<PAGE>
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SMITH BARNEY
FUNDAMENTAL VALUE
FUND INC.
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CLASSIC SERIES | ANNUAL REPORT | SEPTEMBER 30, 2000
[LOGO OF SMITH BARNEY]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
[PICTURE] JOHN GOODE
PORTFOLIO MANAGER
[LOGO] Classic Series
Annual Report . September 30, 2000
SMITH BARNEY FUNDAMENTAL
VALUE FUND INC.
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JOHN GOODE
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John Goode has more than 31 years of securities business experience and has
managed the Fund since 1990. Education: BA in Economics, MBA from Stanford
University.
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FUND OBJECTIVE
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The Fund seeks long-term capital growth. Current income is a secondary
consideration. The Fund invests primarily in common stock and common stock
equivalents, such as preferred stocks and securities convertible into common
stocks, of companies the manager believes are undervalued in the marketplace.
While the manager selects investments primarily for their capital appreciation
potential, secondary consideration is given to a company's dividend record and
the potential for an improved dividend return.
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FUND FACTS
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FUND INCEPTION
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November 12, 1981
MANAGER TENURE
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10 Years
MANAGER INVESTMENT
INDUSTRY EXPERIENCE
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31 Years
CLASS A CLASS B CLASS L
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NASDAQ SHFVX SFVBX SFVCX
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INCEPTION 11/12/81 11/6/92 8/10/93
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Average Annual Total Returns as of September 30, 2000
Without Sales Charges/(1)/
Class A Class B Class L
One-Year 31.55% 30.59% 30.51%
Five-Year 20.30 19.37 19.36
Ten-Year 19.71 N/A N/A
Since Inception+ 15.41 17.99 17.13
With Sales Charges/(2)/
Class A Class B Class L
One-Year 24.96% 25.59% 28.19%
Five-Year 19.06 19.27 19.11
Ten-Year 19.09 N/A N/A
Since Inception+ 15.10 17.99 16.97
/(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 also 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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What's Inside
Your Investment in the Smith Barney
Fundamental Value Fund Inc. .................................................. 1
A Message from the Chairman .................................................. 2
Fund at a Glance ............................................................. 3
Letter from the Portfolio Manager ............................................ 4
Historical Performance .......................................................10
Growth of $10,000 ............................................................13
Schedule of Investments ......................................................14
Statement of Assets and Liabilities ..........................................19
Statement of Operations ......................................................20
Statements of Changes in Net Assets ..........................................21
Notes to Financial Statements ................................................22
Financial Highlights .........................................................27
Independent Auditors' Report .................................................31
Tax Information ..............................................................32
[LOGO OF SMITH BARNEY]
Investment Products: Not FDIC Insured . Not Bank Guaranteed . May Lose Value
<PAGE>
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YOUR INVESTMENT IN THE SMITH BARNEY FUNDAMENTAL
VALUE FUND
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For 31 years, value manager John Goode and his team have sought to uncover
unrecognized investment opportunities. They evaluate business fundamentals as
well as industry outlooks to identify opportunities throughout the market.
[GRAPHIC]
A Focused Approach to Value Investing
John and his team believe that the best long-term results can often be achieved
by concentrating on a carefully selected group of securities.
[GRAPHIC]
A Disciplined Investment Approach
John and his team search for leading businesses with sound fundamentals that are
undervalued and, accordingly, have above-average potential for capital growth.
[GRAPHIC]
A Flexible Stock Selection Strategy
John and his team's stock selection process considers both the business
fundamentals of a prospective company as well as the outlook for its particular
industry and overall economic trends. The Fund has the flexibility to invest
across market capitalization and may increase its cash position if capital
growth opportunities do not appear attractive.
[GRAPHIC]
A Distinguished History of Managing Your Serious Money
Founded in 1873 and 1892, respectively, the firms of Charles D. Barney and
Edward B. Smith were among the earliest providers of securities information,
research and transactions. Merged in 1937, Smith Barney & Co. offered its
clients a powerful, blue-chip investment capability able to provide timely
information, advice and insightful asset management. Today, SSB Citi Fund
Management LLC ("SSB Citi") unites the distinguished history of Smith Barney &
Co. with the unparalleled global reach of its parent, Citigroup.
At SSB Citi, you gain access to blue-chip management delivered professionally.
We are proud to offer you, the serious investor, a variety of managed solutions.
1 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
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A MESSAGE FROM THE CHAIRMAN
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[PICTURE]
HEATH B. MCLENDON
CHAIRMAN
The new millennium, so far, has been marked by higher volatility and concerns
that the bull market in stocks may be running out of steam. At SSB Citi Fund
Management LLC ("SSB Citi"), we have instituted many positive changes, with the
ultimate goal of offering our investors a well-rounded menu of stock and bond
funds that can be tailored to a wide range of investment objectives.
We believe that your serious money demands professional management. Since 1937,
Smith Barney has managed the serious money of individuals, their families and
their businesses. Today, with over $395.5 billion in assets under management,/1/
we believe SSB Citi offers choices and solutions, uniting the distinguished
history of Smith Barney with the unparalleled global reach of its parent,
Citigroup.
The Smith Barney family of funds represents a complex with a 60-year history of
investment expertise. In addition, Smith Barney is currently conducting an
extensive advertising campaign, highlighting a selection of the most popular
Smith Barney mutual funds and the investment professionals who manage them.
For those of you who are new shareholders, I would like to extend a warm welcome
to you on behalf of everyone here at SSB Citi. The Smith Barney Fundamental
Value Fund Inc. seeks capital appreciation by investing in companies that John
Goode and his investment team deem to have sound fundamentals and they believe
to be undervalued in the marketplace. When selecting individual securities, John
and his team consider the business fundamentals as well as the outlook for the
particular industry and overall economic trends.
When you invest with SSB Citi you can do so with the confidence that your
interests come first, your investment success is paramount and that the ultimate
in resources is being committed to your financial success.
Thank you for your confidence in our investment management approach.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
October 18, 2000
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/1/ As of September 30, 2000. This figure represents SSB Citi's assets under
management for retail, institutional, money and separate accounts.
2 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
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Smith Barney Fundamental Value Fund Inc. at a Glance (unaudited)
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Top Ten Holdings+*
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1. Adobe Systems Inc. .................................................... 5.6%
2. American Express Co. .................................................. 3.7
3. American International Group, Inc. .................................... 3.5
4. Texas Instruments Inc. ................................................ 3.0
5. MGIC Investment Corp. ................................................. 3.0
6. McKesson HBOC, Inc. ................................................... 2.7
7. International Business Machines Corp. ................................. 2.7
8. Countrywide Credit Industries, Inc. ................................... 2.6
9. AT&T Corp. ............................................................ 2.5
10. Time Warner Inc. ...................................................... 2.4
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Industry Diversification of Common Stock+*
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6.1% Computer Software
5.0% Electronic Components - Semiconductors
12.2% Financial Services
8.4% Health Care
7.3% Insurance
4.1% Metals
10.1% Oil & Gas Services
6.5% Pharmaceuticals
5.0% Telephone
35.3% Other
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Investment Breakdown++*
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0.2% Options Purchased & Warrants
7.2% Repurchase Agreement & Convertible Preferred Stock
2.3% Foreign Stock
90.3% Common Stock
+ As a percentage of total common stock.
++ As a percentage of total investments.
* All information is as of September 30, 2000. Please note that Fund's
holdings are subject to change.
3 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
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, 2000. In this report,
we have summarized the period's prevailing economic conditions and briefly
outline the Fund's investment strategy. The information provided in this letter
represents the opinion of the manager and is not intended to be a forecast of
future events, a guarantee of future results nor investment advice.
Further, there is no assurance that certain securities will remain in or out of
the Fund. Additionally, please note that the statistical performance information
that appears throughout this report is compiled from SSB Citi Fund Management
LLC ("SSB Citi") internal research. We hope you find this report to be useful
and informative.
Performance Update
For the year ended September 30, 2000, the Fund's Class A shares, without and
with sales charges returned 31.55% and 24.96%, respectively. This return is in
comparison to the 13.28% return for the Standard & Poor's 500 Index
("S&P 500")/1/ and 11.94% for the Lipper Inc. ("Lipper") multi-cap value peer
group average of 476 funds./2/
This performance reflects the Fund's focus on sectors of the market that did
well in the last year. The best performing sector in the Fund's 1999 fiscal year
was concentrated in technology whereas in the fiscal year just completed a
number of sectors were responsible for the Fund's strong absolute and relative
performance.
Market & Economic Conditions that Affected Fund Performance
We think this "boom-bust" mentality has developed in part because many mutual
funds must stay fully invested; most mutual funds are required to maintain a
minimal cash position and therefore may not have sufficient resources to
purchase new or additional holdings. Unless new cash flows (on an absolute
basis, that is nothing is sold in order to be bought) are robust, purchases must
be funded by sales in other areas of the market and this often times increases
the volatility of individual sectors. Ironically, volatility between sectors
tends to offset overall market volatility, which means that the overall market
volatility is generally less than the volatility seen in many of the 11 sectors
making up the S&P 500. For a value manager, high sector volatility can be a
benefit because it sometimes makes buy and sell decisions more obvious. (Value
investing looks to invest in companies whose shares are considered to be
inexpensive relative to their asset values or earning power.)
Investment Philosophy
In making our investment decisions, price is an important consideration. We try
to buy "leading franchises selling at depressed prices for reasons we believe
are temporary." However, in selecting stocks available at attractive prices, we
hope to buy "rubber balls" rather than "broken eggs." A "rubber ball"
characterizes a company, which is currently out-of-favor but may return to
investor favor because it has an attractive long-term franchise even though
near-term difficulties have caused many investors to temporarily shy away from
its shares. A "broken egg" would include companies that appear statistically
inexpensive but lack a catalyst or attractive business model and therefore may
not return to favor with investors.
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1 S&P 500 is a market capitalization-weighted measure of 500 widely held
common stocks. An investor cannot invest directly in an index.
2 Lipper is an independent mutual fund-tracking organization. The Fund's
calculation of the Lipper peer group average includes the reinvestment of
all capital gains and dividends without the effects of sales charges.
4 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
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IN THE LAST YEAR, THE STOCK MARKET WITNESSED
THE INCREASING INFLUENCE OF THE "CASINO
CROWD," AS MANY INVESTORS BECAME MUCH
MORE SHORT-TERM ORIENTED IN THEIR DECISIONS.
WITH A DRAMATIC RISE IN SPECULATIVE ACTIVITY,
SOME SECTORS OF THE MARKET REACHED
EXTREMELY EXTENDED VALUATIONS. CONVERSELY,
OTHER SECTORS WERE SOLD INDISCRIMINATELY
AND REACHED VALUATION LEVELS THAT WERE
DIFFICULT TO COMPREHEND.
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Put another way, we like to buy companies where current expectations are low and
any good news may be a pleasant surprise. Companies that embody high
expectations and a need for operating performance perfection often can fall 20%
to 30% at the first hint of bad news.
Why Was Fiscal Year 2000 A Good Year For the Fund?
Two decisions in the Fund were especially important to generating strong
absolute and relative performance in its fiscal year just ended. From 1996 to
1998, the Fund purchased a number of depressed technology stocks. These were not
the "cult" stocks that dominate the S&P 500 and the Nasdaq 100 Index ("Nasdaq
100"),3 which often sold at prospective earnings growth ("PEG")4 ratios of 2 to
4 times. (PEG refers to the relationship of a company's price earnings ("P/E")5
ratio to its long-term growth rate.) Many of the largest technology companies,
even in the 1996 to 1998 time period, were selling at PEG ratios we believed
were unsustainable.
Our focus was on some of the issues that had been shunned by Wall Street but
which were industry leaders and had attractive prospects during the next three
to five years. Adobe Systems Inc. (a provider of graphic design, publishing and
imaging software for Web and print production), one of the largest holdings in
the Fund, was a case in point.
Adobe's own investment banker believed the company, a few years ago, was a
broken growth stock and his research coverage was highly critical, citing all
the near-term negatives and all but ignoring the considerable positives.
Beginning in 1998 and extending through the early part of 2000, Adobe introduced
new products and began executing its business plan much more effectively. Not
only did it join the "technology party," it also recovered the meaningful
discount at which it sold versus many leading technology issues, just a year or
so earlier.
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3 The Nasdaq 100 is a modified capitalization-weighted index comprised of 100
of the largest non-financial companies listed on the National Market tier
of the NASDAQ stock market. Please note an investor cannot invest directly
in an index.
4 PEG ratio is a growth measure of projected earnings compared to current
earnings based on forecasts from sources such as Institutional Brokers
Estimate System, First Call or Zachs.
5 P/E ratio is the price of a stock divided by its earnings per share.
5 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
Much the same may be said of our other investments within the technology sector
such as Scientific Atlanta, Inc. (a leading supplier of broadband communications
systems, satellite-based video, voice and data communications networks and
worldwide customer service and support) and Cypress Semiconductor Corp. (a
designer, developer and manufacturer a broad line of high-performance digital
and mixed-signal integrated circuits) which we added to the portfolio between
1996 and 1998. These companies had been written-off by the investment community
when we purchased them and expectations were very low. When good news did
appear, their shares appreciated dramatically, not just because of improved
fundamentals but also because, in our judgment, their shares had been overly
discounted. Like many portfolios, the Fund benefited from its technology
holdings in fiscal 1999 and this was critical to it beating the S&P 500 by about
10%. (Of course, past performance is not indicative of future results.)
The Fund's Fiscal Year 2000-A Contrast With Previous Year
The period from October 1999 until February 2000 saw one of the great
speculative bubbles in the last 50 years centered in the technology sector. The
frenzy was such that it made tulipmania in Holland, a few centuries ago, look
like only a minor psychological aberration. Early this year, it seemed clear to
us that forces would soon develop that would temper the speculative frenzy. When
one added up the lock-up stock that venture capitalists and other insiders would
be able to sell six months after initial public offerings, it appeared that $100
to $150 billion of technology-Internet related shares could be sold between
March and June of this year. It seemed plausible that enough of this might hit
the market to alter investment perceptions.
At this point in time, we made two decisions. The first was to reduce our
technology weighting from 1 times the market weight to 0.5 times the market
weight. In other words we began a program a phased selling, periodic
liquidations of technology stocks we felt had reached fully valued status. We
pruned positions such as Adobe Systems Inc., Texas Instruments Inc. (a global
semiconductor company and the world's leading designer and supplier of digital
signal processors and analog integrated circuits) and Motorola (a global leader
in providing integrated communications solutions and embedded electronic
solutions such as software-enhance wireless telephone, radio and satellite
communications). Moreover, we eliminated positions in Scientific Atlanta Inc.
and Cypress Semiconductor Corp. This was accomplished just before the major
sell-off in technology and some might consider this just luck. However, as
pointed out earlier, we had done our research on the size of lock-up shares
likely to hit the market just a few months down the road and we decided to take
our profits before it became obvious, in hindsight prudent course of action.
The second decision was equally important to the progress made by the Fund's
shares in fiscal year 2000. There were segments of energy, financial services,
and health care that had been in their own personal bear markets for several
years, which culminated in some of the greatest values we have ever seen in
February to April 2000. Assets liberated from technology were invested in these
groups taking them from underweight to overweight status relative to the market.
In many cases stocks were bought for book value6 or less and at PEG ratios well
under one.
For example, our investment in MGIC Investment Corp. (a holding company that
provides private mortgage insurance coverage to the home mortgage lending
industry) was representative of many investments made at this time. The company
is the leading company in mortgage insurance and its shares had fallen from
about $70 to approximately $33 when we bought them. The earnings estimate for
this year was $4.80 per share and 2001 was projected to be $5.25 plus per share.
Since March, MGIC Investment Corp. shares have rebounded to $60 and many of the
selections in energy and health care have seen their shares rebound well in
excess of 25% in the last six months of fiscal 2000. (Of course, no guarantees
can be given that MGIC Investment Corp. will continue to perform well.)
Therefore, the Fund's performance during the period can be traced to using
market volatility to accept profits in stocks and sectors that appeared
overpriced (technology) and using the assets to purchase shares in sectors that
seemed to hold little interest for investors and which, therefore, sold at low
prices.
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6 Book value is the value at which an asset is carried on a balance sheet.
Book value can be a guide in selecting underpriced stocks and is an
indication of the ultimate value of securities in liquidation.
6 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
A Word About the "New Economy"/7/
My cousin Gladwyn recently died at age 100 and in the last five years of her
life we had many conversations about the things she had seen, including the
great technological advances in the last century. It became clear to me that
there has always been a "New Economy" in the U.S. since at least 1875. My own
family came to California from England on that 19th century "New Economy"
miracle, the transcontinental railroad.
In subsequent years, electricity, the telephone, the refrigerator, the
automobile, airplanes, radio, television, new drugs such as penicillin,
transistors, semiconductors/microprocessors, personal computers, biotechnology,
and the Internet all arrived to claim the mantel of "New Economy."
Consider the years 1910 to 1915 when the automobile certainly justified being
considered "New Economy." For 5000 years, the horse had been central to personal
transportation needs. This was true in 325 bc, at the time of Alexander the
Great, and the horse was still important in getting people around in Victorian
England. Yes we are aware that the train had been introduced at this time.
Therefore, the development of the automobile was really significant because for
the first time in at least 50 centuries, something really new was emerging in
terms of personal transportation technology.
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OUR INVESTMENT APPROACH IS DESIGNED TO
SELECT COMPANIES WITH WHAT WE THINK ARE
ATTRACTIVE RISK AND REWARD RATIOS. ONE OF THE
BEST WAYS TO DO THIS IS TO LIMIT THE DOWNSIDE
RISK AND WE BELIEVE ATTENTION TO PRICE IS ONE
WAY TO DO THIS. IN RECENT YEARS, THE "CASINO
MENTALITY" THAT HAS INVADED THE INVESTMENT
ARENA HAS CAUSED MANY INVESTORS TO PAY
VIRTUALLY ANY PRICE FOR COMPANIES WITH
CERTAIN ATTRIBUTES. WE BELIEVE THIS INCREASES
RISK AND COMPROMISES LONG-TERM PERFORMANCE
RELATIVE TO THE APPROACH WE UTILIZE.
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In 1910-1915 there were more than 200 automobile companies in the U.S. Given the
importance of the automobile, why wasn't there enough room for 200 or more
successful business plans? At this point we would like to talk about one of
capitalism's dirty little secrets. When a new technology becomes available, it
is unclear who the ultimate winners may be so the only way to ensure that it
survives is to encourage many players to come into the market. Investor
enthusiasm for a new idea or product produces many business plans and the
speculative fervor for the "New Economy" idea is the closest thing to a
guarantee that enough money will be invested so that the new product or idea
takes root. Once this is done, most of the entries and their business plans are
no longer needed. In the consolidation phase, most early entrants are merged out
of existence or simply fail. This feature of capitalism may seem inefficient but
Charles Darwin would have certainly understood it. If a "species" (the
automobile in this case) is to survive, the best way to guarantee this would be
to encourage many investors to enter the fray and let the market sort itself out
after a few years.
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7 The New Economy represents those companies in the technology,
telecommunications and Internet sectors.
7 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
Every "New Economy" in the last 100 years has gone through the process described
above. In the last few years, many would-be entrepreneurs have committed their
capital to a variety of Internet and so-called dot-com ventures. In several
instances, high-ranking executives have left secure positions at established
companies, lured by promising options programs and the excitement of being part
of the "New Economy." We believe it is possible that those who saw the "stars in
their eyes" and who saw the "New Economy" as their ticket to financial success
may return to more secure positions at established companies now that the
landscape has changed. We think this is indicative of a "sorting out" in this
area of the market.
Market Outlook--Don't Look in the Rear View Mirror
Jeremy Siegel of the Wharton School of Business wrote Stocks for the Long Run,
which looked at real return (i.e., inflation adjusted returns) for stocks over
the last 200 years. His conclusion stocks, on average, generate real returns of
about 7% over long periods of time. If stocks appreciate 10% in a year in which
inflation is 3%, the real return would be 7%.
Between 1966 and 1981, the real return for stocks was negative 0.4%, a major
anomaly, considering Siegel's long-term conclusions. Between 1982 and 1997,
stocks provided real returns approaching 13%, the largest deviation in the other
direction for any period covered by Siegel's work. If this is updated to account
for 1998 to 1999, the 1982 to 1999 return for stocks approximates 14%. The
really interesting thing to do is to combine the two periods and look at real
returns since 1966. When this is done, the result is almost exactly 7%.
What do we conclude from these two periods? We believe that the next 10 years
may differ from the 1966-1981 period as well as the one extending from
1982-1999. We expect inflation will average 3% in the coming years, possibly a
little more at times, and that stock market returns will probably average 10%.
In a "10% return environment," many more companies will be able to meet this
"hurdle rate" which means the overall market should broaden out. In 1998 and
1999 no more than a dozen stocks accounted for more than 50% of the gains by the
S&P 500 and the Nasdaq 100.
And while no guarantees can be given, we believe the S&P 500 may appreciate only
5% to 7% in the next five years because P/E ratios for many of its leading
companies may be contracting. In the last 5 years, P/E ratios doubled for the
S&P 500, providing 15% per year appreciation from P/E expansion alone. The top
10 names in both the S&P 500 and Nasdaq 100 increased 3 1/2 times in this time
period before easing back to only 2 1/2 times in the recent correction. At their
peaks, the average P/E ratio for the top 10 companies in the S&P 500 and the
Nasdaq 100 was in excess of 70 TIMES earnings!
Small and mid-cap companies did not do well in the last few years. And while we
may be wrong about the future, we think they could outperform the S&P 500 by a
2-to-1 margin in the next few years. The Fund currently has 20%+ of the holdings
in this area of the market. An all-cap approach should do better than large-cap
only in the future.
If we are correct, the "rear view mirror" may be an imperfect guide to the
investment styles and emphasis necessary to produce attractive absolute and
relative returns in the next three to five years. In our opinion, value style of
investing may make a comeback as well. The big new game on Wall Street may be
mergers and acquisitions in "Old Economy"/8/ stocks. Moreover, this "low hanging
fruit" may generate returns from some surprising places. We believe the
"not-so-nifty 450" within the S&P 500 should be another attractive place to
invest.
In the final analysis, the proper investment decision may be to participate at
the intersection of where the New and Old economies meet. "Old Economy"
companies using "New Economy" technology to transform their business models may
be one of the best places for investors to focus. We intend to seek out
companies and investment opportunities at this "intersection."
---------
8 The Old Economy represents more established, "blue-chip" companies.
8 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
Thank you for investing in the Smith Barney Fundamental Value Fund Inc. We look
forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ John G. Goode
John G. Goode
Vice President and Investment Officer
October 18, 2000
9 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
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Historical Performance -- Class A Shares
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<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>
9/30/00 $12.90 $15.97 $0.00 $0.83 31.55%
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
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Total $1.09 $4.97
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</TABLE>
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Historical Performance -- Class B Shares
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<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>
9/30/00 $12.73 $15.63 $0.00 $0.83 30.59%
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+
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Total $0.37 $4.68
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</TABLE>
10 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
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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>
9/30/00 $12.73 $15.62 $0.00 $0.83 30.51%
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 $4.22
---------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
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>
9/30/00 $12.93 $16.07 $0.00 $0.83 32.04%
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 $2.51
---------------------------------------------------------------------------------------------
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
--------------------------------------------------------------------------------
Average Annual Total Returns
--------------------------------------------------------------------------------
Without Sales Charges(1)
-----------------------------------------
Class A Class B Class L Class Y
--------------------------------------------------------------------------------
Year Ended 9/30/00 31.55% 30.59% 30.51% 32.04%
Five Years Ended 9/30/00 20.30 19.37 19.36 N/A
Ten Years Ended 9/30/00 19.71 N/A N/A N/A
Inception* through 9/30/00 15.41 17.99 17.13 20.65++
--------------------------------------------------------------------------------
With Sales Charges(2)
------------------------------------------
Class A Class B Class L Class Y
--------------------------------------------------------------------------------
Year Ended 9/30/00 24.96% 25.59% 28.19% 32.04%
Five Years Ended 9/30/00 19.06 19.27 19.11 N/A
Ten Years Ended 9/30/00 19.09 N/A N/A N/A
Inception* through 9/30/00 15.10 17.99 16.97 20.65++
--------------------------------------------------------------------------------
11 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Cumulative Total Returns
--------------------------------------------------------------------------------
Without Sales Charges(1)
--------------------------------------------------------------------------------
Class A (9/30/90 through 9/30/00) 504.12%
Class B (Inception* through 9/30/00) 269.71
Class L (Inception* through 9/30/00) 209.48
Class Y (Inception* through 9/30/00) 140.35++
--------------------------------------------------------------------------------
(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 also 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.
12 Smith Barney Fundamental Value Fund Inc. | 2000 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 1990 -- September 2000
[GRAPH]
Smith Barney Fundamental Value Fund Standard & Poor's 500 Index
Sep 90 9,502 10,000
Sep 91 12,682 13,109
Sep 92 14,458 14,556
Sep 93 18,105 16,444
Sep 94 18,995 17,049
Sep 95 22,783 22,114
Sep 96 26,139 26,606
Sep 97 33,856 37,363
Sep 98 31,811 40,758
Sep 99 43,635 52,085
Sep 00 57,402 58,997
+ Hypothetical illustration of $10,000 invested in Class A shares on
September 30, 1990, 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, 2000, 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.
13 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments September 30, 2000
================================================================================
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 90.3%
Aerospace -- 2.8%
450,000 Boeing Co. $ 28,350,000
769,450 Honeywell International Inc. 27,411,656
165,600 Innovative Solutions & Support, Inc.* 2,835,900
620,000 Raytheon Co., Class B Shares 17,631,250
--------------------------------------------------------------------------------
76,228,806
--------------------------------------------------------------------------------
Aluminum -- 2.3%
2,390,800 Alcoa Inc. 60,517,125
662,300 Kaiser Aluminum Corp.* 4,015,194
--------------------------------------------------------------------------------
64,532,319
--------------------------------------------------------------------------------
Automotive -- 0.9%
400,000 General Motors Corp. 26,000,000
--------------------------------------------------------------------------------
Broadcasting & Cable TV -- 1.1%
1,129,300 Fox Entertainment Group, Inc., Class A Shares* 29,926,450
--------------------------------------------------------------------------------
Chemicals -- 3.1%
1,290,000 Dow Chemical Co.++ 32,169,375
2,100,000 Engelhard Corp. 34,125,000
675,000 Rohm & Haas Co.++ 19,617,188
--------------------------------------------------------------------------------
85,911,563
--------------------------------------------------------------------------------
Coal -- 0.8%
2,055,300 Arch Coal, Inc. 20,553,000
--------------------------------------------------------------------------------
Computer Services -- 0.4%
87,500 Diebold, Inc. 2,324,219
1,000,000 Genuity Inc.* 6,531,250
100,000 Novell, Inc.* 993,750
100,000 Unisys Corp.* 1,125,000
--------------------------------------------------------------------------------
10,974,219
--------------------------------------------------------------------------------
Computer Software -- 5.6%
901,700 Adobe Systems Inc.++ 139,988,925
527,700 Inprise Corp.* 2,819,897
100,000 Microsoft Corp.* 6,025,000
100,000 Santa Cruz Operation, Inc.* 293,750
1,250,000 Santa Cruz Operation, Inc.*+ 3,671,875
--------------------------------------------------------------------------------
152,799,447
--------------------------------------------------------------------------------
Computers -- 2.6%
160,000 Compaq Computer Corp. 4,412,800
600,000 International Business Machines Corp. 67,500,000
--------------------------------------------------------------------------------
71,912,800
--------------------------------------------------------------------------------
Construction & Home Building -- 1.8%
1,150,000 Centex Corp.++ 36,943,750
773,700 Clayton Homes, Inc. 7,737,000
245,000 Masco Corp.++ 4,563,125
--------------------------------------------------------------------------------
49,243,875
--------------------------------------------------------------------------------
See Notes to Financial Statements.
14 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
Consumer Products -- 1.1%
370,000 American Greetings Corp., Class A Shares $ 6,475,000
335,000 Eastman Kodak Co.++ 13,693,125
56,800 Kimberly-Clark Corp. 3,170,150
100,000 The Procter & Gamble Co. 6,700,000
--------------------------------------------------------------------------------
30,038,275
--------------------------------------------------------------------------------
Electronic Components - Semiconductors -- 4.6%
1,200,000 Intel Corp. 49,875,000
1,600,000 Texas Instruments Inc. 75,500,000
--------------------------------------------------------------------------------
125,375,000
--------------------------------------------------------------------------------
Energy -- 0.6%
3,333,334 Abacan Resource Corp.*+ 10,000
200,000 Duke Energy Corp. 17,150,000
--------------------------------------------------------------------------------
17,160,000
--------------------------------------------------------------------------------
Entertainment -- 2.2%
775,000 Time Warner Inc.++ 60,643,750
--------------------------------------------------------------------------------
Financial Services -- 11.0%
125,000 Ambac Financial Group, Inc. 9,156,250
1,500,000 American Express Co. 91,125,000
700,000 Bank of America Corp. 36,662,500
550,000 Chase Manhattan Corp. 25,403,125
1,684,500 Countrywide Credit Industries, Inc. 63,589,875
346,100 Equifax Inc. 9,323,069
706,000 First American Corp. 14,737,750
196,800 MBIA, Inc.++ 13,997,400
600,000 Merrill Lynch & Co., Inc. 39,600,000
--------------------------------------------------------------------------------
303,594,969
--------------------------------------------------------------------------------
Food & Beverages -- 1.3%
713,100 Fleming Cos., Inc. 9,314,869
600,000 PepsiCo, Inc. 27,600,000
--------------------------------------------------------------------------------
36,914,869
--------------------------------------------------------------------------------
Health Care -- 7.5%
262,300 Abbott Laboratories 12,475,644
1,827,500 Foundation Health Systems, Inc., Class A Shares*++ 30,382,188
1,200,000 Health Management Associates, Inc.*++ 24,975,000
550,000 Johnson & Johnson 51,665,625
2,234,800 McKesson HBOC, Inc. 68,301,075
266 Molecular Biosystems, Inc.* 133
200,000 UnitedHealth Group Inc. 19,750,000
--------------------------------------------------------------------------------
207,549,665
--------------------------------------------------------------------------------
Insurance -- 6.6%
200,000 Aetna Inc. 11,612,500
317,600 Allstate Corp. 11,036,600
900,000 American International Group, Inc. 86,118,750
1,200,400 MGIC Investment Corp. 73,374,450
--------------------------------------------------------------------------------
182,142,300
--------------------------------------------------------------------------------
See Notes to Financial Statements.
15 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (continued) September 30, 2000
================================================================================
SHARES SECURITY VALUE
================================================================================
Machinery -- 0.4%
306,540 Caterpillar Inc. $ 10,345,725
--------------------------------------------------------------------------------
Metals -- 3.7%
192,000 Allegheny Technologies Inc. 3,480,000
1,595,300 Brush Engineered Materials Inc. 34,498,363
300,000 Pohang Iron & Steel Co., Ltd., Sponsored ADR 5,587,500
1,150,000 Precision Castparts Corp. 44,131,250
945,000 RTI International Metals, Inc.* 13,643,438
--------------------------------------------------------------------------------
101,340,551
--------------------------------------------------------------------------------
Office Equipment -- 0.0%
50,000 Xerox Corp. 753,125
--------------------------------------------------------------------------------
Oil & Gas Production -- 1.8%
300,000 Anadarko Petroleum Corp.++ 19,938,000
125,000 Apache Corp. 7,390,625
478,000 Burlington Resources Inc. 17,596,375
109,300 Unocal Corp. 3,873,319
--------------------------------------------------------------------------------
48,798,319
--------------------------------------------------------------------------------
Oil & Gas Services -- 9.1%
578,700 Baker Hughes Inc. 21,484,238
400,000 Chevron Corp. 34,100,000
795,000 Conoco Inc. 21,415,313
773,300 Halliburton Co.++ 37,843,369
700,000 Royal Dutch Petroleum Co., NY Shares 41,956,250
1,030,000 Texaco Inc. 54,075,000
1,110,000 USX-Marathon Group 31,496,250
364,895 Varco International, Inc.* 7,594,377
--------------------------------------------------------------------------------
249,964,797
--------------------------------------------------------------------------------
Paper Products -- 0.7%
400,000 Georgia-Pacific Group++ 9,400,000
350,000 International Paper Co. 10,040,625
--------------------------------------------------------------------------------
19,440,625
--------------------------------------------------------------------------------
Pharmaceuticals -- 5.8%
966,500 Advanced Polymer Systems, Inc.* 2,053,813
85,400 American Home Products Corp. 4,830,438
840,000 AmeriSource Health Corp., Class A Shares* 39,480,000
1,945,224 Aphton Corp.* 55,925,190
225,000 Bristol-Myers Squibb Co. 12,853,125
400,000 Merck & Co., Inc. 29,775,000
544,134 Nexmed Inc.*+ 8,008,972
123,800 Watson Pharmaceuticals, Inc.*++ 8,031,525
--------------------------------------------------------------------------------
160,958,063
--------------------------------------------------------------------------------
Real Estate -- 2.5%
1,050,000 The Rouse Co. 26,184,375
725,000 Spieker Properties, Inc. 41,732,813
--------------------------------------------------------------------------------
67,917,188
--------------------------------------------------------------------------------
See Notes to Financial Statements.
16 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (continued) September 30, 2000
================================================================================
SHARES SECURITY VALUE
================================================================================
Recreational Activities & Products -- 1.9%
370,000 Callaway Golf Co. $ 5,688,750
1,600,000 Carnival Corp. 39,400,000
300,000 Royal Caribbean Cruises Ltd. 7,722,000
--------------------------------------------------------------------------------
52,810,750
--------------------------------------------------------------------------------
Retail -- 0.8%
713,700 Albertson's, Inc. 14,987,700
200,000 Costco Wholesale Corp.* 6,987,500
--------------------------------------------------------------------------------
21,975,200
--------------------------------------------------------------------------------
Telecommunication Equipment -- 1.8%
545,000 Lucent Technologies, Inc. 16,656,563
1,140,000 Motorola, Inc. 32,205,000
--------------------------------------------------------------------------------
48,861,563
--------------------------------------------------------------------------------
Telephone -- 4.5%
300,000 ALLTEL Corp. 15,656,250
2,150,000 AT&T Corp. 63,156,250
1,200,000 Cox Communications, Inc.*++ 45,900,000
--------------------------------------------------------------------------------
24,712,500
--------------------------------------------------------------------------------
Toys -- 0.9%
625,000 Hasbro, Inc. 7,148,438
1,500,000 Mattel, Inc. 16,781,250
--------------------------------------------------------------------------------
23,929,688
--------------------------------------------------------------------------------
Transportation -- 0.1%
100,000 CNF Transportation Inc. 2,224,994
--------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $1,481,787,652) 2,485,534,395
================================================================================
FOREIGN STOCK -- 2.3%
Japan -- 1.2%
2,850,000 Hitachi, Ltd. 33,073,293
--------------------------------------------------------------------------------
United Kingdom -- 1.1%
3,900,000 Scot Power 30,272,340
--------------------------------------------------------------------------------
TOTAL FOREIGN STOCK
(Cost-- $53,055,376) 63,345,633
================================================================================
CONTRACTS SECURITY VALUE
================================================================================
OPTIONS PURCHASED -- 0.2%
Computer Software -- 0.1%
900,000 Adobe Systems Inc., Put @ $120, Expire 11/18/00 2,362,500
--------------------------------------------------------------------------------
Financial Services -- 0.1%
600,000 Merrill Lynch & Co., Put @ $65, Expire 1/20/01 3,412,500
--------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED
(Cost -- $7,681,085) 5,775,000
================================================================================
See Notes to Financial Statements.
17 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
CONVERTIBLE PREFERRED STOCK -- 0.0%
54,818 Webforia Inc. (Cost -- $500,000) $ 500,000
================================================================================
WARRANTS -- 0.0%
272,067 Nexmed Inc., Expire 2/3/01*+ 0
156,250 Santal Cruz Operation Inc., Expire 9/15/02*+ 0
10,719 Webforia Inc., Expire 7/14/05*+ 0
--------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $0) 0
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 7.2%
$198,713,000 Morgan Stanley Dean Witter & Co.,
6.480% due 10/2/00; Proceeds at
maturity -- $198,820,305;
(Fully collateralized by U.S. Treasury
Notes, 5.875% to 6.500% due 11/30/01 to
10/15/06; Market value -- $203,678,217)
(Cost -- $198,713,000) 198,713,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $1,741,737,113**) $2,753,868,028
================================================================================
* Non-income producing security.
++ All or a portion of this security is on loan (See Note 6).
+ 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.
18 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statement of Assets and Liabilities September 30, 2000
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost--$1,741,737,113) $2,753,868,028
Cash 990
Collateral for securities on loan (Note 6) 108,292,223
Receivable for securities sold 33,387,172
Receivable for Fund shares sold 13,026,027
Dividends and interest receivable 2,853,525
--------------------------------------------------------------------------------
Total Assets 2,911,427,965
--------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 108,292,223
Payable for Fund shares purchased 29,581,430
Options written (Premiums received--$8,403,071) (Note 5) 9,306,250
Payable for securities purchased 7,036,402
Investment advisory fees payable 1,110,446
Administration fees payable 408,985
Distribution fees payable 402,295
Accrued expenses 774,639
--------------------------------------------------------------------------------
Total Liabilities 156,912,670
--------------------------------------------------------------------------------
Total Net Assets $2,754,515,295
================================================================================
NET ASSETS:
Par value of capital shares $ 174,582
Capital paid in excess of par value 1,554,100,989
Undistributed net investment income 1,233,955
Accumulated net realized gain from security
transactions, options and foreign securities 186,435,122
Net unrealized appreciation of investments,
options and foreign securities 1,012,570,647
--------------------------------------------------------------------------------
Total Net Assets $2,754,515,295
================================================================================
Shares Outstanding:
Class A 67,931,433
------------------------------------------------------------------------------
Class B 84,618,199
------------------------------------------------------------------------------
Class L 17,009,159
------------------------------------------------------------------------------
Class Y 5,023,408
------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $15.97
------------------------------------------------------------------------------
Class B * $15.63
------------------------------------------------------------------------------
Class L ** $15.62
------------------------------------------------------------------------------
Class Y (and redemption price) $16.07
------------------------------------------------------------------------------
Maximum Public Offering Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $16.81
------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $15.78
================================================================================
* 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 2).
** 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.
19 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations For the Year Ended September 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 25,701,314
Interest 4,288,940
Less: Foreign withholding tax (294,516)
--------------------------------------------------------------------------------
Total Investment Income 29,695,738
--------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 3) 14,609,584
Investment advisory fees (Note 3) 11,720,952
Administration fees (Note 3) 4,297,104
Shareholder and system servicing fees 1,713,337
Audit and legal 143,508
Custody 99,803
Registration fees 99,575
Directors' fees 79,777
Shareholder communications 73,421
Other 37,796
--------------------------------------------------------------------------------
Total Expenses 32,874,857
--------------------------------------------------------------------------------
Net Investment Loss (3,179,119)
--------------------------------------------------------------------------------
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) 220,190,192
Options written 10,434,280
Options purchased (10,237,574)
Foreign currency transactions (17,816)
--------------------------------------------------------------------------------
Net Realized Gain 220,369,082
--------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation (Note 8) 329,782,399
--------------------------------------------------------------------------------
Net Gain on Investments, Options and Foreign Currencies 550,151,481
--------------------------------------------------------------------------------
Increase in Net Assets From Operations $546,972,362
================================================================================
See Notes to Financial Statements.
20 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended September 30,2000
--------------------------------------------------------------------------------
2000 1999
================================================================================
OPERATIONS:
Net investment loss $ (3,179,119) $ (809,311)
Net realized gain 220,369,082 151,877,298
Increase in net unrealized appreciation 329,782,399 323,038,699
--------------------------------------------------------------------------------
Increase in Net Assets From Operations 546,972,362 474,106,686
--------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (1,279,510)
Net realized gains (114,538,419 (94,958,684)
--------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (114,538,419) (96,238,194)
--------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 1,099,089,684 311,525,828
Net asset value of shares issued in
connection with the transfer of
the Smith Barney Contrarian Fund's
net assets (Note 8) 151,841,256 --
Net asset value of shares issued for
reinvestment of dividends 104,227,494 87,370,632
Cost of shares reacquired (763,154,688) (403,471,373)
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Fund Share Transactions 592,003,746 (4,574,913)
--------------------------------------------------------------------------------
Increase in Net Assets 1,024,437,689 373,293,579
NET ASSETS:
Beginning of year 1,730,077,606 1,356,784,027
--------------------------------------------------------------------------------
End of year* $2,754,515,295 $1,730,077,606
================================================================================
* Includes undistributed net
investment income of: $1,233,955 $1,046,263
================================================================================
See Notes to Financial Statements.
21 Smith Barney Fundamental Value Fund Inc. | 2000 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, 2000,
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 overdistributed net investment
income amounting to $3,363,469 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 (plus accrued interest) 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"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup Inc.
("Citigroup"), acts as investment advisor of the Fund. The Fund pays SSBC an
advisory fee calculated at an annual rate of 0.55% on the first $1.5 billion of
average daily net assets; 0.50% on the next $0.5 billion; 0.49% on the next $0.5
billion; 0.46% on the next $1.0 billion and 0.38% on the average daily net
assets in excess of $3.5 billion. This fee is calculated daily and paid monthly.
22 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
SSBC also acts as the Fund's administrator for which it receives a fee
calculated at an annual rate of 0.20% on the first $2.0 billion of average daily
net assets; 0.16% on the next $0.5 billion; 0.14% on the next $1.0 billion and
0.12% on the average daily net assets in excess of $3.5 billion. This fee is
calculated daily and paid monthly.
Citi Fiduciary Trust Company ("CFTC"), another subsidiary of Citigroup, acts as
the Fund's transfer agent and PFPC Global Fund Services ("PFPC") acts as the
Fund's sub-transfer agent. CFTC receives fees and asset-based fees that vary
according to the account size and type of account. PFPC is responsible for
shareholder recordkeeping and financial processing for all shareholder accounts
and is paid by CFTC. For the year ended September 30, 2000, the Fund paid
transfer agent fees of $1,648,109 to CFTC.
Effective June 5, 2000, Salomon Smith Barney Inc. ("SSB"), another subsidiary of
SSBH, became the Fund's distributor replacing CFBDS, Inc. ("CFBDS"). In
addition, SSB acts as the primary broker for the Fund's portfolio agency
transactions. Certain other broker-dealers, continue to sell Fund shares to the
public as a member of the selling group. For the year ended September 30, 2000,
SSB received total brokerage commissions of $175,872.
There are maximum initial sales charges of 5.00% and 1.00% for Class A and L
shares, respectively. 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, 2000, SSB and CFBDS received sales charges of
$4,601,000 and $1,348,000 on sales of the Fund's Class A and L shares,
respectively.
In addition, CDSCs paid to SSB were:
Class A Class B Class L
================================================================================
CDSCs $4,000 $594,000 $32,000
================================================================================
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, 2000, total Distribution Plan fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $2,183,651 $10,939,484 $1,486,449
================================================================================
All officers and one Director of the Fund are employees of SSB.
4. Investments
During the year ended September 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
================================================================================
Purchases $970,471,550
--------------------------------------------------------------------------------
Sales 802,502,188
================================================================================
At September 30, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
================================================================================
Gross unrealized appreciation $1,065,781,884
Gross unrealized depreciation (53,650,969)
--------------------------------------------------------------------------------
Net unrealized appreciation $1,012,130,915
================================================================================
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
23 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
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, 2000, the Fund held purchased put options with a total cost of
$7,681,085.
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, 2000:
Number of
Contracts Premiums
================================================================================
Options written, outstanding at September 30, 1999 4,000 $ 2,440,918
Shares split, outstanding at September 30, 1999 2,000 --
--------------------------------------------------------------------------------
Options written, outstanding at
September 30,1999 (adjusted balance) 6,000 2,440,918
Options written 99,834 34,110,653
Options cancelled in closing purchase transactions (43,567) (15,989,586)
Options expired (45,267) (12,158,914)
--------------------------------------------------------------------------------
Options written, outstanding at September 30, 2000 17,000 $ 8,403,071
================================================================================
The following represents the covered call option written contracts open as of
September 30, 2000:
Number of Strike
Contracts Security Expiration Price Value
================================================================================
9,000 Adobe Systems Inc. 11/18/00 $170.0 $8,100,000
2,000 Costco Wholesale Corp. 10/21/00 40.0 62,500
6,000 Merrill Lynch & Co. 1/20/00 82.5 1,143,750
--------------------------------------------------------------------------------
Total Covered Call Options Written
(Premiums received-- $8,403,071) $9,306,250
================================================================================
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.
24 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
At September 30, 2000, the Fund loaned common stocks having a value of
approximately $105,544,394 and holds the following collateral for loaned
securities:
Security Description Value
================================================================================
Time Deposits:
Bank Brussels Lambert, 6.75% due 10/2/00 $ 12,597,150
Banque Nationale, 6.72% due 10/2/00 12,597,150
Credit Agricole, 6.72% due 10/2/00 12,597,150
Credit Suisse First Boston, 6.69% due 10/2/00 7,276,385
Fifth Third Bank, 6.63% due 10/2/00 4,144,553
Wells Fargo Bank, 6.62% due 10/2/00 12,597,150
Wells Fargo Bank, 6.72% due 10/2/00 3,149,288
Floating Rate Certificate of Deposit
Comerica Bank, 5.86% due 2/14/01 1,069,157
Floating Rate Notes:
AmSouth Bank, 5.73% due 1/25/01 20,363,552
Bank One, 6.63% due 7/2/01 3,117,135
Bear Stearns & Co., 6.68% due 7/13/01 1,662,309
KeyBank Corp., 5.88% due 2/14/01 4,410,858
Morgan Stanley Dean Witter & Co., 5.75% due 11/2/00 3,106,943
Sigma Finance, 6.48% due 11/6/00 2,633,888
Sigma Finance, 6.63% due 12/4/00 1,764,250
Yankee CD:
Daichi Kangyo Bank, 6.61% due 10/19/00 5,205,305
--------------------------------------------------------------------------------
Total $108,292,223
================================================================================
Income earned by the Fund from securities loaned for the year ended September
30, 2000 was $329,224.
7. Capital Loss Carryforward
At September 30, 2000, the Fund had, for Federal income tax purposes,
approximately $6,781,000 of unused capital loss carryforwards available to
offset future capital gains through September 30, 2007. To the extent that these
carryforward losses are used to offset capital gains, it is possible that the
gains so offset will not be distributed.
8. Transfers of Net Assets
On June 8, 2000, the Fund acquired the assets and certain liabilities of the
Smith Barney Contrarian Fund, pursuant to a plan of reorganization approved by
Smith Barney Contrarian shareholders on January 7, 2000. Total shares issued by
the Fund and the total net assets of the Smith Barney Contrarian Fund and the
Fund on the date of transfer were as follows:
Total Net
Assets of the
Shares Issued Smith Barney Total Net Assets
Acquired Fund by the Fund Contrarian Fund of the Fund
================================================================================
Smith Barney Contrarian Fund 9,766,399 $ 151,841,256 $2,351,193,626
================================================================================
The total net assets of the Smith Barney Contrarian Fund before acquisition
include unrealized appreciation of $21,854,826. Total net assets of the Fund
immediately after the transfer were $2,503,034,882. The transaction was
structured to qualify as a tax-free reorganization under the Internal Revenue
Code of 1986, as amended.
25 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
9. Subsequent Event
On October 2, 2000, CitiSelect Folio 500 Growth Plus ("CitiSelect 500")
shareholders approved a plan of reorganization whereby the Fund would acquire
the assets and certain liabilities of CitiSelect 500. This acquisition took
place on October 13, 2000 and the Fund acquired total net assets of $36,485,524
from the CitiSelect 500 and issued shares of 2,359,302.
10. Capital Shares
At September 30, 2000, 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, 2000, total paid-in capital amounted to the following for each
class:
Class A Class B Class L Class Y
================================================================================
Total Paid-in Capital $ 621,409,460 $ 685,368,996 $214,084,938 $33,412,177
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 2000 September 30, 1999
------------------------ -------------------------
Shares Amount Shares Amount
===================================================================================================================
Class A
<S> <C> <C> <C> <C>
Shares sold 42,106,226 $ 638,927,557 13,343,016 $ 168,308,152
Shares issued on reinvestment 3,298,058 43,864,179 3,453,723 36,264,097
Net asset value of shares issued
in connection with transfer of
Smith Barney Contrarian Fund's net assets 2,767,132 43,610,586 -- --
Shares reacquired (33,001,652) (497,474,094) (15,710,481) (194,184,251)
-------------------------------------------------------------------------------------------------------------------
Net Increase 15,169,764 $ 228,928,228 1,086,258 $ 10,387,998
===================================================================================================================
Class B
Shares sold 19,571,795 $ 289,308,774 8,433,658 $ 106,180,906
Shares issued on reinvestment 4,174,899 54,691,182 4,525,136 47,197,171
Net asset value of shares issued
in connection with transfer of
Smith Barney Contrarian Fund's net assets 6,300,586 97,435,893 -- --
Shares reacquired (14,854,599) (215,392,261) (15,085,068) (178,838,523)
-------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 15,192,681 $ 226,043,588 (2,126,274) $ (25,460,446)
===================================================================================================================
Class L
Shares sold 11,358,340 $ 169,939,868 2,189,761 $ 27,588,163
Shares issued on reinvestment 433,317 5,672,133 374,819 3,909,364
Net asset value of shares issued
in connection with transfer of
Smith Barney Contrarian Fund's net assets 698,681 10,794,777 -- --
Shares reacquired (2,112,161) (30,532,533) (1,666,631) (20,095,599)
-------------------------------------------------------------------------------------------------------------------
Net Increase 10,378,177 $ 155,874,245 897,949 $ 11,401,928
===================================================================================================================
Class Y
Shares sold 69,534 $ 913,485 854,600 $ 9,448,607
Shares issued on reinvestment -- -- -- --
Shares reacquired (1,307,013) (19,755,800) (785,232) (10,353,000)
-------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (1,237,479) $ (18,842,315) 69,368 $ (904,393)
===================================================================================================================
</TABLE>
26 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended September 30:
<TABLE>
<CAPTION>
Class A Shares 2000(1) 1999(1) 1998(1) 1997 1996
==============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 12.90 $ 10.07 $ 11.37 $ 9.31 $ 8.66
--------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.04 0.04 0.09 0.11 0.20
Net realized and unrealized gain (loss) 3.86 3.53 (0.76) 2.52 1.01
--------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.90 3.57 (0.67) 2.63 1.21
--------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.02) (0.11) (0.13) (0.19)
Net realized gains (0.83) (0.72) (0.52) (0.44) (0.37)
--------------------------------------------------------------------------------------------------------------
Total Distributions (0.83) (0.74) (0.63) (0.57) (0.56)
--------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 15.97 $ 12.90 $ 10.07 $ 11.37 $ 9.31
--------------------------------------------------------------------------------------------------------------
Total Return 31.55% 37.17% (6.04)% 29.53% 14.73%
--------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $1,085,196 $680,603 $520,627 $606,054 $458,208
--------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.06% 1.17% 1.15% 1.14% 1.22%
Net investment income 0.29 0.35 0.81 1.14 2.32
--------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 38% 43% 41% 46% 57%
==============================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
27 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended September 30:
<TABLE>
<CAPTION>
Class B Shares 2000(1) 1999(1) 1998(1) 1997 1996
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 12.73 $ 10.01 $ 11.31 $ 9.26 $ 8.62
-----------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.07) (0.05) 0.00* 0.03 0.13
Net realized and unrealized gain (loss) 3.80 3.49 (0.75) 2.52 1.01
-----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.73 3.44 (0.75) 2.55 1.14
-----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.03) (0.06) (0.13)
Net realized gains (0.83) (0.72) (0.52) (0.44) (0.37)
-----------------------------------------------------------------------------------------------------------
Total Distributions (0.83) (0.72) (0.55) (0.50) (0.50)
-----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 15.63 $ 12.73 $ 10.01 $ 11.31 $ 9.26
-----------------------------------------------------------------------------------------------------------
Total Return 30.59% 36.00% (6.79)% 28.62% 13.82%
-----------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $1,322,865 $884,088 $716,239 $930,436 $703,552
-----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.84% 1.94% 1.92% 1.90% 1.97%
Net investment income (loss) (0.50) (0.42) 0.04 0.38 1.56
-----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 38% 43% 41% 46% 57%
===========================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
* Amount represents less than $0.01 per share.
28 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended September 30:
<TABLE>
<CAPTION>
Class L Shares 2000/(1)/ 1999/(1)/ 1998/(1)(2)/ 1997 1996
=========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 12.73 $ 10.01 $ 11.30 $ 9.26 $ 8.62
---------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.07) (0.05) 0.00* 0.03 0.14
Net realized and unrealized gain (loss) 3.79 3.49 (0.74) 2.51 1.00
---------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.72 3.44 (0.74) 2.54 1.14
---------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.03) (0.06) (0.13)
Net realized gains (0.83) (0.72) (0.52) (0.44) (0.37)
---------------------------------------------------------------------------------------------------------
Total Distributions (0.83) (0.72) (0.55) (0.50) (0.50)
---------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 15.62 $ 12.73 $ 10.01 $ 11.30 $ 9.26
---------------------------------------------------------------------------------------------------------
Total Return 30.51% 36.00% (6.70)% 28.52% 13.82%
---------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 265,713 $ 84,402 $57,367 $ 71,874 $44,539
---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.86% 1.95% 1.93% 1.92% 1.96%
Net investment income (loss) (0.47) (0.43) 0.03 0.36 1.52
---------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 38% 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.
* Amount represents less than $0.01 per share.
29 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended September 30:
<TABLE>
<CAPTION>
Class Y Shares 2000/(1)/ 1999/(1)/ 1998/(1)/ 1997 1996/(2)/
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 12.93 $ 10.10 $ 11.40 $ 9.32 $ 8.54
-----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.08 0.09 0.12 0.14 0.23
Net realized and unrealized gain (loss) 3.89 3.52 (0.74) 2.54 0.55
-----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.97 3.61 (0.62) 2.68 0.78
-----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.06) (0.16) (0.16) --
Net realized gains (0.83) (0.72) (0.52) (0.44) --
-----------------------------------------------------------------------------------------------------
Total Distributions (0.83) (0.78) (0.68) (0.60) --
-----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 16.07 $ 12.93 $ 10.10 $ 11.40 $ 9.32
-----------------------------------------------------------------------------------------------------
Total Return 32.04% 37.57% (6.78)% 30.06% 9.13%#++
-----------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $80,740 $80,984 $62,551 $108,578 $44,641
-----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.75% 0.82% 0.79% 0.78% 0.75%+
Net investment income 0.56 0.71 1.15 1.48 2.58+
-----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 38% 43% 41% 46% 57%
=====================================================================================================
</TABLE>
/(1)/ Per share amounts have been calculated using the monthly average shares
method.
/(2)/ 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 year
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.
30 Smith Barney Fundamental Value Fund Inc. | 2000 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 of Smith
Barney Fundamental Value Fund Inc., including the schedule of investments, as of
September 30, 2000, and 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 auditing standards generally accepted
in the United States of America. 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 as of September 30, 2000 by correspondence with the 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, the 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, 2000, 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 accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
New York, New York
November 10, 2000
31 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Tax Information (unaudited)
--------------------------------------------------------------------------------
For Federal tax purposes the Fund hereby designates for the fiscal year ended
September 30, 2000:
. Total long-term capital gain distributions paid of $114,538,419.
32 Smith Barney Fundamental Value Fund Inc. | 2000 Annual Report to Shareholders
<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 ADVISOR
SSB Citi Fund Management LLC
DISTRIBUTOR
Salomon Smith Barney Inc.
CUSTODIAN
PFPC Trust Company
TRANSFER AGENT
Citi Fiduciary Trust Company
125 Broad Street, 11th Floor
New York, New York 10004
SUB-TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island
02940-9699
<PAGE>
Smith Barney Fundamental Value Fund Inc.
--------------------------------------------------------------------------------
This report is submitted for the general information of shareholders of Smith
Barney Fundamental Value Fund Inc., but it may also be used as sales literature
when preceded or accompanied by the current Prospectus, which gives details
about charges, expenses, investment objectives and operating policies of the
Fund. If used as sales material after December 31, 2000, this report must be
accompanied by performance information for the most recently completed calendar
quarter.
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any of the Smith Barney Mutual Funds, including
management fees and expenses, call or write your financial professional for a
free prospectus. Read it carefully before you invest or send money.
www.smithbarney.com/mutualfunds
[LOGO OF SALOMON SMITH BARNEY]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
FD0283 11/00
