may be responsible for the disparity in values between larger and
smaller companies. This may be a factor but mutual fund managers are not
the only investors who might "arbitrage" the very wide differences in
valuations in existence today. Larger companies with higher P/E ratios
increasingly should find mergers with smaller and mid-cap companies to be
attractive. In our view, larger companies should be able to use their
higher priced "currency" to effect mergers that add to per share results.
Many smaller companies currently find their share prices attractive and we
can find a number of them retiring 3% to 5% of their shares, on an annual
basis, through share repurchases. Finally, occasionally, a small company
will take itself private through a leveraged buyout.
. Because of the issues discussed above, we expect that the Fund will have
significant representation in the small and mid-cap arenas. As of September
30, 1999, 20% to 25% of Fund's assets were invested in these areas of the
market. It is our belief that all-cap portfolios, those incorporating small
and mid-cap selections, should perform competitively in the years ahead.
. Technology will continue to be an important component of most portfolios in
the coming years. However, volatility (i.e., risk) should remain high. It
is our judgment that capital flows into technology have become excessive
recently and that there exists excess capacity in so-called intellectual
property companies.
. One of the biggest surprises in the next few years may be the performance
of yield stocks, those providing dividend yields significantly higher than
the average stock. If we are correct that equity market returns will
regress to 10% to 11% (i.e., the historic norm), high-yielding stocks
should be more competitive. Yield stocks just might provide substantial
capital gains as total return, as a concept, returns to favor.
Final Comments
The Fund is dedicated to providing investors with positive risk-adjusted
returns. As indicated previously, we believe important changes should occur
in terms of market leadership and these will affect the decisions necessary
to produce competitive returns. We feel that the Fund stands to benefit
from these changes. These are sure to be exciting and challenging ones for
investors.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 3
<PAGE>
Thank you for investing in the Smith Barney Fundamental Value Fund. We look
forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ John G. Goode
Heath B. McLendon John G. Goode
Chairman Vice President and
Investment Officer
October 7, 1999
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Top Ten Holdings* As of September 30, 1999
- --------------------------------------------------------------------------------
1. Adobe Systems, Inc. 6.8%
- --------------------------------------------------------------------------------
2. Texas Instruments, Inc. 4.9
- --------------------------------------------------------------------------------
3. AT&T Corp. 4.6
- --------------------------------------------------------------------------------
4. Aluminum Co. of America 4.5
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5. International Business Machines Corp. 4.4
- --------------------------------------------------------------------------------
6. American Express Co. 4.0
- --------------------------------------------------------------------------------
7. Cox Communications, Inc., Class A Shares 3.5
- --------------------------------------------------------------------------------
8. Time Warner, Inc. 3.3
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9. American International Group, Inc. 3.1
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10. Johnson & Johnson 2.8
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* As a percentage of total common stock.
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4 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
9/30/99 $10.07 $12.90 $0.02 $0.72 37.17%
- --------------------------------------------------------------------------------------------------------------------------------
9/30/98 11.37 10.07 0.11 0.52 (6.04)
- --------------------------------------------------------------------------------------------------------------------------------
9/30/97 9.31 11.37 0.13 0.44 29.53
- --------------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------------
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)
================================================================================================================================
Total $1.27 $4.71
================================================================================================================================
</TABLE>
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Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
9/30/99 $10.01 $12.73 $0.00 $0.72 36.00%
- --------------------------------------------------------------------------------------------------------------------------------
9/30/98 11.31 10.01 0.03 0.52 (6.79)
- --------------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------------
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 $0.37 $3.85
================================================================================================================================
</TABLE>
Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
9/30/99 $10.01 $12.73 $0.00 $0.72 36.00%
- --------------------------------------------------------------------------------------------------------------------------------
9/30/98 11.30 10.01 0.03 0.52 (6.70)
- --------------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------------
9/30/94 8.37 8.16 0.02 0.53 4.24
- --------------------------------------------------------------------------------------------------------------------------------
Inception* -- 9/30/93 8.15 8.37 0.00 0.00 2.70+
================================================================================================================================
Total $0.33 $3.39
================================================================================================================================
</TABLE>
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Smith Barney Fundamental Value Fund Inc. 5
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
9/30/99 $10.10 $12.93 $0.06 $0.72 37.57%
- --------------------------------------------------------------------------------------------------------------------------------
9/30/98 11.40 10.10 0.16 0.52 (6.78)
- --------------------------------------------------------------------------------------------------------------------------------
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+++
================================================================================================================================
Total $0.38 $1.68
================================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
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Average Annual Total Return
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge(1)
-------------------------------------------------------------
Class A Class B Class L Class Y
=================================================================================================================================
<S> <C> <C> <C> <C>
Year Ended 9/30/99 37.17% 36.00% 36.00% 37.57%
- ---------------------------------------------------------------------------------------------------------------------------------
Five Years Ended 9/30/99 18.10 17.21 17.24 N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 9/30/99 14.42 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Inception* through 9/30/99 14.57 16.28 15.09 17.74++
=================================================================================================================================
<CAPTION>
With Sales Charge(2)
-------------------------------------------------------------
Class A Class B Class L Class Y
=================================================================================================================================
<S> <C> <C> <C> <C>
Year Ended 9/30/99 30.31% 31.00% 33.66% 37.57%
- ---------------------------------------------------------------------------------------------------------------------------------
Five Years Ended 9/30/99 16.90 17.10 17.01 N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 9/30/99 13.83 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Inception* through 9/30/99 14.24 16.28 14.91 17.74++
=================================================================================================================================
</TABLE>
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Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (9/30/89 through 9/30/99) 284.61%
- --------------------------------------------------------------------------------
Class B (Inception* through 9/30/99) 183.11
- --------------------------------------------------------------------------------
Class L (Inception* through 9/30/99) 137.13
- --------------------------------------------------------------------------------
Class Y (Inception* through 9/30/99) 82.03++
================================================================================
(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 and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; and Class B shares reflect the deduction of a 5.00% CDSC,
which applies if shares are redeemed within one year from purchase.
Thereafter, the CDSC declines by 1.00% per year until no CDSC is incurred.
Class L 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, L 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.
- --------------------------------------------------------------------------------
6 1999 Annual Report to Shareholders
<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 ++
- --------------------------------------------------------------------------------
September 1989--September 1999
[GRAPH]
Smith Barney\Fundamental Value Fund Standard & Poor's 500 Index
Sep\89 9,495 10,000
Sep\90 7,953 9,075
Sep\91 10,614 11,897
Sep\92 12,101 13,210
Sep\93 15,153 14,924
Sep\94 15,898 15,473
Sep\95 19,068 20,070
Sep\96 21,877 24,146
Sep\97 28,336 33,908
Sep\98 26,625 36,990
Sep\99 36,520 47,270
+ Hypothetical illustration of $10,000 invested in Class A shares on
September 30, 1989, 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, 1999, 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 Stock*
Industry Diversification of Common Stock*
- -------------------------------------------
[GRAPH]
Financial Services 8.1%
Energy 10.4%
Healthcare 8.4%
Insurance 6.4%
Food and Beverage 3.4%
Real Estate 3.5%
Entertainment 4.5%
Technology and Computers 24.1%
Telecommunications 10.7%
Basic Materials 2.0%
Other 18.5%
Investment Breakdown
- -------------------------------------------
[PIE CHART]
Options Purchased 0.2%
Repurchase Agreement 1.2%
Convertible Preferred Stock 0.6%
Common Stock 98.0%
* As a percentage of total common stock.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
============================================================================================================================
<S> <C> <C>
COMMON STOCK -- 98.0%
Aerospace -- 0.4%
200,000 Lockheed Martin Corp.@ $ 6,537,500
- ----------------------------------------------------------------------------------------------------------------------------
Aluminum -- 4.4%
1,200,000 Aluminum Co. of America 74,475,000
- ----------------------------------------------------------------------------------------------------------------------------
Bank and Credit Companies -- 1.3%
300,000 Chase Manhattan Corp. 22,612,500
- ----------------------------------------------------------------------------------------------------------------------------
Basic Materials -- 1.9%
470,000 Crown Cork and Seal Co., Inc.@ 11,397,500
400,000 Georgia Pacific Group@ 16,200,000
357,700 Wolverine Tube, Inc.+ 5,544,350
- ----------------------------------------------------------------------------------------------------------------------------
33,141,850
- ----------------------------------------------------------------------------------------------------------------------------
Construction -- 1.6%
757,200 Clayton Homes, Inc. 6,578,175
942,500 Del E. Webb Corp.+ 20,735,000
- ----------------------------------------------------------------------------------------------------------------------------
27,313,175
- ----------------------------------------------------------------------------------------------------------------------------
Chemicals -- 2.7%
400,000 E.I. du Pont de Nemours & Co. 24,350,000
1,170,000 Engelhard Corp. 21,279,375
- ----------------------------------------------------------------------------------------------------------------------------
45,629,375
- ----------------------------------------------------------------------------------------------------------------------------
Electrical Equipment -- 0.3%
220,930 Belden Inc. 4,529,065
- ----------------------------------------------------------------------------------------------------------------------------
Energy -- 10.1%
3,333,334 Abacan Resource Corp.+ 437,500
8,390,000 Abacan Resource Corp.+# 1,468,250
500,000 Baker Hughes, Inc. 14,500,000
200,000 Burlington Resources Inc.@ 7,350,000
400,000 Chevron Corp. 35,500,000
800,000 Halliburton Co. 32,800,000
250,000 McDermott International, Inc. 5,062,500
2,525,900 Ocean Energy, Inc.+ 25,732,606
700,000 Royal Dutch Petroleum Co., NY Shares@ 41,343,750
550,000 Union Pacific Resources Group Inc.@ 8,834,375
- ----------------------------------------------------------------------------------------------------------------------------
173,028,981
- ----------------------------------------------------------------------------------------------------------------------------
Entertainment -- 4.4%
1,000,000 Fox Entertainment Group, Inc., Class A Shares+ 21,125,000
900,000 Time Warner, Inc.@ 54,675,000
- ----------------------------------------------------------------------------------------------------------------------------
75,800,000
- ----------------------------------------------------------------------------------------------------------------------------
Financial Services -- 7.9%
500,000 American Express Co.@ 67,312,500
700,000 BankAmerica Corp.@ 38,981,250
605,000 First American Financial Corp. 8,091,875
300,000 Merrill Lynch & Co., Inc. 20,156,250
- ----------------------------------------------------------------------------------------------------------------------------
134,541,875
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
8 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
============================================================================================================================
<S> <C> <C>
Foods and Beverages -- 3.4%
2,625,000 Archer-Daniels-Midland Co. $ 31,992,187
713,100 Fleming Cos., Inc. 6,997,293
600,000 PepsiCo, Inc. 18,150,000
- ----------------------------------------------------------------------------------------------------------------------------
57,139,480
- ----------------------------------------------------------------------------------------------------------------------------
Healthcare -- 8.2%
1,066,500 Advanced Polymer Systems, Inc.+ 4,399,312
1,694,664 Aphton Corp.+@ 22,454,298
1,727,500 Foundation Health Systems Inc., Class A Shares+ 16,303,281
3,400,000 Health Management Association, Inc., Class A Shares+ 25,075,000
500,000 Johnson & Johnson 45,937,500
400,000 Merck & Co., Inc. 25,925,000
266 Molecular Biosystems, Inc.+ 465
- ----------------------------------------------------------------------------------------------------------------------------
140,094,856
- ----------------------------------------------------------------------------------------------------------------------------
Hotels -- 0.2%
340,000 Hilton Hotels Corp. 3,357,500
- ----------------------------------------------------------------------------------------------------------------------------
Industrials -- 1.6%
270,000 Deere & Co.@ 10,445,625
400,000 Precision Castparts Corp. 12,200,000
100,000 Waste Management Inc. 1,925,000
250,000 Wisconsin Central Transportation Corp.@ 3,421,875
- ----------------------------------------------------------------------------------------------------------------------------
27,992,500
- ----------------------------------------------------------------------------------------------------------------------------
Insurance -- 6.3%
500,000 Allstate Corp.@ 12,468,750
600,000 American International Group, Inc. 52,162,500
900,000 MGIC Investment Corp.@ 42,975,000
- ----------------------------------------------------------------------------------------------------------------------------
107,606,250
- ----------------------------------------------------------------------------------------------------------------------------
Metals -- 1.6%
1,645,300 Brush Wellman Inc. 24,165,343
295,000 Oregon Steel Mills Inc. 3,300,312
- ----------------------------------------------------------------------------------------------------------------------------
27,465,655
- ----------------------------------------------------------------------------------------------------------------------------
Paper Products -- 1.5%
2,000,000 Asia Pulp & Paper Co., Ltd.+@ 11,750,000
500,000 Smurfit Stone Container Corp.+ 10,812,500
100,000 The St. Joe Co. @ 2,156,250
- ----------------------------------------------------------------------------------------------------------------------------
24,718,750
- ----------------------------------------------------------------------------------------------------------------------------
Real Estate -- 3.4%
315,000 Jones Lang Lasalle Inc.+ 5,079,375
800,000 Spieker Properties, Inc. 27,750,000
1,100,000 The Rouse Co. 25,300,000
- ----------------------------------------------------------------------------------------------------------------------------
58,129,375
- ----------------------------------------------------------------------------------------------------------------------------
Retail -- 1.0%
280,000 Kmart Corp.+@ 3,272,500
503,800 Pantry Inc.+ 5,604,775
20,000 Rubio's Restaurants, Inc.+@ 172,500
500,000 Toys 'R' Us Inc.+ 7,500,000
- ----------------------------------------------------------------------------------------------------------------------------
16,549,775
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
============================================================================================================================
<S> <C> <C>
Technology and Computers -- 23.6%
1,000,000 Adobe Systems, Inc. $ 113,500,000
1,100,000 Cypress Semiconductor Corp.+@ 23,650,000
2,850,000 Hitatchi Ltd. 31,586,362
600,000 Intel Corp. 44,587,500
600,000 International Business Machines Corp. 72,825,000
380,000 Motorola, Inc. 33,440,000
1,000,000 Texas Instruments, Inc.@ 82,250,006
- ----------------------------------------------------------------------------------------------------------------------------
401,838,868
- ----------------------------------------------------------------------------------------------------------------------------
Telecommunications -- 10.5%
1,750,000 AT&T Corp. 76,125,000
338,341 COMSAT Corp. 10,023,351
1,400,000 Cox Communications, Inc., Class A Shares+@ 58,450,000
700,000 Scientific-Atlanta, Inc. 34,693,750
- ----------------------------------------------------------------------------------------------------------------------------
179,292,101
- ----------------------------------------------------------------------------------------------------------------------------
Toys -- 0.2%
165,000 Mattel, Inc. 3,135,000
- ----------------------------------------------------------------------------------------------------------------------------
Transportation -- 1.5%
400,000 General Motors Corp. 25,175,000
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $1,007,086,992) 1,670,104,431
============================================================================================================================
OPTIONS PURCHASED -- 0.2%
Technology and Computers -- 0.0%
200,000 Adobe Systems Inc. Put @ $80, Expire 1/21/00 725,000
- ----------------------------------------------------------------------------------------------------------------------------
Index -- 0.2%
S&P 500 Index Put@:
28,000 $1,225, Expire 12/17/99 931,000
4,000 $1,275, Expire 12/17/99 196,000
4,500 $1,275, Expire 12/17/99 220,500
2,500 $1,300, Expire 12/17/99 142,500
5,500 $1,325, Expire 12/17/99 407,687
12,000 $1,350, Expire 12/17/99 1,020,000
- ----------------------------------------------------------------------------------------------------------------------------
2,917,687
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED
(Cost -- $6,544,434) 3,642,687
============================================================================================================================
CONVERTIBLE PREFERRED STOCK -- 0.6%
945,000 USX Corp. (Cost -- $9,686,250) 9,627,188
============================================================================================================================
WARRANTS -- 0.0%
225,000 Aphton Corp., Expire 6/16/04 (Cost -- $0) 2
============================================================================================================================
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
10 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
============================================================================================================================
<S> <C> <C>
CONVERTIBLE CORPORATE BOND -- 0.0%
$ 500,000 Webforia Inc., 8.000% due 12/31/99 (Cost -- $500,000) $ 500,000
============================================================================================================================
REPURCHASE AGREEMENT -- 1.2%
21,167,000 J.P. Morgan, 5.250% due 10/1/99;
Proceeds at maturity -- $21,170,087;
(Fully collateralized by U.S. Treasury Notes, 3.375% due 1/15/07;
Market value -- $22,000,000) (Cost -- $21,167,000) 21,167,000
============================================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $1,044,984,676*) $1,705,041,308
============================================================================================================================
</TABLE>
@ All or a portion of this security is on loan (see Note 6).
+ Non-income producing security.
# Security 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.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 11
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities September 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (Cost -- $1,044,984,676) $1,705,041,308
Cash 18,711,591
Collateral for securities on loan (Note 6) 218,571,300
Receivable for Fund shares sold 12,451,860
Dividends and interest receivable 2,260,954
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets 1,957,037,013
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 218,571,300
Payable for Fund shares purchased 4,093,594
Options written (Note 5) 1,556,250
Distribution fees payable 673,266
Administration fees payable 556,972
Investment advisory fees payable 531,547
Payable for securities purchased 505,072
Accrued expenses 471,406
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 226,959,407
- -----------------------------------------------------------------------------------------------------------------------------
Total Net Assets $1,730,077,606
=============================================================================================================================
NET ASSETS:
Par value of capital shares $ 135,079
Capital paid in excess of par value 977,688,250
Undistributed net investment income 1,046,263
Accumulated net realized gain from securities transactions, options and foreign currencies 90,274,592
Net unrealized appreciation of investments, options and foreign currencies 660,933,422
- -----------------------------------------------------------------------------------------------------------------------------
Total Net Assets $1,730,077,606
=============================================================================================================================
Shares Outstanding:
Class A 52,761,669
------------------------------------------------------------------------------------------------------------------------
Class B 69,425,518
------------------------------------------------------------------------------------------------------------------------
Class L 6,630,982
------------------------------------------------------------------------------------------------------------------------
Class Y 6,260,887
------------------------------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $12.90
------------------------------------------------------------------------------------------------------------------------
Class B * $12.73
------------------------------------------------------------------------------------------------------------------------
Class L ** $12.73
------------------------------------------------------------------------------------------------------------------------
Class Y (and redemption price) $12.93
------------------------------------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $13.58
------------------------------------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $12.86
=============================================================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from purchase (See Note 3).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1999 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Statement of Operations For the Year Ended September 30, 1999
- ------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 19,468,140
Interest 5,484,156
Less: Foreign withholding tax (12,329)
- ------------------------------------------------------------------------------------------
Total Investment Income 24,939,967
- ------------------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 3) 10,783,583
Investment advisory fees (Note 3) 8,940,574
Administration fees (Note 3) 3,278,909
Shareholder and system servicing fees 1,762,227
Shareholder communications 349,999
Registration fees 154,997
Directors' fees 81,001
Custody 72,000
Audit and legal 69,500
Other 256,488
- ------------------------------------------------------------------------------------------
Total Expenses 25,749,278
- ------------------------------------------------------------------------------------------
Net Investment Loss (809,311)
- ------------------------------------------------------------------------------------------
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): 159,634,822
Options written (30,751,355)
Options purchased 23,251,967
Foreign currency transactions (258,136)
- ------------------------------------------------------------------------------------------
Net Realized Gain 151,877,298
- ------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
of Investments, Options and Foreign Currencies:
Beginning of year 337,894,723
End of year 660,933,422
- ------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 323,038,699
- ------------------------------------------------------------------------------------------
Net Gain on Investments, Options and Foreign Currencies 474,915,997
- ------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $474,106,686
==========================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
====================================================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (809,311) $ 5,776,692
Net realized gain 151,877,298 62,245,606
Increase (decrease) in net unrealized appreciation 323,038,699 (163,321,697)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 474,106,686 (95,299,399)
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,279,510) (10,249,004)
Net realized gains (94,958,684) (75,151,678)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (96,238,194) (85,400,682)
- ------------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 311,525,828 212,118,825
Net asset value of shares issued for reinvestment
of dividends 87,370,632 79,452,277
Cost of shares reacquired (403,471,373) (471,028,743)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (4,574,913) (179,457,641)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 373,293,579 (360,157,722)
NET ASSETS:
Beginning of year 1,356,784,027 1,716,941,749
- ------------------------------------------------------------------------------------------------------------------------------------
End of year* $1,730,077,606 $1,356,784,027
====================================================================================================================================
* Includes undistributed net investment income of: $1,046,263 $3,061,641
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1999 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 character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At September 30, 1999,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Accordingly, a portion of undistributed net investment
income amounting to $857,820 was reclassified to paid in capital. Net investment
income, net realized gains and net assets were not affected by this adjustment;
(i) the accounting records of the Fund are maintained in U.S. dollars. All
assets and liabilities denominated in foreign currencies are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation; (j) the Fund intends to comply with the
applicable provisions of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (k) 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
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary of
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Salomon Smith Barney Holdings Inc. ("SSBH"), acts as investment adviser of the
Fund. The Fund pays SSBC 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. This fee is calculated daily and
paid monthly.
SSBC also acts as the Fund's administrator for which it receives a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly.
CFBDS, Inc. ("CFBDS"), acts as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
SSB acts as the primary broker for its portfolio agency transactions. For the
year ended September 30, 1999, SSB received total brokerage commissions of
$140,412.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B shares,
which applies if redemption occurs within one year from purchase and declines
thereafter by 1.00% per year until no CDSC is incurred. Class L shares also have
a 1.00% CDSC, which applies if redemption occurs within the first year of
purchase. In certain cases, Class A shares have a 1.00% CDSC, which applies if
redemption occurs within the first year of purchase. This CDSC only applies to
those purchases of Class A shares, which, when combined with current holdings of
Class A shares, equal or exceed $500,000 in the aggregate. These purchases do
not incur an initial sales charge.
For the year ended September 30, 1999, CFBDS and SSB received sales charges of
$448,000 and $126,000 on sales of the Fund's Class A and L shares, respectively.
In addition, CDSCs paid to SSB were:
Class B Class L
================================================================================
CDSCs $770,000 $5,000
================================================================================
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to its
Class A, B and L 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 L 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, 1999, total Distribution Plan fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $1,601,018 $8,455,412 $727,153
================================================================================
All officers and one Director of the Fund are employees of SSB.
4. Investments
During the year ended September 30, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $752,284,951
- --------------------------------------------------------------------------------
Sales 642,022,173
================================================================================
At September 30, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
================================================================================
Gross unrealized appreciation $735,252,193
Gross unrealized depreciation (75,195,561)
- --------------------------------------------------------------------------------
Net unrealized appreciation $660,056,632
================================================================================
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
- --------------------------------------------------------------------------------
16 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
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, 1999, the Fund held purchased put options with a total cost of
$6,544,434.
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 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, 1999:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
====================================================================================================
<S> <C> <C>
Options written, outstanding at September 30, 1998 17,238 $12,862,347
Options written during the year ended September 30, 1999 28,000 18,924,902
Options cancelled in closing purchase transactions (35,738) (28,400,363)
Options expired (5,500) (945,968)
- ----------------------------------------------------------------------------------------------------
Options written, outstanding at September 30, 1999 4,000 $ 2,440,918
====================================================================================================
</TABLE>
The following represents the covered call option written contracts open as of
September 30, 1999:
<TABLE>
<CAPTION>
Number of Strike
Contracts Security Expiration Price Value
====================================================================================================
<S> <C> <C> <C> <C> <C>
2,000 Adobe Systems Inc. 1/21/99 $75 $(1,350,000)
2,000 Cox Communications Inc. 12/17/99 50 (206,250)
- ----------------------------------------------------------------------------------------------------
Total Covered Call Options Written
(Premiums received -- $2,440,918) $(1,556,250)
====================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
The following covered put option transactions occurred during the year ended
September 30, 1999:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
=====================================================================================================
<S> <C> <C>
Options written, outstanding at September 30, 1998 738 $1,217,700
Options written during the year ended September 30, 1999 -- --
Options cancelled in closing purchase transactions (738) (1,217,700)
- -----------------------------------------------------------------------------------------------------
Options written, outstanding at September 30, 1999 -- --
=====================================================================================================
</TABLE>
6. 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. Fees earned by the Fund on securities
lending are recorded as 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 securities loaned, plus a margin which may vary
depending on the type of securities loaned. The custodian establishes and
maintains the collateral in a segregated account. The Fund maintains exposure
for the risk of any losses in the investment of amounts received as collateral.
At September 30, 1999, the Fund loaned common stocks having a value of
approximately $210,090,827 and holds the following collateral for loaned
securities:
<TABLE>
<CAPTION>
Security Description Value
=====================================================================================================
<S> <C>
Time Deposits:
Bank of Brussels Lambert, 5.438% due 9/30/99 $ 15,409,083
Banco Bilbao Vizcaya S.A., 5.438% due 9/30/99 39,529,353
Banque Paribus, 5.437% due 9/30/99 31,872,672
Societe Generale, 5.625% due 10/1/99 5,836,785
Svenska Handelsbanken, 5.188% due 9/30/99 14,117,251
Commercial Paper:
CC(USA) Inc., 5.937% due 2/22/00 3,966,628
Corporate Asset Funding Inc, 5.360% due 10/1/99 1,469,920
American Home Products Corp., 5.928% due 3/3/00 33,444,374
Corporate Receivable Corp., 5.997% due 1/26/00 29,111,505
Atlantis One Funding Corp., 5.919% due 2/22/00 16,987,026
Certificates of Deposit:
Windmill FDG., 5.910% due 2/23/00 26,826,703
- -----------------------------------------------------------------------------------------------------
Total $218,571,300
=====================================================================================================
</TABLE>
Income earned by the Fund from securities loaned for the year ended September
30, 1999 was $151,485.
7. Capital Shares
At September 30, 1999, 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, 1999, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
=====================================================================================================
<S> <C> <C> <C> <C>
Total Paid-in Capital $396,256,067 $470,218,055 $59,337,287 $52,011,920
=====================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
18 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1999 September 30, 1998
-------------------------------------- -------------------------------------
Shares Amount Shares Amount
===========================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 13,343,016 $ 168,308,152 7,551,987 $ 82,411,671
Shares issued on reinvestment 3,453,723 36,264,097 3,125,009 32,667,488
Shares reacquired (15,710,481) (194,184,251) (12,290,037) (132,952,544)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 1,086,258 $ 10,387,998 (1,613,041) $ (17,873,385)
===========================================================================================================================
Class B
Shares sold 8,433,658 $ 106,180,906 6,360,722 $ 68,425,785
Shares issued on reinvestment 4,525,136 47,197,171 4,153,333 43,315,188
Shares reacquired (15,085,068) (178,838,523) (21,262,606) (228,805,770)
- ---------------------------------------------------------------------------------------------------------------------------
Net Decrease (2,126,274) $ (25,460,446) (10,748,551) $(117,064,797)
===========================================================================================================================
Class L+
Shares sold 2,189,761 $ 27,588,163 1,049,363 $ 11,275,499
Shares issued on reinvestment 374,819 3,909,364 332,717 3,469,601
Shares reacquired (1,666,631) (20,095,599) (2,007,609) (21,619,890)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 897,949 $ 11,401,928 (625,529) $ (6,874,790)
===========================================================================================================================
Class Y
Shares sold 854,600 $ 9,448,607 4,624,764 $ 50,005,870
Shares issued on reinvestment -- -- -- --
Shares reacquired (785,232) (10,353,000) (7,955,204) (87,650,539)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 69,368 $ (904,393) (3,330,440) $ (37,644,669)
===========================================================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 19
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended September 30, except where noted:
<TABLE>
<CAPTION>
Class A Shares 1999(1) 1998(1) 1997 1996 1995
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.07 $11.37 $9.31 $8.66 $8.20
- -----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.04 0.09 0.11 0.20 0.17
Net realized and unrealized gain (loss) 3.53 (0.76) 2.52 1.01 1.23
- -----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.57 (0.67) 2.63 1.21 1.40
- -----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.02) (0.11) (0.13) (0.19) (0.13)
Net realized gains (0.72) (0.52) (0.44) (0.37) (0.81)
- -----------------------------------------------------------------------------------------------------------------
Total Distributions (0.74) (0.63) (0.57) (0.56) (0.94)
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.90 $10.07 $11.37 $9.31 $8.66
- -----------------------------------------------------------------------------------------------------------------
Total Return 37.17% (6.04)% 29.53% 14.73% 19.94%
- -----------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $680,603 $520,627 $606,054 $458,208 $386,297
- -----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.17% 1.15% 1.14% 1.22% 1.34%
Net investment income 0.35 0.81 1.14 2.32 2.19
- -----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 43% 41% 46% 57% 45%
=================================================================================================================
<CAPTION>
Class B Shares 1999(1) 1998(1) 1997 1996 1995
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.01 $11.31 $9.26 $8.62 $8.16
- -----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.05) -- 0.03 0.13 0.12
Net realized and unrealized gain (loss) 3.49 (0.75) 2.52 1.01 1.23
- -----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.44 (0.75) 2.55 1.14 1.35
- -----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.03) (0.06) (0.13) (0.08)
Net realized gains (0.72) (0.52) (0.44) (0.37) (0.81)
- -----------------------------------------------------------------------------------------------------------------
Total Distributions (0.72) (0.55) (0.50) (0.50) (0.89)
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.73 $10.01 $11.31 $9.26 $8.62
- -----------------------------------------------------------------------------------------------------------------
Total Return 36.00% (6.79)% 28.62% 13.82% 19.19%
- -----------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $884,088 $716,239 $930,436 $703,552 $538,759
- -----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.94% 1.92% 1.90% 1.97% 2.09%
Net investment income (loss) (0.42) 0.04 0.38 1.56 1.44
- -----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 43% 41% 46% 57% 45%
=================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
- --------------------------------------------------------------------------------
20 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended September 30, except where noted:
<TABLE>
<CAPTION>
Class L Shares 1999(1) 1998(1)(2) 1997 1996 1995
====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.01 $11.30 $9.26 $8.62 $8.16
- --------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.05) -- 0.03 0.14 0.12
Net realized and unrealized gain (loss) 3.49 (0.74) 2.51 1.00 1.24
- --------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.44 (0.74) 2.54 1.14 1.36
- --------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.03) (0.06) (0.13) (0.09)
Net realized gains (0.72) (0.52) (0.44) (0.37) (0.81)
- --------------------------------------------------------------------------------------------------------------------
Total Distributions (0.72) (0.55) (0.50) (0.50) (0.90)
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.73 $10.01 $11.30 $9.26 $8.62
- --------------------------------------------------------------------------------------------------------------------
Total Return 36.00% (6.70)% 28.52% 13.82% 19.33%
- --------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $84,402 $57,367 $71,874 $44,539 $21,812
- --------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.95% 1.93% 1.92% 1.96% 2.09%
Net investment income (loss) (0.43) 0.03 0.36 1.52 1.44
- --------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 43% 41% 46% 57% 45%
====================================================================================================================
<CAPTION>
Class Y Shares 1999(1) 1998(1) 1997 1996(3)
====================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $10.10 $11.40 $9.32 $8.54
- --------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.09 0.12 0.14 0.23
Net realized and unrealized gain (loss) 3.52 (0.74) 2.54 0.55
- --------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.61 (0.62) 2.68 0.78
- --------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.06) (0.16) (0.16) --
Net realized gains (0.72) (0.52) (0.44) --
- --------------------------------------------------------------------------------------------------------------------
Total Distributions (0.78) (0.68) (0.60) --
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.93 $10.10 $11.40 $9.32
- --------------------------------------------------------------------------------------------------------------------
Total Return 37.57% (6.78)% 30.06% 9.13%*++
- --------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $80,984 $62,551 $108,578 $44,641
- --------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.82% 0.79% 0.78% 0.75%+
Net investment income 0.71 1.15 1.48 2.58+
- --------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 43% 41% 46% 57%
====================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
(3) For the period from October 13, 1995 (inception date) to September 30,
1996.
* 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.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 21
<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 of Smith
Barney Fundamental Value Fund Inc., including the schedule of investments as of
September 30, 1999, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of 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, 1999 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 referred to
above present fairly, in all material respects, the financial position of Smith
Barney Fundamental Value Fund Inc. as of September 30, 1999, the results of its
operation for the year then ended, the changes in its net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
November 12, 1999
- --------------------------------------------------------------------------------
22 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
The amount of long-term capital gains paid by the Fund for the fiscal year
ended September 30, 1999 was $94,958,684.
100% of ordinary income distribution is designated as qualifying for the
dividends received deduction available to corporate shareholders.
- --------------------------------------------------------------------------------
Smith Barney Fundamental Value Fund Inc. 23
<PAGE>
[This page intentionally left blank]
<PAGE>
Smith Barney
Fundamental Value
Fund Inc.
Directors
Lloyd J. Andrews
Robert M. Frayn, Jr.
Leon P. Gardner
David E. Maryatt
Heath B. McLendon, Chairman
Frederick O. Paulsell
Jerry A. Viscione
Julie W. Weston
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
John G. Goode
Vice President and Investment Officer
Peter Hable
Investment Officer
Irving P. David
Controller
Christina T. Sydor
Secretary
Investment Adviser and Administrator
SSB Citi Fund Management LLC
Distributor
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Shareholder Servicing Agent
Smith Barney Private Trust
388 Greenwich Street, 22nd Floor
New York, New York 10013
Sub-Shareholder Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is for the information of shareholders of Smith Barney Fundamental
Value Fund Inc. It is not authorized for distribution to prospective investors
unless accompanied by a current Prospectus for the Fund, which contains
information concerning the Fund's investment policies and expenses as well as
other pertinent information.
[LOGO OF SALOMON SMITH BARNEY]
Smith Barney Fundamental
Value Fund Inc.
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
FD0283 11/99
